Sports Archives - The National Law Forum

Dartmouth Basketball Players Vote to Be First College Athletes Represented by a Union

On March 5, 2024, players on the Dartmouth College men’s basketball team voted to unionize, making the group the first college sports team to do so in the United States. Dartmouth College has already filed an appeal with the National Labor Relations Board (NLRB), setting up a legal challenge that will have significant implications for the status of college athletes and the future of college sports in the United States.

Quick Hits

The Dartmouth men’s basketball team voted to unionize in what would be the first union to represent college athletes.
Dartmouth has filed an appeal with the NLRB that could determine whether college athletes are employees within the meaning of the NLRA.
The union vote could have significant implications for the future of college sports in the United States.

In a representation election overseen by the NLRB, the Dartmouth men’s basketball players reportedly voted 13-2 to be represented by the Service Employees International Union Local 560. The Trustees of Dartmouth College immediately filed a request for a review of the regional director’s decision and direction of election that had allowed the unprecedented election to proceed despite serious implications for college sports.

The election comes after an NLRB regional director in Boston, Massachusetts, ruled on February 5, 2024, that the men’s basketball players at Dartmouth—who compete in the National Collegiate Athletic Association (NCAA) Division I, the highest level of college athletics—are “employees” within the meaning of the National Labor Relations Act (NLRA) and have the right to a union election.

Dartmouth argued in its request for review that the players cannot be considered employees under the NLRA because they are amateur students who are provided with financial aid and academic resources, not compensation, and do not provide any service to the school.

Dartmouth, which is a private institution in New Hampshire and part of the all-private Ivy League collegiate athletic conference, called the regional director’s decision an “unprecedented, unwarranted, and unsupported departure” from applicable legal standards that creates a “new definition of ‘employee’” and “promises to have significant negative labor and public policy implications.”

College Athletes’ Employment Status

NLRB Region 1 Director Laura Sacks found that the Dartmouth men’s basketball players were employees in large part because the school “exercises significant control” over their participation on the team, including determining when players practice and play, review film, engage with alumni, and take part in other team-related activities. During travel, the school controls when and where the players travel, eat, and sleep, the regional director found.

Further, the regional director found that despite questions about the revenue generated, the players generate publicity for the school, and do so to receive various economic benefits, including equipment and apparel, tickets to games, lodging, meals, and other specialized academic and career development support.

The Dartmouth appeal tees up for the NLRB the issue of whether college athletes at private schools are employees after the NLRB punted on a similar issue in a 2015 case involving college football players at Northwestern University that left open the issue of whether college athletes at private universities may be considered employees under the NLRA.

In the Northwestern case, the full Board later declined to assert jurisdiction over the case, finding it “would not serve to promote stability in labor relations,” largely because the majority of schools that compete in college football at the highest level are public institutions not subject to the NLRA.

The regional director in Dartmouth reached her conclusion despite the significant differences in the economics of college basketball and football that distinguished the Dartmouth case from the Northwestern case, where the players received athletic scholarships in a sport—football—that generated more revenue. Further, unlike the highest level of college football, which is comprised mostly of public universities, Dartmouth is a member of a collegiate athletic conference made up entirely of private universities that do not provide athletic scholarships.

Looking Ahead

If the Board agrees that the Dartmouth basketball players are employees and allows the union election to stand, it could have a ripple effect, with college athletes at private universities across the country seeking to organize.

Yet the Dartmouth basketball players’ unionization vote is only the latest in a string of legal developments related to whether college athletes may be considered employees or parties entitled to receive compensation under various legal standards, including under the NLRA and Fair Labor Standards Act (FLSA). On February 23, 2023, the U.S. District Court for the Eastern District of Tennessee issued a preliminary injunction blocking the NCAA from enforcing new rules on athletes’ compensation derived from name, image, and likeness (NIL) rights—specifically, rules restricting the ability of so-called school “boosters” to negotiate with NCAA athletes during the recruiting and transfer processes.

Managing Workplace Conflict: 3 Lessons to Learn from the Super Bowl Game Kelce-Reid Incident

During the recent Super Bowl game, millions of viewers witnessed a tense moment that quickly became a talking point far beyond the realm of sports. Kansas City Chiefs’ star tight end, Travis Kelce, was seen apparently pushing and yelling at Head Coach Andy Reid. The incident seemed to stem from the player’s frustration over being sidelined during a crucial part of the game, leading to an outburst that suggested he was demanding more playing time.

This high-profile episode serves as a powerful example for managers and supervisors across all industries, illustrating the challenges of dealing with insubordinate (and possibly disruptive) behavior in the workplace. If not for Coach Reid’s calm and collected response, this incident could have escalated into a far more unpleasant exchange.

Drawing lessons from the incident, here are three key actions that leaders can take when faced with threatening or insubordinate employees:

1. Exercise Professional Restraint and Demonstrate Leadership

The first lesson is the importance of maintaining composure and professionalism. In any situation where tensions may rise, it’s crucial for managers to exercise restraint and avoid escalating the situation further. This approach not only helps in diffusing immediate tension, but also sets a positive example for the rest of the team. It’s essential that managers not misuse their position of power; rather, as Coach Reid exemplified, demonstrating calm and decisive leadership can often de-escalate a potentially volatile situation.

