Friday, April 15, 2022
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
Thursday, March 31, 2022
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.
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.
Monday, March 28, 2022
Express Conditions, Good Faith and Touchdowns: Incentive Contracts in the NFL
Sidney W. DeLong
Express 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.
Suppose 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.
What 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.“
Monday, March 14, 2022
Tom Brady's career will always be defined for some by the original deflategate, involving allegations that Mr. 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.
On 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
Wednesday, March 9, 2022
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.
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.
Tuesday, January 11, 2022
Name, Image, and Likeness Mercenaries? NIL Desperandum in College Athletics
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.”
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
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:
“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?
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.
Tuesday, December 28, 2021
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.
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.
Tuesday, December 7, 2021
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.
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.
Monday, December 6, 2021
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.
It 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.
The 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.
Which 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. 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?
In 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.
 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.
Sunday, October 17, 2021
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!
Monday, September 27, 2021
Last month, I posted about Mahanoy Area School District v. B.L., a case in which the Supreme Court held 8-1 that a school could not punish a cheerleader for a profane Snap expressing frustration with, among other things, school, softball, and cheerleading. The Court held that, while schools can regulate some off-campus speech, it could not punish B.L. for exercising her First-Amendment rights in ways that did not threaten significant disruption of school activities.
The case is of interest to this blog (at least arguably), because B.L. had signed a form as a condition of her participation in team activities, in which she promised not to say negative things on the Internet about her school or cheerleading. None of the courts that heard the case gave any weight to B.L.'s promise, and while I don't think the promise should be given dispositive weight, I, following Jamal Greene's How Rights Went Wrong, think courts should weigh all the interests implicated in the case before them and that the school's interest in holding B.L. to her promise is one such interest.
Over the weekend, a similar situation arose. K'Vaughn Pope, a linebacker for the Ohio State Buckeyes, apparently was upset about his lack of playing time. According to ESPN, after conversation with several members of the coaching staff, Mr. Pope was escorted from the field. He then took to Twitter and, while the game was still in progress, in a since-removed post, wrote "f--- Ohio State." He also wrote "good lucc to my teammates" and that one is still up.
Reporters inquired of Ohio State coach Ryan Day whether Mr. Pope was still on the team. Coach Day wisely equivocated, but the question assumes that disciplining a student at a state university for comments critical of that university is permissible under the First Amendment. Or perhaps the reporters thought it appropriate to discipline a student-athlete for misspelling "luck" in a comment viewable by the public.
As reported here, Coach Day then spoke a bit about commitments, which may or may not be contractual, and about other things:
[W]hen you make a commitment to a team at the beginning of the year, when you make a commitment to the Ohio State Buckeyes, that’s what you do. One of the hard things is that you have to play certain guys, and you have to make some decisions on who’s playing in those games and you just really count on guys to be great teammates if they’re not getting on the field … What it really is, is that guys want to play and you can’t play everyone. And then frustration kicks in.
I'm guessing that few will think that the First Amendment prohibits Coach Day from disciplining Mr. Pope for his conduct and speech. If so, why can he be disciplined when B.L. could not?
Coach Day's remarks are sensible. I'm not a fan of college sports, but if they are to exist, if public high schools are to field sports teams, it seems obvious to me that coaches ought to be empowered to discipline athletes for conduct that they deem detrimental to their teams, subject to internal due process protections permitting students with means of appeal. The notion that the First Amendment would have anything to say about students' non-political speech critical of their coaches' decisions strikes me as not just wrong but ludicrous. And the notion that federal judges are better situated than school administrators to determine where to draw the line between permissible and impermissible disciplinary measures strikes me as more evidence of the bizarre sacralization of a few privileged "rights." We infantilize ourselves when we act as though the Constitution has to sort out all our problems.
