Sports & Entertainment Client Alert – What to Watch for in 2023

    By Sports & Entertainment

    Following an eventful and evolving sports landscape in 2022, KaufCan Sports is keeping tabs on a number of noteworthy areas in the Sports Law world for 2023. From NCAA and its student-athletes to disruption in world golf to women’s sports, here are some of the expected developments that KaufCan Sports is tracking in 2023:

    Collegiate Athletics and NCAA

    • Name, Image and Likeness (NIL) in College Sports

    Since the Supreme Court’s decision in NCAA v. Alston, 141 S. Ct. 2141 (2021), which opened the door to college athletes receiving compensation for their name, image and likeness (NIL), the landscape of collegiate athletics has continually shifted, and the horizons expanded. Accordingly, NIL will continue to be one area of focus for 2023, as schools will look for more ways to monetize their student-athletes and push the line of facilitating NIL deals. In addition, it is likely that more institutions will continue to educate students and athletic departments not only on ways to expand NIL opportunities, but also on the NIL process and implications (e.g., signing agreements, dealing with scheduling issues, and understanding what marketers expect). Furthermore, the NIL marketplace itself should continue to get refined, as brands now have a year and a half of deals to evaluate and properly assess the value of collegiate student-athletes as endorsers and brand sponsors.

    Moreover, focus should shift to protecting the interests of college athletes from unscrupulous advisors and others who look to exploit the student-athletes. As expected, 2022 saw an explosion of the NIL industry, student-athlete influencers, brand-sponsors, deal-making, and agents. Combined with the NCAA’s new transfer policy, the ability to procure lucrative NIL deals became a key factor for student-athletes in recruiting and the transfer portal, and for the universities seeking the student-athletes’ commitment. There are currently no protections to restrict college athlete agents from charging excessive fees, and there is little more than the professional fiduciary duty of loyalty for protecting college athletes from agent abuses. Hopefully, 2023 will produce some sort of guidance or protections for student-athletes in the NIL industry.

    • NCAA Changes in Leadership

    2023 will likely see significant developments for the NCAA in both litigation and lobbying efforts in Washington, D.C., which will occur at the same time the NCAA undertakes a change in leadership. The leadership of the NCAA will experience an overhaul, as current President Mark Emmert will depart and the next NCAA President—outgoing Massachusetts Governor Charlie Baker—will take over in March 2023. There is reported optimism for Baker’s leadership, given his track record of successful bipartisanship during his political career. Further, Baker’s experience in politics will likely be leaned upon, as he will be tasked with convincing Congress to pass federal legislation on NCAA-related issues, including NIL, concussions, and labor issues.

    Baker will likely also play a large role in redefining the NCAA’s investigative and enforcement efforts, including into NIL improprieties, in the post-Alston era. These issues should be addressed in 2023 by the NCAA Transformation Committee, which was formed in October 2021, consists of key individuals from member institutions, and is tasked with identifying areas of growth and modernization for the NCAA.

    • NCAA Student-Athlete Labor Issues

    The NCAA’s federal labor issues will likely be of increasing importance in 2023, as the question of whether student-athletes are employees and whether the NCAA and/or the school’s athletic conference also serve as joint employers along with the student’s institution is currently before the U.S. Court of Appeals for the Third Circuit in Johnson v. NCAA. The Johnson case involves the argument that NCAA student-athletes are “employees,” and the failure to pay them violates the Fair Labor Standards Act (FLSA) because they should be entitled to be paid the minimum wage. A favorable finding for the plaintiffs would rely on the court’s recognition that collegiate student-athletes are employees, which would destroy the concept of collegiate amateurism altogether. The ultimate decision in the Johnson case will define the nature of collegiate athletics going forward.

    Arising from the filing of the Johnson case, the National Labor Relations Board (NLRB) became involved, as the Los Angeles Regional Office of the NLRB was instructed to pursue allegations of unfair labor practices against the University of Southern California, the Pac-12 Conference, and the NCAA for their treatment of college football and basketball players. The latter point is important because the National Labor Relations Act only applies to private employers, and a significant number of NCAA institutions are public. If the NLRB can substantiate the allegations, athletes at private institutions could be granted employee rights, including the right to unionize.

