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Sports Law Part I: A Basic Roadmap of What You Need to Know

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Sports Law Part I: A Basic Roadmap of What You Need to Know

The sports industry is a unique, highly popular and fast-changing business. The legal issues involving professional, college and recreational sports are more varied and complex than many realize. The goal of this series is to acquaint lawyers who are unfamiliar but interested in learning more about the legal aspects of this industry. This presentation will focus on Sports Governance, the Internal and External Laws of Sport and contractual issues, with a short discussion about Covid at its conclusion. Other portions will focus on collegiate sports and professional sports labor and antitrust issues.

Transcript

Hello, and welcome everybody to Sports Law: A Basic Roadmap of What You Need To Know. This will be the first part of a series of presentations regarding various aspects of sports law and we will cover a number of areas today, as well as areas in our future presentations. So my name is Mark Conrad. I direct the Sports Business Initiative at Fordham University's Gabelli School of Business, where I also serve as associate professor of law and ethics. And moving to our next slide. A little bit of introduction about me. I teach and write about sports law and business, as I said, mainly and full time at Fordham's Gabelli School of Business, where I now direct a new initiative on sports business, law and policy. In addition, I have served as an adjunct professor at Columbia University's Graduate Program in Sport Management, where I teach a course in International and Comparative Sports Law. And finally, I have been an adjunct professor at St. John's University Law School in New York, where I teach a sports law class. So moving to our next slide. Let's talk about the learning goals for this particular presentation. And as I said, the first of several parts, the goal here is a macro-level introduction to sports law. We're not going to delve into specific topics in great detail, for the most part, because there is simply so much to cover. But we will feature several key areas. Some would be very well known to many of you, but some areas are really underrated and deserve more explanation and more examination. So today what we're going to do is cover sports governance issues, dispute resolution, contracts and sports, and COVID. Moving to our next slide. A key point that I'd like to discuss before we get into any of our basic discussion topics, and sports law is a combination of rules under public law, certainly. Certainly our public law, meaning there are constitutional implications, statutory laws that affect sports and common law rules made by courts and various areas of sports. But just as important, maybe even more in the day-to-day operations of sports business entities is that sports is a series of private law rules that govern the leagues, the teams, colleges, individual sports, and recreational sports. And that is that I am going to focus on for quite a bit of this presentation, and also it can rear its head in future presentations as well, because, basically, sports are privately operated, they're private entities involved. They could be non-for-profit corporations, they could be LLCs, they could be traditional partnerships in some cases. And they do have their own rules and regulations based to a great extent on various laws regarding private organizations, I should say. And we will discuss the key points and the discretion of these organizations to be run under those private rules as long as they do not contradict the public law aspects, that's constitutionally, statutorily and based on court rulings. So let's move on to our next slide and let's give some examples. So here are some laws that are applicable to sports. In terms of legislation, you'll see a spade of these laws. Some are more sports-oriented and some are not. Certainly the National Labor Relations Act would be one which governs labor relations in many, many industries, but we will talk about how it applies to sports in a future session. The Sherman Antitrust Act, which is a seminal statute regarding the regulation of the economy, but has also had a very, very big impact on the way sports organizations run, and certainly on the college space, which will be the subject of our next presentation. And the law called the Ted Stevens Amateur Sports Act, which essentially governs the Olympic movement in the United States. It has been amended at least once, but in a sense twice because we have a relatively new law that applies to athletes' rights in that space too. The Safe Sport Act of 2017, and that really deals with protecting athletes from abusive coaching and it's a law that is being used, at least the procedures under the law are being used more and more, sports betting which will be the subject of a future discussion hopefully, certainly a topic in and of itself where states have legalized it, at least many states have legalized it in recent years. The Uniform Agents Act, and this law is a little bit more based on sports agents, which attempt to have some kind of uniform rules for sports agents in a number of states that have adopted that law and also state and local laws regarding what we call recreational or participatory activities. And there are many of them, this is something, again, beyond what we're going to discuss today, but these laws deal with like lifeguards, skiing safety, licensing certain standards, and they tend to be very localized or at least state-based. For example, in many areas of the country where they're skiing and skiing is a big industry, there are some laws that do protect skiers and deal with certain toward liabilities. And more recently we're seeing states getting involved in the so-called name, image and likeness area, the Fair Pay To Play Act, which is a California law that sort of launched this movement for college athletes to monetize their name, image and likenesses. It's just but one such law, other states have adopted similar, although not identical laws. And again, that is something that we will discuss when we discuss the basics of college, sports and law. But in addition to the various legislation, we also have regulatory law and things like sports betting standards in the given states that have passed, legalized sports betting, certain regulatory bodies have, or are issuing regulations regarding the nitty gritty of how that will work. And in a