Sports and the Law: Representing the Professional Athlete A-
Professor Peter A. Carfagna, Spring 2007
QUESTION 2: AMATEUR ELIGIBILITY RULES MEMO
To: New Athletic Director
From: General Counsel
Re: NCAA Eligibility Rules
Dear New A.D.,
Congratulations on your appointment! I am the general counsel of Major University, and my job is to help you with the regulatory-side of the NCAA. As I am sure you are aware, the NCAA has a strict definition of amateurism and requires that all its athletes fall within this definition. The purpose of this memo is to explain that definition’s meaning and to outline the most important “eligibility rules” for prospective and current college athletes. The NCAA bylaws are complex, and this memo in no way serves as a summary of all eligibility rules. You should read the bylaws – especially Articles 12, 14 and 16 – as soon as possible.
I. NCAA Definition of Amateurism. An amateur athlete is defined as one “who participates in competitive physical sports only for the pleasure and for the physical, mental, moral, and social benefits.”[1] To protect this definition, the NCAA attempts to “retain a clear line of demarcation between intercollegiate athletics and professional sports.”[2] Otherwise stated, NCAA eligibility rules (supposedly) insulate amateur sports from commercial exploitation and professional play-for-pay.
Because the NCAA is a voluntary athletic organization free to make its own rules[3] and because a player has no constitutional right to play amateur sports,[4] the NCAA has broad discretion to create its rules. Courts have more often than not upheld NCAA rules, finding them reasonably relate to their purpose of keeping sports amateur.[5]
II. Rules for Prospective Athletes. In general, the best way to maintain eligibility is for the athlete, and his family, to understand how broad the scope of potential violations is and to proceed cautiously before hiring a consultant or receiving pay in any form for any reason.[6]
§ Rule 1 – Do not sign, or agree to sign, with an agent. If a player agrees to agent representation, he will lose eligibility. Rules 12.1.1(g),12.3.1. Muhammad Lasege, a Nigerian basketball player, unknowingly violated the rules when he used an agent to sign with Russian basketball teams before playing for a NCAA school.[7] When the NCAA learned this, Lasege was deemed ineligible and was no longer able to play.
If an athlete signs a contract for general representation, he can lose eligibility in all sports. Rule 12.3.1. Therefore, a multi-sport athlete should ensure the agent agreement explicitly limits representation to one sport if he plans to compete professionally in that sport but maintain NCAA eligibility in another. If a prospective athlete wants career advice, he may hire a lawyer as long as that lawyer does not represent the athlete in negotiations for a contract.[8] Again, explicitly state the purpose of the lawyer in the contract.
§ Rule 2 - Do not enter into an agreement to compete professionally. Under Bylaw 12.2.5.1, an athlete is ineligible if he has ever “entered into any kind of agreement to compete in professional athletics, either orally or in writing, regardless of [its] legal enforceablility.”[9] Lasege’s next mistake was that he agreed to play professional ball. The agreement alone, whether or not he received any form of compensation, rendered him ineligible.
§ Rule 3 – Do not receive pay or accept a promise to be paid. A player will be ineligible to play a particular sport if, because of his athletic skill in that sport, he receives payment in any form (money, gifts, services) or a promise of future payment. Rule 12.1.1(a)-(b). Lasege did not receive a salary, but he did receive room, board and plane tickets. These items were considered “illegal” forms of payment under the bylaws. An athlete may receive payment for playing another sport professionally without losing his eligibility. However, that player will not be able to receive scholarship money from a school to play the amateur sport if he continues involvement in the salaried sport.[10]
§ Rule 4 – Do not receive money for expenses in excess of actual and necessary costs. It is important to highlight this rule separately from Rule 3 because prospective NCAA athletes are very likely to be offered money in the form of reimbursement. Players may play for sponsored teams and be reimbursed for expenses but not “in excess of actual and necessary travel and meal expenses and apparel or equipment … for practice and game competition …” Rule 1.1.2(e).[11] The term “actual and necessary” can have a very narrow interpretation. One court held the NCAA could render hockey players ineligible because they received room and board while playing for a Canadian amateur team.[12] It did not matter that the athletes’ participation on that team would have been unlikely or impossible but for the “special” benefit.
III. Rules for Current College Athletes. If there is any doubt about the permissibility of an athlete’s action, you should ask me or request a waiver from the NCAA before acting.
