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Monday, March 20, 2006
 
The NFL's "Poison Pill"

Many lawyers are familiar with a "poison pill" in corporate law, which are defensive measures intended to prevent hostile takeovers through stock acquisition. (More) Now, the NFL has its own measure of the poison pill and an arbiter will decide on Monday how integral it is to a player contract. (Story). Steve Hutchinson of the Seattle Seahawks, widely considered to be one of the best guards in the league, signed a 7-year $49 million dollar contract with the Minnesota Vikings last weekend. The Seahawks have the right to match the deal, and want to do so, but the Vikings have included a "poison pill" clause.
    [The clause] stipulates that Hutchinson must be the highest paid offensive lineman on his team after the first year of the contract and that, if he isn't, the entire contract becomes guaranteed. The provision is a difficult one for the Seahawks, who have the right to match the Minnesota offer, because offensive tackle Walter Jones is the team's highest paid lineman and would be even if Hutchinson were on the Seattle roster.

    Less than 2 percent of NFL contracts are fully guaranteed and those are usually limited to quarterbacks or other players at skill positions. Having to guarantee Hutchinson's contract would break new ground.
The Vikings clearly took a risk with Hutchinson's contract, but did so because they knew that Seattle would not be able to match the offer without making an enormous financial sacrifice. Now, the Seahawks are asking the arbiter to declare that the pill is not a principal term of the deal, and thus, they should be able to match the financial terms of the contract without adopting the pill.

My guess is that this is not a winning argument, but it will be interesting to see how the arbiter (Professor Stephen Burbank) views it. Is the clause solely a defensive measure, and thus, something for which Hutchinson has given no consideration? Or is it part of his compensation package? He does not stand to make more money; the clause is more likely to prevent action on the part of the Vikings. But having his contract be guaranteed would be a huge gain.

UPDATE (3/21): Seahawks lose; Hutchinson is now a Viking.





3 Comments:

I wish some of the players my Knicks acquired would have had poison pills in their contracts, such as the following:

Steve Francis - "must be most selfish shoot-first undersized guard on team or else contract is voided and player becomes unrestricted free agent."

Penny Hardaway - "must be most oft-injured shooting guard past his prime who still somehow collects 7 figure paychecks despite being on inactive list of roster."

Jerome James - "must be most overweight, underachieving center on team or else poison pill contract terminates contract."

And thanks to Stephon Marbury, Allan Houston, and Eddy Curry - the Knicks would be able to clear about $100 million worth of contracts off their books.

Blogger jeffiepan -- 3/20/2006 12:38 PM  


That is the nature of the beast, in regard to the economic differences of the two leagues. Can you imagine the NBA, if teams were did not have to guarentee contracts. I can only imagine how many NBA superstars who received the maximum contract from their respective teams, would be cut in the first two years of their respective contracts.

Anonymous Anonymous -- 3/20/2006 9:31 PM  


Thanks for writing. I had no idea what was meant by the term in regards to signing restricted free agents.

Seems like a smart way to pry players away. There would seem to be some way to write in a "Poison Bill" that specifically hurts the player's current team but isn't as relevant to what their situation will be with the new team for every contract.

Anonymous Anonymous -- 3/03/2007 4:21 PM  


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