ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Tuesday, January 31, 2023

Sid Delong on Speech Act Theory and SCOTUS's Notorious eBay Opinion

When SCOTUS Says It’s So, It’s So:
A Speech Act Analysis of the eBay Opinion
Sidney W. DeLong

Suppose that in the Spring of 2006, you had been grading final exams in your Remedies class. You had posed a question about whether a property owner could obtain a permanent injunction against a neighbor who was threatening to misappropriate some of the owner’s property. Several classes had been devoted to the rules and principles on which courts enter permanent injunctions.

One student began his answer as follows:

According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

Notwithstanding its superficial precision and its confident tone, you gave this answer no points because you identified at least six substantive errors in it. The most glaring mistake is that says that issuance of a permanent injunction requires a plaintiff to “demonstrate that it has suffered an irreparable injury.”

That statement is wrong in at least two ways. First, because an injunction is intended to prevent future injury, it is never necessary that the plaintiff demonstrate that it has already suffered an injury. More importantly, the student fails to say that a court will not issue an injunction unless the plaintiff demonstrates that it will suffer injury in the future if the defendant is not enjoined. (The other obvious errors are discussed at the end of this post.)

Justice ThomasNow suppose that, in an exam review after the end of the semester, the student who wrote that paragraph unexpectedly defended his answer by drawing your attention to a hot-off-the-presses Supreme Court slip opinion in eBay v Mercexchange, L.L.C, 547 U.S. 388, 390 (2006) where, (miraculously?) the identical 85-word paragraph appeared. The student demanded to know how his answer could be “wrong” if it coincided exactly with Justice Thomas’s opinion? How would you have explained his grade?

I would have found this to be a formidable task. Just saying “Well, the Court just got it wrong!” as I would have to a colleague would have sounded arrogant if not megalomaniacal to a student, even though it is exactly what I thought. Incidentally, I am not alone in this view.  See, e.g. Laycock and Hansen, Modern American Remedies (Concise 5th Ed. 2019) 353-57 (below, right); Mark P. Gergen, John M. Golden, & Henry E. Smith, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions, 112 Colum. L. Rev. 203 (2012).  But how can I explain what “wrong” means in such circumstances?

LaycockNot wishing to get into waters this deep, I think instead I would have invoked speech act theory to explain how the court could have been “right” and the student wrong. In speech act theory, despite all appearances, this was not a case of two different people saying the same thing. The two identically worded utterances are different speech acts that are doing different things.

The student’s answer consisted of assertions, which are speech acts that make a statement of fact. Assertions are either true or false. Unhappily, the student’s statements about the law of permanent injunctions were all false and misleading, which I could easily prove.

Although the Supreme Court’s opinion used identical language, it performed a completely different speech act. Rather than being assertions, the Court’s language was a series of performative utterances, sometimes known as declarations. Performative utterances are what most people think of when they think of speech acts and they are particularly characteristic of legal speech. According to speech act theorist John Searle (below left) “Declarations bring about some alteration in the status or condition of the referred to object or objects solely in virtue of the fact that the declaration has been successfully performed.” When uttered by the right persons under the right circumstances, declarations or “explicit performatives” change the world in the way mentioned in the utterance.

In a successful declaration, just saying something makes it so. “I hereby declare the meeting to be adjourned” adjourns the meeting. “The motion is hereby overruled” overrules the motion. “I hereby accept your offer” accepts the offer. The speaker’s use of the legal-sounding adverb “hereby” is a universal signal of an explicit performative. Although the word may be omitted when it is tacitly understood, “hereby” can be added to any performative phrase without changing its meaning or effect.

John_Searle from wikimedia
John Searle, Image by FranksValli, CC BY-SA 4.0 
via Wikimedia Commons

Unlike assertions, declarations are neither true nor false: instead, they are effective or ineffective, depending on who does the declaring and under what circumstances. When an umpire yells “You’re out!” in a baseball game, the runner is out. When a fan yells “you’re out” in identical circumstances the runner is not out. When a law student writes, “A plaintiff must demonstrate that it has suffered an irreparable injury,” his writing has no declarative effect and does not affect the law. When five justices of the Supreme Court write the same sentence in an opinion, the words have a declarative effect, which creates the rule it just announced.

But it gets a bit more complicated. Often an utterance can have both assertive and performative illocutionary force. “The bar is closed” when said by a disappointed patron to a hopeful arrival is an assertion and is either true or false. But when it is loudly announced by the publican to the patrons in the bar, it is a declaration that becomes “legally” effective upon its utterance: Saying it closes the bar. But in those circumstances, it is also a true statement by the publican about the bar’s status. As such it is an assertion whose purpose is to give information to the hearers.

The same expression can thus serve two functions, formally closing the bar and truthfully informing the patrons of that sad fact. Searle called such hybrid expressions “assertive declarations.” An assertive declaration in a judicial opinion would simultaneously change the law in some way and truthfully assert that the law had become the way it described.

Finally, to complicate things still further, whether an utterance is an assertion, a declaration, or an assertive declaration depends on its correct interpretation by the hearer. The “illocutionary force” or speech act status of an utterance is always a matter of interpretation, no less than is its meaning.

What then is the speech act status of the eBay Court’s statement that, under the familiar four-factor test, the issuance of a permanent injunction requires a plaintiff to “demonstrate that it has suffered an irreparable injury”? If it was only an assertion, like the student’s answer, then it was false, as a host of Remedies authorities have confirmed. See above. It completely misstated existing law.

On the other hand, if the Court had written an explicit performative: “We hereby rule that a permanent injunction requires a plaintiff to demonstrate that he has suffered an irreparable injury,” that utterance would have been neither true nor false because it would not be an assertion. It would instead have been legally effective to change the law of injunctions in federal courts. It would have been formally unobjectionable, although of course subject to criticism as to its wisdom.

But did the court intend for its statement to be declarative of law despite its omission of “hereby”?  Ostensibly, the court was merely reporting the existence of a “well-recognized four factor test” and reciting part of that test. In this, it was mistaken. Its declaratory powers do not include the power to change facts.

But the Court did more than assert the existence of the test as a fact. It implicitly adopted the test as its own and used it to resolve the case. In doing so, it declared the four-part test to be federal law, even if, as Gergen et. al. have suggested, “accidental” law.

As an “assertive declaration,” the paragraph became not only legally effective but, as a consequence, also became factually true as a description of federal law. In other words, the paragraph became a true assertion about federal law as soon as it was published, as does any successful assertive declaration. Saying it made it so.

Should my hypothetical student then have won the argument over his exam? Technically, his statements were false and misleading when he wrote them but they became true only later with the publication of eBay. Moreover, even after eBay, the non-federal law applicable to the exam hypothetical remained unchanged. I continued to teach subsequent classes the actual tests for permanent injunctions in courts uninfluenced by eBay and that its effect on federal court cases that do not involve patents is still uncertain. There is no sign that the Court itself is inclined to clarify the ruling and that is where things stand.

But I confess, if any of my students had been sharp enough to find the eBay opinion and make that argument in an exam review, he or she would have earned a grade increase for initiative.

Postscript: My brief enumeration of inaccuracies in the eBay paragraph follows. Although Justice Thomas authored the opinion, any blame for its mistakes was equally shared by the entire Court because none of them was challenged or corrected.

Continue reading

January 31, 2023 in Commentary, Famous Cases, Sports, Teaching | Permalink | Comments (0)

Monday, December 26, 2022

Sid DeLong: Risks Associated with Name, Image & Likeness Deals

Tom Brady: From G.O.A.T. to Scapegoat:
A Cautionary Tale of Influencer and Endorser Liability
Sidney W. DeLong

Tom BradyIf the next Tom (the Greatest Of All Time) Brady is in college today he is sure to be earning a lot more money than Tom was able to scrape together as a student athlete when he played for Michigan. As predicted in an earlier post, Name, Image, and Likeness Mercenaries: NIL Desperandum in College Athletics, the next Tom is already aboard the Name, Image, Likeness (NIL) bandwagon that has already showered millions of dollars in “endorsement” income on student-athletes. The NIL beneficiaries are Very Definitely Not being “Paid to Play” for the schools that woo them to step through the Transfer Portals into a world of big money endorsement contracts. Star athletes can earn tens or hundreds of thousands of dollars, ostensibly as pitchmen for local car dealerships and plumbing companies. All of which is good practical training for the much more lucrative and slickly produced product endorsements for which they will be paid when they become professionals, endorsing insurance companies, sneakers and fast food.

And in a sense, NIL income for athletes is only fair compensation for the hard and dangerous work they must put in to earn their scholarships. Star athletes must keep up financially with their non-athletic but internet-famous classmates who pull down five and six-figure salaries as Influencers, persuading their followers to buy whatever music, fashions, and cosmetics that their advertisers are paying them to pitch. “Influencer: It’s not just a side-hustle, it’s a career.”

But the shock waves emanating from recent collapses in the world of crypto portend risks that a fledgling NIL athlete or Influencer might well bear in mind. It turns out that touting a product as a celebrity endorser or influencer can lead to significant personal financial liability for the endorser, especially if what is being touted is not a diet plan but what a judge may later call a “security.”