sense, COVID regulations certainly have had a huge effect on sports in the last few years and something which I may get into later today. Moving further down, we also have court rulings regarding mainly personal injury law that apply to sports. We have court rulings on contract interpretations, which has become a big area in the COVID space because of insurance and whether insurance contracts apply to sports events that have been canceled. Also contract interpretation involves contracts involving personal services, athletes, coaches, and the like. And we'll talk about a little bit of that today as well toward the end of our presentation. And that leads to contract law, particularly where the laws of contracts, which, of course, are very general, but apply to sports, whether it's employment, participation agreements for those of us who do recreational athletics and the NIL type sponsorship deals too. So contract law and basic contract law is very, very much a part of sports law. Moving to our next slide. A little bit of a philosophical point that American law, U.S law does not generally consider sports law a unique area of law. In most cases, we apply doctrines of law that are more general to aspects of society, to the sports space. So there really is not necessarily a specialty of sports law as they would be in the case of patent law, whereas in other countries it's a different philosophy and we will get to that in a little bit, although maybe I'll say it now that other countries do feel that there should be a certain body of law that involves sports and they call it a Lex Sportiva. But anyway, before we get into all that, we can think about what areas of law do affect sports and that is really more than you may think. And you can think about it if you want to spend a minute and take a break and think about all the areas that laws affect sports, they are going to be many. And moving further down, here are some of them. Governance, corporation law, non-for-profit organizations, laws we will discuss today, antitrust, we mentioned contract labor, personal injury, broadcasting laws because of the broadcast dissemination rights, tax laws, which is a fascinating subject of taxability of athletes in given states. I wish I personally had more expertise in the area because I do love to teach it on a very general level, but I'm not a CPA or tax specialist, but it is extremely important if you will represent athletes regarding the idea of where they pay taxes in multiple states where they may be working. Insurance law certainly does have an effect on sports as well. Moving to the next slide. And I say, but there is more. Education law can affect sports regarding eligibility for high school students, middle school students, can have an effect. Disability law and the rights of disabled people to participate in sports. Constitutional law in certain cases where at least a state actor is involved or a public university or a public high school, may have certain aspects as well, at least in first amendment law as well as due process. Discrimination law, control substantive law with drugs and drug testing or PED testing. Immigration law. Many athletes that compete in the United States are foreign nationals, and they need a special visa to compete in the United States and to get those visas, they have to go through various agencies that handle these issues to the teams, to their agents. And it's not necessarily that easy to get these visas. One has to show a certain expertise in the area before being able to do so. Public health law, we had mentioned already. And particularly internationally the idea of human rights law, but I think that's something that we would look to the United States more and more as well, when we're talking about athletes trying to make political statements, athletes possibly protesting in Olympic type venues, or maybe non-Olympic venues. There's certainly more debate on this area if not specific rules of law. So just those are some examples as we move on to the next slide. And now we're going to get into the internal law of sports, the rules involving the private organizations that cover much of the sports business in the United States. And the basic internal law, if you will, and we'll call it that, will deal with the nitty gritty rules of how the organization is run, regarding eligibility of participants, membership and significantly dispute resolution. And the key point is unless there is some conflict with an external or public law, the courts are going to enforce these requirements. Whether they are entirely fair, whether they are entirely just, may not necessarily be an overriding factor because sometimes they may not be entirely or idealistically fair, but nevertheless courts will say that as long as these rules were promulgated, promulgated properly and not in violation of any rules or laws, the courts are going to give great discretion in the way these private organizations are run. And that's why it is so difficult to overturn these requirements. And that is a more universal concept based on U.S-based sports organizations, but also international organizations. We're not going to spend a lot of time in international sports in this series, but most of the international sports organizations are based on Swiss law. Switzerland host many, many world or international federations and their laws, the basis of the internal structure of those organizations and suffice it to say Swiss law in the past has been relatively lax in terms of rules of enforcement. Moving to the next slide. The examples of this internal sports law would be league constitutions, which we will talk about in a few minutes, rules regarding the tours in the individual sports of tennis and golf. There are touring organizations run by both player representatives and also organizers that will have certain rules that athletes have to abide by, particularly in tennis and golf, the rules of international sports federations, Olympic federations, the NCAA, and the athletic conferences that many colleges are in. So essentially they're going to have the force of law. And moving on to our section in detail about governance, and moving further, we talk about how the organizations run themselves. Now, this could be a five-hour lecture, which it's not going to be. So we're going to sum up in a sense and focus on mainly the league constitutions in this particular presentation. And each of the major league constitutions, whether it's the NFL, whether it's Major League Baseball, et cetera, are remarkably similar in