    Professional Golf Legal Matters

    • LIV Golf v. PGA Tour

    The Saudi Arabia-backed upstart LIV Golf has caused disruption among the world golf professional tours with its launch in 2022. Accordingly, the contentious battle between LIV Golf and the PGA Tour will continue to “play through” in 2023. LIV Golf, and a dwindling handful of golfers who accepted millions (and, in some cases, hundreds of millions) of dollars to join LIV Golf, have sued the PGA Tour, arguing that the PGA Tour is violating antitrust laws by refusing to allow golfers to play events on both tours. The U.S. District Court for the Northern District of California has expressed some skepticism about LIV Golf’s arguments, but discovery will proceed with a January 2024 date for a jury trial.

    Although the trial date is set for 2024, 2023 should continue to see developments arising out of the litigation discovery process. For instance, discovery has already unearthed LIV Golf confidential documents seemingly corroborating allegations that Saudi Arabia launched LIV Golf based on financial assumptions that defy economic rationality, and Saudi Arabia is using the venture in an attempt to sanitize or “sports-wash” its human rights record. The Saudis have invested nearly a billion dollars in LIV Golf, which has been mostly used to induce high-profile golfers to defect from the PGA Tour. Nevertheless, LIV Golf has yet to obtain any sponsors or media rights deal to broadcast events (in other words, no deals to generate revenue from outside sources)—although it has been reported that a broadcast deal with The CW will be announced before the LIV Golf season begins in February of 2023.

    While it is unclear what LIV Golf’s end-game is, it is clear that the PGA Tour cannot compete dollar-for-dollar with LIV Golf. Accordingly, the PGA Tour has been forced to rethink its business model and adopt new prize structures, including compensation for PGA Tour members beyond prize money to guarantee minimum earnings and to reward players who boost fan engagement and publicity.

    • PGA Tour Antitrust Investigation

    The PGA Tour is also facing down an investigation by the U.S. Department of Justice looking into the implications of antitrust violations by the PGA Tour for its backlash against LIV Golf and the PGA Tour’s treatment of players who departed for LIV Golf. It is expected that this investigation will continue for some time, but there is the possibility that more developments will arise during 2023.

    • World Golf Rankings and 2023 Majors

    The dispute over the inclusion of LIV Golf events in the Official World Golf Rankings (OWGR) will continue in 2023. The OWGR board of directors is reportedly “slow-playing” any potential inclusion of LIV Golf results in the ranking calculations. It is important to note that the organizing body for each Major Tournament operates separately from the world golf tours. Accordingly, Augusta National Golf Club, the organizing body of the Masters, has already announced that any golfer who qualified for the Masters tournament based on its previous criteria will be invited to play in 2023, including 16 players who are currently competing in LIV Golf. It will be interesting to see how golf’s other 2023 Major Tournaments—the U.S. Open (organized by the USGA), the (British) Open Championship (organized by the R&A), and the PGA Championship (organized by the PGA of America—not the PGA Tour)—will approach the inclusion (or not) of players from LIV Golf.

    Women’s Sports

    • Growth of Women’s Leagues

    Women’s professional sports leagues and their athletes will continue to build momentum and grow in popularity in 2023. Women’s soccer remains the marquee women’s sport, and it is expected to have another banner year, given the success of the National Women’s Soccer League (NWSL) nationally broadcasted primetime championship in 2022 and the 2023 Women’s World Cup beginning in June. Other women’s sports continue to experience greater viewership across various broadcast platforms and, with the 2024 Olympics around the corner, expect interest in women’s Olympic Sports to increase over the coming year and a half. In addition, Athletes Unlimited, an innovative athlete-run model of women’s professional softball, volleyball, basketball, and lacrosse leagues, recently secured $30 million in additional funding to expand operations.

    As fan interest and support for women’s sports continue to grow, prospective commercial partners will increasingly invest in women’s sports, as sponsorship fees and franchise values are currently significantly discounted versus similar properties in men’s sports. The industry seems to still be searching for sustainable business models for women’s professional sports, in part because of expectations that it should be the leader for diversity, inclusion, and social change.

