Odell Beckham Jr V Nike - $20 Million Lawsuit

Introduction

Odell Beckham Jr is one of the most iconic and successful athletes in the National Football League (NFL). Since bursting onto the scene with a trailblazing rookie season in 2014, Beckham has embodied the blueprint of a modern-day athlete. On the field, the star wide receiver is characterised by his energetic and skilful playing style; Beckham won the 2022 Superbowl with the Los Angeles Rams and has featured in the top 5 of each major category in his position since entering the league. Beckham has experienced a similar level of success in his off-field dealings, developing one of the largest personal brands in world sport.

Upon first entering the league, Beckham signed a boot deal with Nike in line with that expected to be offered to a first round draft pick – $45,000 per year. Significant commercial interest, however, came about following Beckham’s iconic one-handed catch, his fame sky-rocketed and his brand began to grow. Beckham has developed into a sporting icon, the OBJ brand of performance and luxury climbing to the pinnacle of sport, culture and entertainment.

Having been a Nike ambassador for the entirety of his NFL career to this point, it came as a real surprise when Beckham announced that he would be filing a $20 million lawsuit against the company. The two parties have benefited significantly from both a financial and reputational perspective across their eight year partnership, with Beckham’s marketability and unique identity providing a great deal of commercial value to the brand.

The allegations in this lawsuit have been made by Beckham alongside his image rights company, Royalty Only LLC, of which he is a sole owner - this article will refer only to Mr Beckham when discussing these claims. Beckham’s claims against the sporting giant are made even more intriguing given the circumstances of his playing future. Currently out of contract and returning from injury, the athlete is exploring his options for a return to the NFL as the post-season closes in. It is expected that Beckham will have his choice of the best performing teams in the league, with his high-profile status ensuring a great deal of media interest on his return – certainly an attractive proposition to any associated footwear brand.

The following article will provide a thorough legal analysis of the $20 million lawsuit, exploring its structure along with the accounts of both parties. To begin, an overview of the lawsuit will be provided, before moving to explain the first, second and third claims for relief - breach of contract, reformation and breach of the covenant of good faith and fair dealing.

Overview of the Lawsuit

Before analysing the detail of the lawsuit and the associated claims, it is important to first outline the structure of the contract between both parties and highlight terms which are being brought into question.

As stated above, Beckham and Nike entered into an endorsement contract upon his joining the NFL in 2014. This agreement expired in 2017 at which time Adidas offered a multi-million-dollar deal that represented one of the largest endorsement contracts of any NFL player at the time. The dual attributes of his fame and sporting ability made him a highly attractive prospect to Nike’s competitors. Nike exercised their right of first refusal, allowing them the opportunity to match the Adidas offer with a contract no less favourable than the material, measurable, and matchable terms of the third-party offer. The lawsuit being brought by Beckham is based substantially on claims that Nike is refusing to honour this agreement and is instead wilfully withholding millions of dollars from the athlete.

Providing additional context, it is important to note that there had been attempts to voice and resolve the dispute internally, but to no avail. With Beckham’s decision to file the $20 million lawsuit, Nike have suffered a great deal of the associated reputational damage. Therefore, there may be little effort on the side of the multi-million-dollar organisation to find an amicable resolution outside of the courtroom.

As with most partnership agreements, the endorsement contract contains a dispute resolution clause. The clause requires that any dispute between the parties be litigated in Oregon, the state within which Nike’s headquarters are based. The significance of this pertains to the understanding that, being based in Beavertown, Oregon, Nike contributes significantly to the local economy, providing employment and support to many within the community. We can only speculate as to the impact - if any - that this will have on a final ruling, but it certainly does not favour Beckham.

First Claim for Relief – Breach of Contract

The first claim for relief details a breach of contract by Nike in three separate instances. The most significant of these breaches centres around the termination of the endorsement contract as of the 30th of June 2022. It was Beckham’s understanding that he would be entitled to an automatic two-year extension (2022-24) if the ‘net sales’ of his royalty bearing products reached a certain threshold. Nike, however, state that the contract instead refers to Beckham’s ‘earned royalties’ (5% of net sales). Therefore, as of June 2022, the company no longer consider him a Nike athlete. The discrepancy in both party’s viewpoints pertains to a contract amendment that took place back in 2017 upon Nike’s decision to exercise their first right of refusal and match the Adidas offer. Beckham and his representation believe this modification cannot be enforced.

The document above details the original agreement between Nike and Beckham. The Term Sheet matched the Adidas offer, including a yearly base salary ranging from $3.2 million to $4.2 million, guaranteed royalties, an additional 5% royalties and a guaranteed extension pursuant to the ‘net sales’ of royalty generating products matching or exceeding that year’s guaranteed royalties.

As outlined in the Term Sheet, if the net sales of Beckham’s royalty bearing products in years 4 and 5 matched his guaranteed royalties for those years ($1.9 million and $2 million respectively), he would be entitled to an automatic two-year extension. If Beckham achieved the slightly increased value in years 7, the contract would be extended for an additional single year term.

