Under Armor withdraws from two major university sport agreements

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Under Armor highlighted the challenges facing the American college sports industry when it decided to end outfitting agreements with two leading hundreds of millions of dollars worth of university programs.

The deals with the University of California, Los Angeles, and the University of California, Berkeley, were part of a marketing campaign by Under Armor in recent years to provide colleges with a mix of cash and goods in exchange the right to equip their sports. teams.

The two universities said they would challenge Under Armor’s decision to end the deals. As part of the Armor agreement with UCLA, it was billed as “the largest clothing deal in the history” of American university sports when it was signed in 2016, with an announced amount of 280 million dollars over 15 years. The contract between Berkeley and Under Armor is worth $ 86 million over 10 years.

“This is clearly a failure for Under Armor,” said David Swartz, equity analyst at Morningstar. “They did not sign a $ 280 million, 15-year contract just to end it four years later. ”

The fight against clothing contracts highlights another financial puzzle facing universities as the Covid-19 pandemic jeopardizes the college sports industry by more than $ 8 billion. It also marks an important strategic shift for Under Armor in its challenge to Nike and Adidas.

“Under Armor recently made the difficult decision to end our partnerships with UCLA and the University of California at Berkeley because we are paying for marketing benefits that we have not received in a long time,” said the company. in a press release. Monday.

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The Berkeley sports department said Under Armor “has no reason to terminate” their contract, while a UCLA spokesperson said the school “was exploring all of our options to resist actions of Under Armor ”.

Under Armor was founded in 1996 by Kevin Plank, a former college football player who developed the company’s iconic antiperspirant t-shirts after being frustrated with playing in cotton clothing. It has since become an outfitter of $ 5 billion, signing champion athletes, including Stephen Curry of basketball and Tom Brady of American football.

Agreements with university sports teams have marked Under Armor’s most significant marketing forays in recent years. The best schools receive tens of millions of dollars a year under such deals, while brands such as Under Armor, Nike and Adidas earn the right to use student athletes as billboards for their product when games are broadcast on television.

The director of another prominent university sports program, Ray Tanner of the University of South Carolina, said he had recently contacted Under Armor to “discuss our current contractual agreement.” A spokesperson for the company did not immediately comment on the relationship between Under Armor and the University of South Carolina.

Other important programs signed by Under Armor include Auburn University, Notre Dame University and Yale University.

The company has been challenged in recent years by a confluence of leadership changes, a contraction of wholesale retailers in the United States, and a general trend towards so-called athletics or fashion-inspired clothing, which is not the strength of the performance clothing brand.

Last month, Under Armor chief financial officer David Bergman said the company had taken several steps to improve liquidity during the Covid-19 crisis, including modifying its credit facility and offering convertible bonds. He also said the company would revise the terms of its sports marketing contract to preserve cash flow.

Under Armor is expected to pay $ 131 million in sponsorship and marketing agreements until the end of 2020, according to a schedule in its latest annual report.

The contract termination came after the UCLA sports department reported an $ 18.9 million deficit in the 2018-2019 school year, indicating underlying financial challenges even before the pandemic does not effectively cancel sports activities since the spring. The athletes at the school have expressed in the past the problems they claim to have encountered with the products they have received from Under Armor.

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