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Sports Law Scoreboard

An Inside Look Into The Legal and Business Side of Sports

UFC Hit with Antitrust Suit: Take That You Pencil-Necked Geek!

Posted in Sports Business and the Law

Mixed martial arts is now the site for an antitrust suit. Over the last few years, the UFC has consolidated the competition and now arranges fights in a boxing-like fashion. Senator McCain once described the sport as little more than cockfighting by humans, but the sport managed to establish guidelines that eviscerated threatened regulation. Perhaps the competitive spirit migrated to anti-competitive practices. The smart money says that management should be seeking legislative exemption a la the NFL or the de facto exception for baseball, which has been a favorite of appellate judges who have declared it a game and not a business.  The case is pending in San Francisco, where I am spending the holiday. To be continued.

Coaches and Schools Play Fast and Loose with Contracts

Posted in Sports Business and the Law, Sports History

Leaving a job is easy – if not stressful – for almost the entire population: you leave on your own accord or are asked to leave by your employer. Some people have employment contracts which provide specific compensation or benefits upon separation; other people sign agreements with specific clauses which bar them from using their skills in a specific geographic location or directed at a certain clientele (aka, “non-compete clauses”). 

Employment contracts are a powerful instrument. They dictate the conditions of employment, the compensation of the employee and the circumstances which could result in their dismissal. The idea of termination by “cause” is usually defined by the employment laws of the state, but typically means behavior which any reasonable person would identify as “wrong.” It usually doesn’t mean incompetence, though gross negligence would fall into that category. An employment contract serves to secure both the employer and the employee in the employment arrangement.

All of those concepts, however, go out the window in the world of professional and college athletics. Everyone knows and basically understands that contracts in the world of professional athletics are ruled by the collective bargaining agreements of the sport. Football is notorious as being the most dangerous sport with the least amount of guaranteed money. Seeing a player cut from the roster one year into their three year “contract” happens all the time.

Increasingly, however, is coverage of the machinations of how coaches change jobs. The NFL has had “Black Monday” coverage for years – when coaches get fired the Monday after the last game of the year. Like the athletes they coach, coaches, typically sign multi-year contracts.  These “employment contracts” offer some security, yet every year at this time the proverbial “coaching carousel” starts with coaches fired and others hired away from their jobs in the middle of their contracts.

Let’s use college football as an example. Having just finished the regular season, college football programs began firing and hiring their coaches (some before the season ended) immediately. Athletic Directors hoped onto their schools private plane to begin recruiting other coaches to fill their vacant positions. How can this happen so easily? How can Wil Muschamp be fired with three years left on his contract? He wasn’t fired for “cause” (Florida fans would argue losing to Vanderbilt and Georgia Southern – in the same season – were crimes in of themselves), but he was nevertheless terminated from his job and will be paid $2 million per year until his contract expires in 2017, notwithstanding any off-set from his contract to be the defensive coordinator at the University of Auburn.

Coaching football is not too different in some respects than many jobs, except the determination of success or failing to meet expectations can be easily identified in the Win/Loss column. A college coach – be it head coach or assistant – signs a contract with the university. It is often a multi-year contract with incentives for specific achievements and other benefits beyond their salary.

Unlike almost any other industry, however, college football coaching appears to skirt all the accepted contract principles when it comes to hiring and firing. As seen by the situation with Wil Muschamp, and his successor, former Colorado State University head coach, Jim McElwain, universities do not honor contracts or have any issue actively recruiting a new coach away from his current employer. Jim McElwain had Florida’s athletic director, Jeremy Foley and his staff at his house December 1st – despite that CSU still had a bowl game to play (which they lost). Five days later, he was announced as their new head coach. How can it not be said that Florida has tortuously interfered with McElwain’s contract with CSU? The easiest – and probably the truest answer – is that no one cares enough to raise, let alone enforce, that issue. In other words, this is the business of college coaching. If CSU pursed damages or an injunction against Florida for stealing their coach, how attractive will that job be for the next coach if he knows the university will actively try to block his chance at a higher profile job? Not only that, CSU would effectively be hobbling itself in its coaching search by not being able to do to some other university exactly what Florida did to them.

Schools and coaches do have additional options, however. A great example of the fluidity of coaching is at Arkansas State which has seen three coaches leave in the past four years for high profile jobs: Hugh Freeze went from offensive coordinator, to head coach, to his current position as head coach of Ole Miss; Gus Malzahn took over for a year before leaving for the head job at Auburn University, and; Bryan Harsin spent a year as head coach before moving up to Boise State.  Rather than fight against their coaches signing multi-year contracts and leaving after a year or two, Arkansas State and other universities have established buy-out figures paid by the hiring university to release the coach from their contract. Coaches, meanwhile, have negotiated into their contracts “dream job” clauses which allow for them to void their contracts if a particular school offers them a job. Reportedly, Jim McElwain had such a clause with Colorado State.