Endorser liability is a relatively new concept and the courts have not yet evolved clear rules. The common law offers few theories under which a buyer might sue a seller’s agent for personal liability resulting from misleading statements the agent made about a purchase of a commodity, whether in the form of facts or opinions. Lies by a non-seller might justify avoidance or a warranty claim against the seller, but the agent owes no common law duty to the buyer to make only truthful statements about the product.

Lady DuffBy statute, however, two forms of endorser liability have emerged in the U.S. For the sale of goods, The Federal Trade Commission has issued regulations making it illegal for a product endorser to fail to disclose whether she is compensated for her endorsement or to publish a misleading consumer product review of the product. The FTC has even published “guidelines” for social media influencers.  Because these rules are aimed at misleading endorsement rather than misstatements of fact, liability can be avoided if the celebrity announces, ‘I am just saying this because I have been paid to do so.” Of course, such candor would defeat the purpose of the endorsement. Actual disclosures are more subtle, but effective in avoiding liability. But the American public has always been fully aware that every celebrity endorser since Lucy, Lady Duff-Gordon (left) has compensated and so the formalistic acknowledgement of compensation that is demanded by the FTC seems to be a solution in search of a problem. Or perhaps an example of straining at a gnat and swallowing a camel.

A far more lethal risk arises if the product being endorsed is held to be a security as defined in federal and state law. Which leads us to the crypto disaster. Tom Brady, along with his wife Gisele Bundchen, Shaquille O’Neal, Naomi Osaka, Larry David, Steph Curry, and many other celebrity endorsers of crypto products have been sued for damages and fines by the Securities and Exchange Commission (SEC) and classes of private parties under theories of securities act violations, violations of FTC disclosure regulations, and common law fraud, all arising from their promotional activities on behalf of FTX, Crypto.com and other sellers of crypto assets.

Kim KardashianIn a widely-publicized enforcement action, Kim Kardashian (right) was fined $1. 2 million in penalties plus disgorgement of profits by the SEC for failing to disclose a $250,000 payment she received to publish a post on her Instagram account promoting EthereumMax’s crypto asset security EMAX tokens. The article suggests that Matt “Fortune Favors the Brave” Damon was not charged because he was promoting a website, Crypto.com, rather than a specific security offered by his principal. More importantly, because EthereumMax’s tokens declined in value by 98% following Kardashian’s promo, she has been sued by disappointed investors for their losses.

Even the question whether Bitcoins themselves are securities may be an open question about which legal advice would be necessary. Gary Gensler, Chairperson of the SEC, has said that he believes that most cryptocurrencies are securities, as defined under the Howey Test, leading many to anticipate regulation of the market. If a celebrity touts an unregistered security, that alone could subject them to potential fines and jail time as well as to civil claims by disappointed purchasers regardless of the celebrity’s disclosure of their interest.

In addition to liability for fraud or for promoting the sale of unregistered securities, endorsers may run afoul of the SEC’s statement of policy about “celebrity backed” initial coin offerings requiring disclosure of compensation paid for endorsements (concerning the policy relating to “initial coin offerings”). Under this theory, Brady and Bundchen may have additional disclosure obligations arising from an alleged equity stake they took in FTX in 2021, before the endorsements.

What conclusions should a lawyer representing Future Tom Brady or Future Gisele Bundchen draw from the GOAT’s latest problems? I would suggest at least the following.

First, you should have final review of any endorsement contract and should not depend on the endorsement agent’s version, whose financial interests are not coincident with his own. Tell the client that “Jerry Maguire is interested only in his cut of the promotional fees; he won’t be there for you when you are sent away for securities fraud.”

Second, you will require securities law expertise whenever there is any possibility that what the client is touting is a security. With novel crypto products, it may be months or years before the courts decide whether the thing being touting is a “security,” under some version of the Howey test. Emphasize to the client that the personal liability for violating the securities laws can be staggering: that is the reason that liability insurance for securities lawyers is so expensive. An endorsement fee cannot possibly compensate for this level of risk.

Matt DamonThird, insist that the entity paying for the endorsement agree to indemnify the client and hold them harmless from any liability they may incur to any person or organization resulting from their performance of the endorsement contract. The indemnity must also include compensation for attorneys’ fees and other professional fees incurred, tax-related losses, and any other financial liability resulting from the product endorsement. (An agreement to pay criminal fines might be unenforceable on grounds of public policy, but it cannot hurt to obtain it.) If you cannot obtain indemnity, you should probably advise the client to walk away from the deal. If they refuse, you should (sad to say) probably memorialize your advice to the client.

When Matt Damon (left) told America that “Fortune favors the Brave” he was really sending a double message. He was not only encouraging ordinary people to risk their life savings on Bitcoin in a bold bid to earn a fortune. He was also, by his own example, encouraging celebrities to risk losing everything they owned in a securities fraud class action just to earn a hundred-thousand-dollar fee. Both messages proved to be disastrous, but at least some of the celebrities may end up as the bigger losers.

December 26, 2022 in Celebrity Contracts, Commentary, Sports | Permalink | Comments (0)

Thursday, December 22, 2022

The World Cup of Contracts: Bend Contractual Obligations Like Beckham?

BeckhamLast week, Tariq Panja spilled the tea in The New York Times about David Beckham's contract to promote Qatar in connection with the World Cup and his utter failure to do so in any way that would have the sort of impact for which Qatar shelled out (perhaps?) $150 million.  That said, he didn't exactly breach either.  He kinda ChatGPT'd it. 

Some people think you ought to actually enthuse to the media about Qatar when you enter into a contract to promote Qatar.  Others think that you ought not to promote Qatar in connection with the World Cup if that might force you to opine about workers' rights or LGBTQ+ issues.

Or so I imagine ChatGPT would respond if I asked it about Beckham's contractual performance.

World_Cup_Opening_Ceremony_in_Doha _Qatar_(52515886760)Mr. Beckham's strategy, according to the New York Times, is to show up for events when asked, on condition that his appearance not be announced in advance and the press not be notified.  Mr. Beckham's bearded visage can be seen all around Qatar, on billboards and signs promoting Qatar and the World Cup, but the man himself is rarely seen and largely inaccessible.  When pressed to speak about why he is endorsing Qatar or about his views on the various controversies that swirled around the World Cup and its 2022 host, Mr. Beckham issued press statements that sounded genuine, by which I mean that they genuinely sounded like they were generated by ChatGPT.  Some samples:

David has been involved in a number of World Cups and other major international tournaments both as a player and an ambassador and he has always believed that sport has the power to be a force for good in the world.

We understand that there are different and strongly held views about engagement in the Middle East but see it as positive that debate about the key issues has been stimulated directly by the first World Cup being held in the region.

Other celebrity sponsors of the World Cup have apparently been irked by Mr. Beckham's special treatment.  But some of them, unlike Mr. Beckham, have won the World Cup tournament, so there may be some consolation in that.

December 22, 2022 in Celebrity Contracts, Commentary, Sports, True Contracts | Permalink | Comments (0)

Tuesday, November 22, 2022

More News from the World Cup of Contracts

JerseyThe New York Times provides two separate stories that those inclined towards conspiratorial thinking might think are linked.  First, Adam Crafton reports in the Times curated collection of longish-form sports journalism, The Athleticthat Lionel Messi signed a "lucrative deal" to promote Saudi Arabia as the host of the 2030 edition of the World Cup.  

In the same paper, Rory Smith reports on Saudi Arabia's shocking upset of Argentina, lead by their star -- you guessed it -- Lionel Messi in the team's first match in the 2022 World Cup.  As Rory Smith puts it,

Messi, a being seemingly hewn from pure, uncut poise, seemed afflicted, rushing his passes, missing his beats, fading from the game as the clock ticked rather than bending it to his will. 

All is not lost, Argentina.  The team just has to prevail over Mexico and Poland, and it can still emerge from its group.  But people will be left to wonder: is contractual obligation the one thing that can overcome Messi's competitive drive?

November 22, 2022 in In the News, Sports | Permalink | Comments (0)

Monday, November 21, 2022

The Beer Breach: Qatar and the World Cup

In a sobering development, Qatar has announced that it will not allow for beer sales at the World Cup.  As and report on Bloomberg here, this decision might entail a breach of not one but two contracts!  First, in banning beer from football stadiums, Qatar seems to be violating its agreement with FIFA, the entity responsible for organizing the World Cup.  In addition, Anheuser-Busch InBev NV is the official beer of the World Cup and paid millions to be exclusively available at World Cup venues.  Now beer sales will be relegated to "fan zones" outside stadiums. 

Soccer stadiumAccording to Tariq Panja reporting in The New York Times, FIFA President Gianni Infantino responded to criticisms of the decision to hold the World Cup in Qatar, criticisms that have  focused not so much on beer but on the working conditions of foreign laborers who built the stadiums and on Qatar's human rights record.  Comparing his experience as a redheaded child of immigrants to Switzerland to the plight of homosexuals in the Middle East, he decried the hypocrisy of human rights organizations and invited his audience to crucify him.  Nobody in the audience seemed inclined to do so, and FIFA is such a deeply corrupt organization, I don't think anybody thinks much will come from repeating the obvious.

