NFL players have reportedly been recently entering into Income Purchase Agreements, which are contracts that involve an up-front payment by a third party to a player in exchange for the player promising the third party a percentage of his current and future NFL contracts. The NFL Players Association caught wind of these Income Purchase Agreements and, while the Association has not barred players from entering into such agreements, it has provided a stern warning to certified Contract Advisors.
Before one can sue for breach of contract, he must be able to prove that there is an enforceable contract under which to sue. In Florida, it has been stated many times that contracts with minors can be voidable, and a minor has a legal right to disavow a contract, because of minority.
Non-competition agreements and clauses are a hot topic in the legal sector. They are sometimes enforceable, but more often than not they are struck down if litigated. The problem sometimes can be that an employee does not wish to spend the time or money to litigate these issues.
What does the termination of a contract do to certain intellectual property rights that were granted, in perpetuity, from one party to another within that document? A recent ruling in the U.S. Southern District of New York can be instructive on this issue.
Jim Tomsula is credited as being a defensive wizard in NFL circles. The defensive line coach for the Washington Redskins was integral in turning around the club’s defense in 2017. Prior to that, he served in a variety of positions, including as head coach of the San Francisco 49ers from 2015-16.
It was a short stint for Tomsula with the 49ers, but as is the case for all coaches, he was bound by a contract with the team. And the team was bound to perform according to the contract.
In January 2017, Tomsula was referred to Heitner Legal to assist the coach with getting all the money due to him from the 49ers. The 49ers owed Tomsula severance compensation to be set-off by his new deal with the Redskins. In a letter, we noted that 49ers CEO/owner Jed York further recognized the compensation due in a statement wherein he said, “I would say this; we’ve got several years of Jimmy T’s salary left and we’re going to eat it. Whether he’s coaching somewhere else or not, we owe him that. That’s not a concern.”
After a bit of negotiation, we were able to resolve the matter with the 49ers, without litigation, and allow Tomsula to move on to only thinking about how he could improve the Redskins’ defense.
Sponsorship does not begin and end with procurement. An often bypassed, but extremely important part of securing a sponsorship is the legal construction of same. Sometimes these deals, big and small, are wrapped up with a handshake. Other times, with a thorough, long-form contract.
At Heitner Legal, we always encourage memorializing a deal in writing and with as much specificity as possible. Spending a little bit up money up-front can save you a lot of money on the back-end. Additionally, should something unforeseen arise, then you should have the luxury of relying on the terms of an agreement that you have reduced to writing.
As a lawyer frequently drafting and negotiating sponsorship contracts, I have seen many shifts over the past few years. The most glaring change has been at first the inclusion of social media obligations, which changed to social media being a material clause. Today, there are some contracts that are solely dedicated to social media deliverables. It is hard to find any documents in the sponsorship space that do not at least devote a few lines to social media.
Look for brands in 2017 to focus more on figuring out a formula to better determine return on investments in this Internet and mobile dominated world. Additionally, expect activation to become a larger component of the overall sponsorship equation.
The University of Florida’s O’Connell Center has brokered its first naming rights deal. The arena will re-open in mid-December 2016 with Exactech as the naming rights sponsor.
Kevin Brockway of The Gainesville Sun asked UF and UF Levin College of Law graduate Darren Heitner for commentary on the deal.
Naming rights deals on stadiums and arenas serve different purposes for different companies, according to sports business and legal expert Darren Heitner.
“We all know naming rights deals as simply slapping a brand’s name on a stadium or an arena but there’s a lot that goes into it,” said Heitner, a sports and entertainment lawyer and Florida Levin School of Law graduate. “The agreements have to address the scope of the definition of the deal and have endgame provisions. There are a lot of clauses that go into these deals that also determine the extent of the sponsorship, what categories it covers, in addition to simply having the name on the stadium or the arena, how it’s even phrased, which can be very important.”
Heitner said it’s often tough to tell whether companies get “bang for their buck” when it comes to putting names on sports complexes. In Miami, for example, Joe Robbie Stadium has undergone a number of corporate name changes, from Pro Player to Landshark to Sun Life, in its 29-year history. San Diego State changed the sponsorship agreement of its arena agreement, from Cox Cable to Viejas Casino, in 2009.
