1.07.2016

5 Hot Issues That Will Keep Sports Attorneys Busy in 2016

5 Hot Issues That Will Keep Sports Attorneys Busy in 2016

With NFL teams eyeing a potential move, growing legal woes for the daily fantasy sports industry and a changing media landscape, 2016 is setting up to be a busy year for sports attorneys on both the litigation and transactional sides.

Here, Law360 takes a look at some of the hot issues that will be sure to drive sports deals and litigation in the coming year.

Legal Woes For Daily Fantasy Sports

In some ways, 2015 may be considered the year of the rise of daily fantasy sports as leading companies DraftKings Inc. and FanDuel Inc. both raised millions of dollars in investment from a variety of sports leagues, teams, networks and private equity firms, and spent much of it inundating the public with advertising. However, 2016 could be the year of the industry's downfall — or at least one of change — as it faces several government investigations and lawsuits over the integrity and actual legality of their contests.

With most of the civil lawsuits still in the early stages, in addition to an enforcement action in New York just heating up, the debate over daily fantasy sports, or DFS, has only just begun. 

“The reaction on one hand may be for a legislature to have a carveout for these games or impose some sorts of restrictions,” Shearman & Sterling LLP partner Christopher LaVigne said. “It is difficult to say but there are a panoply of outcomes that I think could happen.”

Scrutiny began in earnest following a so-called insider scandal where a DraftKings employee was alleged to have used inside information to win $350,000 on rival FanDuel. As a result, the industry is left with several separate but related challenges as questions persist over the legality of DFS contests on a state-by-state basis versus questions over the integrity of the contests.

Several state probes have come to inconsistent results, ranging from proposed consumer protection regulations like those lobbed by Massachusetts Attorney General Maura Healey to the strong stance against the industry by New York Attorney General Eric Schneiderman. His office hit both companies with cease-and-desist letters and legal enforcement actions alleging their contests are forms of illegal gambling in the state. Schneiderman was joined in late December by his Illinois counterpart Lisa Madigan, who issued an opinion finding DFS illegal under current Illinois law.

Further, there are at least 50 civil class actions against DraftKings and FanDuel with claims including that they allow “shark bettors” with unfair advantages win big money off unsuspecting average DFS consumers to allegations that the contests are illegal. Some of the suits have filed for consolidation, with the companies pushing for the litigation to take place in Massachusetts federal court.

Finally, there are several proposed state bills looking to legalize and regulate the fantasy sports industry while other lawmakers, including in New York, are considering potential action. 

Impact Of Over-the-Top Distribution On Media Rights 

The NFL surprised the sports world in 2015 when it announced that a regular season game between the Buffalo Bills and Jacksonville Jaguars would be broadcast over the Internet around the world for free, in the first ever such livestream for the league. After the success of that game, rumors swirled that NFL Commissioner Roger Goodell was meeting with Yahoobrass about the potential for a streaming deal for the NFL’s Thursday night games.

Legal experts say the deal was indicative of the changing media landscape as more and more consumers and sports fans are looking to get their entertainment content through non-traditional means called "over-the-top" or OTT, usually on mobile devices or through Internet-connected smart TVs.

“The thing that I think a lot of people are looking at is that with the traditional delivery vehicles like turning on the television and watching ESPNCBSNBC or other networks, fewer and fewer people are doing that," said Steve Smith of Bryan Cave LLP. "So the question is how are people going to access the content they want to see going forward and how is that going to be delivered, and then what does that do for rights fees from television companies?”

Attorneys say OTT is a dual-edged sword. The new distribution technologies help leagues and teams reach new consumers, or keep reaching the same consumers in new places, and provide new options for smaller, niche sports to distribute their content to their respective fans. On the other side, OTT creates tension with the traditional pay TV cable and satellite television model that has driven higher and higher revenues for sports content as it remains one of the last appointment-viewing television options.

Regardless, the trend of “cord cutters” is expected to continue and perhaps even grow, forcing sports leagues and teams and their lawyers to adjust.

Team Owners Pursuing Alternative Revenue Streams

With sports franchises exploding in value in recent years, sports owners are trying not only to earn a return on their huge investments but capitalize on the growing interest in sports.

There is further pressure as professional leagues institute revenue sharing regimes to redistribute revenue among the teams. This means owners have been turning to other sources of revenue that are outside of those revenue sharing agreements and in some instances investing in multiple sports in markets around the world.

