SBJ/20100517/This Week's News

Lawsuits may affect big-name sports agencies

A legal battle being fought in two states over the rights of a little-known sports agent could help determine the financial fate of some of the most powerful sports agents and agencies in the country.

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The lawsuit, filed by former IMG coaches agent Matthew Baldwin when he recently joined CAA Sports, and a counterclaim filed by IMG center on whether agents can take their clients with them when they leave one firm for another, and they come as big sports agencies approach a pivotal period. The contracts of major baseball agent Casey Close and football agents Tom Condon and Ben Dogra at CAA Sports, and of Mark Steinberg, Tiger Woods’ agent at IMG, are set to expire in the next two years, and the case could affect where those agents land.

Additionally, a new, well-funded company, French conglomerate Lagardère, is expected to officially announce that it is entering the U.S. sports market in the next few weeks through its acquisition of Blue Entertainment Sports Television. Lagardère, sources say, plans to build an agency to rival CAA Sports, IMG, Octagon and Wasserman Media Group, through acquisitions of agents and, presumably, their clients.

Baldwin has filed suit in Los Angeles asking that a court free him from the restrictions in his IMG employment contract. IMG has countersued in Ohio, asking that a court enforce the contract, which prohibits Baldwin from taking IMG clients to CAA.

Even though Baldwin, who worked for Gary O’Hagan, the head of IMG Coaches, isn’t a big name, the industry is buzzing about the case because it pits IMG, the firm widely credited with inventing the sports business, against CAA, which was built chiefly on the hires of former IMG executives.

“I am watching it with interest,” said David Falk, once the most powerful agent in sports and the former chairman of the SFX Sports Group.

CAA Sports was formed in April 2006 when it hired Condon, who headed IMG’s football division, and Close, who headed IMG’s baseball division. CAA, whose president, Richard Lovett, was a friend and admirer of the late IMG founder Mark McCormack, has hired away other IMG executives, including powerful hockey agent Pat Brisson in 2006, and, more recently, former IMG senior executives Bob Kain and Andy Pierce.

CAA Sports recently signed Jack Nicklaus, a longtime IMG client, and Pierce is among the agents who will lead his representation (see story). CAA Sports also had talks with Steinberg in late 2008, but Steinberg elected to sign what sources said was a short-term deal to stay at IMG. Sources said that deal is up in the next two years. Steinberg did not respond to an e-mail asking for comment. 

Although the details of the top agents’ contracts with CAA Sports are not known, it is believed that most of them have signed five- or six-year deals, and the sports division’s five-year anniversary will be next April. That is when Close’s deal is up.

It is not clear the length of the deals signed by Condon and Dogra (who joined CAA Sports in summer 2006), but sources said those may be six-year deals.

Many in the industry think powerhouse agents will stay where they are in the next few years, regardless of the lawsuits’ outcome, but others aren’t so sure. A number of sources say Close, who is no longer running the CAA baseball division, is likely to leave when his contract is up. Close, who represents Derek Jeter and Ryan Howard, has refused to discuss his employment situation.

Although details of employment contracts are not known, it is “very standard” that those employment contracts contain provisions that prevent agents from taking clients with them from their previous agency, said David Cornwell, an attorney who has represented high-profile athletes, as well as agents and agencies in employment and other disputes.

Laws governing employment contracts vary from state to state and lawyers say that California’s law favors employees in that it does not allow employers to enforce non-compete and non-solicitation clauses, whereas other states, such as Ohio, do allow employers to enforce such clauses.

Falk

As a practical reality, most athletes are loyal to their agents rather than to the companies that employ those agents. But agents are only as valuable to agencies as the clients they can bring, and many industry insiders say the Baldwin case could determine whether agents could take clients with ease in the future.

“Just like clients change agents all the time, agents change companies,” Falk said. “The question is not that it’s being done. The question is, is it being done ethically?”

Baldwin, who was employed by IMG in Minnesota but signed an employment contract governed by the laws of the state of Ohio, left IMG on April 2 and filed suit in federal court in California the same day. Cleveland-based IMG filed a countersuit in Ohio on April 15, asking a judge to order Baldwin to comply with the terms of his contract, which include that he not solicit or represent the 20 or so NFL and Division I college coaches he represented at IMG.

“Baldwin, who is a lawyer from Ohio, signed an agreement saying that he would be subject to jurisdiction in Ohio,” said Mark Holscher, a partner at Kirkland & Ellis, who represents IMG. “This is a guy who, the same day he resigned in Minnesota, had high-powered New York lawyers file a complaint in California, saying he is a California resident.”

Baldwin is represented by Dewey & LeBoeuf partners Adam Kaiser and Jeffrey Kessler, a high-profile attorney who counts the NFL Players Association and the National Basketball Players Association among his clients.

Baldwin, Kessler said, “is not violating his contract. What he has done is file a lawsuit to determine if the restrictions in his contract are enforceable in California.”

IMG sued Baldwin “for violating the provisions that are unenforceable and which he is not violating, in any event,” Kessler said. Baldwin has not taken any clients with him, but is awaiting a ruling in the courts on the issue.

Kessler added that the nonsolicitation provisions in the Baldwin case are identical to those in another case, which involved another former IMG agent, Jay Danzi. Danzi left IMG in Ohio to join Wasserman Media Group in California in 2007.

An arbitrator found that California law applies and that IMG’snonsolicitation provisions in its contract were not enforceable. That arbitration decision was later confirmed by a federal court judge in the same district of California where Baldwin filed for a declaratory judgment to free him from the same provisions.

 “Once the district court confirms the award, the award has the same force and effect as a district court judgment,” Kaiser said.

Danzi was able to take golf clients he represented, including PGA Tour player Hunter Mahan, as a result of that judgment.

 In this case, Baldwin is asking that the case be heard in California, not Ohio, and arguing that the Danzi judgment should apply. It is not clear if that will happen. At a hearing before the Ohio court where IMG filed its case, U.S. District Court Judge Kate O’Malley questioned whether she should be bound by a decision of another federal district court, according to a transcript of the proceedings.

A hearing is set for May 27 before Los Angeles U.S. District Court Judge George Wu on IMG’s motion to dismiss the action there.

Kaiser said it is impossible to determine how long it might take for a decision and whether one court or another would agree to keep the cases. It is also possible that the issue could be heard in both courts, he added.

Whatever happens, sports insiders are watching closely. “I think the outcome is that it will be settled because the ramifications could have such far-reaching consequences that it could severely impact the business,” said one executive at a major sports talent agency.

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