Nike-Armstrong marriage becomes a deal gone bad
Nike forgave Tiger Woods after he apologized for cheating on his wife. It welcomed back Michael Vick once he served time for illegal dog-fighting. But the company dropped Lance Armstrong faster than the cyclist could do a lap around the block.
What's the difference? A marketer's prerogative.
The world's largest clothing and footwear maker has stood by athletes through a number of scandals over the years, but this week it became the first company to sever ties with Armstrong in the wake of allegations that he used illegal drugs to boost his performance during his 20-plus year racing career.
At least five other companies followed Nike's lead, highlighting the tricky relationship that evolves when marketers sign multimillion-dollar deals with celebrities and athletes to endorse their products. Everything a celebrity endorser says and does could negatively impact the company he or she represents. And when something goes wrong, companies act as the judge and jury when deciding whether to continue those deals. They consider everything from the offense itself to the fallout.
"The tighter the association and the more intimate the relationship, it can sort of be like breaking up a marriage," said Allen Adamson, managing director of branding firm Landor Associates.
Endorsement deals have been around for decades. The value of such deals are a closely held secret, but companies often shell out millions of dollars for celebrities to wear their shoes, use their equipment or appear in their commercials.
The practice is even more common in the world of sports, where companies are willing to do almost anything to have their brand associated with the high performance of a top athlete. Think: The endorsement deal between sneaker maker Adidas and soccer player David Beckham or General Mills deal to have Olympic Gold medalist Gabby Douglas appear on a box of Wheaties cereal.
Companies typically a "morals clause" in the deals. The specific language can vary, but the clause basically allows a company to cancel the contract if a celebrity does something that reflects poorly on the brand or the celeb themselves.
History is dotted with companies dropping celebs after public mishaps. In 1986 the American Beef Industry Council dropped actress Cybil Shepherd as its spokeswoman when she told an interviewer she tried to avoid red meat in her diet. And in 2007 Verizon severed ties with singer Akon after he drew widespread criticism for a sexually charged dance onstage with a 14-year-old girl during a spring concert in Trinidad.
"It's really hard to know today when an issue will spin out of control or just go away," said Adamson, the branding expert. "The cost of a celebrity endorsement is huge, so pulling the plug is a really big decision."
Sometimes letting go of a celeb can cause a company more problems. For example, apparel and underwear company Hanesbrands dropped Pittsburgh Steelers running back Rashard Mendenhall from its lineup in 2011 after he made controversial remarks about the death of Osama bin Laden and the Sept. 11 terrorist attacks over social media web sites. Mendenhall now is suing the company and seeking $1 million for breach of contract, claiming Hanesbrands wrongly terminated him. The case is still being heard in the U.S. District Court in North Carolina.
Perhaps no other company is better known than Nike for its history of having to decide the marketing fate of the celebrity endorsers. The company with the popular "Just Do It" slogan has been endorsing athletes for most of its 48-year history.
When Nike was founded in 1964, it first got attention by providing shoes to runners. Its first official endorsement was the late-runner Steve Prefontaine in the early 1970s. Nike's most high profile endorsement came in the 1980s when it inked a deal with former professional basketball player Michael Jordan. The deal is widely seen as one of the most successful endorsements of all time.
Nike, which is based in Beaverton, Ore., now spends millions each year on endorsements. Of the $7.4 billion it spent on advertising, promotions and endorsements in the fiscal year that ended in May, 11 percent or $800 million, was for endorsements. That included its sponsorship of activities such as college and professional sports teams.
As a result of its large investment in endorsements, Nike has had to make some tough decisions over the years. It stood by Woods after the golfer admitted to a string of infidelities and had a brief stint in a rehab treatment facility for sex addiction. Nike even made a TV commercial that alluded to his problems, with Wood's deceased father's voice saying: "Did you learn anything?"
Similarly it stuck by Los Angeles Lakers' Kobe Bryant in 2003 after he was arrested on sexual assault charges that were later dropped. Nike, however, didn't use the basketball player in advertising again until 2005.
In the case of Vick, Nike signed the NFL quarterback to a contract during his rookie year in 2001, but ended that pact in August 2007 after he filed a plea agreement admitting his involvement in a dogfighting ring. Then the company re-signed Vick, who now plays with the Philadelphia Eagles, in July 2011. The company said at that time that it didn't condone Vick's actions, but was supportive of the positive changes he had made to better himself off the field.
In the latest incident, Nike on Wednesday said that it would end its relationship with Armstrong, a week after the U.S. Anti-Doping Agency released a massive report detailed allegations of widespread doping by Armstrong and his teams when he won the Tour de France seven consecutive times from 1999 to 2005.
The move by Nike followed Armstrong's decision earlier on Wednesday to step down as chairman of the Livestrong cancer-fighting organization he founded. Armstrong, a 41-year-old who earlier in his career had overcome life-threatening testicular cancer, retired from cycling a year ago and announced in August that he would no longer fight the doping allegations that have dogged him for years.
Other companies quickly followed Nike. The beer company Anheuser-Busch, health-club operator 24 Hour Fitness, bike manufacturer Trek Bicycle and athletic products maker Honey Stinger all dropped Armstrong. Meanwhile, Oakley, a sunglass maker, said it would withhold judgment until the International Cycling Union decides whether to challenge the USADA's findings.
Steve Rosner, partner at sports marketing firm 16W Marketing in East Rutherford, N.J., estimates that Armstrong could have lost as much as $30 million in present and future endorsement deals, goodwill ambassador relationships and corporate speaking gigs.
Nike declined to comment on its endorsement deal with Armstrong or why it ended the relationship other than to say in a statement it released on Wednesday that it made its decision based on "seemingly insurmountable evidence that Lance Armstrong participated in doping and misled Nike for more than a decade."
Marketing experts said the likely reason Nike dropped Armstrong boils down to the fact that the cyclist's alleged actions directly related to his sport.
"Nike is about 'just doing it' and that doesn't mean drugs," said Atlanta-based marketing consultant Laura Ries. "It means hard work and ethics. And this flew in the face of it."