Sports Analytics: Should They be Protected?

POSTED BY Jared Bishop

The process of constructing a Major League Baseball (MLB) team took a drastic turn after Oakland Athletics’ General Manager, Billy Beane, decided to concentrate on advanced statistics known as “sabermetrics” to construct his team. Beane was so successful that his grossly underpaid team made the playoffs and ultimately inspired a motion picture, Moneyball.

Sabermetrics has been around for decades thanks to Bill James, a baseball statistician, but was not made famous until Beane bought into the system. Sabermetrics deals with a wide range of advanced statistics that are calculated based on virtually every detail of a play in baseball.

While theses statistics are available to the public at websites such as ESPN, the question becomes whether these statistics, or strategies should be protected to some extent. If Beane’s theories and strategies were further protected, perhaps Beane Athletics’ would have won multiple World Series. If organizations can use these statistics to develop a strategy on how they develop their respective team, shouldn’t their strategies be protected as a trade secret? After all, the goal of any sports organization is to win, and to do that, they need to find the best form of a competitive advantage they can get both on and off the field.

In depth sports analysis on statistics should be protected in the manner of trade secrets. Trade secrets are designed to give companies a competitive advantage over their competition. When companies come up with a strategy or pattern of information, they do not want to share that information with their competition or make it public for obvious reasons. Trade secrets, like other intellectual property, gives businesses incentives to develop their own strategies and better promote innovation.

What Beane did as far as using sabermetrics to develop his own strategy of creating a winning team was not based on the fact that his information would be collected, but it was because the Athletics’ were on a stricter budget than almost all of the other teams in the MLB. The lack of a deep pocket was the reason Beane changed the game, not because he knew this information would be protected. Beane forever changed how MLB teams look at players, but because other teams are able to use Beane’s strategies, the Athletics are not able to fully use the competitive advantage Beane developed. The question remains open on the possibilities of innovation in sports if these sorts of analysis could be protected. Teams such as the New York Yankees, Los Angeles Dodgers, and Boston Red Sox would have an incentive to not only use their money to form the best team, but they would have an incentive of creating a well-thought out, and economical strategy to put a better product on the field.

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Bad Breakups: First Refusal Provisions in Endorsement Contracts

POSTED BY Meghan Bonk

No one can sell a brand quite like a superstar athlete. Most of these athletes aren’t born superstars, however, and many of them partake in some lower-tier endorsement deals before they hit the peak and sign with companies like Nike or Under Armour. Unfortunately, when athletes sign enter into endorsement contracts, the fine print and pesky provisions often get overlooked. One provision that makes its way into most high level endorsement deals is a first refusal provision which gives a brand the upper hand over its athlete when that athlete’s contract expires. The provision essentially allows for the brand whose contract has just expired to match any terms offered by a third party involving the endorsement of products, so long as the products are substantially similar in nature. Issues arise when the athletes supposedly breaches the contract with its original sponsor to sign with a bigger company who offers an endorsement deal that makes the athlete’s eyes turn into dollar signs. The smaller company sues, but it seems unfair to sue when it couldn’t match the new contract in the first place.

Popular athletic brand Oakley launched a lawsuit against golfer, Rory McIlroy as well as his new sponsor, Nike in the spring of 2013. A recent Forbes article reports that although McIlroy’s contract with Oakley expired in December 2012, the company claims to have had a first refusal provision in which “granted Oakley the right, but not the obligation, to match any terms offered to McIlroy by a third party regarding the endorsement of products the same as or substantially similar to the products in his agreement with Oakley.” To sum it up, December 2012 came around the corner, Oakley’s contract expired, and Nike clearly made McIlroy an offer he couldn’t refuse. Nike’s contract with McIlroy is rumored to be worth between $200-250 million, and with McIlroy rising to the top of the world’s golf rankings, most sports fanatics wouldn’t be shocked by that number.

As this case goes to trial, several issues are being brought up, and important facts are coming out of the wood work. It seems that Nike may be banking on e-mail conversations between a marketing manager at Oakley named Pat McIlvian and McIlroy’s agent, Conor Ridge to make its case. Nike will mostly likely argue that although Oakley did, in fact, have a first refusal provision in its contract with McIlroy, Oakley waived its right when Pat McIlvian e-mailed Conor Ridge stating, “Understood. We are out of the mix. No contract for 2013. Pat Mac.” Should Oakley win at trial, it not only seeks an injunction that would prevent McIlroy from keeping his contract with Nike, but it also alleges that it has suffered  irreparable damages which include $300,000 spent on a photo shoot that would have been endorsed by McIlroy in 2013. The question that looms throughout these proceedings is: Could Oakley even match Nike’s $200-250 million contract with McIlroy? If European golf publications are correct, then Oakley was planning on offering McIlroy around $60 million to continue his contract through 2013. There’s a big difference between $250 million and $60 million, and the Oakley contract’s provision required Oakley to match any terms offered by a third party.

