Conclusion

This post concludes my blog, as well as my term enrolled in the Sport Contract Law class in Brock University's Sport Management program. 

I hope my blog has provided a great deal of useful legal information to anyone who may be interested in the legal side of sports. This blog helped me further understand what I have learned throughout my tenure as a Contract Law student. It also will allow me to apply many teachings I took away from this course to my day to day life as a sport manager. 

A great quote I once heard from someone I know was that law is not black and white, but is in fact very grey. I was not entirely sure what this meant until I took this class. I always figured law was just set rules and regulations that dictated what was right and wrong. I now see this is definitely not the case at all. As you can see from the case scenarios I discussed in my blog, many court decisions have certain exceptions, and sometimes it's very hard to interpret contracts for the way they are written. Other times, common law cases are brought into court discussions to help argue someone's case.

With every new contractual issue solved in a court room, contracts start to become more developed, and so does the law. The Philadelphia Ball Club v. Lajoie case is perhaps the earliest example of a negative injunction ruling in professional sports, and this case was probably referred to many times in future injunction hearings in sport. Although Curt Flood lost his case regarding free agency, his trail created a path for Messersmith and McNally to win their own a few years later. 

Contracts today still continue to become more developed, and there is no limit to how much more they can continue to progress. 

The Abolishment of the Reserve Clause

The option clause - better known as the reserve clause - was a contractual clause in North American professional sport allowing a team to retain the rights to their players once their contracts expired. This basically restricted players from signing with other teams around the league, and players were stuck with the same team throughout their careers unless they were traded or released. This clause gave players very little power to negotiate new contracts and terms with their clubs. 

Curt Flood was a phenomenal baseball player, but he is perhaps most remembered for challenging the reserve clause in court. He had been traded from the St. Louis Cardinals to the Philadelphia Phillies back in 1969. Flood refused to play for the Phillies not just because they were a poor performing team at the time, but also because their fan base was known for being racist (Flood was African American). Once Marvin Miller - the head of the MLBPA at the time - agreed to fund any legal action Flood wanted to take against the league, he decided to sue the MLB. He demanded to be made a free agent and argued Major League Baseball went against federal antitrust laws by restricting players from negotiating salaries and limiting them to one team throughout their careers. The Commissioner and the League responded saying the reserve clause was for the good of the game. The court ruled against Flood saying although he has the right to be a free agent, it is only something which could be achieved through collective bargaining between the Union and the League. Although he lost, his case paved the way for what would become known as free agency. 

A few years after Flood’s case, baseball pitchers Andy Messersmith and Dave McNally challenged the reserve clause in court and won. Both players held out from playing during their option clause year after their contracts expired, and thought this could allow them to sign with any team they choose. The owners disagreed with them saying their contracts were automatically renewed with the reserve clause. Both players decided to have their case viewed by an arbitrator, and the arbitrator - known as Peter Seitz - ruled in their favour. This ruling ended the reserve clause in professional baseball, and free agency was born. Messersmith and McNally were free to sign with whichever club they pleased the following season. 

The other professional sport leagues soon followed the free agency trend. Free agency allowed players to negotiate their salaries, and brought exponential growth to player salaries over the past few decades. These two case scenarios, along with the assistance of Marvin Miller, are major contributors to the abolishment of the option clause.  

Sources

http://www.theatlantic.com/entertainment/archive/2011/07/how-curt-flood-changed-baseball-and-killed-his-career-in-the-process/241783/

http://seamheads.com/2008/12/23/today-in-baseball-history-andy-messersmith-and-dave-mcnally/

Negative Injunctions in Professional Sports

Today, I am going to go into depth about what a negative injunction is, and give an example where it has been seen in professional sport. In Contract Law class, we learned an injunction is a court order that either forces a party to do a specific act, or restrains them from doing something. If a party fails to perform or refrain from the specific act, they could face criminal or civil punishment. Negative injunctions have been sought out in professional sports primarily when players agreed to contracts with teams from rival leagues. Since athletes have a specific set of skills which cannot be compensated for, injunctions are what teams seek to force their players to perform their contract. In some instances, injunctions are granted, and in others - but very rarely - they are denied. 

A case scenario of a negative injunction being passed was seen in the Washington Capitols Basketball Club, Inc. v. Barry case. Barry agreed to play for the American Basketball Association’s Oakland Oaks for three years. The team was then sold from Oakland to Washington, and then later renamed the Capitols. Barry was unsatisfied with the move and responded by signing a five year contract to play for the National Basketball Association’s San Francisco Warriors. The Capitols field a lawsuit to seek an injunction. Barry and the Warriors argued his contract with Oakland did not state he was going to be assigned to play in Washington. The court ruled in favour of the Capitols, and Barry fulfilled the remaining two years of his contract. 

