The Sports Law Review: USA
Organisation of sports clubs and sports governing bodies
In the United States, sports clubs typically organise themselves in one of three ways: either a sole proprietorship, a partnership or a corporation. The form a sports club decides on is dependent on factors such as potential liability, federal tax laws, flexibility of the form and ease of ownership transfer.
A sole proprietorship is the simplest form of ownership as it is controlled by only one person. In light of the financial and legal complexity of modern professional sports, this is a rare form of ownership. The largest drawback to a sole proprietorship is the liability. All legal and financial liability associated with the sports club is attributed directly to the owner personally. An additional drawback is a sole proprietorship's limited ability to borrow funds. The sports club can only borrow as much as the owner can personally receive approval for.
The most prevalent type of sports club ownership is the partnership. The laws regarding partnerships are very straightforward. Each partner makes a measured contribution to the partnership and, in turn, each partner receives a share of the profits and losses of the business, unless a different arrangement has been made. Partnerships do not require any formal documentation or legal paperwork to come into existence, though a designation can be made to protect partners from personal liability. This lack of legal work can substantially reduce the sports club's start-up costs. Partnerships can further reduce their costs by taking advantage of pass-through taxation, which allows the partnership to file a general tax return while the partners themselves file personal returns accounting for all the profits and losses.
Similar to a sole proprietorship, a partnership's drawback can be the lack of liability protection. Partners are held to be joint and severally liable for the acts of the other partners and the partnership as a whole. Furthermore, partners have a fiduciary duty to the other partners and the partnership as a whole. Partnerships have other unique limiting factors. Since a partnership is created by contract, a given partner cannot sell or transfer their interest to a party outside the partnership. This means if one partner wants out of the partnership, or if a partner should die, the partnership is dissolved.
There is a common subset of partnerships often used to govern sports clubs. 'Limited partnerships' can be thought of as a hybrid of a partnership and a corporation. In a limited partnership one or more partners control the sports club while other 'limited' partners supply investment money for the partnership. The limited partners have no control over the sports club; they only share in the profits and losses. Limited partnerships have the same advantages and disadvantages as general partnership, the only difference being that a limited partner is only as liable as their investment into the partnership. Should a limited partner become a managing partner, only then will he or she be held joint and severally liable for the partnership, just as in a general partnership. Becoming a limited partner is a common way individuals become owners in professional sports teams in the United States. While limited partners have no operational control, they are able to view 'up close' the manner in which a professional sports team operates. Many majority owners of sports teams in the United States started as limited partners.
Corporations are also used to govern sports clubs. Corporations are different from both sole proprietorships and partnerships in that they are legal entities separate and apart from both the owners and shareholders. The creation of a corporation is governed by the local laws of the state in which it is incorporated. In many ways, a corporation is treated as an individual in the eyes of the law. Just like an individual, a corporation has rights, can be sued, and must pay its own taxes. If a sports club is created as a corporation, its shareholders elect a board of directors to oversee the business and that board elects officers to manage the sports club. One advantage of using a corporation as a business model is the limited liability of its shareholders; a shareholder is only as liable as their investment. Corporations also have an easier time raising capital. If a corporation needs more funding, it can simply sell more stock. This diverse ownership means a corporation's life span is not tied to a single person or a partnership, a corporation can well outlast a single lifespan. Still, using a corporation as an ownership vehicle for a sports club has serious disadvantages. A corporation's profits are taxed twice. Once when they are earned at a corporate tax rate, and again when they are distributed to shareholders as dividends. Although a corporation's limited liability is attractive, its tax disadvantages will be taken into account by a team's owner when choosing the right business structure.
The dispute resolution system
Professional players consent to punishment handed out by their respective clubs and leagues through their collective bargaining agreements (CBAs) as well as personal contracts. Those contracts are kept very broad and simply secure the player's agreement to follow the rules set by the individual team or league. The standard player's contract (SPC) will typically state that the club may create rules governing the player's conduct, and in return, the player promises to follow those rules. Penalties for infractions come in various forms. The contracts typically explain the procedural rights the player will receive; usually in the form of notice and review by the respective league's commissioner. The SPCs also provide a given league's commissioner with independent disciplinary authority.
The National Football League (NFL) has a personal conduct policy that pertains to all persons associated with the league and not just the players. The policy specifically reserves the option to punish regardless of whether there is a legal conviction for a crime, stating the NFL holds its employees and club members to a higher standard. The policy forbids behaviour that undermines or risks the NFL's integrity or reputation and if a violation is found, the commissioner is given wide latitude to discipline as he or she sees fit. The policy states the punishment is to be proportional to the infraction and take into consideration the nature of the conduct, the risk entailed in the conduct, the existence of any prior or additional misconduct and any other relevant factors.
The NFL commissioner's disciplinary authority is governed by three documents: the Constitution and by-laws of the National Football League (the League Constitution), the CBA and the NFL's SPC. The League Constitution is a contract that defines the authority of the league and its member clubs. In addition to empowering the commissioner, the constitution also provides the commissioner with authority to recommend punishment matters to an Executive Committee. A commissioner might do so should he or she find the punishment he or she is authorised to administer is inadequate or insufficient.
The NFL's SPC allows for the commissioner to punish for two types of conduct: conduct on the field and conduct that is harmful to the integrity of, and the public confidence in, the NFL. The CBA limits the player's ability to appeal the commissioner's decision by allowing a player to only appeal to the commissioner or his or her designee directly. Although the league constitution provides the commissioner with guidance, it is the CBA that is the real authority concerning the employment relationship between the players and the commissioner; it is the CBA that determines how much authority for punishment the players will accept.
