Do NCAA Athletes sign Athlete Agreements Under Duress?

First of all, duress is the use of force or threats to compel someone to act contrary to his/her interests.  If duress is used to get someone to sign an agreement then a court can find the contract null and void.

From this definition, I don't think NCAA players sign under duress.  NCAA sports generate huge profits for institutions especially from football and basketball.  To create a competitive sport program, it all starts with recruiting.  Top student-athletes are recruited by dozens of schools at once and that can put pressure on the student-athlete to make the right decision.  However, these institutions don't threaten the athlete if they don't sign (no cases can be found).



The student-athletes are allowed school visits and make the decision that's best for them.  This can be seen as stressful for the student-athletes but can't be considered duress.  The NCAA has harsh sanctions for cheating which can be seen through recent scandals such as the University of Southern California athletics scandal.  USC provided gifts to Reggie Bush to coerce him into signing however paying NCAA athletes is prohibited.  This had the ability to change Reggie Bush's interests but he wasn't forced to accept the gift or threatened to sign.


In conclusion, from my perspective NCAA athletes don't sign athlete agreements under duress and there hasn't been a history of it made publicly.

Negative Injunctions in Hockey and Baseball

First of all, a negative injunction means that the court orders an individual to stop doing something.  This helps limit an individual from breaching a contract.  In all standard player contracts in North American Pro Sport, players are listed as having unique skills which allows the club to pursue injunctions.  For example, a 2005 NHL Contract states in Section 6 of the Collective Bargaining Agreement:

"The Player represents and agress that he has exceptional and unique knowledge, skill and ability as a hockey player, the loss of which cannot be estimated with certainty and cannot be fairly or adequately compensated by damages.  The Player therefore agrees that the club shall have the right in addition to any other rights that the club may possess, to enjoin him by appropriate injunctive proceedings without first exhausting any other remedy which may be available to the club, from playing hockey for any other team and/or for any breach of any other provisions of his contract."

In other words, this means that the NHL club/league has the right to seek a negative injunction rather than monetary damages.  It is hard to put value on a star player that can't be replaced so a negative injunction is a way to ensure that you don't lose that player.

Let's take a look at an example from professional baseball.  In Central New York Basketball Inc v. Barnett (1961), the NBA franchise Syracuse filed a breach of contract against Richard Barnett after he signed a contract with the Cleveland franchise in the rival ABL.  Syracuse had a contract with Barnett to retain his services and the court agreed giving Barnett a negative injunction from playing for the Cleveland franchise.  Since Barnett was under contract, it was easy to enfore the negative injunction.

Now back to negative injuctions in the NHL.  An example of a negative injunction in the NHL is in Nassau Sports v. Peters.  This involved the New York Islanders seeking a negative injunction against Garry Peters who signed with the rival WHA.  At the time, the NHL has a reserve clause for players even if the players contract has expired.  This was also a lawsuit at the time between the WHA and NHL.  Peters was assigned to the Boston Braves by his contract team, the Boston Bruins.  This made him available in the expansion draft the following year where the New York Isalnders drafted him.  The New York Islanders were unsucessful in seeking a negative injunction because Peters had never signed a contract with the Islanders.  By not signing a contract with the Islanders, they were unable to pursue a negative injunction.  Peters went on to play for the New York Raiders in the WHA and never joined the Islanders.


Recent examples of negative injunctions involve the NHL and KHL.  The KHL is the highest professional hockey league outside of North America and is seen as a rival to the NHL.  Players have jumped from the KHL to the NHL and vice versa.  Two examples of players are Alexander Radulov and Ilya Kovalchuk.

Alexander Radulov is a Russian hockey player that was drafted by the Nashville Predators in the NHL. He signed a three year entry level contract and played for Nashvilles's affiliate Milwaukee for 11 games before joining Nashville.  He played two years for Nashville before going back to Russia and playing in the KHL.  The NHL and KHL have a history of losing players to one another so they tried to strike a peace treaty to ensure that players would not breach their contracts.  However, the KHL was furious will a player (Nikita Filatov) who was under contract with the KHL and jumped to the NHL so the KHL allowed Radulov to come back.  The NHL and KHL had no agreement in place to prevent players from changing leagues and the NHL doesn't have the power to seek a negative injunction because the KHL is outside of North America.  The NHL expected the International Ice Hockey Federation (IIHF) to step in to nullify the Radulov KHL contract but they also didn't have the jurisdiction to do that.  The IIHF only has the power to ban Radulov from international events and not the KHL.  Since, there is no agreement between the NHL and KHL, expect players to continue to breach contracts to jump leagues.

