Thursday, July 19, 2007

Michael Vick – The Dog Days of Marketing Problems and Business Issues

It has been nearly 36 hours since Atlanta Falcons quarterback Michael Vick was indicted on federal charges relating to a series of alleged dog-fighting incidents that date back to 2001 when Vick signed his first National Football League contract. Wednesday, an avalanche of columnists offered their opinions on what’s next for Vick, but a few issues did become clearer – it appears NFL commissioner Roger Goodell’s zero tolerance off-field conduct code exempts some players, but regardless of whether Goodell decides to suspend Vick for any of the Falcons 2007 season, Michael Vick will miss the teams’ first day of training camp – a week from today.

Instead, while his teammates are greeting each other Vick will be facing Federal District Court Judge Henry E. Hudson – a no-nonsense judge with a reputation as one tough judge.

"He is highly regarded by lawyers in the Eastern District of Virginia and he enjoys a pretty strict reputation," said Carl Tobias, a University of Richmond law professor who specializes in Constitutional law and the federal courts in an Atlanta Journal Constitution report. "From his prosecutorial background, he may see the case from the U.S. [attorney's side] more favorably than from somebody who comes from a criminal defense background."

Steven D. Benjamin a veteran criminal defense attorney who has represented many clients before Hudson added the following comments about Judge Hudson in the AJC report

"He is not temperamental. He is even-handed. He affords everyone equal respect," Benjamin said. He added that Hudson "is willing to take into consideration the effect of the crime on a community" when he sentences defendants.

As for Roger Goodell announced the NFL’s conduct code in early April he made it perfectly clear to everyone – there was a new sheriff in town and Roger Goodell wasn’t going to take anymore examples of NFL players behaving badly.

"It is important that the NFL be represented consistently by outstanding people as well as great football players, coaches, and staff," Commissioner Goodell said. "We hold ourselves to higher standards of responsible conduct because of what it means to be part of the National Football League. We have long had policies and programs designed to encourage responsible behavior, and this policy is a further step in ensuring that everyone who is part of the NFL meets that standard. We will continue to review the policy and modify it as warranted."

How much meaning do those words have if a New York Daily News report is correct that suggests "Goodell will not suspend Vick based on the indictment handed down yesterday by a federal grand jury on charges related to dogfighting, which is a felony. The league will contend it's a long way from indictment to conviction, so Goodell will allow the legal process to play out." All fair points -- but what about the damage Michael Vick has done to the image of the National Football League through his alleged actions?

Wednesday evening Yahoo Sports (the same people who first reported yet to be proven allegations against former USC and New Orleans Saints running back Reggie Bush) reported the Daily News is wrong and the NFL will suspend Michael Vick in the near future. According to Yahoo Sports two unnamed sources said the commissioner has been monitoring the Vick case since April, when investigators initially found evidence of dog fighting at a home Vick owned in Smithfield.

"Where (Vick) is in the most trouble is that he lied to the commissioner," a league source said. "He told (Goodell) in April that he didn't know anything about this. The commissioner gave (Vick) every chance to come clean, be straight about what was going on. Instead, he just kept denying it."

"There's a lot riding on this one," a league source told Yahoo Sports. "Perception is really important right now for the entire league and (Goodell) has set the bar pretty high. I think the one thing going for (Goodell) if he's going to suspend Vick is that he gave Vick a chance to tell the truth."

One the most vocal groups to react Wednesday was the Humane Society of the United States. The group’s focus included a public appeal to demand the NFL do something immediately and not wait for the legal system to decide Vick’s fate and began a grassroots campaign directed against Vick’s dwindling list of sponsors. The Humane Society created a link on their home page to another page on their website that allows those interested too directly email NFL commissioner Roger Goodell.

“Now that a federal grand jury has indicted star NFL quarterback Michael Vick for dogfighting, the NFL must stop hedging and impose a suitable penalty. Three months ago, suspicions of dogfighting on Vick's property in Virginia came to light along with chilling descriptions of the fighters hanging, electrocuting, shooting and slamming to death dogs who didn't "perform" as desired.

