The Changing Landscape of Salary Arbitration-Eligible Players and Free Agents in Baseball

With the Yankees winning the World Series last night, the off-season officially began this morning. The clock starts ticking on the free agent filing period of 15 days after the end of the World Series. Buster Olney appeared on Mike and Mike on ESPN this morning. He started his segment with the same point that he made in an article on ESPN Insider on Sunday titled “Baseball's Next Great Economic Disparity.”

Let me quote from his posting:

“Baseball's financial structure appears to have reached a tipping point that can be defined simply. ‘The arbitration process is now outdated,’ said a highly ranked executive, ‘because the players can get more money in arbitration than they would through free agency.’ So now teams are about to adjust to this reality, and this is why multiple general managers expect that dozens of young players with three, four and five years of major league experience will be cut loose rather than offered arbitration in the next 41 days. Not a handful, but dozens.

During the past 48 hours, I went through the rosters with some executives and counted 93 solid non-tender candidates -- players whose current teams simply won't offer them contracts for 2010. If the final numbers come close to that figure, close to 300 veteran players will be looking for jobs in the winter, a staggering number that will inevitably depress the asking prices for free agents.”

Examples that Olney offered in his posted article were J.J. Hardy of the Milwaukee Brewers, Jeremy Hermida of the Florida Marlins, and Bobby Jenks of the Chicago White Sox. In both the article and this morning on Mike and Mike, Olney offered that the big market teams will be able to sign their top choices of both traditional free agents (six years of service) and non-tendered arbitration-eligible players. Small market teams might benefit from a depressed market overall for free agents.

I think that Buster Olney is right on top of this issue. The first two important dates to remember are December 1 and December 7. December 1 is the last day for teams to offer arbitration to their former players who became free agents. Monday, December 7, is the last day for a former free agent to accept arbitration. The non-tender date is December 12. After free agents file, teams have the right the offer arbitration. Often they will do this for projected Type A and Type B free agents to gain a draft choice if the player turns down the offer. Players turn down the offer to talk to all teams about a deal for the upcoming year. If they accept arbitration, they have basically agreed to a contractual relationship with their existing team. They can negotiate a deal or allow the arbitration panel to decide the appropriate amount. This year might be strategically different, however, because of the changing landscape. There will be a lot more free agents this year based on Olney’s prediction. If you offer arbitration to a Type A or Type B free agent, that player and his agent might just accept arbitration when they would have turned it down previously with different market conditions because an arbitration panel might award a figure that is higher than the deal that the player and agent could get on an open free agent market.

I will be monitoring all of this activity in the off-season, and I will post occasional musings.

Legal Fallout from Phoenix Coyotes - NHL Saga

Over on the American Lawyer Daily, Zach Lowe has a good piece on the legal fallout of the Phoenix Coyotes likely sale to the NHL. He interviews me for his story, and I tie-in the American Needle case. Here's an excerpt:

The [NHL] apparently doesn't want the Coyotes for long, and they are already in talks to sell the team to an investment group represented by Cadwalader, Wickersham & Taft . . .

Monday's hearing at the federal bankruptcy court in Phoenix . . . was the first major gathering of the main legal players since the federal judge handling the case took the unusual step last month of tossing out both bids for the team--the NHL's $140 million bid and a much larger offer from Canadian business mogul Jim Balsillie, who wanted to move the team to Ontario. As we've written before, Judge Redfield T. Baum tossed the bids for very different reasons . . .

. . . But what really happened, according to four lawyers on the case, is that the NHL simply clarified the final bid it submitted more than a month ago. At the outset of the hearing, lawyers for the NHL and the creditors committee (represented by Paul Sala of Allen, Sala & Bayne) pointed out to Judge Baum that the NHL was not actually proposing to pay some unsecured creditors ahead of others. Rather, the lawyers told Baum, the league was offering to purchase the claims of those allegedly favored creditors--about $11.6 million, mostly owed to local vendors. The rest of the NHL's bid price--$128.4 million---would go to the bankrupt estate to be distributed to secured and unsecured creditors in the proper manner . . . .

Judge Baum is expected to approve the deal as soon as Monday. The next step would be for the NHL to sell the team . . .