Similar to the NFL, the Major League Baseball (MLB) commissioner is provided with a wide scope of authority to punish for matters that effect the integrity of baseball and the public confidence in it. However, unlike the NFL, in the MLB there are more actors with punishment authority. In addition to the commissioner, the league's executive vice president and the senior vice president also have the authority with regard to fines and suspensions for conduct on the field. In the MLB, an appeal can be made to the commissioner, the executive vice president, or an independent arbitrator or arbitration panel. Although technically the MLB has significant discretion and authority, many find the use of arbitration, which is provided for in the CBA, has undermined that authority. Historically arbitrators have overturned commissioners' decisions, including the reinstatement of players the commissioner has banned for life.
In professional baseball, conduct violations are punished in two ways: by the player's team or by the league. Team-sponsored punishments are regulated by the player's contract. Although an individual's contract might be negotiated so it reads differently, generally teams have the authority to terminate the player's employment. The player's contract holds him or her to the highest level of sportsmanship and personal conduct, and infractions stemming from chemical abuse, gambling, domestic violence, fighting or illegal weapons possessions are seen as falling under the 'personal conduct' clause. Further, the MLB's commissioner is given the responsibility for investigating incidents, deciding guilt or innocence, and handing out the punishment. The commissioner's biases are supposedly only toward the protection of the game, where the individual owners of the teams have a financial stake in a player's punishment. In fact, even the Supreme Court of the United States has upheld the MLB commissioner's broad powers and discretion.
In basketball, under the CBA, punishment by the National Basketball Association's (NBA) commissioner can be generally divided into two categories: suspensions of fewer than 12 games or suspensions of more than 12 games. In a suspension of fewer than 12 games, where the reason for the suspension was owing to concern over preserving the integrity of, or the public confidence in, the NBA, the commissioner has the final word and no arbitration is allowed. Any appeal of a suspension for fewer than 12 games must be made to the commissioner. One caveat to that rule is a player may appeal to the Player Discipline Arbitrator if the player is seeking a review owing to the financial impact of the commissioner's decision. However, in this case, the arbitrator may only lower the financial penalty. For suspensions over 12 games, the player or the player's union may file a grievance and have an arbitrator review the discipline given.
Organisation of sports events
Venue owners in the United States are open to a certain level of liability. However, using the affirmative defence of 'assumption of the risk' can limit that liability. Courts typically deny recovery for injuries resulting from hazards inherent to the sport under the presumption that spectators have sufficient knowledge of the sport and assume the risk of being injured; even if it is the first sporting event ever attended by the patron. To succeed in an assumption of the risk defence, venue owners must show either: the plaintiff had personal knowledge of the risk (claims of ignorance of the risk have generally failed); that the risk was obvious and apparent to a reasonable and prudent person under the circumstances; or that there was seating provided behind a protected screen that the spectator chose not to sit in. Venue owners have also tried using liability releases to limited effectiveness. Some courts have held that a liability release may be void if it is against public policy. Liability releases are also considered to be void if the court finds it is counter to a state statue or if the release was not brought to the attention of the patron. Regardless of this, professional sports leagues have put protections in place to mitigate any future liability.
After a 13-year-old girl was killed by a puck at a National Hockey League (NHL) game, the NHL made Plexiglas along the boards mandatory. The NHL further required each rink to put protective netting above the Plexiglas behind the goal nets to protect fans from flying pucks. Further, the NHL has mandated that rink operators must provide a protective area for spectators who prefer to be wholly protected from the risks of flying pucks.
In MLB, courts have held there is no duty to warn spectators of the possibility that a ball or bat may enter the stands. Baseball stadiums are only required to provide screening behind home plate. Spectators who voluntarily choose to sit in an area unprotected by a screen, even if there are no seats available behind the screen, accept the 'obvious danger' of being hit by a ball or other potential hazards that the average person would perceive in attending a baseball game.
In professional football, a fan is considered to be on notice that a ball may enter the stands. Given the dimensions of a football, along with the nature of the game, courts have seen the risks to patrons as being low.
Alcohol consumption is also an area of concern for venue owners. To protect players and coaches from fans running onto the field during a game, some teams employ security guards armed with tasers. The concern does not end with the game's final score. Approximately 10 per cent of fans leave a sporting event intoxicated. The risk of these fans driving after the game has prompted stadium owners to hire extra security, which in turn has led to fans complaining about overzealous security enforcement outside the stadiums. Stadium owners take this liability seriously. The Minnesota Twins suspended a local legend, Wally the Beer Man, for allegedly selling beer to a minor at a home game. Even though selling alcohol to a minor is considered a serious offence, local fans were still outraged.
Commercialisation of sports events
Athletes are celebrities. The general public admires their fame and fortune. It is virtually impossible to avoid an advertisement that harnesses a professional athlete's celebrity status. Whereas athletes used to be 'pitchmen' for sports-related products, these days athletes endorse everything from Rolex watches to breakfast cereal. This rise in celebrity status has allowed professional athletes to increase their earnings off the field. A 1990 Sports Magazine issue estimated US companies spent more than US$580 million to have professional athletes promote their products. Forbes magazine estimated that, during 2019, Cristiano Ronaldo, LeBron James, Roger Federer, Kevin Durant, Rory McIlroy, Stephen Curry, Tiger Woods and Phil Mickelson made combined earnings of US$384 million in endorsement revenues.
i Types of and ownership in rights
Each major sports league maintains the rights to market the names and logos of the individual teams in their respective leagues. A player's contract will typically contain provisions regarding publicity for the sports club and restrictions on a player's ability to engage in endorsements. Often, a player's contract will require a certain number of appearances in connection with licensing agreements made by the league. Restrictions on a player's endorsement of a given product include what the player wears during a game, or even during a preseason or warm-up game.
ii Contractual provisions for exploitation of rights
The Federal Trade Commission (FTC) has established guidelines concerning the use of endorsements and testimonials in advertising. The guidelines require that the endorsement must always reflect the honest opinions, findings, beliefs or experience of the endorser. Furthermore, the endorsement may not contain any representations that would be deceptive, or could not be substantiated and made directly by the advertiser. Celebrity endorsements may only be used if the advertiser has good reason to believe that the endorser continues to subscribe to the views presented in the advertisement. An advertiser may only run the advertisement as long as it has good reason to believe the endorser remains a user of the product.
