#MSBLFriday411 – Protecting the house?

First HAPPY 4th of July holiday! I hope you have a fun and safe holiday in whatever you decide to do…but hopefully you’ll be somewhere out in the sun while you’re reading this.

Working in sports (no matter what level) requires as most professions do to be a large consumer of information. One of the resources that I am a massive fan of is called D1.ticker, which is a daily e-mail news service covering all of the "goings-on" around NCAA Division One college athletics; they offer services for D2 and D3 as well. The highest read story this last week, and flew relatively under the radar given everything else going on, was something newly hired UCLA Athletic Director Martin Jarmond least suspected. Bruin apparel provider Under Armour informed UCLA that it intends to terminate its record-breaking $280 million apparel contract with the school on June 27th.

The 15-year contract, which was agreed to in 2016, was (and still is) the most lucrative apparel contract in NCAA Division One. According to a September 2019 Forbes Article by Daniel Kleinman, the deal carries an overall annual value of $12.76 million with a yearly product allotment to the school, averaging around $3.76 million. This is (overall) $2 million more in annual value than second-place Louisville (ACC) and $5 million more in annual value then the next closest school in the Pac-12 (Washington) who signed with Adidas in 2019.

Under Armour made this decision the week of the transition between outgoing 18-year Athletic Director Gan Guerrero and incoming Athletic Director Martin Jarmond. What makes this whole situation even more interesting to an outsider is, in the prepared statement sent to the Los Angeles Times, the company offered very little clarity as to the motivation behind the decision except merely stating:

“Under Armour has recently made the difficult decision to discontinue our partnership with UCLA, as we have been paying for marketing benefits that we have not received for an extended time period.”

Outgoing UCLA Athletic Director Guerrero quickly responded to the decision by Under Armour in a letter he sent to Bruin fans:

“We are exploring all of our options to resist Under Armour’s actions and will share more information as we can.”

This is a potential body-blow to the UCLA Athletic budgets, which was already significant budget troubles. The department took out an $18.9 million-dollar loan from the university to cover a shortfall in the 2019 fiscal year. Obviously, the 2020 budgetary picture is much worse, given virtually no revenue at all with the cessation of athletic activities since March and still little clarity on what the future will bring.

This story gets even more interesting as the news was breaking about Under Amour’s decision to break its contract with UCLA. It was also beginning the process to do the same with Cal Berkley for similar unspecified reasons. The Under Armour-Cal contract was agreed to at virtually the same time as UCLA and is a 10-year deal that began in the 2017-2018 school year valued at $86 million and annual product allotment of $4.76 million.

Cal Athletics was quick to respond on Sunday with the following statement:

While we understand that we are in challenging times, we have been and remain committed to our partnership with Under Armour. We are confident that we are fulfilling the terms of our agreement and that Under Armour does not have grounds for termination. We know that UA has put years into building its college business, and we have done and will continue to do everything in our power to help them succeed.

Cal Athletics remains steadfast in its commitment to support its student-athletes with the apparel and footwear they need to train, compete and succeed in their chosen athletic fields. 

However, in an unexpected twist on June 30th, sports reporter Darren Rovell reported the following…

So with the legality of its contract apparently up-in-the-air, it is unclear what the ultimate resolution of Cal's particular situation with Under Armour will be.

Overall this presents a dramatic change in the apparel category in the Pac-12 Conference. Nike is still king with 7 Pac-12 Schools (WSU, Oregon, Oregon State, Stanford, USC, Arizona, Colorado). Under Armour has now slipped from second place to last behind Adidas (Washington, ASU) with only Utah under contract.

UCLA and Cal are also now (potentially) left without an apparel contract heading into the 2020-2021 academic year and (assuming sports do resume) budgets that were severely crippled by COVID-19 in the 2019-2020 season. As well as the very likely potential that, assuming the contract is ended, they won't have time to find a replacement before the new academic year and are faced with trying to sign a new agreement as the athletic apparel industry itself tries to recover from COVID-19.

Under Armour has felt the budget effect of COVID and, according to the LA Times, saw sales down 53.8% from the same time last year. They are also left to walk a delicate balance as this process proceeds as the final result is perceived within the industry. It will have a direct effect on them being able to successfully solicit schools in the future. This move leaves them with only Hawaii and Colorado State as west coast representatives of their brand. Add to all of this, another minor news note from April, when Temple's suddenly decided to drop Under Armour with a 3-year Nike deal.

Who is also interested in their next steps will be all of Under Armour’s smaller school affiliates. Under Armour does not have a broad portfolio of schools, and according to FootballScoop.com in an article on July 16th, it sits in a distant third place with 20* signed schools behind Adidas' 39. As a proud product of NCAA Division II, smaller schools get nowhere near the major school treatment. Still, as far as to reach, they represent an overwhelming majority of college athletic programs. Will COVID force Under Armour to shift its focus? Or will they continue to try and battle with industry powerhouses Nike and Adidas? It will be an interesting storyline to watch and definitely something that will impact athletics (at potentially all levels) in the not-so-distant future.

*22 prior to their cancelation of the Cal and UCLA Contracts