In late February, 2014, Ray Rice was charged with assault after striking his fiancee, rendering her unconscious. Subsequently, a video of Rice dragging his fiancee through their hotel on the night in question went viral on the internet. Although the charges against Rice were ultimately dismissed, punishment by the NFL was nearly guaranteed.
Late last week, the NFL announced that Rice would be suspended for the first two games of the 2014-2015 season and fined an additional game's salary, $58,823. The totality of Rice's suspension has widely been perceived as too lenient and offensive to women. This notion is especially realized when Rice's punishment is compared with recent penalties for drug abuse.
In early May, 2014, Josh Gordon was suspended for at least the entire 2014 season after testing positive for marijuana use. Although this was at least Gordon's third offense, the severity of his punishment vastly outweighs Rice's. Similarly, Justin Blackmon is also suspended for at least the 2014 season for his repeated use of marijuana. However, a player who fails a drug test for the first time is suspended for four games, as explained below, which is twice the suspension that Rice received.
The specific punishments for substance abuse are mandated by the collectively bargained NFL Policy and Program for Substance Abuse (hereinafter, "NFL drug policy".) In contrast, punishment for conduct detrimental to the league (which includes illegal conduct) is determined by the Commissioner of the NFL. The differences in how player misconduct is governed is one of the main reasons that punishment for substance abuse offenses varies from conduct detrimental to the league, such as Rice's alleged assault.
The NFL Policy and Program for Substance Abuse
In 2010, the current NFL drug policy was agreed upon by the league and the NFL Players Association. Its primary purpose is to "assist players who misuse substances of abuse, but players who do not comply with the requirements of the Policy will be subject to discipline." The policy establishes a comprehensive substance abuse program where players are put on treatment plans and monitored based upon what stage of the program the player is classified in.
Players enter the program by failing a drug test, behavior (such as an arrest related to substances of abuse), or self-referral. Once in the program, players are evaluated and placed in Stage One.
In stage one, upon evaluation, the medical director will determine whether the player should be referred for clinical treatment and subsequently develop a treatment plan. Entering this stage does not necessarily mean that the player has a substance abuse problem, but that treatment may help prevent such a problem in the future. Under the purview of a treating clinician, the player will be treated according to the treatment plan, and given as many substance abuse tests as necessary to evaluate the player, at the discretion of the medical director. Players may remain in stage one for up to 90 days, which can be extended to six months under certain circumstances.
A player being released from stage one or advanced to stage two can occur as follows:
In stage two, players must comply with the treatment plan as developed, be evaluated further, and be subjected to unannounced substance abuse testing. The tests may not be given more than 10 times a month. Should a player fail to adhere to the treatment plan, testing, or fail a substance abuse test, the player is subject to discipline. If the player successfully completed stage one, then the player is fined four weeks pay. In contrast, if the player did not complete stage one, then the player is suspended four consecutive games without pay, including the post-season and Pro Bowl, if selected. Should a player violate stage two a second time, the player will be suspended four consecutive games if his first violation resulted in a fine, a suspension of six consecutive games if the player was suspended for his first violation, as well as forfeit a percentage of his signing bonus to his team proportional to the length of the suspension.
Players remain in stage two for 24 months or two full seasons, whichever is shorter. A player is advanced to stage three if while in stage two he has two failed substance abuse tests, two instances where the player fails to comply with testing or treatment as defined by the treatment plan, or one failed test and one instance of noncompliance with the treatment plan. A player who completes stage two and is not advanced to stage three is released from the program.
Stage three is much more serious than the two which precede it. Once a player is in stage three, they remain there the rest of their NFL career. The player is subject to unannounced drug testing up to 10 times per month and after three years may request the number of tests to be reduced at the discretion of the medical director. Most importantly, a player who fails to comply with the treatment plan, testing, or fails a substance abuse test is to be banished from the NFL for at least one year. During the player's banishment, he still must adhere to the treatment plan and his contract with the team is tolled. This is the stage that Josh Gordon and Justin Blackmon are in, as they are facing being banished for a year as a result of at least their third failed drug tests.