“Various brands have various strategies with regards to naming rights,” Heitner said. “For some it’s simply having the brand exposure out there, others may be more interested in using the naming rights as a way to have more participation and more interactivity with the local community, and I think that’s probably more of the case here.”
Kyle Bauer has long worked in the fitness industry and recently founded ReNew You, a fitness club in Houston, Texas. But now his former employer, the nationwide fitness chain Life Time Fitness Inc., is coming after him for allegedly misappropriating trade secrets as well as for breach of fiduciary duty, breach of contract, and tortious interference with contracts. On January 19, 2016, the fitness chain filed a lawsuit against Bauer in the United States District Court for the Southern District of Texas.
Bauer was hired by Life Time Fitness in 2010 as a Regional Vice President in a deal that also included the company paying $5.4 million to purchase a fitness club that Bauer owned in Texas. He worked for five years as the Regional Vice President in charge of overseeing twenty-five fitness clubs in the states of Texas, Georgia, and Alabama. However, according to Life Time Fitness, Bauer was using this opportunity to steal the company’s trade secrets, including its business plans, service menus, and pricing models, in order to start another fitness chain of his own. Life Time Fitness claims that this misappropriation of trade secrets constitutes a violation of both Texas state law and the Computer Fraud and Abuse Act, a federal statute.
Life Time Fitness also alleges that Bauer engaged in various activities that constitute a breach of fiduciary duty. Every employment relationship contains an implied fiduciary duty that is owed by the employee to serve his or her employer with good faith and loyalty. Bauer is accused of failing to meet the loyalty component of this duty. The company states that Bauer used Life Time Fitness’s computers and resources to prepare business plans, negotiate with future employees, conduct financial transactions for his new business, design a new logo, and draft documents outlining employee benefits for ReNew You. They also claim that Bauer improperly solicited a Dr. R. Scott Yarish to partner with him at his new club during a time at which both were employed by Life Time Fitness. The duty of loyalty prohibits employees from soliciting co-workers to leave their current employer in order to work for them in the future.
Bauer is also accused of breach of contract based upon the non-compete agreements that Life Time Fitness included in his employment contract. Non-compete agreements limit the ability of an employee to enter into another job, for a defined period of time, where they would compete with their current employer. Bauer had signed such an agreement that forbade him from competing with Life Time Fitness for a period of three years after his employment with them ended. Such agreements are somewhat controversial and treated much differently in different states. California, for example, has nearly outlawed the provisions, while most other states will tolerate them so long as the restrictions are narrowly construed in terms of the time, geographic area, and scope of industry in which the employee is forbidden from competing. At this stage in the proceedings, it is unclear whether or not the Texas federal court will uphold the non-compete clause in Bauer’s employment contract. Bauer will likely need to demonstrate that the clause was overly broad based on one of the three dimensions previously discussed: time, area, and scope.
The tortious interference claims stem from Bauer’s relationship with Dr. R. Scott Yarish. As Regional Vice President at Life Time Fitness, one of Bauer’s responsibilities was to negotiate an extension of Yarish’s employment contract with Life Time Fitness. At the time, Bauer informed the company that Yarish was not interested in extending his contract. Now that the two are partners with their own fitness club venture, Life Time Fitness is accusing Bauer of tortious interference with prospective contracts and tortious interference with existing contracts.
Many employees envision leveraging the knowledge, experience, and contacts that they have developed in an industry to strike out on their own and start a company. However, they must be careful when engaging in such ventures to protect themselves from the potential liability that Kyle Bauer now faces. Starting a new business is exciting, but facing a lawsuit in federal court is a quick way to dampen the mood.