Wednesday, August 25, 2021
The Other Shadow Docket* Revisited: Hidden Contract Issues in Mahanoy Area School District v. B.L. (the Cheerleader Case)
A few months ago, I posted about Jamal Greene's How Rights Went Wrong and a case decided during the last SCOTUS term, Fulton v. City of Philadelphia. As I pointed out in the last post, one of the key points that Professor Greene (left) makes is that our jurisprudence elevates certain rights as "fundamental," and courts protect those rights zealously through heightened scrutiny. Other rights, since 1937 or thereabouts, have been left nearly entirely unprotected. Greene illustrates the phenomenon and the damage it has done to our social fabric with myriad examples. Contracts rights, protected in the Lochner Era, are largely disregarded today. Neither Professor Greene nor I advocate a return to Lochner. Indeed, Professor Greene regards Justice Harlan's Lochner dissent with wistful admiration, as a path not taken. He has persuaded me that courts ought to engage in less rights fundamentalism and more rights negotiation and mediation.
In my last post, I indicated that if the Court had been more interested in contracts rights and less committed to a winner-take-all strategy in which Free Exercise Rights trump all, Fulton could have come out differently, and I think better. Today, I want to make the argument that the Court should have at least considered contracts law before siding with the foul-mouthed cheerleader in Mahanoy.
A quick review of the facts: B.L. was on the junior varsity team at Mahanoy in her freshman year. She tried out for varsity but did not make it. Upset about that and other things, she expressed her outrage, off campus and over the weekend, on Snapchat. The Snap that got her in trouble was a picture of her and a friend giving the camera the finger. The text, which is edited here, because this is a family-friendly blog (this blog is #f-faf), "f school f softball f cheer f everything." She shared the Snap with 250 friends, many of whom attended her school, and some of whom were cheerleaders.
Another cheerleader, who happened to be the daughter of one of the coaches, shared the Snap with her mother. Many cheerleaders were upset by the Snap, and not about its lack of punctuation. They complained to the coaches saying, in effect, "You're not going to let her get away with this, are you?" The coaches did not let B.L. get a way with it. They suspended her from the cheer team for one year. B.L.'s parents protested their decision, but the coaches' superiors approved their decision at every level -- athletic director, principal, superintendent, school board.
But the ACLU took up B.L.'s case and got an order from the district court preliminarily enjoining the School District from suspending B.L. or indeed punishing her in any way for exercising her constitutional right of free speech. That injunction was upheld and made permanent in the District Court, the Third Circuit Court of Appeals, and the Supreme Court, 8-1, with Justice Thomas alone in dissent. Justice Thomas, you are not alone!
You wouldn't know it to read the three opinions in Mahanoy, but before B.L. tried out for the varsity team, she and her mother read and agreed to the team rules by signing the appropriate forms. Those rules provide, among other things: “There will be no toleration of any negative information regarding cheerleading, cheerleaders, or coaches placed on the internet.” The District Court, perhaps incoherently, held that the rules were neither vague nor overbroad, but they were unconstitutional as applied to B.L.'s Snap. The Third Circuit went farther, holding that schools cannot discipline students for off-campus speech. The Supreme Court, per Justice Breyer, rejected the Third Circuit's categorical ruling but found that B.L. had been engaged in constitutionally protected speech and had been unconstitutionally disciplined for criticizing her coaches.
Justice Breyer, I defend your right to retire when you are good and ready, but on this issue we must part company. She was not disciplined for criticizing her coaches. She wasn't criticizing anyone. She did not believe the words she wrote. She cried when she was suspended, and when asked in deposition why she cried, she said it was because "I really enjoy cheerleading." The Tinkers never apologized for wearing the armbands that led to their celebrated case. They never tearfully admitted that they really enjoyed the Vietnam War. B.L. was punished because she promised to behave a certain way in order to qualify to be a cheerleader. She broke that promise, and on this blog, there are consequences when people break their promises.
B.L. was disciplined for violating team rules against posting negative comments on the Internet about cheerleading. The School District felt confident that B.L.'s speech was unprotected because the Court had ruled in a prior case (Fraser) that profane speech is unprotected in the school context. True, Fraser was on school property at the time he delivered his speech, but technically, Frederick of Morse v. Frederick was off campus when he unfurled his immortal BONG HiTS 4 JESUS banner. And we are all eternally grateful to him. But the Supreme Court upheld his absurd 10-day suspension (Fraser got three, reduced to two for some reason), because, as Mr. Mackey would say, "Drugs are bad, mmkay?"