The punishments defined in the NFL drug policy are a binding agreement upon the Commissioner to impose the specified penalties in the circumstances defined in the policy. There is no altering of the penalties unless there are additional circumstances which amount to conduct detrimental to the league. Effectively, this means that penalties can be enhanced in rare instances, but not reduced.
Conduct detrimental to the NFL
In clause 15 of the uniform NFL Player Contract (Appendix A in the link,) the integrity of the game clause, the Commissioner expressly reserves the right to discipline players for conduct "detrimental to the [NFL] or professional football." This is a very broad power reserved to the Commissioner, which is only checked by an appeals process. Unlike the NFL drug policy, there is no agreement by which specific infractions which are detrimental to the NFL, which means that the Commissioner must attempt to use the totality of the circumstances in determining a punishment for each offense.
In Rice's case, the Commissioner surely took note of Rice's criminal charges which were ultimately dismissed after he entered a pretrial intervention program. Additionally, the Commissioner met with Rice and Janay Palmer, Rice's then-fiance and now wife, at the League office to discuss the incident. Additionally, NFL VP of Labor and Government Affairs, Adolpho Birch, offered some insight as to the Commissioner's process in disciplining Rice. Appearing on ESPN's "Mike and Mike" radio show, Birch stated:
"I think the way we [determined Rice's punishment] is the way that we determined discipline in all of these types of cases, and that is, the Commissioner elicits a number of perspectives. He doesn't sit in a vacuum when he's making these types of decisions, but instead consults with people, listens to the perspectives of the Players Association, and others at the League office, and ultimately makes a decision that he thinks is appropriate based on both the conduct and the importance of making the right message for the League and others moving forward."
It is important to note that Birch's statement highlights the way the NFL "determined discipline in all of these types of cases," which is somewhat arbitrary. And unfortunately, that's all that is known of the Commissioner's process in determining this suspension as of right now. The Commissioner has yet to speak about the suspension, but may do so when he meets with the media this weekend.
Importantly, the NFL has not said anything about how it justified the degree of Rice's punishment, which is what most people are taking issue with. Birch correctly noted that Rice's suspension and fine costs him hundreds of thousands of dollars (due to his large contract), but a player who fails a drug test for the first time has a mandatory suspension that is double what Rice received. Birch also noted that by disciplining Rice, the NFL has shown that it does not tolerate domestic violence. While this statement is correct on its face, as Rice was punished to some degree, the severity of Rice's punishment when compared with any of the marijuana use punishments creates the perception that marijuana use is more serious than domestic violence. Simply put, Rice's two game suspension shows fans that taking an illicit substance, or harming oneself, is more serious to the NFL than domestic abuse, because the suspension is longer.
The Rice disciplinary matter has highlighted the fact that the NFL's arbitrary disciplinary system is broken. Although a collectively bargained system exists for substance abuse offenses, which specifies mandatory disciplinary action under certain circumstances, the Commissioner's power to discipline players for conduct detrimental to the NFL is too broad as it currently stands. The Commissioner is free to discipline offending players as he sees fit, with little regard to severity as compared to other offenses.
Although it would be impossible to create a comprehensive list of offenses and their mandatory suspensions, it may be worthwhile for the Players Association to push for the creation of disciplinary guidelines. These guidelines would classify offenses, and each class would have a range of disciplinary actions based on aggravating factors. Although it may be difficult to come to an agreement on appropriate discipline and aggravating factors, it behooves the NFL to avoid seemingly arbitrary disciplinary decisions, such as Ray Rice's suspension, due to the public relations nightmare it has the potential to create.
Last week, the NCAA eliminated a controversial provision of the contracts it requires DIvision 1 athletes to sign. That is, the organization removed the provision that allows the NCAA, or an assigned third party, to use the name and likeness of the athlete to promote NCAA events without compensation.
Currently, the NCAA is awaiting the decision of a Federal Judge in the O'Bannon v. NCAA trial, which is a class action lawsuit brought by former, and current, Division 1 athletes principally challenging the NCAA's use of the athletes' names and likenesses in television broadcasts, rebroadcasts, and video games without compensation. The NCAA's elimination of the name and likeness provision appears to be an effort to distance the organization from the practices which resulted in the O'Bannon lawsuit.
