September 26th, 2011

Conference Realignment

By Sam Mann

Obviously there has been a lot of movement amongst conferences in major college football, including my university of choice moving from the Big East to the ACC (In case you haven’t noticed, and judging from attendance figures, you haven’t, Syracuse is 3-1 in football. Just saying.) As always, these moves are motivated by money, mostly from television contracts. But there are legal issues hanging over all these moves as well.

For instance, Texas A&M announced its intention to move from the Big 12 to the SEC months ago (construcitvely at least), but the official announcement was not made until yesterday. The holdup was that the SEC would not take A&M with any pending legal issues, and sources had indicated that as many as four Big 12 schools were threatening litigation. This not new either; when Miami, Virginia Tech and Boston College left the ACC in 2003, four Big East schools filed a lawsuit (actually two suits) trying to enjoin the schools from leaving the conference. Ultimately neither was successful, but the situation did end with an extremely awkward “lame-duck” year when BC had one foot out the door but still had to play out the season in the Big East.

Speaking of the Big East, an interesting by-product of all this movement has been the media’s focus on the “hypocrisy” of it all. Pittsburgh, now bound for ACC country, was a party in the aforementioned Big East lawsuits, yet that did not stop the school from making its move and “abandoning” the conference. I put all these “words” in quotes because the premise for these arguments is fairly ridiculous. Hypocrisy is not illegal, nor are institutions forced to be loyal to its counterparts. In the end, college sports are a business, a very unique business that purports to be not-for-profit, but a business nonetheless. Schools like A&M, Pitt and Syracuse must make moves when they feel it is necessary. As long as they abide by their contractual obligations, there is nothing inherently “wrong” or illegal about switching conferences. In fact, it happens all the time.

The most interesting thing left to see, now that it appears the Big 12 will stay together, is whether the Big East conference waives its notification period, reported to be 27 months. Yet the scope of these conference agreements seems unclear from the reports. What are the terms of these contracts? Do they automatically renew? Is there proper consideration? What are the legal rights upon breach? Are there any? Can this even be considered a valid contract, or is it some sort of loose confederation of independent schools just agreeing to agree?

Assuming that the agreements are enforceable, and the provisions are as reported, that would leave Pitt and Syracuse in the Big East through the 2013-2014 school year, but waiver seems likely because it is unclear how two more years in the conference would benefit any of the parties. But, if that is in fact the applicable provision, then the two schools might be forced to remain in the conference. Meanwhile, the Big East will probably be forced to expand by raiding other conference for new members, continuing the cycle of “hypocrisy” and “disloyalty.” Instead of using those words, maybe we should call it what it is:

“Higher Education”

Sam Mann can be reached at sgmann@email.wm.edu.

August 27th, 2011

Hurricane Update: Irene, Miami … some other stuff too

So we admit, the blog has been a little slow recently, but theres been an earthquake and a hurricane all in the last week so can you blame us? In all actuality, the weather has nothing to do with it, but if anyone asks, we are going with that as our excuse, okay? Done and done, especially since our power in Williamsburg could go out at any moment.

Yes, a lot has happened in the interim, most notably the NFL resolving its labor dispute, Brady v. NFL being formally dismissed, the NBA drifting into what looks like a prolonged lockout with no end in sight and all sorts of rules violations in NCAA Football and Basketball. These are all issues we hope to return to shortly, but in the meantime, it is also useful to point out some of the smaller sports law-related stories out there.

  • ESPN recently broke an investigative report on whether the Toronto Blue Jays are stealing opposing signs in the home ballpark. The whole issue becomes complicated by the fact that nowhere is “sign-stealing” explictly prohibited in MLB’s rulebook. Further, sign-stealing is a part of the game. Yet the traditions tend to indicate that any use of a third-person or outside source like technology makes it illegal, while if it’s one player relaying information to another it is perfectly okay. So this question, while never going to be adjudicated in a tribunal or even by the Commissioner’s Office, is really about enforcement. Can you enforce a violation of a law that is not actually on the books?

Of course the Blue Jays dispute the charges, and I tend to agree with them. If the team didn’t have Jose Bautista, would this even be a story? I think this is a way for opposing teams and the media to take a shot at Bautista because they don’t actually believe in his startling rise from replacement-level to Bonds-on-steroids-level. (For those of you into advanced stats, look at his wOBA. Unbelievable numbers that can’t simply be a matter of home-park effects.) Either way, it will be interesting to see if the Blue Jays are formally reprimanded, or even if baseball makes investigation a priority.