Look. As co-blogger Nancy Kim might point out, one might argue that, given the context, B.L. and her mother did not give meaningful consent when they signed the school's forms. Maybe there are some rights you cannot contract away, but there are lots of contexts in which people's employment limits their right to speak to the constitutional max. If we don't want public school children to surrender their constitutional rights at the schoolhouse gate, perhaps we shouldn't be searching their lockers or subjecting them to random drug tests so that they can play the saxophone in band. In any case, none of these arguments against enforcing the school's agreement with B.L. were considered in the Supreme Court because First Amendment rights matter to that Court, and in contexts like these, contracts rights don't matter at all. But in a world in which we balanced and mediated rights. cheerleaders could be disciplined in reasonable ways for violating team rules, and courts wouldn't need to get involved absent due process violations which clearly were not presented in B.L.'s case.
Jamal Greene briefly discusses this case and Fulton in an episode of the wonderful Strict Scrutiny podcast devoted to his book. He notes that Justice Breyer has long been committed to a more balanced approach to rights than most of his colleagues on the Court, and he seems to think that Breyer struck the right balance here. I share Professor Greene's general assessment of Justice Breyer's approach to rights, but I don't see much balancing in this case. However, Professor Greene concedes that a balancing approach to rights does not mean that we will always agree with the outcome. Still, Professor Greene divides the free speech in school cases into those involving "knuckleheads" and cases involving serious protest speech. He thinks B.L. was protesting her school's policies, and I can see how he would so conclude based on the Court's rendition of the case. But it just ain't so. She has far more in common with the "knuckleheads" than she does with the Tinkers. I hope that Professor Greene and I can agree that if students (or their parents) were not encouraged to think of themselves as endowed with unassailable fundamental rights, most if not all of these cases (Tinker needed to be heard) would disappear. B.L.'s parents would press and lobby. Eventually, the school would have reduced the suspension from one year to three games, and everyone would have moved on. Or the school would have insisted on its suspension, and everyone would have moved on.
*The Shadow Docket is a phrase coined by Will Baude and explored at great length by Steve Vladeck. They are two of the smartest people writing about constitutional law and related topics today, and I recommend all of their writings and doings. Both of them have excellent podcasts, and Will Baude explains the shadow docket on the first episode of Divided Argument, which he co-hosts with Dan Epps.
Tuesday, July 6, 2021
On the right in the photo at left is Jordan Kimball, who was one of my contracts students when she was a wee 1L. She is pictured with her Mixed Martial Arts (MMA) coach Julia Avila. I did my best to teach Jordan contracts law, and she is now doing her best to educate me about the MMA world.
Julia Avila competes under the auspices of the Ultimate Fight Championship (UFC), the largest MMA organization, headed up by Dana White. According to Jordan, its junior-level fighters like Julia get paid very little for their matches. MMA Guru (in an annoyingly repetitious post), reports that while about 1/3 of MMA fighters earned six-figure salaries in 2018, a little over 1/3 earned less than $45,000. The basic structure was (as of 2018) that fighters get paid about $3500 in base pay for their first three fights, which goes up to $5000 per fight thereafter. Fighters also get a "win-bonus" that equals the base pay, so they are highly motivated. Better-known fighters have the ability to draw up their own contracts, and obviously the money gets substantial at the top of the heap. But the UFC is now hugely popular, and the vast majority of its fighters get paid a small fraction of top athletes in other sports.
UPDATE: the good people @TKO Combat Sports & Entertainment sent me a helpful correction. The figures above are the sponsorship fees (uniform pay) per fight. According to TKO, the minimum base pay per fight is $10,000, plus another $10,000 if you win. So, a successful athlete can earn $23,500-$25,000 per match to start, which sounds like a good pay day, but for obvious reasons, one can't fight too frequently. A little Internet research suggests that, barring injury, most athletes can only fight 2-3 times a year.