According to Wikipedia, the following organizations have criticized Qatar for human rights abuses in connection with treatment of workers involved in constructions projects for the World Cup: Human Rights Watch, the International Trade Union Confederation, Amnesty International, the International Labor Organization, the UK Daily Mirror, the UK Guardian, Equidem, and FIFA.  Yup.  Hypocrites.

Will the result of the beer ban in major league baseball be replicated?  In 1961, the Milwaukee Braves attempted to ban carry-ins at their baseball stadium  As reported here, in the Milwaukee Journal Sentinel, the ban did not go well.  Fans noticed, for the first time, that baseball is an incredibly boring sport.  There was a 26% drop in attendance.  Angry, sober fans burned down the stadium, killed and roasted the mascot, and renamed the team the Brewers.  Some of the details provided here might go beyond the accounts in the lamestream media, but we just report; you decide.

November 21, 2022 in Commentary, Current Affairs, In the News, Sports | Permalink | Comments (0)

Thursday, September 22, 2022

UConn Settles with Former Basketball Coach for $3.9 Million.

Two pieces of news that I came across this week highlight just how broken college sports is.  First, as Zac Al-Khateeb reported here in The Sporting News (in a story first reported in The New York Times' The Athletes, the University of Texas at Austin spent $280,000 on a recruitment trip involving Arch Manning and some other students.  The system disgusts me so much that I can't be bothered to keep up with the current state of things.  I don't know whether players are allowed to be paid yet. If they are not allowed to be paid, well, this story suggests that they absolutely are being paid.  And if they are being paid, well, pay them to play, not to have dinner at the local steakhouse with their families.  But please, do start paying them and do it soon, so that the entire corrupt system can come crashing down under the weight of its own excess, greed, and unreality.  

Kevin OllieSecond, Billy Witz reports here in the New York Times, that the University of Connecticut (UConn) has agreed to a $3.9 million settlement with its former coach Kevin Ollie (right), who was fired for cause in connection with an NCAA recruiting violation investigation that ultimately resulted in the team being placed on probation for two years.  An arbitrator had awarded Mr. Ollie, who was found to have skirted NCAA rules, the $11 million remaining on his contract at the time of his termination.   UConn had originally responded by calling that award "nonsensical."  The fact that Ollie negotiated down from an arbitral award suggests that he was less than 100% confident that it would hold up, but who knows what absurd terms were in the contract.  Paying coaches millions of dollars to head teams made up of talented athletes who get paid nothing and who are supposed to be attending college rather than training for professional sports is what is really non-sensical. 

NO OTHER COUNTRY IN THE WORLD DOES THIS!!!  And it does not pay for itself.  Not even close.  This article from in The Guardian about the University of Houston has the same message as every other truthful article about college sports: "A handful of athletics departments, such as Texas (which has newly renovated one end of its football stadium at a cost of $175m) are profitable. Many others, such as Houston, subsidise sports programmes through funds from the university’s wider budget, mandatory student fees of hundreds or even thousands of dollars each year, and donations." 

When sports programs do well, they bring in money that is used on sports.  When law schools do well (and many make a profit for their universities most years), they contribute to the university's overall budget.  Instead of painting their faces, attending tail-gating parties, and screaming for three hours on a Saturday, undergraduates should be bringing snacks and coffee to the law libraries and encouraging the students who are training to become the lawyers of tomorrow.  Their tuition dollars are funding that climbing wall in your college gymnasium today.  

September 22, 2022 in Commentary, Current Affairs, In the News, Recent Cases, Sports | Permalink | Comments (0)

Monday, September 19, 2022

Follow-up on Former Nebraska Coach Scott Frost's Contract

Scott_Frost_in_Black_Nebraska_Shirt_(cropped)
By Huskerdood - Own work, CC BY-SA 4.0

Last week, we posted about Nebraska's decision to fire its head football coach Scott Frost and pay him $15 million in severance.   Victor Goldberg shared Coach Frost's contract and its two addenda, with me.  You can also find it online here.

One big takeaway from Professor Goldberg's work is that sophisticated parties fashion their own remedies, and those remedies often depart from the default rules set out in the common law.  So too in the realm of coaching contracts.  You might think that a coach who gets a $15 million severance package for early termination of his contract would have to mitigate should he land comparable employment at another school.  Not so here.

As Professor Goldberg notes after reviewing the contracts in his comment here, Coach Frost's initial Dec. 2017 contract provided that, while he had no obligation to mitigate, if he got another coaching job, either in the NFL or with another Division I NCAA team, the severance pay (termed "Liquidated Damages") would be offset (set forth in Section 13(b) of the original agreement).  But the addenda provided for neither a duty to mitigate nor an offset (in paragraph 2 of the 2021 addendum and paragraph 3 of the 2019 addendum).  

The mystery to me is why the addenda, negotiated after Coach Frost and Nebraska football suffered through several losing seasons, would be more generous than the original contract, negotiated when Coach Frost was the hottest coach on the market.  One would have to review the contracts as whole to determine what Coach Frost gave up in exchange for more generous liquidated damages provisions.

September 19, 2022 in Celebrity Contracts, Sports, True Contracts | Permalink | Comments (0)

Thursday, September 15, 2022

The Case of the Nebraska Football Coach's Buyout

Scott_Frost_in_Black_Nebraska_Shirt_(cropped)
By Huskerdood - Own work, CC BY-SA 4.0

You have to be an extraordinary person to be an elite college football coach.  You must be unusually savvy about contracts.  That must be true, because I know a lot about contracts but I can't make any sense of the incentive structures in the contract of former Nebraska head coach Scott Frost (right).  Andrew Doughty of BetMGM has the numbers here.

Coach Frost had an extraordinary second season, leading the University of Central Florida to an undefeated campaign and defeating Auburn in the Peach Bowl.  Nebraska paid $3 million to buy out his contract and then agreed to a seven year, $35 million contract with Coach Frost.  Two dismal years in, the contract was extended through 2026.  After two more dismal years, Nebraska and Coach Frost renegotiated his contract, reducing his annual salary to a miserly $4 million/year.  The buyout structure is complicated, but in the end, Coach Frost is entitled to a $15 million buyout.  If the team had waited until October to buy him out, it would have owed only $7.5 million.  

You might think that Nebraska is not really out that $15 million because Coach Frost has a duty to mitigate.  Except that I seem to recall reading somewhere in  Victor Goldberg's  Rethinking Contract Law and Contract Design that coaches' contracts often specify that there is no duty to mitigate [if someone can find the cite or knows from some other source, please chime in].  Moreover, Coach Frost's record at Nebraska was 16-31 overall, 10-26 against conference opponents, and the team was winless against ranked teams.  When Nebraska landed Coach Frost, he was the most sought-after young coach in college football.  Now, he's asking Kramer's question after a prolonged cigar binge:

Why, you might ask, did Nebraska not wait until October?  Some sportswriters speculate that the timing was dictated by an upcoming game against the Oklahoma Sooners.  Nebraska's athletic director did not want to see his team humiliated by the team he played for.  One would think that even rabid Nebraska football fans would not think that motivation justified a $7.5 million price tag.  But there are other reasons that would surely pass a business-judgment-rule type sniff test.  It seems there are advantages to being the first in the pool when it comes to picking a new head coach.

Has Nebraska learned its lesson?  Coach Frost's resume shows that past performance is no guarantee of future success.

September 15, 2022 in Celebrity Contracts, Commentary, In the News, Sports, True Contracts | Permalink | Comments (3)

Friday, September 9, 2022

Weekend Frivolity: Our Dumb First Amendment

On Fridays, we often post about things that are funny and contract related or funny and not contract related and just contracts adjacent.  Today, I am posting a link to my latest article, which I have uploaded to SSRN.  Although the piece is about the First Amendment, there is a contracts argument in there, and the piece grew out of this blog post.   It is, I hope, the first in a series of articles in which I argue that contractual rights and interests ought to be part of the rights mediation process that, following Jamal Greene, I think constitutional adjudication should entail.

Here's the abstract:

CheerleadingFifty years ago, public school children in Iowa, including Mary Beth and John Tinker, protested the Vietnam War, signifying their political views by wearing black armbands. The Supreme Court found that the school violated the students' right to freedom of expression when it suspended them for their silent, solemn protest, which caused no substantial disruption and did not interfere with the rights of others.

In 2017, a junior varsity cheerleader, frustrated at not getting picked for the varsity squad, profanely expressed her disappointment in two Snaps that she shared with 250 followers, including other cheerleaders. Her coaches suspended her from the junior varsity team for one year. The Supreme Court, applying the same standard as applied in Tinker, found that the school's disciplinary actions violated the cheerleader's free expression rights.

This is dumb.

The Court's decision in Mahanoy Area School District v. B.L. is dumb because, even under Tinker, B.L.'s profane Snaps were disruptive in ways that the Tinkers' protests were not. It is dumb because the Court furthers no identifiable interest that the First Amendment is supposed to protect by preventing coaches from enforcing their own disciplinary rules. Finally, the Mahanoy decision is dumb because it is a product of the rights absolutism, identified by Jamal Greene in his 2021 book, How Rights Went Wrong. The Court provides near-absolute protection to certain privileged rights, broadly understood, while pretty much ignoring all other interests impacted by its decisions.