2. Refer to Company Policies and Engage HR

When dealing with insubordination or an outburst by an employee, it’s important to follow established corporate protocols. Managers should consult the company’s employee handbook for procedures to handle complaints and investigations. Filing a formal complaint with Human Resources can initiate a process that is both fair and impartial. Ideally, the HR department should be properly trained to address a tense situation. This step ensures that all parties are heard, and that the incident is addressed thoroughly, respecting the rights and dignity of everyone involved, and setting an example for the rest of the company.

3. Support the Investigative Process

Once a complaint is filed, cooperating fully with the ensuing investigation is paramount. An effective investigation can uncover the root causes of the conflict, offering insights into not just what happened, but why. By supporting this process, managers can help ensure that resolutions are just, and that similar incidents can be prevented in the future. It’s also an opportunity for organizations to reinforce their commitment to a respectful and safe working environment for all employees.

Conclusion

The incident at the Super Bowl game, while unfortunate, provides valuable lessons for leaders in any field. Managing workplace conflict requires a balanced approach that prioritizes restraint, adherence to company policies, and support for the investigative process. By applying these principles, managers and supervisors can navigate complex interpersonal challenges, fostering a workplace culture that is both respectful and productive.

Recognizing principles of good leadership remains constant and essential, whether on the football field or in the office.

All I Want for Christmas is Effective Sports Governance

At the start of this year, following his appointment as Chair of the UK’s Department for Culture, Media, and Sport (“DCMS”), Damian Green MP put sports governance firmly on the agenda.

This commitment came after the publication of the Whyte Review in June 2022 (the “Review“), which was an independent report into allegations of mistreatment in the sport of gymnastics led by Anne Whyte KC.

Sport England’s CEO Tim Hollingsworth and UK Sport’s CEO Sally Munday, the two individuals who commissioned the report, provided a joint statement following the Review, which included a commitment to “not rest until [we] have a sporting system that fully champions and enables participant and athlete wellbeing”.

Sports governance is a multi-faceted issue; systematic failings cannot be solved overnight. Effective and comprehensive investigations are needed to uncover the existing issues before remediation can take place.

As such, this blog will lay out five top tips for ensuring that all goes to plan when conducting a sports investigation.

Tip 1: Have Policies In Place

Terms and conditions, policies and procedures are rarely updated and often overlooked. However, when issues arise, it is these terms and conditions, policies and procedures that are an immediate source of authority for standards of behaviour; they are your “dos” and “don’ts”.

Therefore, first and foremost, it is essential to have robust, fair and proportionate policies and procedures in place to guide the investigative process.

During a recent sport investigation it quickly became apparent that the sport had no definition of “bullying” even though that was the accusation levelled at an athlete. Some of the practical issues with this included uncertainty as to:

whether an imbalance of power was a necessary ingredient of bullying;
whether intent was a requirement of bullying; and
what amounted to a “course of conduct”.

In the end, those investigating the allegations relied on a combination of the athlete code of conduct, analogous previous investigations, and the governing bodies’ social media guidance to piece together a definition.

This investigation into bullying is not an isolated incident and most of the recent complaints raised with Sport Integrity (UK Sport’s confidential reporting line and independent investigation service) relate to bullying, so to not have a universal definition of “bullying” was and is particularly troublesome.

Since this investigation, we have worked with National Governing Bodies (“NGBs”) to devise a uniform definition of “bullying”. Of course, some NGBs will require bespoke definitions to reflect the nature of their sport, but a reference point (and, over time, a precedent bank) will help both individuals and NGBs.

We would caution that, in an attempt ‘do the right thing’, sporting governing bodies can sometimes overcommit, leading to policies that are too onerous. An example includes allowing an automatic right to appeal if the complainant is not satisfied with the outcome, rather than requiring them to establish a basis for appeal. It comes from a good intention but can often be costly and time consuming.

Tip 2: Identifying the Right People to Handle the Investigation

A key issue to consider at the start of an investigation is not only (i) who is going to undertake the investigation; but also (ii) who will advise the governing body in respect of the investigation report.

In determining issue (i), thought must be given to whether the investigator has appropriate experience and whether they are, of course, truly independent.

But once the investigation has ended, the commissioning governing body does not just put the report into the top drawer, the recommendations within the report will need to be actioned. But often those recommendations may have legal consequences such as employment issues, data protection considerations, and defamations risks, to name but a few. We believe it is advisable for a governing body to instruct an external law firm from the outset so that they are able to receive independent advice while remaining separate from the investigation.

Tip 3: Nail the Terms of Reference

The terms of reference (“ToR”) set out the parameters of an investigation and provide something of a roadmap. Investigations often uncover facts or events which were not in contemplation at the outset, and so it is crucial that the ToR provides for such eventualities.

For an international rugby referee, it is standard practice to consider the “what if” situations. What if there is a thunderstorm? What if the crossbar falls down? What if the ball is stolen by a streaker? Referees want to be as prepared as possible when people turn to them for an answer – the same is true in an investigative setting.

Essential features of the ToR include:

what will be investigated and what won’t;
what happens if you discover something that isn’t covered;
how do you amend the ToR; and
who will provide what material and when.

Some less obvious matters for inclusion:

how many times do you email someone before concluding that they have refused to comply;
what are acceptable methods of contact;
who is allowed to attend the meeting with the individual being interviewed;
will you produce transcripts of meetings; and
who will see the report.

Doing the legwork beforehand saves time, stress, and distress down the track.

Tip 4: Specialist Support to the Investigating Team

During one of our sporting investigations, it became clear that athletes in that particular sport liked technical jargon even more than lawyers. To ensure that key information is not hidden in opaque terminology, we have found it useful to involve people with relevant experience who can put factual sporting matters in layman’s terms.