the way they operate. And the one constant they have is they vest considerable powers to the commissioner of the respective league. And the commissioner has the power to sanction acts that are not in the best interest of the sport. This is a terminology that started with Major League Baseball in its 1921 constitution that reformed the sport after the Black Sox gambling scandal, which gave the commissioner extraordinary powers to regulate the sport. Also the commissioner can ban players from gambling on one's own team and this power remains to the present day and it's a significant power. The league constitutions also deal with appeals, issues like team expansion, relocation rules, penalties in violation of the rules and voting rights. They are owner-based. The league constitutions do not have athlete representatives and that's unlike the Olympic movement because if they did, it could cause serious labor law issues. So traditionally there is a very much an employee breakdown in the U.S professional sports organizations. Moving to the next slide. You see some samples and I decided to give the links if you wish to look at these documents, the NBA constitution, NFL are Major League Baseball, they're found at these links and they, again, are remarkably similar. So what I do want to do is move to the next slide and focus on probably the most publicized power of the commissioner. This particular individual that has been created by the league constitutions and appointed by the owners of teams in the league. And that is the power to act in the best interest of the sport. And they all have that. I'll just read you a couple of quotes. In the NFL constitution, you see it. The commissioner is authorized to take or adopt appropriate legal action or other steps that he or she deems necessary and proper in the best interests of the league or professional football. So they use that in that context. In Major League Baseball, the next slide, it's article two, the commissioner's powers are a little bit more laid out in this particular section and they've been widely cited. If any of you've taken sports law in law school, or maybe in a business program, you undoubtedly probably saw something like this or the equivalent and it does mention that the commissioner is the CEO, and can investigate, can judge and suspend those who are involved in acts that are not in the best interest of baseball and engage in certain punishments that are stipulated. I didn't go through all of this. I cut down some of the provision, but you do see it in front of you and indeed it is a significant amount of power for one individual to have, especially historically. So I wanna focus on the granddaddy case in the next slide that deals with how the courts have treated this power and that's Finley versus Kuhn. Finley versus Kuhn is a seventh circuit case from the 1970s that involved the longstanding battle, if I may say, between baseball commissioner Bowie Kuhn and Charles Finley, the owner then of the Oakland Athletics. This case really involved an actioned by Finley because what Finley was doing was dismantling a world series team. The A's in the early 1970s won three consecutive world series and they were a dominant power and an incredible team. And I still pain to remember how they beat the Mets in 1973, but that's a bit of an aside, but nevertheless, Mr. Finley realizing that the modern free agency era was upon him, he decided to unload players because these players would A, not pay for a play for him and B, he didn't wanna pay those kind of salaries. So he started selling players, which is unusual in American sports. You usually trade for players, but not sell them. And he did do that and sold players to the Yankees and the Red Sox, no surprise and the baseball commissioner voided those actions. And Finley took him to court and claimed that it was beyond the commissioner's powers to do this because it was nothing specific in the commissioner's powers that talked about voiding these trades. The court disagreed because the court read the broad powers of the commissioner as you saw in the prior slide, to take actions to protect the best interests of the game as incredibly broad and had very few limitations. And this conduct was not mentioned, but even though it was not mentioned, the court did not say the commissioner couldn't do it. It said the court gave great deference to the general powers granted in the internal rules of the league and if the commissioner honestly felt that the sales of these players would be detrimental to the sport, it was within the commissioner's powers to void them. The court never said, we think it's a good idea or a bad idea. The court didn't address the issue that these two individuals really did not like each other, and maybe there was some internal bias, that was not for the court to determine. Basically the league constitution gave the power to the commissioner and the commissioner acted within the power given to him under section two of the Major League Constitution. And that's really where the law stands. So you may ask yourself, well, if that's the case, why can't the commissioners be absolute dictators today? Well, there are a couple of things that limit the commissioner's powers. And let's move on to the next slide. And the biggest two limitations, at least that I can see, are the collective bargaining agreements between various leagues and players associations. Now, with regard to player action or player sanction, these agreements definitely limit the commissioner's powers because they're contractual, they're long, and they have various rights that players can have that are stipulated in those agreements, such as certain appeals rights, certain limitations on suspensions. So there are certain limitations. Now, as far as the owners are concerned or managers, the commissioner still retains much of his or her traditional powers, but for players, the collective bargaining agreements do serve as a limitation. And we'll get to that in a future lecture as I said, but I did cite the National Labor Relations Act and the importance of CBAs in the labor context. But the second limitation is in the area of antitrust laws of league powers. And this really deals with more general governance and punishment and the antitrust issue and the antitrust ghost hovers over so much of sports, professional sports, college sports. You see it even internationally in the European Unions, the competition laws, the so-called, Antitrust Laws of Europe. It does apply. And it's applied in a very complex way, which