Sports Contracts – Basic Principles

Contracts in sports are no different than contracts in everyday life. Professional athletes are compensated for their services with a paycheck just as anyone else. This section examines the nature of personal services contracts of pro athletes. However, even the amateur athlete deals with important contract-related issues. Amateur athletes often have to make tough choices about changing their status from amateur to professional given the dramatic increase in money that may be available to be earned in their sports. Some professional athletes are paid a lot more money in one year than most people ever earns in their lifetimes.

Sports Agents and Contracts

Sports agents serve a valuable role in terms of securing and negotiating contracts for the professional athlete. Lawyers who represent athletes have generally been trained in the fundamentals of contracts and should be familiar with the current market value of their client relative to other athletes within the same sport. However, it should be noted that hiring a lawyer is not required (nor is an agent for that matter) to secure deals for the athlete. Some athletes do not wish to hire an agent for a variety of reasons, including having to pay commissions or other fees associated with the representation. Since the athlete has unique talents, abilities, and skills, their contracts are categorized as personal services contracts.

Technically, a personal service contract may not be assigned to someone else. An assignment is a transfer of rights that a party has under a contract to another person. Why can’t a personal service contract be assigned? The talents of an athlete are unique. For example, Peyton Manning could not assign his contract to another player. His talents are so unique. The team owner would not honor such an assignment.

No one can be legally forced to work for someone for whom they do not want to work. The Thirteenth Amendment to the U. S. Constitution provides: Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States.  This provision of the Constitution has been interpreted as including a prohibition against requiring someone to work for an employer for whom they do not wish to work.

How then do team owners get away with trading players from one team to another, since this in effect is assigning a personal service contract? Any contract may be assigned with permission of the parties. The right to assign is part of a player’s contract. However, some players have enough bargaining power to put in a do not trade clause. This keeps a team from assigning the player to a team for whom he does not want to play.

Public Nature of Sports Contracts

Though general contract principles apply in sports contracts, often such contracts are so important to the particular league or community, that each community has a vested financial and emotional interest in seeing their team perform well. Of course some sports do not receive the same sort of public exposure and generate the same widespread fan support.

The Occupation of “Athlete”

The occupation of professional athlete has become recognized as one of the most financially rewarding professions. Sports sponsors often pay thousands of dollars to an athlete to promote its product. A sports contract can have an impact on the lives of thousands of people. Today’s amateurs must face crucial issues such as whether to continue to compete as an amateur or be lured away by money to professional teams during their sophomore or junior year of college. College sports such as football, basketball, baseball, and hockey are often regarded as proving grounds for the major professional leagues. Many athletes are urged to abandon amateur status to be compensated for their services as a professional. Contracts for the employment of athletes should always be in writing and should contain covenants by the athlete like promising to refrain from certain acts, such as participating in dangerous activities.

General Contract Law Principles

A contract is a legally binding agreement. A contract represents the meeting of the minds of the parties. Contracts in sports are subject to the same principles of contract formation as any other form of employment agreement. There six elements that are necessary to a binding and enforceable contract:

  • An agreement;
  • Between competent parties;
  • Based upon the genuine assent of the parties;
  • Supported by consideration;
  • Made for a lawful objective;
  • In the form required by law.

Most sports contracts are express contracts. An express contract is a contract in which the agreement of the parties is evidenced by their words, whether spoken or written.  There are virtually no more implied contracts in the sports industry. An implied contract is a contract in which the agreement is not evidenced by written or spoken words, but by the acts and conduct of the parties.[1]

Agreement

It is essential to a contract that there be an offer and, while the offer is still in existence, it must be accepted without qualification. Once an offer is made, the person to whom it is made can respond in four ways:

  • Accept;
  • Reject (this automatically terminates the offer);
  • Counteroffer (again, the offer is automatically terminated);
  • Nothing (the offer then terminates after a reasonable time).

Offers may be terminated in any one of the following ways:

  • Revocation of the offer by the person making it (the offeree);
  • Counteroffer by offeree;
  • Rejection of offer by offeree;
  • Lapse of time;
  • Death or disability of either party; or
  • Performance of the contract becomes illegal after the offer is made.[2]

Competent Parties

An issue can arise with regard to the legal “capacity” aspect of a minor signing a contract. Sports such as gymnastics, swimming, and tennis often involve contractual issues regarding minors. Satisfying this element may require the signature of a parent or guardian. Even though minors may enter into contractual arrangements, minors hold the ability to void such contracts at their option. However, if the contract is voided, the other party generally must be placed in the same position as prior to entering into the agreement, or at least at no worse position.

Assent or Consent

The consent or assent of a party to an agreement must be genuine and voluntary. This assent will not be genuine or voluntary in certain cases of mistake, deception or undue pressure or duress. The agreement of parties may be affected by the fact that one or both of them made a mistake. A unilateral mistake is a mistake made by one party to the agreement. A mistake that is unknown to the other party usually does not affect the enforceability of the agreement.