Contact sports is a good example of this. Physical intimidation during training sessions seems at odds with most places of work, but when athletes are competing for a single spot at the Olympic Games, this can be part and parcel of their world.

Interviewing ex-athletes as part of the initial stages of an investigation not only allow us to understand the jargon, but also to understand the realities of the sport, the difference between male and female athletes, and when aggression transgresses into bullying.

Tip 5: Involve Data Privacy Experts

Data Privacy is a fast-moving area of law which requires careful consideration in the context of sports investigations. The approach to data is two-fold: how and what can I collect, and with who and how can I share it.

You must have a clearly identified purpose and an appropriate lawful basis for processing personal data, or be able to show that your processing fits within one of the narrowly defined statutory exceptions. Be aware that sharing personal data is a form of “processing”, so ensure that you have a clear purpose and lawful basis for sharing, and that the recipient (for example an expert) has a clearly stated purpose and lawful basis for receiving that data.

From a UK perspective, you (or someone with the relevant expertise) will need to be familiar with the relevant provisions of the UK General Data Protection Regulation 2018 and the Data Privacy Act 2018 to ensure compliance. Reference should also be made to any policies which may set out how employee data may be processed. In the first instance, you will need to ensure that you have a lawful basis for collecting and processing data. Additional care should be taken when you are processing criminal offences data – as is often the case in investigations – or any “special category” data revealing factors such as racial or ethnic origin, political opinions, religious or philosophical beliefs, health, sex life or sexual orientation.

Data Protection Impact Assessments (DPIA) and Legitimate Interests Assessments (LIA) are now a reality of sporting investigations that should not be overlooked. Helpfully, in relation to “special category” and criminal offence data, UK data protection laws make express provision for processing where it is necessary to protect the integrity of a sport or a sporting event against dishonesty, malpractice or other seriously improper conduct, or failure by a person participating in the sport or event in any capacity to comply with standards of behaviour set by a body or association with responsibility for that sport or event. However, in each case it is essential that you involve experts to check that the factual situation justifies reliance on those provisions.

Summary

Sports organisations would be well served to address the issues highlighted above, particularly as their feet are often held to the fire by governments, sponsors, participants, and the general public on whether they have done enough to identify or remedy high profile matters.

This article was co-authored by Molly Mckenna.

New Lawsuit Addresses Eligibility Concerns for US Collegiate Athletes

It has been over two years since the National Collegiate Athletic Association (“NCAA”) lifted its prohibition on college athletes being able to profit from their name, image, and likeness (“NIL”). When people traditionally think of NIL, they think of student athletes at the collegiate level receiving payment for their likeness. However, collegiate athletes are not the only student athletes able to avail themselves of the burgeoning world of NIL.

To date, thirty-three states have enacted some form of legislation or executive order permitting high school athletes to profit from their NIL. As the NIL landscape continues to develop, one of the more interesting questions posed as a result of these new policies is whether or how a student athlete’s engagement in NIL at the high school level might affect their NCAA eligibility. A new lawsuit of first impression could address this very issue.

In November 2023, Matt and Ryan Bewley, twin brothers from Fort Lauderdale, Florida, filed a federal lawsuit against the NCAA in the U.S. District Court for the Northern District of Illinois.

The Bewleys are former basketball players at Overtime Elite Academy (“OTE”). OTE is a professional basketball league and training program for high school players. “In addition to basketball training, OTE places equal importance on education. The league offers a fully accredited curriculum, allowing players to pursue their academic goals alongside their basketball aspirations.”^[1]OTE players can either make a career playing for the OTE league, or they can play until they satisfy the coursework necessary to graduate and go to college and perhaps play for a college team.

Established mere months before the NCAA lifted their ban on NIL, OTE, coincidentally, was founded in part to offer an alternative path for athletes to receive compensation for their talents.^[2] As such, OTE initially offered their athletes only salaries. After the NCAA changed their NIL policies, however, OTE adjusted the options available to their players. Because accepting a salary can threaten college eligibility, OTE today offers their players one of two options: they can either collect a salary or, for those with collegiate-level aspirations, opt for a scholarship instead thus keeping their eligibility intact.

When the Bewleys signed with OTE, they did not have the option to elect a scholarship. Instead, they were paid a salary. The brothers were later awarded and accepted scholarship offers to play for Chicago State University. As a result of their OTE payments, however, the NCAA, citing amateurism rules, deemed the Bewley brothers to be ineligible. The NCAA reasoned that because the Bewleys’ OTE compensation exceeded their “actual and necessary expenses,” they could not be considered amateur players. Additionally, the NCAA “also said the twins competed for a team that considered itself professional.”^[3]

In their lawsuit, the Bewleys argue that the NCAA’s amateurism rules are anticompetitive and violate federal antitrust law; specifically, Section 1 of the Sherman Act. They allege that the NCAA is effectively restraining trade by limiting the amount of compensation that student-athletes can receive. This argument is reminiscent of the arguments raised by the Plaintiffs in the Alston case, which opened the door for NIL. In Alston, the Plaintiffs argued that the NCAA violated federal antitrust law by placing limits on the education-related benefits that colleges and universities can provide to student-athletes. The United States Supreme Court ruled in favor of the Plaintiffs in Alston, applying antitrust law directly to the NCAA and finding that the rule was an anti-competitive restriction on interstate commerce.

