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How The Jared Fogle Scandal Is Going To Impact Subway [e218]

Nasir and Matt close out the week by discussing the fallout of Jared the Subway guy and how his sponsorship will impact the company.

Transcript:

NASIR: All right. Welcome to our podcast where we cover business in the news and add our legal twist to that business news. My name’s Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: Eat fresh. Subway.
MATT: You got it.
NASIR: Sad story but we have to cover it.
MATT: Yeah. Well, probably not too much will happen between when we record and when this episode gets released. I think most of it has kind of fallen out. For those of you that don’t know, Jared Fogle, he’s definitely one of, probably the biggest spokesman. They have athletes all the time.
NASIR: They do, yeah.
MATT: But I think everybody knows who he is – the guy who lost over 200 pounds or something like that, you know. Basically, he was obese and would walk to Subway every day. Unfortunately, at my alma mater but that’s fine. He would walk back and forth every day, get whatever, I forget what the subs he got. He got a six-inch turkey sub for lunch and a foot-long veggie for dinner or something, I don’t know. Walked there and lost a bunch of weight, become famous. Well, he’s still going to be famous but he’s probably not going to be with Subway any time soon because he got dinged and he’s going to enter a guilty plea now – at least as of reading this – for child pornography charges. I think his foundation that he had, the guy who was running that I think got brought in for similar charges earlier in the year, maybe last year, tried to kill himself in prison, didn’t work.
NASIR: Yeah, if you read the details, I don’t really want to get into it because the details will just make you sick.
MATT: Pretty rough.
NASIR: But it’s not only child pornography but also illicit sexual conduct with a minor.
MATT: Yeah.
NASIR: At least that’s what he’s pleading guilty to but, even with the pornography that he had, apparently, it had to do with that founder. Anyway, that’s not the big point of all of this but just really sickening all around. But, nonetheless, I mean, what the heck do you do from Subway’s perspective? I mean, this guy, I mean, I think his net worth now – I don’t know now but at the top of his game – was around $15 million or so, according to the New York Daily News a few years ago. They were paying him quite a bit of money. You know, Subway has had huge success since then. I mean, they’ve had other successes with their $5.00 foot-long promotion and so forth but this guy was Subway, you know. If you asked who the spokesperson was, it would be Jared. Now, they had him do a pretty quick exit and they found, I think, when he was first arrested which was about a month ago is when they first heard about this and they ceased their relationship.
MATT: Yeah, and like you said, I mean, this happens all the time, it just happened with someone that – well, in Donald Trump’s case, he was more of a prominent figure.
NASIR: Yeah.
MATT: If you recall back to – I don’t even know how many years it’s been – I think 2008 if I call the Tiger Woods stuff.
NASIR: Yeah, that’s right. He lost sponsorships too but they brought them back, right, eventually?
MATT: Yeah. I mean, I don’t think Subway’s bringing…
NASIR: No, they’re not bringing him back. Well, Lance Armstrong lost a bunch of deals after they found out he admitted to doping or whatever the story is. I don’t remember.
MATT: Yeah, I’m thinking like Michael Vick and stuff too. But this is an instance where it’s one guy who I’m sure he probably actually has other or he had other sponsorships, but he’s basically known for being the sponsor of one company – not vice versa.
NASIR: I don’t think so. I don’t guarantee it but I bet you that Subway made an exclusive deal with him because, again, he was Subway.
MATT: Yeah.
NASIR: I’ve had clients that have had celebrity sponsorships. It’s not an uncommon way for marketing, even for small businesses, because you can get B-list celebrities or C-list celebrities if you want – you know, if you want to pay them money – and they can be very helpful. Even getting them to tweet or somehow endorse your product or service and so forth, it’s not too uncommon. But what happens if one of these guys goes off the rocker and does something crazy and sick like that? You have to be able to get rid of him.
