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Be a Good Sport: Cancel the Contract

By Rich Duprey - Updated Apr 5, 2017 at 8:08PM

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Now's a good time for companies to cancel their expensive celebrity endorsement contracts.

It's not just the banks and carmakers that are suffering in these turbulent markets. Take pity on poor sports athletes, whose once-lucrative endorsement deals are getting torn up faster than a decal-littered race car flies around a NASCAR oval.

Leading the pack was General Motors (NYSE:GM), which knocked Tiger Woods into the sand trap when it severed a nine-year relationship with the pro golfer. After all, it's tough to go to Washington with hat in hand, begging for a taxpayer handout, when you're paying a celebrity sports star $8 million in cash that could keep you afloat a while longer.

Now landing with both feet on the court is basketball phenom LeBron "King" James, who finds Microsoft (NASDAQ:MSFT) rethinking what he has to do with computer software. OK, maybe I'm not the biggest basketball fan, but when I was shopping for a new laptop recently, I can assure you that points scored and rebounds didn't enter the equation.

In reality, shareholders ought to be asking management and their boards just what the heck they're doing squandering their money on such agreements in the first place. I never once bought a ticket from Continental Airlines (NYSE:CAL) just because I'd parked next to the arena with the company's name on it. I doubt that Phillips-Van Heusen (NYSE:PVH) will see me buying an Izod shirt now that the name of Continental Airlines Arena has changed to the Izod Center. And does Barclays (NYSE:BCS) think I'll be doing any investment banking when the Nets leave the Izod Center for the Barclays Center sometime in 2011? 'Fraid not.

Sometimes, there is a rational relationship between the company and the athlete. For example, you can see the symbiotic nexus between LeBron James and Nike (NYSE:NKE) sneakers -- the seven-year, $90 million contract that just happened to be the subject of the very first article I wrote for The Motley Fool almost five years ago.

But with all of the tenuous relationships that do exist between corporations and their celebrity endorsers, no one should be surprised by the chutzpah at Citigroup (NYSE:C), which decided not to back out of its $400 million contract to call the new stadium for the New York Mets "Citi Field," despite needing tens of billions of dollars from taxpayers to stay afloat.

All too often, these endorsement contracts amount to little more than a case of executives wanting to rub elbows with celebrity superstars. Now as companies struggle to remain solvent, it's a good time for them to re-evaluate the contracts they might have been too embarrassed to back out of before, and stick to their knitting of providing goods and services that consumers want to buy. Leave the celebrities on the field and on the court, and keep them out of the executive boardroom.

Microsoft is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
$291.32 (-0.26%) $0.77
Citigroup Inc. Stock Quote
Citigroup Inc.
$53.76 (-0.78%) $0.42
General Motors Company Stock Quote
General Motors Company
$38.40 (-1.51%) $0.59
Barclays PLC Stock Quote
Barclays PLC
$8.29 (-1.78%) $0.15
NIKE, Inc. Stock Quote
NIKE, Inc.
$117.04 (-0.86%) $-1.02
PVH Corp. Stock Quote
PVH Corp.
$70.39 (-0.83%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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