In a recent twist on the classic David vs. Goliath story, the sportswear giant Nike filed a lawsuit against Boris Berian, the indoor 800-meter world champion. Nike alleged that the 23-year-old violated his endorsement deal with Nike when he agreed to a sponsorship with New Balance. Nike had the right to match any competing offers, and while Nike did offer Berian the same amount of money as New Balance, Nike's offer contained certain reductions in payments if Berian failed to meet prescribed performance standards.
Nike eventually dropped its lawsuit against Berian, which had become a public relations nightmare for the sportswear company, while making Berian, in the eyes of the public, an impressive symbol of athlete advocacy.
Regardless of whether Nike's assertion that Berian was obligated to reject the New Balance offer in favour of Nike's offer was legally correct, Nike had to consider the extent of the PR implications of bringing a lawsuit against Berian, a rags-to-riches track star.
Defiance by high-profile athletes is not something that is new to the world of sports. Peter O'Connor, an Irish nationalist, was forced to compete for Britain in the 1906 Olympics. He made his feelings clearly known when, after finishing second in the long jump, instead of standing on the podium and accepting his medal, he scaled the flagpole and displayed a large green and gold flag bearing the words Erin Go Bragh (Ireland Forever).
This, though, was something different. Rather than simply using a public platform to demonstrate defiance, here was a young athlete taking on a corporate giant. To the public, Berian was the hero.
Berian initially lost his eligibility to compete in the 800-meter at Adams State University, Colorado because of poor grades and worked at McDonald's for five months. He landed an invitation to join a training group in Big Bear Lake, California from which he emerged as the 800-meter champion and qualified for the 2016 Summer Olympics in Rio.
In March, following his 800-meter win, he confessed that he had been unable to get an official sponsor since ending his contract with Nike in December 2015. However, this news became complicated by the fact that New Balance had actually offered Berian a three-year deal worth $125,000 a year, which he accepted in January. Legally, per the terms of his recently-expired Nike contract, Nike had six months to match this offer from New Balance. Which Nike did – but with significant financial reductions if Berian got injured or underperformed. For example, these included reductions to Berian's contract by 50% if he competed in fewer than six USA Track & Field sanctioned events in a given year and 25% if he competed in fewer than ten. Furthermore, the reductions could be cumulative and therefore potentially reduce Berian's contract by up to 100%.
The battle between Berian and Nike quickly became a point of contention within the sportswear and track & field industry. In particular dispute was the issue of the reduction clauses included in Berian's endorsement contract. Several Nike rivals, including Brooks, Oiselle, and New Balance, filed depositions in support of Berian, saying reduction clauses aren't standard in the industry.
The case was due in court just before the start of the US Olympic trials. However, Nike suddenly backed down, stating that, "as a running company, we also recognize that this is a significant time for Boris" and therefore wanted to "eliminate this distraction."
The reasons for Nike's decision to switch gears are not entirely clear. It does seem likely, nonetheless, that Nike's reasons for dropping the lawsuit hinge largely on its public reputation. To the public, the legal battle looks like a global sportswear giant suing a young, up-and-coming athlete who, two years earlier, was working at a McDonald's. David vs. Goliath: where Goliath is a multi-billion dollar company and David is a young athlete who embodies the type of success story that people rally behind.
Regardless of the contractual rights that Berian might have owed to Nike under his endorsement contract, the company had to ultimately consider the extent of the PR implications of the choice to file a lawsuit against him. In the face of public scrutiny, Nike had to weigh its options and decide whether pursuing Berian was worth it. In this case, Berian had an influx of public support, while Nike has been viewed as the bully.
One great irony in this whole dispute, however, is that since Nike is the official sponsor of the US track & field team. When Berian runs for his country at the 2016 Summer Olympics, he will be donning Nike's iconic swoosh.
While we always advise clients to consider their legal rights and any actions they may wish to take pursuant to such rights, it is imperative to understand the PR implications of any such actions. While enforcing your legal rights may seem beneficial in the short run, in the long run, negative PR damage may far outweigh the benefit from enforcing your legal rights.
*With assistance from Meredith McCann, a 2016 summer student at the firm.
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