Sports Law Blog
All things legal relating
to the sports world...
Friday, June 26, 2015
Preview of New Jersey Sports Betting Decision and Likely Aftershocks
As we await the impending decision in the New Jersey sports betting case, no clear consensus has emerged as to which side will win. Those of us who were in attendance for the Third Circuit oral argument on March 17th are divided. While some seasoned observers, such as noted sports litigator Alan Milstein, believe that New Jersey will prevail (and he may be right), others (such as myself) have a hard time wrapping their arms around the prospect of a federal appeals court actually blessing New Jersey's plan to legalize sports betting through a "partial repeal" that primarily benefits state-licensed casinos and racetracks. But my skepticism is not based on the law, but, rather, my sense that the Third Circuit may be reluctant to open the floodgates for nationwide deregulated legal sports betting (the "inevitable" consequence of any New Jersey victory) at casinos and racetracks. Putting my cynicism aside, I believe that New Jersey may hold the upper hand based on what unfolded at the oral argument. In contrast to the district court, which was concerned with the far-reaching implications of other states following New Jersey's blueprint (and thereby potentially weakening PASPA), the Third Circuit signaled strongly that principles of statutory interpretation would dictate the outcome. And this bodes well for New Jersey.
Natural Meaning of the Word "Authorize"
The question asked repeatedly at oral argument was "what does 'authorize' mean"? It was asked no fewer than six times. Why is this one word so critically important? The answer lies in the plain language of the statute. Pursuant to PASPA, states may not "authorize" sports wagering schemes (and also may not sponsor, operate, advertise, promote, or license such activities). The sports leagues take the position that New Jersey's partial repeal law is tantamount to an "authorization" of sports gambling because it allows such activity to take place only at state-licensed and state-regulated casinos and racetracks (and at former racetrack sites). New Jersey, on the other hand, maintains that its new law (which relies upon the Third Circuit's "exact contours" language in Christie I and the U.S. Solicitor General's prior statement that New Jersey is free to repeal its state-law prohibitions "in whole or in part" without violating PASPA) is not an "authorization" of sports gambling because there would be no state involvement in that activity. New Jersey argues that the word "authorize" connotes some type of "affirmative" state sanctioning of the activity, i.e., placing the state's "imprimatur" on sports betting. The Third Circuit zeroed in on this difference, with one panelist pointedly asking whether "authorize" means "to permit" or "to allow" (as the leagues maintain) or whether it must rise to the level of a state sanctioning or approval of the activity (as New Jersey argues).
Principles of statutory interpretation would appear to support New Jersey's interpretation. The statutory term "authorize" is not defined by PASPA. When a statute itself does not define a term, courts will often construe the term in accordance with its ordinary or natural meaning. This exercise is highly favorable to New Jersey. According to Black's Law Dictionary, the word "authorize" means "to give legal authority; to empower; or to formally approve; to sanction." Similarly, according to the American Heritage Dictionary, to "authorize" means "to grant authority or power to. To give permission for; sanction." The American Heritage Dictionary supplements the above definition of "authorize" with the following example of its usage: "city agency that authorizes construction projects." Likewise, Webster's Third New International Dictionary defines "authorize" as meaning "to endorse, empower, or permit by or as if by some recognized or proper authority; to endow with effective legal power."
These definitions suggest that the term "authorize" does not merely mean "to permit" or "to allow," as the leagues contend. Rather, according to the natural meaning of the word "authorize," there must be an affirmative granting of approval to engage in the conduct in question. One of the Third Circuit judges, Marjorie Rendell, appeared to embrace this construction when she remarked that "to authorize" means "to give power of official meaning, that the state is involved in the process." And Judge Julio M. Fuentes (who authored the majority opinion in Christie I) pointedly stated during an exchange with Paul Clement (the sports leagues' attorney) that "[a] repealer is a removal of the restrictions and of all criminal laws, but it doesn't mean that the government is saying go ahead and engage in that activity."
But the panel was also concerned about the "selective" nature of the partial repeal, suggesting that by restricting sports gambling to specific locations (e.g., casinos and racetracks) which are licensed and heavily regulated by the state, New Jersey may be "authorizing" that activity. One panelist found it "curious" that sports betting "is now being allowed only in places that have gambling licenses." And another panelist remarked that New Jersey's partial repeal law does more than just simply remove existing prohibitions: it "affirmatively permits" sports gambling at racetracks, casinos and former racetrack sites.
The "Associated Words Canon"
But other interpretative tools may strengthen New Jersey's hand. The most pivotal moment of the oral argument occurred when Judge Marjorie Rendell invoked the "associated words canon" during her questioning of Paul Clement, the leagues' counsel:
THE COURT: . . . here we have the words "sponsor, operate, advertise, promote, license, authorize," you know there is a canon, associated words canon, and all of these words anticipate something more, something, something affirmative.
Should we not read "authorize" to mean something more than merely "permit"? Should we read it to say authorized by, you know, empowering, giving the state imprimatur, if you will. I get back to the issue of how do we read "authorize"? And doesn't the context in PASPA make it seem like the state has to do something by law that is a scheme as compared to just saying okay, you can do it at these places?The "associated words canon" (also known as noscitur a sociis) is a tool of statutory construction which provides that when a string of words are grouped together in a statute, they should bear on one another's meaning. Or, as the Supreme Court has put it, "'[a] word is known by the company it keeps-' a rule that is often wisely applied when a word is capable of many meanings in order to avoid the giving of unintended breadth to the Acts of Congress." Thus, an otherwise ambiguous statutory term may be given a more precise meaning by reference to the neighboring words with which it is associated.
Under this canon, the term "authorize" would be construed in light of the other verbs which accompany it in PASPA--"sponsor," "operate," "advertise," "promote" and "license." Each of these associated words connotes some type of official involvement by the state in sports gambling. Judge Rendell hinted at this during the following exchange with Paul Clement, the former U.S Solicitor General and outside counsel for the sports leagues:
MR. CLEMENT: . . . I mean I think that in terms of context you obviously can look at the surrounding words. I think you can also look at the legislative history. I think that's still allowed in this country. . . .
THE COURT: But I don't think we can go beyond the language of the law and really look at that. I mean it's fair to know about it, but unless there's ambiguity in the law, you know there really isn't a need. And again I look at the other words and they require something more than - - - I mean they really require involvement of the state, "promoting, licensing, advertising," you know, putting its seal of approval, if you will. . . .Echoing this point, renowned appellate lawyer Ted Olson (representing Governor Christie) referred to the earlier Third Circuit opinion which equated the PASPA verbiage (sponsor, operate, advertise, promote, license, and authorize) with a state "scheme":
MR. OLSON: Well, I think that -- I read your opinion. And I read your opinion to mean that the words, and one of you referred to the fact that it's a stream of words, it has to do with the state providing the approval, a mechanism. It's almost as if you have a license to put in the window saying this is permitted here. You said --
THE COURT: We talk about a scheme also, a scheme.