A unilateral mistake of one party that the other party knows about may make the contract voidable by the party that is adversely affected by the mistake. A unilateral mistake regarding a fact does not affect the contract. For example, if a coach orders water-resistant parkas for his football team thinking that this means waterproof, he cannot get out of the contract unless the sale was made with some sort of misrepresentation as to the meaning of those words.

If both parties to an agreement make the same mistake regarding a key factual matter, the agreement is void.  For example, a contract is void if both parties mistakenly believe that the contract can be performed when, in fact, it is impossible to perform it.[3]

A person who has the ability and the opportunity to read a document before signing it is contractually bound by the terms of the document even if the person signed it without reading it. The signer cannot avoid liability based on the argument that no explanation was given to him of the terms of the contract.  Even if a person is unable to read or understand the terms of the agreement, he is still bound by the terms of the agreement since he should have tried to obtain an explanation of the agreement. The exception to this rule is that if the other party knows, or has reason to know, that the signer cannot read nor has a limited education, some Courts would hold that the other contracting party should have read the document to the other party or explained the terms.

If a party relies on the explanation of another party as to the contents of the agreement, the contract may be voided under two circumstances: (i) the party was justified in relying on the explanation of the other party; and (ii) the explanation was fraudulent. The party making the explanatory statements does not have to be a lawyer, but can be any person who handles the agreement on a regular basis and therefore has a greater knowledge of the content than the other person.

Supported by Consideration

Consideration is what the promisor (person making promise) demands and receives as the price for the promise. The promisor is the person making the promise, and the promisee is the person to whom the promise is made. Consideration consists of something to which the promisor is not otherwise entitled. It is not necessary to use the word consideration in a contract. Consideration is the price paid for the promise. When thinking of consideration, think in terms of legal value as opposed to economic value. While economic value (e.g., money) is the most common form of consideration, consideration does not have to involve money.

Made for a Lawful Objective

The fourth element of a contract is that it must be made for a lawful objective. Courts will not enforce contracts that are illegal or violate public policy. Such contracts are considered void. For example, a gambling contract would be illegal in many states. If the illegal agreement has not been performed, neither party can recover damages from the other or require performance of the agreement. If the agreement has been performed, neither party can sue the other for damages or have the agreement set aside. Assume Smith was not licensed to act as a sports agent. However, Jones asks Smith to help him procure a contract with a professional football team. Jones promises to pay Smith $10,000.00 if Smith can get him a NFL contract. Jones pays Smith $1,000.00 in advance. Smith successfully negotiates a contract for Jones with an NFL team. However, Jones refuses to pay the remaining $9,000.00. Smith sues Jones. A Court would most likely rule in favor of Jones as to the unpaid commission since the state’s sports agent licensing statute was violated by Smith’s acting as a sports agent without a license.  The agreement to pay him a commission was therefore void and can not be enforced.  Suppose Jones then claims that Smith should not be entitled to keep the $1,000.00 advance he had received.  The Court would most likely hold that although Smith had no right to the commission, he had been paid and the Court would not aid either party to the illegal contract.  Therefore, Jones could not recover from Smith the part of the commission that had already been paid.

In the Form Required by Law

As a general rule, contracts may be either oral or written. However, the law requires a written agreement in specific situations. Most states have statutes that require the following types of contracts to be in writing or they will be unenforceable: 

  • An agreement that cannot be performed within one year after the agreement is made;Contracts involving the sale of land;
  • The promise to answer for the debt of another person; [4]
  • A promise by the executor or administrator of an estate of a deceased person to use personal funds to pay a debt of the estate; 
  • A promise made in consideration of marriage must be in writing (e.g., a prenuptial agreement); and
  • A contract provides for the sale of goods with a price of $500.00 or more.

Interpretation of a Contract

If there is a dispute as to the interpretation of a contract, Courts seek to enforce the intent of the parties to the contract. The intent which will be enforced is what a reasonable person would believe that the parties intended. Sometimes the provisions of a contract are contradictory. In such a situation, a Court will try to reconcile the provisions and eliminate the conflict. However, if this cannot be done, the Court will declare that there is no contract. For example, John makes a contract to sell 100 acres of land to Joe. One paragraph of the contract states that the purchase price is $100,000.00. Another paragraph states that the purchase price is $1,100.00 per acre, which would produce a total price of $110,000.00. Which amount would be binding? Neither amount would be binding if the conflict in the terms could not be reconciled by parol evidence.[5]

In some cases, a conflict can be solved by considering the form of the conflicting terms. If a contract is partly printed or typewritten and partly handwritten, the handwritten part would prevail if it conflicted with the typewritten or printed part. If there is a conflict between the printed part and a typewritten part, the typewritten part would prevail. If there is a conflict between an amount or quantity expressed both in words and figures, as on a check, the amount or quantity expressed in words prevails. For example, if a check is written for $1,000.00, yet the check states it is for One Hundred and 00/100 Dollars, the words would prevail over the figures. 