Name and likeness rights, also known as publicity rights, are the personal rights to control the use of one's name, image, or likeness for commercial use. These rights continue to exist after death and are freely assignable. Publicity rights are State specific.
Publicity rights are an important issue for collegiate athletes because intercollegiate athletics, particularly Division 1 football and basketball, is a multi-billion dollar industry where the athletes do not get paid to play, nor for the use of their names and likenesses. Meanwhile, some NCAA conferences and schools have been making millions on media deals and broadcast rights for their sporting events which rely on the use of the athletes' names and likenesses. Additionally, the NCAA had been licensing the use of these athletes' likenesses, at a profit, for video games. In some cases, athletes' likenesses were used years after their college career had ended, capitalizing on players' success and popularity as a professional. Not only were the athletes unpaid for their on-field performance, but they were also unpaid for the use of their likeness, seemingly in perpetuity prior to the O'Bannon lawsuit.
Although there has yet to be a decision by the Federal Judge in the O'Bannon case, it is telling that the NCAA is removing its name and likeness provision from its athlete contracts. However, some individual colleges and conferences still require athletes to sign name and likeness releases. It will be interesting to see how the Court rules on the O'Bannon case, as it has the potential to reshape the business of intercollegiate athletics.
The ongoing saga of Donald Sterling's attempts to regain, or retain, ownership of the Los Angeles Clippers continues. Last night, Donald filed a lawsuit against Shelly Sterling (his estranged wife), the Los Angeles Clippers, the NBA, and NBA Commissioner Adam Silver. This lawsuit alleges 12 causes of action, including:
This lawsuit is the third that Donald has filed in his attempt to regain, or retain, ownership of the Clippers. His original two lawsuits focused on the propriety of the NBA's sanctions against him and the propriety of Donald being declared mentally incompetent, resulting in his supposed loss of ownership of the team to Shelly.
Legal issues in this new case aside, what this does entail is that the ownership of the Clippers will not be a settled matter (according to the courts) for some time. Attorneys for Sterling have stated that this case may take several years to resolve. But what does that mean to the Clippers organization?
Dick Parsons, the interim CEO of the Clippers, testified in court yesterday that he fears if Donald were to remain owner of the team, it would plunge the organization into a "death spiral." He indicated that in the event Donald remains owner, Doc Rivers would not want to continue as head coach of the team. Further, Parsons testified that he has spoken with many of the team's players and sponsors who do not wish to remain with the Clippers should Donald remain Owner. Specifically, Parsons testified that sponsors who have yet to commit to the team for next year have indicated "We're in so long as Donald Sterling is out."
Sponsors generally have the ability to cancel their sponsorship agreements through the use of morals clauses in their contracts. Players don't have that option, although they can request to be released and/or traded.
Parsons testimony echoed the scenario that began when the Sterling audio tape was first released in April. In a few short weeks, sponsors canceled or paused their sponsorship agreements with the team. Further, rumors of a team-wide, and league-wide, boycott surfaced prior to Commissioner Silver banning Donald for life.
Parsons statements should not be taken lightly, as they are illustrative of the reality the Clippers will find itself in should Donald remain Owner. Unfortunately, Donald Sterling's three lawsuits can result substantial harm to the clippers. If the litigation is not voluntarily dismissed before the season commences, or if Donald manages to prevail in his litigation, then Parsons' "death spiral" comment will be realized. That is, unless the NBA takes action.
The NBA has yet to commence its formal proceeding to remove Donald Sterling as Owner from the Clippers and force the sale of the team. Pursuant to Article 13 of the NBA's Constitution and Bylaws, an Owner can be removed by a vote of three-fourths of the Board of Governors (made up of other team Owners) if an Owner commits any of the following:
Donald disputes in his first lawsuit against the NBA that he has not violated any of these provisions, although he has likely violated provisions numbered 1, 3 and 4 noted above. In particular, he has at least violated provision 4 by refusing to pay the $2.5 million fine. (Note: For a full analysis of the propriety of Sterling's sanctions, see my upcoming publication Not So Sterling: Assessing Donald Sterling's Breach of Contract Claims Against the NBA [Forthcoming Summer 2015])
The NBA had planned to have the Board of Governors vote to remove Donald's ownership of the Clippers on July 15, 2014. This date was set to be following the conclusion of the trial between Donald and Shelly Sterling about Donald's mental capacity. However, the trial has run long. The NBA intends to have Donald removed as owner prior to the start of next season, and has set a deadline of September 15 for any transfer of ownership through sale. Presumably, the NBA fears the "death spiral" that Parsons testified would occur should Donald remain Owner. However, if September 15, 2014, comes to pass and the team is not sold, the NBA will seek to remove ownership from Sterling and auction the team.