The base pay is somewhat higher than it was before the UFC entered into exclusive sponsorship agreements. Before such agreements, fighters could earn money by wearing the gear of their individual sponsors. Now, under the UFC contract, fighters are required to wear only the gear of the UFC sponsors in official UFC fights. At least at the start, some athletes objected to the new sponsor system.
However, according to the The Manuel, apparently the big money comes from "fight of the night" and "performance of the night" bonuses within Dana White's sole discretion. In 2020, such bonuses accounted for $4.6 million out of a total of $13 million in bonuses that UFC paid out. As a result, as soon as fighters finish their matches, they hit social media to encourage their followers to deluge Dana White with messages advocating for their favorite fighter. In such a system, athletes who criticize the pay structure are unlikely to earn bonuses from the man they are criticizing. In addition, and not surprisingly, such prizes rarely go to women.
The UFC is the big dance of MMA. There are feeder leagues in which MMA athletes can complete, but once they sign with the UFC, they cannot fight with any other organization. The other organizations do not restrict private sponsorships, so for fighters coming up in the sport, jumping to the UFC entails risk. The payout in early fights is going to be smaller, and you sacrifice private sponsorships. While the athletes at the top of the sport can make millions of dollars, much like the top athletes in more traditional sports, young MMA athletes do not have the protections of a union, as exist in more traditional sports. A rookie UFC fighter has no guaranteed minimum salary as would a rookie in MLB, the NFL, the NBA, etc. And clearly the risk of injury is at least as great in the UFC as it is in the more traditional sports.
Thus the junior-level fighters, even if they make it to the UFC, have very little bargaining power and cannot publicly criticize Dana White, who literally controls the pursestrings. All they can do is beg him to throw some of his largesse their way. But they are not alone. There are athletes at all levels within the UFC who complain about one-sided UFC contracts.
Thanks, Jordan, for all of the research on this post! I regret that your work for the ContractsProf Blog will be even less remunerative than the UFC, but we place no limitations on your ability to seek sponsorships.
Wednesday, June 30, 2021
Lighter posting for the next fortnight as I am engrossed in the 2021 Tour de France.
But, I am so impressed with the range of New York Contract Law Decisions, who has directed me to a decision of the Antwerp labor court, I had to make time to report on the Wout van Aert case.
Who is Wout van Aert? Well, he's a talented cyclist
He is currently third in the general classification of the Tour de France after finishing 20th last year, and although he did not finish the 2019 edition, he won two stages (one was a team time trial, but still) before crashing into some fencing in a time trial. Before becoming a road cyclist, he was a dominant cyclo-cross rider. I'm not sure what that is exactly, but it seems to involve getting dirty and sometimes having to carry your bike up stairs and also ride it down stairs and just about anything else.
As recounted here, in 2018, van Aert rode with team Verandas Willems-Crelan (Verandas), but he was dissatisfied on that team and was due to transfer to Jumbo-Visma in 2020. Jumbo was willing to take van Aert a year early, and so he jumped ship and began riding with Jumbo in March 2019. Verandas sued, seeking $1.3 million in damages relating to lost sponsorships once the team lost its star rider. van Aert alleges that the team had defaulted on the agreement. It's not clear how. He won in the first round in 2019. Somehow, the case wound up back in court, and the Belgian court has now sided with Verandas, awarding just over $800,000.
An appeal is expected. Stay tuned.
Tuesday, June 29, 2021
As reported in Isaac Chotiner's New Yorker article, Lebron James’s Agent Is Transforming the Business of Basketball, Rich Paul has been changing the way athletes and agents negotiate with teams. Paul, the agent for LeBron James and other N.B.A all-stars, started his agency, Klutch, nine years ago.
Paul and James became friends in 2002 when James -- only seventeen—was expected to be N.B.A.’s No.1 draft pick. When the two first met, Paul was twenty-one and selling vintage jerseys out of his trunk. James took an interest in one of the jerseys, the two struck up a friendship and stayed in touch. They bonded over being Black kids who grew up in the inner city and the difficulties that come with that. That background has given Paul a unique advantage when advising young players with similar experiences growing up. Paul's mother struggled with drug addiction. His father died of cancer while he was in college. He would have finished, he said, because it was important to his father. But after his father died, Paul's business ambitions took over.