Both Alston and now Bewley challenge the NCAA’s authority to regulate student-athletes’ compensation. The Bewley brothers are also alleging that the NCAA’s determination violates state law, specifically, the Illinois Student-Athlete Endorsement Rights Act (“ISAEA”). The ISAEA allows student-athletes in Illinois to monetize their NIL by entering into deals with any company or organization.

The NCAA’s primary rebuttal in Bewley is that, while student-athletes can now profit from their NIL, they are still considered “amateurs” and should not be paid to play for professional teams while at the high school level. Specifically, the NCAA provides that “[p]rospective student-athletes may accept compensation from their club team while in high school, provided payments do not exceed costs for the individual to participate on the team.”^[4] In other words, the compensation received must be “actual and necessary,” which the NCAA defines as being: meals, lodging, apparel, equipment and supplies, coaching and instruction, health/medical insurance, transportation, medical treatment and physical therapy, facility usage, entry fees, and other reasonable expenses.

The NCAA believes that the Bewleys’ compensation from OTE exceeded these permissible limits, maintaining that it was not related to legitimate educational expenses and that their participation in the OTE program was akin to playing for a professional team.

The outcome of the Bewley case could have a significant impact on the future of compensation in college athletics, and specifically as it relates to the further application of federal antitrust law to the NCCA as well as nuanced circumstances where high school athletes who received payment before the NCAA permitted NIL now face risks relating to their collegiate eligibility.

[1] What is Overtime Elite?, Fan Arch, https://fanarch.com/blogs/fan-arch/what-is-overtime-elite (last visited November 11, 2023).

[2] Overtime Elite: Basketball Leaguge to Pay High School Players Six-Figure Salaries, Boardroom, https://boardroom.tv/overtime-elite-basketball-league-to-pay-high-school-players-six-figure-salaries/ (March 4, 2021):

OTE sees itself as a solution to the lack of compensation for amateur athletes and will offer every player a minimum salary of $100,000 per year, plus bonuses and equity shares in Overtime. Players will also profit from their likeness, a long-disputed issue in college sports, through sales of jerseys, trading cards, video games, and NFT’s.

Athletes will also be able to sign direct sponsorships with sneaker companies, something that is not allowed for collegiate athletes.

“Paying basketball players isn’t radical,” said Overtime President, Zack Weiner. “What’s radical is telling people who put in thousands of hours of work that they have to do it for free.” OTE will change this.

[3] Twin Brothers Suing NCAA in Federal Court Over Eligibility Dispute Involving NIL Compensation, Associated Press News, https://apnews.com/article/ncaa-nil-lawsuit-3f8cd7d2c6f7b73e816f77741663fb24 (November 3, 2023, 9:10 PM) (internal quotations omitted).

[4] Payment from Sports Team, NCAA, http://fs.ncaa.org/Docs/eligibility_center/ECMIP/Amateurism_Certification/Payment_from_team.pdf (last visited November 11, 2023).

Competition for Control of College-Athletes Enters New Playing Field

November 7, 2023, may become a monumental day in the history of the National Collegiate Athletic Association (NCAA). It is the first day of a potentially groundbreaking hearing. Region 21 of the National Labor Relations Board will be hearing a case brought by members of the football, men’s basketball, and women’s basketball teams against the University of Southern California (USC), the PAC-12, and the NCAA. The crux of their argument is that the three major entities should be considered “joint employers” who have systematically misclassified the players as “student-athletes” rather than as employees.

The implications of this Board hearing could have far-reaching implications across the country. The NLRB General Counsel Jennifer Abruzzo has already signaled that, in her opinion, certain players at colleges and universities should qualify as employees of their institutions. If the administrative law judge were to agree with Abruzzo’s opinion, the impact on the national landscape of collegiate athletics would be immediate.

If these players are found to be employees, each player would be entitled to the benefits of traditionally employed individuals, such as compensation, overtime, social security, worker’s compensation, health and safety protections, protections against discrimination and harassment, and a statutory right to unionize and collectively bargain for a share of collegiate sport revenues.

While being found to be employees would be looked at as a major win for the impacted players, such a determination would cause complicated issues for colleges and universities across the country. These issues include compliance with Title IX of the Education Amendments of 1972 and the Immigration Nationality Act, among others. Further, having some teams but not others qualify likely will create a two-tier system throughout the country. This divide would be even further enhanced if the Board finds certain players, but not others, qualify as employees.

Testimony will not be heard until the week of December 18, at the earliest. Higher education institutions, players, and fans alike will be monitoring this hearing as it progresses.

For more news on Student Athletes as Employees, visit the NLR Entertainment, Art & Sports section.

Sportswashing: The New Money Laundering and Sanctions Avoidance Mechanism

In the world of international finance and crime, criminals and terrorists have always sought innovative ways to launder money and avoid sanctions. One relatively recent method that has gained prominence is known as “sportswashing.” This term refers to the use of sports events and organizations to legitimize illicit wealth, evade sanctions, and make millions for those with nefarious intentions. While the practice of sportswashing isn’t exclusive to one sport or country, this article will focus on the intriguing case of MTN Irancell’s involvement with Spain’s La Liga Soccer League and provide a broader context of potential money laundering in the world of football.

The MTN Irancell and IRGC Connection

By way of background, according to recent federal court filings, when MTN Irancell (an Iranian mobile network operator) was formed, the Electronic Development Company (IEDC) owned 51% of MTN Irancell, and IEDC was in turn owned by two companies that allegedly were and are front companies for the Islamic Revolutionary Guard Corps (IRGC). Importantly, in 2019, the U.S. State Department designated the IRGC as an Foreign Terrorist Organization.