Russell Okung, All-Pro left tackle, made news by announcing that he had fired his agent and would be negotiating his next contract without agent representation. Okung is set to become a free agent next offseason and figures to have a long list of suitors including his current team, the Seattle Seahawks. Okung says, “I know my worth. I can look at the market and go directly to a team without an agent and tell that team my worth. And I can do so with confidence because I’ve done my research, I’ve educated myself and I’ve questioned the answers I’ve been given.” In place of an agent, Okung will hire a sports attorney to review the new deal and will pay a one-time flat fee not dependent on his salary. The decision by Okung to negotiate his next contract without agent representation potentially saves him millions of dollars. The maximum commission to have an agent negotiate his contract would be 3%. If Okung had retained his agent at the 2.5% he was paid for his first contract when he was drafted and Okung signed a multi-year deal for the average salary of a top 5 tackle, then his agent could be receiving north of $1 million. Okung represents the new wave of athlete who is a businessman and a brand on top of being an athlete. Okung says, “You see, there’s a new sort of athlete, and he’s not just an athlete. He’s a businessman and a living brand, a la Magic Johnson or LeBron James. He’s a player who represents himself because he not only understands the market and his own personal value, but has the self-assurance and financial know-how to do so, too.” Okung understands his decision to represent himself isn’t for everyone, but is leading the charge for players to “free their agents.” Okung does not believe that 2.5% is worth what agents provide. New York Giants running back Rashad Jennings is also pushing for players to negotiate their own contracts. At Heitner Legal, we excel at negotiating and drafting contracts and understand the dynamics involved in contracts such as professional sports contracts, endorsement agreements, licensing agreements, and entertainment contracts. We can guide anyone through the process of negotiating a contract and reviewing it to ensure our clients not only earn their value but are protected from potential liabilities as well. Resources: Darin Gantt, Russell Okung wants to test free agency without an agent, Pro Football Talk (Jul. 20, 2015, 2:08pm), http://profootballtalk.nbcsports.com/2015/07/20/russell-okung-wants-to-test-free-agency-without-an-agent/ Ari Gilberg, A former NFL 1st-round pick explains why he fired his agent and will represent himself as a free agent, Business Insider (Jul. 21, 2015, 9:19am), http://www.businessinsider.com/russell-okung-will-represent-himself-as-a-free-agent-2015-7
While American law is less than 250 years old, some of the expressions used in the U.S. legal system come from a time much older. Latin phrases, such as per stirpes, malum in se, malum prohibitum, and de facto are all still used in American law today. Another such phrase, pari passu, is used as legal terminology, and can play an important role in complex transactions.
Translated literally, pari passu means “with an equal step” or “on equal footing”. It is commonly used in law, and is defined in Black’s Law Dictionary as “proportionally; at an equal pace; without preference”. The term is most relevant in matters relating to estate planning and finance.
Pari passu is important to understand, because it can have dire effects on complex transactions that can affect how creditors are paid. An example of pari passu occurs during bankruptcy proceedings. When a verdict is reached, all creditors can be regarded equally, and will be repaid at the same time and at the same fractional amount as all other creditors.
The purpose of pari passu is to ensure that borrowers neither have nor subsequently create a class of creditors whose claims rank legally senior to the indebtedness represented by the loan agreement. New creditors are naturally concerned about whether senior creditors have a first call upon the borrower’s debt payments or, in the event of the borrower’s bankruptcy, enjoy a priority in the distribution of the borrower’s assets. A pari passu clause can help ease these concerns.
For lenders, a pari passu clause is essentially a conversation starter. Before most lenders make a loan, they will want to know of the existence of any legally superior lenders whose claims will rank higher than theirs. If a lender discovers such superior lenders after the money has been lent, the false representation will provide a basis for calling the loan. Additionally, a pari passu clause protects a lender against the involuntary subordination of its loan.
For borrowers, a pari passu provision is rarely controversial. The borrower’s principal objectives in negotiating this kind of clause are to ensure its accuracy and to limit the constraint it may impose upon the borrower’s future debt servicing behavior. At the very least, both sides should agree that the new loan should rank equally with the borrower’s other debts.
Regardless of one’s role in a transaction, a pari passu clause can be troublesome if not approached properly. At HEITNER LEGAL we can guide you through the intricacies of complex transactions and intimidating terms in contracts, like pari passu. Additionally, we can draft documents for you to help in any transactions you may be engaged in.
Black’s Law Dictionary (9th ed. 2009)