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UCLA sues Under Armour for more than $200m in contract termination feud

(Photo by Jayne Kamin-Oncea/Getty Images)

The University of California, Los Angeles (UCLA) has filed a lawsuit against United States-based sportswear brand Under Armour after the early termination of its sponsorship of its sports teams.

The lawsuit has been filed in the US District Court of Los Angeles with UCLA claiming upwards of $200m (€169.5m) as it sues Under Armour on the grounds of “breach of contract, breach of implied covenant of good faith and fair dealing, and promissory estoppel,” according to ESPN.

In 2017, a 15-year deal worth $280m between the two organizations took effect. At the time, the deal represented the most lucrative apparel sponsorship contract in college sports history, but, in June 2020 Under Armour informed UCLA of its wish to terminate the contract. This came after Under Armour had already asked for its payment for the month of April 2020 to be pushed back to July due to cash flow shortages, the lawsuit states.

The brand cited three grounds for termination:

  • The force majeure clause in the wake of the Covid-19 pandemic;
  • That the UCLA baseball team had completed fewer than 50 per cent of its games last season, a requirement for one of its core teams;
  • and that UCLA had failed “to take reasonably appropriate action(s)” after the arrest and indictment of men’s soccer coach Jorge Salcedo in connection with the “Operation Varsity Blues” college admissions scandal.

UCLA rejected all three claims in its lawsuit, saying that “nothing about Covid-19 made it ‘impossible or impracticable’ for Under Armour to meet its obligations under the agreement.”

In a recent note to investors, it was revealed that the US Securities and Exchange Commission and the US Department of Justice would be recommending penalties for the brand due to it engaging in practices to make its financial picture look healthier than it actually was from the third quarter of 2015 through the end of the following year. This period covers the time during which UCLA was in talks with Under Armour over a potential sponsorship.

In its lawsuit, UCLA specified: “Had UCLA known that Under Armour was making false financial statements in violation of law and SEC regulation, and falsely reporting its sales reported from quarter to quarter, UCLA would never have entered into the Agreement and/or would have terminated the Agreement at a time when other similarly-attractive sponsorship agreements could have been negotiated for UCLA.”

Mary Osaka, the university’s vice chancellor for strategic communications, said: “It is unfortunate that Under Armour is opportunistically using the global pandemic to try to walk away from a binding agreement it made in 2016 but no longer likes.”

In response, Under Armour said in a statement that it was confident in its legal position and would defend it vigorously.

The Baltimore, Maryland-based company said: “We sought and remain open to working out a reasonable and appropriate transition for the university, and most importantly for the student-athletes. In fact, at UCLA’s request after the termination of the agreement, Under Armour continued to deliver athletic products for the 2020-2021 school year because we support athletes, even as it remains uncertain when sports will resume.”

The deal with UCLA was one of a number of deals negotiated by Under Armour after the company experienced significant growth in the first half of the last decade and looked to develop its brand further through the signing of high-profile sport sponsorship contracts.

Notably, in 2016, it agreed a ten-year deal to become MLB’s technical sponsor from 2020, but backed out of the deal due to financial difficulties, with Nike assuming the MLB uniform rights.

Under Armour’s financial position further weakened due to the collapse of US sporting goods retailer Sports Authority, a company which stocked many of its higher-tier products.

It was faced with the issue of an overflow of inventory and significantly fewer places for consumers to buy its goods.

An industry source told SportBusiness that Under Armour had a system in which it matched its higher-tier products to established, premium sports retailers. Following the collapse of Sports Authority, it began to stock higher-tier products at retailers considered to be less “premium,” thus damaging relationships with other established sports retailers such as Dick’s Sporting Goods, which posted record-level sales and earnings for its most recent fiscal quarter.