Public financing, including tax-exempt bond financing, of facilities used by professional sport teams has long been a controversial topic, with advocates and opponents disagreeing over whether the benefits sufficiently to justify public subsidies.  Since 2000, over $3.2 billion of tax exempt bonds have been issued to finance the construction and renovation of 36 sports stadiums.

A bill has been introduced that would eliminate the availability of federal tax-exempt bonds for stadium financing.  Under existing tax law, use of a stadium by the applicable professional sports team constitutes “private use,” but taxable “private activity bond” status, which is triggered by “private use” of the financed facility combined with the presence of “private security or payment” for the applicable bonds, can be avoided by structuring the bonds to be payable from tax or other revenues unrelated to the financed stadium.

The bill would amend the Internal Revenue Code to treat bonds used to finance a “professional sports stadium” as automatically meeting the “private security or payment” test,  thus rendering any such bonds taxable irrespective of the source of payment.

This bill is identical to a version introduced in the House of Representatives in February and a slight departure from prior versions in the House that extended the exclusion from tax-exempt financing to a broader category of “entertainment” facilities.

What’s new this time? There are versions of legislation intended to terminate tax-exempt financing of professional sports stadiums in both the House and Senate, arguably evidencing an increased likelihood of advancement.

Although the Federal Trade Commission currently is short-handed with one Democrat and one Republican serving on the Commission (out of a normal lineup of five), today they showed that bi-partisan consensus still can exist in Washington.  The FTC, along with California and DC, have sued to block the proposed merger of DraftKings and FanDuel, the two largest daily fantasy sports sites.

The federal court complaint alleges that paid daily fantasy sports contests in the United States represent a distinct antitrust product market.  According to the complaint, consumers of paid fantasy sports are unlikely to view season-long fantasy sports contests as a meaningful substitute due to the length of season-long contests, the limitations on number of entrants and other issues.  The FTC claims that entry or expansion by other providers is not likely to provide timely or effective new competition.

DraftKings and FanDuel are the two largest daily fantasy sports sites, controlling together more than 90 percent of the United States market.  The complaint alleges they are each other’s closest and most significant competitor and they have battled head-to-head to offer best prices, product quality, largest prize pool and greatest variety of contests.

A federal judge will decide whether to enjoin the merger pending an administrative trial at the FTC.  That hearing will turn on whether the FTC can factually demonstrate its view that daily fantasy sports is its own market.  DraftKings and FanDuel issued a statement that they are “considering all their options.”

An ongoing controversy regarding fraud and academic dishonesty among student-athletes at the University of North Carolina at Chapel Hill (“UNC”) has brought to the forefront an important question:  Who is responsible for ensuring student-athletes are receiving an academically appropriate education?

The UNC scandal involves the revelation that a “shadow curriculum” was developed in the early 1990s during a period of complaints that student-athletes’ workloads were too strenuous given the heavy demands of competing in Division I athletics.  The shadow curriculum allegedly involved classes that never met, had little to no faculty oversight, and in certain instances required only a single paper to be submitted in order to complete the class.  Investigation findings suggest that for well over a decade, these classes were taken by a significant number of students – many of which competed on UNC’s football and men’s and women’s basketball teams.

The National Collegiate Athletic Association (“NCAA”) which regulates college-level athletics, has charged UNC with improper and unethical conduct as a result of the revelation of UNC’s implicit sponsorship of this shadow curriculum.  Although the NCAA has yet to levy its final punishment against UNC (the University has instituted several self-imposed sanctions), potential penalties could include a reduction in the number of scholarships available to UNC athletes in the future, a postseason ban on competition, and – in a worst case scenario – the “death penalty,” which would eliminate UNC’s eligibility for college-level athletics competition for an entire year or longer.

In response to the threat of these potential penalties, UNC has asserted that the NCAA is overstepping its role by threatening UNC’s athletic programs based on concerns over academic integrity.  The NCAA’s principal function is to regulate athletics compliance, not to determine whether student-athletes are being held to sufficiently rigorous academic criteria.  That should be reserved for the purview of the University.

