Under Armor underscored the challenges that the U.S. university sports industry faced when it finished endowing two leading university programs worth hundreds of millions of dollars.
The agreements with the University of California at Los Angeles and the University of California at Berkeley have been part of an Under Armor marketing push in recent years to provide colleges with a mix of cash and products in return for the right to equip their sport Teams.
Both universities said they would contest Under Armour’s attempt to cancel the deals. Under Armour’s agreement with UCLA, the “largest apparel contract in history” of US university sports was touted at the time of signing in 2016, at $ 280 million over 15 years. The 10-year contract between Berkeley and Under Armor is valued at $ 86 million.
“It’s clearly a failure for Under Armor,” said David Swartz, Morningstar equity analyst. “You haven’t signed a $ 280 million 15-year contract just to terminate it four years later.”
The battle for apparel contracts highlights another financial problem for universities as the Covid 19 pandemic threatens the $ 8 billion university sports industry. It is also a significant strategic change for Under Armor in the challenge for Nike and Adidas.
“Under Armor recently made a difficult decision to end our partnerships with UCLA and the University of California at Berkeley because we paid for marketing benefits that we haven’t received over a long period of time,” the company said on Monday.
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Berkeley’s sports department said Under Armor “had no reason to terminate” their contract, while a UCLA spokeswoman said the school was reviewing “all of our ways to resist Under Armour’s actions.”
Under Armor was founded in 1996 by Kevin Plank, a former college football player who developed the company’s sweat-wicking t-shirts after getting frustrated by playing in cotton clothes. Since then, it has grown into a $ 5 billion outfitter hiring top athletes like Stephen Curry from basketball and Tom Brady from American Football.
The contracts with college sports teams have been Under Armour’s most significant marketing forays in recent years. Top schools receive tens of millions of dollars a year under such agreements, while brands like Under Armor, Nike and Adidas are given the right to use student athletes as billboards for their product when games are broadcast on television.
The director of another leading university sports program, Ray Tanner of the University of South Carolina, said he recently contacted Under Armor to “discuss our current contractual agreement.” A company spokesman had no immediate comment on Under Armor’s relationship with the University of South Carolina.
Other outstanding programs signed by Under Armor include Auburn University, the University of Notre Dame and Yale University.
The company has been challenged in recent years by a convergence of management changes, a decline in wholesalers in the United States and a broad trend towards so-called sports or fashion clothing, which is not the strength of the performance clothing brand.
Last month, David Bergman, Under Armor’s chief financial officer, said the company took several steps to improve liquidity during the Covid-19 crisis, including changing its credit facility and offering convertible bonds. He also said the company will review its sports marketing terms and conditions to maintain cash flow.
Under Armor is expected to pay $ 131 million in sponsorship and marketing agreements by the end of 2020, as stated in the latest annual filing.
The contract was terminated after UCLA’s sports department reported a $ 18.9 million deficit in the 2018-2019 school year, indicating the underlying financial challenges, even before the pandemic effectively stopped sports activities since spring. The school’s athletes have spoken loudly in the past about problems that they claim to have had with products they received from Under Armor.
