New Court Filings Reveal What the Nike vs. Boris Berian Lawsuit Is Really About – The ‘Dreaded’ Reduction Clause

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by LetsRun.com
June 4, 2016

Nike has made two new filings in United States District Court this week in its lawsuit against Boris Berian that shed light on what a key part of this dispute is all about – reduction clauses or, as Outside Magazine wrote in 2014, the  “dreaded ‘reduction clause.'”

First on June 1, Nike filed a motion for a Temporary Restraining Order to stop Berian “from competing in New Balance footwear and apparel in violation of his contractual obligations to Nike.” Nike then followed up on Friday (June 3) with a request to expedite everything because the Olympic Trials are coming up and Nike’s six-month period to match a contract ends June 28. From reading the new filings, it’s clear that the following happened.

Berian won USA Indoors in New Balance gear

Berian won USA Indoors in New Balance gear

New Balance presented Boris Berian an offer sheet for a three-year, $375,000 contract ($125,000 per year) that Berian wanted to sign (we discuss the details of the contract here). Berian, through his agent Merhawi Keflezighi, presented that offer to Nike to give them the opportunity to match and Nike said it would match the contract. In both filings, Nike states unequivocally that it expressed to Merhawi Keflezighi (Meb Keflezighi’s brother) that it wanted to match the New Balance offer. It filed with the court a term sheet it submitted to Keflezighi where it took the New Balance term sheet and replaced the words “New Balance” with “Nike” to show it was matching it word for word.

Nike then at some point sent over an actual long-form contract for Berian to sign and that contract would not automatically pay Berian a minimum of $375,000 over three years. Nike, by its own admission, included reduction clauses in the contract.

Reductions are clauses put in athletes’ contracts that can reduce their base pay significantly if certain benchmarks are not hit. We are not able to see how much the reduction clauses would reduce Berian’s pay if he didn’t run well because Nike did not file its actual proposed long-form contract to Berian with the court, but Sara Germano has written that one’s contract can by reduced by 25% or more.

Sidebar: Berian is far from the first athlete to have an issue with a Nike reduction clause

Nick Symmonds in his autobiography said one of the reasons he signed with Brooks and not Nike was his Brooks contract was guaranteed and had no reductions while the Nike one had reductionsMeb Keflezighi did not speak fondly of them in his autobiography and wrote about one that could reduce his base pay by 30% if he didn’t finish top 4 at a Major Marathon. His new contract with Skechers apparently does not not have a reduction clauseOutside Magazine wrote about the “dreaded ‘reduction clause”  in 2014.

In the filings this week, Nike contends numerous times that reductions are “standard in track and field endorsement contracts” and that is why it included them. It also contends that it intended to match the New Balance contract even if the New Balance contract did not include reductions (the New Balance offer sheet had zero mention of reductions).

Berian’s legal team has not filed any responses with the court. They have until June 20 10 to file a response to the initial lawsuit and presumably will file something this upcoming week in response to Nike’s latest filing asking for an expedited timeline, but the latest filings anticipate how Berian is going to respond.

In one of the Nike exhibits filed this week, there is an email from Merhawi Keflezighi where he notifies Nike of the New Balance offer and says there are no reductions. Keflezighi wrote, “In addition to the financial terms and the lack of reductions, we do consider the affiliation clause in the contract a material element of the offer.”

Nike Global Director of Athletics John Capriotti mentioned “reductions” in the letter he sent to Merhawi Keflezighi notifying him that Nike “matches the New Balance Offer… and will enter into a new contract with Boris.” In that letter, Capriotti wrote “Notwithstanding your email, because the New Balance Offer is silent on reductions and NIKE is only obligated to match the terms stated in the New Balance Offer, we will send to you a new contract which will include the stated terms of the New Balance Offer as received. However, if material terms were omitted from the New Balance Offer, such as the purposeful exclusion of reductions, please provide to us a for review a revised offer from New Balance that reflects that and all other material terms.”

Nike then sent the long-form contract that included reductions. Berian’s team presumably will argue it shouldn’t have included them and isn’t a match.