Following Greene, this Article advocates that courts engage in rights mediation, deciding only the cases before them. If the courts do so, they will, in many cases, return decision-making processes to politically accountable local officials. Our absolutized First Amendment jurisprudence is dumb, and it results in dumbed-down civil discourse. Not all expression demands the same protection as core political speech. There are other interests to be weighed, and each factual scenario brings with it its own constellation of rights and interests. The weighing of those interests is best achieved through local decision-making processes, and the courts’ role in such matters ought to be small and incremental.

I submitted this article early in the August law review sweeps.  Crickets.  So now it is in shop.  Comments more than welcome.

September 9, 2022 in About this Blog, Recent Cases, Recent Scholarship, Sports | Permalink | Comments (0)

Monday, August 15, 2022

Kyler Murray Contract Kerfuffle

When we moved to Oklahoma, we decided not to get cable television.  As a result, the only sporting event I have watched live is the Tour de France (for whatever reason, I was able to subscribe to Peacock for free).  No regrets.  I might feel differently if any of teams Chicago team were any good, but if that day comes, I will re-visit.  Don't worry.  I'm not going to be self-righteous about this.  I have found other ways to use my time unprofitably.

Kyler_Murray
Image by All-Pro Reels, CC BY-SA 2.0 
via Wikimedia Commons

Anyhoo, as I result, perhaps, I do not know who Kyler Murray is and I cannot comment on whether it made sense for the Arizona Cardinals to agree to pay him $230.5 million over the next five NFL seasons.  Nick Shook from Around the NFL offers this assessment of Mr. Murray's third NFL season:

At his best, Murray is a uniquely talented quarterback capable of dissecting a defense however he and coach Kliff Kingsbury desire. He's an electrifying player who is good enough to lead his team to great success; Arizona's 10-2 start last season was no fluke.

But the late-season production from both Murray and the rest of the Cardinals hasn't lived up to expectation. After spending a good portion of the 2021 campaign looking like the best team in the NFL, Arizona again entered a tailspin, losing four of its final five games -- including an inexplicable blowout defeat at the hands of the lowly Detroit Lions.

Apparently, there was some concern within the organization about Mr. Murray's level of commitment to the team, and so his contract included a requirement that he watch four hours of game tape per week.  Here's the provision in question.Screen Shot 2022-08-14 at 6.14.40 AMThis clause elicited a lot of outrage.  The schoolmarmish tone of the provision sparked accusations that the clause was racially motivated, as evidenced here and here, as though Mr. Murray, a gifted Black quarterback, lacked discipline or commitment or some other qualities that would be assumed if he were white.  There was a predictable response in conservative  media (e.g., Breitbart and the Washington Times), in which the authors found absolutely no evidence of racism -- in Mr. Murray's contract, in the NFL, or in U.S. history generally.  But Mark Wilson is a Black sportswriter, and he agrees that the clause was more about green than it was about black and white.  He points out, as have others, that Mr. Murray himself suggested that he was not a big fan of game tape, as he stated to the New York Times last year: 

I think I was blessed with the cognitive skills to just go out there and just see it before it happens . . .  I’m not one of those guys that’s going to sit there and kill myself watching film. I don’t sit there for 24 hours and break down this team and that team and watch every game because, in my head, I see so much.

From Mr. Wilson's perspective, the Cardinals are investing $230 million in this athlete.  They are taking steps to make sure that he delivers on his promise.   

The Cardinals removed the clause from Mr. Murray's contract soon after it became public.  As Warren Moon pointed out, the damage is done.  As if Mr. Murray did not already have enough pressure on him, now he will also face questions about his pre-game preparations every time he throws an interception.

Now can we talk about the absurdity of paying young adults $46 million/year to play children's games when people who provide essential services -- day care workers teachers, nurses, home-health aids and other caregivers, therapists and counselors, etc. -- don't even get paid $50,000?

H/t John Wladis and my emeritus colleague, Michael Gibson.

August 15, 2022 in In the News, Sports, True Contracts | Permalink | Comments (0)

Friday, April 15, 2022

My Final Post on the Tom Brady Football

FootballThanks to one of my students, I just learned that the sale of Tom Brady's "final touchdown football" has been voided.  

If you've been following this blog's coverage of the issue, the arguments of Jeffrey Lichtman, the attorney for the anonymous buyer,  may sound familiar to you.  The blog is not cited, but our digital fingerprints are all over this W.  Lelands had to avoid the sale because their description of the football became inaccurate.  As UPI reported,

"At the time, it was an honest description," Lichtman said. "Had they described it as his last one, as of now, there would have been little recourse. But the way they described it, it was definitive.

Clearly, our legal reasoning carried the day.  It is also possible that, given all the publicity surrounding the ill-fated auction, demand for the football has only increased.  The ball was returned to the consignor, and it will now be subject to a private sale, with "multiple parties" expressing interest in the ball.

Given this outcome, perhaps we should create an NFT of this final post* on the Tom Brady football.  In honor of the event it commemorates, bids should start at $518,000.

H/T to OCU 1L Chad Smith!

* NOT A WARRANTY.  WE MAY COME OUT OF OUR SELF-IMPOSED TOM BRADY FOOTBALL RETIREMENT AT ANY TIME

April 15, 2022 in About this Blog, Current Affairs, In the News, Sports | Permalink | Comments (1)

Thursday, March 31, 2022

John Wladis on Tom Brady's Last Touchdown Football

Two weeks ago, I posted about the auction of Tom Brady's "last touchdown football."  A buyer paid $518,000 for the ball.  Shortly thereafter, Mr. Brady announced that he would be returning for another season.  Most likely, the ball will not remain Mr. Brady's last touchdown football.

I floated a theory that the auction house had given a warranty when it advertised the ball as follows:

If there is any item in the field of sports collectibles that needs no embellishment, it is this historic piece: the final touchdown ball of Tom Brady’s career.

FootballMost people who responded to the post were unpersuaded.  Everybody knows, the reasoning went, that players return from retirement.  The buyer assumed the risk. 

I stuck to my guns.  That assumption of risk might matter for a mutual mistake analysis, but here the seller made a choice.  It advertised the football as "the final touchdown ball of Tom Brady’s career."  Having sold the football on that basis, I think it was bound by its words.

Friend of the blog John Wladis set me straight in an e-mail exchange that I quote below with his permission.  He began by providing a doctrinal name for my interlocutors' instincts:

I do think that there is a warranty by description given by S.  That warranty is a representation that the ball being sold is B's last touchdown pass as of the sale date.

I do not think that it's a promissory warranty.  What's the difference between a warranty by representation and a promissory warranty?

Representation warranties speak to the past & present.  So long as the ball satisfies the sale description as of the time of the sale, the warranty is made and not breached.

Promissory warranties speak to the future.  In such a warranty seller is warranting both that the ball satisfies the warranty and time of sale and for some (presumably) reasonable time into the future.

What is the likelihood that a warranty that this is the last touchdown pass was a promissory warranty?  Not likely because seller has no control over Brady's actions.  Would a reasonable buyer expect that seller was warranting that Brady would not un-retire and throw no more touchdown pass.  I think not.

Seller could undertake to warrant that but the language would need to be much clearer on this point than the description in question.

This distinction between representation and promissory warranties was new to me.  I had to concede that Professor Wladis's explanation persuaded me that I was likely wrong about the warranty issue as a matter of law.  But, I objected, I still don't like it as a matter of policy. 

While I concede to the law as experience, I have two objections to its logic.  First, I don't think an ordinary buyer should be charged with knowledge of the distinction between representation and promissory warranties.  As I indicated before, I think that when a seller makes a representation, it is bound by that representation, and in the this instance, the seller's representation was incautious.  Second, sellers warrant things over which they have no control all the time.  Future events are just a sub-category of things over which sellers have no control.  Sellers routinely sell goods that they believe to be merchantable knowing that, because of some latent defect or undiscovered design flaw, the goods may become unmerchantable in the future.

Professor Wladis weighed in again:

The representation / promissory warranty terminology is my own and inartful.  I withdraw the distinction for one that is more apt which I’ll now describe. 

First some preliminary points: All warranties warrant seller’s performance.  When contract formation and delivery are not concurrent, a warranty is promissory in the sense that it is seller’s promise that its performance will satisfy the warranty.

The real question (and the one at issue in the football hypo) is whether the warranty promises that the goods will conform to the warranty at the time of delivery or whether the promise extends beyond that time (2-725(2)) calls these as extending to future performance, such as warranting the goods to be “free from defects for one year after purchase.”)

Is the description “Brady’s last touchdown pass” a warranty that the football will conform to the warranty at the time of delivery or until some reasonable time after delivery?

I think the resolution depends on the parties’ intent and that is not free from doubt.  I do think the stronger view is that the description is a warranty that the football will conform at the time of delivery.  The football does conform at that time.  Hence, buyer takes the loss in value when Brady unretires.

Why do I favor that view?  The hypo seems akin to risk of loss, the concept that applies when the goods are damaged or destroyed through no fault of either party.  Generally [2-509(3)] risk of loss passes upon tender of delivery.  Someone must take the loss.  Art 2 lets the loss fall on the party who initially suffered it unless there is a good reason to shift it (such as fault or breach).   