Their contractual relationship began the summer of 2003, when James signed with the Cleveland Cavaliers. James began paying Paul a salary of $48,000. According to Chotiner, James regarded the payments as “an investment in what the relationship could become.” A few years later, Paul began working for James then-agent Leon Rose, at Creative Artists Agency (CAA).
Paul left CAA and formed Klutch Sports Group in 2010 after the controversial announcement made by James on “The Decision” —an ESPN live broadcast—in which he declared he was leaving the Cavaliers. James declared “I’m going to take my talents to South Beach and join the Miami Heat.” The press took a very dim view of "The Decision," but James has no regrets (or will admit to none), and his move from Cleveland to Miami became the model for later moves by star players who want to dictate where they play and with whom they play.
Paul began to develop powerful influence in the N.B.A with James as his star client. They have become associated with “player empowerment.” Player empowerment is the influence that athletes wield as they change teams and build new fan bases. The argument in favor of player empowerment is that too much control has been in the hands of teams who can trade a player on a whim. Players should have some say in where they work and live. This philosophy allows the league’s best athletes to have the most leverage because they bring in the fans, jersey sales, and general revenue. Paul believes players should have more power over who and where they sign with.
The dynamic between the league, athletes, and player empowerment, is intertwined with race. Historically, basketball—a majority Black sport—has always been run by white owners. As players have become increasingly more outspoken about politics, the league has had to follow suit, like embracing the Black Lives Matter movement.
The dynamic in NBA player contracts has certainly changed, at least at the top of the NBA food chain. The game used to be that owners would lock in young players to multi-year contracts. If the players underperformed or became injury-prone, the owners retained the ability to trade them. If the players exceeded expectations, they were systematically underpaid until their contract came up for re-negotiation. Sorry Scottie Pippen. Now, the star players can reverse the option. With Paul's help, they star prospects can now negotiate generous contracts but retain some contractual flexibility to move to different teams, and the league and the owners seem relatively powerless to prevent them from doing so.
Critics of player empowerment say it has put too much power in the hands of players. Bomani Jones, a sports journalist for ESPN state that player empowerment is a catchall for the fact that the league has done a terrible job empowering team, and that the N.B.A. has a problem with real estate; they have teams in places where young Black men do not want to live.
Although Paul is proud and willing to fight for his clients, he struggles with the impression that he is constantly battling with teams. He said that perception is all wrong. “What I am focused on was how to educate the athletes. It’s one thing to be a black man in America it’s a totally different thing to be a black athlete.”
For Black athletes, Paul explained, the sudden wealth of an NBA contract comes with a ‘black tax.’ Black tax is the difference in experience black athletes face compared to that of white athletes. For some Black athletes, their number of dependents is higher, their education may be lower, their financial literacy lower, and their family infrastructure is lesser. Paul and others at Klutch say they see their job not only as making money for players, but also teaching them how to spend it. Furthermore, family members of young athletes historically have only seen White men in a position of agent or head coach, so that is who they tend to seek out and listen to. It is difficult for Paul to represent White athletes because they do not seek him out and they do not expect or trust Black agents.
Klutch became known for driving hard bargains, especially for James. Paul's reputation was cemented when James joined the Lakers in 2018. The following year, Paul pressured New Orleans Pelicans to trade Anthony Davis to the Lakers—which cemented the roster that enabled the Lakers to win the NBA championship in 2020. Paul's strategy has aggressive: he let it be known David was demanding a trade and that the he really wanted to be traded to the Lakers. Davis's value to the Pelicans dipped precipitously. He didn't want to play for the team and he didn't want to risk injury. Paul effectively called the bluff of the owners. They disapproved of the tactics, but Paul forced them to recognize the market power their star players wield. The N.B.A. fined Davis fifty thousand dollars for the trade demand. Why even bother?