Although Donald Sterling's latest lawsuit delays the court's determination of ownership of the team, the NBA could move forward and remove Donald's ownership interest, even if the lawsuit about Donald's mental capacity is not resolved. Once the team is sold, the NBA could commence an action for interpleader, where Donald and Shelly can sort out who is entitled to the proceeds, or just await the determination of the suit between Donald and Shelly.
Donald Sterling's litigation tactics may be designed to delay the sale of the Clippers, but the NBA has the ability to initiate a proceeding to remove his ownership. Only time will tell if the NBA is able to accomplish its goal of removing Sterling prior to the start of next season. If the NBA fails to do so, we may see the "death spiral" of the Clippers that Parsons is warning about.
The Uniform Law Commission's Athlete Agent Committee met earlier this week to discuss changes to the Uniform Athlete Agents Act ("UAAA"). This act, having been passed in 43 States, is a series of laws that attempts to regulate sports agents. However, agents are governed by the players' union of each professional league, as they must be certified by the union to act as an agent for a player in that sport. (Note: the one exception being Major League Baseball, which does not certify an agent until they have a client on an MLB team and meet the certification criteria. Therefore, a person can act as an agent, although uncertified, to baseball players if their clients are not in the MLB.)
Despite being governed by the professional sports' unions, the UAAA imposes additional regulations for agents in a supposed effort to protect collegiate athletes and their institutions. Some of the UAAA provisions echo best practices for agents which do protect athletes, like noting on a representation agreement that the athlete will lose any remaining athletic eligibility in college. However, much of what is unique about the UAAA, as opposed to the agent rules of the professional players' unions, burdens agents with no visible benefit.
The UAAA prohibits the following conduct by agents:
Violating any of the above provisions carries both criminal and civil penalties. The first of the above prohibitions, perhaps the most important, is also generally prohibited by the agent rules of the various professional sports' unions.
So what are the proposed revisions that were discussed this week?
As far as agents are concerned, there is one primary revision that should be enacted: Abolish the State registration of sports agents.
There are a multitude of problems with the State registration system. Most glaring, the State registration system fails its designed goal to "keep the good guys in business...[and] keep the bad guys out" (Jerry Bassett, Director of the Alabama Legislative Reference Service, which drafts bills for the Alabama legislature.) As previously stated, agents are governed by their sports' players unions. Agents must satisfy a myriad of requirements in order to become certified by a particular sport. During this process, the supposed "bad guys" are weeded out, and not granted certification by the league. Of course, there will be agents that are granted certification and then break rules and laws, but there is no possible way to prevent all wrongdoers from entering the profession.
Interestingly, there is little data on who, or how often, States are disallowing agents from registering. The leagues are already undertaking the exhaustive agent certification process, which requires disclosure of much the same information as States require. Simply put, it is likely rare that any professional Players' Union, whose primary goal is the protection of the players, would certify an agent that a State rejects.
Further, should any State employ more stringent restrictions on agents than the professional leagues do, the newer agents would likely suffer the most. Currently, a person with a four year undergraduate degree and postgraduate degree could become an NFL agent, provided they meet the additional requirements such as passing the exam. That means a 24 year old with little business experience (and fantastic connections) could hypothetically become an agent. However, a State utilizing more stringent requirements than the leagues creates higher barriers of entry, disallowing entrants into the market.
Additionally, the UAAA's registration system is extremely short sighted. Generally, sports agents have a multi-state, if not nationwide or regional practice. By requiring an agent to register with each individual State, agents must pay a registration fee with each State that has a collegiate athlete they wish to speak with. Due to the nature of the multi-state practice, these fees quickly add up. And what do agents get from paying the fees? Nothing more than the chance to talk to athletes in the hopes that they sign with the agent.
