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.