MR. OLSON: You talked about a scheme and a regime, you talked about permit issuing, licensing, state issues license, affirmative authorization, authorization by law, state scheme, state sponsored, state sanctioned.A look back at Christie I provides some context and insight into the Court's thinking. In Christie I, the Third Circuit stated that "[a]ll that is prohibited [under PASPA] is the issuance of gambling 'license[s]' or the affirmative 'authoriz[ation] by law' of gambling schemes." Within the same paragraph, the Court reiterated that "PASPA speaks only of 'authorizing by law' a sports gambling scheme." The use of the words "only" and "scheme" is notable here. It suggests that a partial repeal of state-law prohibitions against sports gambling would not violate PASPA so long as there is no state scheme or involvement. The interplay of this key language with the interpretative tools discussed above would appear to leave New Jersey holding a strong hand following oral argument.
But Legislative History May Cut the Other Way
Although Judge Rendell downplayed the importance of PASPA's legislative history--saying it only came into play if there was an "ambiguity" in the statutory language--the Third Circuit will likely consult PASPA's background and motivating policies as part of its analysis. If the Court believes that there is a latent ambiguity in the meaning of the term "authorize" (which seemed to be the case at oral argument), then it will undoubtedly avail itself of all pertinent tools of statutory construction, including reviewing the legislative history of PASPA in addition to employing the "associated words canon" and other interpretive aids.
The legislative history of PASPA cuts both ways. While the express legislative purpose behind PASPA was to "stop the spread of state-sponsored sports betting," Congress was also concerned with maintaining the integrity of, and public confidence, in professional and amateur sporting events, which federal officials believed would be threatened by the widespread legalization of sports gambling. But the leagues' attorney, Paul Clement, wisely refrained from playing that card during oral argument, in all likelihood because one of his clients (the National Basketball Association) has evolved in its thinking and now believes that the legalization of sports betting (through the adoption of a federal framework) would actually serve to promote the integrity of sporting events.
Instead, Mr. Clement pointed to language in Senate Report 102-48 expressing concern about the prospect of sports gambling "spreading" to racetracks and casinos, and specifically mentioning Florida as one of the states that was contemplating approving some form of sports gambling for its racetracks as part of legislation "reauthorizing" Florida's pari-mutuel wagering statute (when it was originally set to expire in the early 1990's):
MR. CLEMENT: [I]f you look at the Senate report, there are three things that it's crystal clear Congress is concerned about. They're concerned about states having state lotteries that involve sports gambling. They are concerned with racetracks that already have venues for state authorized gambling having sports gambling. If you look at the Senate Report it's very specific.
At the time Florida is going through the process of renewing the licenses of its racetracks. And Congress is worried that they're going to get involved in sports gambling as a way -- this is 20 years ago, or 20 plus years ago, but the horse tracks were already in a little bit of financial trouble, and there was concern that they're going to try to add sports gambling as the next solution. And Congress was very concerned about that.
[Congress was also] concerned about . . . what they called in the Senate report "casino style" sports gambling, and they were specifically focused on the New Jersey situation. . . . Now, I think what that shows you is that Congress was particularly concerned with the idea that sports gambling would take place in the venues that states had selected as the being the venues for state authorized gambling.But there are several flaws with Mr. Clement's decision to highlight only select portions of the Senate Report. For one, it makes no mention of the primary legislative intent behind PASPA: to stop the spread of state-sponsored sports betting and to maintain the integrity of sporting events. If the Third Circuit is going to consider PASPA's legislative history, then it must consider the entire Senate Report, and not just select portions thereof. Second, whatever concern that Congress may have had about casinos and racetracks offering sports gambling was solely in the context of state-sponsored gambling "schemes." Along those lines, the Senate Report noted that "[i]n the broader sports gambling area, States are considering a wide variety of State-sponsored gambling schemes," specifically mentioning both the Florida racetrack situation and "casino-style" sports gambling. But New Jersey's partial repeal law (which would entail no state oversight of sports gambling) would not seem to fit the rubric of a state-sponsored "scheme." Thus, the legislative history would not appear to be as one-sided as Mr. Clement suggests.
The "Rule of Lenity"
Although not raised during oral argument or in the parties' written submissions, there is yet another canon of statutory interpretation that could tip the scales in favor of New Jersey--the "rule of lenity." The rule of lenity holds that "where there is ambiguity in a criminal statute, doubts are resolved in favor of the defendant." This is the judicial equivalent of the baseball maxim "the tie goes to the runner." Courts will apply the rule of lenity when, after all the tools of interpretation have been applied, a reasonable doubt as to statutory interpretation persists. The rule of lenity is premised on two ideas. First, a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is crossed. A second goal of the rule of lenity is to minimize the risk of selective or arbitrary enforcement, and to maintain the proper balance between Congress, prosecutors, and the courts. Or, as the Supreme Court put it, "legislatures and not courts should define criminal activity."
But the rule of lenity is not automatically applied merely because there is some ambiguity in the statute under review. In order for the rule to apply, there must be a “grievous ambiguity or uncertainty in the language and structure of the statute." Lenity is reserved for those situations in which reasonable doubt persists about a statute's intended scope "even after resort to the language, structure, legislative history, and motivating policies of the statute in question." It will be invoked only if, after seizing everything from which aid can be derived, the court can make no more than a "guess" as to what Congress intended. In other words, the rule of lenity is an interpretive tool of "last resort."
The "rule of lenity" could come into play here as the Third Circuit wrestles with the critical question of just how far a repeal must go in order to not violate PASPA. There are no clear answers. And oral argument only added to the confusion, with the leagues retreating from their earlier position and conceding that something less than a "complete repeal" might be allowed under PASPA. But both the leagues and the DOJ struggled to pinpoint the line of demarcation. When asked by Judge Fuentes how far a repeal must go, Mr. Clement vaguely answered "pretty far," suggesting that "the dividing line is maybe around 50 percent." Determining whether a partial repeal of a criminal law constitutes an "authorization" of the activity and then pinpointing the dividing line is no easy task, even after employing canons of statutory construction and reviewing the legislative history of the statute. The Third Circuit may well conclude that this is an area of "grievous ambiguity or uncertainty," and invoke the rule of lenity in favor of New Jersey. I do not expect this to happen, particularly since it was not raised by the parties or by the Court. But it remains a possibility.
