In just a little more than a week, Ryan Lochte went from lauded Olympic swimmer to ugly American. As of Monday, he had also became a much less wealthy American, as four companies decided to quit sponsoring him after he misrepresented a series of events at a Rio gas station. Speedo, Syneron Candela (whose products include a line of hair-removal devices), and Airweave (a mattress maker) terminated their contracts with Lochte, while Polo Ralph Lauren said that it had no plans to renew its relationship with him. (Lochte had appeared in pre-Olympics ads for the company.) What the companies’ relatively swift action showed was that Lochte had chosen the wrong era for misadventure: these days, companies are much quicker to cut athletes loose for even the appearance of bad behavior. And, given Lochte’s lunkheaded deceptions about being robbed in Rio, it was hard to see any company benefitting from being associated with him.
It wasn’t always thus: when Kobe Bryant was accused of sexual assault, in 2003, Nike kept him on its roster, and it waited a month after Michael Vick was indicted for running a dog-fighting ring before terminating his contract. But, while endorsements remain enormously lucrative for athletes (the top hundred endorsers earn almost a billion dollars a year, according to Forbes), the endorsement economy is very different from what it was even a decade ago. Nonstop gossip-media outlets and the explosion in social media have made it much harder for athletes to misbehave without getting caught. (One might also point to the proliferation of security cameras, which played a key role in undermining Lochte’s story and in documenting the football player Ray Rice punching his fiancée in an elevator.) Couple that with a diminished tolerance for bad behavior by athletes, and companies are far more aware of how endorsements might backfire on them.
That doesn’t mean that companies have given up on athletes. The practice of affiliating your product with a high-profile spokesperson—and basking in his or her reflected glory—is deeply rooted in the advertising world. There is even evidence that it works. The impact on stock prices appears to be small, but a 2012 study by Anita Elberse and Jeroen Verleun found that, on average, athlete endorsements boosted sales by four per cent, and that further achievements by endorsers (additional championships, Olympic gold medals, and so on) continued to send sales higher, though at a diminishing rate. Social media, for all its downsides, has also expanded the reach of athletes who use it well, making someone like Damian Lillard, the star point guard for the Portland Trail Blazers and an avid user of social media, a far more effective spokesperson for Adidas than he would have been before Facebook, Instagram, and Twitter.
While companies remain convinced that it makes sense to sponsor athletes, they’re also more cautious about how they do it, because the reputational risk when things go wrong can be so substantial. The key moment in this evolution was, of course, the Tiger Woods debacle, during which the companies that he endorsed lost billions of dollars in market capitalization, according to a study by Chris Knittel, of M.I.T., and Victor Stango, of the University of California at Davis. As a result, companies are now far more likely to sever relationships with endorsers quickly, as Speedo and the rest did with Lochte, than to wait for the story to play out. It’s also easier for companies to do this, because the so-called morals clauses in endorsement contracts have been expanded to cover a much wider range of behavior. Contracts also tend to be shorter, with year-long deals increasingly common. Companies are also much less likely to make big bets on a single spokesperson—if they can afford it, they sign up a team of endorsers (as Subway has done with athletes), thereby lessening the impact of any one athlete messing up. Of course, there are exceptions—people like LeBron James and Peyton Manning, who combine high name recognition with an air of reliability, are still getting long-term contracts at high prices. But, for lesser lights, the endorsement economy is much tougher and less forgiving than it once was. It’s something Ryan Lochte should probably have kept in mind before telling Billy Bush that he’d been robbed at gunpoint.