  • FIBA, basketball’s international organizing body, has determined that NBA players will be able to play in international leagues during the lockout, despite the status of their NBA contracts. It is an interesting arrangement that seems to make sense on the surface. The NBA has agreed not to object provided that players return to the NBA when (or if?) the lockout ends. Several high-profile players have signed contracts or met with deep-pocketed international teams including Kobe Bryant. The biggest name to sign so far is Nets G Deron Williams, but he will probably be joined by several other all-stars very soon. My concern, what happens to American overseas players who aren’t on NBA contracts and have to play in Europe or other markets to continue their careers. Many leagues limit the number of American players, and even if they didn’t, basketball rosters are small to begin with.
  • In a refreshing development related to the NBA lockout, the summer was filled with stories of NBA stars mixing it up in local summer leagues. Kobe played in LA, Kevin Durant went on a scoring binge in Rucker Park and other venues. Would any of this be happening without the lockout and all the team control (not to mention clauses in contracts)? Anyway, it’s fun to see players reaching out to fans and playing in these leagues, and the good-will may actually help them in the inevitable PR battle that will rage as the lockout drags on.
  • Six retired NFL players have sued the league over concussions, alleging that the NFL hid evidence of the consequences of head injuries and trained players techniques that put them at greater risk. As if the NFL lawyers haven’t been busy enough recently… [The most interesting question in my mind is what firm will the NFL use as outside counsel if the suit ever gets off the ground?]
  • Finally, ponzi schemes are playing a large role in the sports industry these days. From the Madoff scheme to the recent Miami problems. Nevin Shapiro, the Miami booster who claims to have arranged all these illegal benefits, is currently serving a 20-year sentence for his role in a $930 million ponzi scheme. It seems only this arrest and subsequent conviction motivated Shapiro to start talking. Irving Picard, the trustee for the Madoff victims, filed suit earlier this year against the Mets to recover funds; is a suit against these ex-Miami players next? There are some big names on the list of implicated players including Andre Johnson, Vince Wilfork and Jonathan Vilma.

July 19th, 2011

The Pittsburgh Pirates – Baseball’s Biggest Story

By Sam Mann

Full Disclosure: this post is not really about the law. It’s more about the business/management of baseball. I guess you could draw a tacit connection but I think that sort of stretches it. Nonetheless, I am plowing forward.

In what almost everyone would deem a surprise, the Pittsburgh Pirates are in First Place in the NL Central in the middle of July. In an even bigger surprise, their rise back to relevancy has been the lead baseball story since the All Star Break. Anyway, this is all important because the non-waiver trade deadline is July 31, making now the time when franchises decide whether they are buyers or sellers.

Buyers make trades for players who can bring value to their team now while sellers give up veteran, typically more expensive players in return for younger and cheaper players who bring future value. Occasionally you will hear a commentator rail about the inequities of this system and call it a function of baseball’s revenue divide. Personally, I think it is evidence of the free market’s effect on major professional sports. Both teams extract value because the supply and demand curves change as we get later in the season, and teams see greater opportunity to win now or build for the future.

This process plays itself out every July and is usually reasonably simple. Sometimes, as with this year’s Pirates, the decision is much more difficult. The Pirates haven’t had a winning season in 18 years (yes, that is a record), so one would think that they would make whatever moves they could to keep that winning record and sneak into the playoffs. On the other hand, the smart strategy for losing and/or small market teams is to trade veterans and stockpile young talent, as in any sport. In baseball, it is even more valuable because players are under club control and can’t be free agents until they have 6 years of major league service. The whole system is somewhat complex, but suffice it to say, that is what teams like the Rays, Royals and Pirates need to do to be competitive.

That makes this a tough decision for the Pirates: do they trade some of their prospects in the minors (the Buccos reportedly have  a lot of talent in the low minors but not many major league ready prospects that can help this year) or do they stick with the long-term plan and build for the future, as they were not expected to contend this year anyway?

From a baseball only perspective, the right play is probably not to trade anyone of value from the farm system. On paper at least, the Cardinals and the Brewers are better than the Pirates, so the odds are that they won’t make the playoffs. To a certain extent, they risk mortgaging the future for one run at glory, a run that is by no means guaranteed. One 5 or 6 game losing streak and they’re done, especially in that division with 3 teams within a game of first place.

But at the same time, I can make the argument that the Pirates need to make a move right now. Having went to school in Pittsburgh, I have watched a lot of the Pirates and know a lot of fans. Personally, I kinda like the Buccos. The fans aren’t nearly as insufferable as Steelers fans and you won’t find any bandwagon fans because, again, they haven’t won in 18 years. But the ballpark is amazing, their GM is a former D3 baseball player (Neil Huntington played at Amherst) and they have some likable guys. The problem is they have alienated lots of fans because of all the losing and the fact that their ownership is questionable at best. Despite the wonderful PNC Park, attendance has been down for years, and even this year hasn’t been great.

That is why making a trade or two makes sense for the Pirates because it would invigorate the fans, help attendance and bring more national attention to a franchise that needs it. So even if they give up a few prospects, they would gain in the win column (maybe) but also on the balance sheet. A big move would signal they are committed to winning, and I think the city would respond to that. Their other risk is alienating the fans, who have been waiting years for a potential winner if they don’t try to win this year.