we'll probably get into in a future discussion. But essentially most of the antitrust litigation involving sports leagues has involved in violations or alleged violations in section one, which prohibits agreements of two or more that unreasonably restrain trade. And there've been certain actions that leagues do almost inherently because they're a group of owners, a group of joint ventures that get together under the umbrella of Major League Baseball theoretically, but mainly the National Football League and other leagues with the exception of baseball, for other reasons we'll get into in the future. But basically antitrust law can limit the kind of consolidated power that these leagues have, but it's more complicated than that because of the various tests that courts use. But inevitably antitrust litigation is very, very much a part of much of the professional sport and college sport atmosphere. And just a quick note on the NCAA in the following slide, which also is a voluntary organization of colleges and universities, and has been an awful lot in the antitrust space involving the NCAA. And we will discuss that as I said in another presentation. So that is a bit of a summary of the general governance structure. Let's move on to the next portion of our presentation, and that will be dispute resolution in sports. So how do we resolve disputes in sports? And the answer is very quickly not in the courts all that often. Generally speaking, moving on, it's through arbitration. And just a word on arbitration, and some of you may know this, some of you may not, but arbitration, of course, has to do with an appointed person, arguably someone who should be neutral to resolve a dispute between the parties. And arbitration law is universal. It's not clearly not just in sports, but it has a lot of applicability to sports. The reasons for arbitration are in front of you, less time involved and less money, of course, in theory, although in sports cases, maybe not. And the key here is that as long as the arbitrator is not involved in a conflict of interest, not involved in going beyond his or her powers in the arbitration agreement, the courts are not going to overturn arbitration cases. They are not going to vacate those rulings. Technically it's called a vacatur of an arbitration ruling unless they see some kind of direct violation. A judge is not going to simply say, I would've decided this differently, I think that the arbitrator kind of missed a point. That's not what courts do. Courts will generally only override or vacate the arbitration if there's a compelling reason to do so. And that's not just in sports, that's generally in the law. The arbitration rulings can be confidential, although more and more they are published with the consent of both parties. So in many of the cases involving NFL players and NHL players that have gone to arbitration, you can find those rulings online just by putting the name, if you really want something in particular, send me an email at my information at the end, I'll be happy to respond. So next slide. There are arbitration laws in just about every state and the overwhelming Federal Arbitration Act applies obviously to federal cases. In other words, whether it may be federal jurisdiction. The key point is it's an old law and it states essentially what I just said. The arbitration must be fundamentally fair, and I'm not going to spend a lot of time in the nitty gritty 'cause we do have more to get through. So in the next slide, more specific grounds for vacating the arbitration award under the FAA, you see that, some federal circuits talk about a manifest disregard for the law, but it's very tough as you can see. It's a little bit more laid out here under section 10 of the FAA, but it confirms what we said a few minutes ago. So generally speaking, moving to the next slide, there are two types of arbitration clauses found in CBAs, grievance arbitration and salary arbitration. Let's actually get to the second one first because salary arbitration is something some of you may be familiar with particularly in Major League Baseball because under the system that Major League Baseball has had that players of a certain tenure are eligible to salary arbitration, but not free agency. If the team and the player cannot agree an independent arbitrator will decide, our panel of arbitrators will decide who wins, who gets the appropriate salary in a salary arbitration situation. Not many cases go to salary arbitration these days because the parties really don't wanna take that chance. They'll generally do this beforehand in negotiation and the give and take for a new contract. The more important of the two is grievance arbitration, and that's been getting the headlines in recent years, particularly in the NFL. And this is a challenge to various determinations by leagues and teams affecting players. And you can see how this is a check on commissioner authority. So let's move on to the next slide and talk about how difficult it can get to vacate an arbitration award. And I'm going to focus on the so-called Brady Deflategate case for just a few minutes. This is a case that got tremendous publicity, subject of a federal circuit court ruling as you see, which overturned a lower court ruling in a fairly complicated series of circumstances. There, as you probably know, there was an investigation regarding footballs that were below a certain pressure amount, played in a playoff game by the Patriots and apparently the teams controlled the footballs when they were on the offense and another team suspected there was a problem. And indeed the NFL launched an investigation. And I think suffice to say this investigation was not exactly an ideal or perfect investigation. It was done by a law firm, it was done by the NFL. There was not a lot of cooperation necessarily or outreach to Mr. Brady. And the conclusion after many, many pages said it was more probable than not than Brady was aware of this deflation. Then the NFL commissioner issued a four-game suspension and a fine and some draft pick penalties involving the New England Patriots, but the real issue was a suspension because four games out of 16 is a lot of games and the Patriots were favored to win the Super Bowl and to have their star player out was something that would not exactly be a good thing. So ultimately the NFL unusually and the Players Association agreed to a provision in their collective bargaining agreement at the time that the independent arbitrator quote, "Was the NFL commissioner." This was very unusual because