For schools like Florida or Notre Dame, who allegedly paid the $1 million buyout payment Brian Kelly owed the University of Cincinnati – a pittance compared to the $4.75 million the University of Texas paid the University of Louisville for Charlie Strong’s services, who then turned around and paid $1.2 million to Western Kentucky University to hire Bobby Petrino. Petrino, ironically enough, left Louisville in 2006 for the Atlanta Falcons shortly after signing a contract extension. Confused, yet? These are just a few examples among many which occur every year. And we haven’t even touched the concept of “dead money” paid to coaches who were fired, but by contract are owed money by the university. Some schools continue to pay millions of dollars to coaches who they fired in addition to the millions of dollars they are paying to coach they replaced him with (and, of course, the money paid to the university they hired him away from).

College football is a huge business and the coaches deserve the money they earn. Coaching is a tough job and the money involved in the industry makes it a high pressure, performance focused job. Alumni pressure, administrative pressure, and the pressure to keep 17-22 year old young men in line could be a full-time job itself. Long hours and long years of climbing the coaching ladder for opportunities at “dream jobs” is standard. If not for the fluidity with which coaches can change jobs and pursue the best situation for them, the sport and the industry would not nearly be at the level it enjoys today.  

What Recognition of Cuba May Mean for Baseball

Posted in Sports Business and the Law

Luis Tiant and Tony Pérez were two wonderful Cuban baseball players. The way I heard the story told, Pérez was asked about Luis. “When I was a boy growing up in Cuba, Luis Tiant was 35. Now I am 35 and he is still 35. America is a wonderful country!”

As profiled on the BBC, Alan Schwarz mused about what the new diplomatic outreach means for baseball. It likely will loosen up the tiger hold on great players, who now have to defect, but there is no guarantee. Right now, you need permission to leave the island and there is no waiver for baseball players. Cuba has a law against departing; if you leave, you are not allowed to return. Here is hoping that some fan in government negotiates this out for the benefit of baseball.

Be Creative But Be Careful with Copyrights and Trademarks in Your Designs

Posted in Intellectual Property, Sports Business and the Law

USA Today had a must-read article on Under Armour’s crazy uniform designs. Creative uniforms are wonderful, but as with all else in the world of intellectual property, care needs to be taken. Taking a copyrighted design from someone oftentimes results in a lawsuit.

If you see the other design, run it by your fellows to see if they think that one needs the permission of the other to be published, printed or knit. This formal exercise can save you a mound of trouble. If you get a cease-and-desist or lawsuit, run to your trusted legal counselor and do not attempt to handle it yourself. Last but not least. err on the side of caution. There are lots of creative designs that will not violate any intellectual property rights.

What To Do To Guarantee Privacy

Posted in Sports Business and the Law

No, this is not the umpteenth blog on the Sony situation. This is the one that Sony kept off the front pages. Adrian Peterson, the star running back of the Vikings, spoke with Troy Vincent, an executive at the NFL. There appeared to be an offer of a two game suspension, and now Peterson has lost his arbitration and is facing an indefinite suspension.

Lost in the discussion is that this was supposed to be a private conversation. I am now at the point of telling my clients to call people and not to email. Too much confusion and too much exposure. But when you call, ask the other person not to tape the conversation if it is sensitive. In California at least, both parties have to agree to the taping for it to be legal. However, if Peterson was in Texas at the time, his recording was legal, as the state requires only one-party consent, Absent that, there are criminal penalties that can be invoked. Not an absolute guarantee, but important as we feel our way around these issues.

Rory McIlroy v. Horizon Sports

Posted in Sports Business and the Law

This guest post is authored by Jason Hodges. Jason currently practices in the areas of litigation and real estate at Gilbert, Harrell, Sumerford & Martin, P.C. in Georgia.  Since graduating from Mercer University School of Law (2009), he worked as a player agent at Crown Sports Management and subsequently served as a Public Defender.

He ended his competitive golf career shortly after playing on the University of Georgia golf team (2005) under Chris Haack. He was right to choose another career path as he was deemed “the best 6 man in the country (only five make the line-up).”  UGA won the National Championship his senior year.

Weeks ago, Rory McIlroy took a self-imposed hiatus from tournament golf to prepare for trial against his former management company Horizon Sports. He has since played in tournaments, but will have to sit out again in February or March of 2015 for the trial itself.  Here are the general facts, which will be presented at trial. (1) 

At a Christmas party in 2011, Rory signed a representation agreement with Horizon Sports (the “Agreement”), which required him to pay Horizon 20% of off-the-course income (endorsement deals) and 5% of his tournament winnings.  While with Horizon, he signed a $20 million/year deal with Nike, had deals with Oakley, Santander, and Bose, and probably appeared at corporate outings for fees easily totaling over $1 million. On the course, he earned approximately $18.5 million in European and PGA Tour events in 2012 alone.