Shortly after both parties signed the above Term Sheet in 2017, Nike sent Beckham an extension letter to memorialise the agreed upon terms and form a “Long Form Football Contract”. Nike claimed that the extension letter matched all terms of the Adidas offer, however this was not the case. A slight amendment had been made which stated that the guaranteed extension of years 6 and 7 would require Beckham’s ‘earned royalties’ rather than ‘net sales’ to match his guaranteed royalties. As outlined in the Term Sheet, Beckham’s ‘earned royalties’ equated to just 5% of the ‘net sales’ of his royalty bearing products.

This slight change had significant repercussions on the contract’s extension clause; instead of needing to achieve $3.75 million net sales on royalty bearing product in year 5, Beckham would instead have to achieve $75 million in net sales to trigger his guaranteed extension. Had the extension clause been based on ‘net sales’, Beckham would have reached the required threshold. As is the case, however, Beckham did not achieve $3.75 million in ‘earned royalties’ and Nike have subsequently terminated his contract.

In addition to the endorsement contract of 2017, Nike also identified Beckham as a ‘Brand Icon’, the first NFL athlete to receive this accolade. As a Brand Icon, Nike had made a commitment to create, market and sell “Cross Category Player Edition product offerings, including Running Footwear, Athletics Apparel, and Training Footwear and Apparel” and “a youth product offering bearing” Beckham’s name. Beckham’s second claim of breach of contract argues that Nike failed to honour this commitment.

Furthermore, he claims that Nike intentionally reduced the manufacturing of royalty bearing products in year 5 (the final guaranteed year of the contract) to artificially depress sales and prevent Beckham from reaching the threshold required for his guaranteed extension. In the lawsuit, Beckham presents sales data which outlines a supposedly unexplained 87% reduction of net sales between years 4 and 5 of the guaranteed contract. Beckham argues that this shows Nike’s efforts to depress sales in his final year to prevent the automatic extension.

The third claim of breach of contract details Nike withholding $2,012,500 for alleged footwear and glove violations during the week 17 fixture of the 2021/22 NFL season. In line with the ‘Long Term Contract’ that constitutes the endorsement contract, this type of violations would include any “‘polishing out’, ‘spatting’, taping over, or otherwise covering or concealing the NIKE Marks on his football shoes in any manner”, the same parameters for gloves.

During the game in question, Beckham was appearing on debut for the Los Angeles Rams following his trade from the Cleveland Browns. Beckham claims that Nike did not provide him with new boots and gloves to match the colour scheme of his new team’s kit. Therefore, he customised the equipment he already had, colouring both the boots and gloves black (pictured below).

It had been commonplace for Beckham to customise his footwear and gloves with designs. Nike would often use this unique aspect of their partnership to promote products to customers, using Beckham’s marketability to do so. In a similar way, Beckham’s customised all-black footwear and gloves had been picked up by media outlets who made the comparison to Nike’s popular leisure trainer, the Black Air Force 1. Despite the Nike swoosh on both items being coloured black on black, there was noticeable media attention on the equipment.

As noted above, Beckham has made the claim that Nike’s withholding of $2,012,500 for alleged footwear and glove violations evidences a third breach of contract.

Second Claim for Relief – Reformation

The second claim for relief outlines a reformation of the initial Term Sheet. Beckham believes that the initial Term Sheet which matched the 2017 Adidas offer should be enforced. As previously explained, the difference here would relate to Beckham’s automatic extension; the ‘Long Term Contract’, in place until the 30th of June 2022, dictates that Beckham’s ‘earned royalties’ did not match or exceed the threshold and therefore his contract was terminated. If the contract is reformed to the initial Term Sheet, the extension would be determined on the ‘net sales’ of royalty bearing products. By this measure, Beckham would have reached the required threshold and would be granted his two-year automatic extension.

Beckham’s lawsuit claims that Nike’s amendment from ‘net sales’ to ‘earned royalties’ across the Term Sheet and Long Term Contract represent either a mistake by Nike when preparing the contract, or an intentional change made without consultation with the athlete. Furthermore, in the lawsuit Beckham refutes the notion that he and his team have committed gross negligence by missing the modification; they were informed by Nike that no changes had been made.

Third Claim for Relief – Breach of the Covenant of Good Faith and Fair Dealing

The third claim for relief details a breach of the covenant of good faith and fair dealing. The first instance relates to the previous claim that Nike intentionally reduced the manufacturing of royalty bearing products in year 5 (the final guaranteed year of the contract) to artificially depress sales and prevent Beckham from reaching the threshold required for his guaranteed extension. Beckham believes that along with a breach of contract, these actions also represent a breach of the covenant of good faith and fair dealing.

Again, referring to a previous claim, the lawsuit identifies Nike’s refusal to provide Beckham with cleats that matched the colour scheme of the Los Angeles Rams’ kit (his new team), evidences a breach of the covenant of good faith and fair dealing. Beckham expresses that if Nike claim he was in breach of the endorsement contract in committing a footwear and glove violations, it was the fault of Nike for failing to provide him with equipment compliant for his new team.

Across all three claims, the lawsuit outlines that Beckham has suffered damages of $20,625,000 plus prejudgement interest. In addition, the second claim of relief requests that the endorsement contract be reformed to match the terms of the initial Term Sheet as first proposed by Adidas and matched by Nike.