it flies in the face of Conventional Arbitration Law. But the parties agreed to this. I have theories, why, but it's not really the point. They agreed to it. Now, when the case, no surprise, the commissioner upheld the arbitration. A case is filed to vacate the arbitration award in a federal district court in the Southern District of New York and the district judge issued a very lengthy opinion saying that this process was so flawed that in it violated something called industrial due process, it was a flawed report, it didn't give Brady that much opportunity to respond. It focused on the fact that he allegedly, or someone allegedly destroyed cell phones that could have had evidence or calls, even though it was never asked to keep the cell phones. It troubled the district court judge a lot and concluded it was a flawed enough process to vacate. Well, no surprise, the NFL and the NFL Management Council technically is the NFL appeals to the second circuit. And the second circuit said in so many words, well, you know what, this is hardly an ideal arbitration situation, hardly an ideal report, but it met the minimum legal standards established under the Labor Management Relations Act, which talks about collective bargaining agreements and the sanctity and under CBA article 46, which ultimately gave the commissioner that power and the suspension was upheld. And it really shows that even today, in the context of arbitration, even in arbitration that you would think would be by a biased party, as long as it was part of a labor agreement that the parties agreed to, the appeals court in a two to one decision, I would add, upheld that standard, even though it's suffice to say in most areas of arbitration it would be highly, highly unusual. So it's not easy to get awards vacated in court. And that's a point in sports and that's why arbitration has this allure. So it's a very important point to be taken into account as to why you have these clauses. So let's move on to our next section, contract law in sports. I'll go a little bit faster here because I know we do have an hour and the fundamentals are the fundamentals which you all know. A sports contract is essentially a personal services contract and subject to more or less common law contract law. I tell my students in certain respects, sports contracts are similar to entertainment contracts because I do deal with personal services. And because of that, there are relatively few statutory protections. We don't have a UCC, we don't have consumer protection laws. Anything of that ilk is not going to be found in sports law. In a few cases there are, some require agents to have a license, some states do, and the minor's issue and the minor's issue actually is an important one to keep in mind if you're representing young athletes because if someone is under a certain age, a contract must be approved by a court in a number of states, including California, Florida, and New York. I didn't include this case 'cause it was a very lower court case in Florida, basic, I guess, I don't even know what court was, trial court. Some sort, that Naomi Osaka, the tennis player, or I should say, her father made a contract with a coach quote, saying that the coach would get a certain percentage of her salary when she becomes pro. Ms. Osaka was a minor then and so was her sister Maier who also was an accomplished tennis player. And this coach wanted to enforce the contract and the court basically said, you know what, it should have been approved by a court. It wasn't under Florida law and it is void. So for minors, you do have to be careful and check those laws and check those states where those laws are in and what the requirements are. But essentially outside of that, it's going to be, and outside of collective bargaining agreements, it's going to be negotiation. Yes, you have the implied duty of good faith in all contracts, but that's a very standard issue. All right, so we have the basics here in this slide. You all know it, not no need to get into any of this anymore and let's move to the next slide. And note that one thing, in the terms of athletes contracts involving league athletes, these players contracts are standardized. The only negotiations you going to have are going to deal with the salary and maybe bonuses because the collective bargaining agreement covers a lot of these areas. So you will see usually in an appendix A of a collective bargaining agreement, you'll see sample player contract. And that's really what it is. And there are rules regarding free agents. There are rules regarding restrictive free agents, non-free agents, that's all in the CBA. And again, we'll get to that in a future presentation. Next slide. Now, the fascinating areas to look in are going to be coaches contracts and endorsement deals and we'll spend much of the rest of the time on those areas. For coaches contracts, it is really a free market system. There are no restrictions on salary benefits and bonuses, and you can go to town, so to speak, depending on the client that you have, depending on the clout that you have and it's going to be really a question of leverage. That's what it comes down to. Some people say why is this coach getting $12 million a year? Well, because a college team wants to pay him $12 million a year, end of story. So what are the other specifics in a coach's contract? Well, basically in this next slide, the duties and responsibilities should be clearly outlined particularly on the college space where the coach may have other duties than just coaching, the term, of course, what are called rollover provisions, how to extend the coach, let's say for an extra year or two with mutual agreement, in other cases, it's called options. But in some cases it's called a rollover provision and also something called a reassignment clause because in some cases the coach may be fired from the coaching position, but still stays with the school doing something else. It is a way for the school to keep the person who may decide to want to go to rival school or anything along those lines, but the person's still there. And sometimes it'll be used and sometimes found in these kind of agreements. Next slide. We mentioned the issues beforehand, compensation as well, supplemental income, however, you see some points on supplemental income. This becomes very important in the college coach space. Can the college coach have a summer camp on campus? Can the college coach get money from independent speaking tours? Can the college coach travel in a certain level of comfort