Companies often contract with professional athletes to wear or display the company's products. Typically, these contracts require the athlete to use the endorsed product exclusively while participating in all athletic activities. For instance, if the endorsed product was shoes, the company would prohibit the athlete from wearing athletic shoes manufactured by another company. Given the FTC guidelines and the legal exposure an athlete might endure, athletes try to make sure the promoted materials are in good taste and do not harm the public image of the athlete.
Although the terms of an endorsement contract are negotiable between the company and the athlete, certain provisions are common place. Endorsement agreements should identify with specificity the products or services the athlete will endorse during the term of the contract. An overly broad or loose definition of the products to be endorsed may result in an agreement that precludes competitive endorsements with other companies even though the first company does not presently manufacture those products. Thus, if an athlete is endorsing a certain type of basketball, the endorsed product should not be referred to in terms of 'basketball product' because this term is too broad.
Sports and antitrust law
Antitrust is a major component of sports in the United States. There are four legislative acts that govern the majority of antitrust action in professional sports:
- the Sherman Act;
- the Clayton Act;
- the Norris-LaGuardia Act; and
- the National Labor Relations Act (NLRA).
The Sherman Act was enacted to regulate business practices among competitors so as to promote economic competition by deterring monopolies. The US Supreme Court has held the Act is to be analysed in two manners: the per se rule and the 'rule of reason'. Per se analysis is used when a particular labour practice has been presumed to have a negative effect on competition, and is, therefore, illegal. For instance, price-fixing is a per se violation of antitrust laws because of its negative effects on competition and consumers. Rule of reason analysis looks at a particular practice and asks whether it is reasonable or unreasonable. However, if a particular labour practice is found to be a per se violation, it is unnecessary to be further examined under the rule of reason.
The Clayton Act allows labour unions and labour activities to be exempted from the Sherman Act. Section 6 of the Act mandates labour should not be treated as commerce. This is known as the 'statutory labour exemption'. The statutory labour exemption allows labour unions to enter into agreements between themselves that might result in the elimination of competition from other unions, essentially allowing for monopolies by unions.
The Norris-LaGuardia Act allows employees to bargain as a collective unit (CBA). Bargaining collectively allows an employer to negotiate a contract that is binding on all parties within the collective unit. The Act, along with Section 17 of the Clayton Act, makes labour union activities exempt from antitrust laws. The Act also limits the power of the federal courts to grant injunctions in labour disputes.
The NLRA promotes collective bargaining between employees and employers. It requires parties to a labour negotiation to act in good faith regarding wages, hours and terms and conditions of employment. The NLRA is bilateral in that it protects both unions and employers. The NLRA requires neither party to concede on a point nor agree to a certain proposal, in the name of coming to an agreement. Under the NLRA, workers reserve the right to strike if an agreement cannot be reached. The Act requires a vote in which a majority of the union votes for the strike before a strike is allowed. The union must then give the employer a 60-day notice before the strike starts. For the League's side of the process, the NLRA allows League management to conduct a lockout, which prevents the players from playing, if a collective bargain agreement cannot be reached.
Today, the most restrictive of antitrust infractions have been placated by players' collective bargaining. CBAs are effective once a players' union and league management confer and agree on labour issues. Agreements reached might breach antitrust laws in other settings; however, when they come about through the collective bargaining process they are considered 'non-statutory' labour exemptions and are immune to antitrust laws. The non-statutory exemption is applied where the restriction on trade affects only the parties to the CBA; where the restraint concerns a mandatory subject of the collective bargaining; and where the agreement that is sought to be exempted is a product of a true arm's-length bargaining process.
The non-statutory labour exemption is at the heart of virtually all antitrust action in sports labour law. For years, the NFL followed what was known as the 'Rozelle Rule', named after an early NFL Commissioner. The rule stated that when a player's contract ended, he or she became a free agent and could be signed by a different team than the one he or she was previously on. If a player did switch teams, the new team was required to compensate the old team for its loss. Compensation was determined by the Commissioner and was in the form of money, additional players or future draft picks, or both. In 1976, a court determined the Rozelle Rule restricted players' movement between teams, thereby constricting salaries. Therefore, the court held, the Rozelle Rule constituted a mandatory subject of collective bargaining. By not addressing the rule in the league's CBA it was not protected as a non-statutory exemption to antitrust laws.
Conversely, in Wood v. NBA, the court examined a salary cap limiting the amount a team can pay its players. Although the cap hampered a player's ability to maximise his or her salary, the court determined the cap was exempt from antitrust laws because it had been bargained over by the players' union in the CBA; it was therefore a non-statutory labour exemption. The cap only affected the parties to the CBA, it involved mandatory subjects of the CBA, and was the result of good faith negotiations.
There is a large exception to the interplay between professional baseball and antitrust laws in the United States, an exception that no other professional sport enjoys. In 1922, the United States Supreme Court decided professional baseball was not a business that involved interstate commerce and therefore issues that related to the business of baseball were immune from antitrust laws. Proliferation of players' unions and CBAs have made this immunity essentially meaningless for professional players. However, for minor league players and for team owners the exemption is still meaningful. Minor league players are still bound to the original team they signed with. League management can block a team's attempt to relocate to a more lucrative city. There are several examples of states' attorneys general being blocked from even investigating antitrust activity by the MLB or team owners owing to this immunity from antitrust laws.
