Why Odell Beckham Jr. Is Suing Nike For $20 Million

Nov 16, 2022

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Hey Friends,

I’m sure you have heard by now that Odell Beckham Jr. is suing Nike. This type of legal action doesn’t happen often — a star athlete suing their $167 billion footwear and apparel partner — and the accompanying legal documents provide us with an inside look at how these multi-million-dollar agreements are structured.

But I’m not a lawyer, and I like to think I know when I’m out of my depth, so I’ve called in my friends Dan Lust and Mike Lawson from Conduct Detrimental to help break things down. They create a lot of content at the intersection of Sports & Law, and I recommend you check out their Twitter account and podcast feed. Enjoy!

Odell Sues Nike in Oregon

We are back with another breakdown at the intersection of Sports & Law. Our podcast and website, “Conduct Detrimental,” is dedicated to anything and everything Sports Law. So, naturally, when NFL superstar Odell Beckham, Jr. sues Nike in a $20 million lawsuit, our team will cover it extensively. In addition to our below writeup, we took a deeper look on our podcast, which you can check out here.

On November 14, 2022, in Multnomah County, Oregon (under the contractual agreement which gives the favorable venue to Nike), OBJ filed a lawsuit against Nike alleging breach of contract and breach of the covenant of good faith and fair dealing. As fully detailed herein, OBJ claims $20,625,000 in damages and seeks reformation of the contract.

How Did We Get Here?

In 2014, OBJ signed with Nike for a 3-year $45,000 per year deal, which included royalties and incentives. In 2017, OBJ’s original contract with Nike had expired, and he was looking to potentially change brands to Adidas. Of note, he was coming off three pro bowl seasons where he eclipsed 1,300 yards and 10 touchdowns. Odell was only 25 years old and was arguably on a hall-of-fame trajectory at that point in time.

All things considered, it was not a surprise that Adidas made OBJ an offer valued at $47 million. Likewise, it was not a shock when Nike responded by exercising their right of first refusal under the original contract, which allowed Nike the right to match an offer from any third party before OBJ signed with them. Thus, Nike agreed to match Adidas’s contract offer, including the terms and extensions. Nike even made OBJ a “Brand Icon,” which was allegedly the first Nike Brand Icon in the NFL. All in, the Nike deal signed by OBJ was reported as the largest shoe deal in NFL history, per Ian Rapoport. The deal, with all incentives met and granted extensions, would total just shy of $48 million. Here was that deal:

What Went Wrong?

As you can see in the above term sheet, the contract was originally scheduled to end in 2022, but was also “subject to extension.” Again, citing above, the extensions were guaranteed “if net sales meet the minimum royalty guarantee in years Four and Five” and the same for Years Six and Seven. It is alleged now that Nike has terminated the contract with OBJ as of June 30, 2022.

Breach of Contract

OBJ is alleging a few different breaches in the contract. First, based on the termination, OBJ alleges that Nike’s failure to extend is a breach of the contract because the net sales of royalty-bearing products exceeded the guaranteed minimum royalties, which should have triggered an extension. OBJ is alleging that Nike is basing these sales off “earned royalties” exceeding “guaranteed royalties” rather than the contract’s “net sales” term. OBJ alleges that Nike materially changed the agreed-upon contract (again matching Adidas’s offer) in a 2017 Extension Letter sent by Nike to OBJ to memorialize the contract terms. The letter stated the guaranteed extension for Years 6 through 8 would be based on whether “earned royalties” exceeds guaranteed royalties rather than net sales. Further alleged in the lawsuit, this change in term would mean that to trigger the extension, net sales would need to be $78 million over years 4 and 5, instead of $3.9 million net sales based on the original language. OBJ alleges that this language is different than the agreed-upon terms and the Term Sheet that was signed by both parties.

OBJ also alleges that Nike withheld $2,012,500 in compensation for claims of footwear and glove violations. Per the lawsuit, Nike claims that OBJ wrongfully covered or concealed the Nike mark on his football cleats and gloves. OBJ provided the below pictures from the game where the violations occurred, showing clear views of the Nike marks:

Finally, OBJ alleges that Nike failed to follow through on their obligations to create, market, and sell “cross-category player edition products” for OBJ. OBJ alleges that due to such failures, Nike reduced the value of OBJ’s contract and thus did not trigger the extension of the contract.

Breach of the Covenant of Good Faith and Fair Dealing

OBJ alleges that Nike failed to act in good faith and fair dealing with regard to their contract. Specifically claiming that Nike intentionally reduced the manufacturing, sale, and availability of royalty-bearing products in an effort to artificially depress OBJ’s royalties. Thus, this would result in the failure to trigger the extension of the contract. OBJ alleges that any failure to meet the net sales required to trigger the extension clause on the contract was created by Nike due to their depression of sales through their refusal to produce or sell royalty-bearing products.

OBJ is also alleging that Nike failed to provide OBJ with cleats when he was traded to the LA Rams. OBJ claims that because of this failure he created the custom Nike cleats pictured above to match the Rams uniforms. Thus, OBJ alleges that any claimed footwear violation was a result of Nike’s own breach in their failure to provide OBJ with cleats in the first place.

Reformation of Contract

In addition to the monetary damages sought, OBJ wants to reform the Nike contract to its original form. Specifically, OBJ wants to clarify the terms of the contract in that the guaranteed extensions will be based on “net sales meeting the minimum royalty Guarantee” and not based on “earned royalties.”

What’s Next?

Before you get your hopes up, keep in mind that less than 1% of all cases go to trial so this most likely gets resolved without the drama of a courtroom scene.

So, we are really looking to see how Nike responds. There is, of course, the chance that Nike and Odell work this out amicably behind the scenes over the next few weeks and months. However, since a lawsuit was indeed filed, do not expect such a quick resolution. Once you cross that line of actually filling – and not just threatening to file – the damage from a PR standpoint has already been done. When it is a high-profile case like this it takes even longer to mend fences and allow cooler heads to prevail.

We would expect Nike to take an aggressive approach and move to dismiss the case. Odell needs Nike more than Nike needs him so the company should not be inclined to treat him delicately – especially since the lawsuit is already out there. As for the likelihood of success, we must wait to see the theory of relief in any type of substantive motion, but Nike must like their chances that much more with the ability to defend on their home court in their State of Oregon. Ahh, those good old fashion choice of venue clauses… always be sure to read the fine print, folks!

Stay tuned for more updates on this case. What might seem like a standard breach of contract case could result in a significant precedent for endorsement deals in the future.

Dan Lust heads the Sports Law Practice at Morritt Hock & Hamroff, is Co-Host of Conduct Detrimental: THE Sports Law Podcast, and serves as Sports Law Professor at New York Law School. Mike Lawson is the Producer of Conduct Detrimental and an Associate Attorney with O’Connell and Aronowitz, P.C. in Albany, NY. Be sure to follow Conduct Detrimental for all things Sports & Law!

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