to do outside activity? So that's the thing. Can the college coach do endorsement deals? And what are the parameters of that would be an area of negotiation. Then the termination clause. And I will say it now and say it again. The termination clause may be the most important clause in these contracts. You heard that right. How it's phrased, what it covers can be incredibly, incredibly important. And we'll talk about for cause and not for cause terminations. There could be buyout provisions, usually an arbitration clause can be found as well. So, moving to a little more detail in the next slide, as we said, what does compensation include? Well, it depends, of course, base salary, benefits, bonuses. These contracts are often very much bonus laden and here's a hint. If you're representing somebody starting out, one of the most important clauses is moving expenses, who covers the moving expenses when the coach is hired or fired? That could be a lot of money for a coach making say $50,000 a year. It's obviously not for the savings of the world, but for somebody starting out, yes, it is important. Supplemental income as we mentioned, apparel and equipment contracts as a coach get a percentage of the deal that the university has with those companies, the summer camp issue. And ideally for the coach, the coach could use the campus as a free place for these summer camps, radio and TV shows. These will all be covered in many, many of these contracts. And let's move on to the next slide. Yes, termination. Now, in the world of sports, there are two types of terminations with coaches, termination for cause and termination without cause. When a coach is normally fired because the coach is not doing a good job, you'd think it's a termination for cause, but often it's not. And what that means is the coach can still be paid either the rest of the contract or to a liquidated damages clause that may be found in the contract. And you see that, especially for coaches that have a lot of leverage, they're going to say, well, you know what, it may not work out and I'm fired, but you still pay me and you still pay me a lot of money or buy me out. And they have been cases like that. For cause termination, it's usually very specified and that would be something based on illegality, arrest, actions that shock the conscience through a morals clause. And that's why morals clauses are also so important because they usually go hand in hand with the for cause termination. So that becomes incredibly important. And the rest we generally talked about, but I think that aspect, the for cause versus not for cause is a very important distinction. Next slide, non-competes. Non-competes can be used in coaching contracts to stop someone from going to a rival team. But nevertheless, keep in mind, non-competes have had various levels of enforcement in given states in the employment loss sphere and I don't have time to get into that, but you may be wary as to what your state law deals with in drafting non-compete covenants, because some states really, really limit their enforceability to people unique and extraordinary. Other states may be a little bit more lenient. So it's something to keep in mind. And the next slide also, as we said, in terms of remedies, either liquidated damages, which you're seeing more and more. Injunction even if it's in the contract, extremely difficult to get. You remember first year of law school, only if the person's unique and extraordinary, and that's a real, real crapshoot. And, of course, you'll note that specific performance is not a remedy in personal services contracts. I have a sample here of a term sheet. I'll talk about that quickly. This is LSU and Brian Kelly. You can take a look at it. Often when these contracts are negotiated, they're not finalized in time for the beginning of the season and both parties know that. So both parties will sign a term sheet that will ultimately become part of an ultimate contract. Ultimately it'll be incorporated in the contract, it'll be outlining the basic deal points, but just have something in writing by the time training camp begins, by the time the season begins, some schools and coaches will utilize a term sheet and you can take a look at that at your leisure. We don't really have time to get into that at this time. Okay, next section. Athlete, endorsement and sponsorships. And this is a fascinating area, especially now with NIL deals. It's very hard to keep up with all that's going on, but as of this date, I'm going to give you an overview of what the general standards are. And for all we know in two, three years, it could be quite different than it is now. So let's take a look and look at the clauses as well, the term, options. And I'll talk about options in a bit. Usually in these endorsement deals where the athlete is going to endorse a product or be an influencer for a product, there will be some kind of extension clause either by athlete or more commonly by the company. So it's a four-year contract and an option for one or two more years by the firm that could be exercised. That you'll find very frequently if the firm wants to keep the athlete and doesn't want the athlete to jump, can exercise that option. And even if the option is not there or about over, there is usually something called the right of first negotiation or right of first refusal clause in the contract saying that when the athlete will negotiate with another potential endorser, basically the first company has the right to refuse the offer. They have to definitely said, you know what, X company is offering me $2 million a year and a company said, we'll match it. We'll match it under our option, you stay with us. So right of first refusal become a very important issue. The right of first negotiation is usually an exclusive period to negotiate. A period of time, 90 days, 60 days where the athlete can only negotiate with the endorsing company and no one else. So you'll find these clauses that are pretty common in these deals. The next point products endorsed. Now, I do an exercise in my class about this aspect of what products are endorsed. This has to be pretty specific. You don't wanna make this too general or too vague because then you'll hit a problem. Let's say contract number one, the athlete endorses recreational wear and then the athlete makes it really big and let's say another company comes to the athlete and say, we want you to endorse our leisure wear. Well, we don't know where recreational wear and leisure wear come to play unless it is more specifically broken