Consider also that the normal measure of damages for breach of warranty is the difference between the actual value of the goods and the value that the goods would have had at the time of acceptance; 2-714(2).

That seems to make the most sense.  If the risk of Brady unretiring extends beyond delivery for some reasonable time, the half-million dollar price in seller’s hands is “tied up” until the expiration of that reasonable time.   This seems inefficient and productive of litigation over what is a reasonable time. . . .

Your latent defect point is well taken but, I think, distinguishable from the football hypo.  A latent defect exists at the time of delivery. The latent defect breaches the warranty then though no one knows that then. 

Ultimately, it is a question of the parties’ intent subject to the usual rules for ascertaining that intent.  I think that seller could warrant, in effect, that Brady will stay retired but I think clearer language is needed to do that or a custom that sellers of sports collectables routinely take back merchandise when events subsequent to the sale cause a decline in value. 

If you have a case or treatise suggesting that a warranty covers events that occur after the sale, I’d be interested in looking at that. 

Of course, I've got nothing, but perhaps some reader can help me out.  

There are some uncertainties here.  I'm not entirely sure who the seller is in this instance.  Is it the fan who put the football up for auction or the auction house?  The latter would be a merchant, and then under § 2-509(3), risk of loss transfers upon receipt of the goods.  Mr. Brady announced his "unretirement" roughly 24 hours after the football was sold.  It seems to me unlikely that the football was delivered to the buyer that quickly, in which case risk of loss would not have transferred to the buyer at the time that the fateful news became public.  On the other hand, at that moment, the ball still was Mr. Brady's last touchdown football, and it will so remain until the first game of the new season at least.

March 31, 2022 in About this Blog, Commentary, Contract Profs, Current Affairs, In the News, Sports | Permalink | Comments (3)

Monday, March 28, 2022

Sid DeLong on Incentive Contracts in the NFL

Express Conditions, Good Faith and Touchdowns: Incentive Contracts in the NFL
Sidney W. DeLong

DelongExpress conditions often work better than express promises to insure performance of a contract for services. A party can induce a counterparty to perform a difficult contract by using either a stick or a carrot or both. Sticks make the return performance a legally enforceable contractual duty; carrots make the return performance an express condition to the performer’s receipt of payment. A return performance is induced by both a stick and a carrot when substantial performance of a contract duty is also a condition precedent to payment for it, as in the typical construction contract.

Duties are not of much use when the return performance is difficult to ascertain or evaluate objectively. In such cases, express conditions based on performance outcomes may be the only practical way to ensure performance. Thus, promising a real estate agent a commission based on a home’s sales price is a better way to secure her optimal performance than threatening to sue her to if she fails to use her best efforts. Giving an attorney 25% of a tort recovery may be a better way of securing her best performance than paying her either a flat fee or an hourly rate.

Because of the practical difficulties of legal enforcement of the duties of good faith and best efforts. elegant design of services contracts requires the use of self-enforcing, conditional incentives to create circumstances in which each party profits most by performing as planned and neither is tempted to engage in self-seeking breach.

Which brings us to NFL incentive contracts. A football player’s performance of his contract can be extremely arduous and dangerous. His best efforts might be difficult for an owner to motivate once the player’s salary is fixed. And even if those efforts are given, it is often difficult for the owner to predict how well a player will perform over the course of a season, and equally difficult to value that performance in advance.

For these and other reasons, many NFL player contracts provide for both a base salary and an incentive bonus that is payable only if the player achieves certain statistical performance standards during the season. Generally, these standards are of two sorts: performance statistics such as numbers of yards gained or touchdowns scored and more general achievements such as making the All-Star team or winning in the postseason.  You can find  examples of such contracts here.

Incentive arrangements address many of the difficulties in valuing player contracts. A team that is unwilling to guess at how well an unproven player may perform may be unwilling to pay big money unless and until it receives the anticipated level of performance. The team also may want to give an established player on a fixed contract a stronger incentive to play well than an empty threat of being cut. But incentive contracts can raise the problem of opportunism.

NFL LogoSuppose a team has a contract with a running back under which he will make an additional $500,000 for the year if he scores 20 touchdowns. The running back begins by having a very good year and with two games left has scored 17 touchdowns. To his consternation, however, during the last two games, he is replaced in critical situations, during which four more running touchdowns are scored by his back-up. Of course, coaches have plenary power to call whatever plays they wish for whatever reasons they wish. Should they have the power to conduct the games so as to deny an incentive bonus under these circumstances?

The situation suggests a risk of bad faith. One of the most familiar forms of bad faith arises when a contract gives a party the discretion to set the level of its own performance. Contractual discretion can ensure critical flexibility, reducing the risk that circumstances can alter the risks that parties face at the time contracts are entered. Flexibility permits parties to adapt their performance to post-formation conditions without the deal blowing up or either party suffering a loss. Is the team’s exercise of discretion over the player’s achievement of his bonus an example of needed flexibility?

Several legal principles may come into conflict when incentive contracts make a player’s performance a condition precedent to the bonus payment. In some cases, courts have held that the non-occurrence of a condition precedent may be excused if it is prevented by the obligor. “It is a principle of fundamental justice that if a promisor is himself the cause of the failure of performance either of an obligation due him or of a condition upon which his own liability depends he cannot take advantage of the failure” Patterson v Pattberg 161 NE 428 (N.Y. Ct. App. N.Y. 1928). This would suggest that the player’s achievement of the bonus level of performance would be excused because the team prevented it from occurring, i.e. prevented the occurrence of the condition precedent to its duty to pay.

FootballWhat if the team just terminated the player in order to prevent him from earning the bonus? Unless otherwise agreed by an express guarantee, NFL player contracts may be terminated, or the player may be “cut,” by the team at any time without cause, ending the player’s entitlement to any unpaid compensation that was not guaranteed, presumably including unearned bonuses that are not payable until the end of the year. But in other employment contexts, courts have consistently held that a business that terminates an at-will employee to prevent the collection of incentive-based pay that the employee would otherwise be due under the employment contract violates the duty of good faith and entitles the employee to recover the earned pay. Fortune v. National Cash Register Co., 364 NE 2nd 1251 (Mass. 1977); See. Tymshare Inc. v Covell, 727 F.2d 1145 (D.C. Cir. 1984) (Scalia, J).

Under this reasoning, if a team wrongfully prevents a player from reaching a statistical incentive level of performance, the condition on the payment of the bonus might be forgiven. But football coaches have, and must have, complete discretion to manage a game, including decisions on whom to play. (PeeWee League coaches, apparently answerable to angry parents, are another matter.) How can a player prove that an coach’s refusal to let him play was made in bad faith? And what exactly would be a bad faith reason? Even a decision to bench a star player on the last regular season game might make sense if, for example, the team wanted to avoid a risk of injury to the player that would affect its post-season success or its ability to trade the player to another team. In such a case, the team needs for him to be healthy more than it needs for him to score more touchdowns. Such a decision is reasonably related to its success and should not be grounds for a remedy.

All these possibilities suggest that a lawsuit seeking to recover an unpaid bonus under the hypothetical circumstances has a slim chance of success. But it remains obvious to lawyers and fans alike that giving a team unreviewable discretion to manipulate a player’s playing time in order to avoid paying him a bonus puts players at the mercy of the owners. A particularly cynical strain of contract theory will reason that this risk is so well-known to the players as to make the team’s promise illusory: “We will pay you a bonus for meeting our standard . . . if we want to. Now win one for the Gipper.“

March 28, 2022 in Commentary, Sports, True Contracts | Permalink | Comments (0)

Monday, March 14, 2022

A New Deflategate

Tom Brady's career will always be defined for some by the original deflategate, involving allegations that Tom BradyMr. Brady (seen at right) had ordered that footballs be slightly under-inflated, making them (I guess) a bit easier to catch.  It's great that the scandal has a "gate" name.  The original "gate" scandal, Watergate, involved a Republican incumbent burglarizing the democratic national committee, seeking advantage in the upcoming elections.  In the ensuing election, that incumbent won re-election by a margin of 520 electoral votes to 17.  I suspect he would have won even if he hadn't cheated.  That's why people say of Mr. Brady's 45-7 victory over the Colts in the deflategate game, "He's a successful quarterback, alright, but he's no Richard Nixon."

The second coming of deflategate involves the sale at auction of the football that Mr. Brady allegedly threw to Tampa Bay wide receiver Mike Evans for the latest of his touchdown passes.  The football was of special value to some because, when Mr. Brady announced that he planned to retire, it became his "last touchdown" football, and it sold for $518,000.  Shortly after the sale, Mr. Brady announced that he would not be retiring, deflating the value of the football considerably according to news reports.

One of my students shared this story with me, wondering if the buyer could seek rescission based on mutual mistake.  My instincts are as follows, and I welcome alternative takes.  

FootballOn the one hand, one could argue that the parties both believed that Tom Brady had retired and that the football in question had indeed played a part in his last touchdown.  That seems like a basic assumption about a fact that had a material effect on the sale price for the item.  Touchdown buyer! On the other hand, pro athletes do come out of retirement.  My student pointed out that Mr. Brady had a fine season last year, and so the possibility that he might return to the sport seemed possible.  Perhaps the mistake was not as to a fact but as to judgment.  Touchdown seller! 