Another example between the NHL and KHL is the Iyla Kovalchuk contract.  Ilya Kovalchuk is a Russian hockey player signed a new contract with the New Jersey Devils for 17 years and $102 million.  After 3 years of the contract, he decided that he wanted to return back to Russia to be with his family.  He announced retirement from the NHL leaving 12 years left on his deal and lost $77 million.  The Devils were unable to seek an injunction because Kovalchuk had retired and the courts wouldn't be able to force him to unretire.  Kovalchuk went home and played in the KHL.  Because of the contract between the Devils and Kovalchuk, the Devils were penalized $3 million and had to forfeit 3 draft picks for circumventing the cap to make the contract possible.  Again, there wasn't an agreement between the NHL and KHL so nothing could be done to stop Kovalchuk from staying.

In conclusion, signing a Russian player to an NHL contract can be very risky because they always have the option to leave even if they are under contract.  Negative Injunctions are great to prevent players from jumping to rival leagues in North America but it has no affect internationally.  This will continue to be a problem for the NHL and KHL.

Are NCAA Letters of Intent Contracts?

Letters of Intent in the NCAA are referred to as the National Letter of Intent (NLI).  The NLI is a binding agreement between an NCAA institution and student-athlete in which the student-athlete agrees to attend the institution and the institution agrees to provide financial aid to the student athlete.  NLI's are contracts because there is an exchange and both parties benefit.  The insitution gets the athlete and their skills to help the institutions sports teams while the student-athlete gets financial aid to help with their studies.

The NLI also benefits the institution because it puts an end to the recuiting process because other insititutions are prohibited from contacting the athlete.  The insitution that they committed to is then guarenteed the rights to that athlete.  In addition, the athlete is guarnteed a year of financial aid from that insititution so there is an exchange from both sides.

There are consequences if an athlete commits to an institution through the NLI and chooses to attend somewhere else.  The student-athlete loses one year of eligibility and must sit out one academic year at the new institution.  However, not every school is in the NLI program so a student-athlete can cheat the system by choosing a school that is not in the NLI program.

In addition, if the student-athlete signs the agreement but doesn't want to fulfill it, then they can appeal the NLI to a NCAA review committee.

In conclusion, NCAA Letters of Intent are contracts because it is an agreement between both parties and there is an intent for both sides to benefit.

Morality Clauses

Morals clauses give teams, leagues, and companies the right to terminate, suspend, or punish an athlete for engaging in criminal behaviour or conduct that may negatively impact his or her public image and by association, the public image of the team, league, or company.  Each of the four major team sports leagues in North America include morals clauses in standard player contracts in their collective bargaining agreements.

In addition, endorsement contracts between players and corporations also typically include morals clauses.  A carefully drafted moral clause has become increasingly necessary for corporations and teams.  They invest invest so much into players performance and reputation and conduct away from the playing field can have a significant economic impact.

Adrian Peterson, Michael Vick, Kobe Bryant, Tiger Woods, Lance Armstrong, Oscar Pistorius.  What do they all have in common?

Yes, they used to be the top athletes in their respective sports but all have been terminated from endorsements because of morality clauses.  Wheaties ended their contract with Peterson after the child abuse accusations, Nike terminated Vick's contract when he was convicted of Dog fighting, Bryant lost endorsements because of his sexual assault allegations, Woods was dropped by Gillette because of his affairs tarnished his perfect image, Armstrong used performance enhancing drugs and Nike, Oakley, and Trek terminated their contracts with him, and lastly Oscar Pistorius lost his endorsements with Nike and Oakley after the murder of his wife.  Companies can pursue litigation against the athlete if they invoke the morals clause.

When negotiating morals clauses in endorsements, one of the most important issues is what kind of behaviour will trigger the clause.  Many kinds of criminal behaviour can be included in morals clauses such as criminal convictions, public fights, arrests for drunk driving, drug use, criminal accusations (even if charges are dropped), and even actions that aren't criminal but tarnish an image such as an affair, and doping.  Top athletes gain a large source of income from endorsements and companies spend large sums so they want to limit the risk.

However, not only athletes can cross the moral line.  After the Donald Sterling incident, owners, coaches, and even companies can be immoral too and hurt the athletes image.  An athlete could include a reverse morals clause in his contract, permitting him to terminate the relationship with an owner, coach, or endorsement organization. For example in 2001, Enron filed for bankruptcy, and the Houston Astros who gave Enron the naming rights to their stadium (Enron Field) had to buy Enron out.  The Astros didn't want to be associated with Enron after thousands of Houston people lost their jobs.  A reverse morals clause could have saved the franchise millions.


In order for reverse morals clauses to be included in player contracts they would have to be negotiated into the Collective Bargaining Agreement.  Player Associations have many other priorities to worry about such as insurance, benefits, and wages which is why reverse morality clauses have yet to be negotiated in major league sports.