Absence of Word "Regulate" from PASPA May Help New Jersey's Chances
During last month's oral argument, Judge Fuentes (the author of the Third Circuit's majority opinion in Christie I) expressed concern that New Jersey's partial repeal law would have the effect of allowing completely unregulated sports betting to take place at state gambling venues. He suggested that this would be anathema to PASPA's goal of preserving the integrity of sporting events. Judge Fuentes' concerns go to the very heart of why I believe New Jersey may be on the losing side (yet again) despite having what I consider to be the better of the legal arguments under a pure statutory interpretation analysis. The following exchange between Judge Fuentes and Mr. Olson demonstrates this tension:
THE COURT: I'm really impressed in how this whole thing is going to unfold, because I was very impressed, in reading your brief, with the number of regulations that the state is repealing, including oversight by the state and Casino Control Commission, the Division of Gaming Enforcement. They will all, according to the state, have no role whatsoever in sports betting.
MR. OLSON: Correct. And that's --
THE COURT: Well, I'm a little concerned about that, because the function of those [regulatory bodies] is to preserve integrity in the process and now the state is saying they're out of this. So this is essentially a laissez-faire. Sports betting is going to take place in the casino with no oversight whatsoever.
MR. OLSON: That's right. As I said, like a ping-pong table game or a debate tournament.
THE COURT: I guess it's not for us to say that's good or bad. . . If it were, I would have a response to that.But then Judge Rendell (who was not part of the Christie I panel) weighed in and suggested that it might still be possible to read PASPA as not prohibiting the states from "regulating" sports betting. She noted that PASPA is "so specific" and that there are six verbs contained within PASPA identifying the activities states may not engage in (e.g., sponsor, operate, advertise, promote, license, or authorize), and noting that "regulate" is not one of them. She then posited that "some modicum" of state regulation could be "appropriate." Consider the following exchange:
THE COURT: Do you read PASPA as saying that, assuming the law were repealed in toto and operations came up all across the state, of sports gambling, do you read PASPA to prohibit the state from regulating, imposing any kind of regulations on the sports gaming?
MR. OLSON: Well, that's what our opponents are essentially saying now.
THE COURT: But I'm asking you, is that how you read it? . . .
MR. OLSON: . . . If the state is engaged, to address your exact question, in regulating the activity, that might involve the imprimatur of . . . regulation and control.
THE COURT: But which verb under PASPA would regulation fall under? It's not sponsoring, it's not operating, its not advertising; promoting; licensing; or authorizing. It's regulating. Would that be permissible? . . .
MR. OLSON: Well, I think it is a different question . . .
THE COURT: PASPA is so specific. There are six specific activities that you cannot engage in, but regulating is not part of that.
MR. OLSON: That's right.
THE COURT: So I'm just wondering, maybe thinking out loud, that maybe some modicum of regulation is appropriate if you were right in the first instance.This could be a real "game-changer" for New Jersey. If, as Judge Rendell suggested, states could repeal sports betting prohibitions but still be allowed to "regulate" the activity (so long as they do not sponsor, operate, advertise, promote, license, or authorize it), this might be the type of compromise that avoids the "wild-west" scenario feared by Judge Fuentes. It would allow the Third Circuit to interpret PASPA in a manner that is favorable to New Jersey (and in accordance with the above-described canons of statutory construction) without having to worry about the negative consequences associated with unregulated sports betting. At the very least, this reveals Judge Rendell to be an "outside the box" thinker. As noted earlier, Judge Rendell was also the panelist who invoked the "associated words canon" during oral argument. Her comments from the bench strongly suggest that she might be inclined to rule in favor of New Jersey (or is at least looking for a reason to do so). But she will need at least one more judge to join her (there are three judges on the panel), and her statement concerning the ability of states to "regulate" sports gambling without violating PASPA may be just the vehicle to accomplish that.
The Long-Range Implications of the Third Circuit's Decision
The Third Circuit's decision--regardless of the result--will have far-reaching consequences for the U.S. sports industry (and New Jersey's gaming industry). If New Jersey prevails, sports betting could become a reality at the state's licensed casinos and racetracks in time for the beginning of the 2015 NFL season. But as the decision date stretches into July, that may prove to be a long shot (even with a New Jersey victory) because the leagues and the U.S. Department of Justice would have 45 days to file a petition for rehearing en banc. (Rehearing en banc is a mechanism available to the losing side to seek review of the decision by the entire court, rather than just the three-judge panel that decided the appeal). Normally, the deadline for seeking rehearing is 14 days from the date of the decision. But since the federal government is a party, the leagues would have 45 days to file a petition for rehearing. That means we are looking at a late August deadline, assuming that there is a panel decision by mid-July. Thus, for Monmouth Park Racetrack to be able to offer sports betting by Week 1 of the 2015 NFL season (September 10), an appellate decision plus a denial of rehearing would have to occur no later than September 3, 2015 since the injunction entered by the lower court would not be lifted until 7 days has passed from the denial of rehearing. With each passing "non-decision" day, the prospect of Monmouth Park Racetrack launching sports betting in time for Week 1 of the 2015 NFL season is in jeopardy, but I'm sure that the track operators will settle for any date in 2015 (or even 2016).
The impact of a New Jersey victory would extend far beyond the state's borders. One immediate aftershock of such an upset (I now give New Jersey a 40% of chance of prevailing, increased slightly after oral argument) is that neighboring states (such as Pennsylvania and Delaware, which are part of the Third Circuit territory) would likely follow New Jersey's "court-blessed" blueprint and enact their own version of a partial repeal law in reliance on the Third Circuit's decision. Looking beyond the Third Circuit's jurisdictional territory, we could see as many as 10 other states passing similar partial repeal laws within a matter of months following a New Jersey victory. Several states--most notably, Minnesota, Indiana and South Carolina, to name just a few--are not even waiting. The legislatures of those states have already proposed bills legalizing single-game sports wagering (but not the partial repeal version favored by New Jersey). While these bills are only in a preliminary stage at this juncture, expect them to be fast-tracked if New Jersey wins.
Further, a victory by New Jersey will undoubtedly—and perhaps quickly—lead to new federal legislation that would expand legalized sports betting beyond Nevada. This is because New Jersey’s version of legal sports betting would be “unregulated" (meaning no governmental oversight). While NBA Commissioner Adam Silver has come out in favor of legal sports betting, he maintains that it needs to be “regulated” in order to preserve the integrity of the league’s games. A New Jersey victory would open the door to “unregulated” sports betting, a prospect that the NBA, the other sports leagues, and Congress are desperate to avoid. But the leagues and Congress have offered no definitive timetable for federal legislative reform, or any guarantees. Most observers believe that there is little chance of any Congressional action before 2017 (especially with a Presidential election next year). A New Jersey victory would likely change all that, and accelerate the timetable for federal legalization to 2016 (or perhaps even this year). Thus, regardless of the result, the Third Circuit’s decision will likely go a long way toward determining the “timing” of when sports wagering becomes legal in the United States.
Justice Clarence Thomas's reprehensible use of NBA players' race for argument on fair housing
Justice Clarence Thomas has taken Sports Law to a new low.