down. So the nature of the products endorsed should be broken down with reasonable certainty in these agreements to avoid just that kind of confusion. Social media, more and more important, the athlete or the person, but we're focusing on the athlete, using social media, using Instagram, Twitter, what have you, there'll be a clause should be that, it's a license. The image is being licensed for use by the firm, there may be a webpage with the athlete and also the social media should be specified as to the number of posts, who reviews the posts, because basically you can't just let the athlete post whatever he or she feels like, there'll usually be a coordinator that will do that on behalf of the product. And what about private postings? Also that have nothing to do with the product, it has to do with negotiation as well. Travel issues, who pays, sample products, et cetera. And particularly in these contracts, the morals clause and connection with termination becomes very, very important. And for the morals clause, this is something that is often heavily negotiated. We're dealing with a young athlete, young athlete could do things, say things that can cause embarrassment. And it's usually more than just illegality because there are many... Is it illegality? Is it a conviction? Is it a felony? Is it arrest? That arguably could have been included, but what about just actions that are beyond that, that cause embarrassment to the company? And it could be a controversial political statement. It could be something that could be an insulting tweet, but keep in mind that many will say, well, it should be her individual rights to say that. Well, that may be true when we're dealing with state actors in the first amendment, but the endorsing company is a business. They're using this athlete as their representative, as their influencer. They don't wanna be embarrassed by that and they don't wanna have to pay the athlete who cannot do any more endorsements because he or she said things or did things controversially, but yet have to pay her or him, both, him or her. So it's going to be a very, very important component depending on the clout of each side. And that becomes something to really, really keep in mind as well as general termination clause. I would just add that it should be something about disability. If the athlete cannot play for so much time, then that would be grounds for termination. Now, we're going to see more and more COVID-oriented clauses in these contracts regarding COVID and whether COVID is really a termination or is it a delay and what happens if one is diagnosed with COVID and that is something where as we get to the next section, is something that you'll find more involved and more a part of these kind of contracts. So let's move on to our last section for the day, which is COVID and sports. And we'll focus on how important and how foreseeable or unforeseeable this all was. And the litigation that we may mention involving insurance contracts is not small litigation, it's not small potatoes. We're talking about potentially billions of dollars at stake. For the major sports leagues, which had to suffer in 2020 with little or no attendance or with bubbles or with cancellations. So this area is a very important area. There's a lot at stake. So let's actually move on and talk about it. So first in terms of pre-COVID contracts, very few contracts used the word pandemic. Very few contracts used the word epidemic, and it's not because the lawyers were bad, is that because we have not had a pandemic like this in a hundred years and a hundred years is an awful long time. So we're going to focus in traditional common law contracts, essentially on two concepts, force majeure and impossibility. Let's talk about impossibility first, before we get to force majeure. Impossibility of performance is a common law doctrine. The courts impose it as you may recall. Two events that make it unforeseeable and literally impossible to perform. And you don't have to have an impossibility clause in a contract. The contract could be totally silent on that issue and yet there will be circumstances that will make the contract impossible, such as major weather pattern issue, earthquake, tornado, illness. So the simple example would be, let us say that I had a contract to perform at Madison Square Garden on a given date and perform with my rock band, the contract specified Madison Square Garden. A storm hits and Madison Square Garden is damaged and cannot open, that contract is impossible. Yeah, you can't perform those days because it's simply impossible to perform based on the circumstances. Consequently, let us say, I get seriously sick and I lose my voice. Do no fault on my own, not COVID for this purpose. It could be impossible too. So impossibility really deals with events that are unforeseeable and make it literally impossible to perform the contract. Here's the problem with COVID and COVID and sports, it was not impossible to perform or engage in sporting competition in many sports in 2020. Was it economical? Not necessarily. Was it full of financial problems? Absolutely, but the NBA had competition in a bubble. The NHL had competition in a bubble. It was not impossible. The games occurred and they were televised. So it was not a question of impossibility of performance. The performance was made. So even if there was event in a local area that the city or state said, you can only have one quarter attendance, it's not impossible. So my point here is that impossibility of performance would be very, very difficult to show in many of these cases. So then we look to the next thing, a contractual term, and we look to the words force majeure. And many of you know the term force majeure, it's an event beyond the control of the parties that prevents performance under a contract and may excuse non-performance, may, and force majeure is usually a clause in a contract. It's a typical clause. And for decades it was a boiler played clause. The issue is, what is included in the clause and how it is interpreted and we are seeing lots of litigation right now on this issue, not just in sports, but with retail businesses all over the country fighting their insurance companies. So now we can move on to the next slide. So let's look at the roadmap here of COVID and sports. Does the force majeure clause cover pandemics? Number one. If your contract had a force majeure clause that did you are in luck if you wish to terminate the obligation, because by any sense of the word the COVID phenomenon was a pandemic. It