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Under Armour Seeks to Cancel Its $280 Million Sponsorship Deal With UCLA

By James Brumley – Jun 29, 2020 at 11:32AM

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The sports apparel brand argues it's not receiving all of its contracted value, though cash conservation may also be a motivation.

Athletic apparel brand Under Armour (UA 1.03%) (UAA 2.24%) is looking to cancel an expensive agreement it made with the University of California, Los Angeles (you know it better as UCLA) back in 2016. The 15-year agreement, which took effect beginning in 2017, not only made Under Amour the supplier of the university's athletic team jerseys, but also offered related promotional benefits as well.

The apparel maker said in a statement supplied to several news outlets on Saturday: "[W]e have been paying for marketing benefits that we have not received for an extended time period. The agreement allows us to terminate in such an event and we are exercising that right."

Handshake ripped apart by Under Armour

Image source: Getty Images.

It's not clear if the marketing benefits in question are linked to recent coronavirus-related cancellations of college sporting events, a deterioration of UCLA athletics programs' overall success (its football team hasn't had a winning season since 2015), or both. Regardless, the contract is a costly one for Under Armour at a time when consumers' interest in the brand is weakening. The sponsorship deal first negotiated in 2016 was and still is the biggest such deal on record, yet the company's net revenue only grew 1.4% last year. Operating cash flow fell nearly 19%. In May, it revealed plans to reduce 2020's operational spending by $325 million.

UCLA isn't acquiescing just yet, if it ever will. It responded in its own statement, "We are exploring all our options to resist Under Armour's actions."

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.

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