In his dissent in the Fair Housing case issued Thursday (Texas Dept. of Housing v. Inclusive Communities Project), Thomas argued that African Americans don't need the protection of the law. As proof, he said, just look at the NBA where this minority dominates the court. (Equally insane, he cited how Jews in Poland owned quite a few businesses before the Holocaust.)
If you think this is hyperbole, read on from this excerpt of the dissent:
Racial imbalances do not always disfavor minorities. At various times in history, “racial or ethnic minorities . . . have owned or directed more than half of whole industries in particular nations.” These minorities “have included the Chinese in Malaysia, the Lebanese in West Africa, Greeks in the Ottoman Empire, Britons in Argentina, Belgians in Russia, Jews in Poland, and Spaniards in Chile—among many others.” “In the seventeenth century Ottoman Empire,” this phenomenon was seen in the palace itself, where the “medical staff consisted of 41 Jews and 21 Muslims.” And in our own country, for roughly a quarter-century now, over 70 percent of National Basketball Association players have been black.
Tuesday, June 23, 2015
The future of Pete Rose
ESPN's Outside the Lines reports on new evidence showing that Pete Rose bet on baseball, including games involving the Reds, while still an active player. Rose has admitted to betting on baseball, including on the Reds, while a manager from 1987-89, but he has never admitted (and in fact, expressly denied as recently as April) betting on baseball while a player. This all happens at an interesting time. In March, he submitted his latest petition for reinstatement, the first to be heard by new commissioner Rob Manfred, who some thought might be more receptive to the petition than his predecessors. In addition, the All-Star Game is in Cincinnati, and Rose was expected to play some role in the events, including acting as a commentator for Fox, suggesting at least a foot back in the game.
So how does/should this affect Rose's status?
On one hand, it should not make a difference. Baseball's Rule 21(d) does not distinguish between players and managers in declaring that anyone who bets on MLB games in which they have a duty to perform shall be placed on the permanently ineligible list. The lifetime ban was fully justified by his gambling (later admitted) while a manager; this new evidence of the same misconduct at a different time is not necessary to further justify the punishment. It long has been suspected that he did bet while a player, both because witnesses testified to that fact during the Dowd investigation (Dowd and company could not find documentary evidence to support the testimony) and because, as a matter of common sense, it seemed unreasonable to believe that Rose suddenly began betting on baseball games involving his team once he became a manager, but never before.
On the other hand, perhaps it might give Manfred basis to deny reinstatement on the ground that Rose has not been forthcoming and has not fully bared his soul and admitted the totality of his misdeeds. In other words, the old "it's not the crime, it's the cover-up"--Rose should remain on the ineligible list not because of his gambling (which was well-established before this report), but because he has lied to us, both by omission in 2004 and by commission, as recently as two months ago.
I admit to being a hard-liner when it comes to Rose--a lifetime ban is a lifetime ban and I never saw any justification for his reinstatement or for his inclusion in the Hall of Fame while still banned, especially simply because he confessed to doing the very thing that got him banned. The OTL piece might be beneficial in illustrating why MLB takes gambling so seriously. According to the newly discovered records, Rose was several hundred thousand dollars in debt (Dowd in the OTL piece calls it a "mortgage") to mob-connected bookies, perhaps placing himself in a position where he could be coerced into doing something to the detriment of the game.
The Complete Legal Primer to Tom Brady's Deflategate Appeal and his roadmap to taking the NFL to court
new article for Sports Illustrated that breaks down the key issues in the appeal and Tom Brady's legal strategy going forward.
Florida's Uncertain Legal Landscape for Fantasy Sports: A Closer Look
The emerging popularity of daily fantasy sports has focused increased attention on whether such activity--which some equate to sports betting--is legal. While much of the debate has focused on federal law, and, in particular, the Unlawful Internet Gaming Enforcement Act, state law may represent the greater sphere of uncertainty (and vulnerability) for the fantasy sports industry. Four states—Iowa, Louisiana, Montana, and Washington—already expressly prohibit fantasy sports (either through an explicit statutory prohibition, as in the case of Montana, or through an advisory opinion from the state's attorney general, as in the case of Iowa and Louisiana, or because of an adverse interpretation by a state gaming regulator, as with the State of Washington). Additionally, the legality of fantasy sports (of all types) is especially murky in those states (such as Arizona, Illinois and Arkansas) in which even a modicum of “chance” would transform the contest into an illegal lottery, and, thus, run afoul of that state's gambling prohibitions.
But is Florida being overlooked? While there are there no Florida statutory provisions that directly address the legality of fantasy sports, the Florida Attorney General has weighed in on this issue, albeit, more than 20 years ago. On January 8, 1991, then-Attorney General Robert A. Butterworth issued an advisory opinion concluding that Section 849.14,Florida Statutes “prohibits the operation and participation in a fantasy sports league whereby contestants pay an entry fee for the opportunity to select actual professional sports players to make up a fantasy team whose actual performance statistics result in cash payments from the contestants’ entry fees to the contestant with the best fantasy team.” Fla. AGO 91-03, 1991 WL 528146, at *1 (Fla. A.G. Jan. 8, 1991).
As underscored by AGO 91-03, the question of legality in Florida does not turn on the “skill” vs. “chance” dichotomy, as it does in many other jurisdictions (which apply varying tests, but almost all of which embrace some form of the “skill” vs. “chance” analysis). While Florida’s gambling laws are primarily concerned with games of chance, there are specific provisions within Chapter 849 that also make it illegal to bet or wager on “contests of skill.” Along those lines, Section 849.14 provides as follows:
Whoever stakes, bets, or wagers any money or other thing of value upon the result of any trial or contest of skill, speed or power or endurance of human or beast, or whoever receives in any manner whatsoever any money or other thing of value staked, bet or wagered, by or for any other person upon any such result, or whoever knowingly becomes the custodian or depositary of any money other thing of value so staked, bet, or wagered upon any such result, or whoever aids, or assists, or abets in any manner in any of such acts all of which are hereby forbidden, shall be guilty of a misdemeanor of the second degree, punishable as provided on s 775.082 or s. 775.083.
Fla. Stat. § 849.14 (emphasis added)
There are four categories of potential violators that Section 849.14 was designed to reach: (1) the player, for betting or wagering on the contest of skill; (2) the sponsor, for accepting the bet or wager from the player; (3) banks and payment processors, for becoming the custodian or depositary of the money wagered, and (4) those who "aid, assist or abet in any manner" any of such acts. This last category should not be underestimated because it could subject “non-operators” to criminal liability merely for encouraging or assisting the primary violation of Section 849.14. Potentially at risk here are the investment banks, venture capital funds, professional sports leagues and teams, media broadcast companies, and entertainment companies that partner with the fantasy sports industry. These entities need ensure that the fantasy sports contests with which they are affiliated are legal in Florida, and, further, that their actions do not cross the line into “aiding and abetting” (as that concept is defined under Florida law).