    • Protection of Women in Sports

    The last few years have produced a number of investigations unearthing troubling harassment, abuse, and mistreatment of women in the sports industry. In October of 2022, the report of findings from the investigation led by Sally Yates, the attorney and former Acting U.S. Attorney General commissioned by the United States Soccer Federation (USSF), was released detailing systemic abusive behavior and sexual misconduct in the NWSL since the league’s establishment in 2013 (the “Yates Report”). Subsequently, the NWSL issued lifetime bans for four coaches and issued numerous other multi-year suspensions for other coaches and executives. The fallout from the Yates Report is likely to continue, especially considering the failures of United States Center for SafeSport highlighted in the Yates Report.

    Furthermore, 2023 should see continued efforts to hold sports franchise owners accountable for their behavior and the abusive workplace environments that they foster. In 2022, the part-owner of the NBA’s Phoenix Suns and WNBA’s Phoenix Mercury, Robert Sarver, was the subject of an investigation finding misogyny and racism in the workplace, which resulted in Sarver being suspended and fined $10 million. In addition, the owner of the Washington Commanders, Daniel Snyder, was the subject of an NFL-commissioned investigation into workplace harassment allegations (the results of which have never been released or even memorialized in writing), and he is currently being investigated by a handful of governmental bodies, including the U.S. Congress and the Attorneys General for Maryland, Virginia and Washington, D.C. regarding various allegations. As a result of the NFL’s commissioned report, Snyder received a one-year suspension from running the day-to-day operations of the Commanders and was fined $10 million. Hopefully, 2023 will continue the momentum to hold to account those in positions of power in sports to end abuse and harassment and begin fostering safe and supportive workplace environments.

    Finally, following the well-documented and nearly year-long detainment in Russia of American WNBA player Brittney Griner, it will be worth noting whether the WNBA or USA Basketball will take steps or adopt protocols to help protect players when playing in overseas leagues during the WNBA off-season. Relatedly, since a number of WNBA players “moonlight” by playing overseas in the off-season to supplement the income they receive playing in the WNBA, it will be interesting to see if what happened to Brittney Griner will have an effect on the number of players choosing to play overseas and/or in which countries they decided to play during the off-seasons.

    Sports Franchise Ownership

    • Forced Sales Due to Misconduct

    As discussed above, the fallout of the investigations into sports franchise owners will continue to play out in 2023. Meanwhile, the processes for the sales of the Phoenix Suns and the Washington Commanders will play out in 2023 as consequences of investigations into the behaviors and workplace environments cultivated by each respective owner.

    Robert Sarver has announced that he plans to sell the Phoenix Suns. Reports show interest from multiple potential buyers, including a $3 billion bid from venture capitalists Jack Selby and Jason Pressman (who are connected with billionaire entrepreneur Peter Thiel). Similarly, Dan Snyder engaged Bank of America to explore “potential transactions” regarding a sale of the team; however, it is still unclear whether Snyder is contemplating a full or partial sale of the franchise. If Snyder declines to sell the team, there remains the potential that the NFL Commissioner or other owners may force a sale (especially if an interested buyer emerges from the sale process). Such a move is viewed as a last resort by the NFL, as any ownership vote could set a precedential standard for other owners and teams—something the owners are reluctant to do.

    Finally, the findings in the Yates Report prompted calls for the owner of the NWSL’s Portland Thorns and the Portland Timbers of Major League Soccer (MLS)—Merritt Paulson—to sell the clubs. In response to the pressure, Paulson announced his intent in late 2022 to sell the Thorns, with early reports showing that an all-women investment group led by Melanie Strong is set to make a formal bid for the NWSL team.

    • Investment by Athletes

    The trend in recent years of professional athletes and entertainers making the “mogul move” into sports franchise ownership will continue in 2023. Recently, it was announced that NFL quarterback Patrick Mahomes II of the Kansas City Chiefs would be joining his wife, Brittany Mahomes (already a part-owner), as a part-owner of the NWSL’s Kansas City Current, which will augment the quarterback’s other ownership stakes in the Kansas City Royals of Major League Baseball (MLB) and Sporting KC of the MLS. Additionally, Kevin Durant, through his Thirty-Five Ventures, acquired ownership stakes in 2022 in NWSL’s NY/NJ Gotham FC, as well as partial ownership of a professional pickleball team, to add to his ownership stake in the Philadelphia Union of the MLS. These are just two examples of professional athletes expanding their investment portfolios in 2022 into ownership stakes in sports franchises, but the trend should continue through 2023 and beyond.