A contract is ambiguous when it is uncertain what the intent of the parties was and the contract is capable of more than one reasonable interpretation. Sometimes ambiguous terms can be explained by the admission of parol evidence. Also, Courts abide by the rule that an ambiguous contract is interpreted against the party who drafted it. In other words, the party who did not draft the contract will be given the benefit of the doubt so to speak.

Categories of Contracts

Sports contracts can be divided into three general categories:

  • professional services contracts (sometimes called standard player contracts)
  • endorsement contracts, and
  • Appearance contracts.

Team Contracts versus Individual Contracts

If a professional athlete is part of a team, usually the athlete receives a standard Player’s contract. The only difference between his contract and other members of the team are usually salary, bonuses, and the option to renegotiate.

The Professional Services (Standard Player) Contract

The standard player contract (SPK) is usually in a “boilerplate” form. Boilerplate is standard wording that can be reused over and over without change. Whether the athlete is involved in a league with a players association or not, the contract usually offered to the athlete and other athletes are all the same other than the salary and bonus. There can be addendums to the SPK. Newly formed leagues often model their own contracts after one of the Big Four (NFL, MLB, NBA and NHL) in order to recognize issues relevant to team owners and athletes. Some start-up leagues, however, have taken a newer approach to professional services contracts by establishing minimal salaries for the athletes in that sport and rewarding the team and athlete on a per game basis with incentives. The now defunct Xtreme Football League (XFL), for example, offered modest salaries to its players. Such wages were comparable to wages of the average U.S. worker. This is primarily due to the fact that the league owned all of the teams rather than each team serving as a franchise for the league.  None of the Big Four sports leagues are run by a single entity. Each team is a franchise and competes for players. That is a primary reason for the escalation of player salaries.

Endorsement Contracts                                                                                              

Unlike the professional services contract, the endorsement contract does not involve an employer-employee relationship. Rather, it is one of contractor- independent contractor.[6]  An endorsement contract is one that grants the sponsor the right to use (i.e., license) the athlete’s name, image, or likeness in connection with advertising the sponsor’s products or services. In most professional sports, the leagues prohibit individual players from endorsing alcoholic beverages or tobacco products. Also, the NFL recently established a policy that players may not endorse certain nutritional supplements. There are no set rules for an endorsement agreement other than that they be legal. The more an sponsor feels that the athlete can assist in the sales of the particular product, the greater the likelihood of more money. An appearance contract compensates the athlete for appearing at a public function, sports camp, golf tournament, etc.

Drafting the Sports Contract

All professional services contracts have important common clauses. According to the standard player’s contract of the NFLPA, MLBPA NBPA, and NHLPA,[7] all contract provisions have been established, except for salary and bonuses. Additionally, the players associations have group licensing arrangements in which players are compensated by licensing their names and likenesses in group package deals to trading card companies and video games. It is important to remember that when drafting a contract, it is often a good policy to be a pessimist: Think of what can go wrong. Though most contracts begin as a beneficial relationship between the parties, it is well known that over time attitudes can change. Therefore, the contract drafter should use exceptional care to ensure that policies and procedures are provided to address situations and legal issues that might arise when something goes wrong. Good contract drafters protect their client in the event such a situation might occur.

 

 

[1] For example, if you left your watch to be repaired and nothing was said with regard to how much you would be charged, you would be obligated to pay the reasonable value of the services, even though no specific agreement had ever been made. Of course, implied contracts are sometimes hard to prove.

[2] For example, if there is an offer made to sell alcoholic beverages to a store, but a city ordinance is passed prohibiting the sale of alcoholic beverages before the offer is accepted, the offer is terminated.

[3] Suppose Smith promises over lunch to sell Jones an antique Mercedes in Smith’s garage.  Assume both parties believe the automobile is in Smith’s garage.  However, the car had been destroyed by fire an hour before the agreement and Smith had not learned of this.  Since this fact was unknown to both parties, there is a mutual mistake as to the possibility of performing the contract.  The agreement is therefore void.

[4] For example, an oral promise by the president of Acme Company to pay the debt owed by Acme to First National Bank would not be enforceable unless in writing.

[5] Parol evidence is oral evidence, such as testimony in a court, as opposed to written evidence. 

[6] An independent contractor is a person or business who performs services for another person pursuant to an agreement and is not subject to the other’s control or the manner and means of performing the services. An independent contractor is distinguished from an employee, who works regularly for an employer. The exact nature of the independent contractor’s relationship with the hiring party is important since an independent contractor pays their own Social Security, income taxes without payroll deduction, has no retirement or health plan rights, and often is not entitled to worker’s compensation coverage. 

[7] I.e., National Football League Players Association, Major League Baseball Players Association, National Basketball Players Association and National Hockey League Players Association.