The MTN Irancell and La Liga Connection

Arguably, one of the most high-profile examples of sportswashing can be seen in the case of MTN Irancell and its association with Spain’s La Liga Soccer League. MTN Irancell reportedly invested a significant amount of money in a sponsorship deal with La Liga, which allowed them to gain access to a global audience through advertising and promotions. In a recent article published by the Organized Crime and Corruption Reporting Project (OCCRP), as part of that contractual arrangement, MTN Irancell “committed to pay La Liga 10 percent of any profit it earned from subscribers who watched Spanish soccer on its online channel…” But getting money out of a sanctioned regime can be difficult, apparently. According the OCCRP, yet another front company was formed (a Hong Kong-based shell company) to facilitate at least one payment to La Liga.

However, what might seem like a legitimate business arrangement can often serve as a cover for money laundering and sanctions avoidance. Criminal organizations and sanctioned individuals can funnel their illicit gains through these deals, effectively “cleaning” their money and making it appear legitimate. The global reach of popular football leagues like La Liga makes them an attractive channel for such activities.

Money Laundering in Football

The case of MTN Irancell is not an isolated incident when it comes to potential elicit financial flows. Football has long been associated with money laundering, with numerous instances of clubs, agents, and players being involved in financial misconduct. Criminals and corrupt officials exploit the complex financial structure of the sport, which involves multiple jurisdictions, hidden ownership structures, and massive sums of money changing hands.

In 2020, a BBC Panorama investigation revealed that some football agents and officials used secret bank accounts to move money across borders, raising concerns about the integrity of the sport. The combination of vast transfer fees, player salaries, and lucrative broadcasting deals provides ample opportunities for money launderers to exploit the system.

Adding to the challenges presented by sportswashing is its convergence with other money laundering typologies, such as human trafficking and the illegal drug trade.

Combating Sportswashing through KYC Mechanisms

To prevent their organizations from inadvertently engaging in sportwashing, companies and sports leagues must employ robust Know Your Customer (KYC) mechanisms. KYC is a vital component of financial regulations that requires businesses to verify the identity of their customers and assess their risk factors.

Here are some suggestions for companies seeking to avoid issues related to sportswashing through KYC mechanisms:

Due Diligence: Perform thorough due diligence on potential sponsors, investors, and partners. Investigate their financial backgrounds and the source of their funds to ensure they are not involved in illicit activities.

Transparency: Encourage transparency in financial transactions within the sports industry. Clearly define ownership structures and financial flows to minimize the potential for money laundering.

Compliance: Ensure compliance with international sanctions and financial regulations. Regularly update and enhance your compliance programs to adapt to evolving threats.

Third-Party Verification: Engage third-party firms that specialize in KYC and anti-money laundering (AML) services to vet and verify the legitimacy of business partners. Third-party firms that use advanced artificial intelligence and machine learning technologies, particularly those that support name reconciliation and network analysis, can be especially helpful in detecting front companies used to disguise illicit financial flows.

Reporting Suspicious Activity: Encourage whistleblowing and reporting mechanisms to allow individuals to report suspicious activity without fear of reprisal.

Education and Training: Train employees and stakeholders on the risks associated with sportswashing and the importance of complying with financial regulations.

Oversight and Governance: Implement strong governance structures that include oversight by independent bodies to ensure financial integrity and transparency.

Sportswashing is a growing concern in the world of sports, particularly football, and it requires vigilance and cooperation between governments, sports organizations, and the private sector to combat it effectively. By prioritizing KYC mechanisms and maintaining strict compliance standards, companies can help prevent criminals and terrorists from exploiting the global appeal of sports for their illicit activities, thereby preserving the integrity of the beautiful game.

For more articles on sports, visit the NLR Entertainment, Art & Sports section.

A Major Deal for the Minor League: California Bill Paves the Way for Historic Collective Bargaining Agreement for Minor League Baseball

Major changes are coming to the Minor League. In April, Major League Baseball (MLB) players and owners voted to ratify a historic collective bargaining agreement that, for the first time in history, covers Minor League players. MLB owners voted unanimously to ratify the agreement on April 3, following a March 31 vote in which more than 99 percent of Minor League players voted to ratify the agreement. The five-year agreement, which was negotiated by MLB and the MLB Players Association (MLBPA), more than doubles the salaries at all Minor League levels and provides that Minor League players will be paid almost year-round.

Equally significant, just seven months before the agreement’s ratification, MLB agreed to voluntarily recognize the MLBPA as the exclusive bargaining representative for Minor League players. MLB’s September 9, 2022 recognition decision marks the first time in history that all Minor League players have been represented by the MLBPA or any labor organization. Previously, the MLBPA only represented Minor League players on 40-man rosters, but the September 2022 recognition decision extended union coverage to all Minor League players. Integrating the 5,000-plus Minor League players into a union that had already represented 1,200 well-paid MLB players will no doubt pose a series of challenges to the MLBPA. But recognition as the exclusive union for Minor League players allows the MLBPA to negotiate bargaining agreements on behalf of the players, including the historic agreement ratified in April.