"Dogfighting is a serious federal and state crime, and enforcement authorities have treated this investigation with the seriousness it deserves," said Wayne Pacelle, president and CEO of The HSUS. "We will continue to work with law enforcement with the intention of bringing to justice any individual who contributed to this cruel and violent treatment of animals."

"Now that Michael Vick has been indicted, the NFL should not hesitate to suspend him," added Pacelle.

"We're talking about activity that went on for years," Pacelle told Yahoo Sports. "Yes, these are accusations. But for him to have claimed that he knew nothing about the activities there is unbelievable … that's why we think the league should suspend him under its conduct policy.

"If you're just going to wait for the judicial process, why even have a conduct policy?"

Who better to explain the allegations linked to Michael Vick than The HSUS who offered the following: on April 25, Authorities seized 52 pit bulls from Vick's Surry County property and also found equipment used in dogfighting operations including a "rape stand" used for forced breeding, treadmills, drugs to enhance fighting performance, and a blood-stained fighting pit.

Dogfighting is a cruel blood-sport in which two dogs, trained to be vicious by torturous methods such as beating, confinement in trunks or closets, or feeding them gunpowder, are pitted against each other in a fight to the death or until one dog cannot continue, for the amusement of spectators and high-priced wagering. Fights can last for hours as the dogs are trained to continue even after brutal wounds are inflicted.

According to court documents regarding Vick's case, even if the losing dogs survived they met a cruel fate, "sometimes put to death by drowning, strangulation, hanging, gun shot, electrocution or some other method."

These documents, filed in the U.S. District Court in Richmond, thoroughly describe the nature of dogfighting on Vick's property and suggest that one or more informants guided investigators on two recent raids. Authorities say the dogs were bathed immediately before fights to make sure their coats were not tainted with a poison that could unfairly thwart the opponent.

As high a profile the case against Michael Vick might offer the Humane Society one look at their media page Wednesday evening tells you the group issued two other releases Tuesday along with the Vick incident and three more on Wednesday. The other five releases have nothing whatsoever to do with Michael Vick. That said – clearly issues relating to the treatment of animals is very important and something that must be taken seriously.

Last month when allegations were reported linking Michael Vick to dogfighting Wayne Pacelle, president and CEO of The HSUS sent Nike (Vick’s biggest sponsor) a letter asking Nike to end their association with Vick.

In the letter, Pacelle writes that The HSUS "…knows that Nike has high standards for its spokespersons, and urges Nike to terminate its relationship with Vick as soon as is feasible…we trust Nike does not want to be associated with any celebrity who is linked to this odious form of animal cruelty."

Pacelle did note in the letter “Air Tran Airways (now a company Vick did endorse) decided not to renew its contract with Mr. Vick earlier this month, and did so without any specific prompting from The HSUS.”

Tuesday evening Pacelle made it clear what would be one of the first items on his agenda Wednesday morning.

"We're planning to make those calls first thing Wednesday," said Wayne Pacelle, the president of the Humane Society.

And the organization extended the call to companies such as Rawlings. AirTran has already dropped Vick and Pacelle told Yahoo Sports that the Boys & Girls Clubs of America has recently done the same. And Powerade dropped Vick as a spokesperson three years ago

"We don't have all the contracts or know what they're all worth," Parcelle said in the Yahoo Sports report, "but we know that they have language in those contracts that allows companies to sever ties with an athlete after something like this happens."

In what indeed may be a sad sign of the times CNBC’s Darren Rovell reported Wednesday Nike has every intention of moving forward with their planned release of the Vick V shoe, which retails for $100, will go out on shelves as scheduled on August 23.

"What’s going on with Michael Vick doesn’t change our merchandising marketing plan," Hennion said. "The shoe is obviously a small component of the overall marketing initiative with Nike."

Sources told CNBC that Dick's co-branded football campaign with Nike, will star Pittsburgh Steelers safety Troy Polamalu, but that Vick was offered to Dick's to fill the spot more than six months ago. Hennion confirmed the company had chosen Polamalu, but wouldn't comment on the information that Vick was an option.

Rovell believes that Nike likely doesn't have the right to unilaterally sever its contract with Vick without penalty since morals clauses usually require conviction. Morals clauses are standard in most athlete endorsement contracts and can vary in wording.