Both parties likely knew that there was some possibility that Mr. Brady would return to football.  Perhaps the sale price even reflected that uncertainty.   But the same auction house (Lelands) sold the football involved in Mr Brady's first touchdown last year for just under $430,000.  Moreover, Lelands advertised the sale as follows: 

If there is any item in the field of sports collectibles that needs no embellishment, it is this historic piece: the final touchdown ball of Tom Brady’s career.

That statement seems to me to put the burden of the risk of mistake squarely on the seller, with a little help from the doctrine of equitable estoppel.  The buyer was entitled to rely on the seller's representations.  Touchdown buyer!

But the inquiry should not end there.  We would have to look at the contractual language relating to the sale.  Auction houses must be aware of the danger of counterfeits or mistakes.  In this case, they must be aware of the possibility that a professional athlete will come out of retirement.  Does the auction house disclaim liability associated with such risks?  If so, touchdown seller!

Such disclaimers might be effective as an allocation of risk, but I think the buyer could still have an express warranty claim, as such warranties are very difficult to disclaim.  Lelands advertised the item as "the final touchdown ball of Tom Brady's career."  That factual claim creates a warranty, and it may turn out to be a false statement, constituting a breach of warranty.  But the buyer may have to wait until next season to find out.  After all, Mr. Brady might have an off year and throw no more touchdown passes.  Buyer could settle for a field goal at this point, but I'm guessing if he goes for it, he's looking at a 21-14 victory.

H/T Jackson George

March 14, 2022 in In the News, Sports, True Contracts | Permalink | Comments (2)

Wednesday, March 9, 2022

Russia, Ukraine, and Contracts

Over on the Twitter, @HoffProf (David Hoffman) and @nate_oman (Nate Oman) have started an important conversation about corporations severing their ties, including contractual ties, with Russia, Russian entities, and Russian nationals in protest of the Russian invasion of Ukraine.  That may be a theme that we will explore at greater length in this space in the coming weeks and months.  Here's a foretaste.

Over the weekend, the Haas Formula 1 team announced that it had terminated its contract with one of its drivers, Nikita Mazepin, and its sponsor Uralkali.  The double whammy is not entirely surprising, given that Nikita Mazepin is the son of the principal behind Uralkali, Dmitry Mazepin, a close ally of Russian President Vladimir Putin.  Under new rules promulgated by the sport's governing body, Russian and Belarusian drivers can continue to compete under neutral flags so long as they express no support for the Russian invasion of Ukraine.  The sport also terminated a deal to hold a race in Russia, and there are no plans to hold such a race in the foreseeable future.   

Monza_aerial_photo
The Autodromo Nazionale Monza, home to the Italian Grand Prix

As reported here, Uralkali responded with a suit against Haas, demanding full reimbursement of its sponsorship funding.  Uralkali's public statement reads in part:

As most of the sponsorship funding for the 2022 season has already been transferred to Haas and given that the Team terminated the sponsorship agreement before the first race of the 2022 season, Haas has thus failed to perform its obligations to Uralkali for this year's season. Uralkali shall request the immediate reimbursement of the amounts received by Haas.

The refund from Haas and the remaining part of Uralkali's sponsor financing for 2022 will be used to establish the We Compete As One athlete support foundation.

Nikita Mazepin announced that he was establishing the We Compete As One Foundation to support athletes who are punished based on the passport they hold.  

March 9, 2022 in Current Affairs, In the News, Sports, True Contracts | Permalink | Comments (0)

Tuesday, January 11, 2022

Sid DeLong on Contracts and College Athletics

Name, Image, and Likeness Mercenaries? NIL Desperandum in College Athletics
Sidney DeLong

College athletics is a multi-billion-dollar business enriching the nation’s colleges and universities by generating many revenue streams, both directly (in television rights, ticket sales, and sports apparel fees) and indirectly (in tuition-generating student enrollments and alumni donations). The athletes whose efforts create this value are compensated only with academic scholarships giving them a free education that few can take full advantage of. But the NCAA strictly prohibits payment of any other form of compensation to these student athletes, insisting that they are “amateurs.”

Army Navy
Schools are also limited in their ability to compete for these low-paid, high value athletes. A school that steps over the line by secretly paying cash to recruit an athlete is severely sanctioned and the athlete can be stripped of his awards. Several students have suffered from the effects of illegal payments. Albert Means’s high school coach received $200,000 from a booster to steer him to Alabama; when the bribe was revealed he lost his scholarship and Alabama was sanctioned. Both the booster who paid the money and the coach who received it were prosecuted for federal crimes. Reggie Bush was stripped of his Heisman for accepting under the table payments while at U.S.C.., which forfeited a national championship

Bobby Knight

By contrast, college coaches face no such limits. The football coach is frequently the highest paid public employee in the state, often enjoying additional endorsement income from third parties. Ironically, the ability to recruit a top class high-school player is the primary skill of a winning college coach.

The situation has long been recognized as inequitable. As Justice Kavanaugh described it a recent opinion:

Kavanaugh“The bottom line is that the NCAA and its member colleges are suppressing the pay of student athletes who collectively generate billions of dollars in revenues for colleges every year. Those enormous sums of money flow to seemingly everyone except the student athletes. College presidents, athletic directors, coaches, conference commissioners, and NCAA executives take in six- and seven-figure salaries. Colleges build lavish new facilities. But the student athletes who generate the revenues, many of whom are African American and from lower-income backgrounds, end up with little or nothing.“ NCAA v Alston,141 S.Ct. 2141 (2021) (Kavanaugh, concurring).

O'Bannon v NCAA in 1995 was the thin end of the wedge: O'Bannon v. National Collegiate Athletic Association, 802 F. 3d 1049, (9th Cir., 2015). Basketball star Ed Obannon established that the refusal to permit players to share the revenues from the use of their images was a violation of antitrust law.

The decision to which Kavanaugh was concurring held that the NCAA violated the Sherman Act by limiting the educational benefits that member schools could provide student athletes. It recognized college sports as a product market and characterized the NCAA as engaging in “horizontal price fixing in a market where the defendants exercise monopoly control.” Id. 2154. The goal of amateurism did not justify this form of behavior. Although SCOTUS did not rule on student compensation from third parties, Alston’ dicta clearly indicated that schools may not limit athletes from earning compensation from third parties for the use of their name, image, and likeness (NIL).

Soon after Alston, the NCAA implemented new rules to regulate student athletes to accept compensation from third parties for NIL.  The regulations also permit athletes to be represented by agents in negotiating contracts.  Beginning with California in 2019, several states also enacted statutes validating NIL contracts.  However, the new regulations kept in place the NCAA’s long-standing prohibition against “pay-for-play,” the payment of financial compensation to students in return for enrolling in a school or for playing.

Have NIL, Will Travel. In recent years, the NCAA has also relaxed its rules prohibiting the poaching of enrolled students by competing schools. Regulations now permit students to enter a “transfer portal,” transfer to a different school, and play for their new school the next year. The transfer rules have revolutionized the ethos of college sport. Thousands of players entered the portal this year, creating havoc for coaches and teams preparing for next year’s season. Coaches lament the loss of loyalty and commitment even as they hustle to sign replacements now playing at other schools.

Outside the regulatory framework of the NCAA, NIL contracts are regulated by a patchwork of state laws. For example, Alabama’s law requires bars schools from prohibiting NIL contracts and from prohibiting students from using agents. But the statute permits schools to bar students from signing with a sponsor (e.g. Nike) that competes with a sponsor with which the school already has an exclusive contract (e.g. Adidas).

These changes in the law mean that today both the Means and Bush payments could easily be restructured as legal and above-board transactions. The Alabama booster could entice Means to go to Alabama, not by bribing his coach but by offering him (through his agent) a lucrative NIL contract, e.g., doing ads for a car dealership. Bush could similarly earn hundreds of thousands by monetizing his Twitter following. Non-athlete “influencers” are already earning six figure salaries in the social media economy and star athletes have huge social media followings that advertisers would love to tap. Older readers can think of it as working your way through school, like throwing a paper route before class.

Knowledgeable sports commentators describe the new free market in college players as the Wild West, where everyone (coaches, players, athletic directors, and parents) must play a game with no meaningful regulation or standards. Every college athlete is a free agent who can market his skills to the highest bidder every year. And bidders there are. Wealthy alumni in several states have assembled massive amounts of cash with which to fund NIL contracts designed to lure the best players to their schools.

Which raises several questions relevant to the law of contract (as what doesn’t?)

How will the NCAA enforce its continuing prohibition against contracts that provide “pay-for-play”? What is to stop alumni from paying millions of dollars to lure talented players to a particular school by offering them lucrative NIL contracts, not to “play” (“heaven forbid”) but to do advertisement, social media posts, and charitable work? See the link above. If such a contract violates NCAA rules, is it nevertheless fully enforceable or is it void as against public policy or as part of a scheme to defraud the NCAA?

Yale_Varsity

Will students or purchasers of NIL rights be required to make their compensation deals public? Are student privacy rights at stake?