Cases of negative injunctions being denied are very rare in professional sports. As mentioned, this is probably because athletes’ skills and abilities are hard to be compensated for, and have no tangible value. 

Contracts With Minors in Sport

In Contract Law class, we discussed the characteristics of a valid contract. One of the characteristics a contract must have to be valid is the parties both need to be the age of majority. The age of majority varies from province to province in Canada, and it is therefore important to refer to your province’s legislation to see how old you must be to enter into contractual agreements. A minor may only enter into a contract for necessities of life, or anything which may of benefit to them. 

In Ontario, the age of majority is 18 years of age. We learned in class a contract cannot be enforced against a minor but a minor can enforce a contract. In other words, if someone under the age of 18 were to enter a contractual agreement, it becomes voidable, although the decision to continue the contract is up to the minor. If the minor decides to void the contract, it becomes rescinded - the unmaking of a contract. A contract may only be enforceable against a minor if it is for their own benefit. 

In class, we also went into further detail discussing what would happen to a minor’s contract once they reach the age of majority. Once a minor reaches the age of majority, they are allowed to ratify their contract. If the contract is for necessities, it continues.

An example of a sport case scenario we examined in class was the Toronto Marlboro Major Junior “A” Hockey Club et al. v. Tonelli case. At the age of 17, Tonelli entered into a contract with the Toronto Marlboros - an major junior hockey club - for three years, with a fourth year option for the Marlboros. Tonelli agreed to play for minimal payment, and to pay the Marlboros 20% of his salary for his first three years as a professional hockey player. The contract also contained a clause stating the Marlboros were the only party who could terminate the deal. Once Tonelli turned 18, he repudiated his contract with the Marlboros, and agreed to play professional hockey for the Houston Aeros of the World Hockey Association. The Marlboros sued Tonelli, his agent, and the World Hockey Association for breaching the contract. Since the contract was highly favourable for the Marlboros, and not very beneficial to Tonelli, the court ordered the contract voidable. Therefore, Tonelli had a choice to discontinue the contract, or to continue fulfilling it. The Toronto Marlboros had the responsibility of making the contract beneficial for Tonelli which they failed to do.

Force Majeur in Sport Event Management

Today, I decided I would create a blog post about what is called a force majeur, and where you would see this contract clause in sport. Force majeur means “a superior force” in French, and this is literally what it means in contract law as well. A force majeur is an uncertain event, or an act of God, that occurs preventing someone from performing their end of the contract. You do not hear many legal issues within sport revolving around force majeur. Although, force majeur is an important part within event management, and many sport organizations may use force majeur clauses within their contracts. When sport organizations are unable to hold their end of the bargain for their sponsors due to an unforeseen event, a force majeur will discontinue the contract. 

There are many past examples which can be referred to. After the terrorist attacks on September 11, 2001, the committee managing the Ryder Cup decided to postpone the event which was to occur within the same month to the following year. In order to avoid liability for sudden cancellation, they would have needed a force majeur clause within their contracts with their sponsors. More recently in 2012, New York City cancelled their annual marathon because Hurricane Sandy hit a week prior, and the city needed to rebound from the damages. The organizers of the marathon would have had a force majeur clause within their contracts with their sponsors to limit their liability. These are great real life examples where force majeur would be seen in event management. 

Sources

http://www.britishsportslaw.org/resources/201452111754_BASL_VOL21_ISS_2_Naidoo_OBrien.pdf

What is a Condition Subsequent and a Morals Clause?

The other day, I posted a blog topic revolving around the term of an agreement called a condition precedent. Today, I will be describing what is called a condition subsequent. Similar to a condition precedent, a condition subsequent is a term within an agreement. A condition subsequent is an uncertain event which occurs, and as a realist brings the promisor’s liability to an end. It is an out written within a contract. 

To further describe what a condition subsequent is, I will provide an example learned in class:

You agree to do some consulting for the World Hockey Association. You have set up a four stage program which will open within the next year. You agreed that each stage of the program is to be approved by the CEO of the World Hockey Association, and if the CEO does not approve your work, they are not required to pay you for that stage. Further work under your contract with the World Hockey Association also ceases as a result. The condition subsequent, or the “out” clause written in this agreement is the CEO must approve each stage of the program. If they do not, they have the right to terminate the deal and not pay you. 

Below is another example of a condition subsequent which I came across recently as a hockey fan when I went to a Hamilton Bulldogs game back in February. You can read the condition subsequent on the back of the ticket I purchased and scanned: 

You will probably find clauses and fine print similar to this on the back of many tickets you purchase for the events you attend. The second sentence in the fine print states management could have refused my admission or expelled me from the facility if my presence was deemed unpleasant. The fine print further states I would not have been able to refund my ticket had I been expelled. There were many rules laid I was to obey, and breaking any of those rules would have led to me getting expelled. The rules laid out for me to obey were the condition subsequent within the contract. If I broke any of these rules, I would have terminated my right to watch the Bulldogs and would have been removed from the facility. These rules laid out were the Bulldogs’ and The First Ontario Centre’s out clause which allowed them to kick out misbehaving spectators. 