MATT: Yeah, it’s one thing if you have the sponsor that comes out and says something stupid. I mean, this is pretty bottom of the barrel stuff. It depends who you ask but some people view this as the worst thing you can do. In terms of a crime, I mean, other people might say murder and stuff like that, but it’s down there. It’s end of discussion. Like you were saying, it’s one thing to recover from something minor but this is a full-on he’s been their sponsor for like fifteen years because I think they started in 1999 or 2000. I mean, this is going to be a big recovery for them. I don’t know. I’m just looking at their Twitter now and this came out and it said, “His actions are excusable, do not represent our brand’s value.”
NASIR: Inexcusable.
MATT: Did I say excusable? Sorry. “His actions are inexcusable.”
NASIR: That was a gaff. No one’s going to hire you for their sponsorship.
MATT: Can’t even read. Ah. The interesting thing too is, like I said, they have all these other athlete sponsors because, you know, it’s supposed to be healthy sandwiches. If you’re an athlete like Mike Trout who is a baseball player if you don’t know.
NASIR: I don’t.
MATT: If you’re someone like Mike Trout, I’m probably walking away from this sponsorship and just breaking whatever I have because I don’t want to be involved in this company either so it’s not only they’re going to have major PR. It’s these other people they’re paying as well.
NASIR: Yeah. I mean, I didn’t even think about that aspect of it but, from the company’s aspect, let’s assume that Subway did its job in structuring its contract correctly because sometimes it’s not as obvious as making just the term contract that you can cancel any time because, you know, there’s advantage of having long-term agreements too with the celebrities. At the same time, you have to be able to find a way to break it up in the contract. And so, there is such a thing – in the industry, they call it a “morals clause” and it has different terminology – but basically it’s language that kind of limits their behavior to something what is disreputable or contemptable and scandalous and you can have all these different adjectives of what is deemed as negative behavior and kind of leave some ambiguity to it to give some flexibility from the business perspective – the business owner’s – to terminate the agreement. That may be something obvious but there’s other ways to kind of mitigate your risk too. For example, you don’t have to pay royalties. You know, a lot of times, these endorsement deals are a percentage of gross sales or net sales, depending on however you want to do it. Just because they’ve been earned doesn’t mean they should be paid over time. Sometimes, it may be necessary to spread out those payments and then clarify what they can and cannot do. I bet you, for example, Subway had a morals clause in there. I bet you, Subway had some exclusivity as far as Jared’s ability to be sponsored for, at the least, another sandwich company but probably any food-related company whatsoever or maybe even any other endorsement deal.
MATT: Here’s a question I just thought of and you probably won’t have the answer – well, maybe you will, I don’t know.
NASIR: Wheat. Is it the type of bread that I like?
MATT: Yeah, that was the second question.
NASIR: Oh, okay.
MATT: Obviously, the whole point of him being their main sponsor was the story of him losing all that weight by walking to Subway every day. In this agreement – he obviously had some sort of agreement – I wonder if there’s any sort of termination clause based on…
NASIR: If he gains weight?
MATT: Yeah.
NASIR: Oh, yeah.
MATT: I thought of it because, when he got arrested, he wasn’t that thin, I noticed.
NASIR: No. To be fair, even when he lost his weight, it’s not like he was a strapping thin lad there. He had a little bit of a gut there. He did lose a lot of weight. I guess it was all comparison to before. It does seem kind of intrusive but you can draft contract agreements in that fashion, especially in that kind of nature which permits termination based upon that, but I’m sure also they paid for nutritionists and for fitness trainers or what-have-you to make sure he maintained that weight.
MATT: Yeah. I mean, I’m sure they were taking every precaution for that so he doesn’t gain. I mean, who knows what his contract was, too. It could be a year-by-year arrangement. I mean, in all real honesty, where is he going to go? He’s not going to leave to go be a sponsor of some other company. No one’s going to care about him anymore.
NASIR: No.
MATT: That was obviously before.
NASIR: Now, he’s going to jail and I think the guilty verdict – or I should say the guilty plea – I think they gave him a range of at least a minimum of five years, right? He’s going to serve time.
MATT: Yeah, I believe, if I remember correctly, they’re going to recommend, the plea was somewhere between five and ten years basically is what’s going to be presented.
NASIR: Yeah, okay.
MATT: Pretty serious and I think his wife just filed for a divorce yesterday, too.