And UNC has a point.  Charged with the regulation of athletics, the NCAA does not specialize in assessment of how difficult a college student’s coursework should be.  If the NCAA punishes UNC for its academic failings, it could open the floodgates for the NCAA’s role in oversight over the curriculum for student-athletes and begs the question, “What next?”  Will the NCAA demand that it be given an opportunity to audit and approve of university classes in order to ensure that student-athletes are being held to sufficiently rigorous standards?  And if so, on what basis?

On the other hand, the UNC scandal raises the debate of whether universities can be trusted alone with ensuring the academic preparedness of their student-athletes.  Perhaps an institution’s judgment could be clouded by conflicting incentives that potentially motivate them to place the success of their athletic programs over other principles.  After all, college sports – and particularly Division I teams in football and men’s basketball – generate mass amounts of revenue for their institutions.  For many universities then, it may be extremely difficult for them to decide to, for example, sideline their star player because he is struggling in calculus, when they are armed with foreknowledge that such a decision would have competitive and financial consequences.

Of course, universities cannot place their bottom line over the education of their students. If schools cannot be trusted to prioritize their students’ success over financial gain, then we are left with one very important question about the regulation of student-athletes’ education:  If not the NCAA, then who?

The present end result is universities must continuously assess both internally and with appropriate external counsel, the separation in oversight of academics and athletics.  Failure to do otherwise may force the NCAA to assert a more prominent role and increase risk to potential infractions.

 

We are in March.  The minds of many turn to March Madness as the NCAA hosts its annual tournament to crown college basketball’s national champion.  Of these, many want to take advantage of the tournament to promote their products or services.  However, this phrase is trademarked, and the owners are active in policing and protecting their mark, as sponsors pay large amounts for association with the championship.  It is important therefore to be careful of using “March Madness” in promotions and advertisements, as these uses could bring trouble.

“March Madness” – a Trademarked Term?

Yes, it is.  This, however, does not mean that newscasters, sports reporters or morning DJs can’t talk about the tournament using the name of the event. Instead, what it means is that commercial uses of the term that could imply some association with the event for which sponsors pay money, can be problematic – and could cost you or your sponsor money or time defending the use. So the safest way to avoid issues is to avoid the trademarked phrase in promotions and advertisements.

The NCAA was not the first to employ the March Madness theme for a basketball championship.  That honor goes to the Illinois High School Association. But those rights have been acquired, and are now protected vigorously by the NCAA (including associated marks such as “Final Four” and “Elite Eight”).  Marks objected to in the past by the NCAA include “April Madness” (for entertainment service), “Markdown Madness” (for auto sales services), “Skate Madness” (for skateboarding competitions) and “Freestyle Madness” (for various entertainment services).

Safe use.

In considering how best to use “March Madness” in a commercial setting, it is important to note that using the term in a manner where it is simply describing the event rather than for an attention-getting headline is more likely to be perceived as fair.  For example, in noting a list of events and other features, an ad may say, “During the March Madness tournament, we will be serving flights and celebrating the individual athletes from our home team.”  Using the term close to the event date rather than well in advance is also more likely to be perceived as fair, and not trading on the excitement that surrounds the games outside the context of the tournament itself.  The same considerations apply to sales of merchandise.

So be careful out there, and enjoy the games.

As of this writing, it has been over 850 days since UConn women’s basketball team has lost a game.  When the Huskies last tasted defeat (in an overtime thriller to Stanford on November 17, 2014), football players at Northwestern University were pursuing their rights to collectively bargain after a ruling by the NLRB regional director in Chicago held they were statutory employees.  While the undefeated nature of women’s basketball in Storrs, CT has been a constant, the NLRB changed the game for Northwestern football players by declining to assert jurisdiction.  However, there remains a feeling in certain quarters of college sports that some form of pay to student-athletes is inevitable.

The order declining to assert jurisdiction over Northwestern’s football players was not the last word by the NLRB with respect to the University’s athletics.  Last fall, an advisory memorandum by the NLRB’s Associate General Counsel found certain rules in the University’s Football Handbook were unlawful.  The offending rules, which the University subsequently modified for purposes of compliance, related to restrictions on social media and health communications by players.  The fact that the Office of the General Counsel opined on this issue has raised concern whether the NLRB will reconsider its prior position if another college team petitions to assert collective bargaining rights.