Paul’s success has led to debate about what it takes to be a good agent. Paul cannot match his rivals in formal education. Most other agents are lawyers or have lawyers. But Paul understands the business, and he understands the psychology of the players, the agents, and the "Euro men in their fifties" who still make the decisions for teams. Now for Paul’s star clients, the job is about finding new ways to wield power, including using the media. In 2018 Paul negotiated an unconventional deal for NBA prospect Darius Bazley. Bazley reneged on a commitment to play for Syracuse University but was later paid $1 million for an internship at new balance. The next year the NCAA announced a new rule: agents could not represent college athletes unless they themselves had a college degree. Then James took to Twitter and dubbed the new regulation #TheRichPaulRule. Within a week the NCAA rescinded the rule.
Chotiner's article provides a behind-the-scenes look at how Paul recruits clients. He recounts a Zoom call between Paul and an NBA-prospect's mother. Paul encourages the young athlete to talk about his teammates and his team mentality, about his enthusiasm for playing defense and being a play-maker rather than just a scorer or showboater. The mother quickly grasps that the strategy is to spout cliches to counteract the prejudices about young Black athletes her son is likely to encounter. But to her, it sounds like forcing her son to repress his personality and bow before these new White masters. Paul is playing the long game. For him, it is not about bowing down to anyone. it's about achieving a balance that enables young stars to rise.
Once players rise to stardom, they have more freedom to speak for themselves. Klutch has athletes speak out on political or social issues. Michael Jordan would not even say whether he preferred classic Coca-Cola or new Coke. James has spoken out on the killing of George Floyd, police brutality, and Georgia’s restrictive voting laws. Paul said that however the players decide to involve themselves is up to them, and that they should not be tone-deaf to things happening around them.
The new model works well for the star players, but does it improve the sport? From my perspective in Oklahoma City, I still hear complaints about Kevin Durant's abandonment of the Thunder. I hear this from White fans, and I suspect that, while the NBA's popularity bridges racial gaps in the U.S., the people buying (unbelievably expensive) seats in stadiums and (unbelievably expensive NBA gear) are mostly White.
I've only been here a year, and with COVID, people aren't thinking much about attending sporting events (other than college football, which never stopped here), but nobody has ever brought up the Thunder in conversation with me since I arrived. I follow basketball a little, but I can't name a single Thunder player. I follow the Bulls, but I know at the start of every season that the Bulls do not have three all-stars, so they will not be in serious competition for the championship. Seems like a doomed model for small-market cities like New Orleans, Oklahoma City, and the New York Knicks.
Still, it seems preferable to baseball contracts where, for some reason, owners lock themselves in to multi-year contracts valued in the hundreds of millions of dollars with players who are nearing their peaks and will be paid tens of millions late in their careers. Such older players often are of limited value to the club, often relegated to the roll of designated hitter. I wonder whether, for that reason, the average age on American League teams is a bit higher than on National League teams. On the one hand, perhaps it is nice that these players get to enjoy the riches denied them in their primes. On the other hand, it must frustrate elite athletes to compete and under-perform. It also hurts their teams, because salary caps prevent baseball teams with older, expensive players from trading for top players still in their prime.
Thanks to ContractsProf Blog Intern, Alyssa Cross, for her research assistance!
Monday, June 28, 2021
Soon after the January 6th assault on the Capitol Building in Washington, DC, New York City attempted to terminate contracts with the Trump Organization to operate two ice skating rinks and a carousel in Central Park (left). It seemed like that would result in an early end to the ice skating season during a pandemic. New York parents were desperate for ways to divert their children and fend off boredom. They delighted in an opportunity to ponder whom they found more despicable: their former President or their current mayor. The City blinked on that one. Those contracts with the Trump Organization were due to lapse in April in any case, so the City chose to let them run their course and not renew them.
Now, according to the New York Times, the Trump Organization is suing New York City for allegedly wrongfully terminating a 20-year contract the organization had with the city. The lawsuit centers around the city-owned course in the Ferry Point section of the Bronx, called Trump Golf Links at Ferry Point. The Trump Organization was in the sixth year of operating the course since its opening in 2015.
