Under Armour stock used to go up when the company had another ho hum quarter of consecutive double digit growth. Now Under Armour’s only chance to excite investors seems to they cut costs.
On Monday, investors approved Under Armour unilaterally saying they would terminate their deals with UCLA and Cal, which have approximately $180 million in cash combined owed to them, as its share price rose more than six percent.
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It’s odd. Because this type of cost cutting is actually going to wind up back on their plate — and it doesn’t take a legal degree to figure that out.
When things started going south for Under Armour, they reneged on a deal to be the official apparel maker of Major League Baseball. Luckily, for them, Nike was there to save them.
And then when things went further south, they asked their endorsers if payments to them could be delayed a bit. This, to add insult to injury, along with the yearly share decline of nearly 70%, which athletes also felt because of the equity piled on top of their deals.
But the letting go will not end now. Sure, there are business deals in society which have been undone in the COVID-19 era, but undoing a college licensing deal is not one.
Under Armour’s excuse is that it paid up front for UCLA and Cal rights this year and didn’t get what was promised.
There’s a slight problem with this of course.
Did they say the same thing to Auburn or Notre Dame? Their contracts use virtually the same boilerplate. And no, the “we paid for something we didn’t receive” is not legally meant to say “something happened in the world.”
It’s there to say that if a school decided on its own to change the product that Under Armour paid for, UA could get out. But that’s not what this pandemic is. Everything has been canceled.
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And then there’s the other problem — they haven’t missed anything. UCLA would have played a couple Pac-12 tournament games and maybe a game or two in the NCAA Tournament, but the football season wouldn’t have started and that’s where most of the money is pushed to in this deal. Cal wouldn’t have made the NCAA Tournament.
Under Armour flimsily believed that giving UCLA and Cal huge money would boost their business out west. It hasn’t really done so. And pulling the rug out now and being forced to be dragged through the courts is certainly going to undo any gains they made.
Monday’s gains in the stock market are the result of some short-sighted investors who believe Under Armour will get away with terminating their deal.
They won’t. And when they have to write down the required settlement, those same investors won’t be as happy.
