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Contracts in the Sports Industry: Enumerating and analyzing popular clauses

The sports industry is growing exponentially. In fact, today, the sport industry is regarded as one of the largest industries globally in terms of employment and revenue.[1] It is driven by a large worldwide demand.[2] The total worth of the sports industry is estimated to be around US$500 billion.[3] Just under half of this amount is generated by the spectator sports sector. So, competitive sports and all the businesses around it, create roughly 250 billion USD in revenue each year.[4]

For spectator sports to continue to flourish as they are, top notch quality players are a must. Moreover, it is also necessary for a robust scouting system to exist in an environment which is wholesome and conducive for healthy competition. In light of these observations, contract drafting becomes of utmost importance. It is the responsibility of the lawyer who drafts the contract to ensure that such conditions are fulfilled.
Nothing should be uncertain, all roles must be well defined along with remedies and adverse ramifications if necessary. Though sports and its values can be persuasive but just like any other industry, it is risk prone and must be dealt with a stern attitude.

In this short article, the author will try to analyse the key clauses in the contracts related to the field of sports. Among other contracts, focus will majorly be on contracts between athletes and the league organisers. For eg. contracts between athletes and the Board of Control for Cricket in India [BCCI] when it comes to the contracts for the famous cricketing tournament, Indian Premier League, IPL.

Contracts in sports are no different than other contracts we encounter in everyday life. Professional athletes are compensated for their services with a paycheck just as anyone else.[5] These contracts are mostly in the nature of personal service contracts.[6] That is to say that no one except the player contracted can perform the contract. Such a nature demands stringent clauses which are able to uphold the purposes and the intent of the parties. Let's look at some of the important clauses.

Morality Clause

A morals clause is simply a provision in a contract which stipulates that certain actions or activities ostensibly done or committed in the player's private life would constitute grounds for the termination of the player's contract.[7] It is often used to protect the image and reputation of the sporting organisation and enables the body to unilaterally terminate the contract where the other party engages in conduct which impacts negatively on the organisation.

Typically, these clauses turn on some violation of law or social norms, but they can also restrict behaviour that degrades the value of a brand.[8] Morality clauses were the talk of the town when Mohd. Shami, an Indian cricketer, was accused of domestic abuse. This begets a question whether the clause should include only such personal actions that are related to sport or league or should it include all actions undertaken by the player in their private lives. Most provisions which include all actions are frowned upon by the players as they allow a very strict scrutiny of their personal lives by people who have no business prying into their privacy.

Best Efforts Clause

The Best Efforts clause requires parties to exercise their best efforts to perform their contractual obligations. The provision is a more specific definition of the implied covenant to act in good faith.[9] In sports contract, it means playing to the best of one's ability, playing in the spirit of the game and following all rules of exceptional conduct.[10] It ensures that when the deal is done, players don't merely show up but also compete with the highest standard of skills on showcase.

Bonus/incentive Clause
In order to ensure that the best skills are projected on the field, the players are encouraged with incentives. These incentives come as contingent clauses.[11] For eg. If the team wins the tournament, all members get 10% extra of their fees/winning bid. Similarly, one may have contingent clauses with regards Most valuable player, most runs etc. Bonus clauses ensure that the players constantly try to excel and earn more for themselves.

Hazardous Activities Clause

Physical activities that put athletes' bodies at risk, by extension, also leave their teams' fortunes in danger.[12] One of the contractual ways to attempt to mitigate the chances of an injury has been to utilise what are known as hazardous activity clauses. In essence, the clause allows the team, at its option, to modify the financial obligation to a player if a player is involved in a particular type of activity outside the context of their sport and is injured as a direct result.

Hazardous activity clauses have been in the spotlight much more today than ever before and appear to be designed to be both deterrent and punitive in nature.[13] For example, if a player gets injured while paragliding or while indulging in any other extreme sport, the cost of his absence will be borne by the player himself/herself. However, if he gets injured in the gym whilst practicing for the match, his injury comes under the purview of the sporting activity undertaken. This clause is directed to promote responsibility and ensure parity and reasonableness in terms of financial obligation.

Force Majeure Clause

Force Majeure essentially means an unforeseeable natural or human event beyond the control of the parties to a contract which renders the performance of the contract impossible.[14] Force majeure clauses are often thrown in as standard boilerplate language related to rescheduling or delaying events yet they are seldom invoked . However, lately this clause has been invoked all throughout the world in light of the pandemic.

