Under Armour tells UCLA it wants to end deal with school
Under Armour has informed UCLA that it wants to terminate the record-setting $280-million deal the apparel giant signed with the school in 2016, a potential financial blow that the Bruins intend to fight.
The company said in a statement Saturday that it wanted to end the partnership because of UCLA’s inability to provide unspecified marketing benefits as required by the contract between the parties.
“Under Armour has recently made the difficult decision to discontinue our partnership with UCLA, as we have been paying for marketing benefits that we have not received for an extended time period,” the company said in a statement supplied to The Los Angeles Times. “The agreement allows us to terminate in such an event and we are exercising that right.”
UCLA athletic director Dan Guerrero, whose 18-year tenure at the school is set to end this week, appeared to contest Under Armour’s ability to unilaterally dissolve its agreement with the school in a letter he sent to Bruins constituents.
“We are exploring all of our options to resist Under Armour’s actions and will share more information as we can,” Guerrero wrote. “We want to reassure you that UCLA Athletics remains committed to providing our hard-working staff and student-athletes with the footwear, apparel and equipment needed to train and compete at the highest level.”
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Any loss of revenue would be doubly devastating to a UCLA athletic department already facing a massive budget deficit even before the COVID-19 pandemic led to the cancellation of spring sports and endangered the fall sports calendar. The department took on an interest-bearing loan from the university to cover an $18.9-million shortfall for the 2019 fiscal year and is expected to go further into the red in 2020.
There are strong incentives for both Under Armour and UCLA to reach an amicable settlement.
“If you’re Under Armour, you have to handle this properly because you’re still heavily invested — literally and figuratively — throughout the sports landscape and you don’t want to be in a position where you’re perceived to be playing hardball with one of your highest-profile clients,” said David Carter, a sports business expert and professor at the USC Marshall School of Business.
“On the flip side of that, if you’re UCLA, you also have to be concerned because you need to continue many, many years after this to negotiate future sponsorship deals whether they’re with apparel manufacturers or beverage companies or financial services, so it’s really delicate for both sides that they find a solution.”
Should UCLA and Under Armour part ways, the school would seek a new apparel deal, presumably with one of the other major players in sportswear. UCLA had fielded offers from Nike and Adidas before picking Under Armour four years ago.
Under Armour currently possesses the second-strongest foothold in the Pac-12 Conference among athletic apparel companies, holding deals with California and Utah in addition to UCLA. Nike holds deals with seven schools — including USC — while Adidas partners with Washington and Arizona State.
Matt Barnes, a former Bruins forward who spent 14 seasons in the NBA, suggested on social media that the apparent end of the partnership between his alma mater and Under Armour might benefit UCLA. The company has already scrubbed all mentions of Bruins merchandise from its website.
“This could b a blessing n disguise,” Barnes tweeted. “Although losing that $ will hurt, UA gear is trash! In talking 2 these young athletes they wanna go2 a school that can prepare them 4 the next level & get dope gear in the process. I personally feel the @UCLA UA deal has hindered their recruiting.”
Carter said the pandemic could complicate UCLA’s efforts to find a comparable replacement deal, forcing potential suitors to implement staggered payouts and clauses based on attendance benchmarks and apparel sales. Then again, the Bruins still possess one of the most powerful brands in college sports.
“UCLA’s in a big market, their athletic heritage is among the strongest in the country,” Carter said, “and those two things aren’t going to change.”
UCLA unveiled its plan for the voluntary return of student-athletes to campus. Officials said they expect some positive test results for the coronavirus.
Under Armour agreed to a 15-year contract with UCLA in 2016 that was the richest shoe and apparel sponsorship in college sports history, replacing a deal the Bruins previously held with Adidas that expired in the summer of 2017. The deal gave Under Armour a flagship program on the West Coast while providing UCLA with a massive infusion of cash and athletic apparel.
As part of the agreement, Under Armour paid UCLA $15 million up front in addition to roughly $11 million per year in rights and marketing fees. The apparel company also agreed to supply the school with an average of $7.4 million in clothing, shoes and equipment each school year while contributing $2 million over an eight-year span toward athletic facility upgrades.
Under Armour hasn’t received the expected return on investment given UCLA’s recent struggles in its marquee sports. While UCLA’s Olympic sports programs such as gymnastics and softball have won national championships in recent years, the football team has posted losing records in four consecutive seasons and the men’s basketball team last made the NCAA tournament in 2018.
New UCLA athletic director Martin Jarmond is familiar with Under Armour, having worked with the apparel company as part of its sponsorship of Boston College’s athletic teams when he was the Eagles athletic director. Jarmond teamed with the company to produce the Martin Jarmond Collection of Boston College-themed sportswear.
Like many other companies struggling amid the COVID-19 pandemic, Under Armour’s financial outlook is increasingly bleak. Wall Street analysts project the company’s sales for the current fiscal quarter to be down 53.8% from the same period last year, according to American Banking and Market News. Shares of Under Armour stock opened at $9.11 on Friday, well below its 12-month high of $27.72.
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