SBJ/May 6-12, 2013/In DepthPrint All
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Given all the dealmaking taking place and the competitive nature of sports, lawsuits are inevitable. But the dockets atcourthouses across the country include a number of cases that could reach well beyond the judge’s chamber.
Image use of collegiate and retired athletes, jilted sponsors, concussion issues, disputes over how televised programming is distributed, challenges over conference exit fees — those are just some of the cases now in play that could affect many others in the sports industry than those directly involved.
In the links below, we review the key arguments in 10 of these cases and highlight why they should be followed closely.
At any given time, the NCAA is mired in a dozen or so lawsuits, so the inside of a courtroom is not an unfamiliar place. But the O’Bannon case, named after former UCLA basketball player Ed O’Bannon, has the potential to change the economic landscape in college athletics unlike any case before it.
The plaintiffs, who include Bill Russell and Oscar Robertson, also allege that athletes are required to sign forms while they’re students that relinquish in perpetuity all rights pertaining to the use of their names, images and likenesses.
For example, North Carolina sells a slew of No. 23 basketball
Ed O’Bannon is shown in 1995 during his playing days at UCLA.
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If the O’Bannon case ends in favor of the plaintiffs, the NCAA and its member schools could theoretically be forced to pay athletes and former athletes royalties on merchandise and any other use of their likeness, and they could potentially share in the billions coming in from TV contracts.
Jay Fee, an attorney and sports agent, said the O’Bannon discussion has been a constant theme in the sports law class he teaches at Suffolk University in Boston.
“We touch on it a lot,” Fee said. “Especially with the younger generation, there seems to be more willingness to challenge the underpinnings of amateurism and the basic principles of equity. The constant refrain is: ‘Why can’t you pay college athletes?’ The use of a plaintiff’s name or likeness without permission is a fundamental claim.
“What’s the difference here?”
With billions of dollars on the line, the lawsuit brought by thousands of retirees against the NFL for concussions is clearly the most-watched lawsuit in sports.
When the concussion cases, alleging the NFL knew about the risks of concussions and hid them, began popping up in 2011, the court system consolidated the cases into a single class-action suit.
The first real action in the case was April 9 when U.S. District Judge Anita Brody heard arguments about whether the case should go forward or be dismissed. The NFL argues the claims are covered under past collective-bargaining agreements and do not belong in court, while the former players say those labor pacts did not envision the kind of trauma involved in the case.
For observers of the court, the players seemed to have a good day on April 9. First, even the
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But the judge also focused on “the Kline decision,” a binding precedent in the Pennsylvania district. The Kline case involved an employer spying on employees. The employees sued and the employer countered that unionized employees could not sue their employer. The decision was that the employees could sue because the specific issue at hand was not in their CBA.
“A judge often asks questions about certain cases, whether he or she thinks the case governs or not,” said John Goldman, a lawyer with Herrick Feinstein. “But it sure seems that the judge thinks Kline applies, and mandates a denial of the league’s application to compel arbitration.”
All that would mean of course is the case gets appealed, and even Brody admitted that in other circuits there are conflicting decisions from Kline. That means the case has many more years to go, barring a quick settlement, and those potentially billions of dollars in damages are still far in the future.
When Oakley sponsorship executive Pat McIlvain learned the company’s star golfer, Rory McIlroy, had landed a new, $25 million a year deal with Nike, he sent a flurry of emails to McIlroy’s agent. Every push he made to extend Oakley’s deal with the golfer was rebuffed, which led him to write a frustrated, late-night email.
“Understood. We are out of the mix. No contract for 2013. Pat Mac.”
Oakley claims that it had a contractual right to see Nike’s offer, match it and even assign 10 percent of the offer to eyewear and extend a deal in that category alone. It asserts that McIlroy’s agent, Conor Ridge of Horizon Sports Management, didn’t honor those terms of the contract.
McIlroy and Nike are expected to claim in court that McIlvain’s email, which was sent in late September, waived Oakley’s right to renew with the golfer. But McIlroy’s agent and attorney continued to swap emails with Oakley’s legal team after McIlvain sent his email.