Mark Conrad Law Professor at New York’s Fordam University offered this understanding of a morals clause to SportsBusinessNews:

The morals clause is an essential component of endorsement contracts in professional sports. It is a form of termination clause, whereby it enumerates a variety of specific reasons for termination to protect the endorser's interest in its image or the image of its products that are affiliated with the athlete.

These clauses are justified because the athlete is under constant scrutiny from the public and the media. Transgressions that may occur could cause embarrassment for the firm employing the services of the athlete, especially when the athlete is convicted of a crime or engages in acts of “moral turpitude."

In addition to convictions, frequent morals clauses prohibitions include the use of drugs (illegal substances or steroids), acts of public disrepute (exposing himself in a public place), suspensions due to poor sportsmanship and public criticisms of the product the athlete is supposed to endorse.

Although rare, an athlete may impose a morals clause on the firm he or she represents. In such a case, the athlete could cancel the contract if, for example, the company engages in controversial activities such as environmental hazards, tobacco production or refusing to back gun control regulations.

Often, the moral clause involves some of the most important negotiations of the entire endorsement contract. Because it gives one side the right to terminate the entire deal with no penalty, the drafting of the language of the moral clause is extremely important.

Whether or not Nike and Rawlings have grounds to break their contracts with Vick (remember Kobe Bryant didn’t lose any endorsements four years ago when he was accused of rape in a Bolder, Colorado incident, but several of Bryant’s sponsors choose to not renew their agreements when the term(s) ended) reaction from sports marketing people Wednesday was predictably negatively geared towards Michael Vick, his current image and what that might do to a company.

"In the consumer's mind, it's very different than in the minds of jurors," said Jeff Bliss, president of The Javelin Group, a Virginia-based sports marketing firm in an Associated Press report "Whether it's true or not, the association with that is going to be very difficult for him to overcome."

Bob Cramer, a sports marketing expert in New York suggested the obvious in an AP report – don’t expect any companies to even consider working with Michael Vick until well after the allegations have been settled and the public has an opportunity to forget about what Vick has been charged with.

"You do see a pattern that's been developing," Cramer said. "In the minds of the public, which all of these companies are marketing to, sometimes perception is reality."

"I think his reputation has already been damaged," Cramer said.

Vick also was a pitchman for The Coca-Cola Co.'s Powerade sports drink, but that relationship ended three years ago because "Powerade's brand strategy shifted from a focus on traditional sports, to non-traditional sports," spokeswoman Susan Stribling said.

Coca-Cola had an interesting day Wednesday. After learning the Humane Society planned on contracting the Atlanta based company about their relationship with Vick, the company made it clear to the media – we ended our association with Michael Vick three years ago, a classic example of a company having to do some serious damage control. The same was true at Kraft Foods who ended their association with Vick in 2005.

"There's been a lot we've been correcting all day long," said Laurie Guzzinati, a spokeswoman for Kraft, for which Vick did a promotion during the 2005 season that has since ended.

The message was the same at Coca-Cola, where Susan Stribling said the cola giant -- as well as Powerade, the company's sports drink product -- are no longer under contract with Vick, despite the athlete showing logos for both beverages on the official Mike Vick Web site. Stribling said that Coca-Cola was trying to determine who owned the site so the logos could be stripped.

Paul Swangard, managing director of the University of Oregon's Warsaw Sports Marketing Center, told the Associated Press he believes it is too soon to say Vick's days as a pitchman are over just because of the dogfighting charges, considering Nike is sticking with him for now.

"But, clearly, it reduces his upside dramatically no matter what happens," Swangard said.

"He's going to disappear, like a magic act," said Bill Sutton, a professor of sports business at the University of Central Florida. "You won't find him anywhere" in advertising or marketing in the near future.

Eric Dezenhall, a crisis management consultant, told ABC News that Vick's future as a pitchman may vary depending on respective corporate profiles.

"Whenever you have something that is viscerally offensive, there is pressure on companies to do something," Dezenhall said. "If a company's considered on the cultural cutting edge, like Nike, you might stand by a controversial person just because of street cred."

