Under Armour had been doing a good job once again finding its financial footing and getting back into the public’s good graces. But the shadow of its November federal investigation regarding accounting practices still looms large over the company. That creative accounting has led to UCLA suing Under Armour for $200 million over breach of contract.
The lawsuit alleges that Under Armour had misled UCLA to believe it was in better financial standing than it was—resulting in the enormous $280 million sportswear contract in 2016—and then failed to make scheduled payments or deliver products as laid out in the contract.
The original contract was for 15 years, and Under Armour informed UCLA two months ago that it was going to terminate the deal, still owing more than $200 million to UCLA.
The SEC and U.S. Department of Justice also recommended penalties for Under Armour, claiming that it made its financial situation look better than it was in reality from the third quarter of 2015 to the end of the next fiscal year. It was during that time that Under Armour was negotiating the record contract with UCLA, so the numbers it gave the school directly influenced the deal getting across the line.
“Had UCLA known that Under Armour was making false financial statements in violation of law and SEC regulation, and falsely reporing its sales reported from quarter to quarter, UCLA would have never entered into the agreement and/or would have terminated the agreement at a time when other similarly-attractive sponsorship agreements would have been negotiated for UCLA,” the school’s lawsuit says.
In April, Under Armour requested to push its payment for that month to July due to money problems as a result of the pandemic. Then, once June rolled around, Under Armour said it wanted to cut ties.
The company said it would invoke a force majeure clause in the contract, which it believed applied because UCLA’s baseball team played less than half of its scheduled games before games were canceled. Under Armour said that number fell below the requirements for the school’s “core team” programs. It also alleged that UCLA “failed to take reasonably appropriate action(s)” after its men’s soccer coach Jorge Salcedo was involved in the “Operation Varsity Blues” college admissions scandal.
UCLA rejected all three claims, asserting that it’s held up its end of the bargain and that the COVID-19 cancellations didn’t stop athletes and coaches from wearing Under Armour gear while they were participating in other team activities like meetings, voluntary workouts and more. The school also said that Under Armour hadn’t supplied all of the team’s gear for the 2020-21 school year, did not provide an on-site company representative and didn’t fulfill the agreement’s retail store obligation.
“It is unfortunate that Under Armour is opportunistically using the global pandemic to try to walk away from a binding agreement it made in 2016 but no longer likes,” Mary Osako, UCLA’s vice chancellor for strategic communications, told the LA Times. “UCLA has met the terms of the agreement, which does not require that games in any sport be played on a particular schedule. We filed this lawsuit in order to support our student-athletes and the broader UCLA community, including the athletic department that has brought 118 national championships to Westwood.”
Under Armour’s response seemed to deflect blame and paint the company as the victim, or at least sort of thanklessly altruistic in the face of the pandemic.
“We sought to remain open to working out a reasonable and appropriate transition for the university, and most importantly for the student-athletes,” Under Armour said in a statement. “In fact, at UCLA’s request after the termination of the agreement, Under Armour continued to deliver athletic products for the 2020-2021 school year, because we support athletes, even as it remains uncertain when sports will resume.”
Now, UCLA athletic director Martin Jarmond, who took the job back in May, is tasked with finding a new apparel partner as the school navigates itself through the lawsuit. So far, one anonymous source close to the athletic department said the school has four potential companies lined up.
This would be a huge black spot on Under Armour’s record. The 2016 deal made headlines due to its staggering price tag and 15-year lifespan, but reneging after only three years and allegedly not holding up its end of the bargain could make other schools hesitant about partnering with Under Armour. It could at least keep schools of UCLA’s stature from working with Under Armour again, which would be a huge loss for a company that wants to compete with Nike and Adidas.