Antitrust laws do not only apply to professional sports. In March 2015, the Ninth Circuit Court of Appeals found the NCAA rules forbidding compensation to university athletes for using their image or likeness were subject to antitrust laws. The case began when Ed O'Bannon, who played basketball at UCLA from 1991 to 1995, noticed his image was being used in a video game. His original claim argued student athletes should be paid for the use of their likeness by the NCAA upon graduation from university. The NCAA responded by arguing that paying a student athlete would contradict the amateur nature of university sports. The court ruled that the NCAA is a business, and requiring student athletes to sign over rights to their likeness in order to be eligible to play violated antitrust laws. As a result, students no longer must sign away the rights to their likeness to be eligible to play. Donald Remy, the chief legal officer for the NCAA, noted disappointment in the US Supreme Court's refusal to review the case, but applauded the Ninth Circuit's decision recognising amateurism's essential nature of collegiate sports.
In the United States, stadiums are a large part of professional sports. Cities and states compete with one another to become home to a professional sports stadium owing to the profitable benefits of increased revenue and spending the stadiums generate. Aside from the increased revenue, having a stadium allows locals to follow their home team as well as drawing people into a city's downtown area.
The Los Angeles Rams and Chargers are building the largest and costliest NFL stadium in history. The 3 million square foot facility that will cost a projected US$2.6 billion is scheduled to open in 2020. The Oakland Raiders also started construction on a new stadium located adjacent to the south end of the Las Vegas Strip. The Raiders' stadium features a translucent ceiling and retractable doors offering views of the Strip, as well as a small jail and courtroom to detain and process unruly fans.
The Mercedes-Benz Stadium opened its doors in August 2017 after 28 months of construction. The newest state-of-the-art sports facility seats 71,000 for Atlanta Falcons games, and can expand or reduce the number of seats to house the FIFA World Cup, a Final Four, Major League Soccer (MLS) football games and concerts. Super Bowl LIII was awarded to the Mercedes-Benz stadium in 2019.
The year 2016 brought the US Bank Stadium home to the Minnesota Vikings. The project began in 2014 and had its ribbon-cutting ceremony in July 2016. The overall budget for the stadium was US$1.061 billion. The new stadium has resulted in an increase of revenue to the surrounding area. Super Bowl LII was played in the new US Bank Stadium in 2018 and this event brought US$370 million to the area. Wells Fargo relocated 5,000 employees to a new regional headquarters built next to the US Bank Stadium. Apartments, restaurants and shops have also opened up near the stadium, resulting in more than US$1 billion worth of additional investment in the area. Further, the 2019 National Collegiate Athletic Association (NCAA) Final Four was held at the US Bank Stadium, resulting in US$143 million alone.
These multibillion-dollar facilities do not always work out as planned. One of the most anticipated features of the new Mercedes-Benz Stadium was its retractable roof. Unfortunately, the roof caused three construction delays and was not fully functional when the stadium opened. As of July 2018, the Mercedes-Benz roof finally opened, as intended, in just over eight minutes. The new US Bank Stadium continues to battle ongoing issues with its moisture barrier, loose exterior panels and leaking walls. The building is still under warranty and the general contractor and two of its subcontractors responsible for the design and installation of the exterior panels are in arbitration to determine who will pick up the tab for repairs.
Along with the new stadium, the Minnesota Vikings built a new headquarters and training facility in a neighbouring city. The team bought nearly 200 acres of land, which it plans to develop over the next decade. The training facility, the Twin Cities Orthopedics Performance Center, opened in 2018. The 277,000 square foot state-of-the-art training facility features cryotherapy chambers, virtual reality training technology and lockers with individual ventilation systems. The team also plans to develop the surrounding land, which is being called Viking Lakes. The development is to include a hotel, a conference centre, apartments, restaurants and office space, as well as lakes and trails and a Skol Pavilion for events.
There is currently a trend of building high-profile training facilities. The Dallas Cowboys opened their new training facility in mid 2016, naming it The Ford Center at the Star. The Star is located 25 miles north of Dallas in Frisco, Texas, and serves as the Cowboy's new headquarters. The facility includes two outdoor practice fields and a 12,000-seat indoor stadium. Football teams from the local school districts will also have access to the training facility. The area surrounding the Star also includes a retail area, an upscale hotel, a sports medicine facility and a fitness centre.
In September 2017, the Green Bay Packers officially opened the 'Titletown District' to the public. The 34-acre complex sits adjacent to Lambeau Field, home to the NFL team. The Titletown District provides a large park dedicated to fitness-related activities, cultural events and game-day celebrations. The complex will also provide an upscale hotel, a restaurant, town homes and a sports medicine clinic.
The NBA's Minnesota Timberwolves and the Women's National Basketball Association's (WNBA) Minnesota Lynx recently opened a new practice facility and corporate headquarters at Mayo Clinic Square, adjacent to their home stadium, the Target Center in Minneapolis, Minnesota. Aside from being a completely privately funded state-of-the-art project, this 107,000 square foot development is noteworthy for its repurposing of an existing urban structure into a full-sized arena. Before it was a training facility, the real estate housed a cinema. Today, it provides a training area complete with two basketball courts, one for each team. The Minnesota Lynx are now the first WNBA team to have its own court and training area. The facility will also be used by the area's youth and local athletes. Finance & Commerce declared the facility one of the Top Projects of 2015.
Minnesota opened the Treasure Island Center, which houses the Minnesota Wild's new 1,200-seat practice rink. TRIA Rink, named after the Minnesota-based orthopaedic division of HealthPartners, opened in early 2018. The space is used for Wild practices in the morning, leaving the afternoon and evening slots available for schools and amateur leagues. Hamline University will use the space to host home games for both its men's and women's hockey teams, and it will also be home for Minnesota's professional women's ice hockey team, the Minnesota Whitecaps. Treasure Island Center will also house a brewing company, retail stores, the St Paul Police Department, TRIA Orthopedic Center and a donut shop.
