Herrick Quarterly Sports UpdateSpring 2011
Update—NFL Labor Strife
In our Summer 2010 Quarterly Sports Update, we examined the labor strife in the National Football League and how these issues may impact sponsors of the NFL and its teams. On March 11, 2011, after unsuccessful negotiations between the league and the players, the NFL Players Association formally decertified becoming a trade association, after which a group of ten players consisting of, among others Tom Brady, Drew Brees and Peyton Manning, filed an antitrust lawsuit against the league. In response to the decertification, the NFL officially began the lockout. The primary issue continues to be how the league and its players will divide the roughly $9 billion in annual revenue. While the owners want a better deal to help offset such expenditures as new stadiums, the players are skeptical that the owners are losing money and are demanding full transparency of each team's books and records.
While the lockout threatens to keep NFL players off the practice fields this spring and summer, and might keep them off playing fields in the fall, it may also keep them off of television screens since the expiration of the current deal also impacts the rights of corporate sponsors to use players in national ad campaigns under their contracts with the league. NFL Players, the marketing and licensing arm of the NFLPA, has begun reaching out to sponsors directly to enter into new sponsorship arrangements that would allow sponsors to continue to utilize group player licensing rights. This would also have the added benefit of providing additional capital to the players' war chest in their fight with the league. Recently, the NFL warned sponsors about entering into group licensing deals with the newly established trade association, suggesting that the trade association may not have the right to market the players.
The current situation continues to be very fluid, and thus sponsors of the NFL or NFL teams should carefully review any proposed contractual arrangements in light of the current situation, and should continue to monitor this situation carefully.
Sharing to Increase the Pie—CBS/Turner's New Partnership Leads to Increase in Ratings
In April 2010, CBS Sports and Turner Sports reached a 14-year, nearly $11 billion agreement with the NCAA for the broadcast, Internet and wireless rights to the 68-team men's college basketball championship tournament, better known to many as March Madness. CBS Sports' previous deal with the NCAA of $6 billion for broadcast rights over 11 years would have expired in three years, however, both sides had opt-out clauses, which the NCAA was preparing to exercise in hopes of creating a bidding war. In the end, CBS Sports, which had carried the NCAA Tournament since 1982, joined with Turner to prevent Walt Disney Co.'s ESPN from gaining the contract. The new deal will provide an average of $740 million per year that will be returned to conferences and schools.
For the first time in the tournament's 73-year history, all games were available live in their entirety. CBS Sports and Turner Sports presented fully integrated game and studio productions across all four networks throughout the tournament, utilizing universal graphics, musical beds, unique camera angles and an integrated talent line-up. The deal paid off, with the 2011 NCAA Division I Men's Basketball Championship broadcast across TBS, CBS, TNT and truTV, delivering strong ratings, up 11% from last year, and averaging 7.828 million total viewers, up 12% from last year—the best ratings in 20 years.
Showing every game on TV would, in theory, make online viewing unnecessary. However, as online advertisers predicted, the opposite happened, with online inventory for tournament broadcasts selling out weeks before the tournament started.
Turner reported an increase of 47% in total visits across March Madness On Demand (MMOD) broadband and mobile products for the first three rounds of the tournament. With the release of the new iPad and the decision to stream the NCAA Men's Basketball Championship tournament for free on the iPad and iPhone, MMOD apps have accounted for 29 percent of all video streams delivered via MMOD from March 15 through March 27. There have been 26.7 million visits across the three sites that provide access to MMOD (cbssports.com, si.com and NCAA.com) and 10.3 million hours of live streaming video.
However, the bulk of the NCAA digital audience viewed the event online. On March 17 and 18, when most office pools kicked off and dozens of games were played during the workday, MMOD's website averaged 3.8 million daily unique visitors, versus 782,000 per day on the MMOD mobile apps. Last year, CBS pulled in an estimated $37 million in ad revenue for MMOD, attracting a total of 8.3 million unique users through the duration of the tournament. Turner and CBS have so far declined to release ad revenue figures for 2011—though given the robust online video market, dollars are surely up significantly. The overall audience should also set another record, given the free iPad and iPhone access, as opposed to last year, where CBS charged for access via the iPhone.
CBS Sports engineered a smart decision by partnering with Turner Sports, instead of allowing ESPN to outbid them in the lucrative contract. By partnering with a "competitor," CBS Sports was able to keep the contract, and the benefits seem to be paying off. Furthermore, due to the increase of network coverage, more viewers are tuning in this year than in the last 20 years. In addition, by expanding the online dimension, CBS and Turner have increased advertising revenue and sponsorship opportunities. Sponsors of sporting events and other entities can also look to this success story for increasing consumer activity through the use of multiple platforms.
Estate Planning for the Professional Athlete
It is important to have one's personal estate planning matters in order. This can be especially true for professional athletes because of their potential for great wealth and the possibility that they may own properties in various states. An athlete should take the time to plan for how his or her wealth will be distributed after death, as well as to prepare for possible divorce and incapacity during his or her lifetime, by working with an attorney to create a Last Will & Testament, Prenuptial Agreement (if the athlete plans to get married), Durable Power of Attorney, Health Care Proxy, and Living Will (and perhaps other documents depending on an athlete's goals and circumstances).
