By Christopher R. Deubert, Senior Writer
For many people, working for a professional sports team would be a dream come true. Polls generally show that around 70% of Americans identify as a sports fan. Understandably then, many seek to combine their personal hobby with their profession. Nevertheless, there are several reasons why employment by a professional sports team may not be all that it seems.
Private Play
Start with the control structure of professional sports teams in America, e.g., teams in the NFL, MLB, NBA, NHL, MLS, WNBA, and NWSL. These organizations are privately held and operated, putting aside a few exceptions like the Green Bay Packers, Atlanta Braves (owned by publicly traded Liberty Media) or Maple Leaf Sports & Entertainment (owner of the Maple Leafs, Raptors, and Toronto FC). Consequently, while sports teams are more publicly recognizable than most of the companies whose shares are bought and sold on public stock exchanges, they are far less transparent than the typical public companies.
Companies whose shares are available for public trading are subject to a vast and detailed array of federal laws and regulations, generally overseen by the United States Securities and Exchange Commission. Of relevance, public companies are required to have a Board of Directors responsible for overseeing the company’s affairs and some of the Directors must be independent from the organization and its leadership. Next consider that public companies must publicly disclose their financial statements, which requires a rigorous audit process. Finally, public companies are required to create and enforce a strict culture of compliance and ethics.
Of course, many companies fail to meet these requirements, either procedurally or substantively, from time to time. If such failures are material and discovered (as is occasionally the case), the company and its executives can find themselves in serious legal trouble, either through regulatory action or litigation from shareholders.
Generally speaking, professional sports teams have none of these requirements. Teams do typically create audited financial statements each year in order to comply with league accounting rules and because of ongoing borrowing relationships with a financial institution. However, these financial statements do not include all of the information required by a public company and have historically only been publicly revealed as the result of an unauthorized leak, as happened to a variety of MLB teams in 2010.
Trouble at the Top
In the absence of public disclosures or a robust regulatory scheme, professional sports teams are generally controlled by a single owner – even though there are typically at least ten minority or non-controlling owners. Indeed, the NFL requires that each team designate an individual as responsible for the club’s decision-making and operations. Consequently, many of the owners of sports teams have practically become publicly synonymous with their teams, e.g., Jerry Jones and the Dallas Cowboys.
But what if those owners don’t operate their business in accordance with best (or even legal) practices? There is no shortage of legal imbroglios and scandals involving professional sports teams. Dan Synder, owner of the Washington Redskins/Football Team/Commanders from 1999-2023, was accused of sexual harassment and financial impropriety during his ownership. Zygi Wilf, owner of the Minnesota Vikings and Orlando SC, was found to have engaged in civil fraud and ordered to pay $84.5 million. Jimmy Haslam, owner of the Cleveland Browns and Columbus Crew, narrowly beat criminal fraud charges that cost his company about $177 million in legal settlements and regulatory penalties.
In the NBA, Robert Sarver was forced to sell the Phoenix Suns in 2022 after an investigation determined that he had created a racially and sexually hostile workplace. The Dallas Mavericks were accused of a similarly problematic workplace in 2018. And even farther back, former Los Angeles Clippers owner Donald Sterling was a notoriously difficult owner and boss before being forced out of the league in 2014 after making racist comments.
Then the NWSL seems unable to put such problems in the past. The current form of the NWSL, including Commissioner Jessica Berman, is the result of the league’s efforts to move beyond 2021 investigations that revealed abusive and problematic practices at a variety of teams. However, despite the league’s commitment to reform, it has continued to face accusations of hostile workplaces, including at the San Diego Wave and Bay FC.
The leagues have taken action in some of these situations, but usually only after public disclosure and outcry. It stands to reason that many more such situations are never made public. Glenn Wong, a sports law professor at Arizona State University’s Sandra Day O’Connor College of Law and expert on working in the sports industry, agreed that these “problematic workplaces that may have been exacerbated by the private nature of the organizations.” Consequently, anyone interested in working in sports, must ask themselves whether these are the types of workplaces in which I want to work? Are these the type of business owners for whom I want to work?
In-House Counsel Boxed In
The role of a team’s legal counsel can play an important role. By virtue of their ethical obligations to look out for the best interests of the company, a team’s in-house attorneys will generally be on guard for problematic practices and seek to correct them. However, here too, there are important differences as compared to a public company.
If an attorney believes someone at the company is engaged in legally problematic conduct, the attorney has an obligation to raise the issue all the way up the organization’s highest authority if necessary. If the organization’s highest authority fails to take appropriate action, the attorney may report the conduct to others as necessary to protect the organization’s interests.
In a public company, such reporting would normally be to the Board of Directors. But in a privately-run and closely held sports team, there may not be anywhere to report the wrongdoing. And if the organization’s highest authority (i.e., the owner) is the person engaged in the wrongdoing, the attorney is placed in the position of confronting the owner to tell them that their behavior is seriously problematic.
That attorney may want to have their possessions already packed before having that conversation. If the owner decides to fire the attorney for having met their ethical obligation to raise such concerns, the attorney is equally bound to keep the reasons for their termination confidential (except in certain exceptional circumstances).
Punching the Clock
Finally, consider the more mundane aspects of employment – pay and hours. According to Wong, “positions in professional sports organizations are highly competitive, both in terms of the number of applications and the quality of the applicants.” Consequently, Wong said, “the pay is lower in the professional team sports industry compared to the non-sports industries,” often “10 to 25% less.” Wong also explained that “the number of hours worked in the sports industry are longer,” and often includes attending the games and working on evenings, weekends, and holidays.
These discrepancies are the natural result of the market forces alluded to at the outset of this article – a lot of people want to work in sports and consequently are willing to take less money to do so.
New Rules, New Owners, New Practices?
Recent changes in league operations may address some of the concerns discussed above. Sportico estimates that the average NFL team is worth $5.93 billion while the average MLS team is worth $678 million. The average values for NBA, MLB, and NHL clubs lie somewhere in between. At these valuations, it has become too difficult to find a small number of individuals with sufficient capital to buy and operate a team.
Consequently, in recent years, all of the major American professional sports leagues have amended their ownership rules to permit investment by private equity firms. The rules governing these investments are strict, including requiring long-term investment, limiting the number of teams in which firms can invest, and limiting the control that can be exercised by the firms.
The rules are primarily meant to address any concerns arising out of the typical private equity investment model in which firms often take control of a business, reduce headcount to lower costs, return the business to profitability and resell it for a profit. Such a model is not necessarily compatible with trying to win on the field, court, or ice.
While the firms investing in sports are constrained in many ways, their rigorous approach may help improve the workplaces for some of the teams in which they invest. Private equity firms are notorious for scrutinizing the operations of organizations in which they invest, looking for inefficiencies, risks, and opportunities. These firms generally expect full transparency on company financials and healthy decision-making practices based on principles of sound management.
As described above, it seems that at least some professional sports teams are not currently operating up to the standards private equity firms expect or traditionally impose on their portfolio companies. If the firms hold their sports team properties to the same standards as their other investments, there may be at least some positive change.
Deubert is Senior Counsel at Constangy, Brooks, Smith & Prophete LLP