Sports and taxation
In the United States, one of the most fundamental aspects of taxation is determining one's domicile or legal residence (actual physical residence and the intent of making it one's permanent home). Domicile is important because it establishes whether a state has the ability to tax a player's worldwide income. Even if a player is domiciled in one state, that player may still be taxed as a non-resident in another state. This requires a complicated process of apportioning income to different states based on where games are played. To further complicate the domicile issue, in many instances players live in a given team's state or country only during the season and live elsewhere during the off season.
State tax rates vary from state to state. The majority of US states use a bracket system to determine a player's income tax. In California, for example, a person who earns over US$1 million per year is taxed at a rate of 13.3 per cent, whereas a person who earns less than US$18,610 is taxed at 2 per cent. Colorado, Illinois, Indiana, Massachusetts, Michigan, North Carolina, Pennsylvania and Utah apply a flat tax rate, meaning that every individual, regardless of income, is taxed at the same percentage. In contrast, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not have any individual income tax. State taxes are generally deductible on federal income tax returns. However, even after state tax deductions, athletes who live in states with no state income tax can maintain up to 10 per cent more of their salary than athletes who play for teams in other states with an income tax.
Generally, the US government uses a bracket system similar to that of many states, such as California. Similar to state taxes, US tax law allows the taxation of a US citizen regardless of where they live in the world. However, under some circumstances, a US citizen may qualify for exclusion of certain types of foreign earnings.
Professional sports and labour law
The SPC is an outgrowth of the respective league's CBA. The SPC is written by the individual team the player is signing with; as such, any ambiguity is interpreted against the team. The SPC specifies the player's obligations, including his or her performance outside the sport, and explains the employer or team's control over the player. The SPC provides for penalties in cases of prohibited conduct. In addressing the penalties the SPC explains all of the elements of a given infraction. It spells out the amounts of possible fines, expected lengths of suspensions, as well as the process of instituting the punishment and the process of any subsequent appeals.
i Mandatory provisions
Generally, players have very little control over non-monetary terms of their contract. The exception to the rule is a player such as LeBron James who has an exceptional talent or skill so rare that accommodating the player's stipulations is still a bargain. This sort of clout allows a player to negotiate several provisions of their contract.
An average professional player still might be able to negotiate some parts of his or her contract. For instance, a player might be able to negotiate his or her signing bonus, the timing of payment of any bonuses, length of the contract and guarantees in case of injuries.
The SPC also incorporates collateral agreements. For example, an SPC will contain a clause incorporating the league's constitution and by-laws. This means that when a player signs his or her 10-page SPC, he or she is also binding himself or herself to the 300 pages of other material usually from the league's CBA. Better known collateral agreements include the signing bonus and the no-cut clause. The signing bonus is payment simply for signing the contract and the player will get the payment once he or she shows up for the first day of training. Once the player receives the bonus, he or she is not obliged to give it back, even if he or she is cut later on. A no-cut clause prevents a team from cutting a player during the life of the contract. These types of clauses are difficult to obtain given the nature of sports. They typically protect a player's contract from being terminated owing to poor performance or poor physical condition. A no-cut clause is interpreted very strictly, it will only protect a player from termination of the type specified.
ii Free movement of athletes
It is possible for players to negotiate a no-trade clause in their contract. A no-trade clause gives a player the right to refuse a trade. Because a no-trade clause is so powerful, they are typically only given to senior players or players with a large amount of clout. In baseball, a player with five years on one team and 10 years of experience can veto a proposed trade. A player might want a no-trade clause if he or she has substantial business ties with the location of the signing team.
Specific sports issues
In the United States, professional baseball and football are most heavily scrutinised when it comes to performance-enhancing drugs (PEDs).
In December 2007, a government report was released detailing the history of PEDs in the MLB. It specifically named several players who allegedly used such drugs, which in turn brought the attention of the media and fans to the epidemic. The MLB's response was to create harsh punishments for PED users. The MLB now mandates that every player will be subject to a minimum of two drug tests a year, with no cap on how many additional random tests a suspected PED user can be given. The policy dictates that a first-time offending player must sit out 50 games, second-time offenders must sit out 100 games and third-time offenders are banned from baseball for a minimum of two years.
Similar to baseball, the NFL began testing and enforcing its penalties more intensely in recent years. The NFL maintains the right to randomly test players during pre-employment (free agents and rookies), annually during the preseason, randomly during the regular season, during the postseason, during the offseason or anytime the NFL believes it has 'reasonable cause'. Like baseball, a player may be tested as many times as the league feels necessary. In the NFL, first-time offenders are suspended for four games without pay, second-time offenders are suspended for a minimum of six games and third-time offenders are suspended for 12 months. After the third offence, the NFL must reinstate an athlete before the athlete can play again. In addition to the prescribed suspension, offenders are not allowed to be around the team or any team facilities while on suspension.
Although the NHL and the NBA have experienced less pressure from the media to regulate PED use, both leagues have established drug-testing policies and repercussions for failed tests.
The NHL bans the same substances that are banned by the World Anti-Doping Association (WADA). However, unlike the NFL and the MLB, the NHL does not perform tests during the off season, and the league can only require up to two random tests during a given season. Punishment for PED users varies. All players who fail a drug test are automatically referred to the league's substance abuse programme. The length of the punishment begins at 20 games without pay for the first violation, extends to 60 games without pay for a second violation and results in a permanent suspension from the league for a third violation.
The NBA's CBA establishes that players may not be tested more than four times per season. Like the NHL, upon a failed test, the NBA requires automatic entrance into the league's substance abuse programme. Punishment in the NBA for PED use ranges from a multiple game suspension for first-time offenders, to a ban from the league after a fourth failed test. The NBA does not test its players during the off season.
