By Ellen Rugeley
Earlier this month, the Brooklyn Bar Association’s newly formed Entertainment, Art & Sports Law Committee hosted its second CLE credit talk of the year entitled, “Drafting for the Pros: Structuring and Negotiating Sports Industry Commercial Contracts,” featuring Robert A Boland, Esq., and others.
Boland, Academic Chair and Associate Professor of Sports Business at New York University’s Preston Robert Tisch Center, began the talk with his opinion that the range of sports contracts are “vast and limitless,” and for the purposes of his timed speech broke the range of sports contracts down into several “buckets.”
“What can be significantly different in the sports setting is your leverage, or lack thereof, and freedom to negotiate on certain issues,” said Boland. Adding, “the reasoning is simple: sports teams and leagues and properties enjoy great leverage. They also have special rules that apply to certain situations. Sports already have a highly sophisticated web of preexisting agreements that may limit your client’s ability in this space.”
Because of this limited ability, Boland’s purpose was to discuss some of the types of sports contracts one might be called on to write or negotiate along with the relevant limitations that might affect each of these areas.
The first ‘bucket’ involved “a player endorsing a product.” According to Boland, many things need to be considered in this scenario including:
Is it legal — do league and union rules allow this?
Is it a product that conflicts with existing team or individual sponsorships?
Does the player have a right to use their uniform?
Are their limitations on activation and use?
When a player is endorsing a product, there are also special considerations including: how long, termination, value and compensation. In regards to compensation, Boland noted that several players are now being paid with company stock rather than cash, which also has tax benefits. For example, David Wright, third baseman for the New York Mets, as part of his endorsement, was paid with a stake in the Vitamin Water. And when Vitamin Water was sold to Coca-Cola, Wright made millions on the deal.
Another player taking equity instead of cash is Tom Brady, quarterback for the New England Patriots. Brady recently did an all equity deal with Under Armour. Boland thinks this new trend of accepting stock is good for several reasons, mainly because “it welds the player to the brand.” For example, Boland argued that a player might be less likely to break the rules of their contract when they are invested in the company.
Boland also pointed out the limitation that players cannot take stock from a start-up company, but if you do believe that there is value in “taking stock as opposed to pure cash,” it might be a good idea and could be beneficial to both the player and the company. Another thing to keep in mind is compensation when a player is paid in equity. Boland suggests discussing your compensation upfront with the client and to consider charging your client an hourly rate when you are working on an equity deal.
The second ‘bucket’ referred to “you representing the players, finding that relationship between you and the player, in whether that’s a representation agreement or another type of agreement where your providing services for the player.” The range of sports contracts under this bucket includes player representation agreements, player marketing agreements, and a player contracting with a team or league.
According to Boland, when dealing with player representation agreements you have to be observant of union rules; use simple, plain language; set off exclusivity; termination; settlement of grievance; client’s status — high school, college or pro; state laws, agent registration, SPARTA- the Sports Agent Registrations And Trust Act; solicitation; and ethical rules. When dealing with player marketing agreements, you have to pay attention to exclusivity, rights reserved, fee structure, enforceability, and non-circumvention. If it’s a non-exclusive deal it’s easier to get, but harder to get the compensation from your client. Also, when a player is contracting with a team or league, there are some limitations, such as Collective Bargaining Rules regarding the length, structure, payouts, termination and collection of fees. Boland added that in most league situations, you can only collect fees from the player.
The third “bucket” involved “product and team sponsorship and product and event sponsorship.” The limitations on product and team sponsorship include — category, exclusivity, length, activation and cost. Also ask yourself, “Can you sell your product on sight, and what additional rights do you receive?” The limitations on product and event and product and venue sponsorship include — category, exclusivity, promised views, risk of loss and who maintains?
In short, it’s very important to know the limitations and the field you’re in when dealing with contract negotiations. He added, “A good contract is where both sides are a little unhappy.”