A morals clause could be considered a condition subsequent. A morals clause essentially prohibits immoral, illegal, or unacceptable behaviour from an athlete. They are common within a player’s contract with their team, and with a player and their sponsors. If a player acts against their morals clause, their team or sponsor can terminate their deal. Recent real life examples of players breaking their morals clause could be Ray Rice committing domestic violence, or Tiger Woods committing adultery and Gillette cutting ties with him as a result. We learned in class a team or a sponsor will want the moral clause to be really broad in order to make more possible out clauses for them to terminate the deal. On the other hand, we learned athletes want the moral clause to be more narrow. That way, there is less of a reason to have their contract with a team or a sponsor suspended or terminated. 

Sponsors who are signing athletes with a history of immoral behaviour will create out clauses within their contract focusing around the past problems the athlete was associated with. For example, sponsors wanting John Daly to endorse their brand would want to create an out clause within the contract stating if he were to be caught drinking or gambling, their deal would be terminated. Sponsors wanting Ray Rice or Tiger Woods to endorse their products may want to create moral clauses within their contract stating they should respect their wives, and to be faithful. 

Morals clauses will continue to be brought up in the world of sport. The National Football League encountered major problems when they only suspended Ray Rice for only two games. Since then, they have changed their policy and are now coming down harder on issues such as domestic violence. As more instances like the Ray Rice scenario occur, morals clauses will continue to be developed.

What is a Condition Precedent?

We discussed in-class what a condition present when we were discussing performance, remedies, and breaches of a contract. A condition precedent is a term within an agreement which dictates whether the contract is in effect. It is a future or uncertain event that must occur (or in some cases something that must NOT occur) in order for the contract to take place. 

An example of a condition precedent discussed in lecture was the following scenario:

Someone offers you job with the Charlotte Hornets NBA team and you agree to take the job as long as the organization finds you an apartment to live within the city. They agree to fulfill these terms and tell you that you will start July 1st. As of June 28th, the Charlotte Hornets have not found you an apartment within the city, and so you decide to accept a job offered to you by the Florida Panthers NHL team. 

In this scenario, no contract is in place because the Charlotte Hornets never were able to find you an apartment. Had they found you an apartment, the contract would be in effect making you unable to accept the position with the Florida Panthers. 

Another case scenario we examined in class involved a professional football player named Billy Cannon and the Los Angeles Rams. Billy Cannon was known as the best player in the NCAA in the 1959 season, and was projected to be drafted first overall. The Rams of the NFL were to have a coin toss on November 30th, 1959 (a 50/50 chance) to decide whether they would have the first overall pick. On November 28 and 29, Pete Rozelle the General Manager of the Los Angeles Rams reached out to Cannon over the phone discussing contract terms and wanted to meet with him in Philadelphia. The Rams ended up winning the coin toss and signed Cannon to a contract from 1960-1962 which would be in effect the day after the Sugar Bowl on New Years Day. At the time, Cannon was ineligible to sign a contract because of his amateur status, and was required to play in the Sugar Bowl on New Years Day. Signing this contract would make him ineligible. The parties involved had then decided to keep it secretive. Shortly after on December 22, 1959, Cannon met with Bud Adams of the Houston Oilers. The Oilers were a new team associated with the AFL, the rival league of the NFL. The Oilers had selected Cannon first overall in their draft as well, and offered Cannon a better deal than what the Rams had given him. Billy Cannon accepted the offer the Oilers put on the table for him, and on New Years Day immediately after the Sugar Bowl Game, Cannon signed the contract with the Oilers on live television. The Rams sued the Oilers since they had the first contract with Cannon. 

The courts concluded that Cannon had the right to play in Houston. The condition precedent set out was between the NFL and the NCAA, as NFL teams are unable to sign players to a professional contract until the player completed their NCAA career. The contract could not take effect until Cannon completed his college term. The Rams also went against the NFL's by-laws by negotiating a contract with Cannon prior to the occurrence of the coin toss meaning they did not have the right to the first overall pick yet. The Oilers proposed an offer to Cannon at a time when his contract was not in effect, and had him sign the contract once the Suger Bowl was completed. 

The Difference Between a Sponsorship and Licensing Agreement in Sport

In last week’s class, the main topic of concern was knowing the difference between a licensing and sponsorship agreement in sports. When our class was asked to state the differences between a sponsorship and licensing agreement, many answers varied. 

