Wednesday, September 1, 2010

The Impact of Tiger Woods Scandal on Morals Clauses in Endorsement Contracts

John Gibeaut of the American Bar Association Journal examines how the scandal involving Tiger Woods and infidelity will impact the use and enforcement of morals clauses in endorsement contracts. Below are excerpts from his piece, which includes comments from Peter Carfagna, Brian Socolow, and me, as well as from Porcher Taylor III and Fernando Pinguelo, both of whom recently authored the excellent article The Reverse-Morals Clause: The Unique Way to Save Talent's Reputation and Money in a New Era of Corporate Crimes and Scandals, Cardozo School of Law's Arts & Entertainment Law Journal (2010).

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Morals clauses went largely unquestioned for decades, even during the McCarthy era, when studios used them to fire writers accused of being Communists. Nearly a century later, morals clauses have become ubiquitous in the sports and entertainment industries, as sponsors continue to use them to alter or sever relationships with errant celebrities they hire to hawk everything from breakfast cereal to razor blades.

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Woods isn't the first celebrity whose personal behavior has landed him crosswise with sponsors, and he's unlikely to be the last. Others recently caught up in their own conduct and who paid varying prices for it include Los Angeles Lakers guard Kobe Bryant, charged in a rape case that was later dismissed; Philadelphia Eagles backup quarterback Michael Vick, convicted and sent to prison for running a dogfighting ring; British supermodel Kate Moss, caught snorting cocaine on camera; and Olympic swimmer Michael Phelps, also caught on film—hitting a marijuana bong. Nevertheless, Woods' major-league cheating really scratched some raw nerves.

"It's the image of perfection that's not true," says Vermont Law School professor Michael McCann, also a legal analyst for the magazine Sports Illustrated.

Early morals clauses essentially were non-negotiable adhesion terms that left celebrities no wiggle room. But they may have contained as much bark as bite.

"These clauses would be standard, but very little attention was paid to them," says Bridgewater, N.J., practitioner Fernando M. Pinguelo. "Now I'm finding that they're not only negotiated more but being drafted more carefully in favor of the company."

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The presumption of innocent until proven guilty almost has been reversed, and sponsors almost assume something is going to happen," says Cleveland lawyer Peter A. Carfagna, who represents athletes. "And what is disrepute? They want it to be in the eye of the beholder. And they want to be able to cancel the next day, without benefit of a court proceeding."

The more specific the clause, practitioners say, the better off each side comes out. For example, a sponsor may insist on cancellation in the event of any arrest, while a celebrity may try to push the line back to, say, an indictment or conviction for a felony. Noncriminal conduct, such as marital infidelity, is an especially touchy issue.

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To read the rest of this extensive article, click here. This topic was the subject of a symposium at Cardozo Law School in March titled The Tiger Woods Effect: The Uncertain and Turbulent Future of Endorsement Deals, Morals Clauses, and Reverse-Morals Clauses.