As it currently stands, the UAAA's registration system amounts to little more than systematic extortion. Agents who wish to be successful, which is already difficult enough, are going to pay the wildly varying fees to avoid any criminal and/or civil liability. The UAAA gives States an additional, steady, stream of income that they likely will not want to let go.
Aside from repealing the UAAA, there are two viable solutions to removing the State registration of sports agents:
The removal of all registration provisions will not be favored by the States as they are earning money off of the UAAA. However, the nationwide clearinghouse can be established in such a way that each State which has enacted the UAAA gets a share of the registration fees from across the country. A clearinghouse can also make the registration process more favorable to the agents as well. Certainly all of the registration information will be centralized, decreasing the need for an agent to fill out multiple applications for multiple States. This would allow registration in a new State to be as simple as paying the fee, as all enacting States would have agreed on a single set of registration criteria.
The State fees themselves could also be staggered, creating discounted bundles of States or a flat fee for each additional State. There is a great deal of flexibility that could be used in creating a nationwide clearinghouse for sports agents that could make the UAAA more attractive to agents. However, this still does not ease the burden of having to essentially be certified as an agent twice, once with the professional sports league, and once with the clearinghouse.
As it stands, the UAAA's State registration model is extremely flawed and burdensome to sports agents. The creation of a nationwide clearinghouse for agents, as proposed for discussion this week, with flexible price models would reduce the burdens on agents, but still unfortunately require that agents be certified by the leagues and the States.
Last week, Lebron James announced that he would be returning to his hometown team, the Cleveland Cavaliers. The following day, the Cavaliers sold all of their remaining season ticket plans. However, the Cavaliers are not the only Ohio business benefitting from Lebron's return.
In anticipation of Lebron announcing what team he would sign with, Fresh Brewed Tees created a tee-shirt design it would sell should Lebron return to the Cavaliers. Fresh Brewed Tees tweeted this design to its sizable following, and within hours of Lebron's decision, the company sold out of its initial batch of shirts. (For more on Fresh Brewed Tees success following Lebron's announcement, see this article.)
The tee-shirt designed by Fresh Brewed Tees serves as a good example of ambush marketing done well. For a brief review of ambush marketing, see my previous post here. Take a look at the shirt design below:
Let's break down the elements of the shirts shown above. Remember, proper ambush marketing does not use or directly associate itself with any protected trademarks surrounding an event. In this case, the event being Lebron's return to the Cleveland Cavaliers.
The most prominent feature of the design is the word FOR6IVEN, which is clearly a play on the word "Forgiven" with the number six replacing the G. The word "Forgiven" does not allude to any trademarks held by Lebron, the Cavaliers, or the NBA. The text is bolded and entirely in capitals, which is distinct from the Cavaliers logo. Additionally, the text is in a different font than the Cavaliers' logo. The number six that replaces the G is also not associated with any known trademark owned by the Cavaliers or Lebron, and exists as an allusion to Lebron's jersey number while playing for the Miami Heat. It is still not known whether Lebron will even wear a 6 on his jersey in Cleveland.
Actually, Fresh Brewed Tees should be able to trademark the term "FOR6IVEN" for use on apparel, specifically tee-shirts. As a trademark is a word, phrase, symbol or design that identifies and distinguishes the source of goods from others, Fresh Brewed Tees could trademark the word to create a line of tee-shirts, or other clothing, which similarly allude to Lebron. A quick search of the US Patent and Trademark Office's trademark database revealed no trademark filings for the term.
THE KINGDOM RESTORED
This phrase is a secondary design element of the tee-shirt, appearing below "FOR6IVEN" in plain text and all capital letters. This phrase is an allusion to Lebron James' nickname "King James," which is trademarked, and is perhaps suggesting that Ohio, or Cleveland, is the kingdom. In the context of the shirt, "kingdom" is somewhat vague. The phrase does not specify what said kingdom is or who rules it. Ultimately, the allusion to Lebron is so removed from the trademark that it would not constitute infringement. Given the phrase "THE KINGDOM RESTORED," there appears to be little, if any, likelihood of confusion with Lebron's trademark.