Early last year, Rory started his own management company, having spent only one full calendar year (2012) with Horizon.  Later in 2013, Rory sued Horizon, Gurteen Ltd. of Malta (controlled by Horizon), and Canovan Management Services (controlled by Horizon) in the Dublin High Court seeking a declaration to rescind the Agreement or that it was void for breach of fiduciary duty.  Rory’s grounds for suing are based on his contention the Agreement is invalid based on unconscionability.  Rory alleges the commission fees are “many times greater” than the industry standard and that Horizon is not entitled to certain future commissions from his Nike deal.  He alleges he was unduly influenced, was too young to fully understand it and should been made aware of his right to outside counsel.  Rory seeks $6.8 million (USD), which is the amount he paid Horizon under the terms of the representation agreement as written.

In response, Horizon denied Rory’s claims and countersued for approximately $3 million (USD) for breach of contract.  Horizon derived this figure from off-the-course income and other unpaid fees under the December 2011 Agreement and another executed in March 2013.  Horizon factored into its damages Rory’s non-payment of the residual income he continues receiving as a result of their alleged long term brand strategy.

The result of this lawsuit will depend on the enforceability of the Agreement.  Specifically, it will depend on whether the court agrees with Rory that it is unconscionable.  In layman’s terms, unconscionability is a catch-all term and exists when a contract’s terms or surrounding circumstances are so unjust that no reasonable or informed person would enter into it.  To back up this contention, Rory will allege he was duped into thinking his deal with Horizon was the same as Graeme McDowell’s.  McDowell’s deal required him to pay Horizon a smaller percentage of his income than Rory’s did.

As an additional argument, Rory may also point out that he signed the Agreement at a Christmas party where everyone, including him, drank alcohol.  If either party signs a contract while intoxicated, a question arises as to whether they could have understood its terms and knowingly signed it.  If they didn’t, unconscionability exists.  The alcohol argument is not as strong as the others, but it could have an impact at trial if the jury learns Rory or Horizon’s representative was drunk when signing the Agreement.

However, contracts that are deemed “unconscionable” in the United States are only voidable and are not automatically cancelled.  A ruling of unconscionability would merely give Rory the right to cancel the Agreement for a period of time, but not for an infinite duration.  Parties to an agreement cannot carry on under its terms for eighteen months like he did, and then take action to invalidate it.  To legally cancel the Agreement, Rory had to act as soon as he realized he misunderstood it.  He may have had the right to void it for a period of time, but that time expired before he filed suit.  Rory may prove facts, which show the Agreement was unconscionable, but that would not release him from any and all obligations under it.  Thus, I don’t like Rory’s chances of success at trial.

(1) I purposefully limited my research to common knowledge so as not to compromise the positions of any friends, former teammates, and colleagues in the golf world.

Leadership and the “It” Factor

Posted in Sports Business and the Law

Johnny Manziel is getting his first start this weekend. As profiled in the Bleacher Report, he has earned it. Respectful and patient are not the words that were associated with him in college. By the same token, I have never seen a more exciting college quarterback.

Back to law. Classes on how to train associates tend to repeat the mantra, “one third, one third, one third.”  In other words, one third of the associates are hopeless regardless of training, one third can be taught and one third just have that indefinable something. As one of my former managing partners put it, “you are hanging over a cliff, holding on by your fingers. Who do you trust to pull you up?”  In football and in law, we work very hard to identify those destined for leadership. Good luck Johnny.

Federal Judge Enjoins New Jersey from Permitting Sports Betting – Will Other Leagues Adopt the Position Taken by NBA Commissioner Adam Silver?

Posted in Sports Business and the Law

On Friday, Judge Michael Shipp granted the NCAA and four major professional sports leagues a permanent injunction to prevent New Jersey casinos and racetracks from offering sports betting.  The decision was unsurprising, but still extremely disappointing, to New Jersey state officials who have been attempting to establish legalized, regulated sports betting in the state for over three years.

New Jersey should, and it appears will, exercise any and all legal options it has in fighting to establish sports betting in the state.  State Senator Raymond Lesniak, the leader of New Jersey’s campaign to legalize sports betting, told ESPN on Friday that New Jersey would appeal Friday’s decision to the Third Circuit Court of Appeals this week.