While AGO 91-3 may seem antiquated to many, it remains the current (and only) law in Florida addressing the legality of fantasy sports. If you think that AGO 91-3 is no longer a concern, consider this: last year, one out-of-state gaming regulatory body cited AGO 91-3 in opining that “if a fantasy sports league has a buy-in (no matter what it is called) for its managers and gives a prize, then all three elements of an illegal lottery [e.g., chance, prize and consideration] are present." In concluding that a real-money fantasy sports league constituted illegal gambling, this Kansas regulatory body observed that “[t]he Florida Attorney General’s office reached the same conclusion in AGO 91-3.” While I have previously maintained that this Kansas regulatory opinion (since superseded) mischaracterized AGO 91-3 (which did not turn on the skill vs. chance dichotomy), the existence of that opinion underscores the very real risk that other regulators (and courts) could conclude that certain (or even many common) types of fantasy sports contests are illegal in Florida.
Deciphering “Stake, Bet or Wager” Under Florida Law
As stated earlier, the touchstone for a primary violation of Section 849.14 is whether the activity at issue constitutes a “stake, bet or wager.” Strangely, for a state with such an active gambling industry, Florida has very little case-law defining what constitutes a "stake, bet or wager." The most frequently cited decision is Creash v. State, 179 So. 149 (Fla. 1938), which distinguishes between a "stake, bet or wager" and a "purse, prize or premium" as follows:
In gamblers' lingo, 'stake, bet or wager' are synonymous and refer to the money or other thing of value put up by the parties thereto with the understanding that one or the other gets the whole thing for nothing but on the turn of a card, the result of a race, or some trick of magic. A 'purse, prize or premium' has broader significance. If offered by one (who in no way competes for it) to the successful contestant in a fete of mental or physical skill, it is not generally condemned as gambling, while if contested for in a game of cards or other game of chance, it is so considered. . . .
Id. at 152 (emphasis added). The key difference, according to the Florida Supreme Court, is that in a "stake, bet or wager," all participants compete for thing offered, whereas, in the "purse, prize or premium" scenario, the sponsor does not compete for the thing offered.
But, at the same time, the Supreme Court cautioned against relying too heavily on labels in determining whether gambling has taken place. Rather, as Creash counseled, courts should look to the substance of the game under consideration (not its form), explaining:
Chance actuated by the hope of getting something for nothing is the controlling element in gambling. Any agreement or inducement by which one risks his money or other thing of value with no prospect of return except to get for nothing the money or goods of another is gambling. If the contest for a "purse, prize, or premium" or a "stake, bet or wager" has this element in it, it is gambling, regardless of the name by which it is called, the implements employed to accomplish the act, or the manner in which it is conducted.
As an illustration of this approach, the Creash court characterized as illegal "gambling" a contest where participants "contribute[d] to a fund from which the 'purse, prize, premium' is paid, and wherein the winner gains, and the other contestants lose all." Id. Thus, regardless of whether the thing played for was a "purse, prize, or premium," or a "stake, bet, or wager," the Florida Supreme Court held that a conviction for illegal gambling would be warranted if the evidence showed that: (1) the amount paid by each player to enter the game went into the common fund from which prizes were paid; (2) the primary purpose for entering the game was to play for money or something of value; (3) the prize or prizes played for were won and paid to the winner; and (4) the other players lost all they paid in. Id. at 153.
Attorney General Opinions 91-03, 90-58 and 94-72
It is against this backdrop that the Florida Attorney General considered the legality of fantasy sports nearly one-quarter of a century ago. In AGO 91-03, the fantasy sports league at issue was operated "by a group of football fans" in which contestants paid an entry fee of $100 for the right to "manage" one of eight fantasy football teams. Each contestant would "draft" players from current National Football League (NFL) rosters, and compete against other contestants on a weekly basis. The winner of each week's head-to-head match-up was determined by combining the individual performance statistics of the "drafted" players from actual NFL games played that week. At the end of the season, the entire $800 in proceeds (representing the aggregate amount of entry fees) was paid based on the performance of the fantasy team.
In analyzing whether participants in this fantasy sports league were "betting or wagering" on a contest of skill in violation of Section 849.14, the Attorney General looked to the correlation between the entry fees paid and the prizes awarded and whether all participants had a chance of gain and risk of loss (echoing language in Creash). Pointing to the fact that the "the $800 in proceeds from the entry fees [were] used to make up the prizes," the Attorney General concluded that this characteristic transformed the payment of the entry fees into a "'stake, bet or wager' as defined by the courts." Id. at 2.
The Attorney General then contrasted this situation with an earlier advisory opinion (AGO 90-58), in which he concluded that "a contest of skill where the contestant pays an entry fee, which does not make up the prize, for the opportunity to win a valuable prize by the exercise of skill, does not violate the gambling laws of this state." Id. at n.8.
So does this mean that the legality of fantasy football turns solely on whether the "entry fees make up the prize"? Not necessarily. There are three important distinctions between the fact patterns in AGO 91-3 and AGO 90-58 (which involved a hole-in-one golf contest sponsored by a third party). First, in AGO 91-3, there was a direct correlation between the entry fees received and the prize awarded (e.g., the prize consisted of the aggregate entry fees received), whereas, in AGO 90-58, the prize was not contingent on the amount of funds earned from contest entry fees. Rather, it was paid out of the general assets of the sponsor of the contest. Second, in AGO 91-3, all participants paid an entry fee and competed for the same prize (with each person having a chance of gain and a risk of loss), whereas, in AGO 90-58, the sponsor of the contest was not competing for the thing offered. Id. Third, in AGO 91-3, while there was certainly skill involved in drafting NFL players for each fantasy team, the prizes were paid to contestants based upon the performance of those third party players, whereas in AGO 90-58, prizes were awarded based upon the individual contestants' own performance in the hole-in-one golf contest.
The Attorney General alluded to this last factor in AGO 90-58 when, quoting directly from Faircloth v. Central Florida, Inc., 202 So.2d 608 (Fla. 4th DCA 1967), he explained that the legislative intent behind Section 849.14 was to "proscribe 'wagering' on the results of ballgames, races, prize fights and the like, as opposed to 'playing' games of skill for prizes." Fla. AGO 90-58, 1990 WL 509068, *2 (Fla. A.G. July 27, 1990) (quoting Faircloth, 202 So.2d at 609). "To hold otherwise," the Attorney General wrote (again quoting from Faircloth), "we would have to find all contests of skill or ability in which there is an entry fee and prizes to be gambling. The list could be endless: golf tournaments, dog shows, beauty contests, automobile racing, musical competition, and essay contests, to name a few. No one seriously considers such activities to be gambling." Id.