The Trump Organization alleges that “Mayor de Blasio had a pre-existing, politically-based predisposition to terminate Trump-related contracts, and the city used the events of January 6, 2021 as a pretext to do so.” A spokesman for the mayor, Bill Neidhardt, responded, saying: “Donald Trump directly incited a deadly insurrection at the U.S. Capitol. You do that, and you lose the privilege of doing business with the City of New York.” Oooh. That's a new wrinkle on a morals clause!
Actually, the mayor's spokesman should leave the lawyering to the lawyers. They claim that the Trump Organization defaulted on its contracts when it failed to attract a major tournament to the course. It is unlikely to do so in the future. The woke PGA has recently announced it would no longer be allowing a Trump-owned course in New Jersey host one of its major Tournaments.
The Trump organization claims it had no obligation to attract a major tournament. Rather, its only obligations was to maintain “a first class tournament quality daily fee golf course.” It's legal papers include statements from professional golfers, including Dustin Johnson and Bryson DeChambeau, describing the course as “tournament quality” and “first class.” Not bad, but if they really wanted to impress, they should have characterized the course as "astonishingly excellent".
Thanks to ContractsProf Blog Intern, Sydney Scott, for her research assistance!
Tuesday, June 15, 2021
Yesterday, we posted about a boxing match. Today, we move on to mixed martial arts.
Have you ever wanted a behind-the-scenes look at how YouTuber "influencers" make money? I certainly have. I asked my daughter what seemed to me the obvious question: Why would anybody take seriously an endorsement from an "influencer" when you know that influencers get paid to endorse products and that their endorsement is thus effectively meaningless? Her shrug, accompanied by an eye-roll spoke volumes.
Fortunately, Jed Rakoff, of the Southern District of New York, just decided an influencer case, Brueckner v. You Can Beam, LLC, that reveals quite a few details about how these deals work (H/T New York Contract Decisions Twitter Feed), although I admit I still don't really understand the premise behind these deals.
Josh Brueckner (Brueckner), for those who don't know, is a professional mixed martial arts athlete and influencer. On February 1, 2020, he entered into an agreement with You Can Beam LLC (Beam), a nutritional supplements company. The agreement provided that Brueckner would post (i) at least six promotional Instagram posts a year about Beam's nutritional supplements, (ii) at least one Instagram story per week mentioning a Beam product, and (iii) at least one YouTube video a month on Brueckner's YouTube channel, including Brueckner's coupon code and a link to the You Can Beam website in any YouTube videos. Even if the video was not about Beam’s products, Brueckner was required to link his coupon code in the description box. In exchange, he was to be paid a monthly fixed rate of $15,000 and a commission of $4 per unit sold using Brueckner's coupon code or link. Wow, so that's how that works. Thanks, Judge Rakoff!
The initial term of the agreement was one year, but then came COVID. On March 17, Beam told Brueckner to “hold off” on the posting due to COVID-19 restrictions, because "everything with this virus has put us on hold unfortunately.” Beam still paid Brueckner his $15,000 for March, but they also sent him a termination notice dated April 8, 2020. Contending that the termination was not in accordance with the contract terms, Brueckner filed suit on April 28th. I'll say this for him, he's quick. Beam counterpunched, alleging that Brueckner had been in breach of the agreement since February 28th, when Beam had sent him notice that he had failed to include a link and discount code in his YouTube videos as required under the parties' agreement. Beam's counterpunch failed to land.
Brueckner moved for summary judgment, and he won. Beam's sent its February 28 notice to the wrong address. As a result, Brueckner was never properly put on notice that he was in breach. Moreover, Brueckner clearly cured the alleged breach within the 10-day period provided for in the agreement. As a result, he was not in breach when Beam instructed him to "hold off" on his influencing activities, and it was thus Beam, not Brueckner that was in breach. The Court granted Brueckner’s motion for summary judgment, finding Beam liable on Brueckner's breach of contract claim and dismissing Beam's breach of contract counterclaim.