Difference Between Licensing & Sponsorship Agreements

Hi Everyone,

Last week we talked about renewal clauses involving sponsorship agreements.  In this blog, I want to provide an explanation of the difference between licensing agreements and sponsorship agreements.

A licensing agreement is a legal contract between two parties, known as the licensor and licensee.  In a licensing agreement, the licensor grants the licensee the right to produce and sell goods, apply a brand name or trademark, or use patented technology owned by the licensor.  In exchange, the licensee submits conditions to use the licensor's property and makes payments known as royalties.  A common example of a licensing agreement is a retailer teaming up with a sport team to sell their apparel bearing the teams logo.  Take a trip to Buckners Source for Sports in St. Catharines and you will find apparel for the Niagara IceDogs and St. Catharines Falcons.

Another example of a licensor and licensee relationship is between the NHLPA and Reebok.  The licensing agreement involves Reebok maintaining the exclusive right to produce NHL jerseys with player names.  Reebok creates the jerseys for the NHL and also sells them individually to fans while giving the NHLPA a royalty for the rights to do so.

The biggest part of licensing agreements are property rights and intellectual rights.  One of the largest companies that uses licensing agreements for intellectual property rights is EA Sports.  EA Sports is a videogame developer and uses the likeness of athletes in their games.  In order to use the athletes images, EA Sports has to reach licensing agreements with the governing bodies.  For example, FIFA and EA Sports have a licensing agreement until 2022.  They also have a licensing agreement with the NHL to produce the NHL line of games.

Now a sponsorship agreement governs the legal relationship between a sponsor and the individual whom is entitled to enforce the sponsorship obligation.  There are many types of sponsorship agreements in sport including:

1. Sponsorship of Individual Sporting Teams - Often teams associate themselves with a major brand.  For example, Chevrolet has paid $559 million to become the shirt sponsor of Manchester United.

2. Sponsorship of Governing Bodies - Often companies sponsor the governing body of a sport.  For example, Adidas is the sponsor of FIFA.  This means that all FIFA apparel is made by Adidas.  In addition to being the official sponsor of FIFA, there would be a licensing agreement in place to create and distrubte the apparel.

3. Sponsorship of Events - Often companies want to be associated with a major event.  An example of these agreements are the MasterCard Memorial Cup and Tim Horton's Briar.  They would be consider title sponsors in order to be involved in the event.

4. Sponsoring of Athletes - Often high performance athletes attract sponsors.  Most commonly referred to as endorsements, these deals can earn athletes more money than they do playing.  For example, Kevin Durant was offered $285 million by Under Armour which was more than he contract with the Oklahoma City Thunder.

Renewal Clauses

In this post, I will be discussing Renewal clauses that involve the right of first refusal. Right of first refusal is a common clause in endorsement contracts between athletes and sponsors.  They allow the sponsor to match a third parties offer to keep the athlete on it's marketing team.  Right of first refusal can be a powerful tool for sponsors if it is drafted correctly.

Sports teams implement renewal clauses so that they can protect their star athletes.  However, it doesn't guarentee that they can retain the athletes services.  For example, in 2006, the Minnesota Vikings offered to make Seattle Seahawks free agent offensive lineman Steve Hutchinson the highest paid offensive lineman on their team after the first year of his contract.  The Seahawks already had a highly paid offensive lineman so they couldn't match the Vikings offer.  This tactic is allowed and it was a smart move by the Vikings identifying that the Seahawks wouldn't be able to match the offer.

In a renewal clause, sponsors need to define what elements need to be matched. An athlete might want the exact offer matched in the contract.  There are many objects that can be offered including base compensation, incentives/bonuses, royalties for products, or other non cash items such as a car or house.

Another concern with the right of first refusal is how to enforce it as a sponsoring organization.  A sponsor may seek an injunction requiring the athlete to fulfill the sponsorship.  The organization is allowed to do so because the right of first refusal is stated in the contract.  However, the athlete may not want to be a part of the original organization and it could risk other future sponsorships with athletes.  The athlete may not want to be a part of that organization and make it known publicly which would hurt the brand.

Right if first refusal clauses are considered the most restrictive to the sports propety/sponsor because it allows the athlete to test the open market which forces the property to make the decision to match the offer and ultimately pay more.

Renewal Clauses that aren't specific can lead to future problems when the contract expires.  For example, in 2007 Mastercard sued FIFA after FIFA reached a deal with Visa to sponsor the next two world cups.  Mastercard had been the payment card sponsor with FIFA for 16 years prior to the Visa deal.  FIFA believed they were free to find a new sponsorship deal because one couldn't be made with Mastercard.  However, the previous contract between Mastercard and FIFA had a right of first refusal which is why Mastercard sued.  FIFA lost $90 million because of the dispute and this shows the importance of making the terms of renewal clauses clear to both parties.