The fact-patterns in AGO 91-03 and 90-58 represent opposite ends of the spectrum: in the former, the entry fees made up the prize, whereas, in the latter, none of the entry fees were used to make up the prize. This begs the question: would the opinion in AGO 91-3 have been different if only a portion of the entry fees had made up the prize? A later Attorney General Opinion, AGO 94-72 suggests that the answer to that question is no. In AGO 94-72, the Attorney General concluded that the purchase of a ticket containing the names of sports teams selected at random violates Section 849.14 when the winning ticket is determined by the sports teams that have scored the most points and part of the proceeds from ticket sales is used to make up the prize. The Attorney General explained:
According to your letter, the contestants would purchase a ticket to participate in the contest. Part of the proceeds from the ticket purchases would be used to make up the prize. Such monies, therefore, would appear to qualify as a "stake, bet or wager" as interpreted by the courts.
Fla. AGO 94-72, 1994 WL 508760, at *2 (Fla. A.G. Aug. 23, 1994)
This trio of advisory opinions provides several insights into the factors that the Florida Attorney General (and a Florida court) would likely consider when assessing the legality of a fantasy sports league in the present environment. As gleaned from these opinions, the pertinent considerations include: (1) the correlation between the entry fees and prizes awarded; (2) whether the prize amount was contingent on the amount of entry fees received; (3) the source of the prize money (e.g., whether the amount paid by each contestant went into a "common fund" from which prizes were paid or, alternatively, was paid out of the general assets of the sponsor); (4) whether all contestants had a chance of gain and a risk of loss; (5) whether the sponsor of the event was a participant for the prize; and (6) the dependency on the performance of third parties in ascertaining the winner of the contest.
Might the conclusion reached in AGO 91-3 have been different if some of the facts were changed? For example, let's assume that the prize awarded to the winner(s) of the fantasy sports league in AGO 91-3 was paid by a third-party sponsor (such as a Yahoo or CBS Sports) which did not compete for it. Let's also assume that the prize money was not contingent upon, or directly proportionate to, the amount of entry fees received, and was paid out of the general assets of the sponsor. Under these assumed facts, a strong case could be made that the opinion reached in AGO 91-3 would have been different. And since many of today's popular fantasy sports leagues share some of these characteristics, an attorney representing a fantasy sports league operator or participant in a criminal prosecution or an enforcement proceeding would be well-served to point out those differences.
Since issuing this trilogy of opinions in the early 1990's, the Florida Attorney General has not revisited the issue of whether operating or participating in a fantasy sports league contravenes Section 849.14. This is surprising considering the explosive growth of fantasy football over the last two decades and the specific exemption that fantasy sports was recently accorded under the Unlawful Internet Gaming Enforcement Act (UIGEA). But it also underscores the risk that fantasy sports operators and their business partners face in Florida, absent clarification from the Attorney General.
How much weight should be given to the Attorney General's opinion? Is it controlling? Although not binding on a court, an attorney general's opinion "is entitled to careful consideration and generally should be regarded as highly persuasive." State v. Family Bank of Hallandale, 523 So.2d 474, 478 (Fla. 1993). Nonetheless, there have been instances where Florida courts have found attorney general opinions to be unpersuasive. See In re Advisory Opinion to the Governor, 600 So.2d 460, 463 n. 3 (Fla 1992) (disapproving opinion of attorney general); Willens v. Garcia, 53 So.3d 1113, 1117 (Fla. 3d DCA 2011) (finding an attorney general's opinion to "based upon questionable reasoning."); De La Mora v. Andonie, 51 So.3d 517, 522-23 (Fla. 3d DCA 2010) (same). Since the legality of fantasy sports has not yet been tested in a Florida court, it is difficult to predict what, if any weight, a judge will accord these two-decade-old advisory opinions.
Need for Legislative Clarity
Although there have been no criminal prosecutions of fantasy sports operators or participants (or alleged aiders and abetters) since the issuance of AGO 91-3, it is not beyond the realm of possibility that an aggressive state prosecutor could seek to target the industry, which has changed dramatically since 1991. As more money flows into fantasy sports and the character of the games begin to more closely resemble gambling (rather than an informal social game), the risk of a criminal prosecution heightens. As unlikely as that may seem to many, all it takes is one aggressive prosecutor or attorney general to jeopardize Florida's lucrative and established fantasy sports market.
While the industry has devoted substantial lobbying efforts towards changing the law in Iowa, Kansas, and Louisiana to explicitly legalize fantasy sports, Florida is a much more vital and strategic market, as it is the home to nearly 20 million residents (more than the aforementioned states combined), two major fantasy sports operators (CBSSports in Fort Lauderdale and FanDuel's new Orlando office), and seven major professional sports teams (nearly all of which have entered into sponsorship deals with the fantasy sports industry). The stakes for the industry are simply too high to ignore the risk posed by Florida's arguably antiquated (but still-on-the-books) Attorney General's opinion.
One option might be to seek a legislative amendment to Section 849.14 to specifically carve out fantasy sports from the ambit of the statute. With the Florida Legislature poised to consider significant gambling expansion during next year's legislative session, the time may be right to explicitly legalize fantasy sports in Florida. One model that could be pursued is the Pennsylvania and Indiana approach, which seeks to legalize fantasy sports for casinos and racetracks. Florida is one of the largest gambling markets in the United States, with 31 licensed pari-mutuel operators. However, many of these operators have been reluctant to embrace fantasy sports because of concern about the lack of legal clarity in Florida, and, for those operators with multi-state properties, the risk of attracting the ire of gaming regulators in other states and potentially jeopardizing their valuable gaming licenses. A one-line fix to Section 849.14 could stabilize the industry in Florida and potentially open up a brand new revenue stream. It's worth a look.
Thursday, June 18, 2015
New NHL Draft Pick Compensation Rule for Fired Coaches, GMs May Violate Antitrust Laws
Fired NHL coaches such as Dan Bylsma and Todd McLellan may have been told that their services are no longer required, but they continue to reap benefits for their former clubs. Likewise, Peter Chiarelli (the recently-deposed general manager of the Boston Bruins who was just hired for the same job by the Edmonton Oilers) remains a key part of the Bruins’ rebuilding plan. What do these fired employees have in common? Each was fired with one or more years remaining on their contract, and have had their future employment contingent on their new teams paying draft pick compensation to the former clubs. In Bylsma’s case, the Buffalo Sabres (his new employer) were required to tender a third-round draft choice to the Pittsburgh Penguins (his former club) as compensation for hiring him, even though Bylsma last coached during the 2013-14 season. Chiarelli and McLellan proved to be an even costlier acquisition for their new employer, the Oilers, who were forced to part with two high draft picks (a second-rounder and a third-rounder) as compensation for hiring them, even though both had just been fired by their former teams.