Brueckner sought an additional $75,000 for the five months on the contract. It is not clear if he could also seek to recover the $4 per sale he would have been entitled to but for Beam's breach. As a side note, if you can offer reductions on each sale via coupon and pay an influencer $4 per sale, doesn't it seem like your product is overpriced? Or is it common that most of what we pay for goes to marketing and not product. Do I pay more for Progressive Insurance than Geico because Progressive has to pay Flo, while Geico stiffs its gecko?
H/T to ContractsProf Blog Intern Sydney Scott (left) for research on this post.
Monday, June 14, 2021
If you watched boxing legend Floyd Mayweather's exhibition bout against YouTuber Logan Paul, you should not have been disappointed. That's because your expectations should have been very low. I know very little about boxing, but I learned in researching this piece that Mayweather is a boxer, not a puncher, so he was unlikely to injure Logan Paul dramatically. Logan Paul, on the other hand, although nearly twenty years younger and far bigger, was unlikely to land any clean blows on Mayweather. And that is what ensued. Mayweather landed nearly twice as many punches while throwing about half as many. Paul demonstrated that he could take a punch and that he, quite literally, has thick skin, which likely serves him well in his line of work.
But there is one area in which the exhibition match delivered quite the wallop: contractual controversy. This fight, after all, was about making money. According to legalreader.com, Mayweather sued the fight's promoter, PAC Entertainment Worldwide, when he did not receive an initial payment of $30 million, a portion of his guaranteed $100 million take, which was due in March. The fight was supposed to take place in Dubai, but PAC could not pull that off. Mayweather claimed that PAC's breach meant that he no longer had to perform and he was owed $122.6 million. For that amount of money, I too would be willing to not fight Logan Paul. The fight occurred in Miami last week, organized by a different promoter.
Whether and how much Mayweather can recover may turn on his take from the June 6th event. Presumably Mayweather was only going to fight Logan Paul once. Whatever he made will be subtracted from his provable damages as mitigation. We'll see if we hear more about this in the coming months.
H/T to ContractsProf Blog Intern Alyssa Cross (left) for research on this post.
Thursday, April 8, 2021
According to ESPN.com, the University of Kansas (KU) entered into a "lifetime contract" with Bill Self (pictured), the school's head basketball coach. The contract has an interesting structure, one I'd never heard of before. Its stated term is five years, but at the end of each year, another year is automatically added. On any given day, Coach Self has something less than five years remaining on his contract, and yet the contract never ends.
Unsurprisingly, there are no links to the contract. I suspect there are contractual outs on both sides. According to ESPN, there were rumors recently that Coach Self might move to the NBA. Would he thereby be breaching his lifetime contract? If so, what would be KU's measure of damages?
On the other side, KU has been disciplined following an FBI investigation into alleged payments to two former players from Adidas. What contractual outs does KU have should the NCAA decide to discipline Coach Self, given that there was a finding of violations for which Coach Self bears some responsibility? Can KU set aside the lifetime contract based on a morals clause? What if Kansas (known to the cognoscenti as "the Jayhawks") goes winless in conference for a year? For two years? Unlikely, but no doubt the Mets thought they were getting a sure thing when they signed Bobby Bonilla.
Monday, March 29, 2021
Last week, we covered the story of a woman who was hit by a baseball and was seriously injured at a Cubs game. At the time she was injured, back in 2018, she was unaware that there was an arbitration clause in the terms and conditions on the back of her ticket. Now we have a story of tickets that warn attendees that if they attend the event (UFC 261), along with 15,000 other people, they are assuming the risk of contracting COVID-19. Buyers are not scared. Tickets are now being sold at 20x face value.
Here's the language:
The story concludes by noting that if somebody gets sick as a result of attendance, UFC President Dana White and the UFC "have more than made sure they are protected legally." Well that depends on whether a boilerplate assumption of risk clause on the back of a ticket is enforceable against somebody who, for example, bought the ticket third-hand at 20x face value.
Hat tip: Stefan Padfield