And how will the Vick’s alleged actions impact the day-to-day business of the Falcons – this from today’s Atlanta Journal Constitution and their sports business news reporter Tim Tucker: On the Falcons' official Web site, redesigned this month, Vick has gone from face-of-the-franchise to all but faceless.

The front page of the site the past two days has featured, at various times, prominent photos of players Warrick Dunn, Lawyer Milloy, Alge Crumpler and rookie Laurent Robinson — but not Vick.

"There's nothing deliberate, nothing intentional," Falcons executive vice president of marketing Dick Sullivan said. "We're rotating it around to all of the players. [Vick's] still a big part of our advertising going forward."

The indictment puts the Falcons "in a crisis," said Atlanta public relations veteran Bob Hope.

However even with that said, Vick’s indictment taking place so close to the start of the teams’ training camp will have little if any impact at the box office. 2007 season tickets are sold out, with 92 percent of last year's season-ticket holders renewing. Sales of suites, club seats and advertising signage in the Georgia Dome also have been strong, said Katy Pando, spokeswoman for the Georgia World Congress Center, which operates the state-owned Dome.

Sullivan said all but about five of the 72 suites up for renewal this year have been leased. "From a business standpoint, we're exactly where we want to be going into training camp," Sullivan said in the AJC report.

"It's obviously a setback for the fans," Sullivan said of the Vick situation, "but clearly this too shall pass and we'll be fine. We've got to start playing football again, and I think that'll make a big difference for our fan base. At the end of the day, this is a team game, not an individual game."

Despite Yahoo Sports report that suggests the NFL is going to suspend Michael Vick (the only action that makes sense if Goodell’s zero tolerance has any real meaning) it appeared early Thursday morning Roger Goodell wasn’t going to suspend Michael Vick. Falcons’ owner Arthur Blank who returned to Atlanta Wednesday from a holiday in Africa could suspend or even order the team to cut Vick, but neither scenario is likely.

According to an Associated Press report: in Atlanta, where Vick's name dwarfs all others in pro sports, about 46 percent of respondents in an overnight telephone poll conducted by Atlanta-based InsiderAdvantage think the Falcons should release Vick. About the same percentage said the team should keep him until a verdict is returned. About 8 percent of the 859 people polled had no opinion. The poll had a margin of error of plus or minus 3 percentage points.

NFL contracts are not guaranteed. The Falcons signed Vick to a 10-year, $130 million contract in December 2004. He has been paid about $44 million, including $37 million in guaranteed bonuses, and is due to earn a base salary of $6 million this season.

Teams can amortize the salary cap implications of signing bonuses, but if a player is cut, all bonuses paid but not yet factored into the salary cap must be accounted for within two years. The Falcons could apply to the NFL for cap relief. However the league historically doesn’t set precedents when it comes to offering franchises cap relief for indiscressions.

The Falcons face an estimated salary cap hit of about $6 million this year and $15 million in 2008 if they release Vick -- devastating hits to any team's budget. The Falcons could sue Vick to recover parts of the remaining bonuses money amortized over the remaining years of his contract, but it’s unlikely the team would win their case in court. The Detroit Lions successfully sued running back Barry Sanders when he retired from football, but remember Sanders retired on his own.

And the Miami Dolphins successfully sued Ricky Williams when Williams tried to retire before the start of the 2004 season. A judge ordered Williams to repay the Dolphins $9 million. Williams rethought his decision to retire, returned to the Dolphins for the 2005 season, only to be suspended by the NFL for the 2006 season. But Williams wasn’t forced to repay the $9 million once he agreed to return.

All of that said – the short answer (and there is no short answer for this complex an issue) Blank’s decision has to be based on what is in the best interest of his football team. Cutting your franchise quarterback a week before the start of training camp with Joey Harrington as your starting quarterback is a disaster waiting to happen. On the other hand, allowing Michael Vick to play on Sunday’s representing your organization might be an even bigger problem. It’s damned if you do, damned if you don’t. It isn’t easy being Falcons owner Arthur Blank today, thanks to Michael Vick.

For SportsBusinessNews this is Howard Bloom. Sources cited and used in this Insider Report: Yahoo Sports, the Associated Press, The Atlanta Journal Constitution, CNBC and ABC News.

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