§ Rule 1 – Do not sign or agree to sign an agent. If a player signs an agent or agrees to sign an agent while any games remain during the season or before his eligibility is depleted, he will lose eligibility. Rule 12.3.1. Any games in which the player participates from that day forward will be considered invalid by the NCAA. If a player wants advice on his prospects as a professional, he may hire a “family advisor” who is not authorized to negotiate a professional contract for the player.[13] Alternatively, a player may consult a NBA or NFL advisory board to help predict his professional placement.[14]
§ Rule 2 – Do not engage in any commercial activity, especially for pay. A player should not participate in, or permit the use of his name or likeness in, any commercial activity. Rule 12. The broad definition of commercial activity includes, but is not limited to, marketing, media, promotion or endorsement of any person, team, event, product, etc.[15] It does not matter whether the player receives pay or whether activity is for-profit or non-profit. For example, Steve Alford, a basketball player, was suspended for a game because his photograph was used in a sorority charity calendar.[16] If an athlete has a reason to participate in a commercial activity, he should request a waiver from the NCAA. For example, Darnell Autry was permitted to play a non-paying movie role because he was a theater major and appearance in a film is typical activity for that major.[17]
§ Rule 3 – Do not sign, or agree to sign, a professional contract. Like prospectives, Current athletes will lose eligibility in a particular sport if they sign a professional contract in that sport whether or not the contract is enforceable. Football and basketball players should also be especially aware of the eligibility conflicts that a professional draft creates. A football player who declares himself eligible for the draft loses his eligibility.[18] A basketball player who enters the draft and is selected by a team loses his eligibility as well.[19]
§ Rule 4 – Do not receive pay or accept a promise of pay. Like prospectives, if payment or promise of payment in any form is accepted, a player will lose eligibility. The “Athletic Reputation” rule prohibits compensation from anyone in exchange for the value that person receives because of the athlete’s “reputation, fame or personal following.” Rule 12.4.1.1.[20] Therefore, a professional athlete may continue to receive his salary while participating in the NCAA, but he may not receive compensation, which may be earned as the result of the player’s athletic ability in the amateur sport. For example, money from endorsements is prohibited. Jeremy Bloom challenged this rule, but the court ruled against him finding the regulation was “rationally related to the [NCAA’s] legitimate purpose of retaining” amateurism.[21]
§ Rule 5 – Do not receive excessive financial assistance or income (Rule 4 Subset). A player will be ineligible if he receives any benefits not “generally available to the institution’s students.” Rule 16.02.03. The NCAA is concerned with players being paid, directly or indirectly, for their athletic skill, so it attempts to limit the ways in which the athlete can “earn” money. Article 15 defines the type of financial aid a student may receive, and Article 16 defines the permissible benefits and expenses.[22] If an athlete receives too much money either through a job, unapproved scholarship, or loans, he will lose his eligibility. An athlete may have a part-time job during the school year, but his pay must not exceed the difference between scholarship benefits and the normal cost of attending the college, approximately $2000.[23] An athlete may also have a summer job but must receive pay equivalent to his peers in that field.
Failure to follow these rules has serious consequences for the athlete and school, so please do not hesitate to ask questions. If you become aware of a violation, let me know immediately as we must take every action necessary to stop the offense.[24] Best of luck!
QUESTION 5: LICENSING AGREEMENT FOR SUPERSTAR PLAYER
I. Negotiations and BATNA
This negotiation will consider 5 clauses. They are (1) grant of rights, (2) quantity and price, (3) term and extensions, (4) rights of approval, and (5) certain damages and remedies.
A. Player Points and BATNA. Player feels he has the upper hand for the overall negotiation. It is Player’s name, likeness, success and signature that drives the sale of posters. At the end of the day, there are going to be many posters produced using Player’s likeness, so ultimately he is not concerned if Artist contributes one more poster to the group of unlicensed, unofficial commemorative artworks. Player’s best alternative is to accept the offer of a higher-rate artist for a lower price.
To maintain control of his image and profitability, Player will demand (1) his rights of publicity outside of the lithograph poster category be reserved for his use (non-negotiable), (2) final approval of poster quality and production or substantial security of a high quality product (non-negotiable), (3) the quantity of posters be limited, (4) the term of the agreement be limited, and (5) sufficient remedies to disincentivise Artist from breaking terms of the Agreement, especially breaches related to over-flooding the market with posters (non-negotiable).
Player’s largest concern is money, so his weakness is that the other offers are much lower. His largest concessions will be to clauses dealing with renewal agreements and Artist’s rights to future deals.
B. Artist Points and BATNA. Artist’s strength is that he does not need an agreement with Player to produce his artwork, and his BATNA is selling an unofficial poster. Artist will have to decide how much exclusive endorsement increases the value of his product. That decision will determine how much control he is willing to forfeit. His weakness is his second-rate status, and, if he decides to sell an unofficial poster, his profit margin will be much smaller.
Artist wants (1) exclusive rights to Player’s endorsement and signature in the lithograph poster category (non-negotiable), (2) creative control over the artwork (non-negotiable), (3) the possibility of creating more artwork that Player will officially endorse, (4) a large quantity of posters, and (5) the right to pursue any infringers (non-negotiable). Artist is likely to concede some control if and only if he has final creative control and an objective standard is applied to determine quality. Cost allocation decisions, although not discussed in this negotiation, will play a role in how much control he relinquishes.
II. NOPAs and ZOPAs
A. NOPAs: 1. Creative v. Quality Control. Artist wants complete artistic control and is willing to walk if he does not receive it. Player wants final say on the posters’ appearance because it is his image at stake. Player will make it clear this is a deal breaker because, if he does not have control, his long-term profits may suffer and he is not willing to risk that. 2. Market Flooding Controls. For Player, the Agreement must protect the possibility of market flooding. Player wants to (a) limit the number of lithographs (with and without signature) and the term of the contract, (b) ensure the lithographs are always sold at market price or higher, and (c) receive sufficient termination rights and remedies if Artist produces and sells a number of lithographs in excess of the agreed upon price or below market value. Artist is probably amenable to some of Players demands but wants to sell a large number of posters over a long period of time.
B. ZOPAs: 1. Grant of Rights. The grant of rights is what is driving the two parties to negotiate at all because it is mutually beneficial. If an agreement is not reach, both parties lose out on money in the short-run. 2. Pricing. It is advantageous to both parties to set a minimum price point and agree to a minimum quantity of posters to be sold. 3. Renewal Clause. While Player and Artist may be at ends on some clauses, a renewal clause may be where the parties can make certain concessions. For example, Player is concerned with making as much money as possible and not necessarily worried about the reputation of the artist who gives him that money. Artist wants to enter into a profitable agreement and keep that agreement for as long as possible. Therefore, parties may agree to limit the poster quantity or contract length and consider a first-refusal term. Player can re-test the market if he continues to win and Artist can decide if he wants to continue to be the exclusive producer of Player lithographs.