The Nike lawyers even lay out this scenario, writing, “Nike expects that Defendant will respond by arguing that Nike did not actually match the New Balance Offer because, after matching the terms of the New Balance Offer, Nike proposed a long-form agreement that included reductions, which were not mentioned in the New Balance term sheet. Yet any such argument ignores the basic fact that Nike unequivocally stated that it was matching the terms of the New Balance Offer. The New Balance Offer, which consisted of only a seven-item term sheet, was entirely silent on reductions (which are standard in track and field endorsement contracts). “

Berian won World Indoors in Nike (because all Team USA members where Nike) © Getty Images for IAAF

Berian won World Indoors in Nike (because all Team USA members where Nike) © Getty Images for IAAF

Nike contends that it believes the New Balance offer sheet would have the no reductions clause in it if it was part of the offer, writing, “At the same time, however, Nike firmly believes that any New Balance contract actually offered to Defendant included reductions, given that they are such a standard provision of endorsement contracts.”

We’ll certainly find out more when Berian files his response in the near future. The good news for track and field fans is this could be resolved — at least temporarily — before the Olympic Trials.

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Nike also believes New Balance is somehow paying Berian now indirectly and wants to find that out in discovery. Nike’s legal team wrote, “Given that Defendant has commenced competing in New Balance footwear and apparel as well as promoting New Balance product on social media, Nike also has reason to believe that Defendant is being compensated by New Balance either directly or through his track club, Big Bear Track Club…”

Competing for the Big Bear Track Club is something that Merhawi Keflezighi said was important to Berian and this was the language in the New Balance contract on that:

New Balance shall permit ATHLETE to compete under the Big Bear Track Club affiliation, and ATHLETE may wear the official uniform of Big Bear Track Club in all domestic competitions, including the US Indoor Championships and US Olympic Trials, in 2016. ATHLETE shall compete for Team NEW BALANCE and wear the Team New Balance official uniform in all international events.

Nike’s matching term sheet just replaced the words “New Balance” with “Nike”. (Editor’s note. The language, “ATHLETE shall compete for Team NEW BALANCE and wear the Team New Balance official uniform in all international events” does not make sense to us as Team USA athletes have to wear Nike uniforms for international events. If another agent knows what this means, please email us at letsrun@letsrun.com. Update at 6 pm ET. We’ve been emailed an update. International events simply mean a track meet not in the US. In the US, he can wear the Big Bear uniform but overseas he needs to wear the standard New Balance uniform.)

Berian refused to accept the money Nike wired him. One thing that will have to be sorted out once this lawsuit ends is does Berian get paid for what he’s already done in 2016? He was to be paid $125,000 according to the New Balance contract which is roughly $10,000 a month. He also has already earned $20,000 in bonuses in 2016. So Berian would have earned roughly $70,000 by May 31.

Nike is not suing Berian for damages and in February their lawyer sent Berian a letter outlining Nike’s legal position, but it also said, “NIKE remains extremely enthusiastic about continuing to work with you and is committed to maintaining a positive and mutually beneficial working relationship in the future”:

In his January 22, 2016 letter, Mr. Capriotti noted that the written terms of the New Balance offer were silent with respect to the type of reductions that are common in track and field contracts. Mr. Capriotti therefore asked you to confirm whether reductions or any other material terms were excluded from written terms you provided to NIKE. Such information is necessary for NIKE to honor its commitment to match all material terms of the January 20, 2016 New Balance offer. Because NIKE has already agreed to match such however, it has invoked its right of first refusal, which precludes you from negotiating further with New Balance for a new or revised offer. We want to be clear that NIKE remains extremely enthusiastic about continuing to work with you and is committed to maintaining a positive and mutually beneficial working relationship in the future. Nonetheless, NIKE is also committed to enforcing the terms of its sponsorship agreements and it is prepared to take all necessary legal action to preserve its contractual rights.

Capriotti wrote Merhawi in January and said, “NIKE is delighted that Boris will remain part of the NIKE family.”

However, one thing Merhawi Keflezighi made clear to Nike early on was the Berian did not want to continue the relationship with Nike.

That definitely is the case now as Berian sent out a series of tweets and retweets on Friday.

Quick Take: What happens when Nike says it wants to match the contract but then submits one that doesn’t match no reductions? Are Berian and crew then required to give them a chance to match or can they just say ‘that’s not a match’ and sign with New Balance? That is the question upon which the fate of the whole case rests.

More on the Contract: LRC Find Out What Pro Track and Field Runners Make: Boris Berian’s New Balance Contract Offer Revealed

June 1st Temporary Restraining Order And Exhibits:

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June 3rd Request For Preliminary Injunction And Expedited Discovery

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Download (PDF, 80KB)

 


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