The New Policy
This bizarre practice, described as a “disgrace” and “immoral, or close to it” by longtime New York Post hockey columnist Larry Brooks, is the result of a new NHL policy approved last June by the Board of Governors and implemented at the end of the recently-concluded regular season. Under the new policy, if a coach, general manager or president of hockey operations is fired but remains “under contract” (meaning he continues to be paid), their former teams are entitled to draft-pick compensation from the team hiring the fired person. The compensation for hiring any of those three positions is a third-round draft pick in the offseason or a second-round pick if the hire is made during the season. For the fired coach, his offseason is deemed to begin when his current team’s season ends (including playoffs). For a general manager or president of hockey operations, the offseason begins only after the NHL draft concludes in June, after most open executive jobs have been filled.
It appears that the NHL enacted this new policy to appease teams that lost rising (and under-contact) front-office executives to other organizations without receiving any compensation in return. The Detroit Red Wings experienced two such defections in recent years. In 2006, Steve Yzerman (then one of the team’s vice-presidents) left the Wings to become the general manager of the Tampa Bay Lightning (a Stanley Cup finalist this year). Four years later, Jim Nill (the Wings’ assistant general manager) was hired as general manager by the Dallas Stars. The Red Wings received no compensation from either team. A similar controversy erupted in 2006 after Dean Lombardi left the Philadelphia Flyers (where he had been a pro scout) to become general manager of the Los Angeles Kings. The Flyers were not compensated either. These defections paved the way for the enactment of the new NHL policy, as teams believed that they should be compensated for developing managerial talent, whether in the front office or behind the bench.
But does the new policy go too far? It would appear so on several levels. A rule that was designed to provide compensation for the loss of a front-office executive or coach who was still working for his current team has been converted into a “back-door” non-compete clause by which teams could prevent fired employees from finding work with other organizations, unless, of course, the new team were willing to fork over a high draft-pick. That could not have been the intent of the new rule. Nevertheless, it has been exploited as such by the Bruins, Penguins and Sharks (perennial Stanley Cup contenders) to the detriment of the league’s cellar dwellars (the Sabres, Oilers, and Toronto Maple Leafs, which had to pay a third-round draft pick for hiring Mike Babcock, even though his contract with the Red Wings was about to expire).
Issues of Competitive Balance
From a competitive standpoint, this new policy could have the unintended affect of creating an even greater disparity between the league’s “haves” and “have-nots,” as the more successful organizations (especially those that have a deeper pool of front-office and coaching talent) would be able to add more draft picks (the lifeblood of any NHL organization) while the league’s weaker teams would end up with fewer selections. In a seven-round draft, this can be a significant impediment to the rebuilding process.
One can also envision a scenario by which the league’s deeper-pocketed teams could systematically sign their coaches and front-office executives to longer-term contracts (or retain fired coaches and executives as “consultants” having minimal to no responsibilities) with an eye towards receiving future draft-pick compensation when another team wishes to hire them. The NHL has attempted to mitigate this risk by capping the number of compensatory picks that any one team could receive over a seven-year period to just two. But at the same time, the league did not cap the maximum number of draft picks that a team could lose as a result of having a “revolving-door” of head coaches and front-office executives (a scenario that Maple Leafs fans know all too well).
Additional competitive balance concerns arise out from the “discretionary” nature of the rule. Teams can waive draft pick compensation if they so choose. We have already seen this occur with the New Jersey Devils’ recent hiring of Ray Shero as general manager; his former team (the Penguins) did not demand draft-pick compensation from the Devils. This could lead to accusations of a “double-standard,” with the Penguins insisting on draft-pick compensation for Dan Bylsma while waiving it for Ray Shero (even though both were fired one year ago with time remaining on their contracts). It also suggests that “cronyism” is alive and well in today’s NHL, as general managers with close relationships may be less likely to demand compensation from a friend or frequent trading partner.
There are also concerns about gamesmanship, with teams potentially using the demand for draft-pick compensation as a “stick” to avoid having their fired coach or executive going to work for a division rival, while waiving it for a team in another division or conference.
But the NHL may have an even bigger problem on its hands: antitrust law. The league’s new policy can easily be seen as restricting the employment market for fired coaches and front-office executives. For every Mike Babcock, Dan Bylsma and Peter Chiarelli (each of whom has won a Stanley Cup and had little trouble finding comparable work), there are the John Tortorellas and Craig Berubes of the world who will have a hard enough time finding new employment even without the new draft-pick compensation rule. But when draft-picks are added to the mix, these candidates may find themselves “iced” out of the NHL. The league’s new policy could have the effect of shrinking the employment market for fired coaches and executives, who could see viable job opportunities quickly vanish due to excessive compensation demands made by their former clubs. Since the NHL is the only major professional hockey league in the United States, there is nowhere else for these fired coaches and executives to turn (save for a step down to the minor leagues, where they might languish for years before receiving another viable NHL opportunity).
In antitrust language, the league’s new policy could be seen as competitors “joining hands” to restrain competition in the labor market. U.S. courts have consistently recognized that antitrust laws presumptively apply to employer-imposed restraints on labor markets. Just as antitrust law seeks to preserve the free market opportunities of buyers and sellers of goods, it also seeks to do the same for buyers and sellers of employment services. Antitrust law addresses employer conspiracies controlling employment terms precisely because they tamper with the employment market and impair the opportunities of those who sell their services there.
Let’s use John Tortorella as an example. Although he was a Stanley-Cup winning coach for the Tampa Bay Lightning (in 2004), Tortorella has been fired twice in the last two calendar years, most recently by the Vancouver Canucks at the conclusion of the 2013-14 NHL regular season (after the team missed the playoffs). At the time he was fired, Tortorella still had 4 years remaining on his contract with the Canucks (for illustrative purposes, I will assume that there was no buyout clause, although a well-connected source believes that there was one). While Tortorella has had great success as an head coach (he is, after all, the winningest American-born NHL coach with 444 victories), his recent lack of success and string of controversies (see here, here, here, and here) may limit his future NHL head coaching opportunities. In other words he is no Mike Babcock. But as an accomplished coach, Tortorella would undoubtedly have NHL teams interested in his services. The rate of coaching turnover in the league is just simply too high to ignore a qualified candidate as Tortorella, who is known for quickly changing the fortunes of his teams. But would prospective employers still be interested in hiring Tortorella if the Canucks (who are still paying his salary for three more seasons) insisted on a third-round draft pick as compensation? A team choosing between Tortorella and an equally qualified candidate (for whom no draft pick compensation is attached) might opt for the latter candidate to avoid losing a valuable draft pick.