Broadcasting rights which were bid sold for about INR 10,000 crores became a subject matter of consideration under the Force Majeure clause since the pandemic almost led to the cancellation of the Indian Premier League. This would have cost the broadcaster, Star Sports, dearly since the provisions of the contract expressly protected the BCCI from any financial obligation.[15]

Non-Compete Clause

Non-compete clauses are employment agreements and other forms of agreements made with the intention of restricting the employees and/or former employees from pursuing similar professions or trade with the competitor of the employer after the cessation of employment. [16]

Non-compete clauses have been a point of debate as they may be construed to be violative of competition laws. BCCI which regulates cricket in the country enjoys a monopoly. It is to be noted that BCCI is not a state instrument. Sports governing bodies such as BCCI, often attempt to preserve for themselves the sole ability to regulate the sport and to organize events. In order to prevent the development of rival organisations, they have sought to tie players in by prohibiting them from competing in other events, on pain of exclusion from ‘official' events, and such rules have been the subject of challenge under competition law.[17]

Transfer Clause

It was pointed out earlier that sports contracts are always personal service contracts and can not be transferred from one player to another with the purpose of filling in for the initial player. The transfer clause on the other hand is necessary when professional sporting leagues are contracting a player and then allotting him a team. So it works the other way around. Regulating authority transfers their obligation to a team which ultimately buys the services of the player in the auction but the player has to adhere to the principle of personal performance.

Such a transfer clause is essential where auction format is used for selecting the roster of teams. The auctioneer/regulating authority contracts the services of the player and then sells them as commodities to the teams participating in the auction.[18] Transfer clauses can be provisions for inter-team transfers as well.

Liquidated Damages Clause

Liquidated damages are those damages whose extent is predetermined. A typical liquidated damages clause allows the parties to privately agree what repercussion will be for a breach of the agreement. [19] Though liquidated damages clause is generally inserted to preempt and avoid disputes, it can have a punitive impact and effect as well. [20] It is extremely undesirable for players, regulatory authorities or teams to waste their time and money in ascertaining the amount of damages, especially when the playing season is in full force. Thus, this clause should be used extensively wherever possible. Liquidated damages also prove very useful when calculating the extent of damages in case of a default in the future will prove extremely difficult.

Termination Clause

The ability to end the business relationship in case of default is a sine qua non in all contracts. The parties and the drafters of the contract consider this as the most essential element after mutual obligations. There are a lot of long term agreements with respect to team perpetuity, stadium lease etc. but good drafters include the provisions of termination which allow the parties to terminate their relationship early if necessary.[21] These clauses must be carefully drafted since an ill drafted agreement can lead to unlawful termination or malpractice lawsuit.[22] It may serve as a guarantee against misconduct and poor organisational skills.

Governing Law and Dispute Resolution Clause

Even after all efforts are made to minimise inconsistencies and disputes, it is extremely possible that disputes will stem anyway. In this scenario, it is feasible that a dispute resolution clause be inserted. This clause should expressly provide the laws which shall be applicable in case of a dispute. Moreover, the clause apart from jurisdiction shall also lay out the procedure of the dispute resolution mechanism. Mostly, arbitration is used as the primary method to settle disputes as it ensures confidentiality and considers the matter on legal merit.

Loyalty Clause

Loyalty clause is an extension and conjugation of the good faith clause and non-compete clause. It allows the employer to terminate the agreement of the employee in the event that he or she supports a cause contrary to that of the interests of the employee.[23] For eg, wearing Nike Shoes whilst being an official endorser of Reebok.[24] A sportsperson maybe disallowed to wear any other gear than that of his team etc. [25] Some consider this clause as abuse of superior bargaining power over another.[26]

