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Cos. walk a tricky line with endorsements

Thursday - 10/18/2012, 10:38pm  ET

By MAE ANDERSON
Associated Press

NEW YORK (AP) - Nike forgave Tiger Woods after he apologized for cheating on his wife. It welcomed back Michael Vick once he served time for illegal dog-fighting. But the company dropped Lance Armstrong faster than the cyclist could do a lap around the block.

What's the difference? A marketer's prerogative.

The world's largest clothing and footwear maker has stood by athletes through a number of scandals over the years, but this week it became the first company to sever ties with Armstrong in the wake of allegations that he used illegal drugs to boost his performance during his 20-plus year racing career.

At least five other companies followed Nike's lead, highlighting the tricky relationship that evolves when marketers sign multimillion-dollar deals with celebrities and athletes to endorse their products. Everything a celebrity endorser says and does could negatively impact the company he or she represents. And when something goes wrong, companies act as the judge and jury when deciding whether to continue those deals. They consider everything from the offense itself to the fallout.

"The tighter the association and the more intimate the relationship, it can sort of be like breaking up a marriage," said Allen Adamson, managing director of branding firm Landor Associates.

Endorsement deals have been around for decades. The value of such deals are a closely held secret, but companies often shell out millions of dollars for celebrities to wear their shoes, use their equipment or appear in their commercials.

The practice is even more common in the world of sports, where companies are willing to do almost anything to have their brand associated with the high performance of a top athlete. Think: The endorsement deal between sneaker maker Adidas and soccer player David Beckham or General Mills deal to have Olympic Gold medalist Gabby Douglas appear on a box of Wheaties cereal.

Companies typically add a "morals clause" to the deals. The specific language can vary, but the clause basically allows a company to cancel the contract if a celebrity does something that reflects poorly on the brand _ or the celebs themselves.

History is dotted with companies dropping celebs after public mishaps. In 1986 the American Beef Industry Council dropped actress Cybil Shepherd as its spokeswoman after she told an interviewer that she tried to avoid red meat in her diet. And in 2007 Verizon severed ties with singer Akon after he drew widespread criticism for a sexually charged dance onstage with a 14-year-old girl during a spring concert in Trinidad.

"It's really hard to know today when an issue will spin out of control or just go away," said Adamson, the branding expert. "The cost of a celebrity endorsement is huge, so pulling the plug is a really big decision."

Sometimes letting go of a celeb can cause a company more problems. For example, apparel and underwear company Hanesbrands dropped Pittsburgh Steelers running back Rashard Mendenhall from its lineup in 2011 after he made controversial remarks about the death of Osama bin Laden and the Sept. 11 terrorist attacks over social media web sites. Mendenhall now is suing the company and seeking $1 million for breach of contract, claiming Hanesbrands wrongly terminated him. The case is still being heard in the U.S. District Court in North Carolina.

Perhaps no other company is better known than Nike for its history of having to decide the marketing fate of its celebrity endorsers. The company with the popular "Just Do It" slogan has been endorsing athletes for most of its 48-year history.

When Nike was founded in 1964, it first got attention by providing shoes to runners. Its first official endorsement was the late-runner Steve Prefontaine in the early 1970s. Nike's most high profile endorsement came in the 1980s when it inked a deal with former professional basketball player Michael Jordan. The deal is widely seen as one of the most successful endorsements of all time.

Nike, which is based in Beaverton, Ore., now spends millions each year on endorsements. Of the $7.4 billion it spent on advertising, promotions and endorsements in the fiscal year that ended in May, 11 percent or $800 million, was for endorsements. That included its sponsorship of activities such as college and professional sports teams.

As a result of its large investment in endorsements, Nike has had to make some tough decisions over the years. It stood by Woods after the golfer admitted to a string of infidelities and had a brief stint in a rehab treatment facility for sex addiction. Nike even made a TV commercial that alluded to his problems, with Wood's deceased father's voice saying: "Did you learn anything?"

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