The main difference between the two types of agreements is the following: 

Sponsorship - When a company is looking to sponsor a property (in this case a sport organization or an athlete), they essentially are trying to build their brand by creating exposure, and associating themselves with a property allows them to do this. If the sponsorship is successful, it can drive business. In return, the property receives a form of compensation whether it is a payment, discounts, free products etc. This does not need to be two-way. In other words, an athlete may be sponsored by a company such as Gatorade, but in return the athlete may be required to endorse Gatorade’s products.   

Licensing - An intellectual property (either a sport organization or an athlete) can rent out their IP rights such as patents, copyrights, and trademarks to another person or company in return for a payment. The payment is usually royalties. The transfer of rights is done without the Intellectual Property giving away their ownership of their property. 

An example of a sponsorship deal is between Arizona State University and Nike, a contract which was discussed in class. The purpose of the agreement states Nike will provide the University’s student-athletes with athletic accessories such as footwear. Nike will do this in order to make these resources free rather than having students pay for them, and therefore improve the opportunities for student-athletes. In return, Nike asks that the University endorses their products by ensuring student-athletes and coaches do not wear any other non-Nike accessories or any altered Nike Products. It requires no athlete or coach to use any non-Nike footwear while on live television. 

The MIT athletic department licensing agreement was an example of a licensing agreement examined in class. When reading the “License Grant” section of the agreement, it states that MIT grants (meaning to allow) the licensee to use, sell, and have sold their athletic logo rights. MIT grants the licensee nonexclusive rights to manufacture their logo on products as long as it complies with the MIT code of conduct. When reading the “Payments” section of the contract, you can see the licensee is required to pay MIT royalties (10% of their net sales price of all athletic marked products sold). The contract states the licensee must pay their royalties within 30 days of each calendar quarter and be accompanied by royalty reports. 

This is the essential difference between a license agreement and sponsorship agreement in sport as was discussed in class. 

Sources

http://www.wipo.int/ip-sport/en/licenses.html

Contracts and Their Place In Sport

Contracts are used just about everywhere. According to my class textbook, “Fundamentals of Contract Law”, Contracts are legally binding agreements between two or more parties which will be enforced and recognized by the law. Contracts are seen in our everyday lives. Whenever we purchase something, we agree to buy an item in exchange for money. Whenever we sell something, we agree to give away an item for cash or other forms of payment.

Contracts are seen everyday in the sport industry as well. Everyday when you are reading an ESPN article, you see articles with stories such as Marshawn Lynch signing a two year contract extension with the Seattle Seahawks worth $24 million. You even see contract agreements between unions and leagues though Contract Bargaining Agreements, and these are the agreement between the athletes and the team owners. Since athletes have so much bargaining power when they try to negotiate a new deal with their owners, this leaves many to question whether athletes are employees or independent contractors.

According to the State of California Employment Development Department, a professional athlete is an employee or independent contractor depending on the sport they perform and how much power the athlete is given in their decisions. This is seen internationally. In all team sports around the world, athletes have to report to owners, coaches, and managers which gives them less control over their performance making them employees. Recently, the Indianapolis Colts disciplined their running back, Trent Richardson, for not reporting to the team and showing up in the American Football Conference Final playoff game. The Colts suspended him for two games without pay. It’s up to the coach who will be playing in a game, and who will be benched. Team sport athletes also receive health care benefits from their employers, and have tax deductions taken off their paycheque further proving they are employees. 

In individual sports, athletes are free to make their own decisions making them independent contractors. Individual athletes include boxers, golfers, and tennis players. Recently, professional boxers Manny Pacquiao and Floyd Mayweather Jr. both came together and agreed to fight in Las Vegas on May 2, 2015. They both made the decision individually without any owners or leagues deciding if they could fight against one another. Another recent example of an individual athlete making their own decision is professional golfer Tiger Woods deciding to take a leave of absence from the game to work on his performance. This is even seen in  the sport of tennis. The professional women’s tennis player, Serena Williams, had boycotted the Indian Wells tournament since she felt mistreated by the fans back in 2001. She was not disciplined for not partaking in the tournament for multiple years since she was free to decide when and where she could play. Unlike team sport athletes, individual athletes are responsible for hiring their own medical staff and coaches meaning they do not receive health benefits. 

After understanding the amount of freedom an athlete is given in the professional sport they participate in, it is more evident whether they are an employee or an independent contractor. Contracts are everywhere in sport regardless of whether a professional athlete is an employee or a contractor. 

Welcome

Hello and good day,

My name is Michael Matteazzi and I am a student enrolled in the Sport Management program at Brock University. This blog has been created to help further my learning experience in the Contract Drafting and Analysis for Sport Managers (SPMA 4P86) class I'm taking this semester. It will feature topics I have been learning in class, and will consist of various different sport case scenario discussions. I hope you enjoy your time on my blog site and please feel free to contact me at mm10lt@brocku.ca for any questions or further discussions. Thanks a lot and have a great day!

Michael Matteazzi