Payments to college players would offer support to their argument for standing as statutory employees.  Similar to those of Northwestern, policies and rules that affect players would have to be evaluated for compliance with the National Labor Relations Act.  Considering the volatile impact of social media on college sports and the desire of many athletic departments to manage this area, the limitations and guidance to employers on social media policies would require rule changes in the athletic handbooks of many universities.

In addition to the right to organize, many individual employment rights would also flow from the new standing.  For instance, it has been long understood that coverage under workers’ compensation statutes is not available to college athletes, largely because any injuries would not be derived from job-related activity.  However, creating a compensatory arrangement for college players would bring back the logic used by the Colorado Supreme Court in 1954 when it ruled in favor of Ernest Nemeth, an injured football player from the University of Denver on a claim for workers’ compensation.  Key to Mr. Nemeth’s claim was that his football activity was part of his total “job” with the University.  Under this rationale wage compliance would also become a concern, especially given the non-exempt status that could be designated to college athletes.

The Pandora’s Box of legal compliance for student-athlete pay will also involve the IRS.  Under Revenue Ruling 77-263, the value of an athletic scholarship is excluded from the recipient’s gross income.  However, this ruling is grounded in the understanding that the value of the scholarship will not exceed the expenses incurred to attend the institution. The excess value paid to college players would raise question as to whether some portion or all of the athletic grant-in-aid would become taxable income.

While the idea of providing payments to student-athletes may appear a simple solution to some, there would be a host of devils in the details.  Any prospective framework would need limitations that not only address financial considerations (such as how this would impact availability of Olympic sports that are often the focus of Title IX compliance), but a cross-section of legal concerns.  This would be a task only slightly less daunting than beating a team coached by Geno Auriemma.

Follow Tyrone on Twitter at https://twitter.com/tyronepthomas

 

The NFL has agreed not to require its teams to set minimum prices in ticket resale marketplaces as part of a settlement with several state attorneys general.  The settlement caps an investigation that was initially launched by New York Attorney General Eric Schneiderman into possible antitrust violations involving the NFL’s implementation of resale price floors, the practice of putting a lower limit on ticket prices to ensure they are not sold for less than a set value.

 

The NFL encouraged individuals interested in selling tickets to do so on the NFL Ticket Exchange, a marketplace operated by Ticketmaster. The NFL Ticket Exchange thereby could prevent sales below the face value of the ticket, as a means of generating additional revenue.  Because some teams require ticket holders to use the league-promoted platform, even sellers who would be willing to sell for less could not do so.  Instead, fans were forced to pay a minimum price for all NFL games.

 

The resolution with Florida, Massachusetts, New York, Ohio, Pennsylvania, and the District of Columbia is designed to make it easier for fans to find tickets at lower costs on the re-sale market.  It also includes an agreement that the NFL will pay approximately $100,000 to cover the cost of the multistate investigation. The NFL admitted to no wrongdoing and paid no other financial penalties.   But whether that means cheaper seats for NFL fans is uncertain, since teams will still be allowed to individually set minimum re-sale prices if they desire (although they must inform ticket sellers when a price floor is set).

 

It remains to be seen whether state attorneys generals take issue with other existing price floors.  Just this past summer, the New York Yankees settled a longstanding disagreement with StubHub over the use of price floors. StubHub, who initially was adverse to any price floor, has agreed to set floors at 50% of a ticket’s price at the season ticket rate.  StubHub will reportedly now be the primary fan-to-fan ticket resale site for the Yankees.

The Cleveland Indians are back in the World Series for the first time in nineteen years, and with it have come renewed protests over the team’s name and Chief Wahoo logo, a depiction some consider a highly offensive caricature.  This puts the team into the middle of a sustained and often emotional debate. Many people vigorously oppose the use of Native North American names and images as mascots and logos, saying they are demeaning and worse. The Chief Wahoo logo in particular stands out because it is a caricature.

It’s no secret that brands are big business and that most established businesses, large or small, make great effort to create brand awareness through consistent use of logos with their name. The names and logos are usually legally protected with a registered trademark. Creating brand recognition takes time, so it is not something that should be changed often.  When Tropicana tried to rebrand their orange juice packaging, sales plummeted and it was “a customer-relations fiasco” according to Advertising Age.  A SmartPlanet article analyzed some failed attempts at rebranding. The Gap’s brief logo change is one for the history books. All these brands ended up returning to logos that were tried and true.

All of this may soon be coming to a head.