    • American Investment in Europe

    Another trend that should be worth keeping an eye on is the investment in European football (soccer) clubs by American owners. Recent years have seen a spike in American ownership of European clubs, with American ownership groups now owning 19 of 60 clubs across England, France and Italy (Germany and Spain have fan ownership requirements preventing majority ownership stakes). The highest profile American majority ownership stakes are currently in England with Chelsea FC, Arsenal FC, Liverpool FC and Manchester United FC. However, Liverpool and Manchester United have each engaged investment banking firms to explore sales opportunities, so it will be worth following developments in the coming months, as early speculation is that American investors are heavily represented in the potential buyer groups interested in both clubs.

    • Minor League Baseball Ownership Transactions & MLB Antitrust Exemption Challenge

    In 2021, MLB announced the decision to reduce the number of MLB-affiliated franchises in Minor League Baseball (MiLB) from 160 franchises down to 120 franchises. This decision meant that MLB franchises had a lower number of possible franchises to affiliate with to build their “farm system” in order to develop young talent, as well as rehabilitate injured MLB talent. As can be imagined, MLB’s decision had two resulting implications for the business of baseball.

    First, owners of MiLB franchises filed suit in 2021 against MLB and the Commissioner of Baseball challenging MLB’s decision and, more importantly, challenging the century-old decision by the Supreme Court granting MLB an exemption from the Sherman Act (federal antitrust law). This case is currently in front of the U.S. Court of Appeals for the Second Circuit, and a decision will likely be returned in the first half of 2023. Regardless of whether the Second Circuit rules in favor of MLB (upholding MLB’s antitrust exemption) or in favor of the MiLB franchise owners, any decision will likely be appealed to the Supreme Court, whose justices have already questioned MLB’s antitrust exemption when deciding NCAA v. Alston.

    The second resulting implication for the business of baseball was an increase in the volume of acquisition transactions for MiLB franchises. Franchise owners that lost their MLB affiliation desired to regain ownership of a MiLB franchise with MLB affiliation, and those MiLB franchise owners that maintained MLB affiliation suddenly found themselves in a coveted position, with both buyers and sellers open to making a deal. On the flip side, there have been ownership groups still interested in acquiring franchises that lost their MLB affiliation in the MLB’s 2021 decision with the intent to either continue operations as franchises in independent leagues or with the hopes of regaining MLB affiliation. Nonetheless, expect acquisition transactions of MiLB franchises to continue at a heightened level in 2023 while the antitrust challenge continues to make its way through the federal appeals courts.

    NBA’s Collective Bargaining Agreement (CBA)

    The NBA’s CBA is set to expire after the 2023-24 season. However, the current CBA contains an opt-out provision for the final year, meaning that there is the possibility that the CBA could expire at the end of the current season. The NBA and the National Basketball Players Association (NBPA) each retain the right to exercise the opt-out provision so long as notice is timely provided by February 8, 2023, which is an extension of the original notice date of December 15, 2022. It has been reported that areas of concern include: a push by ownership for a hard salary cap, which the NBPA strongly resists; lowering the minimum draft age from 19 to 18, which would significantly increase the draft pool the following year and have substantial knock-on effects for college basketball (no more “one-and-done”); addressing the mental health concerns of players; and the league’s consideration of an in-season tournament in the face of issues related to player “load management” during regular season play. As the NBA has become the forerunner for player empowerment to the extent that power has shifted to the players and away from teams and sponsors, it will be interesting to see how these issues play out in 2023.

    Rights of Transgender Athletes

    One area that could continue a groundswell in 2023 is the rights of transgender athletes to compete in organized sports—particularly, whether transgender women can compete in the female category in a way that accommodates concerns about fairness and competitive balance. This is a very sensitive issue, as it implicates human rights and access to sports, which will not be easily resolved and will likely continue to be at the center of regulatory, legal, and political debate across the U.S. and beyond. A number of states passed laws in 2022 addressing the rights of transgender athletes that may likely get challenged in 2023.

    The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.