To bring this all full circle and try to apply it to the law, I think it’s a testament to baseball’s system that this debate can be had. MLB’s lack of a salary cap draws ire from a lot of people who believe the system isn’t fair because the Yankees and other big market teams can just “buy” players. But that is an unsophisticated view. Yes, the Yankees have a much higher payroll than most of the league, and yes, that gives them an advantage and more room for error in every facet of their organization. But small market teams can win, and the system does give opportunities to those teams. Until about four years ago, the Pirates weren’t taking advantage of those opportunities, but now that they are, they have to decide how to best exploit their position. That is fun, interesting and good for the game.

Unfortunately, there is a lot of talk that baseball is going to change some of the draft and amateur signing procedures in the next collective bargaining agreement. Will that eliminate some of the opportunities to small market teams? (Actually, I did make a tacit connection to the law. Yay to collective bargaining).

So keep an eye out as to whether the Pirates make a move in the next few weeks. Whatever choice is made will likely have repercussions on the field, the fans and the business-side of their organization. And that’s the part very few people talk about when they discuss the trade market and other “baseball” moves.

(For the record, my personal opinion is the Pirates should only make minor deals and hold on to their top 10 or 15 prospects, realizing they will win more when their young pitching arrives in 2013 or 2014. But that’s just my opinion. I certainly wouldn’t blame them if they traded for Carlos Beltran or someone like him)

July 14th, 2011

Should We Pay College Athletes? (But only the good ones, of course)

By Sam Mann

With all the talk about compliance with NCAA regulations and all the big programs getting sanctioned (add Georgia Tech to the ever-growing list). Apparently ESPN is thinking the same way because this week they ran several articles about the NCAA amateurism dilemma. Today is the oft-referenced topic of whether we should pay college athletes beyond their scholarships. I have always been strongly in the “no” camp, but it was worth checking out. (see Pat Forde on our issue and Mark Schlabach, which is only rationally related as it talks about how the NCAA). The most thoughtful comment was Bruce Feldman’s introduction to the debate:

“One of my frustrations whenever this subject comes up is that a lot of people approach it in one of two ways. Some say that yes, players deserve to be paid because it isn’t right that they aren’t, but those people don’t have any sense of the logistics behind what they’re green-lighting. Then there’s the other side that comes out and says, “No, we can’t have this, and here’s why …” and they bring up some very valid points with Title IX and other issues, but it’s basically dismissed immediately as “discussion over.”

It is a polarizing topic, so let’s break it down. First, let’s start with the obvious. This debate is only about football and men’s basketball. No other sport comes even factors into this debate, though a lot of commentators attempt to carefully dodge saying it that bluntly. Not baseball, not hockey, not women’s basketball. If we were to decide to pay student-athletes, it would only be in the two main revenue sports, football and men’s basketball. None of the other sports make any money, with only a few exceptions. (The big-time women’s basketball programs turn a profit I’m sure, but most don’t. Baseball doesn’t outside of the SEC and maybe 10 other top programs. You get the point). So any discussion about this can only be about football and basketball, and even then, only at the highest level.

Second, athletes on full scholarships do get paid. They get full tuition, for any semester or class they want. They get room and board, they get money for books, they get access to better food, they get free medical and training services and they get a STIPEND. Every so often (either two weeks or a month, I’m not sure), athletes on full rides get a check for living expenses. With that they pay for their cell phones, jewelry, humongous headphones for pre-game warmups and tattoos (unless they play at Ohio State in which case the tattoos are paid for a little differently). So yes, the kids who come from low-income households have it tough, but they don’t have it that tough. They are given enough to get by, but you never hear the pro-pay crowd mention those stipends.

Now, my biggest issue with any potential scheme is to what end are we paying them? Do we want to compensate everyone equally? If we do that, doesn’t that defeat the argument that players need to be paid because the schools are making millions off them? Schools make money off some players, not all. And not all schools make money. I’m a huge Syracuse fan, and they’ve been pretty awful for the last couple of years. The 2010 season was the first time the school turned a profit on the football team. So do the 2009 players get shut out then? And the big money programs, do we pay Terrelle Pryor and the walk-on long snapper the same amount?

There are also significant legal ramifications to paying athletes (a good discussion of which is in the Feldman article). If they’re paid, they are effectively employees. So do they get workman’s compensation for injuries? Health insurance? What about breach of contract claims? Will they be able to organize? (As an aside, can you imagine the issues a player’s union made up of 18 & 19 year old kids? I can’t decide whether it would be wildly entertaining or or incredibly disastrous. I can promise you one thing though, Tim Tebow would have been a player rep.)

Then finally, the elephant in the room, Title IX. Honestly, this issue requires a whole post of its own, so we are just going to postpone it for now. Just know it’s a huge part of this discussion whether the media downplays it or not.

On the other hand, we have the pro-paying argument which is based mainly on the idea that the school, coaches, TV networks and NCAA make millions of dollars as a result of the players labor, but they are the only parties not being handsomely compensated. When framed that way, it makes sense. In some ways, I am very sympathetic. AJ Green from Georgia got a four game suspension for selling his jersey for $1,000. Meanwhile, the UGA bookstore undoubtedly sold hundreds of thousands of AJ Green jerseys over the past three years.