One interesting note from McCann: Baum's earlier ruling allowing the NHL in as a bidder reinforces the notion that sports leagues have some momentum in getting around antitrust laws. Earlier this year, the U.S. Court of Appeals for the Seventh Circuit ruled that the National Football League could act as a so-called single entity--exempt from antitrust laws--in signing apparel licensing agreements. (The U.S. Supreme Court had previously reserved single entity status for parents and their wholly owned subsidiaries, McCann says.) One apparel maker (American Needle Co.) has objected, claiming that the 32 NFL teams are separate businesses, and that apparel makers should be able to negotiate separately with all of them. The appeals court rejected that argument, holding that the NFL could be considered a single entity for the purpose of licensing agreements even though the teams are very clearly separate businesses, McCann says. The case is now headed to the U.S. Supreme Court.

The NHL cited the Seventh Circuit's ruling in the Coyotes case, in effect saying the league could bid for and own an individual team. That suggests how much importance leagues are placing on the outcome of the American Needle case, McCann says.

Referees Injured by Tortious or Criminal Behavior of Players

Victoria E. Freile and Claudia Vargas of the Rochester Democrat and Chronicle have an interesting piece on a sports law topic that we often don't discuss: referees injured by the tortious or criminal behavior of players. They focus on a recent incident in an adult amateur football game played in Rochester which generated a felony charge for a player. Here's an excerpt:

On the day a football player was in court facing felony charges in connection with an attack on a referee, football officials said the adult amateur league will have a tough time finding referees to officiate games next season.

Leon R. Woods, 23, of Rochester was charged with first-degree assault, a felony, in connection with the attack on Pete McCabe, 54, of Lakeville, Livingston County. Woods, a running back for the Western New York Cougars, a team from Rochester, is accused of intentionally swinging his helmet and striking McCabe in the face after a game at Edgerton Park on Saturday.

McCabe, who was one of several referees officiating the end-of-season playoff game between Rochester and Utica, suffered severe lacerations, a broken jaw and nose and internal injuries. . . .

Referee Robert Lockhart, 54, told police that he saw a player running down the sideline, holding his helmet. "He then ran up to (McCabe) and swung his helmet like a weapon," Lockhart said. "It was like a roundhouse punch. He hit (McCabe) right in his face." McCabe immediately went limp and fell to the ground, he said. Blood was gushing from his face, he said.

To read the rest, click here.

Peter Carfagna's New Sports Law Books

There are a number of terrific sports law case books available, and there is a new one that joins them: Peter Carfagna's "Sports and the Law: Examining the Legal Evolution of American's Three 'Major Leagues" (West, 2009).

Peter's book is devoted to the sports law of Major League Baseball, the National Football League, and the National Basketball Association. I just finished reading a copy of it, and it's excellent. I particularly like its clarity and brevity (167 pages, not including appendixes; appendixes include the MLB Uniform Player Contract, the NFL Standard Player Contract, and the NBA Uniform Player Contract) -- it addresses all of the key decisions and also provides useful practical materials, such as an actual naming rights agreement between the Red Sox and Anheuser-Busch (pages 125 to 135).

Peter has also just published Representing the Professional Athlete (West, 2009), another excellent work. This one is about hands-on training for acting as a player agent.

Peter teaches sports law at Harvard Law School and has a long and storied career in the industry, including serving as chief legal officer/general counsel of IMG. It's neat to see sports law continue to grow in scholarship and esteem, and I'm looking forward to more sports law books on the way.

More on Star Caps

As a follow up to Nathaniel’s post on the Star Caps hearing, the written testimony of all of the witnesses and the video of the hearing can be found here (note that the testimony from the witnesses does not begin until about the 1:26:48 mark).

Here is the full witness list: Roger Goodell, Commissioner, National Football League; DeMaurice Smith, Executive Director, National Football League Players Association; Rob Manfred, Executive Vice President, Labor and Human Resources, Office of the Commissioner of Baseball, Major League Baseball; Michael S. Weiner, General Counsel, Major League Baseball Players Association; Travis Tygart, Chief Executive Officer, United States Anti-Doping Agency; Jeffrey Standen, Professor of Law, Willamette University College of Law; Gabriel Feldman, Associate Professor of Law and Director, Sports Law Program, Tulane University Law School.

Also, although I may be a bit biased, the Minnesota Post did a good job of recapping the hearing.