Will purchasers of player endorsements insist that students sign non-compete agreements that bar them from endorsing competing sports products? Will these be enforceable? If they are, will they interfere with athletes’ ability to change schools and endorsers?

Is an offer to an athlete who is a party to a NIL contract seeking to lure him away to another school a tortious interference with the student’s existing contract with another NIL licensee?

How will this new compensation scheme fit within the regulations promulgated under Title IX? Schools are prohibited from engaging in racial or gender discrimination in providing benefits to student athletes. But third party licensees of NIL are not state actors and are unregulated by federal law.

Will this market be free of racism? Will a legal change advertised as a way of ameliorating discrimination and exploitation of Black athletes become a covert means of enriching white athletes who may have more perceived market value to the licensees of NIL?

Should the NCAA promulgate mandatory or prohibited terms for NIL agreements or just let the market take its course? If they did, would its mandate be enforceable or would it violate the anti-trust laws?

And on a more mundane note, how will university professors deal with students who are earning more than they are? What if academic ineligibility costs the student thousands of dollars of NIL revenue?

What will student athletes learn about the sacredness of contract obligation if they enter into the sordid world of university sports? High status college coaches routinely repudiate their contracts at the drop of a hint from a more prestigious school. Some of them have recruited high value high school players by promising wonderful things and have then jumped to another team before the recruit shows up at campus. Students who suffer this may learn their lessons too well.

“Coach, if you don’t promise to start me next year, I’m transferring to Oregon.”

And finally, big money seems inevitably to bring big corruption and advantage-taking of the naïve by the savvy. A later post will list some of the obvious pros and cons of the new system.

January 11, 2022 in Commentary, Current Affairs, In the News, Sports | Permalink | Comments (1)

Tuesday, December 28, 2021

Unilateral Contracts in the News: Found Dog Edition

My students think I hate unilateral contracts.  It's not true.  I hate the statute of frauds and the parol evidence rule.  I'm fine with unilateral contracts.  They are interesting. They are also uncommon.  That is to say, they make up a tiny percentage of the universe of contracts.  That's why they show up in the news.  

As reported in the New York Times, Daniel Sturridge, an English football (soccer) star, made a video after his dog, Lucci, a Pomeranian, disappeared from his Los Angeles home.  In the video, Mr. Sturridge offered a reward, "20 Gs, 30 Gs, whatever" to anybody who helped him to recover the dog.  Soon thereafter, Foster Washington, found the dog.  

Small Dogs
Mr. Sturridge claims that he already paid Mr. Washington a reward.  On Tuesday, a judge found otherwise.  Mr. Sturridge now plays in Australia.  When he was signed as a striker with Liverpool in 2013, the contract was valued at $20 million.  Lucci is valued at $5300.  Mr. Washington has three children and makes $14/hour working as a security guard.  His utterance may have been too vague to be considered a clear offer.  Is it a promise to pay 20 G? 30? Whatever?  Is it an invitation to bargain?  Don't care.  You are rich.  A poor man helped you out, thinking you would honor your pledge to provide a reward.

Pay the man.

December 28, 2021 in Celebrity Contracts, In the News, Recent Cases, Sports | Permalink | Comments (2)

Tuesday, December 7, 2021

More On Compensation Inequity: College Football Edition

Yesterday, I ranted about executive compensation.  Today, I will rant about compensation paid to college football head coaches.  If you think that college football coaches deserve to be, in most states, the highest paid public employees, feel free to tune out.

Recently, a friend recommended that I listen to a story at the start of this Advisory Opinions podcast.  I don't want to ruin the story, I've put it below the fold.   If you want to listen, it just takes up the first two or three minutes of the podcast, which I do not otherwise recommend.

I bring up the story in this context because I recently was conversing with a neighbor who had various criticisms of Dr. Fauci.  Among Dr. Fauci's misdeeds, according to my neighbor, is that he is the highest-paid employee of the federal government.  It's true.  According to Forbes, Dr. Fauci's annual compensation is now over $400,000, and in the decade between 2010 and 2019, he earned $3.6 million.  Okay, so let's use football coaches' salaries to put that in perspective.  

First, according to the New York Times, Louisiana State University (LSU), a public institution, is paying its new coach $9 million/year.  That is well over twice what Dr. Fauci made over ten years.  At the same time, it is paying its former coach $17 million to step aside, so that former coach will be paid nearly five times what Dr. Fauci made over ten years, and he will make it for doing precisely nothing. 

LSU
Second, and this is crucial, Dr. Fauci is the highest paid federal employee because people who understand his role (that is, not Senator Rand Paul), know that he is an incredibly dedicated, effective public servant who has provided unparalleled leadership since the AIDS crisis.  If Dr. Fauci were to leave public service and work in the for-profit bio-tech sector, he could easily command salaries akin to what we pay corporate executives in those fields -- that is, many multiples of what he makes as a public servant.  Before one criticizes Dr. Fauci for making $400,000 a year, consider that the opportunity cost for him to do so by working as public employee is likely $1-2 million/year.

LSU's new coach, on the other hand, is guaranteed a bonus of $500,000 if LSU manages to win half its games, which would be a pretty unimpressive accomplishment for a team that has won three national championships since 2003.  That's right, on top of his salary, which is already twenty-two times higher than Dr. Fauci's, LSU's coach will get a bonus in excess of Dr. Fauci's salary if the team underperforms during his first year as badly as it did this year.

For my money, an Anthony Fauci is worth more than the best football coach in the country.  For my money, investing in great scientists who can guide our country through catastrophic health crises makes more sense than investing in men who can win college football games.  I would also venture to guess that the secondary effects of investing in science, in terms of gains in useful knowledge that can be applied to future medical challenges, greatly outweigh the benefits of having a successful college football team in the state.   As this story from the Guardian makes clear, most college sports programs operate at a loss.  Mad about the high tuition and fees you are paying for your child's education at a public university?  Maybe you should talk to your legislators about the high costs of college sports programs.  And those costs could be cut very easily if every state paid its coaching staff a decent but not excessive wage.  Salaries in line with what full professors in competitive fields like, law, business, medicine, or engineering, seem about right to me.  University presidents are also absurdly overcompensated, given that they take on no downside risk, but that can be a subject for some other post.

And since anybody who disagrees with me probably stopped reading a long time ago, let me add that the United States is the only country in the world that operates this way, and it is wholly irrational.  Universities are primarily about education and research.  Young people who are primarily interested in athletics can pursue that dream through developmental leagues, like the rest of the world has.  Teams in those leagues could be located in or near college towns, and universities that want to create a connection between the teams and their institutions can offer scholarships to the athletes who play on those teams.  Those students may have to attend part-time, as athletics is their day job.  Still, universities could provide support so that those students can succeed either as athletes, or as students, or as both, if they have the requisite aptitudes in both areas.  Given that very few students athletes become professional athletes, and professional athletic careers are very short on average, very little is lost if students choose to try their luck in the lottery of professional sports and then pursue college eduction at the age of 25 or 29.

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December 7, 2021 in Celebrity Contracts, Commentary, Sports, True Contracts | Permalink | Comments (0)

Monday, December 6, 2021

Sid DeLong, Against Settlement

AGAINST SETTLEMENT? CHOPPING THE POT, SPLITTING THE GOLD, AND OTHER GENTLEMEN’S AGREEMENTS
Sidney W. DeLong

Our society is ambivalent about competition and cooperation, and that ambivalence is reflected in the law. In some domains, such as antitrust, competition is a virtue, and cooperation (e.g., price-fixing) is a vice. In other domains, such as labor law, anti-competitive agreements (collective bargaining) are encouraged, and free-market competition (strike-breaking) is a sin. Contractual agreements between competitors may be conciliatory or collusive.

The sports world too reflects ambivalence about cooperation and competition, which is perhaps more relevant now that professional sports is in many ways just another commercial activity. And as usual, sports can reveal much about law.

Olympic_rings_without_rims.svgIt is the finals of the Olympics men’s high jump on August 1, 2021. At the end of the competition, Tamberi of Italy and Barshim of Qatar are tied on height and on misses. An official makes them an offer: Either a jump-off with one winning first (gold) and the other second (silver) or an agreement to share (two golds). Both athletes had to agree to the share option. The exact opposite of a prisoner’s dilemma! Of course, they voted to share. Two gold medals were awarded for the first time in the Olympic high jump. On T.V., their deal induced an explosion of Italian joy, no detectable expostulations from Qatar, and widespread encomiums to sportsmanship.

Was this Olympic moment What Sports is All About? The lion lying down with the lamb in a paradise of alternative dispute resolution? Or was it a betrayal of the Holy Spirit of Competition, a cowardly concession motivated by risk-aversion and satisficing and collectivist thinking?

Contrast the high jump ruling with the disqualification of eight badminton players from the 2012 Olympics after it was discovered that they intentionally lost matches so that they could face weaker opponents in the second round of a multi-round elimination tournament. While the spectacle of a player trying to lose a match makes a mockery of the sport, strategic losing was at least a tactic rationally aimed at winning overall. The disgrace belongs not with the players but with the organizers of the event, for devising a competition in which dumping was a rational strategy.