The prevalence of doping in professional sports led to the creation of WADA. WADA was established in 1999 as an international independent agency composed and funded equally by the sports movement and governments of the world. Its key activities include scientific research, education, development of anti-doping capacities and monitoring of the World Anti-Doping Code – the document harmonising anti-doping policies in all sports and all countries. In June 2018, WADA opened the first World Anti-Doping Global Athletes Forum in Calgary where athletes from 54 countries gathered to discuss and further the anti-doping movement in international sports. One international athlete, Beckie Scott, called doping the greatest threat to sports today. Whistle-blowers and other insiders also spoke to the Forum about the Russian Doping Investigation.
In the United States, there is a long history between gambling and sports. Unfortunately, players, coaches and other officials have periodically been implicit in illegal sports betting. One of the most famous instances occurred in professional baseball and is referred to as the 'Black Sox' scandal. In the 1919 World Series, the Chicago White Sox lost to the Cincinnati Reds. Eight White Sox players were later accused of intentionally throwing the game in return for bribery money. Although the players were exonerated, they were still banned from baseball for life. Since then there have been other occasions in US sports where players have helped gamblers by intentionally missing free throws, fumbling the football or throwing a 'phantom' punch.
Professional coaches have also been caught up in gambling scandals. Former NHL assistant hockey coach, Rick Tocchet, was found to be financing a nationwide gambling ring. In baseball, Pete Rose was betting daily on MLB games while managing a team. The reason for the concern is that when managers and athletes bet on the game, their decisions are made based on the chance to win money, which may be counter to the team's best interest. To this day, Pete Rose has not been inducted into the Hall of Fame (even though many argue he should be) and is banned from baseball.
In May 2018, the Supreme Court of the United States struck down a 1992 law known as the Professional and Amateur Sports Protection Act, which effectively banned commercial sports betting in most states. This decision allows states to legalise an estimated US$150 billion in illegal wagers on professional and amateur sports that Americans make each year. In Murphy v. National Collegiate Athletic Association, No. 16-476, Justice Alito wrote in his majority opinion, 'Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own.' Since the Murphy decision in May 2018, 17 other states, plus Washington DC, have joined Nevada in offering legal sports betting. More recently, Washington, Tennessee, Virginia, Oklahoma and North Carolina passed bills legalising sports betting that have yet to take effect as at the time of writing.
Analytics are a major part of baseball and sports. The 'Moneyball' era has made statistics king and analysed information a premium in baseball and sports generally. Today, professional sports view every action in a game as a bit of data to be used for a more successful analysis and prediction.
Some forms of manipulation receive criminal attention from government authorities. In 2015, members of the St Louis Cardinals were investigated by the Federal Bureau of Investigation (FBI) for possibly hacking a database owned by the Houston Astros. The Astros had reported cybersecurity breaches going back to 2014. The FBI investigation focused on persons employed by the Cardinals management who had gained access to passcodes owned by the Astros.
iv Grey market sales
In the United States, the resale of tickets for sporting events is referred to as 'scalping', and is controlled by individual states' laws. Some states such as Minnesota allow for the unregulated resale of tickets. Other states have laws against reselling tickets but upon a closer examination of the law shows the prohibitions are very nuanced. For instance, in Arizona, reselling tickets is only illegal within 200 feet of the venue. Other states, such as Georgia, New Jersey and New York, require a licence to sell or resell tickets.
Regardless of the state jurisdiction, anti-scalping legislation is directed at the seller of the tickets and not the buyer. Patrons that buy tickets should be alerted to the fact that the tickets themselves might be forgeries. It is not uncommon for scalpers to sell tickets for seats that do not even exist in a given venue. Patrons that purchase their tickets on the grey market also need to consider whether the tickets were originally bought with a stolen credit card. In 2006, Ticketmaster invalidated 1,000 Barbra Streisand concert tickets because they were bought with stolen credit card information.
Outlook and conclusions
The NFL is approximately a US$12 billion-a-year industry. Fallout from concussion litigation will continue to impact the NFL decisions going forward. Players suffered 281 concussions in the 2017 season – the highest in six years.
NFL Commissioner Roger Goodell has stated that making the game safer is the NFL's number-one priority. In an open letter, Goodell outlined the NFL's new initiative 'Play Smart, Play Safe', which comprises several new steps the league intends to take to address concussion-related injuries and their long-term effects. The initiatives include an additional US$100 million for medical research, engineering advancements and the creation of an independent, scientific advisory board to advise and steer scientific research regarding concussions. Further, in the next league labour negotiation, Goodell intends to address what the league can do to better serve retired players. In 2017, 25 NFL teams purchased new high-tech helmets that are designed to lower the risk of concussions. The NFL has implemented new safety regulations, including one that penalises players that lead with the crown of their helmets to initiate contact against an opponent on any play. These rule changes in the 2018 season contributed to a 29 per cent drop in the concussion rate. In 2019, the concussion rate increased slightly from 2018, but was still substantially less than the rate in 2017.
Until recently, it was thought CTE could only be diagnosed through a brain autopsy after a person had died. However, researchers at Brown University and VA Boston Healthcare System believe they have developed a method that could help diagnose CTE in living patients. The ability to test for CTE during one's life could impact the talent pool. Several players have left NFL citing concerns for their health and safety, including Husain Abdullah, Chris Borland and John Urschel. The ability to test for CTE could also implicate the terms of the NFL class action settlement. The settlement did not address former players currently exhibiting possible symptoms of CTE. While the NFL would not be required to add CTE as a recognisable condition, the settlement does require the NFL meet with retired players every 10 years to evaluate whether the changes are warranted. If science continues to progress and players can be diagnosed with CTE while alive, it would be reasonable to request an amendment to the settlement.
More positive change occurred in the NFL with respect to concussions with the newly adopted CBA. First, the NFL and the NFLPA agreed on enhanced enforcement of the concussion protocol. Further, the new 2020 CBA, which is in effect through the 2030 season of the NFL, also provides additional joint research funding into concussions.