Through estate planning, an athlete establishes his or her right to make decisions and not rely on outside parties to do so. For example, if the athlete has a will, he or she will be able to make his or her own decisions as to who would be the guardian of any minor children in the event that both parents were to pass away; how the athlete's assets would be distributed when the athlete dies; and who will monitor the funds left behind for children after the athlete dies. If the athlete does not have a will in place accounting for such decisions, then the state will make them on behalf of the family.
For example, if the athlete has not named a guardian in a will for minor children, then the courts would determine who would raise the children. In addition, a will allows an athlete to financially provide for a spouse, children, charities, and others, in the way that the individual intends. Without a will, state law will govern how the athlete's assets are distributed.
A will can also save millions of dollars in estate taxes, as well as provide children and grandchildren with lawsuit protection, asset protection, and divorce protection through the use of protective trusts that can be built into the will itself.
A prenuptial agreement can help to protect the athlete's income, assets, and privacy in the event of a divorce, as well as control how much in assets a surviving spouse would be entitled to upon the athlete's death. The prenuptial agreement allows the athlete to make his or her own decisions and control financial destiny without having to rely solely on a divorce court to make decisions regarding support and the division of marital assets.
An athlete should also sign a Durable Power of Attorney, Health Care Proxy and Living Will to provide for his or her possible incapacity during lifetime. A Durable Power of Attorney names an agent to act for the athlete in a broad range of business and financial matters in the event the athlete cannot do so for his- or herself. The document can be made effective upon signing, to take effect even without incapacity, which offers an athlete the ability to give a trusted person the ability to act for the athlete when he or she is unavailable—a potential convenience given the busy schedule and high travel demands of an athlete. The Durable Power of Attorney allows the athlete the ability to decide who will be his or her agent, without having to rely on a court (in the case of incapacity) to name an agent for him or her.
The Health Care Proxy and Living Will allow an individual to make his or her decisions known regarding medical care. Through the Health Care Proxy, the athlete can name someone to make medical decisions for him or her if the athlete is unable to do so. A Living Will directs that certain lifesaving measures not be taken in the event that the athlete is in an incurable and irreversible medical condition with no hope of recovery.
Having the proper personal estate planning documents can give an athlete peace of mind that his or her affairs will be dealt with—for whatever reason—in the way that the athlete has decided. An athlete should meet with his or her attorney to set up the appropriate personal planning documents and should thereafter review them periodically.
The NFL after American Needle
In Spring 2010, the Supreme Court issued its much anticipated decision in American Needle, Inc. v. National Football League, refusing to grant the NFL "single entity" status and effective immunity from antitrust scrutiny under the Sherman Antitrust Act. While the decision killed the NFL's (and by extension the other professional sports leagues') hopes for immunity from costly and protracted antitrust suits, overall it has not incited change in the business of professional sports, as it simply preserved the status quo.
The decision in American Needle maintained the players' right to bring Tom Brady, et. al. v. National Football League, the class action antitrust suit recently filed by eight NFL players and prospective players against the NFL and its individual member teams. The players' complaint alleges various antitrust violations including the lockout, rookie salary limitations, as well as franchise and transition player designations, which limit free agency. The true goal of the suit is to win leverage at the bargaining table. As of now, the players hold the threat of treble damages against the NFL, while the NFL holds its own trump card: it has instituted a "lockout," refusing to pay players or allow them access to their training facilities. After the players won an initial stay of the lockout in District Court, the 8th Circuit Court of Appeals upheld the owner's lockout of the players, which swung the leverage back to the owner's side. The owners and players have once again engaged in talks aimed at ending the impasse, however, a breakthrough has yet to occur.
American Needle tipped the bargaining scale in favor of the players by giving them (or rather, not taking away from them) a strategy to attack the lockout, instead of forcing them to surrender to unfavorable terms. However, this is only the first step, as the lower courts still need to examine the case in light of the Supreme Court's ruling. Sponsors should watch both cases closely, as their outcome could significantly effect any potential sponsorship agreements or sponsorship agreements currently in place.
Deals on Wheels: The Garmin-Cervélo Professional Cycling Team has made cycling history with Johan van Summeren's victory in Paris-Roubaix—the first ever for an American team in the biggest one-day classic of the year. Herrick represented Slipstream Sports in connection with Cervélo SA's sponsorship of the Garmin-Cervélo team, helping make it one of the top teams on the Professional Cycling Tour.
We’re on the Ball: Herrick’s Sports Law Practice introduced its client, the New York Cosmos, to another Herrick client, Inner Circle Sports, to raise the capital necessary to re-launch the legendary international soccer brand and team. Herrick continues to serve as outside general counsel to the New York Cosmos as the Cosmos continue to regain their worldwide prominence and soccer continues to grow and develop in the United States.
A Bright Idea: Herrick represented Branded Retail Energy Company in a first-of-its-kind affinity marketing and sponsorship program for the co-branded sale of energy to household and commercial accounts. Herrick helped Branded Retail ink deals with the University of Texas and Texas A&M University to create Texas Longhorns Energy and Aggie Energy, respectively. Branded Retail expects these to be the first of many such deals with major universities and other sports properties across the country. Herrick helped develop the corporate sponsorship deal through which Branded Retail secured the right to use each university's intellectual property, and to pass those rights through to the energy's ultimate seller and provider.
For more information on these and other sports law issues, please contact Irwin A. Kishner, Esq. at (212) 592-1435 or [email protected].
Copyright © 2011 Herrick, Feinstein LLP. Herrick Quarterly Sports Update is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.