was defined that way by the World Health Organization and I think even if it wasn't, it would fit the definition. So your ideal clause would've been, if there is a pandemic as judged by the World Health Organization or the CDC or whatever organization, contract terminates. That would be ideal if you wish to terminate the contract. Now, the problem was and the problem is that most force majeure contracts clauses and sports and entertainment did not cover pandemics. They did not have that language. And without that language, we have a problem of contract interpretation just because it is harder, just because it's more expensive doesn't mean it is a force majeure justifying discharge of the contractual obligation. So, moving to the next slide. It says a particular issue in event and sponsorship contracts, as we said, which often are very, very geared to sports. I will say in this slide going further down, that the notion of commercial and practicability is a UCC concept. It is not a concept used in personal services contracts. And if there then no such clause using pandemic, then you have to try to look at common law and possibility or frustration or purpose and whether they apply, which as I said, would be very, very difficult because most states interpret impossibility very, very narrowly. It's going to be a tough, tough road to hope. Alright, with insurance contracts, insurance contracts, particularly for events. And let's say it's an individual event, let's call it, let's say the U.S Open Tennis Tournament or Wimbledon. And here's a point about both, Wimbledon canceled in 2020. The reason Wimbledon canceled is because their insurance contract had a pandemic's clause. The contract for the U.S open, that's by the USTA, U.S Tennis Association did not. Facing the loss of considerable television broadcast money, they had a tournament. It wasn't pretty, it wasn't perfect. It was weird to watch it with no fans at Flushing Meadow, but they had the tournament because without it, they would have lost the TV money and would not have gotten insurance money because their insurance contract didn't cover pandemics. And you may say, why is that? Because it is expensive. And by the way, you're not going to find that many insurance contracts covering pandemics in the future, precisely because of what's happened. So it's going to be really tough. So the points that you'll find on the insurance side is whether the policy has a business interruption protection clause, okay, and many do. And many of the sports leagues had their contracts with insurance companies that did, they pay for business interruption. Great, we're halfway there, but the next problem was, did the contract have what's called a virus exclusion clause that did not apply to cancellations due to communicable illnesses? And the answer in some cases was yes. So the court didn't have to even get to the issue of interpreting is this a business interruption? Because the insurance policy said, nah, viruses don't count, airborne viruses don't count. And some have argued, well, the virus got into seating. It was a problem that may have gone to the premises, but at this point we know that the virus doesn't spread that way. It's going to be a very, very tough argument. So this is a really interesting case, this Chattanooga case, professional baseball versus National Casualty Company, a fairly recent decision by the ninth circuit. And this deal though with minor league teams and Minor League Baseball teams have had it worse in many ways than their major league counterparts, because at least with Major League Baseball, you do have television broadcast rights and accompanying rights like that. With minor leagues, it is so dependent on the gate. This is a real issue. So a number of minor league teams in 10 states sued after their insurers denied coverage under the COVID business interruption claims, they said we're not covering it. So the question was a sole issue. The sole issue, do the policy and the virus exclusions in the policy apply here. And the plaintiffs tried to argue, it's applicable because the losses were attributed to other causes not implicated by the virus, including governmental responses and Major League Baseball not supplying players. And the ninth circuit was not that sympathetic. And the fact is the court found that the virus exclusion was applicable under the law of every one of the jurisdictions where the team applied, because keep in mind a virus exclusion meant a cancellation from a virus directly from the virus and that would not be included in this contract. So it didn't matter the nature of the damages caused by COVID. It didn't matter if a state or locality closed all these matches, it didn't matter. That's a huge hit, I don't know what these teams are going to do, given the economy and given the situation, it's going to be pretty tough for them. It's a federal appeals court and I'm not so sure that other federal courts or other state courts are going to rule differently depending on the policy. But remember, when you look at a contract, you look at the plain meaning of the terms and the court said, plain meaning of virus exclusion is virus exclusion. Fortunately for the NBA, this is not an insurance issue. But the NBA and BPA, the only league CBAs and players CBAs that specifically had a force majeure clause that had pandemics in it and calculated for every game canceled the players pay would be reduced by 192.6 of the player's compensation during that period. That made it a lot easier because the NBA and its union did not have the kind of fight that Major League Baseball had with its union during that season regarding how many games to play. But this was really, I guess, a clear voyant issue, issue that whoever came up with it deserves a huge award. I guess I wouldn't call it a happy ending to this very first presentation in our series, but an ending where the contract law did apply and both parties knew what they had to do. So that did work out. And at this point, my final slide, I do want to thank you. And for more information, feel free to contact me at the email address that you see below. You could follow me on Twitter as well. I always like followers. And also let me know if you have any ideas about different topics for this particular series. So until we get to the next topic in the series, farewell and thank you for joining us.

Presenter(s)

MCJ
Mark Conrad, JD
Associate Professor of Law and Ethics
Fordham University’s Gabelli School of Business

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