The image of a basketball with a sword through it
The final element of the tee-shirt is an image of a basketball with a sword through it, placed on the center of the shirt, below all other elements. This element is an allusion to the Cavaliers logo, which also contains a sword and basketball. However, in the Cavaliers logo, the sword is puncturing the team name in the foreground of a basketball. Additionally, the two swords are strikingly similar.
This element of the tee-shirt design is too close to the trademarked logo of the Cavaliers, possibly creating a likelihood of confusion. As the Cavaliers sell tee-shirts featuring their logo, the shirts would be in the same channels of commerce, strengthening any infringement claim. There also is a colorable argument that Fresh Brewed Tees intentionally selected this design element to be similar to elements of the Cavaliers' logo. By implementing the sword and basketball design, purchasers further understand the connection of the above phrases with the team.
On the other hand, if faced with an infringement suit, Fresh Brewed Tees could claim that the Cavaliers' logo is distinct from its design as the sword in the logo pierces the team name and not the basketball. Further, the company could argue that the sword used is generic, and not specific to the Cavaliers' logo. It is unclear whether Fresh Brewed Tees would prevail on such an argument, but to avoid a potential infringement suit, it may be in Fresh Brewed Tees best interest to remove the sword and basketball image.
Although Fresh Brewed Tees ambush of Lebron's return to Cleveland has been financially successful in a short period of time and mostly proper, the company may wish to consider removing the image of a sword through a basketball to avoid a potential infringement suit. Should the company do so, its FOR6IVEN tee-shirts will serve as a primary example of a proper ambush.
Now that Lebron James has announced his return to the Cleveland Cavaliers, the basketball world is awaiting Carmelo Anthony's decision on what team he will sign with. Phil Jackson, President of the New York Knicks, is optimistic Carmelo will re-sign, as the team is willing to use the Veteran Free Agent Exception to the salary cap in order to retain him.
Ordinarily, the aggregate salaries of an NBA team must remain under the salary cap provided for in the NBA's Collective Bargaining Agreement ("CBA".) However, the CBA provides for several exceptions, which are defined in Article VII, Section 6, where player salaries may total more than the salary cap.
One of the exceptions to the salary cap are the so-called "Larry Bird rights." In the CBA, this is officially known as the Veteran Free Agent Exception.
The Veteran Free Agent Exception allows players to re-sign with their team at an amount that cannot exceed a defined percentage of the salary cap or a defined percentage of the player's earnings in their last season, whichever is greater. The particular percentages are determined by the years of service time the player has been in the NBA.
For purposes of this exception, the CBA groups players by service time of less than seven seasons, between seven and ten seasons, and more than ten seasons. In determining the maximum contract amount under this exception, the percentage of the player's earnings in the last season is constant at 105% regardless of service time. However, the percentage that the contract may be of the salary cap increases with each service group from 25%, to 30%, and 35%. Carmelo is in the last service group, having played for eleven seasons.
However, the Veteran Free Agent Exception does not apply to all players entering free agency. In order to qualify, a player must have played the last three seasons with one team, have changed teams only by means of trade, or have signed with a prior team during the first of the three preceding seasons. Carmelo has played more than three seasons with the Knicks, and is therefore eligible for this exception.
Effectively, the Veteran Free Agent Exception operates as an incentive for players to resign with a team by offering them a salary that cannot be matched by other teams due to salary cap constraints. In turn, this allows the fan base to develop a greater bond with the player, which can then be leveraged by the team and player in marketing endeavors.
By utilizing the Veteran Free Agent Exception, it has been reported that the Knicks offered Carmelo a contract for $129 million for five years, or the maximum contract allowed. In contrast, other teams have only been able to offer him $96 million for four years. The difference between the two contracts is the Knicks are able to offer an additional year and an additional $33 million.
Hopefully, Carmelo, re-signs with the Knicks. As a result of the Veteran Free Agent Exception, he certainly has an additional thirty three million reasons to do so.
Yesterday, an article appeared in the New York Times which discussed the declining use of Non-Disclosure Agreements ("NDAs") among startup companies. The article centered on two main points:
The second point is particularly troubling for business owners. If the startup needs funding from VCs who refuse to sign an NDA, whats to stop them from sharing one business' idea or concept with another company they invest in? Simply put, nothing.
