‘Sin Clauses’ Take Center Stage in the Information Age

Apr 24, 2004

No one benefited more in the 1980s and 1990s than corporations, professional sports teams and universities that signed endorsement deals with individual superstars, like Michael Jordan, Mike Ditka and others.
Today, those same corporate entities, however, are taking a far more cautious approach to such endorsement contracts, paying special attention to the morality clause, which allows that entity to legally separate from the athlete or coach.
“Not only are we seeing more of them, but these so-called ‘sin clauses’ have tightened up,” said Kirk Sullivan, senior counsel to Foley & Lardner in Los Angeles office. “As recently as 3 or 4 years ago, they were fairly general, almost an afterthought. Some of these corporations never anticipated that something could happen.”
But it did, as companies like McDonalds can attest to. McDonalds seemed to have the perfect spokesperson in Kobe Bryant, that is before he was charged with rape. Companies, like McDonalds, are now taking a proactive approach, according to Bryan R. Socolow, a partner in the New York City law firm of Loeb & Loeb. “Companies are doing whatever they can” to create the option to get out of such contracts, he said. Socolow says their objective in recent years has been “to create a very broad morals clause that lets them (company) determine what kind of conduct will trigger the right to terminate.”
Such flexibility is more regulated in the relationship between professional sports leagues and the athletes, given that the players union strives for uniform language. Nevertheless, some teams are looking at other ways to protect their financial interests. They are seeking “protection by inserting more restrictive language tied to signing bonuses or other financial incentives,” said Adam Heller, Vice President of BDB Sports & Entertainment, LLC and an NFLPA certified contract advisor. Heller gave the example of a “loyalty clause” being applied by the Cincinnati Bengals, which he says “seeks repayment of signing bonus money for public comments made that undermines respect for the team.”
“Another trend,” he said “is for teams to use specific language tied to a signing bonus, where a player has a history of legal problems. The rookie contracts for Laveranues Coles and Jerramy Stevens include language that allows the team to recoup portions of the signing bonus paid if the player is convicted or pleads guilty to felonious conduct.”
It may be only a matter of time before the courts are engaged in contractual disputes, “especially given the dollars involved and what is at stake,” said Bret Adams, President of BDB Sports & Entertainment, LLC. “If the letter of the law is used to enforce professional athlete morality clauses you would, in all seriousness, have a plethora of litigation because, unfortunately, a great many of these athletes are not role models.”
And neither are the coaches for that matter.
“The collegiate clauses are more litigated with the thought process being that college coaches should be held to a higher standard because of direct impact upon student athletes,” said Adams. “The general distinction is that college coaches are ‘role models’ for the University and therefore under more scrutiny.”
“At the college level, such clauses started as a reaction to NCAA rules violations and have evolved to become much more expansive,” said Russ Campbell, a sports law attorney at Balch & Bingham in Birmingham, AL. “Morals clauses are typically part of a “for cause” termination provision and are as varied in scope as coaching salaries. Typical violations include acts that cast the university in a bad light, conviction of crimes, and even acts that bring public criticism of the coach. The penalties range from termination, repayment of salary, foregone bonuses and additional ‘consequential’ damages. The exact wording of the morals clause has become a hot-button issue in contract negotiations.”
James F. Dial of Reed & Smith added that colleges feel compelled to add morality clauses to coaching contracts. The problem, however, lies in the fact that the coach or his or her attorney wants “a fairly extensive system of internal due process that needs to be followed in order to terminate the coach’s employment for cause.
“That system of due process is supposed to protect the coach from arbitrary, wrongful termination, but it can sometimes handcuff the school during times of scandal or alleged scandal. Schools fear bad publicity, and while the scandalous allegations are being investigated internally and the due process wheels are grinding, the school is taking a public relations beating. The solution is the buyout, which is essentially a variation on the concept of termination without cause. The school pays the coach to go away quietly.”
Dial suggested that the developing litigation around the departure of former Alabama Coach Mike Price “raises the buyout leverage of the next major university athletics coach, who is accused of violating the ‘morality clause’ in his contract.” Schools are loathed to endure bad publicity for a long time, which is exactly what appears to be happening with Price.
“The Price situation will likely have a chilling effect on the exercise of for-cause terminations based on violation of the morality clause, and it will increase the bargaining power of coaches who find themselves in Coach Price’s predicament,” added Dial.
Tracy Sundlin, a vice president of Elite Racing, predicts it is only a matter of time before coaches, such as Price, have company in the court room.
“The dirty little secrets of drug use will become more visible,” he said. “Meanwhile, salaries will increase, while the age and experience of these athletes is on the decrease. Those who don’t pay attention to these clauses will learn a hard lesson.”


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