The best idea I have heard can be attributed to Jay Bilas (a lawyer at Moore and Van Allen by the way). He basically says that we should open up the market to NCAA players just like we do for pro players, without the contracts. So while players don’t get paid by the school, they can seek outside compensation for endorsements, receive revenue from their likeness and all the other things currently banned by the NCAA.It seems like a decent idea, but I really don’t think it would every get approved the boys in Indianapolis.

In some ways doing this would almost protect the NCAA, as some commentators believe that the courts will soon get involved. Count Rod Gilmore, featured in the Feldman article, as one of those people. See also the lawsuit filed by Sam Keller suing the NCAA, EA Sports and everyone else involved in the NCAA Football video game series.

(Three quick notes on that last point: One, Sam Keller was my bartender at a bar in Phoenix last December. We talked to him for a minute, seemed like a decent guy. Two, love the video game and have heard this year’s version is unbelievable. Three, we discussed the case a little bit in Property class last spring. I’m sure it comes up a lot in IP courses as well)

UPDATE: ESPN’s Ivan Maisel weighed in today (7/15) with an article about the legal pitfalls that come with paying college athletes. Another good read.

But I keep coming back to the question, “How would we possibly create a workable system that wouldn’t create more problems that it solved?” And I can’t answer that question. Plus there’s that whole Title IX thing, so without really going to the statute, I think it would be illegal to pay some without paying everyone. And we can’t pay everyone – that’s certainly not feasible.

Ed’s note: On a completely unrelated note, Bruce Feldman was suspended indefinitely this morning by ESPN for his role in an upcoming book by former Texas Tech football coach Mike Leach. We won’t delve into the details here, but a quick Google search will explain the whole situation.

July 10th, 2011

Links – July 10

By Sam Mann

Here are a couple of links that caught our eyes the last few days:

  • The guys at Freakonomics apparently have a blog as well. A recent post muses why Law School is like the NFL Draft. Interesting post, but not all that ground breaking, although any time we can compare law school to any professional sports organization is a good thing. A lot of other outlets have been saying the same thing about the world of legal employment.
  • One more note above the above article: I don’t know why people seem to feel the need to downgrade Division II and Division III athletics whenever possible (the jab in this article is more of a backhanded complement than anything but it still rubs me the wrong way). Of course, I might be biased having played at a DIII school my, but my bet is most of the people who make these declarations never played college athletics. The commitment, intensity and competitiveness is just as present at those levels as it is at big schools. But that seems like a whole different post on a different blog.
  • The New York Attorney General is investigating whether the NFL lockout is a violation of state antitrust laws. This doesn’t seem like the best move made by New York Attorney General Eric Schneiderman. First, the timing is poor, as it finally appears the two sides are making progress towards an agreement. In fact, many sources seem to think a deal will be done within two weeks. Second, it reeks of publicity-seeking. Floating that you’re investigating the NFL is a great way to get your name in the headlines. It seems like you’re the good guy because you are “protecting NY businesses” and just want to see the NFL playing, but really, you know this “investigation” is never going to get off the ground. It’s not like there is a realistic chance that his office is actually going to file suit. Third and finally, it makes very little sense legally, because…
  • The 8th Circuit has ruled that the NFL lockout is legal, overturning an earlier decision by District Court Judge Susan Richard Nelson. The victory was not a complete win for the NFL and its owners, as the court left open the question of antitrust damages (although Stanford Law Professor William Gould believes the language used in the opinion would lead the lower court to side with the NFL). Both the league and the players issued a joint statement saying that they respected the decision but believe the best outcome will be through an agreement. Not exactly groundbreaking, but it does seem to rule out the possibility of individual players suing the league for damages, so we got that going for us which is nice. According to league sources, a deal must be in place by July 15 for the Hall of Fame game to be played on Aug. 7.
  • Within this piece on the trade market and realignment among other things, Buster Olney reports that there has been some buzz within the industry that a new MLB Collective Bargaining Agreement could be done and announced as early as this week at the All-Star game. While that seems unlikely for a lot of reasons, baseball is certainly sitting pretty right now. It’s the only major sport without significant labor unrest. (And yes, hockey fans, I get it your sport seems healthy now, but I can’t excuse you for missing a full season so recently). If they can get an agreement in place before the current one expires, which I think occurs in November, it would be a huge public relations win. Considering MLB’s recent record on the public relations front, I think they could use it. (Also, we will get back to the whole re-alignment thing at some point this summer. Really interesting topic).
  • Deron Williams, New Jersey Nets point guard, will apparently play in Turkey if the NBA Lockout lasts as long as some think it could. We will have more coverage of the NBA’s labor situation coming very soon, so I’ll reserve my comments for then, but needless to say this is interesting. I wonder how many other players will follow suit …

Sam Mann is a second-year law student and can be reached at sgmann@email.wm.edu

July 10th, 2011

“Panini vs. Art of the Game: You Think You Have Kobe’s Autograph, But You Have No Idea…”