Bridge_declarerThe problem of dumping is not unique to badminton. International contract bridge competitions have also been afflicted with identical problems because of the design of multi-round, elimination tournaments in which second round matches are determined by first round results. It is easier to conceal an intentional loss in bridge than in badminton. In an earlier time, Bobby Fischer famously accused Soviet chess players of intentionally losing or drawing games with each other in order to give one of them a record that would defeat Fischer in international chess tournaments.

But deliberately losing is not the same as deliberately tying. Unlike the rules of Olympic jumping events, most sports rules do not permit the splitting of the top prize if the players are tied. In the Masters golf tournament as in Highlander: “There can be only One” and playoff holes will decide the winner if two or more players are tied after 72 holes.  

And this accords with the spirit of sport, in which the public rarely applauds a collusive tie. The spectacle of two gasping palookas waltzing through the closing rounds of a bout on the undercard, serenaded by the catcalls and whistles of angry bettors and bloodthirsty ticketholders is not only a trope of 1930’s cinema but a prototype of competitive shame.

But professional athletes have a time-honored if unpublicized practice of blunting the edges of winner-take-all. In his work on the history of distance running, Five Kings of Distance, Peter Lovesey reports on the practice known as a “penny all around” in which professional runners in 19th Century England would agree before their races to split the prize money so that no one went unpaid.

But the timing of the deal is critical. An agreement to share a prize after the competition has stalled is one thing; an ex-ante agreement to make the competition a sham is quite another.

James_Garner_Bret_Maverick_Jack_Kelly_Bart_MaverickWhich brings us to tournament poker and the practice of chopping the pot. Consider the following (very common) situation. It is the final table at the World Series of Poker. Several thousand players have bet $10,000 each to play a multi-day, freeze-out tournament of Hold’em Poker. The winner, the player who ends up with all the chips, wins 10 million dollars (aptly known in the trade as “life-changing money.”) Second place gets 6 million (Also L.C.M), Third gets $4 million etc.

After several days of competition, only four players are left. They all meet in a hotel room the evening before the final day. They have chip stacks that give each of them theoretical odds of winning that are roughly proportional to the sizes of their stacks. (Vegas is booking bets on each of them.) But tomorrow could bring any outcome. Luck plays a big role in Hold’em: In an “all-in” hand, any two cards can win all the chips.[1] The four competitors, risk-averse as are we all in the presence of such large amounts of money, have a friendly, familiar discussion: they agree that regardless of the final day’s outcome (regardless of who wins all the chips, who is the last remaining opponent, who finishes third, etc.) they will split the chips according to an agreed formula that is more equitable that that contained in the contest rules. Pushing “all-in” is less risky than it seems when the pusher has financial security.

Suppose you are a poker fan: would learning of this deal distress you? Make you cynical? Make you demand your money back if you paid to watch the event?

Rich_Uncle_1946_CoverIn response to early antitrust challenges to contracts between competitors, the tycoons running the colluding businesses often referred to “gentlemen’s agreements”, by which they presumably meant that properly brought-up aristocrats would (true to the ethic of their class) agree amongst themselves not to compete in the seamy struggle over price and instead to divide the spoils of their commerce in a reasonable way, incidentally extracting more money from the hoi polloi who purchased their goods. Richards v Nielsen Freight Lines, 810 F.2d 898 (9th Cir. 1987) suggests that unenforceable gentlemen’s agreements are still in use. Thanks to the antitrust law’s enshrinement of the ideal of competition, we should be above all that now, or at least we should express our illegal contracts, combinations, and conspiracies in a gender-neutral way.

But competition can be a hard ideal. In the economic blood sport known as civil litigation, the temptation to settle, to avoid the risk of loss and split the spoils, is powerful. In earlier days, litigation was a blood sport. When trial by combat was used to determine title to land, the champion who, instead of fighting to the death, resigned from the fight by shouting the word “Craven!” was despised and outlawed. 3 Blackstone Commentaries on the Laws of England (1765) 340.

Today, in less sanguinary times, attorneys usually advise their clients take half a loaf or a bird in the hand rather than to roll the dice. But is it always the right thing to do? In Against Settlement, Owen W. Fiss rejected settlements of public interest class action litigation. He argued that settlement of civil rights class actions deprived the public of a definitive adjudication of important legal issues. The informational value of victory and defeat are public goods extinguished by private settlement.

Of course, Against Settlement appeared at a time when its author could expect the judicial resolution to favor civil rights. Today, given the radical re-shaping of the federal courts, authoritative adjudications about civil rights are likely to be the last thing their proponents would seek.

Even in civil litigation that has no public interest dimension, a settlement agreement may not always be the ethical thing to do. At the mundane level of the everyday lawsuit, the prospect of an early settlement of a civil claim can expose structural conflicts of interest inherent in all attorney-client fee agreements. Because of the different kinds of risk that attorneys bear under different agreements, for example, it may be that hourly-rate attorneys have a financial interest in prolonging the litigation (when it should settle) while contingency fee attorneys often have a financial interest in a quick settlement (when they should hold out for more). Neither may be incentivized to obtain the best client outcome.

Nevertheless, we seem to have arrived at a consensus that most civil litigation should settle promptly. Today, Fiss’s concern, the informational value of adjudication lost by settlement, has become trivial because the public information goods resulting from litigation have been largely erased by arbitration, a process does not yield opinions from which the public can discern the shape of contemporary law or from which it can obtain precedent for future guidance.

[1] It is a cliché’ in Hold’em that “Any two cards can win.” The theoretically-weakest Hold-em hand, 7-2 off-suit will beat the theoretically-strongest Hold’em hand, A-A about 15% of the time if both players stay to the river. For example, 7-2 will beat Aces if the flop is 777Q and the next two cards are not aces. There are many others. Don’t bet your life on the aces, especially if your opponent has a pointed tail.

December 6, 2021 in Commentary, Sports | Permalink | Comments (2)

Sunday, October 17, 2021

NBA Player Agent Cannot Sue as Third-Party Beneficiary

Mitchell Robinson
Image by Tdorante10 - CC BY-SA 4.0 

District Judge Jed Rakoff of the Southern District of New York recently decided a juicy third-party beneficiary claim.  The link is not publicly available yet, but look for it coming soon.  Plaintiff David Lee is a player agent certified by the National Basketball Players Association (NBPA), the NBA players’ union.  Lee had arranged to represent Mitchell Robinson (right), at the time a potential NBA draftee. Defendant Raymond Brothers is also a NBPA-certified agent.

All NBPA-certified agents must sign a "certification agreement," which states the agents agree to all NBPA’s regulations, including a rule against agents giving monetary incentives to induce a player to hire them.

Lee claimed that Brothers breached this NBPA regulation by enticing Robinson—with the inducement of a Chevrolet Silverado pickup truck—to end his contract with Lee and sign a new player agent contract with Brothers instead. Lee alleged that Brothers’ conduct put him in breach of his contract with the NBPA, and Lee sought damages as a third-party beneficiary. Robinson had signed a multi-year contract with the New York Knicks.  Lee claimed entitlement to the commission he would have received had the contract with Robinson not ended three months before the draft season.  I will resist the temptation to make jokes about the Knicks here.  I'm a Bulls fan.  Glass houses, etc.

Lee’s third-party beneficiary claim relied on language from Section 3.B.2 of the NBPA agreement, which he characterized as an anti-poaching provision intended to protect agents from unscrupulous behavior such as that alleged in the complaint.  Indeed, who is going to enforce the prohibition on monetary inducements if not jilted agents?

On October 6th, in Lee v. Raymond Brothers, Judge Rakoff rejected Lee's third-party beneficiary argument and dismissed counts I and II of his complaint which were based on that alleged status. Quoting its prior ruling in In re George Washington Bridge Bus Station Dev. Venture LLC, Judge Rakoff reiterated that under New York law, a person is a third-party beneficiary of a contract where (1) there is a valid and binding contract between the contracting parties, (2) that contract "was intended for the third party's benefit," and (3) the benefit to that third party "is sufficiently immediate to indicate the assumption by the contracting party of a duty to compensate the third party if the benefit is lost."

In this instance, as in Piccoli A/S v. Calvin Klein Jeanswear Co., a plaintiff cannot recover as a third-party beneficiary where the contract showed that the parties’ intent was to limit the power of enforcement to themselves. Section 3.B.2 states an intent to protect players from agent abuse and contains no statement of intent to benefit agents. The players were the NBPA’s intended beneficiaries, and the NBPA, not agents, was the intended enforcer of the regulations.

Lee’s additional claims, for tortious interference with Lee’s contract and business relationship with Robinson, were dismissed because one cannot tortiously interfere with a contract terminable at will.  The contract between Lee and Robinson allowed either party to terminate with 15 days’ notice. Although Robinson did not provide the requisite notice, even if he had, the draft season was still months away and Lee’s prospects of a commission still would have been long gone had he given notice.  As a result, Lee failed to allege any harm as a result of Brothers’ alleged wrongful offer to Robinson.

Finding that Lee was not an intended third-party beneficiary of NBPA contracts with other agents, the Court granted Brothers' motion and dismissed Lee's amended complaint with prejudice.

H/T to Alyssa Cross, the ContractsProf Blog's research assistant!

October 17, 2021 in Recent Cases, Sports | Permalink | Comments (0)