I was speaking with the founder of a startup last night who shared with me his uneasiness about VCs refusing to sign NDAs. He echoed a sentiment that I'm sure many other start-up owners feel "What can we do? We need the money." The unfortunate reality is that VCs refusing to sign NDAs only benefits the VCs. However, that does not mean that businesses should not request that an NDA be entered into with anyone that will be privy to proprietary information/materials.
So what does a non-disclosure agreement do? An NDA protects confidential information, materials or knowledge that is to be shared with another business or person (including employees.) The agreement establishes not only how the receiving party may use the confidential information, but also the remedies should a breach of the agreement occur. Of course the disclosing party is entitled to damages for a breach of the agreement, but the agreement can spell out how the damages are to be calculated or whether injunctive relief is appropriate.
NDAs also help establish the protection of a business' confidential information, which is a necessary element to any litigation challenging whether or not the confidential information qualifies as a trade secret. Simply put, a business must take steps to protect its proprietary information to qualify as a trade secret, and routinely entering into NDAs helps establish that. Even if a VC doesn't sign an NDA, it is in a business' best interests that they require other parties to enter into NDAs to help ensure trade secret protection.
In my discussion with the founder last night, he asked me "Even if the VC doesn't sign an NDA, aren't my ideas protected some other way, like by copyright?" The short answer to that question was no. Although this was already the subject of a blog post, copyright protects the expression of an idea, not an idea itself.
Upon learning that without an NDA, his business has no control over the proprietary information shared with a third party, the founder was rightly uncomfortable, but repeated "What can we do? We need the money." I told him what I would tell any business owner, that an NDA should at least be offered. Some VCs may sign it, some may not, but the few that do will at least give some piece of mind that the business' proprietary information is protected.
Although a business may make the decision that VC funding without an NDA is acceptable, NDAs should still be extended to all others with whom proprietary information is shared. No matter who a business is sharing proprietary information with, an NDA should be proposed.
(Photo used under Creative Commons License from Flazingo.com)
The most important contract to a sports agent is the contract between the player and agent, otherwise known as the Standard Representation Agreement. This contract establishes the terms of the agent's representation, including fees, scope of representation, term of representation, payment scheduling, and how disputes between the agent and player are to be handled.
Before diving in to the meat of the contract, it is important to establish at the very beginning who the parties to the contract are, namely, the player and the agent. It is also be worthwhile to include that the athlete will lose their "amateur" status and eligibility at the collegiate level by entering into this contract with the agent. This is particularly important to players who still have athletic eligibility in college.
NCAA Bylaw 220.127.116.11, known as the No-Agent Rule, declares that it is punishable offense for an athlete to allow an agent to conduct or attend the athlete's negotiations with a professional team. Violations of the rule could result in the loss of NCAA eligibility. By informing the player at the beginning of the contract that signing it would threaten his/her eligibility, the player is on notice of the potential penalties should they cancel the contract and attempt to play in college again.
Next, the contract should focus on the scope of the agent's representation, which delineates the services that the agent will provide. This is the most important clause of the agreement, as it not only establishes what the agent will be paid for, but any exclusive rights the agent may have. It is not uncommon for athletes to have multiple representatives in different earning spheres, such as an agent who works on the player-contract and an agent who handles marketing. These exclusivity rights must be established to avoid any confusion as to what responsibilities the agent has, and importantly what they should be paid for. Exclusivity should also be considered with respect to location. For instance, a baseball player from Japan may wish to have three agents: one to handle his player-contracts globally; one to handle his marketing in the US; and one to handle his marketing in Asia. A broad scope of representation clause that tightly defines the agent's exclusive rights is best for the agent.
Now that the agent's services are delineated, it is important to include how the agent is to be paid. Each of the major US professional sports has an industry standard or agent regulation delineating what the agent's fee can be for successfully negotiating a player-contract. This fee is a percentage of player-contract's value. Agent fees for secured sponsorships and endorsements are much higher, generally between 15% and 25%. In this clause, it is important to include that the agent will be paid on any contract that is substantially negotiated during the term of the agreement. This ensures that an agent is entitled to their fee even if they are fired prior to completion of the deal. Also, it is in the agent's best interest to define what constitutes income from sponsorships and how the agent is to receive a portion of this income as a fee. Athletes are increasingly paid in equity and other non-liquid measures, which creates a difficulty in determining an agent's fee if it is not specifically stated in the representation agreement.