By Nathan Yu

What do you get if you cross the NBA’s biggest star, Kobe Bryant, with a couple of sports memorabilia companies? A lawsuit, of course…

Back on May 9, Panini America, a sports and entertainment collectibles company, sued The Art of the Game, one of Panini’s competitors, for, among other causes of action, trademark infringement and false advertising. According to Panini, on September 1, 2009, Panini and Kobe entered into an agreement that granted Panini a four-year exclusive right to “use [Kobe’s] name, nicknames, voice, likeness…on and in connection with the manufacture, packaging…sale, and general endorsement of…” trading cards, posters, and other memorabilia. Simply, Kobe cannot sign memorabilia for anyone else, other than Panini, that intends to sell/promote that memorabilia. And here’s where we have a problem…

A Panini representative was at Staples Center for a Lakers game one day and walked to a memorabilia booth operated by The Art of the Game. At the booth, The Art of the Game (AOTG) displayed a photo that was signed by Kobe (and Blake Griffin). According to the Complaint, the AOTG salesman told the Panini rep that the signature was authentic, obtained from Kobe, and that AOTG has an exclusive license agreement with Kobe. The Panini rep bought the photo.

Later, Panini sent a private investigator to the same booth. The investigator bought a Black Mamba movie poster signed by Kobe. Again, according to the filing, the investigator claimed that a different salesman spoke of the authenticity of the signature and of AOTG’s exclusive agreement with Kobe.

Panini’s lawsuit alleges that the autographed items were not signed by Kobe and that AOTG deliberately misrepresents the memorabilia as having authentic signatures, all while knowing that they are fake.  They seek damages, a permanent injunction against AOTG from selling/marketing Kobe items, and all profits from Kobe-signed items.

In its defense, AOTG claims that the signatures are authentic, and in their most recent motion, AOTG provides a signed affidavit from Kobe that swears that he signed the items. To me, everything checks out. When I came across this development (assuming it’s true), I immediately thought that Panini is suing the wrong person on a wrong cause of action. If Kobe admits to having signed those items, then the signatures are authentic; and if the signatures are authentic, what is Panini’s gripe? Well, it SHOULD be that Kobe breached his contract with Panini by signing items for The Art of the Game! In a VERY interesting revelation, Kobe’s declaration says that while he did sign the items, he did not sign them FOR The Art of the Game…I think it’s a very strategically placed prepositional clause.

Anyway, AOTG’s latest motion asks the judge to dismiss the Panini’s suit for a variety of reasons, one of them being that Panini, as a licensee and not the licensor, lacks standing. I haven’t studied intellectual property law, but the argument makes sense on its surface. The hearing date for the motion is set for September 5, so it’ll be awhile before we see the conclusion. But it will be interesting to see if Panini pursues any action against Kobe (highly doubtful in my estimation).

Nathan Yu is an incoming first-year law student at William and Mary, and can be reached at nyu@email.wm.edu

June 27th, 2011

Dodgers File Bankruptcy

By Sam Mann

A lot of potential topics to cover tonight. We have the two big labor disputes in the NFL and the NBA, the Mets/Madoff crisis and a multitude of NCAA drama, from North Carolina to Ohio St. to USC to Boise State (I think the most amazing thing with the NCAA stuff is that John Calipari just got an extension from Kentucky. This just weeks after Kentucky admitted that they should not have celebrated Calipari’s 500th win because of wins vacated at UMass and Memphis, but that’s another post.)

In my eyes, however, the biggest story out there is the tale of the Los Angeles Dodgers, one of the most famous franchises in sports. As we have mentioned several times, most notably here, the Dodgers are in significant financial trouble, mostly because of mismanagement by owner Frank McCourt. Reports seem to indicate that McCourt was never all that financially stable in the first place. He and his wife spent millions upon millions on houses all over the country (I think before the divorce they had 7). There were also many reports, mostly verified, that the McCourts were using team funds for “personal spending. ” His money came from parking lots of all things, and his net worth took a huge hit when the real estate market tumbled. Then, of course, the McCourts filed for divorce, an ugly proceeding which recently came to a conditional settlement (conditioned on the fact that the team remains in McCourt’s hands through all the financial trouble, and then based on a one-day trial to determine whether Jamie McCourt has an ownership stake. I know, it’s ridiculously complex. Anyone out there take family law?)

And let’s not forget that the team itself hasn’t exactly been managed with prudence. Among the unsecured creditors listed in today’s filings  which total about $75 million, are: Manny Ramirez at nearly $21 million; Andruw Jones at $11 million; pitcher Hiroki Kuroda at $4.4 million; and the Chicago White Sox, which share a spring training facility with the Dodgers in Arizona, at $3.5 million (See the above ESPN link for all the gory details). So let’s just say this isn’t a matter of one or two bad decisions; the Dodgers have been a mess financially for some time now, although in fairness they did make a couple of trips to the NLCS. And that’s before you even factor in the Casey Blake for Carlos Santana trade. (Not that Carlos Santana, the catcher thought to be one of the best prospects in baseball when the trade was made, and a crucial part of my fantasy team).