The case, which is slated to go to trial in February, represents one of the rare instances when a brand sues an endorser
Rory McIlroy is introduced as a Nike brand ambassador during a January news conference.
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“It is important in the sports business world because it shows a sponsor who had a deal is willing to go so far as filing a case in federal court to protect its right,” Chase said.
The important lesson of the case for intellectual property lawyers and agents alike is that they should revisit first-right-of-refusal language in contracts, understand it and make sure that they protect their endorsement and avoid litigation in the future.
“It’s tricky to draft the specifics on how the clause will be enforced,” Chase said. “When will the period be? When can you test the market? What do you have to do to present the offer from the new company? It’s easy to draft, but to draft an enforceable one is tricky because you want both parties to understand what their obligations are.”
When Maryland chose to leave the ACC for presumably bigger dollars in the Big Ten, its president, Wallace Loh, was adamant that the exit fee of $50 million wouldn’t be enforceable. It was excessive in its punishment, and Maryland was one of two ACC schools that didn’t vote for it last year.
The ACC’s claims in the lawsuit came out at $52.266 million, or three times the total operating budget of the conference.
There is plenty of precedent for conferences collecting exit fees from departing schools. It’s really the only way leagues can protect themselves in cases where a member school leaves and potentially damages its former conference. But a recent development — the decision by ACC schools to grant their rights to the conference through 2017 — could change things.
The Washington Post quoted a legal source as saying that the ACC has not been harmed by Maryland’s departure, and it could be argued that, with the grant of rights
Maryland President Wallace Loh (left) fields a question at a news conference last year as the school announces its move to the Big Ten.
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Even so, the ACC has not backed off its attempts to collect from the Terrapins. The Big East offers a precedent.
“Unfortunately, we have a lot of experience with exit fees,” said Mike Aresco, commissioner of the Big East, soon to be renamed the American Athletic Conference. Aresco’s league has been dismantled by the defections of the Catholic 7 schools and Syracuse, Pittsburgh, Notre Dame and West Virginia.
“We worked out settlements with those schools, and there was an amount paid on top of the exit fee for schools that left a year early,” Aresco said. “We’ve found the exit fee to be enforceable and we’ve had no issues with it.”
In perhaps the most high-profile case, West Virginia paid $20 million, 1 1/2 times the exit fee, for leaving early to go to the Big 12.
Maryland will argue that it can’t be sued because, as an extension of the state, the university is a sovereign state.
Though sports channels aren’t part of Cablevision’s bundling complaint against Viacom, the case filed in February could affect several smaller sports networks.
Cablevision signed a long-term deal to carry all of Viacom’s channels — including 14 of the smaller ones — in December. Two months later, Cablevision filed suit in a federal court, alleging that Viacom would assess a $1 billion penalty if Cablevision opted to not carry Viacom’s smaller networks.
Though Viacom has not responded to the complaint officially, it has released statements calling Cablevision’s complaint misleading. Like other programmers, Viacom has said that it grants discounts on its more popular channels if distributors take all of its channels, including the smaller ones.
A Cablevision victory in this lawsuit has the potential to throw the entire pay-TV business out of whack. In years past, broadcasters have decided to use their retransmission rights to launch broadcaster-owned channels with cable operators in lieu of collecting a fee. That’s how smaller channels like Fox Soccer Channel and Fuel got their start.
Over the past few years, however, the broadcasters’ strategy changed and they started demanding cash for carriage, at rates that can be as high as $1 per subscriber per month.
The ironic part of this case is that in February 2012, Time Warner Cable complained that MSG was tying carriage of its two regional sports networks with carriage of the poorly viewed Fuse. The Dolan family heads up both MSG Networks and Cablevision.
Six former NFL players, led by Fred Dryer, sued NFL Films in 2009 for not paying them when the league used their images and footage in videos and shows. In March, the NFL announced a $50 million settlement, and the court has given preliminary approval, but the six original plaintiffs are not on board.
The judge who gave preliminary approval for the settlement blasted the six plaintiffs for opposing it.