California Governor Signs Bill Paving the Way for Collective Bargaining Agreement

On September 11, 2023, the California Legislature unanimously passed SB 332, a bill designed to pave the way for the historic collective bargaining agreement ratified in April. SB 332 grants a narrow exemption from state labor laws for California-based Minor League players. The legislation was designed “to carry out the collective bargaining agreement” approved by MLB and the MLBPA. Specifically, SB 332 provides that certain provisions of Wage Order No. 10-2001—which covers the amusement and recreation industry—does not apply to Minor League Baseball players covered by the collective bargaining agreement ratified by MLB players and owners earlier this year. Additionally, the bill exempts these Minor League players from certain overtime and meal period laws, and it relaxes the requirements for the wage statements that must be provided to these players. Governor Newsom signed SB 332 into law on October 13.

The passage of SB 332 caps a major milestone for Minor League Baseball and ensures implementation of the collective bargaining agreement ratified earlier this year. With SB 332 signed into law, California’s Minor League Baseball players, owners, and fans can put contract negotiations in the rearview mirror – and play ball.

NLRB Issues Complaint for Athlete Misclassification against NCAA, Pac-12, and USC

On May 18, 2023, the National Labor Relations Board’s (the Board) regional director in Region 31 issued a complaint against the National Collegiate Athletic Association (NCAA), the Pac-12 Conference, and the University of Southern California (USC), alleging they violated the National Labor Relations Act (the Act) by misclassifying college football and basketball players as “non-employee student-athletes.” The original charge was issued back in February 2022 and alleged all three entities were in violation of the Act as “joint employers” of these athletes.

While this issue is not necessarily new to higher education, the Board’s decision to issue a complaint—and issue that complaint against all three entities—is new ground, as it departs from a 2015 precedent and paves the way for student-athletes to unionize at potentially both private and now public institutions. Under the Act, the Board has authority over private-sector workers, while state labor boards have jurisdiction over employees at state institutions. However, because the students at issue in Thursday’s complaint would be considered employees of the private NCAA and Pac-12 as well as USC, all three entities would be subject to potential liability as “joint employers.” What this means for public institutions is that there is a real and likely potential that the “joint employer” doctrine will allow for an end run around the Act’s coverage exemption for public-sector entities. As such, all student-athletes could potentially seek to collectively bargain at the NCAA level.

Finding merit to the charge and issuing this complaint is a logical result of General Counsel (GC) Memorandum GC 21-08 issued by the Board’s GC Jennifer Abruzzo in late September 2021. At that time, we issued an alert detailing the GC’s desire to expand the definition of “employee” in order to bring scholarship collegiate athletes under the Act. In February 2022, we issued another alert detailing how USC was likely to be the test case for that endeavor.

Alleging the violation of Section 7 of the Act, Thursday’s complaint arises from charges filed by the National College Players Association, a nonprofit advocacy association founded by former UCLA football player Ramogi Huma. The charge and complaint asserted that USC, the Pac-12, and NCAA misclassified student-athletes in order to deny them their rights under the Act, including the right to speak about compensation and working conditions. In addition to the alleged misclassification issue, the complaint alleges that USC illegally obstructed athletes’ organizing by “maintaining unlawful rules and policies in its handbook, including restricting communications with third parties, in the media, etc.”

Colleges and universities may be tempted to minimize this issue by thinking that the shift to seeing student-athletes as employees would affect them only in the event their athletes attempt to form a union. That is not the case. While a Board determination that student-athletes are employees could lead to a renewed effort by college athletes to organize, the GC has already cautioned (and made good on that warning) that the Board will seek to issue unfair labor practice charges against colleges and universities that misclassify student-athletes as “non-employees” or engage in other violations of the Act. For example, the GC has previously made clear that protections afforded by the Act apply to concerted activity such as expressions of support for social justice issues and other advocacy. As such, higher education institutions would be wise to tread lightly into these waters when they arise, because where employee status exists, concerted efforts of those employees to speak their minds or speak out on certain issues will be viewed as protected under the Act.

The hearing on the Board’s complaint is set for November 7, 2023.

For more Labor and Employment Legal News, click here to visit the National Law Review.

Multi-Club Ownership – For the Good of the Game?

Alongside the rise of investment from sovereign wealth and private equity funds, sport has also seen an increase in multi-club/franchise ownership groups. These groups, often spanning across different sports, leagues, countries, and continents, allow investors to diversify their portfolios and spread their risks.

However, in football, the rise of the Multi-Club Ownership (MCOs) model poses a challenge for how the sport is governed and has implications on current and future financial regulation. MCOs acquire multiple football clubs, building a network of related teams in the process. This, consequentially, has a knock-on effect on player transfers, commercial opportunities, and the overall competitive balance of football across the globe.

In this article, we discuss the benefits of MCOs for both clubs and owners, the potential competitive advantages clubs can gain through MCOs, and whether the existing financial regulations are fit for purpose given the increasing number of MCOs within the sport.

Governance

One of the key benefits for clubs under an MCO structure is the ability to leverage centralized governance infrastructure and apply lessons learned from across the group. By centralizing key departments at the portfolio level, and incentivizing knowledge sharing within the group, MCOs can apply synergies and implement best practices with each new acquisition, leading to a more effective and efficient operation. Additionally, the centralized governance structure within an MCO brings with it opportunities for financial benefits in the form of cost savings and potentially increased revenues.

Sponsorships and Commercial Deals

Operating under an MCO allows clubs to benefit from sponsorships and other commercial deals negotiated at the group level, while also increasing individual brand awareness for each respective club. For example, an MCO could negotiate a group sponsorship agreement with a kit manufacturer or shirt sponsor covering a number of teams within the group, including the flagship club.

