Lessons to be Learned in Fashion and Apparel from 2022
Name, Image, and Likeness Deals Are on the Rise
Name, Image, and Likeness (“NIL”) agreements, which allow an individuals’ name, image, and likeness to be used to market and sell branded apparel, footwear, and other consumer goods are on the rise. On July 1, 2021, in response to the famous NCAA v. Alston case (where the United States Supreme Court ruled that the NCAA could not limit education-related payments to student-athletes), the NCAA changed its long-standing rule that forbids college athletes from benefitting from their name, image, and likeness. Since such time, NIL deals have made their way to the forefront of the sport and apparel world as many companies have invested substantial money in amateur level athletes.
NIL agreements come in all forms and fashions and are typically dictated by the terms of the parties’ agreement and the state legislation governing such deals. For example, an NIL affiliate can agree to an exclusive deal for all of a company’s products, or a non-exclusive NIL deal for limited social media sponsorship posts advertising specific goods or services. The terms of the party’s agreements dictate the parties’ obligations. School policies also help dictate what type of NIL deals are permissible for collegiate athletes. For example, the University of Michigan’s NIL Policy dictates that student-athletes are precluded from entering into agreements that would “harm the reputation” of the school, such as those concerning gambling, tobacco, or adult entertainment.
With over a full calendar year in the books since the NCAA rule changed, apparel companies have substantially increased their investment into the NIL movement. Nike has been reported to have directly compensated amateur athletes over $140 million in the past year, whereas Adidas has reportedly invested approximately $90 million. Expect this number to only increase over 2023.
Expect Licensors to Demand Broader Termination Options on Affiliate/Licensing Deals
One of the most notable business divorces also occurred in 2022, when Adidas dropped Kanye West as a brand partner for his antisemitic hate speech. The company advised they were immediately stopping production of its line of Yeezy products and stopping payments to Kanye and his companies. Adidas further said it was expected to take a hit of up to $246 million to its net income this year from the move.
The termination is sure to have long-lasting impact heading into 2023, as many brands are likely are going to consider what lessons can be learned from the story. For example, what can a brand do to protect its image, when a partner or affiliate engages in acts that harm their reputation. Generally speaking, when a contractual party engages in highly offensive conduct unrelated to the product or partnership, it is not a basis for termination of the contract. However, that is not always the case as specific termination provisions can be adopted whereby one party can terminate such an agreement if the brand representative or partner takes actions they deem as “detrimental” to the brand. Expect deals and litigation resulting from such provisions to increase in 2023.
Expect High Inventories and Big Discounts to Continue
One should also expect the discount wave to continue into 2023 when it comes to fashion and apparel. Throughout 2022, one of the biggest stories in the fashion and apparel industry was that a perfect storm occurred in 2022, whereby low inventories (caused by COVID-19’s detrimental impact on the international supply chain), rising interest rates, and fears of recessions led many retailers to stockpile inventory to avoid shortages. This occurred to such a considerable extent though, that when the economy started to rapidly decline, and consumer demand precipitously decreased, many companies were left with a substantial overabundance of inventory, and no warehouse space. For example, Nike announced in its latest quarterly earnings report that its North American inventories increased 65 percent compared to a year ago.
As a result, retailers and wholesalers can expect to be forced to offload this inventory at great discounts throughout 2023. This in turn will also likely lead to retailers seeking to terminate 2023 orders with wholesalers. Party contracts and invoice terms matter now more than ever.
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The views and opinions expressed in the article represent the view of the author and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.
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