Football is the world's most popular sport, and its fan base is still growing. The top 20 football clubs in the world are worth an average of US$1.6 billion dollars and earned an average of US$428 million in revenue during the 2016/2017 season, an increase of 40 per cent from five years ago. Football's popularity is also rising in the United States with a 27 per cent increase in interest since 2012. In 2016, the average MLS team was worth US$185 million, up 80 per cent from 2013 estimates. In 2013, the MLS averaged 18,600 attending fans per match; in 2017, that number increased to 22,112 fans per game. Those numbers put MLS attendance ahead of both the NBA and the NHL.
Football's growing popularity is being met with new stadiums. Minnesota's MLS team, Minnesota United FC, played its first season in the brand new Allianz Field in 2019. Initial site preparation for the US$200 million stadium, Allianz Field, began in late 2017. The stadium seats nearly 20,000 fans. While the stadium is privately funded by the team and its investment partners, the city and other public sources contributed more than US$18 million in infrastructure and funds to clean up the surrounding area.
iii University sports
With California's new Fair Pay to Play Act enacted in 2019, other states are looking to pass similar legislation. In 2019, proposals have been made from state lawmakers in Colorado, Florida, Illinois, Kentucky, Minnesota, Nevada, New York, Pennsylvania and South Carolina for laws that allow student athletes to be compensated from their names, images and likenesses. A broad NCAA response is anticipated, but the organisation has some time to plan as the Fair Pay to Play Act will take effect in 2023.
iv Covid-19 and sports in the United States
At the time of writing, the NBA, NHL, MLB, and NFL have all commenced their varying restart plans and will attempt to negotiate covid-19 in operating professional sports in the United States. New guidance from the WHO or CDC, or an increase in cases among professional athletes may cause professional sports to be paused once again. Local decisions are guiding high school and college sports organisations in deciding whether to proceed with fall sports. The 2020 Tokyo Olympics were officially postponed until 2021. Covid-19 has thrust sports into a world of uncertainty, but it remains clear that sports are an important part of United States culture. If athletes can play sports safely, professional sports leagues will facilitate this to the best of their ability.
The year in review
i Concussion suits
More than 4,500 former NFL players sued the NFL (beginning in 2011) alleging the league concealed the long-term dangers of concussion. Before the start of the 2013 season, a settlement was reached providing any former NFL player showing symptoms consistent with long-term concussion-caused damage would be eligible for awards of up to US$5 million. The presiding US District Judge, Anita B Brody, would not approve the settlement. Her concern was over the amount of money, US$765 million, not being enough to cover all the possible claims. Eventually a settlement was reached in April 2015. The most notable change included uncapping the amount of the settlement, which ensures damages for affected retired NFL players and their families.
However, many former players opted out of the 2015 settlement and instead sued the NFL separately, alleging the earlier settlement did not adequately include all former players with varying concussion-related symptoms. Those players challenged the 2015 settlement based on the fact that the settlement only covers former players diagnosed with Alzheimer's or Parkinson's disease and players who have already died from chronic traumatic encephalopathy (CTE), a degenerative brain disease that was, until very recently, only diagnosable posthumously. The settlement did not address former players currently exhibiting possible symptoms of CTE. The Third Circuit Court of Appeals denied those players' challenge to the settlement. Certain players objected further, petitioning the United States Supreme Court for writ of certiorari. The Supreme Court declined to review the settlement, making the settlement final. It is estimated the uncapped deal will provide more than US$1 billion to a class of over 20,000 retired players. Although the settlement was finalised in January 2017, a number of players have encountered difficulties collecting their settlement funds.
The concussion lawsuits did not stop with the settlement. Former New England Patriots player Aaron Hernandez committed suicide in April 2017 while serving a life sentence for the murder of Odin Lloyd. Following his death, Hernandez's family sent his brain to Boston University's CTE Center for further study. At only 27 years of age, Hernandez was diagnosed with Stage III CTE, a level typically seen in players with a median age of death of 67 years. Hernandez's family sued the NFL and the Patriots seeking US$20 million in damages claiming the NFL was 'fully aware of the damage that could be inflicted from repetitive impact injuries and failed to disclose, treat or protect him from the danger of such damage'. There is a question as to whether Hernandez is part of the concussion class action settlement. If he is, the settlement could preclude his family's claims. The NFL intends to vigorously contest Hernandez's claim.
The NFL has implemented new protocols to address concussion concerns. In July 2016, the NFL and the NFL Players Association agreed to enforce new concussion protocols to include disciplining clubs with fines and future draft picks. Further, the NFL orchestrated several rule changes in 2018 to reduce the risk of concussions. One change was meant make the kick-off safer by removing running starts and wedge-blocking. Another change was the added ability for referees to take players off the field who are showing concussion symptoms. Finally, the NFL implemented the controversial helmet-hit rule. The helmet-hit rule made it a penalty for players to initiate contact with the helmet by lowering the head. A violation of this rule can lead to player disqualification based on the severity of the violation. Following these rule changes, the NFL reported a 29 per cent drop in reported concussions during the 2018 regular season.
In May 2016, the NCAA revised a settlement first proposed in 2013 with a number of student athletes creating an opportunity for students suffering from concussion-related injuries to sue their universities. The previous US$75 million settlement raised concerns it might do away with otherwise-valid injury claims. The new agreement would enable students to sue their school directly, but only on behalf of fellow players in a given sport.
Federal courts are also addressing claims by former NHL players. In October 2016, a federal judge allowed former hockey players to amend a previously filed class action suit adding the estate of player Lazarus Zeidel, who was posthumously diagnosed with CTE. The suit alleges the NHL hid the harmful effects of head injuries. In June 2018, Minnesota Federal Court Judge Susan Nelson denied the hockey players' motion for class certification, which means former players will not be automatically added to the lawsuit, but instead will have to file individually. Shortly after that decision, Judge Nelson ordered the parties to attempt mediation.
ii Premier football
In 2015, the NBC Sports Network acquired the TV rights for the English Premier League from the 2016/2017 season to the 2021/2022 season. The deal cost the NBC Sports Network US$1 billion and provided NBC with the rights to broadcast 380 live matches every year. Although the network admitted the deal itself is not profitable, NBC Sports Network stated it adds to its profitability overall.
iii Covid-19 impact
Covid-19, an infectious respiratory disease caused by a novel coronavirus first detected in December 2019, has at the time of writing infected over 16 million people worldwide and killed more than 660,000 people, triggering nationwide lockdowns, massive market downturns and perhaps forever changing some aspects of life. Further, it has had, and will continue to have, massive implications on professional and amateur sports in the United States.
