Menu
Opinion

Right of first refusal clauses can keep athletes on track

Imagine you are an emerging professional athlete and you are minutes away from performing on the big stage. Nervous. Yet ready, because you’ve prepared all your life for this moment. Suddenly, someone approaches you and instead of asking for an autograph you’re served a notice of suit from your former sponsor!

Shocked? Don’t be, because 2016 800-meter indoor world and national champion Boris Berian experienced a similar situation during the 2016 Olympic season. Had Nike not dropped the case, Nike v. Berian would have provided a much-needed tutorial on right of first refusal clauses (ROFR). An ROFR is often ignored because it is a back-end provision. However, because an ROFR extends the contract term and increases the parties’ obligations, the ROFR should be heavily negotiated. Ideal ROFR language should (1) be tailored to the given situation, (2) specifically define all triggering terms and (3) foresee future circumstances.

An ROFR exists in various sports-related contracts. Sponsorship/endorsement contracts, collective-bargaining agreements, agent-talent agreements and the like. In these contracts the ROFR provides the sponsor, team, agency, etc. (hereinafter “incumbent”), the option to continue the contractual relationship under terms identical to what competitors are willing to offer. The ROFR operates similar to a store’s “price match guarantee,” but more restrictive. For example, in Berian’s 2015 contract, Nike had the “right to match specific written terms to any bona fide third party.” Therefore, in 2016 when Berian obtained an offer from New Balance, he was obligated to submit that offer to Nike. If Nike decides to match New Balance’s offer then Berian is forced to “make a choice between signing with Nike and endorsing no one.” Unlike a store customer, Berian is restricted from choosing between Nike and New Balance.

This may sound unfair, but a well-negotiated ROFR can be beneficial to both the athlete and the incumbent. An ROFR should assist in the athlete obtaining the best offer on the market while also providing the incumbent insurance on its investment. However, an ROFR can only produce such results if it is drafted properly. A basic ROFR should include three components: An appropriate ROFR window; an option for the incumbent to exercise; and the requirements placed on the incumbent if it chooses to exercise the option. In order to draft a proper ROFR that benefits both parties, part three should be tailored to the parties involved, foresee future circumstances, and define all relevant terms.

Boris Berian placed third in his initial 800-meter heat (above) and placed eighth overall in Rio.getty images

The main goal of the requirements is to set clear standards for an incumbent’s returning offer. It does not force the incumbent to submit an offer. The decision to submit an offer lies completely in the incumbent’s discretion. Therefore, the athlete, coach or talent should negotiate to set the standards of the incumbent’s offer. Common ROFR language will read similar to: The incumbent shall submit an offer on “terms no less favorable to the athlete than the material, measurable and matchable terms of such third-party offer.” Below are three tips one should consider when negotiating the ROFR.

Tip 1: Tailor the language to your situation. Never feel bound by the “standard language.” Rather, use it as a starting point, and be prepared to rewrite the entire clause if need be. Think about your position at the time of negotiating and draft accordingly. For example, should the incumbent submit “no less favorable” terms (also known as “match”) or should they submit “better” terms. Again, not every person will have the leverage to negotiate for this. The goal is to determine what you are worth and draft for nothing less.

Another way to tailor the language is to determine exactly what the incumbent is required to “match” or “better.” Depending on leverage, the incumbent should be required to match a third-party offer word-for-word. However, others may be content with the incumbent matching just salary, incentives and bonuses. Regardless what you choose, make sure it is clearly stated so that there is minimal confusion moving forward.

Tip 2: Define all terms. In the example language given above, the match is only applicable to the “material, measurable and matchable” terms, but what does material, measurable and matchable mean? And whose perspective or definition of material, measurable and matchable governs? The athlete’s? The sponsor’s? Some neutral party? Also, what about terms that are not “material measurable and matchable?” The contract should answer all of these questions. Feel free to list each and every clause that the incumbent has to “match” (or “better”). Again, draft to avoid future ambiguity, because by the time the ROFR kicks in, the parties likely will have forgotten their previous intentions. Therefore, the contract should define any and all terms necessary to clearly reflect the parties’ obligations.

Tip 3: Draft with future goals in mind. In other words, make sure your contract provides incentives for the “what if” situations. Anticipate where you plan to be when the ROFR comes into play. Make sure your ROFR allows for match requirements that reflect the athlete you expect to become. For example, if you were not ranked No. 1 during negotiations and lacked leverage to demand the sponsor to “better” future third-party offers, then consider drafting what I call an evolving ROFR. An evolving ROFR is one that will demand more of the sponsor if you become a better athlete throughout the contract term. For instance, your ROFR should require the sponsor to match more terms or better terms if your rank improves from No. 10 to No. 2 over the course of the contract. The goal is to draft so that your contract provides incentives for the ever-changing and improving athlete you plan to be.

Utilizing the tips above should not offend either party to the contract. Tip 1 keeps the ROFR fair by forcing the incumbent to draft according to the level of talent at the time of negotiations. Tip 2 forces the parties to be unambiguous. Tip 3 is the fair catch-all provision. It guarantees that the incumbent’s obligations increase if the athlete’s performances increase. Overall, these tips keep the ROFR fair and explicit. Implementing the tips above may increase the time spent during negotiations, but it should decrease or avoid the likelihood of litigation and tarnished business relations, which are both very costly.

 

Nicole Leach is an associate at Schnader Harrison Segal and Lewis and a former UCLA track athlete, where she was a two-time NCAA champion in the 400-meter hurdles. 

IT’S YOUR TURN TO SPEAK OUT
For further information on guest columns, contact Jake Kyler at (704) 973-1436 or jkyler@sportsbusinessjournal.com.  

SBJ Morning Buzzcast: March 25, 2024

NFL meeting preview; MLB's opening week ad effort and remembering Peter Angelos.

Big Get Jay Wright, March Madness is upon us and ESPN locks up CFP

On this week’s pod, our Big Get is CBS Sports college basketball analyst Jay Wright. The NCAA Championship-winning coach shares his insight with SBJ’s Austin Karp on key hoops issues and why being well dressed is an important part of his success. Also on the show, Poynter Institute senior writer Tom Jones shares who he has up and who is down in sports media. Later, SBJ’s Ben Portnoy talks the latest on ESPN’s CFP extension and who CBS, TNT Sports and ESPN need to make deep runs in the men’s and women's NCAA basketball tournaments.

SBJ I Factor: Nana-Yaw Asamoah

SBJ I Factor features an interview with AMB Sports and Entertainment Chief Commercial Office Nana-Yaw Asamoah. Asamoah, who moved over to AMBSE last year after 14 years at the NFL, talks with SBJ’s Ben Fischer about how his role model parents and older sisters pushed him to shrive, how the power of lifelong learning fuels successful people, and why AMBSE was an opportunity he could not pass up. Asamoah is 2021 SBJ Forty Under 40 honoree. SBJ I Factor is a monthly podcast offering interviews with sports executives who have been recipients of one of the magazine’s awards.

Shareable URL copied to clipboard!

https://www.sportsbusinessjournal.com/Journal/Issues/2018/02/05/Opinion/LeachColumn.aspx

Sorry, something went wrong with the copy but here is the link for you.

https://www.sportsbusinessjournal.com/Journal/Issues/2018/02/05/Opinion/LeachColumn.aspx

CLOSE