What began with MLB taking over day-to-day operations of the club has culminated in bankruptcy. The Dodgers filed for Chapter 11 today in Delaware. Why Delaware you ask? Well apparently they’re incorporated in Delaware. Anyway, the Dodgers simultaneously sought a loan from Highbridge Principal Strategies for $60 million up front and a total believed to be $150 million. If approved that would help them make payroll on Thursday, which they claim they will do either way. Dodgers personnel cites dropping attendance and deferred salaries, as well as Selig’s interference, as reasons for the filings, while also pointing out that the Rangers went through bankruptcy before being sold to Nolan Ryan’s group last summer.

Bud Selig, the commissioner has a slightly different take, and I quote, “The Commissioner’s Office has spent the better part of one year working with Mr. McCourt and his representatives on the financial situation of the Los Angeles Dodgers, which was caused by Mr. McCourt’s excessive debt and his diversion of club assets for his own personal needs. We have consistently communicated to Mr. McCourt that any potential solution to his problems that contemplates mortgaging the future of the Dodgers franchise to the long-term detriment of the club, its loyal fans and the game of Baseball would not be acceptable.” WOW… no support for one of his own there.

Selig and MLB are expected to contest the bankruptcy filing. The argument, essentially, is that the 30 MLB organizations are privately owned and affiliated and that the league constitution gives it the right to take over an organization filing for Chapter 11. While sometimes court defer to the special interests of an industry (see: baseball’s anti-trust exemption), it is unclear whether the bankruptcy judge will take control or grant baseball’s motion and keep the matter within the confines of baseball. Personally, I hope that happens, because that may be the only way to force a sale and get McCourt out.

The mechanics of bankruptcy are relatively simple. The filing puts a temporary stay on all creditors, and the debtor is required to submit a payment plan for the court to ratify. In practice, it is not so simple, nor is it a quick process, however, so if this matter goes through the courts, it will take a while. If you like the Dodgers that’s bad news because the team and organization are in trouble.

So what we are left with is one of the essential questions in sports law: what is the role of the courts in matters arising from professional sports? When the steroid mess went down (and I guess is still going down with the Bonds and Clemens prosecutions), commentators wondered why the courts and the government needed to get involved in matters of sport. That question is now applied to a different set of facts. Is a professional baseball franchise the type of organization where Chapter 11 bankruptcy is appropriate? I do not believe so, but that is purely a matter of opinion.

What I do know is that this is McCourt’s last stand as owner of the Dodgers. Bankruptcy is his last option. Without it, the team is as good as gone. Selig recently denied a television rights deal that would have given some relief, at least temporarily, but the deal basically granted McCourt a $150 million personal loan. That’s not why baseball clubs exist. Fans do not pay exorbitant ticket and merchandise prices to fund an owner’s spending habits. In fact, that is the most fundamental issue with the whole McCourt era – they have continually used the Dodgers as their own personal ATM. If the CEO of any other type of company did this, the entire country would go crazy. Now, only MLB executives and Dodger fans are going crazy.

No one is sure how long this matter will take to resolve itself, but when it does we will have something for you. For more information, see the Wall Street Journal’s Law Blog here.

Ed’s note: We plan to have more coming for you this week and will continue to sporadically update as the summer goes on. Until next time…

Sam Mann is a second-year law student at William and Mary, and can be reached at sgmann@email.wm.edu

May 26th, 2011

Unlike the NFL, we’re back!

Obviously a lot has happened since we last joined you, although as our title indicates, a resolution to the NFL’s labor trouble is not one of those things.  We thought we would take this opportunity to quickly run through a few items. In no particular order …

