Sports Business and the Law

One of my law school professors was well-versed in insurance law. He told me that he had any number of prominent non-coverage lawyers come to hire him as a consultant on discreet insurance questions. Invariably he would ask them upfront….”Have you read the policy?”  A surprising number answered that they had not, quickly got off the phone and oftentimes did not need to call back.

The 1977 movie “Black Sunday” portrayed an attempted terrorist attack at a stadium on Super Bowl Sunday. If this fictional attack had succeeded, would that be covered by insurance? Read the policy. In a June 1, 2016, article on active shooter incidents in Best’s Review, one insurance attorney noted that such events “can trigger a host of coverages such as general liability, business interruption and property insurance-to name a few.”

With given products, an incident that does not result in damage to a property is not going to trigger coverage for the extra expense or business interruption. It is not like a car crash or a tornado. In reaction to perceived need, certain insurers have developed specialty policies that have been dubbed “active shooter policies,” to fill in the gaps. While it is difficult to contemplate, sports executives should examine their policies to determine if they have coverage and if not, if they have a need.

David Kiefer writes:

With the calendar turning to September, that means that NBA training camps will open in less than one month. And while the players’ main offseason focus was on how the influx of new national television revenue will put more money in their pockets (8 players signed new or amended contracts worth more than $100 million this past offseason), a lesser-celebrated event – in this case, a change in the law – will lead to a number of players keeping a bit more money in their own pockets.

Basketball
Copyright: / 123RF Stock Photo

Since July 1, 2009, NBA players who have played games in the state of Tennessee – both as visiting players and as members of the Memphis Grizzlies – have paid a $2,500 per game “Professional Privilege Tax for Professional Athletes,” up to a maximum of $7,500 per year. See T.C.A. §§ 67-4-1702, 1703. The tax was particularly onerous on minimum salary players, as the players’ union contended that minimum salary players had a nearly 100% effective tax rate for games played in Tennessee (after accounting for federal income taxes and any other state income taxes due in the player’s home state). However, as of June 1, 2016, NBA players no longer have to pay Tennessee’s $2,500-per-game privilege tax.

In passing House Bill 1134 and Senate Bill 1247 in April 2014, the Tennessee legislature removed NBA players (as well as NHL players, who were also subject to the tax) from the list of individual required to pay the state’s privilege tax. The elimination of the tax on NHL players was effective immediately, while the tax on NBA players remained in force through the 2015-16 NBA season.

Tennessee’s Professional Privilege Tax for Professional Athletes was unique for a few reasons. First, Tennessee has no state income tax, which meant that the tax was structured as an occupational license tax. NBA and NHL players – two groups of individuals whom typically do not require state licenses or certification to work as professional athletes – were nonetheless required to annually pay the $2,500-per-game tax, which was well in excess of the $400 tax due from other Tennessee-based professionals (such as accountants, architects and attorneys).

Second, the money collected from tax was “deposited into a municipal government fund located in the same municipality as the indoor sports facility in which the game was played.” T.C.A. §§ 67-4-1703(e). In essence, part of the tax revenues collected were paid to the operator of FedEx Forum in Memphis, which happened to be the ownership group of the Memphis Grizzlies (the portion of the revenues attributable to NHL players went to the operator of Nashville’s Bridgestone Arena, which also happened to be the owners of the Nashville predators). Those tax revenues were then used to attract other sports and entertainment events to the Memphis area, such as bowl games, concerts and the like.

Finally, Tennessee’s privilege tax was arguably unconstitutional. Prior to the tax being repealed, NBA players sought refunds of previously paid privilege taxes on the basis that the privilege tax violated the United States Constitution’s dormant commerce clause, due process clause and equal protection clause. Had the cases proceeded to litigation, these arguments could have proved meritorious, as Ohio’s Supreme Court recently analyzed similar taxes involving Cleveland’s municipal income tax and ruled that Cleveland’s tax violated players’ constitutional rights. See Hillenmeyer v. Cleveland Bd. of Rev., 144 Ohio St.3d 165, 2015-Ohio-1623, ¶ 49 (rejecting equal protection challenge and declining to address commerce clause challenge, but holding that the tax “imposes an extraterritorial tax in violation of due process, because it foreseeably imposes Cleveland income tax on compensation earned while Hillenmeyer was working outside Cleveland”); Saturday v. Cleveland Bd. of Rev., 142 Ohio St.3d 528, 2015-Ohio-1625 (declining to address constitutional challenges to Cleveland’s municipal income tax but holding that “a professional athlete whose team plays a game in Cleveland but who remains in his home city participating in team-mandated activities is not liable for Cleveland municipal income tax”).

Now, Tennessee’s privilege tax is no more, and players on all 30 NBA teams will leave Memphis with a little more money in their pockets.


David Kiefer is an associate in the Labor & Employment Department, resident in the firm’s Pittsburgh, PA office.

Income tax
Copyright: yupiramos / 123RF Stock Photo

When I took Federal Income Tax in law school, the professor got up in front of the class and for his opening line started out by saying, “The Federal Income Tax Code is a Social Policy Document.” And indeed it is. Taxpayers receive breaks for a variety of reasons, from owning a house and paying for child care to raising race horses.

How about Olympic medals? I bet you didn’t know that they are taxed. That’s right. An Olympic gold winner is awarded a $25,000 cash bonus per medal by the Olympic committee, and is taxed roughly $9,900.  Silver and bronze winners receive smaller cash bonuses ($15,000 and $10,000, respectively) and pay accordingly. Most states tax the recipient as well.