NASIR: Oh, man. Assuming this is a shock to her but that’s like, I mean, there’s just so many ramifications of all that. She should joined all the other divorcees from the Ashley Madison leak which we covered that a few weeks ago. At the time, somehow Ashley Madison was using those DMCA requests to keep the information off the web but apparently they just did a huge data dump and, now, I’m sure you can find it somewhere. There’s even a website where you don’t have access to the database but you can search particular names to see if you’re on there in care you’re worried, anyone out there.
MATT: Yeah, and we did talk about it a couple of weeks ago. I guess they set this deadline to do whatever needed to be done and they didn’t. They said, “Well, here we go, round one!”
NASIR: That was just round one?
MATT: I thought so.
NASIR: Wow.
MATT: Or maybe I could be wrong, I don’t know. I didn’t look at any of the information.
NASIR: I’ve just seen some statistics. It’s a lot of info.
MATT: I guess I assumed it was round one because I thought there was just another release of information yesterday.
NASIR: Yeah, that’s a nice little tie-in update from previous.
MATT: Yeah. So, I guess, for companies, if you’re going to go with a sponsor, do a made-up one like a cartoon character or something.
NASIR: Yeah, a cartoon character that can do no wrong.
MATT: Yeah.
NASIR: That’s one way to do it. I mean, honestly, I’ve seen some tremendous success in celebrity relationships. A lot of times, these celebrities – this is kind of just a business tip I guess – you’d be surprised, I mean, they don’t mind taking money on the back-end and that’s pretty huge. If you can spark a deal like that, it’s pretty cost-effective. The hard part is really finding what they’re supposed to do for that percentage and in maintaining that because, a lot of times, especially in these endorsement deals, you’re expecting some kind of increase of sales because of their publicity and, if you’re able to tie that increase of sales to their publicity to kind of give some onerous on the celebrity spokesperson to perform, that’s always pretty helpful but, you know, you can’t always negotiate those kinds of deals.
MATT: What do you think for businesses if they can pull that lower level celebrity? Do you think it’s worth it for them to pay them?
NASIR: I think so. Like I said, I’ve seen some success. I mean, you’ve seen these Twitter – not even celebrities but you see these Twitter people or Instagram that have a bunch of followers, they get paid just for testing a product and taking a picture about it. There can be definitely value in that. Almost every celebrity, especially B-list celebrities, that’s what they do. That’s how they make some side money.
MATT: Well, they just came out with Lebron James’ sponsored tweets are valued at $140,000 per tweet. If it reaches all the characters, $1,000 per letter or per space, because they get so many followers and – I don’t know – I guess that’s how they value it – $140,000 per sponsored tweet.
NASIR: There you go, and I imagine, I mean, obviously, most celebrities aren’t even going to come close to that, even if it’s $5,000 for a tweet, right? That’s good money for even a lower level celebrity and it’s effective if you have a good product, you want exposure and so forth. There was one band that we did; I didn’t even know who the band was and my law clerk told me this was a famous band. I didn’t even realize who it was until later and I didn’t even understand. It was a different genre of music that I wasn’t familiar with. It was Aerosmith – no, I’m just joking.
MATT: Aerosmith? Not surprised by that story.
NASIR: I wasn’t aware of it?
MATT: Yeah.
NASIR: I don’t think I’ve told you about that contract. I bet you, if I told you the band name, you would not have heard of it.
MATT: We’ll talk off-air.
NASIR: I’ll type it to you right now and let’s see. Have you heard of them?
MATT: I don’t think so.
NASIR: See, I told you. They’re pretty up and coming.
MATT: Yeah, all right. I take back what I said about you.
NASIR: All right. Well, I think that’s our show – sponsorships. Jared is… I don’t know… I have no adjectives to describe him. He’s not worth it.
MATT: Yeah, he’s probably going to be forgotten. Even when he’s out of jail, he’s probably just going to disappear, I would think.
NASIR: Oh, yeah, very true. That header image on Subway looks pretty good but I am hungry so…
MATT: Yeah, as always. I guess I can say, “As always, keep it sound and keep it smart.”
NASIR: That’s what I thought you were going to say. But, as always, I am also hungry. All right. Have a good one.

Nasir Pasha & Matt Staub

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