Here's the deal -- we're told Jaws did, in fact, ink an endorsement with a plant-based food company to promote its glizzy product ... which is a major no-no with Nathan's Famous and Major League Eating, as competitors are prohibited from partnering with rivals.

As it stands ... Chestnut cannot compete at the contest in Coney Island on Independence Day if he goes through with that sponsorship.

Why is it such a big deal?? This comparison was made to us -- it's like if Michael Jordan went to Nike and said he was going to sign a deal with Adidas at the same time. It wouldn't make sense, right??

But if something were to change on Joey's end -- like if he were to back out of that contract -- it would pave the way for him to defend his dominance in three weeks.

We're told MLE absolutely LOVES Chestnut and there is no animosity or beef (no pun intended) whatsoever ... and the org. did everything it could to try and make it work -- but ultimately, rules are rules.

If Jaws goes through with his plant-based company deal, he's out of Nathan's contest until that expires ... and if/when that day comes, MLE would welcome him back with open arms.

In other words, if the deal goes away, he's in the clear.

For what it's worth, we're told Chestnut didn't try to get the org. to let him eat plant-based dogs on stage instead of Nathan's tube steaks ... it's strictly due to the endorsement outside of competition.