In March 2020, most, if not all, professional sports leagues in the United States, including the NBA, NHL, MLB and MLS, were forced to shut down owing to safety concerns and government regulations. During this downtime, professional sports leagues and player associations negotiated policies and procedures to be implemented for a possible return to sports later in the year. This process was full of conflicting interests between leagues, who generally want to ensure that a sports season happens as scheduled, and players, who generally want to assurances that participating is safe. The MLB, for example, was not able to come to an economic agreement. Despite this, the MLB decided to proceed with the season under a prior agreement. At the time of writing, however, it appears that most leagues and players associations were able to agree on a safe return to professional sports, although it remains to be seen how successful each league's varying approaches will be.
Despite no agreement, the MLB is set to play a dramatically altered 60-game baseball season without fans in attendance. The MLB issued a 60-game schedule that started in July with additional measures and rule changes, including a ban on spitting and extending the designated hitter position to the National League for the first time in history. Unlike the NBA or NHL, who decided to operate in 'bubbles' with limited travel and interaction with others outside their respective organisations, MLB teams travel to opposing teams' stadiums to play. Whether it had anything to do with the travel policy, the MLB has had difficulty with outbreaks of covid-19 among players and staff, forcing the MLB to postpone 14 games and retool the game schedule further.
The NBA took a completely different approach to addressing covid-19, opting instead for a 'bubble' restart to its season that was postponed indefinitely in March 2020. In this novel system, the NBA invited 22 teams to resume the NBA season, all in a central location at the Walt Disney World Resort in Orlando, Florida. Regular testing ensures that no player or staff that has the virus is allowed in the bubble to possibly spread covid-19. Limited media, team executives, NBA/union personnel and inactive players are allowed in the stands, but no fans are allowed to attend. This approach seems to have been effective, with the latest data from the NBA supporting zero positive covid-19 tests. Sports leagues must balance the interests of all parties when determining the right restart plan, and with the potentially disastrous negative health effects of the disease, the stakes are high.
iv Social issues in sports
Beyond covid-19, the United States has also experienced social unrest related to police brutality and racial inequality with the death of George Floyd in Minneapolis, Minnesota. This event has prompted social change in many areas of policy, including calls to defund police departments in favour of a holistic public safety force. This catalyst for social change has affected the sports world, as organisations, fans, and athletes look for racial equality. Some professional athletes themselves even joined the protests of George Floyd's death that occurred across the United States. Athletes also show their form of protest against police brutality and racial inequality by kneeling during the National Anthem played before sporting events.
One concrete change that occurred, likely as a result of increased awareness for social justice, is the name change of Washington DC's NFL team, which was often criticised for its racist connotation. The former Washington Redskins officially retired their team name on 3 July 2020, and temporarily changed it to The Washington Football Team, while they look for a permanent name.
iii Daily fantasy sports and other sports betting
In 2015, the Minnesota Wild of the NHL and Emil Interactive Games LLC, parent of DraftOps, a daily fantasy sports (DFS) operator, entered into a sponsorship agreement. In May 2016, the Wild filed suit alleging breach of contract and unjust enrichment, seeking US$1.1 million, plus 1.5 per cent interest per month, along with US$50,000 in damages. Emil proffered an unexpected response, claiming the contract was void because the state of Minnesota had not legalised the relevant type of gaming. The court denied Emil's motion to dismiss in part because Emil failed to cite any legal authority addressing whether online DFS activities were unlawful in Minnesota. Unfortunately, Minnesota will have to continue to wait for clarification. Although legislation aimed directly at DFS gaming was introduced again in 2018, the bill did not pass the house. The courts are also at a standstill because, shortly after the denial of Emil's motion to dismiss, Emil filed for Chapter 11 bankruptcy, which then stayed the litigation in Minnesota.
In April 2018, a draft sports betting bill was circulated in the Minnesota legislature. The bill would have authorised sports betting including mobile sports wagers, and created an overseeing commission. The Minnesota legislature, however, did not make any official action on the draft bill before adjournment. In March 2019, the Minnesota Senate tax committee voted 5:2 to send a bill that would allow sports betting at Minnesota's tribal casinos and at the state's two horse-racing tracks. The bill also allowed sports betting through mobile applications linked to authorised sites. Minnesota legislators, however, have raised concerns that the bill does not do enough to reduce the negative externalities of widely available gambling. As a result, the sports gambling bill did not pass.
iv University sports and compensation
In contravention to long-standing NCAA rules, California governor Gavin Newsom signed a bill that will allow students playing university sports to make commercial use of their identities. The Fair Pay to Play Act, which takes effect in 2023, makes it illegal for California universities to deny student athletes the right to compensation for the use of the students' names, images and likenesses. One limitation is that a student athlete's endorsements must not conflict with the universities' endorsement deals. For example, a student may not be sponsored by Nike if the school already has a deal to wear Adidas apparel. The law also allows students playing university sports to engage sports agents to represent them professionally.
The NCAA argues that the California law would create competitive imbalance as more student athletes will be drawn to California schools so that they can monetise their identities, thus giving California schools in advantage in recruiting. As a result, in what many commentators consider to be an empty threat, the NCAA threatened California universities with possible disqualification from NCAA championships if the Fair Pay to Play Act is implemented.