“Given the ever escalating price of sports franchises … owners are going to continue to diversify their revenue streams, especially in sports where you have revenue sharing," David Connolly of Shearman & Sterling said.

Attorneys said it could also mean further attempts by leagues and individual teams looking to maximize revenue from their media rights, particularly with bigger regional deals with teams that might also include online streaming and other options. The trend is expected to spur further deals and other activity in the sports space in 2016 and beyond.

NFL Franchise Relocation

In 1995, both the Rams and Raiders NFL franchises departed Los Angeles, leaving the nation’s second-largest market with no team in arguably the nation’s most popular sport. But in recent years, talks have been heating up for a potential move that could leave Los Angeles with a team to call its own once again, with NFL owners potentially voting to approve relocation of one or more teams in early 2016.

Three franchises, the St. Louis Rams, Oakland Raiders and San Diego Chargers have been tied to two potential stadium development projects in the Los Angeles area — a proposed$1.7 billion stadium in Carson, California, and $1.86 billion stadium in Inglewood, California, being pursued by current Rams owner Stan Kroenke.

Unsurprisingly, all three franchises filed applications with the NFL this week to relocate to Los Angeles beginning in the 2016 season with the league set to present the proposals to the owners for their consideration next week. However, issues still remain with the proposed stadium projects as they work with local authorities and on compliance with the California Environmental Quality Act. Further, according to league rules, at least 24 of the 32 franchises must greenlight a relocation in order for it to go through, and when exactly the owners will vote on the issue is still unclear. 

“It is going to be interesting who it is and there will be one or two teams and whether the NFL becomes part of the stadium solution,” Connolly said. “It is just such a huge market and people have talked about it for a long time. … In some ways it is surprising it has not happened yet.”

Both San Diego and St. Louis are desperately working to provide new stadium alternatives in the hopes of keeping their franchises, since their chances of landing a new franchise are slim. The NFL has not expanded since 1999, when a new franchise assumed the old Cleveland Browns name after that franchise moved to Baltimore to become the Ravens.

“One of the options that has not really been talked about, which I think would have been the easy answer a decade ago, is expansion," said Ryan Davis of Bryan Cave. "The reason for that is that the franchises are so valuable.”

College Student-Athletes' Push for Publicity Rights Compensation

The Ninth Circuit in 2015 issued a significant ruling in the long-running O’Bannon and Keller case that was in some ways a major victory for the NCAA as it reinforced the amateurism model of college athletics by striking down part of a district court decision that would have given student-athletes the ability to capitalize on the publicity they bring to the NCAA and their respective schools.

The appellate court denied a bid to rehear the case in late December, leaving intact the panel decision that — while allowing student-athletes to receive more in their scholarship packages — struck down a district court ruling that would have allowed student-athletes to receive deferred cash payments of up to $5,000 per year for use of their names, images and likenesses.

While the push to pay student-athletes above and beyond scholarships may have taken a hit, attorneys say the issue of compensating student-athletes for their publicity rights is going to continue as a separate issue as student-athletes try to get a chunk of the massive television broadcast deals for college sports and the use of their image and likenesses for a variety of marketing.

For instance, 10 former student-athletes, led by former Vanderbilt University football player Javon Marshall, have appealed to the Sixth Circuit in their putative antitrust class action accusing major television networks such as ESPN, CBS, NBC, ABC and Fox; several college athletic conferences; and other licensing groups of using the student-athletes’ names, likenesses and images without permission. While the players lost in the district court, the ruling was significant because the judge said the players had raised cogent arguments but that their instant publicity rights claims do not exist under Tennessee law.

“It is not against the NCAA, which is relevant, but against the networks, the broadcasters and licensing agencies for name and likeness compensation in connection with TV broadcasting,” Glen Rothstein of Greenberg Glusker Fields Claman & Machtinger LLP said. “To me that is where the fight is going to be going forward, because that is where the real money is.”

In another suit, two former college basketball players have appealed to the Ninth Circuit their claims against a company that allegedly sold photos of them in action without permission, arguing the lower court failed to distinguish between the copyright for the photos and the players’ publicity rights.

Suits like this show college student-athletes and their lawyers are not done yet and will continue to push to earn a piece of the marketing revenue generated by big-time college sports. 

--By Zachary Zagger 

--Additional reporting by Jeff Zalesin, Linda Chiem, Kat Greene, Patrick Boyle, Matthew Perlman, Andrew McIntyre, Natalie Rodriguez and Benjamin Horney. Editing by John Quinn and Emily Kokoll.

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