SBJ/August 15-21, 2011/Opinion

Contract issues for NBA expatriates

FIBA announced recently that NBA players can take their talents overseas, and it’s clear that advisers to NBA players now have some big issues to consider.

Most players’ contracts technically prohibit playing overseas. With FIBA’s announcement, however, it now seems impossible (and maybe even a violation of federal labor law) for a team to claim breach of contract for mere overseas play. This is especially true given that the Uniform Player Contract provides only for discipline for a violation of this provision, not termination, and Commissioner David Stern has already publicly stated that players are free “to do what they want to do.”

What if a player is injured overseas? FIBA has stated that players are at their own risk and that each NBA team may determine how to deal with an injured player. In all reality, however, a highly valued player is likely at little practical risk of his team’s trying to void his contract if he comes back with a short-term injury. In truth, termination may be welcome by some players who would love the opportunity to be free agents. But about those players who are less valued, can their teams void their contracts? While there is some risk for these players, it is limited.

The Uniform Player Contract provides that passing a physical is a precondition to the contract’s validity. If a player fails his physical, his team can either suspend him without pay or terminate his contract for “lack of skill.” The risk to a player of being suspended can be substantially limited by insurance. Where the real risk lies is in the team’s right to terminate based upon “lack of skill.” Normally, such a player would still receive his guaranteed compensation, but for an injury sustained in play overseas during the lockout, the collective-bargaining agreement provides that a player’s contract guarantee is not available in the event of a termination.

While this sounds risky, remember that highly valued players aren’t likely at substantial risk of termination, and players with disability insurance can guard against long-term injury. Thus, it would seem that the only players that are truly at risk are those without insurance, or those unlucky enough to have a short-term injury at the time the lockout ends and whose teams want to use it against them. However, even for those players, one would hope that that protection will be built into the new CBA by the National Basketball Players Association.

A player needs to secure disability insurance. Both temporary (for short-term injury) and permanent (for career-ending injury) disability policies are available. While a permanent policy is three to five times cheaper than a temporary one, it’s more likely that a player will suffer a short-term injury, making a temporary policy the first stop. That said, a temporary policy will cover only the value of a player’s current NBA contract, so certain players may want to consider both temporary and permanent insurance. Temporary policies cost $50,000 to $100,000 to cover short-term play in the FIBA World Championships, to well over $1 million to cover an entire season. Foreign teams will likely deduct the cost of insurance from the value of a player’s overall deal.

Temporary policies will cover injuries for each NBA game a player misses and end when he starts playing (and getting paid by his NBA team) again. Payouts are equal to a prorated share of the player’s overall NBA contract. There’s no payout in the event of death.

The standard player temporary policy likely contains a host of exclusions. Depending on a player’s health, his medical records and/or the outcome of a physical, his adviser may be able to have these exclusions waived.

Deron Williams’ contract with Turkish club Besiktas reportedly contains a clause that will allow him to return to the NBA when the lockout ends. FIBA has said that such a clause is a prerequisite to any player’s overseas deal. But not every player is Williams, and not every team will be willing to grant such an option. Most overseas teams likely can’t invest heavily in a player if there’s a big risk of him leaving as soon as the lockout is over.

Despite the reports that Williams’ contract with Besiktas is worth up to $300,000 a month, it seems highly questionable that overseas teams will find the cash to pay a number of players, especially given the weakness of the European economy. And regardless of the money, playing overseas isn’t right for everyone.

David Falk recently described Danny Ferry’s experience of playing in Europe: “[T]he floors were hard, the medical situation wasn’t very great, the guys smoked and drank after the games, practices were four hours a day, and he really hurt his knees. I’m not sure he ever became the player he could have been had he started in the NBA.”

So while it may make financial sense for some, those looking just to entertain themselves or keep in shape during the lockout may be doing themselves a disservice in the long run.

Brian Heidelberger (bheidelberger@winston.com) is a partner and chairman of the advertising, marketing, and entertainment law practice at Winston & Strawn LLP.

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