Even though Pat McIlvian’s emails to Rory McIlroy’s agent seem to seal the deal in Nike’s case, there’s always the chance that the judge does find that there was a breach of contract and that Oakley is entitled to damages. Specific performance is not an option in this case because forcing McIlroy to participate in a contract with Oakley would look like involuntary servitude, and McIlroy has a thirteenth amendment right which prohibits slavery. Oakley seeks monetary damages; however, the amount has not been released yet. It seems as though Oakley is the quintessential, teenage ex-girlfriend in this case.  It doesn’t want McIlroy (more like it can’t afford McIlroy), but it definitely doesn’t want the more successful, good looking, and popular Nike to have him. If the judge rules in Oakley’s favor in this case and does grant monetary damages, what kind of policy is it enforcing if Oakley couldn’t afford to match Nike’s deal in the first place? It will create a trend of brands that sponsor up-and-coming athletes and continue to make first refusal provisions a primary section of their contracts. Then, when their contracts expire, they’ll sue the larger, more powerful companies like Nike for violating this provision, when in fact, they couldn’t match the new contract’s value in the first place. So, companies like Oakley will continue to play the victim and receive monetary damages when their athletes find a better deal, and companies like Nike will be punished for a breach that didn’t really happen on top of funding a larger-than-life contract with an athlete that better be worth their weight in gold.

The Denial of NCAA’s Motion to Dismiss Student-Athletes Name and Likeness Licensing Litigation

POSTED BY Rajat Bhardwaj

The recent denial of Motion to Dismiss of National Collegiate Athletic Association (NCAA) Student-Athlete Name and Likeness Licensing Litigation by District Judge Claudia Wilken marked a drastic change in thought on compensating student athletes. A group of twenty-five current and former college athletes pursued two claims against the NCAA: four pursued a right of publicity claim for misappropriation of their names, images, and likeness; and twenty-one pursued an antitrust claim for NCAA conspiring with Electronic Arts Inc. (EA) and Collegiate Licensing Company (CLC) to restrain competition in the marker for commercial use of their names, images, and likeness. The most recent dismissal only addressed the latter under the Sherman Antitrust Act, 15 U.S.C. §1.

This action stems from May 2011 when the Plaintiff’s filed the second Consolidated Class Action Complaint (2CAC). They alleged that the NCAA required student athletes to sign forms relinquishing all rights to commercial use of their images, including after they graduated and no longer subject to NCAA regulations. NCAA subsequently relied on these “misleading” forms and sold and licensed the student-athletes names, images, and likeness to third parties such as EA and CLC, who then made profit from these agreements. In September 2012, the Plaintiffs narrowed their claims specifying the class of students to include whose names, images, and likeness were featured in game footage or videogames; emphasizing damages from review generated in live television broadcasts; and identifying specific markets: “Division I college education market where colleges and universities compete to recruit the best student-athlete” and the “market for the acquisition of group licensing rights for the use of student-athletes’ names, images and likenesses in the broadcasts or rebroadcasts of Division I basketball and football games and in videogames featuring Division I basketball and football.”

This was followed by a third Consolidated Class Action Complaint (3CAC) which maintained the Plaintiffs’ price fixing and group boycott claims; added the class specification; and included six current NCAA football players to the complaint. In September 2013, EA and CLC agreed to a settlement with Plaintiffs but the NCAA claim remained affective. The court recently denied the motion to dismiss the complaint on three grounds.

First the court recognized the Plaintiffs’ theory alleges that NCAA’s prohibition of monetary compensation on student athletes hinders competition in the market for Division I student-athletes which would otherwise prevail in a competitive market. Although the court recognized tradition of amateurism in college sport, it asserted that this does not bar students from receiving monetary compensation for commercial use of their names, images, and likeness.

Second, considering the allegations in 3CAC most favorable to the Plaintiff, the court suggested that it is plausible broadcast footage, especially stock footage and broadcast footage sold to advertisers, was used primarily for commercial purposes. Thus, the First Amendment does not dismiss Plaintiffs’ claims related to broadcasting.

Finally, NCAA argued that the Copyright Act preempts the application of right of publicity to broadcast college football and basketball games. However the court noted that the right of publicity claims of the Plaintiff was notably different than those protected by Copyright Law since they do not actually own any game footage described in the complaint. On the contrary, the Plaintiffs’ seek the right to license the commercial use of their names, images, and likeness in certain broadcast footage. Furthermore, federal courts have emphasized, “Intellectual Property rights do not confer a privilege to violate the antitrust laws.” Thus, the Copyright Act does not affect the underlying claims because they are based on injury to competition and not on misappropriation.

The Plaintiffs and NCAA have not yet engaged in settlement talks but this case may carry a risk of tens of millions to even billions of dollars. Where one side of the continuum maintains lack of compensation to be essential to maintain integrity of the amateur culture of college sports, the other asserts fairness in providing athletes with compensation, beyond college scholarship, for using the students’ names, images, and likeness. If settlement talks do not commence soon, we are sure to see an energetic debate where tradition clashes with equity.

It is clear that NCAA is generating significant revenue, $871 million  in revenue for 2011-2012 with 81 percent from television and marketing rights fees, by utilizing the likeness of their athletes. A duty is owed to these athletes to ensure that at least a certain level of consideration is allotted to them for their service beyond a college scholarship. Not all student athletes are able to ensure a decent standard of living after they graduate and some come from fairly unprivileged backgrounds. It is important to look out for their futures, as it is their hard work and dedication that has provided the NCAA with its level of success.