  • Businessman Jim Crane has agreed to purchase the Houston Astros for a cool $680 million, which would be the second highest total sale for an MLB organization. A sale of a team requires the unanimous approval of the other 29 MLB owners, a process that usually takes a month of two. While most of the time this goes smoothly, as long as your name isn’t Mark Cuban, Crane is no shoe-in. The NY Times has recently reported that Crane’s freight business was charged with workplace discrimination by the EEOC. The dispute was settled for a reported $2.5 million, but the incident casts doubt on Crane as a future owner. Refer here for more information.
  • Speaking of ownership trouble, I would be doing my Mets fan friends a disservice if I did not mention the debacle that is Fred Wilpon. In a New Yorker piece purportedly aimed at cultivating his public image in anticipation of the upcoming $1 billion dollar lawsuit regarding the Madoff ponzi scam, Wilpon made several derogatory remarks about his own players. (The victim’s trust is alleging that the Wilpons either knew or should have known of what Madoff was doing and were thus complicit in the scheme. I would think proof of that allegation would be difficult but it also seems dangerous for the Wilpons to take their chances at trial, so we may see a settlement)
  • In the fallout from that article, Wilpon has also revealed that the Mets are “bleeding cash” and are likely to lose around $70 million this year. This means that they are likely to try and slash operating expenses the rest of this year and next year, making his comments about his three most tradeable assets even more curious because one would think the Mets would want to be maximizing those player’s value. The takeaway from all this is that the Mets are in significant financial trouble. In addition to the aforementioned issues, the Mets built a pricey new stadium just three years ago that they are struggling to consistently fill. So to summarize: $1 billion lawsuit, bleeding cash and a mountain of debt of a new stadium. I’m a Phillies fan and even I feel bad for Mets fans.
  • Compare this Mets situation to the problems facing the Los Angeles Dodgers which we discussed here. Commissioner Bud Selig took over day-to-day operations of the Dodgers because it was reported they could not make payroll, but it seems like the Mets are in a similar financial situation. The difference, according to most reports, seems to be that Selig is good buddies with the Wilpons, who are generally well-liked in the industry. No one in baseball has ever really liked Frank McCourt, or at least so it seems. I’d like to give Selig the benefit of the doubt and look for a difference between the two situations, but there does not seem to be one. In fact, the biggest difference between the two may be that McCourt is in a better position because he has negotiated a large TV deal with Fox to broadcast Dodger games for the foreseeable future. The deal, though, is subject to approval by Selig. He has yet to act on that deal, but McCourt is contending that once that deal is approved, he will be able to operate the franchise with no problems. It will be interesting to see how these two ownership situations are resolved as the summer goes on.
  • In College Football news, debate over the BCS’s existence is heating up once again. At the request of Senator Orin Hatch (R-UT), the Department of Justice is looking into whether the BCS is in violation of federal antitrust laws. Several weeks ago, the head of the DOJ Antitrust Division wrote a letter to NCAA President Craig Emmert, basically asking him why the BCS exists and continues to be tolerated. For those unfamiliar, the NCAA does not crown a champion in Division I (FCS) College Football, though it does in every other sanctioned sport. The BCS, approved and instituted by college presidents, crowns its champion, while the NCAA is remarkably uninvolved. In response, BCS Executive Director Bill Hancock says he is sure the BCS complies with the law, and also remarks that with all the problems facing this country right now, perhaps the federal government should leave college football alone for a while.
  • My thoughts on this are pretty similar to Hancock’s. One, neither Congress nor the DOJ can force a college football playoff, and to even attempt is a waste of all our time and resources. Two, the college presidents of all the institutions, not just those in “BCS Conferences” agree to the BCS System. Yes, it’s arbitrary and I understand why a lot of fans don’t like it, but that doesn’t make it illegal. Three, college sports have bigger problems than whether the right two teams play for the national title or whether Utah gets to play in the Fiesta Bowl. Let’s root out the agent problems and figure out a coherent standard for implementing NCAA rules and regulations before we worry about an on-field product that is generating a ton of interest and revenue.
  • Finally, the NFL labor dispute hits court again on June 3, when the 8th Circuit will consider a permanent stay to the injunction issued by Federal District Court last April. A ruling for the NFL, which looks likely based on the temporary stay earlier granted by the 8th Circuit, would keep the lockout in place and give the NFL significant leverage. We will continue to follow these developments as they happen.

April 27th, 2011

Call your local Locksmith, the NFL doors are opening … we think

Okay, so it’s finals week here and I really ought to be studying contracts, but I had to quickly react to the recent developments in the NFL labor dispute. I promise I’ll make it brief.

As you no doubt have heard by now, Federal District judge Susan Richard Nelson found for the players and granted an injunction, ending the lockout at least temporarily. As we speak she is considering whether to issue a stay (which would basically pause the injunction while the 8th Circuit hears the case on expedited appeal.) She isn’t going to grant it, but the 8th Circuit itself might. We probably won’t know for sure until after the draft tomorrow night but that’s not important right now.

What is important is this is a pretty significant ruling. It basically validated the NFLPA’s strategy of de-certification and crushed the owner’s lockout tactic. It also increases the chances we will see a full NFL season next year. Finally, it makes the prospect of a full-blown antitrust suit a real possibility, whereas I would have argued it wasn’t a few days ago.

Here’s my reaction. First, as a football fan, it’s good that we are more likely to have a full season. I love the draft and all the other offseason stuff: trades, free agency, etc. Second, as a law student, it is really exciting to watch the law play out on my favorite TV channel. Now I can watch ESPN and not feel as guilty about not studying.

On the other hand though, as someone who follows, thinks about and one day hopes to work in the business of professional sports, this ruling is really concerning. I’m sure most people aren’t feeling sympathy for the NFL and their billionaire owners, and I get that, but if the artist formerly known as the NFLPA keeps winning these legal battles, the NFL will cease to exist as we know it.

Let’s say the dispute ends up in a antitrust case, which wouldn’t begin until after the 2011 season is over at the earliest. The NFL will almost assuredly lose that case. Many of its policies are in violation of antitrust law: the draft, free agency, the salary cap and even the schedule itself are technically illegal. But because these rules are collectively bargained for, there was no problem. Except as it stands today, they are no longer collectively bargained for. If the NFL lockout remains suspended, the league would play under last year’s rules that include all those things mentioned above, but not under any CBA.