“It bears repeating: the individuals who originally brought this lawsuit and whonow oppose the settlement rode into court on the banner of saving their downtrodden brethren, those who had played in the NFL yet today were
Fred Dryer, shown in his playing days in 1978, is leading the effort to make the NFL pay to use images of retirees.
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Chances are, given that comment, that Magnuson will approve the settlement at a scheduled hearing in September. The settlement would allow the NFL to continue using retirees’ images.
At that point, Dryer and his coterie can either fold up the tent, or opt out of the settlement and file a new lawsuit.
New Jersey lawmakers are still reeling from a recent setback to the state’s push to legalize sports gambling, which Gov. Chris Christie has championed as a taxable business for the cash-strapped state.
In late February, U.S. District Judge Michael Shipp struck down New Jersey’s sports wager law, which had allowed the state’s Division of Gaming Enforcement to license sports betting operations in casinos and racetracks.
Shipp presided over a case that pitted defendants Christie, state Gaming Enforcement Director David Rebuck and Racing Commission Executive Director Frank Zanzuccki against the NCAA, NBA, NFL, NHL and MLB. The leagues sued the state in August, calling the law a “clear and flagrant” violation of PASPA.
Lawyers for New Jersey first argued that the leagues could not demonstrate tangible harm if New Jersey allowed sports betting, but Shipp ruled against that argument in December. Lawyers then argued that PASPA was unconstitutional because it violated the 10th Amendment by commandeering the state’s right to change its own laws. They also argued that PASPA unfairly allows loopholes for the four other states.
Shipp struck down New Jersey’s claims of 10th Amendment violation because Congress can regulate local businesses if
If New Jersey had its way, sports books like this one in Las Vegas would be allowed.
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The state has filed an appeal in the 3rd U.S. Circuit Court of Appeals, which will hear arguments from both sides on June 26.
Gilbert Brooks, a gaming lawyer with Duane Morris, said he does not believe the decision will be reversed.
“The better card to play is to try and change legislation at the federal level,” said Brooks, who represents the Atlantic Club casino hotel and Sportech PLC, a supplier of football and horse racing betting pools. “That’s basically what Shipp said in his ruling — if you want to change the law, change it with Congress.”
Two weeks after Lance Armstrong admitted using performance-enhancing drugs during his Tour de France victories, a company that paid incentive bonuses to the cyclist filed suit to get $12 million back.
Another lawsuit, involving Armstrong’s former team sponsor, the U.S. Postal Service, demands all $40 million spent on the cyclist’s team, plus damages. Both cases assert that Armstrong and others associated with the cycling team should be forced to repay fees and compensation because of the recent admissions of drug use and for being subsequently stripped of all seven Tour de France championships.
Whatever happens in Armstrong’s cases, the mere topic of what amount to clawback provisions in promotions, sponsorships and endorsements could portend greater scrutiny — and tougher negotiations.
“Companies who are engaging in sponsorship deals, these types of endorsement deals, simply because of what happened
Cyclist Lance Armstrong celebrates his Tour de France victory in 2003.
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Typically, endorsements and sponsorships include provisions allowing for a player or athlete to be dropped because of unethical or embarrassing behavior on or off the field. The difference in the Armstrong lawsuits is that companies and sponsors have gone an extra step and sought repayment of their investment.
Tim Herman, Armstrong’s attorney, did not respond to interview requests. Jeff Tillotson, attorney for SCA, said he expects the Armstrong legal battles to set precedents that stretch across the sports industry.
“Sponsors and sports management companies are going to write in much more strict morals clauses and give companies the right to challenge wins or victories or accomplishments even if they’re officially certified,” Tillotson said. “Because what we’ve learned from Armstrong was, although he was being declared the official winner of the Tour de France race along with others and was passing drug tests, he was, by his own admission, cheating rampantly in every event. And so even if someone is declared the Masters champion or whatever, I believe sponsors are going to want in there some ability to double-check that.”
The ability of broadcasters to afford sports media rights could be threatened if broadcasters lose their case against Aereo.
Aereo is the upstart service that charges a small monthly fee to deliver broadcast signals via the Internet. It also offers a cloud-based DVR service.