Another example of enforcing rights of first refusal was the Oakley v. Rory McIlroy and Nike case involving an endorsement agreement.  The right of first refusal granted Oakley the right to match any terms offered to McIlroy by a third party "regarding the endorsement of products the same as or similar in his agreement with Oakley (Eyewear, apparel, and accessories).  Obviously, Nike offers a similar product endorsement so what does this mean?


The remedy for a breach of personal services agreement is usually monetary damages unless services are unique.  However, courts would never enforce an individual to continue performing services.  Courts could enforce an injunction or non-compete but thats only if it doesn't impose undue hardship on the individual.  The deal of $200-$250 million was seen as unaffordable to Oakley and there was speculation that they waived the right of first refusal.  But what if Oakley didn't waive the right and tried to seek damages?


It would be difficult to measure damages and put monetary vale on McIlroy's brand image being associated with Oakley.  To remedy thos problem in the future, brands should consider including liquidated damage provisions in endorsement agreements in the event of a breach.  Right of first refusals can be a powerful tool if they are drafted correctly.

Hope you enjoyed my thoughts!

-Mark

Sources:

http://www.forbes.com/sites/oliverherzfeld/2013/03/19/oakley-v-rory-mcilroy-and-nike-enforcing-rights-of-first-refusal-in-endorsement-agreements/

http://www.acc.com/legalresources/publications/topten/sla.cfm

http://www.sportsbusinessdaily.com/Journal/Issues/2009/04/20090427/From-The-Field-Of/Properly-Drafted-Right-Of-First-Refusal-Helps-Sponsors-Keep-Stars.aspx

Privity of Contract

Hi Everyone,

Privity involves being privy to or a party to a contract.  Only parties involved in the contract are allowed to claim benefits or incur liability.  However, some contracts grant benefits to third parties, or third parties may want to be substituted into the contract.  In these two instances, third parties may try to enforce the contract.  The general rule is that a party not involved in the contract cannot claim benefits or incur liability because they are not privy to the contract.

For example, lets look at a case that involves privity of contract.  In Yashin v. NHL, Yashin refused to play for the Ottawa Senators in his last season of his 5 year deal of his contract.  Yashin wanted to dispute his Standard Player’s Contract with the NHL.  The Standard Player’s Contract is between the NHLPA representing all the players and the NHL representing teams through the Collective Bargaining Agreement.  In Article 17.5 of the CBA, it states that grievances can only be initiated by the NHLPA and NHL only.  Yashin didn’t have the support of the NHLPA because it wouldn’t benefit all players.  Yashin couldn’t benefit from the contract because he was not privy to it. 

Another interesting case involving privity of contract once again involves Yashin.  The case Potechin v. Yashin has a season ticket holder for the Ottawa Senators suing Yashin (the Senators star player) for refusing to play.  The contract to be a season ticket holder was between Potechkin and the Ottawa Senators.  Yashin was not privy to the contract and could not be found liable.

These examples involve a third party not privy to the contract and therefore are not bound.  However, there are a number of other ways that third parties can assert right under a contract.  The ways include novation, vicarious performance, exemption clauses, trusts, and assignments.  These exceptions where third parties can play a role are discussed below:

Novation: The creation of a new contract to substitute in a new party in the existing contract.  Once the new contract is formed, the existing one is terminated.  For example, a company signs a contract to provide plumbing services to the Thompsons.  The business owner of the company decides to retire and recommends another company to replace them.  The new company signs the same contract that was previously held and is thus substituted in, relieving the other company of it’s obligations and giving the owner a happy retirement.

Vicarious Performance: Where one party is substituted to perform the task but the original party remains responsible for liability and performance.  For example, Davidson Homes signs a contract to fix a house that needs stairs repaired.  Davidson Homes subcontracts the job to StairMasters, a company that specializes in building stairs.  StairMasters are responsible for building the stairs but if the stairs aren’t up to performance standards then the liability is on Davidson Homes.

Exemption Clauses: Are put into a contract used to protect parties from liability.  Sports teams use exemption clauses to keep athletes from suing.

Trusts: A legal entity created by a grantor for a beneficiary whereby the property is transferred for their benefit.  For example, John Smith names his son Michael as a trustee in his will in case he dies.  John Smith passes away and all of his estate transfers to his son Michael.

Assignments: A transfer of rights from one party to a third party.  For example, you rent a house and are under contract with Mr. and Mrs. Johnstone.  Mr. and Mrs. Johnstone assign the contract to their son Josh.  You are now required to pay rent to Josh instead of the parents.  It differs from novation because no new contract is formed and your consent is no

Hope you enjoyed learning about privity of contract.

-Mark