End Notes:
  1. The Next Big Industry in India- SPORTS, Sports and Management Research Institute <http:/www.smri.in/sportsbusiness/> accessed 21st Sep, 2020
  2. Borland, J. & Macdonald, R., Demand for Sport.(2003). Oxford Review of Economic Policy, 19(4), 478-502. <http://www.jstor.org/stable/23606855> accessed 24th Sep, 2020.
  3. Sports - $614 Billion Global Market Opportunities & Strategies to 2022 , Business Wire (May 14, 2019 06:33AM) <https://www.businesswire.com/news/home/20190514005472/en/Sports---614-Billion-Global-Market-Opportunities> accessed 24th Sep, 2020.
  4. Why the Sports Industry is Booming in 2020 (and which key players are driving growth, Torrens University Australia (Feb 10, 2020)
    <https://www.torrens.edu.au/blog/business/why-the-sports-industry-is-booming-in-2020-and-which-key-players-are-driving-growth> accessed 23rd Sep, 2020.
  5. Chattopadhyay, Avinandan, Regulation and Liabilities of Parties in Sports Contract (2012). <http://dx.doi.org/10.2139/ssrn.2145520>accessed 24th Sep, 2020.
  6. Sports Contracts - Basic Problems, US Legal <https://sportslaw.uslegal.com/sports-agents-and-contracts/sports-contracts-basic-principles/> accessed 23rd Sep, 2020.
  7. Steve Nwabwueze, Morals Clauses in Professional Player Contracts: Their uses and limitations, Sportsbarng
    <http://sportsbarng.com/morals-clauses-in-professional-player-contracts-their-uses-and-limitations/> accessed 24th Sep, 2020.
  8. Ibid.
  9. Best Effort Clause, Contract Standards accessed 25th Sep, 2020.
  10. Tomáš Gábriš, Behaviour Clauses in Sports: Basic Rights of Sportsmen, Tilburg University <http://arno.uvt.nl/show.cgi?fid=106138> accessed 25th Sep, 2020.
  11. Ross GN. The Determination of Bonuses in Professional Sports. The American Economist.(1975) Volume 19 Issue 2.
  12. Anthony R. Caruso, Physical Activity Clauses Can void Athlete Contracts, Scarinci and Hollenbeck
    <https://scarincihollenbeck.com/law-firm-insights/entertainment-and-sports/physical-activity-clauses-can-void-athlete-contracts>accessed 26th Sep, 2020.
  13. Epstein, Adam. An Exploration of Interesting Clauses in Sports. (2011). Journal of Legal Aspects of Sport. 21. <https://www.researchgate.net/publication/228295651> accessed 24th Sep, 2020.
  14. Gary D Way, Sudden Death: League Labour Disputes, Sports licensing and Force Majeure. (1997) 7 MARQ Sports L.J. 427.
  15. Kamakshi S Mehlwal, Force Majeure Clause: An Act of God, India legal Live <https://www.indialegallive.com/special/force-majeure-clause-an-act-of-god/> accessed 24th Sep, 2020.
  16. Raunak Singh, Enforceability Of ‘Non-Compete Clause' Under An Employment Agreement, MONDAQ
    <https://www.mondaq.com/india/contract-of-employment/614370/enforceability-of-non-compete-clause39-under-an-employment-agreement> accessed 23rd Sep, 2020
  17. Gaurang Kanth, Emergence of Sports law in India, India Law Journal Vol 3 Issue 2. <https://www.indialawjournal.org/archives/volume3/issue_2/article_by_Gaurang.html> accessed 2nd Sep, 2020.
  18. Matthew J. Parlow, Professional Sports League Commissioners' Authority and Collective Bargaining, 11 TEX. REV. ENT. & SPORTS L. 179, 185 (2010).
  19. Vanderbilt Univ. v. DiNardo, 174 F.3d 751 (6th Cir. 1999)
  20. Richard T. Karcher, The Coaching Carousel in Big-Time Intercollegiate Athletics: Economic Implications and Legal Considerations, 20 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 1 (2009).
  21. Kristi E. Swartz, Lawsuit: Thrashers Owners Have Been Trying To Sell Teams Since 2005, (2011) Atlanta Journal Constitution.
  22. Jan Stiglitz, Player Discipline in Team Sports, (1995) 5 MARQ. SPORTS L.J. 167, 170.
  23. Robert H. Lattinville & Robert A. Boland, Coaching in the National Football League: A Market Survey and Legal Review,(2006) 17 MARQ. SPORTS L. REV. 109, 147.
  24. Darren Rovell, Reebok Dumps Hall for Wearing Nikes, ESPN (Oct. 26, 2005), <http://sports.espn.go.com/nfl/news/story?id=2204711.> accessed 3rd Sep., 2020.
  25. Chris Deubert & Glenn M. Wong, Understanding the Evolution of Signing Bonuses and Guaranteed Money in the National Football League: Preparing for the 2011 Collective Bargaining Negotiations, (2009) 16 UCLA ENT. L. REV. 179, 225.
  26. Thomas E. Fielder, Keep Your Mouth Shut and Listen: The NFL Player's Right of Free Expression, (2002) 10 U. MIAMI BUS. L. REV. 547, 557-560.

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