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LSU Bungling Contract Negotiations of Nike Case Study

 

Case Study

By

William Saunders, J.D.

Just Do It becomes Don’t Do It, the bungling contract negotiations of Nike, Inc with Allyson Felix.

OVERVIEW

Nike Inc., a multinational corporation, located in Beaverton, Oregon is the largest supplier of athletic apparel in the world. In 2020 it had a brand value of $30.44 billion. The company offers apparel for both men and women and in a recent ad invited all to celebrate “The Greatest Dynasty Ever, the USA Women’s Gold Medal Basketball Team”. There is no doubt that Nike values the market of women. However, a decision made with regards to contract negotiations with Allyson Felix proved to be a public relations nightmare for the company.

Allyson Felix, a world class track runner, who represents Nike, signed a seven- year contract with the company in 2017. In 2021 she won her 11th Olympic medal which made her the leading medal recipient in Olympic history. Her background is just as golden. From a high school star athlete, she made an immediate jump to the professional ranks. She was an icon who became one of the most well-known faces of the company in addition to being one of the most marketable. When one would visit a Nike store, a life sized poster of Allyson Felix was on the wall and in all events she promoted the Nike brand. She symbolized the company’s motto, “Just Do It”.

POTENTIAL LEGAL VIOLATION

The Pregnancy Discrimination Act of 1978 prohibits discrimination on the basis of pregnancy or temporary disability because of pregnancy. The act provides for monetary damages and a remedy for emotional distress.

FACTS

Nike saw the value that Allyson Felix could bring to the company. While she was in high school, she was named the High School Athlete of the Year. Nike became her sponsor in 2000. At the age of 18 she won a silver medal in the 200m race at the 2004 Olympics, a feat she repeated in 2008. In 2012 she won the gold medal in the same event. In addition, she ran on relay teams which resulted in other medals, the last of which was at the age of 35, was the 400m gold medal relay team in 2021.Her feats were historic.

However, the value of Allyson Felix surpassed the threshold of athletics. She was elegant, humble and became a symbol of excellence and determination. As a spokesperson for Nike she was the rare example of a person who transcended the epitome of individual greatness, and her natural love for all people was infectious.

Recognizing what Allyson Felix could bring to the company, Nike entered into a seven-year contract with her in 2010. That contract was set to expire in November 2017 during the same time Allyson Felix had made the decision to become a mother. During the contract negotiations Allyson Felix requested that Nike contractually guarantee that she wouldn’t be punished if she didn’t perform at her best during her child birth period. Nike refused that request and offered a 70% pay cut. Felix rejected that offer and subsequently left Nike and eventually signed a contract with Athleta, a subsidiary of Gap, Inc, and has since started her own shoe brand called Saysh. In her last victorious race, she wore a shoe that was designed by her new company. Because of the ill-fated contract negotiations, a tremendous amount of pressure was cast upon Allyson Felix. She was faced with a loss of income, a potential tarnishing of her pristine image, while simultaneously battling a pregnancy complication called pre-eclampsia. This was an extremely stressful time for Allyson Felix, who eventually had to have an emergency C-section at 32 weeks to deliver her beautiful baby Camryn.

In the aftermath of the broken contract negotiations, Nike has changed its policy and expanded its payment protection and now provides guaranteed compensation to pregnant women and new mothers athlete for the 18 months surrounding childbirth. In addition, Nike released a one-minute commercial celebrating pregnant women and athletes.

Discussion

  • Can you defend the actions made by the Nike representatives during the contract negotiations with the representatives of Allyson Felix?
  • Should Allyson Felix have been more flexible in her contractual demands? Why or why not.
  • Was the position taken by Nike a violation of the Pregnancy Discrimination Act? Why or why not.
  • If you were the representative for Nike what would have been your advice to management?
  • If you were the representative for Allyson Felix what would have been your advice to her?
  • Do you think Nike’s response has been sufficient? Did they have to make a response?
  • What implications can the initial decision by Nike have on other organizations?
  • What will be the possibility that Allyson Felix’s position will make her an advocate of future mothers?
  • Allyson Felix signed contract with Athleta, Inc, a female centric company. The company also signed the greatest female gymnast of all time, Simone Biles. The company motto is the “Power of She”. Do you think the signing of these two great female athletes will affect Nike, Inc. earnings?
  • Since the contract between Nike and Allyson Felix had expired, did Nike have any legal obligation to offer Allyson Felix any different terms than they did?

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