The last large clause in the agreement relates to expenses. Specifically, whether the player, agent, or a combination of the two, are to pay for expenses such as equipment, service providers, and travel. Certain sports have agent regulations which cap the amount of money the agent is allowed to spend on equipment for a player in a year, such as in baseball, so the relevant agent regulations must be consulted when drafting this clause. The specifics of who is to pay for each expense type can be negotiated individually.
Lastly is a series of smaller, general clauses that apply to the entire representation agreement. Including:
Notably, I have not included any clauses that involve financial services such as loans and investments. Financial services is a broad enough topic that it warrants its own contract. Further, not all agents provide financial services as the risks faced by the agent are greater. Some leagues have separate requirements for financial advisors, such as the NFL. Due to the increased risk, special rules, and breadth of services that could comprise financial services, it is in the agent's best interest to draft a separate agreement regarding any financial services offered.
Many of the clauses I've described contain the ideal situations for agents, but players may wish to renegotiate specific terms. As in all contract negotiations, it is important to know the difference between the terms you need and the terms you would like to have. The relationship between a player and agent is built on trust, and no agent wants to start that relationship off poorly by engaging in a contentious negotiation over the terms of their representation agreement.
There has been an interesting trend in recent years of technology being developed for athletes. From simple pedometers, shoes that track your speed and distance, to equipment that monitors how you strike a ball, tech for athletes is becoming increasingly popular and mainstream.
Perhaps you've seen the new Apple commercial below which has been airing frequently during the World Cup:
What would a tech trend be without Apple's involvement? This video shows off several examples of how tech is integrating with athletes to help them hone their abilities. More importantly, the ad doesn't use any professional athletes, which highlights the wide reach of this tech trend.
I admit, I love my Nike Fuelband. It loosely keeps track of my movement throughout the day to lets me know if I've been sitting at my desk for too long and need to hit the heavybag. And although I like to box, I'm not training to be heavyweight champion of the world. That's why this story caught my eye.
A tennis racket has now been developed by Babolat which transfers to an app the strength of the racket's impact on the ball, the spin, and also counts the number of forehands, backhands, serves and overhands. More importantly, this racket was recently used by Julia Gorges during the French Open.
The tennis player, currently ranked 107th in the world, stated in the article that she is using the new racket because "sometimes you are in the emotions...and you sometimes lose the vision [to see] things." She is hopeful that her new tech will allow her to analyze and improve her game, and ultimately, her ranking.
This kind of tech is exciting, as its entire purpose is to develop its users' abilities. It is easy to see that widespread accessibility to this 'athletic development' tech can potentially increase the level of competition in a sport. Athletes are continuously looking for an edge over their competition, and similar tech can help them achieve that. On the developer side, tech for athletes can be utilized by a large market, and opens up the possibility of high-profile endorsement with multiple methods of activation. Athlete tech is here to stay, and some of the companies involved in its development could find the area particularly lucrative.
Companies developing tech for athletes could engage professional athletes for endorsement opportunities, as Babolat has with Gorges. Such endorsement frequently occurs with products manufactured for athletes' use. For example, Major League Baseball players generally have endorsement agreements with their bat manufacturers. These professional athlete endorsements can have a marketing trickle-down effect to the athletes' fans.
Athlete tech can allow professional athletes to engage with consumers in new ways. For instance, Babolat's app that works in conjunction with the smart-racket could have a leaderboard for hardest swing or most revolutions on a ball. Or, even a way for people to send challenges or encouragement to one another, utilizing the racket's measurables.
However, the more professional athlete involvement with the tech desired, the tighter the contract must be. Some things to consider include:
Of course, any time a company utilizes athlete endorsements, the contract should also have a broad morals clause for all the reasons outlined here.
There have been many exciting developments in tech for athletes, and I expect the trend to continue. Businesses in this niche industry could find professional athlete endorsements lucrative, but they must be specific in drafting such agreements.
Quiles Law is an esports and sports law firm based in New York City.
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