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Darren Heitner | Will sponsors take the high ground if Dan Snyder doesn’t change Washington’s name?

In the latest instalment of his monthly column, Darren Heitner explains why a morals clause could provide an exit route for the likes of FedEx and PepsiCo if Washington DC's NFL franchise keep their controversial moniker.

8 July 2020 Darren Heitner

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In the beginning of July 2020, FedEx issued a statement that revealed it had communicated 'to the team in Washington' its request that the club change the team name. This should have been and likely did serve as a wake up call to majority owner Daniel Snyder, who has adamantly resisted a removal of the 'Redskins' name that has been attached to the Washington DC National Football League (NFL) team since the 1930s. If there is one language that Mr Snyder speaks, it is the language of money.

FedEx has been one of the key supporters of the Washington DC-based NFL franchise for over two decades and is responsible for paying an annual fee attached to a US$205 million naming rights agreement that has branded the stadium in which the football team play their home games as FedExField. Native American groups have lobbied Mr Snyder to pivot from use of the Redskins without any likelihood of success. The stern request from FedEx and actions taken by other partners could finally push Mr Snyder to make a change to the name he has battled to retain, but what if it fails?

The request issued by FedEx coincides with the company's chairman and chief executive Frederick W Smith seeking an exit from his minority position in the Washington franchise. He is one of three minority owners – together comprising approximately 40 per cent of the ownership in the team – who is entertaining offers to be bought out of his position.

Additionally, PepsiCo has joined FedEx in having conversations with the NFL and Washington management about the issue of a possible name change, indicating that the corporate entity is of the position that it is 'time for a change'. PepsiCo has not threatened to conclude its partnership with the franchise if it fails to change its name, but that could be an added pressure point on Snyder should it choose to take such a stance.

Separately, Nike, Walmart and Target removed Washington Redskins’ apparel from their websites in early July, adding economic pressure to the team's owner as he determines what to do about his team’s controversial name.

As of now, there is no conclusive evidence that the 'Redskins' name will be relinquished, but the franchise have promised that they are undergoing a thorough review of the team name. Snyder said in a statement: “This process allows the team to take into account not only the proud tradition and history of the franchise, but also input from our alumni, the organisation, sponsors, the National Football League and the local community it is proud to represent on and off the field.”

But what if Snyder conducts his review of the team name and concludes that there is no need for a rebranding of the franchise? Could FedEx or any other team sponsors attempt to terminate their deals with the Washington DC team without paying the remainder of consideration due on the terms of those agreements?

Without having access to the FedEx naming rights deal or PepsiCo’s sponsorship agreement with the Washington Redskins, it would be fair to assume that each contract contains out clauses or morals clauses, which would potentially allow the sponsors to exit the obligations contained in the agreements in the instance that there are financial, reputational or performance issues. These types of clauses are often drafted in a somewhat vague, overreaching manner, requiring a fair amount of subjectivity from the trier of fact to determine their application to a specific set of facts. A common component of these clauses is the existence of wilful misconduct that could objectively be expected to bring a party into public disrepute or scandal, or which tends to greatly offend the public.

The bar is often set high with claims surrounding a breach of a contract’s morals clause. There is also a heavy deterrent against invoking a morals clause as a right to cause an early termination to a contract when there may be a large sum of money due upon a finding that there was not sufficient grounds to apply the provision to the facts at hand.

That said, many professional athletes have lost sponsorships based on the corporate entity resting on a drafted and agreed upon morals clause. For instance, Nike terminated its endorsement agreement with Michael Vick after the former NFL quarterback entered a guilty plea in a case involving the bankrolling of an illegal dog fighting operation. The late Kobe Bryant lost sponsorships after being accused of sexual assault.

Could FedEx, PepsiCo and other sponsors use the same type of morals clause, which is assumed to exist in their sponsorship agreements, to remove themselves from contractual relationships with the Washington Redskins? Knowing Snyder’s sincere care for cash, the threat alone would likely cause him to cave into rebranding the team name.

However, if Snyder insisted on keeping the 'Redskins' name in the face of such threats, it is possible that corporate entities would have a strong case to apply the morals clause given the increased attention to the issue and overwhelming concern that the name is attached to emotional violence and other serious harms. FedEx and other brands may now be able to strongly claim that they are suffering reputational harm because of the Washington team's unwillingness to rebrand in the face of clear evidence that there are racist undertones. It could be deemed wilful misconduct that brings public disrepute and certainly scandal, that tends to greatly offend the public.

It is unlikely that these types of disputes arise, but one never knows with an owner in Snyder who said that he would never change the team name. 

Darren Heitner is the founder of Heitner Legal, an author on sports business, and a sports law professor at the University of Florida College of Law. Find him on Twitter @DarrenHeitner.

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