An Aereo customer who wants to watch a broadcast show is assigned one of Aereo’s thousands of dime-sized antennas for that viewing session. The customer gets to decide whether to watch the show at that time or later, via a DVR.
“Aereo’s theory is that the customer is doing everything that’s going on here,” said David Wittenstein, co-head of Dow Lohnes’ media and information technology practice.
Broadcasters contend that Aereo is retransmitting broadcast signals, which would entitle broadcasters to retransmission consent fees. Broadcasters’ first challenges to the legality of Aereo’s business plan have been based on copyrights. Since they own the copyrights to the programming, broadcasters say Aereo can’t make a business out of transmitting them.
Implications for the sports industry are significant. The rapid rise in sports media rights fees has corresponded with cable
Aereo founder Chet Kanojia shows a tablet displaying the company’s technology.
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If Aereo emerges victorious from the courts, cable operators almost certainly would try to figure out how to transmit broadcast signals the same way, allowing them to evade paying the fees. If that happens, broadcasters would lose a revenue stream that they have been using to bid up sports rights.
“The reason these big networks pay the money they pay for sports is because of these retransmission payments,” said Matthew DelNero, a partner at Covington & Burling. “If Aereo prevails, you’d more than likely see big sports events end up on cable.”
The case is in its beginning stages. The broadcast plaintiffs have asked the 2nd U.S. Circuit Court of Appeals to stop Aereo from operating while its lawsuit is being heard.
News that a group of Native Americans in March had filed a complaint against the Washington Redskins started the latest iteration of this long-running controversy.
That argument won in 1999 at the same board, but a court overturned the decision in 2003 on a technicality. The court ruled that the plaintiffs had waited too long since the 1967 trademark license to file their complaint. So now a new group of younger plaintiffs has filed a complaint, perhaps immune from that technicality. They initially filed their case in 2006, but it was stayed while an appeal of the 2003 decision worked through the courts.
“The strategy this time was to get more age-appropriate plaintiffs so the cause of action
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The appeals board could take more than a year to make a decision, and then require the plaintiffs or the Redskins to conduct surveys on how the name is viewed. A 2002 Sports Illustrated poll found that most Native Americans did not find the term to be offensive.
In her 2003 decision overturning the appeals board, U.S. District Judge Colleen Kollar-Kotelly ruled the plaintiffs had not offered enough evidence that the term Redskins was offensive.
If that is the end result of this latest effort, it could mean legal assaults on team names as offensive may have run their course.
Even if the appeals board ruled for the plaintiffs, the Redskins would then appeal that ruling. But if the Redskins were to lose this time, it would mean they would no longer own the exclusive rights to their logo and name, which in theory could prove costly. That said, the team could at that point make a common law push that it has used the name for so long, the lack of trademark rights is irrelevant, Shropshire said.
Given the lengthy legal process, Shropshire said, the only way the team name changes is for business reasons. For example, he explained, if the team wants a new stadium and a municipality, like the District of Columbia, preconditions a stadium deal on a name change.
Proskauer traditionally is one of the most active law practices in sports. Some of its former attorneys have become among the most powerful figures in sports, notably NBA Commissioner David Stern and NHL Commissioner Gary Bettman, while current Proskauer sports group co-head Howard Ganz and Proskauer chairman and sports group co-head Joe Leccese, as well as many more, have deep influence within the industry.
Gallantz grew up in New York and attended City College before earning his law degree from Brooklyn Law School in 1935. He joined Proskauer in 1963 and worked there until his retirement in 1985. While at Proskauer, Gallantz saw the firm grow from representing its single sports client, the NBA, into a division that represents the big four professional sports leagues in a variety of legal concerns.
The mix of Gallantz’s brilliant legal mind along with his adroit mentorship stood out to those who spoke to SportsBusiness Journal last week about the role he played in their careers and on sports law.
The following are their stories.
— Compiled by John Lombardo
George represented [former NBA Commissioner] Maurice Podoloff when George was [at the law firm] SimpsonThacher & Bartlett, and when he came to Proskauer, that’s how the whole thing began.