Agreements of this kind would be beneficial for all parties involved. The sponsor increases its own profile by being associated with the flagship club, while also getting instant access to a variety of markets through the other clubs in the agreement. At the group level, the homogeneity created by having clubs within the group playing in similar kits creates a stronger brand identity, whilst also boosting the brand profile for the smaller clubs by further associating them with the flagship club. Additionally, a group agreement would allow the MCO to secure a competitive rate that may have been unattainable for a solitary club.

Player Scouting, Acquisition, and Development

The other major financial benefit for clubs in an MCO structure relates to how players are scouted, acquired, and developed. A common feature of MCOs is the application of a uniform strategy, across all portfolio clubs, set at a group level by a Sporting/Technical Director. When trickled down to each club, this results in a global scouting network, acquiring local talent with the group’s playing style in mind. These players will then be brought into an academy, through which they will be developed to play in the MCO’s preferred playing style.

While this does not represent an immediate cost saving, this network of local scouting and academies at the club level can lead to a significant competitive and financial advantage as players move within the group from smaller clubs to the flagship club. By transferring or loaning players “in-house”, MCOs can ensure that a player’s development is not hampered by being played in an unfavorable position, or by being asked to perform a different role, protecting their value.

Additionally, by acquiring players from within the group, clubs save both time and money on scouting, as players are already a known quantity within the network. Furthermore, the receiving club acquires a player tailor-made to their playing style, reducing the time required to bed them in.

“In-house” Transfer Agreements

As exemplified by the transfer of Hassane Kamara between Pozzo family-owned clubs Watford and Udinese, “in-house” transfers can be leveraged to alleviate financial constraints for clubs within the group. Kamara, initially purchased by Watford in January 2022 for £4m, and who went on to be Watford’s player of the season, was subsequently sold to Udinese in August 2022 for £16m.

However, Kamara was then loaned straight back to Watford for the 2022/23 season. Although prima facie, this transfer does not benefit Udinese, it allowed Watford to recognize an £8m profit on Kamara while retaining his services, and strengthening their cash flow at a time when they were negotiating contracts with other star players. While “in-house” transfers of this kind raise questions regarding their fitness and propriety, they also have implications on competitive balance.

Parent Feeder

The most recognizable transfer strategy within MCOs is the feeder club model. This can be mutually beneficial to both clubs, with the best-performing players transferring to the “parent” clubs” and the “feeder” club receiving transfer income, as well as occasional loan transfers of youth team players to develop while remaining in the MCO structure.

Such a relationship can be seen between Red Bull owned, RB Leipzig (RBL) and FC Red Bull Salzburg (FCS). Since 2015, twelve players have transferred directly from FCS to RBL, with transfer fees totaling £119.75m. Eight of these players, bought for a total of £73.85m have subsequently been sold for a total of £117.50m, generating £43.65 profit RBL. The cumulative market value of the four players still playing for RBL has risen by £26.32m since their relevant transfers. For perspective, there have only been four transfers from RBL to FCS in the same period. [i]

Competition Integrity

Although centralized governance structures provide a wealth of benefits to clubs and owners within MCOs, there is a regulation to limit the effects of centralized governance on the integrity of competition.

UEFA’s regulations on common ownership prohibit teams from competing in the same competition where a single person or entity has a de facto control over both clubs. For clubs under common ownership to compete in the same competition, they must demonstrate that there are disparities within the clubs’ corporate matters, financing, personnel, and sponsorship arrangements.

On only one occasion since 2002 has UEFA’s rule on common ownership been considered. RBL and FCS both qualified for the 2017/18 Champions League and had to make significant structural changes in order for both teams to be admitted to that season’s edition. Therefore, as long as MCOs are willing to sacrifice centralized operations to an extent satisfactory to UEFA regulations, mutual competition is allowed. However, while many smaller clubs within more centralized MCO structures may not have short-term goals of European Football, UEFA regulations do raise questions over the investor’s long-term footballing ambitions for those clubs.

Financial Sustainability Regulations

In addition to the on-field benefits, being part of an MCO also provides opportunities for clubs to improve their financial position, and potentially exploit loopholes in existing financial regulation. UEFA’s recently introduced Financial Sustainability Rules (FSR) are built upon three pillars: solvency, stability, and cost control. The new cost control regulation, known as the squad cost ratio, states that a club’s outlays on wages, agents’ fees, and amortization costs must be less than 70% of club revenues. [ii]

In a scenario where an MCO owned club requires to decrease their squad cost ratio, it is possible that group sponsorship agreements and in-house transfers could be used to achieve this. By selling players within an MCO, and then receiving those players back on loan, clubs will recognize a profit on the sale for the purposes of FSR and bring down their squad cost ratio.

When considering group sponsorship agreements in respect of FSR, it is also possible that the accounting treatment of this contract at the club level could be engineered to assist a club in complying with the squad cost ratio. The allocation of revenue from a group-level sponsorship to each of the clubs under the agreement is not required to be split evenly, which provides MCOs with an opportunity to funnel revenues from group sponsorships to their clubs complying with FSR. With no current guidance or regulation on how group sponsorships should be treated from an accounting perspective, group sponsorships are another tool that can be utilized to improve their squad cost ratio.