For someone who has carried the flag for his or her country, is this just? I draw a distinction between a Michael Phelps, who may or may not live on Wheaties, and an archery winner, who may be living in his parents’ garage. Just a thought, but it would seem to me that if you gross under $50,000 a year, the medal should be tax-free. Indeed, the U.S. Senate recently passed a bill to exclude Olympians’ and Paralympians’ winnings from their gross income. The House has yet to vote on a similar bill.

I once tried a police brutality case where the Highway Patrol (aka CHIPs) stopped a woman who had five children, not her own, in the car. We obtained her medical records and found out that she had suicidal ideation right before she got in the car with the kids. There went the plaintiff’s case. Half the jury thought that the cops had not hurt her, and the other half felt that SHE had a duty to warn the parents of the children that she was considering killing herself with five young ones in the car. Defense verdict.

Zika virus
Copyright: royaltystockphoto / 123RF Stock Photo

The duty to warn in California has a long history, but got expanded dramatically by the Tarasoff case. That involved a psychiatrist who had a patient that was allegedly threatening harm to a third party. The Court held that the psychiatrist had a duty to warn the intended victim if the threat as it was defined and the possible victim was certain.

Now let’s go to the upcoming Rio Olympics. A number of athletes have declined to attend on the premise that they are concerned about the Zika virus. Others have suggested that a number of golfers have bailed because there is no money to be had there. Do the team doctors have a duty to tell participating athletes about the threat? Is there a threat?

I would argue that

  1. The threat is minimal,
  2. Unlike Tarasoff, there is plenty of public information out there and
  3. Anyone going assumes the risk given public knowledge. It is a little like the abortive suit against the Oakland As for someone getting hit by a ball. You go, the risk is on you.

A district court judge in Texas sentenced a former St. Louis Cardinals scouting director to 46 months in jail for hacking into the Houston Astros computers. Wow. Yes, it is a crime and there were five counts against him, each of which could carry a 5-year sentence. The defendant did plead guilty and this was a plea bargain.

Scales of justice
Copyright: leonardo255 / 123RF Stock Photo

Contrast that with former L.A. County Sheriff Lee Baca, who was charged with overseeing brutality in the L.A. County jails, lying to federal investigators and moving around an informant so that the FBI could not get access to him. The proposal from the prosecution was for a six-month sentence, where physical violence against prisoners was involved. The federal judge refused to accept the plea, but we are talking six months here!

The two cases highlight the fact that in federal court, cases are generally assigned to a given judge for handling from start to finish. If you are unlucky enough to be a defendant, your fate lies in his or her hands. Criminal defense lawyers (and prosecutors) need to judge the bona fides and track record of the judge in cutting a deal. The judge’s obligation is to “do justice “and that supersedes the desires of the lawyers on the case.

Chewing Tobacco
Copyright: 22north / 123RF Stock Photo

Tony Gwynn has been one of the great players in baseball during my lifetime. He also was a lifelong user of smokeless tobacco. He is also dead. Now his family is suing the tobacco industry, alleging negligence and product liability.

What makes this different from other tobacco cases is that Tony G was given the product as a free sample made available to athletes when he was in college. Go back to old footage of games and you will see many athletes chewing and spitting. Was the company negligent? Was he? In California, where the case is filed, the jury will be asked to assign relative responsibility to the company and the decedent. Tough to predict results, but the corny old adage re narcotics – “the first one is free, kid“ – appears to be literally applicable here. Then the argument will migrate to more familiar territory, that the product was addictive. I think we are long past the point where a tobacco company can argue to the contrary.

Fame and celebrity
Copyright: dampoint / 123RF Stock Photo

A celebrity is by and large someone who has always viewed themselves as one…even before they obtain fame. Look at any number of people who knew they were superstars before the world knew. A friend of mine had Obama as a law professor. Obama started a hypothetical “Assume that I was president of the United States…..” The class laughed and Obama retorted, “What is so funny about that?”

You may not need talent, but you need to be unique. You also need the ability to accept rejection and come back for more. I believe it was Dumas who received hundreds of rejection letters. It took David Seidler, the writer of “The King’s Speech,” decades for his project to come to screen.

Baseball once had a role player who was never used in a game. His moniker was, “Bench me or trade me.” Football once had a punt returner who became famous as “White Shoes Johnson.” Yes, he was talented, but above all, he was colorful. Sports careers last a finite period of time.

Good athletes work with their sports lawyers to cultivate an image that will work for them throughout their working lives. Lawyers work with athletes to see to it that fame transcends their career on the field.

Soccer
Copyright: bankjayphotto / 123RF Stock Photo

Women soccer players have complained that they are not paid the same as their counterparts on the U.S. Men’s National Team. How would this play in the courts? California passed amendments to Labor Code section 1197.5 through the California Fair Pay Act, which mandates equal pay for substantially equivalent work. It passed without controversy and with the approval of the California Chamber of Commerce.  Yesenia Gallegos and I gave a webinar on the act recently.

What does it mean? Is a chemical engineer’s work substantially equivalent to that of an electrical engineer?  Women tennis players have argued successfully that their show is as good as (or better than) that of the men. Is the women’s soccer game substantially equivalent? Perhaps the courts will decide.