In the early 1960s when J. Walter Kennedy became NBA commissioner, there was massive litigation from the Connie Hawkins case and from the battle between the ABA and the NBA over player contracts. George was not only in charge of the NBA but he was an extraordinary litigator with a penchant for writing and had exacting standards for legal scholarship. He was viewed by the young associates as a combination wise man and difficult taskmaster who you did not want to disappoint. If you were part of his team, he would delegate responsibility to you.
At a very young age, a group of us were taking depositions, arguing motions, writing briefs with oversight by George, but he gave us a lot of freedom and responsibility. That doubly motivated us.
He was exacting, but he and his wife went out of their way to make us feel at home on a very personal basis. He was there at the beginning.
George Gallantz was a truly extraordinary person and lawyer who had an incalculable impact on my life.
He was probably 65 when I first got to know him. I was a young lawyer at Proskauer, and I was very intimidated by him. It wasn’t because he was mean or anything. George just had such a strong presence and his accomplishments were incredible.
He was very particular and he had high standards, which brought out the best in everyone who worked with him. You had to be very clear in your expression of thought. He was an extraordinary writer. He was a terrific editor for the people at the firm.
When you went with George to court, you wore a dark suit, a white shirt — that was the most important part of court dress — and a subdued, not loud, tie. You always made sure you had change in your pocket, in case we needed to use the pay phone. You had to be prepared. You had to anticipate what documents he wanted, when he wanted them and where he wanted them.
George was perhaps the first lawyer that created “sports law.” He had an influence on the early stages of litigation and collective bargaining. He trained the incoming generation of sports lawyers, whether it was David Stern and me, Bob Batterman or New York City Corporation counsel Michael Cardozo and Howard Ganz. We all cut our teeth with George.
George was a lawyer’s lawyer. Part of who I am, both as a lawyer and as a person, is from the lessons he gave me. I believe it was George who coined the saying, “Never lose the opportunity to keep your mouth shut.”
It was George who told me in late 1980 about the opportunity at the NBA, and who told David about me. That ultimately led to me going to the NBA and eventually the NHL. Even after I left Proskauer, we would have lunch a few times each year and stay in regular contact. I was just one of a number of people that he mentored.
Each year, many of the people that George mentored would get together with him for his birthday. On his 99th birthday, we celebrated it at Proskauer because it was easier for him. We were all there with him. That’s the kind of impact he had on so many of our lives.
Partner and co-head of the sports law group at Proskauer
George was a senior partner at the time when I arrived. I went to Columbia law school with David Stern and Michael Cardozo and we all ended up at Proskauer at the same time. George mentored us and we all started out carrying the litigation bag. He was a terrific role model and very incisive, but he took the time to be a teacher and he was very focused on the appropriate use of language, both written and oral. He could make you redo a sentence that would make it infinitely better even though you thought it was already terrific. He was devoted to the firm and helping attorneys like Stern and Ganz to develop whatever potential we had. He brought the NBA as a client to Proskauer in the early 1960s and the NBA was a relatively small client back in those days. George made our reputations in the sports law area. He was really the founding father.
Partner at Proskauer and labor counsel to the NHL, MLS and NFL
David Stern and I started together at Proskauer in 1966 right out of law school, and George was a very imposing litigator. I started working with him as a brand new associate. What I really learned was the importance of bringing discipline to your work. Even to the extent that when I was accompanying him to court and wearing a nice suit and tie and a light blue shirt. He said we don’t go to court in anything but a white shirt and I had to rush out and buy one. He was very particular and everything was focused on the case and the client. That is what he taught me. He happened to have brought the NBA in as a little client and that is where it all began. Other sports followed but everything stems from the NBA. It all goes to George in bringing in that first client.
He could be a curmudgeon, but he was very open and very available. He was there for us as young people and he was a great mentor.
Chairman and co-head of the sports law group at Proskauer
George interviewed me when I was a law student in 1983 and by the time I came back here he had retired. I remember
He said that at every turn and that has always stuck with me.
George was very gracious to share the credit of his achievements that the sports group had. From our perspective, he is the grandfather of our sports practice and an incredibly influential figure. He developed some of the most outstanding lawyers we have had and they have passed it on to my generation.
Staff writer Christopher Botta contributed to this report.