Fair Value Regulations

Although MCOs bring opportunities to improve squad cost ratios, the FSR regulations also require all transactions to be made at “fair value”. This means that financial arrangements for sponsorships and player transfers must be accounted for on an “arm’s length” basis. Where there are doubts amongst the Club Financial Control Body (CFCB) board, it can request an adjustment of the proceeds resulting from the transfer of a player, or the allocation of sponsorship monies.

However, there is currently no precedent or evidence to indicate how UEFA would view the accounting treatment for a club under a group sponsorship agreement or the transfer of players within MCOs. Furthermore, while there is a clear means to value a sponsorship agreement, this is considerably more difficult with regard to transfers, specifically the valuation of a player.

While age, injury record, marketability, and contract length, are all attributable factors, a player’s worth comes down to how much the selling club desires weighted against how much the buying club is willing to pay. An MCO structure circumvents this issue and allows for “in-house” transfers at an inflated value stipulated by the shared owner/s. Given the regulations, it is unlikely any club would want to pique the interests of the CFCB by hyper-inflating the value of a transfer, but whether MCOs will be deterred from increasing the value of in house transfers by smaller, nominal values remains to be seen.

The Future of MCOs

Recent trends have shown that the existence of MCOs will be sustained over the coming years. Sport has developed alongside the increasingly commercialized world, resulting in significant growth in investor interest across multiple clubs and sports. However, how the governance and regulation of MCOs evolves will define their development in the long term. Another factor that must be considered is whether investors will prefer multi-sport ownership (MSOs), which bring with them their own regulatory considerations, particularly in relation to conflicts of interest. Nonetheless, in the immediate future we expect continued investment in Football, the question is whether they remain satisfied with just one club, or one sport.

[i] All figures have been taken from https://www.transfermarkt.co.uk/

[ii] A full copy of UEFA’s new regulations can be found here

Kurun Bhandari (Director) and James Michaels (Associate) at Ankura authored this article.

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Division I Universities Must Be Ready for Changes to the NCAA Infractions Process

The NCAA Division I Board of Directors has adopted key changes to the way in which NCAA infractions matters will be investigated and processed in the future. The changes, which take effect on January 1, 2023, are intended to modernize and enhance the process, while focusing resources on the most serious violations. Another objective is to reduce the time needed to process and resolve violation proceedings.

President of the University of Georgia and Chair of the Division I Board of Directors Jere Morehead said in August that NCAA members are “committed to resolving cases fairly and in a timely fashion, thus holding those responsible for violations accountable and avoiding penalizing those who were not involved in rule-breaking.”

Among the key changes are the following:

Enhanced duty to cooperate: Institutions, staff, and student-athletes, upon learning of potential violations, will be required to preserve information, to provide immediate access to all electronic devices, and to encourage family members, spouses, boosters, and others to cooperate in the investigation. The number of aggravating and mitigating factors in the Bylaws has been expanded to reward prompt and full cooperation and deter efforts to hinder or impede investigations.

New head coach responsibility standard: Head coaches will be held responsible for serious violations committed by those who report to them directly or indirectly. Only in determining the appropriate penalty will the Committee on Infractions (COI) consider whether the head coach promoted compliance and monitored the program. The previous infractions approach, which included a rebuttable presumption of responsibility on the part of a head coach, has been abandoned.

Additional method for resolution: A new alternative for resolving infractions cases has been added, with the aim of providing the COI greater flexibility and reserving full hearings for only the most serious cases. The new method, known as a “Written Record Hearing,” will be employed in cases in which the facts are largely undisputed and the alleged violations not numerous or significant.

Clarification of appeal standard and limitation of appeals: Findings and penalties by the COI will be affirmed by the Infractions Appeals Committee (IAC) if there is information in the record that supports the decision. Findings and penalties will not be set aside unless no reasonable person could have made the ruling given the factual record. Appeals to the IAC as to the penalties imposed will be limited to those sanctions that fall outside legislated penalty guidelines, or “core penalties.” The majority of appeals will be decided based on the written record without the need for oral argument. Finally, and as is also the case with the revised COI process, extensions of time will be granted only in extreme and clearly defined circumstances.

Aggravating and mitigating factors: The new guidelines clarify which factors apply to institutions and which apply to involved individuals. Previously, this was unclear and often debated. New aggravating factors have been added, including hindering an investigation or inhibiting the COI’s processing of a case. New mitigating factors also have been added, including a demonstration of exemplary cooperation by, for example, securing meaningful cooperation from an outside party.

Name, image and likeness (NIL): In this rapidly evolving area, the bylaws provide that if available information indicates that behaviors surrounding an NIL offer or agreement is contrary to NCAA legislation, it shall be presumed that a violation occurred. The charged institution or involved individual will then be required to rebut this presumption with credible and sufficient information that a violation did not occur.

In addition to the above changes, the new infractions construct eliminates the Independent Accountability Resolution Process (IARP), which had been created at the recommendation of the Commission on College Basketball chaired by Condoleezza Rice. While acknowledging the panel’s thoroughness in deciding the several cases referred to the IARP, it was concluded that this new process prolonged case timelines and required substantial additional resources to bring cases to resolution.

Finally, the Board of Directors announced that it will consider additional future changes that may help to deliver timely and fair outcomes in infractions matters. Among the subjects under further consideration are (i) requiring increased documentation of recruiting efforts, (ii) adjusting the size and composition of the COI, (iii) modification of penalty ranges (including alternatives to post-season bans), and (iv) enhancing confidentiality rules for involved parties during investigation by the NCAA enforcement staff.

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