On October 19, prediction-market platform Polymarket pulled a contract from its international site that had invited users to wager on whether felony sex-crime charges would be brought against seven defendants in a widely reported civil sexual-assault lawsuit involving college students. The market drew more than $450,000 in trading volume before it came down. But the most pointed criticism was not aimed at Polymarket alone. Advocates turned directly to the company’s celebrity endorsers, a roster that reportedly includes LeBron James, Derek Jeter, Eli Manning, Sue Bird, Reggie Bush and Richard Sherman, and asked whether they “really want to be associated with this.” Similarly, Tim Tebow recently announced a pause in his relationship with Life Surge, as his team reviews troubling allegations concerning the organization’s financial and business practices.

None of the Polymarket athletes created the market, approved it, or, in all likelihood, even knew it existed. Tebow, for his part, has said he was unaware of the practices alleged, and Life Surge disputes the reporting. Yet these celebrities’ endorsements were almost immediately linked to the respective companies’ controversies; and in Tebow’s case, reporting suggests that his association was part of why attendees trusted the organization in the first place.

For athletes and entertainers who are party to endorsement agreements or other brand partnerships, the lesson is clear: when you lend your name to a brand, you might also unknowingly take on the brand’s conduct – and you rarely control it.

When Reputational Risk Becomes Legal Liability

If the Polymarket and Life Surge episodes illustrate reputational exposure, the collapse of the crypto industry in 2022 demonstrates how quickly that exposure can turn into litigation. After FTX, Voyager Digital and Binance-related failures wiped out billions in customer assets, plaintiffs filed class actions in the Southern District of Florida naming nearly a dozen athletes, teams, leagues and other sports figures, including Tom Brady, Stephen Curry, Shohei Ohtani, Shaquille O’Neal, Naomi Osaka, Cristiano Ronaldo, Mark Cuban and the Dallas Mavericks. Their theory was straightforward: by promoting the platforms, the endorsers promoted unregistered securities and failed to adequately disclose what they were paid to do so. Plaintiffs’ lawyers described potential cumulative exposure in the millions, or even billions of dollars. Many of those claims were ultimately dismissed, while other defendants paid to settle.

Those suits also followed years of SEC enforcement against celebrity “touting,” including settled charges against Floyd Mayweather Jr. and DJ Khaled in 2018, a $1.26 million settlement with Kim Kardashian in 2022 and a settlement of approximately $1.41 million with Paul Pierce in 2023 — the last of which also involved allegedly misleading promotional statements.

Importantly, the successful defenses raised by athletes – including, for example, that their ads never mentioned the challenged products; that they promoted the company only in a specific foreign market; or that they had no knowledge of the alleged misconduct – are far easier to establish  (and some can be guaranteed) with a carefully negotiated contract.

Prediction markets have emerged as a prominent new endorsement category, and they sit in a legally unsettled space of their own, with regulatory scrutiny of prediction-market promotions reportedly intensifying. The parallels to 2021-era crypto are hard to miss.

One Way to Mitigate the Risk: The Reverse Morals Clause

Traditional so-called “morals clauses” protect the brand, allowing it to terminate the contract if the talent engages in conduct that brings the brand into disrepute. By contrast, a “reverse morals clause” gives the talent the same right when the brand is the problem. Many talent agreements contain no such clause; and those that do often limit it to criminal charges or misconduct by senior executives. The Polymarket episode, for example, shows why that is too narrow: offering a distasteful product is neither a crime nor executive misconduct; yet it generated precisely the association the talent would want to escape.

Talent and their counsel should therefore carefully negotiate reverse morals clauses that:

• Reach the brand’s products, platforms and offerings (not just its people), including offerings by affiliates and on non-U.S. platforms;
• Use a practical trigger, such as conduct that subjects the talent to public disrepute, contempt or scandal, or that is reasonably likely to harm the talent’s reputation, as determined in the talent’s reasonable discretion;
• Include regulatory and solvency triggers, such as a government investigation or enforcement action, loss of a license, or an insolvency event; and
• Protect the economics on exit, so the talent keeps fees earned (and ideally guaranteed fees) and the brand must promptly pull existing advertising.

Beyond Morals Clauses: Six Provisions Worth Negotiating

1. Indemnification, backed by insurance. The talent should ask the brand to defend and indemnify the talent against third-party claims arising from its products and business, expressly including securities, consumer-protection, and regulatory claims. Because an indemnity is only as good as the indemnitor’s balance sheet, the talent should also ask to be named as an additional insured on the brand’s policies.
2. Regulatory representations and warranties. The brand should represent that its products are lawfully offered in each jurisdiction where the campaign runs, are not securities (or are offered in compliance with securities laws), and are not the subject of undisclosed investigations, with an ongoing duty to notify the talent promptly if that changes.
3. Content control and scripted claims. Approval rights should extend to every use of the talent’s name and likeness, and the agreement should prohibit statements about investment returns or specific financial products. If the talent never mentions a product, the contract should make sure the brand never puts those words in the talent’s mouth.
4. Compensation and disclosure. Payment in tokens, equity or other brand-linked assets can strengthen an argument that the talent is a promoter with a stake in the product. Where any doubt exists, the brand should be responsible for compliant disclosure of the talent’s compensation under the securities laws and the FTC’s Endorsement Guides.
5. Territory and platform scope. Define precisely where, and in connection with which products, the talent’s name may be used. Scope limits should be explicit, not inferred.
6. Payment security. Consider front-loaded or escrowed fees and an understanding of preference and claw-back risk if the brand later files for bankruptcy.

The Takeaway

Endorsement agreements are often negotiated around money, term and exclusivity, with risk allocation treated as boilerplate. The past four years suggest that approach is backwards. When the brand operates in a novel or lightly regulated space, the provisions that allocate reputational, regulatory and credit risk may matter more than the fee. Talent and their representatives should insist on them at the outset, when leverage is greatest, rather than discovering their absence in a headline or a complaint.

Disclaimer: This alert is for informational purposes only and does not constitute legal advice.