In the example described above, Tortorella could have a good antitrust case against the NHL (which is headquartered in the United States). Through this lens, the new NHL policy can be analogized to a multiemployer agreement unilaterally imposing uniform industry-wide terms of employment on coaches and front-office executives in a manner that unfairly restrains competition in the labor market. Such agreements are a violation of the U.S. antitrust laws, and, in particular, Section 1 of the Sherman Act. Tortorella’s potential antitrust case against the NHL would be strengthened by the unique nature of professional sports. With few exceptions, athletes (and coaches) typically excel in just a single sport and would not be able to profitably switch to other lines of work. In Tortorella’s case, his only head coaching experience is in the NHL, which is the only major U.S. professional hockey league. While he could theoretically find work as a television hockey analyst, such jobs are much less lucrative (not to mention scarce) and Tortorella’s temperament and prickly media relations may work against him finding employment in that field. Tortorella’s case would also be aided by the fact that there is no collective bargaining agreement between the league and its coaches, thereby preventing the league from claiming a statutory labor exemption to the U.S. antitrust laws.
How would the NHL defend such a lawsuit? First, the league would probably argue that Tortorella does not have legal “standing” to sue the league for a violation of the Sherman Act. But such an argument would likely fail because most courts have held that an employee is allowed to challenge antitrust violations that are premised on restraining the employment market. Here, Tortorella would argue that he has suffered an “injury” for antitrust purposes because his employment opportunities have been restricted by the new NHL policy.
Assuming that Tortorella can overcome the “standing” hurdle, the NHL would then likely argue that Tortorella has not suffered any damages since he is still being paid by the Canucks for three more seasons (at the rate of $3 million annually). But Tortorella could counter that by arguing that the inability to ply his trade (albeit, while still being paid) harms his ability to land future NHL jobs when the contractual payments cease. A coach who has been out of work for multiple seasons faces an even more uphill battle landing a future NHL head-coaching job than one who was just recently fired. Thus, the NHL’s no-damages argument would likely fail.
However, Tortorella would face several practical problems advancing such a suit against the NHL. Antitrust cases are notoriously difficult to plead and prove, and are quite expensive. Without a coaches’ union funding the costs of the litigation, Tortorella (or any other fired coach or executive) may be reluctant to pay the steep lawyers’ fees typically associated with antitrust cases. Antitrust cases can last for years, and could cost a plaintiff millions in legal fees. Tortorella may also be reluctant to take on the NHL for fear of being blackballed from future jobs. But for older coaches or front-office executives, an antitrust lawsuit may be a viable last resort. And if the litigation costs can be funded by a coaches’ trade association (or brought as a class action and pursued on a contingent-fee basis), an antitrust case against the NHL arising out its new policy could become a major headache for the league.
Is the New Policy Already On Its Way Out?
These antitrust concerns—or more likely, complaints about the fairness of the new policy—may have resonated with the league office. Recent reports indicate that the NHL may soon end the practice of requiring draft-pick compensation for fired coaches and front office executives. As first reported by Elliotte Friedman of Sportsnet, the NHL is going to revisit this issue at the next Board of Governors meeting in late June. Friedman believes that the policy will be “straightened out” at the late June meeting so that draft-pick compensation going forward will be limited to coaches and front-executives who were still working in that capacity for their former clubs when hired by the new team.
If the policy is revised, as expected, the NHL will not have to worry about John Tortorella or other unemployed former coaches and executives filing antitrust lawsuits against the NHL (as unlikely as that would be in any event). But the league’s apparent change of heart does raise an interesting question: will the NHL require the Bruins, Penguins and Sharks to return the draft-pick compensation that those organizations received this off-season from the teams that hired their fired employees? If the policy was never intended to apply to fired coaches and front-office executives, then the Sabres and Oilers would have a compelling argument that they should be receiving their draft picks back. For the Oilers, who have missed the playoffs an astounding nine years in a row, this is especially important since they were required to give up two drafts picks at the top of this year’s draft for hiring Chiarelli and McLellan. While the Oilers can take comfort in the knowledge that they won the Connor McDavid lottery (perhaps the NBA’s woebegone New York Knicks can hire somebody from the Oilers to represent the Knicks on the dais in future NBA draft lotteries), the loss of a second-rounder and third-rounder from the same draft will no doubt sting, and provide the Sharks and Bruins with an undeserved windfall. Perhaps the NHL will also address this issue at the next Board of Governors meeting.
College Athletes Suffer Legal Setback In Marshall v. ESPN; Is Plaintiffs' Poor Choice Of Forum To Blame?
In a widely overlooked antitrust decision from earlier this month, the U.S. District Court for the Middle District of Tennessee recently dismissed the claims of eight former college football players in Marshall v. ESPN -- one of the many spin-off publicity rights and antitrust lawsuits to O’Bannon v. National Collegiate Athletic Association. The plaintiffs’ loss in Marshall can be largely attributed to their poor choice of forum. Tennessee’s right-of-publicity statute is uniquely tough on the televised use of athletes’ likenesses. Meanwhile the U.S. District Court for the Middle District of Tennessee is one of the toughest federal courts in which to bring a Sherman Act claim against college sports entities.
In contrast with Judge Wilken's generally favorable decision for the plaintiffs in O’Bannon v. NCAA, the court in Marshall held that the eight college football-player plaintiffs do not have any cognizable publicity rights in the televised use of their likenesses under Tennessee state law. This is because Tennessee's statutory right of publicity explicitly states that "[i]t is deemed a fair use and no violation of an individual's rights shall be found ... if the use of a name, photograph, or license is in connection with ... [a] sports broadcast or account."
Additionally, the district court in Marshall held the football-player plaintiffs cannot state an antitrust claim against the college sports industry’s collective restraints on athlete compensation because of numerous circuit-specific amateurism defenses. This is not surprising as it has been repeatedly explained in academic literature that federal courts based in the Third and Sixth circuits have adopted a uniquely broad level of deference to the NCAA’s amateurism rules. Because the U.S. District Court for the Middle District of Tennessee lies within the Sixth Circuit, prior decisions from cases such as Bassett v. NCAA, 528 F.3d 426 (6th Cir. 2008) and Gaines v. NCAA, 746 F.Supp. 738 (M.D. Tenn. 1990) foster significant deference to the status quo in college sports.
The main lesson that should be learned from the Marshall ruling is that plaintiffs’ lawyers need to be very careful when selecting where to challenge the restrictive practices of college sports entities. Because defendants in Marshall encompassed most U.S. states, there was absolutely no reason for lawyers in Marshall to choose to sue in the U.S. District Court for the Middle District of Tennessee, or to argue exclusively a violation of Tennessee’s right of publicity statute. From a purely antitrust perspective, the U.S. District Court for the District of Kansas or the U.S. District Court for the Western District of Oklahoma would have made for more reasonable forums based on favorable past precedent involving antitrust challenges against the NCAA. Similarly, with respect to the right of publicity claims, the plaintiffs in Marshall perhaps should have argued the violation of a publicity rights statute based on the law of a state other than Tennessee. Indeed, many other states do not include an express statutory carve-out for the use of likenesses in televised sports broadcasts.