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Thursday, December 14, 2006
Lamar Hunt: A Sports Law Memorial

With the passing of Lamar Hunt, it seems appropriate to reflect upon some of the great cases and moments in sports law in which he was involved. Some of the more memorable published opinions:

American Football League v. National Football League, 205 F.Supp. 60 (D.Md. 1962), aff'd 323 F.2d 124 (3rd Cir. 1963)
Hunt was the owner of the AFL Dallas Texans; the AFL sued the NFL, claiming "monopolization, attempted monopolization and conspiracy to monopolize major league professional football." According to the court,
Among others who applied for NFL franchises in 1957 and 1958 w[as] Lamar Hunt, of Dallas, . . . [The NFL] suggested [Hunt] try to purchase the Chicago Cardinals and transfer that franchise. [Hunt] conducted unsuccessful negotiations with the [Chicago team's owners]. . . .Hunt, having been rebuffed in his efforts to purchase the Cardinals or obtain a new NFL franchise, began secretly to plan and organize a new league. He was then 27 years old, without experience in professional sports. He surveyed various cities and made tenative overtures to individuals who seemed likely prospects for becoming owners of franchises.
North American Soccer League v. National Football League, 465 F.Supp. 665 (S.D.N.Y. 1979)
The NASL sued the NFL over the NFL's "cross-ownership ban," which prohibited NFL owners from owning other sports franchises. According to the court,
An important element of stability for the NASL has been furnished by individuals or families who own member soccer clubs, and also own NFL football clubs. Perhaps the foremost among these "cross-owners" is Lamar Hunt of Dallas, Texas, a sporting world legend in his own time. Hunt, as owner of the Kansas City Chiefs football team, was in the early 1960's one of the founders of the American Football League, subsequently merged with the NFL. Hunt is now chairman and sole owner of the NFL Kansas City franchise. Hunt also is a part owner of the Chicago Bulls of the National Basketball Association, and the founder of the World Championship Tennis circuit. In 1967 Hunt purchased a Dallas soccer franchise which, in 1968, became the NASL's Dallas club, called the Dallas Tornado. [An] affidavit pays eloquent and, in my judgment convincing, tribute to the past and continuing importance to the struggling NASL of Hunt's presence and participation. . . .

[T]he NFL cross-ownership ban [i]s a source of harm to the NASL sufficiently grave and immediate to satisfy Second Circuit and Clayton Act Standards. Loss of the stabilizing Hunt . . . presence[] would be injurious in itself. . . .

The issues presented are interesting, complex and to a degree novel, such as the NASL's perception of wealthy, sportsminded individuals as components of a market for which rival leagues compete. One suspects that until now Mr. Hunt had thought of himself as a competitor, and not a commodity. . . .

Defendants have submitted an exchange of letters between Lamar Hunt and Pete Rozelle. . . . The correspondence concerns Mr. Hunt's willingness and efforts to comply with the NFL policy resolutions on cross-ownership. Mr. Hunt's letters reveal his concern with being forced into divestiture at a time when there was little or no market for NASL franchises. His perceptions as to investor reaction to the sale of a "Hunt" business are instructive:

"The soccer investment of myself and my children (for which I am obviously responsible) is a Very substantial one unfortunately, at this point more than I expected. Though the picture looks infinitely brighter for the sport, it is still a long way from reaching fruition for the investors and, in fact, at present there is virtually no market for a going club especially one owned by a 'Hunt.' (We have a historically bad record for selling any business for buyers seem to feel that anything we are selling must really be a 'dog.'"
North American Soccer League v. National Football League, 505 F.Supp. 659 (S.D.N.Y. 1980), rev'd 670 F.2d 1249 (2nd Cir. 1982)
The court wrote,
We must visualize individual sports team investors such as Lamar Hunt (NASL Dallas Tornado and NFL Kansas City Chiefs), . . . as the economic equivalents of cellophane, finishes and fabrics, shoes, or protective systems.


Amazing post. Great summary.

Anonymous Anonymous -- 12/14/2006 12:57 PM  

I agree - great post. Lamar Hunt is the answer to the following trivia question: "Who is the only person to be inducted to the hall of fame for both football and tennis?"

Blogger Ryan Rodenberg -- 12/14/2006 3:15 PM  

Don't forget McConnell v. Hunt Sports Enterprizes, 725 N.E.2d 1193 (Ohio 1999).

McConnell and Hunt formed an LLC for purposes of getting an NHL franchise in Columbus, OH. They were negotiating with Nationwide Insurance regarding building an arena, but Hunt kept rebuffing them (without consulting other LLC members).

The LLC Operating Agreement said "Members shall not in any way be prohibited from or restricted in engaging or owning an interest in any other business venture of any nature, including any venture which might be competitive with the business of the Company."

Uh-oh. McConnell decides that since Hunt is unilaterally turning down Nationwide's proposal, McConnell would meet with Nationwide personally -- not on behalf of the LLC, but on behalf of himself and an investment group. The NHL expansion committee then awarded the Columbus franchise to the McConnell group, and not the LLC, leaving Hunt out in the cold.

McConnell sought a declaratory judgment to establish his group's right to the NHL franchise outside of the LLC. After a jury trial, McConnell won on a directed verdict. Hunt appealed in the case cited above.

Hunt emphasized the word "other" in the language quoted above...any business venture OTHER than the business of obtaining an NHL franchise for Columbus.

McConnell emphasized the words "of any nature" in the language quoted above.

The court agreed with McConnell, since "of any nature" was clearly intended to be broad permission to compete. In addition, the court found McConnell's actions not to breach any fiduciary duties, because the operating agreement specifically allowed competition.

The court does not so say, but in the absence of the Operating Agreement, the duty of loyalty would prevent what McConnell did. However, while the LLC Acts in most states do not permit the parties to eliminate the duty of loyalty, they permit the Operating Agreement to "identify specific types or categories of activities that do not violate the duty of loyalty." See Uniform LLC Act s.103(b)(2).

I'm not sure a clause that permits competition "of any nature" with the business of the LLC satisfies the "specific type or categories" language, since it isn't very specific...quite to the contrary. A clause that permits competition "of any nature" is dangerously close to eliminating the duty of loyalty altogether.

Or is it? The duty of loyalty isn't limited to corporate opportunities. Arguably you can eliminate the corporate opportunity doctrine through the Operating Agreement and leave the other aspects of the duty of loyalty intact (e.g., self-dealing). elimination of the duty of loyalty...just one aspect of it.

Blogger ChapelHeel -- 12/14/2006 6:27 PM  

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