Here’s an excerpt:

During additional testimony before the committee, Gabriel A. Feldman, associate professor of law at Tulane University and the director for the Tulane sports law program, laid out a more detailed argument against congressional action.

“It is important to emphasize that the Eighth Circuit did not hold that the NFL [Performance Enhancing Drug] Policy violates Minnesota law,” he said in prepared testimony. “Instead, the court only held that the Williamses may challenge their suspensions in Minnesota state court under state law.”

Thus, Feldman concluded that it was only a “potential” problem. And even if the court did ultimately rule in favor of the Williamses, it was still a “narrow” problem because only three states, including Minnesota, currently have drug-testing laws that might conflict with the NFL policy.

“This narrow potential problem warrants a very narrow solution, and many steps should be taken before Congress intervenes,” said Feldman. “The most appropriate — and simple — solution is for the NFL to litigate the case in state court and convince the court that the Minnesota Laws were not intended to apply to the NFL [Performance Enhancing Drug] Policy and that suspensions do not violate the Minnesota Laws. If that suit is unsuccessful, the NFL should seek an exemption from the state Legislature that makes it clear that the Minnesota Laws do not apply … If that fails, the NFL and the players association should try to bargain around the Minnesota Laws. If that fails, then, only as a last resort, Congress should consider passing a narrow federal law that will protect” the NFL policy.

Goodell retorted that if a national law was not enacted, then other states could ultimately change their laws to conflict with NFL policy. Feldman, however, stated that there was little chance of that happening.

In the end, subcommittee chairman Bobby Rush of Illinois seemed to side with Feldman.

Rush said that he would be keeping a “wary eye” on the Williamses’ case, but warned that “you can’t tell what members of Congress might ultimately do once you open up Pandora’s Box.”

“I would just ask that you all try to work this thing out,” Rush told the gathered panel.

Finally, Mark Maske of the Washington Post wrote a piece discussing the study of state employee drug testing laws that I conducted for the hearing. The study concluded that only 3 states (Minnesota, Maryland, and North Carolina) currently have workplace drug testing laws that might conflict with the NFL’s performance enhancing drug testing policy. Many thanks to Andrew Miragliotta, a sports law student here at Tulane Law School, for helping with the study.

Congress Considers the StarCaps Case

A Congressional hearing was held today regarding whether to amend the Labor Management Relations Act in order to protect professional sports leagues' performance enhancing drug policies from being attacked under state law. The hearing was held in response to the 8th Circuit's recent decision in Williams v. NFL (i.e., the "StarCaps" case), and featured testimony from NFL commissioner Roger Goodell, NFLPA executive director DeMaurice Smith, Rob Manfred, Major League Baseball's executive vice president of labor relations, and Michael Weiner, the MLBPA's general counsel. Sports Law Blog's Gabe Feldman is quoted in the New York Times' report on the hearing. Meanwhile, Paul Secunda, a professor at the Marquette University Law School, has posted some thoughts regarding the hearing and the Williams case over at PrawfsBlawg.

For more on the Williams case, see Gabe's prior posts on the litigation, as well as the thoughts of Willamette law professor Jeffrey Standen at the Sports Law Professor Blog.

U.S. Supreme Court to hear American Needle v. NFL on January 13, 2010

The U.S. Supreme Court released its January calendar today, and announced that American Needle v. NFL will be heard on Wednesday, January 13, 2010 (h/t Ryan Rodenberg of Legal Aspects of Sports Blog). For past Sports Law Blog coverage on the case, click here. For links to various amicus briefs and other court materials, click here.

For related scholarship on this case, see:

• Marc Edelman, Why the 'Single Entity' Defense Can Never Apply to NFL Clubs: A Primer on Property Rights Theory in Professional Sports, 18 Fordham Intellectual Property, Media & Entertainment Law Journal (2008)

• Gabriel Feldman, The Puzzling Persistence of the Single Entity Argument for Sports Leagues: American Needle and the Supreme Court's Opportunity to Reject a Flawed Defense, 2009 Wisconsin Law Review __ (forthcoming, 2009)

• Nathaniel Grow, There’s No ‘I’ in ‘League’: Professional Sports Leagues and the Single Entity Defense, 105 Michigan Law Review 183 (2006)

• Michael McCann, American Needle v. NFL: An Opportunity to Reshape Sports Law, 119 Yale Law Journal __ (forthcoming, 2009)