So basically the players are arguing for a completely different league. One with no salary cap where the Cowboys, Redskins and other big market clubs would sign every good rookie. A league where the Green Bay Packers are the equivalent of the Pittsburgh Pirates. What about Kansas City, a team with virtually no luxury suites and “corporate accommodations?” They won’t be able to complete. A league where the NFL wouldn’t be able to cap the number of regular season games. The Bears could call up the Vikings and say let’s play on Tuesday. Does anyone really want that? It would be a fundamental departure

I am the first one to point out that football and all other professional sports are  businesses. But at the same time, the NFL is not like the steel companies in 1890 when the Sherman Antitrust Act was passed. Professional sports are by their nature unique. They must have different rules. That’s why we need collective bargaining. Everyone complains about how baseball doesn’t have enough competitive balance. Everyone loves the NFL because their favorite team is one good draft or free agency class away from being a contender.

Yet, now the players are trying to destroy that. And for what? Because the owners won’t give an extra 3% of revenues? As a future lawyer, I probably shouldn’t say this, but I don’t believe we should let the NFLPA lawyers guide the future of this league. I completely agree with Roger Goodell on this one, and not just because we went to the same college.

In the end, there are no good or bad guys. Players, owners alike are all looking out for their best interests and that is how capitalist society works. But that is exactly why we have the courts: to mediate these type of disputes and help achieve a mutually beneficial solution.

The essential holding of yesterday’s ruling was that union de-certification was not a sham and that players are irreparably harmed by a lockout. (Both are hard to explain – first, it was clearly a sham; second, players never get paid in the offseason, they get game checks for the regular season.) Second, she granted an injunction, the legal remedy with the highest burden – one that should only be given in unique circumstances when the moving party can demonstrate actual injury. Does anyone think Tom Brady, the named plaintiff, is being substantially harmed right now?

Whether or not the players are right in the labor dispute does not change the fact that the law probably should not have supported Judge Nelson’s ruling. More than that, if it is not overturned (and judge’s rulings are treated with a presumption of validity at the appeals level) it will have major impact on all labor negotiations in professional sports. I can guarantee you the NBAPA is planning their own de-certification effort today. That labor battle is going to make this one look tame by comparison.

Maybe the right answer is that the league should not have been able to execute a lockout, I don’t know. But I do know that ruling is more likely to be detrimental to the sport of football than it is to be beneficial. Hopefully, the parties sit down and create a new CBA and none of this is relevant. Otherwise, professional sports may be changing significantly right before our eyes.

Sorry I said I’d be brief. Next time maybe.

April 21st, 2011

Anyone want to buy the Dodgers with me?

We included a link about two weeks ago to an LA Times article talking about the financial troubles of LA Dodgers owner Frank McCourt and whether he had any legal remedies. Well, over the last 24 hours, that story has become a lot more interesting. Major League Baseball has stepped in and took over the day-to-day operations of the Dodgers, strongly indicating that McCourt will be forced out shortly. The rumored impetus was McCourt seeking a $20 million loan from Fox, the Dodgers television partner, without MLB approval to make payroll this month. MLB had previously refused to approve a prior loan from Fox.

It has been said that McCourt could file a lawsuit against Bud Selig and Major League Baseball to get control of his franchise back. However, according to ESPN’s Buster Olney, baseball insiders don’t think McCourt has any chance of winning a court battle. In fact, some think he will actually benefit in the end, because Selig will ensure the team sells for a good figure, something in the ballpark of $750 million. Though McCourt will surely have to share any profit with his soon to be ex-wife and former co-owner (at least according to CA divorce court) Jamie McCourt, most people say the McCourts never really had that much money in the beginning and will end up better off due to a sale.

Either way, the Dodgers brand is suffering right now. Over the past few years they have went from a prime contender, losing in two straight NLCS to my beloved Phillies, to an also-ran in the competitive NL West, suffered through a very messy and public divorce among their two owners, to a savage beating of a Giants fan in the parking lot post-game and now finally to a takeover by Major League Baseball.

Now, I’m not sure where the law would sit on this. My best laid opinion would be that MLB has the right to do it; after all, they experienced with quasi-takeovers of the Montreal Expos and Texas Rangers in the past. From what I can gather, the major professional leagues have a lot of control over their ownership groups. Just ask Mark Cuban; he has reportedly tried to buy in with both the Cubs and Pirates recently, to no avail. That, however, is a different debate. So the best bet is that the law will not protect Frank McCourt and he will soon no longer be the owner of the Los Angeles Dodgers, though he is likely to be well compensated for his loss. But then again, I wouldn’t be surprised to see a lawsuit eventually.

If you would like to be the next Dodgers owner, contact me at sgmann@email.wm.edu and we can pool our resources and make a run at it.

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