Regardless of the outcome of the appeal, hopefully other leagues will follow the lead of National Basketball Association Commissioner Adam Silver.  Eight days before Judge Shipp’s ruling, Silver, whose league ironically is a party fighting against sports betting in New Jersey, wrote a heavily-discussed op-ed in the New York Times calling for Congress to “adopt a federal framework that allows states to authorize betting on professional sports, subject to strict regulatory requirements and technological safeguards.”

Silver acknowledged that sports betting in the United States currently operates mainly through “illicit bookmaking operations and shady offshore websites.”  Why not legalize and regulate the industry so governments and legitimate businesses can be the beneficiaries instead of underground bookmakers and offshore websites?

If the NCAA and other professional sports leagues adopt Silver’s position, Congress would be more inclined to pass legislation revoking the outdated Professional and Amateur Sports Protection Act.  The benefits of an industry that will continue to thrive whether or not it is operating legally should shift from underground bookmakers and offshore businesses to governments and legitimate businesses.

Oral Argument Set to Address Sports Leagues’ Application for Preliminary Injunction in New Jersey Sports Betting Case

Posted in Sports Business and the Law

Tuesday, federal judge Michael Shipp set Oral Argument for November 20, 2014 to address an application for a Preliminary Injunction by the NFL, NBA, NHL, MLB, and NCAA in the latest litigation over the potential legalization of sports betting in New Jersey. In the underlying lawsuit, the Court will eventually determine whether New Jersey can legally repeal its ban on sports betting and permit private entities to conduct the activity.

New Jersey has been attempting to legalize sports betting for nearly three years. The Third Circuit Court of Appeals, the highest court to address the issue to date, has determined that New Jersey legalizing sports betting would directly violate the Professional and Amateur Sports Protection Act of 1992, but it stated that the federal law only prohibits state-regulated sports betting. Governor Chris Christie accordingly repealed New Jersey’s ban on sports betting two weeks ago to permit private entities to engage in sports betting without state regulation. The sports leagues then quickly applied for a temporary injunction, which Judge Shipp granted last Friday.

The leagues assert that sports betting in New Jersey would harm the integrity of their games. They could not in good faith deny, however, that the league enjoys significantly increased interest, television ratings, and therefore profit due to individuals gambling on sports, whether through fantasy sports, online betting sites based outside of the United States, or illegal bookmakers within the country. The league also fails to acknowledge that sports betting in New Jersey would provide much-needed revenue to the struggling economy in places such as Atlantic City, where casino revenue has sharply decreased in recent years and thousands of employees – many of whom are fans of the very leagues challenging New Jersey’s actions – have been laid off.

If Judge Shipp denies the request for an injunction, which he should, he will effectively force the leagues to see how harmless sports betting in New Jersey would be to their games. Sports gamblers today have no difficulty wagering on sporting events, so why not permit legitimate businesses in New Jersey to profit from the activity?

With the NFL playoffs beginning in January and the NCAA Basketball Tournament occurring in March, a denial of the leagues’ request for a Preliminary Injunction would force a “test period” of sports betting pending the underlying suit during a period that includes two of the most heavily-wagered events in the country. During this period, the leagues would likely learn that the integrity of their games would not suffer, while New Jersey racetracks and casinos would likely generate much-needed income. This would help the individuals these businesses employ maintain their jobs and have more money to spend on leisure activities, which often include paying these very leagues to attend sporting events and purchase memorabilia. It truly would be a win-win for both sides.

Razorback Alex Collins: Chaotic Signing Day Leads to Productive College Career

Posted in Education, Family Law

Since I wrote this post in February 2013, Alex Collins has weathered his mother’s attempt to keep him from enrolling at the University of Arkansas and become one of the best, if not perhaps the most underrated, running back in the country. Through eight games this year for a surprisingly competitive (they lost to Alabama 14-13 and beat Texas A&M 35-28) Razorbacks team, Alex has rushed for 747 yards on 118 carries (6.3 yards per carry) for scored 9 touchdowns. In his freshman year, he justified his choice by carrying the ball 190 times for over a thousand yards. He is clearly a talented running back, even if he’s splitting carries with a talented upperclassman (Jonathan Williams, 830 yards).

After the news of Alex’s mother running off with his letter of intent and reports of family pressure to play close at home at the University of Miami broke, I think many felt like there were uglier issues at play: promises from boosters; favors; money. In the end, Alex followed the coach, Bret Bielema, and switched his commitment from Wisconsin to Arkansas. His mother wasn’t in that decision-making process and acted irrationally. Considering Arkansas’s struggles at that point, she might not have been unjustified in her concern.

While no similar issues about parental interference have emerged lately, it is an issue we can expect to see again in the future. For now, the next question may be whether Alex turns pro after next year. We’ll see what his mother thinks about that…

For more back story and a bit more information on letters of intent, please see below my interview on the topic with LXBN TV.