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Monday, January 07, 2013
 
Oakley's Lawsuit Against Rory McIlroy and Nike

Oakley's lawsuit against Rory McIlroy and Nike, filed December 15, 2012 in the Central District of California, highlights the importance, and difficulties in drafting a right of first refusal in athlete endorsement contracts. 

As set forth in Oakley's complaint, it had the right to match any offer McIlroy received for "products the same or substantially similar to the Products," which were defined as "eyewear, apparel and accessories" as set forth in an exhibit to the agreement.  Nike made an offer for McIlroy to endorse a whole range of Nike products, without specifying the amount of the endorsement fees attributable to each of the products, including the Products covered by Oakley's contract.  Thus, when Oakley notified McIlroy that it was matching Nike's offer, it did not know the amount that had been offered for McIlroy's endorsement of the Products and relied on "average product endorsement allocations in the golf industry" to offer 20% of the dollar amount of Nike's package offer.  Notwithstanding Oakley's "match" of Nike's offer, McIlroy proceeded to contract with Nike, leading to the lawsuit.

The basic question: Did Oakley's "match" of 20% of Nike's total satisfy the matching right under the right of first refusal?

It is difficult to anticipate all the elements that might be included in an endorsement offer from a company seeking to wrest away an athlete and to cover all scenarios for a right of first refusal.  Nevertheless, a right of first refusal provision should attempt to define as specifically as possible each of the products covered by the right, the form for an offer from a new company, and each of the elements that must be matched for the matching right to be invoked effectively.

Are there certain elements that won't count for matching purposes?  Will only cash compensation count?  Are products specifically defined so that it is clear which products are covered, and which products are not subject to a matching right?  Are there specifications for how the competing offer must be structured, such as allocating endorsement fees among each category of endorsed product?

Each of these points can create thorny issues, as Oakley's lawsuit demonstrates.





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