Last December, the United States Court of Appeals for the Federal Circuit decided a case called In re Tam, in which it overruled the Trademark Office’s refusal to register “The Slants” as a trademark for a music group, finding that the term was disparaging to individuals of Japanese extraction. In a 9-3 decision, the Federal Circuit ruled that by barring registration of such trademarks, the disparagement provisions of Section 2(a) violates the First Amendment’s protection of freedom of speech. Tacitly acknowledging that their ruling would likely unleash a torrent of trademarks that many consider offensive, the court concluded:

Whatever our personal feelings about the mark at issue here, or other disparaging marks, the First Amendment forbids government regulators to deny registration because they find the speech likely to offend others. Even when speech “inflict[s] great pain,” our Constitution protects it “to ensure that we do not stifle public debate.”

The Trademark Office was widely expected to, and last month did, ask the Supreme Court to review the Federal Circuit’s decision in In re Tam. In a related move, Pro-Football, Inc. took the unusual step of asking the Supreme Court to hear its appeal of the federal district court decision cancelling six registrations for the Washington Redskins trademarks – which has not been ruled upon yet by the Court of Appeals – as part of the Slants appeal.

The Slants and Redskins cases both turn on the “disparaging” clause of Section 2(a). But if the Supreme Court decides to take on one or both of these cases, the statute’s bar on “immoral” and “scandalous” marks could easily be addressed at the same time: the constitutional issues are pretty much identical.  In the meantime, the Trademark Office – presumably seeking to avoid getting itself into any more controversy – has announced that action on applications that raise any of these Section 2(a) issues will be indefinitely suspended pending further court action.

Former UCLA basketball star and NCAA champion Ed O’Bannon was the lead plaintiff in a 2009 class action lawsuit that was the first serious challenge to the lifeblood of the NCAA’s very existence: all of its players are unpaid amateurs.  The case – forever called the “O’Bannon” case – claimed Division I men’s basketball and football players ought to be compensated for the commercial use of their names and likenesses.  Both sides appealed the Ninth Circuit Court of Appeals’ 2015 ruling, but on Monday the U.S. Supreme Court denied both petitions, preserving the NCAA’s coveted system of amateurism . . . for now.

The denial leaves in place the lower court’s ruling favor of O’Bannon, where a three-judge Ninth Circuit panel found that NCAA Rules constitute an unlawful, anti-competitive conspiracy between the NCAA and its 1,000-plus schools.  Before the Ninth Circuit heard the case, the District Court ruled that colleges must reward men’s basketball and football players up to $5,000 per year while they are in school for the use of their names, images and likenesses, but two of the three Ninth Circuit judges overturned the payment portion of the ruling.

Continue Reading Supreme Court Declines to Hear the O’Bannon Case, Holding in Place the NCAA’s System of Amateurism

In 2014, a group of minor league players sued Major League Baseball, the Office of the Commissioner, former commissioner Bud Selig, and three MLB franchises alleging numerous violations of the federal minimum-wage law. Some minor league players reportedly received $3,000 to $7,000 over a five-month season, even though they claimed to spend 50 to 70 hours a week in baseball-related activities. The case was amended to include all 30 MLB franchises, though eight teams were later dismissed. Central to the players’ strategy was obtaining standing to pursue a class action to defray individual costs and maximize recovery.  However, a recent ruling by a California federal court dealt a blow to the players by rejecting their request for class certification.

Although the players were conditionally granted class status in 2015, Chief Magistrate Judge Spero reversed this temporary status and ruled the players could not proceed as a class in part because of the individualized inquiries needed to determine which class members were owed compensation.

Continue Reading Minor League Baseball Players Strike Out in Attempt to Certify Class for Wage Claims

No, the First Monday in October is not when the first poll for the College Football Playoffs is released.  And it is not the day of an important college football match-up.  However, it still might be an important day for college athletes—and the NCAA.

As many know, the First Monday in October is when the Supreme Court reconvenes.  It is also likely to be when we will find out whether the Supreme Court will hear the O’Bannon case, the Court having the pending petitions for a writ of certiorari teed up for decision at their September 26th conference.  O’Bannon v. NCAA, 802 F.3rd 1049 (9th Cir. 2015). Continue Reading First Monday in October Might be Big Day for College Athletes