Big Ticket Sports Law Issues in 2017: Law Week Colorado Article by Courtney P. Hirsekorn

March 3, 2017

By: Courtney P. (Hirsekorn) Intara

FW Attorney Courtney P. Hirsekorn authored the following article, which will appear in the March 6, 2017 edition of Law Week Colorado.

When thinking about the sports law issues that may come up in 2017, there are many possible stories to cover: ongoing concussion-related litigation, Major League Baseball holding the St. Louis Cardinals vicariously liable for conduct of an employee who accessed the Houston Astros’ proprietary information, Aaron Hernandez’s double murder trial, immigration laws’ impact on sports leagues and Los Angeles’s Olympic bid, transgender athletes’ ability to participate in competition, and NHL expansion into Las Vegas to name a few.

Three other issues are particularly interesting and important this year: college athletes’ continued efforts for compensation, the collective bargaining agreement between the U.S. Soccer Federation and the United States Women’s National Team and the possible merger between FanDuel and DraftKings.

College Athletes’ Continued Efforts for Compensation

At the end of 2016, the U.S. Supreme Court rejected certiorari in O’Bannon v. NCAA leaving intact the 9th Circuit’s September 2015 rulings that the NCAA’s rules are subject to antitrust scrutiny and that the NCAA’s rules limiting compensation to tuition, fees, room, board and books instead of the full cost of attendance violate the Sherman Antitrust Act; and that the NCAA can prohibit schools from paying “cash sums untethered to educational expenses,” such as compensation for the use of the athletes’ names, images and likeness, because this serves the procompetitve purposes of integrating academics with athletics and promoting amateurism.

O’Bannon was the prominent case, but multiple lawsuits still pending relating to college athlete compensation will now move into the spotlight. For example, Jenkins v. NCAA, a case before the same district court judge that ruled on O’Bannon, alleges that the NCAA and the five major conferences made “agreements to price-fix players’ compensation, and to boycott any institutions or players who refuse to comply with the price fixing agreement” in violation of the Sherman Antitrust Act. The plaintiffs seek to ultimately allow colleges to compete for recruits by offering them more than the athletic scholarships.

There is also a tentative class action settlement in In re: NCAA Grant-in-Aid Cap Antitrust Litigation waiting for approval by the judge that, for those members who do not opt out of the settlement, would end a case involving the previous NCAA cap on maximum grant-in-aid at less than the full cost of attendance.

There are additional lawsuits involving college athletes attempting to gain the status of employee under employment law following the ruling by Region 13 of the NLRB in August 2015 that grant-in-aid scholarship players at Northwestern University are “employees” under Section 2(3) of the NLRA.

For example, in a lawsuit by the University of Pennsylvania women’s track team, the Seventh Circuit held in December 2016 that NCAA college athletes are not university employees under the FLSA and therefore are not entitled to minimum wage, but the plaintiffs’ lawyers have since requested an en banc review.

U.S. Soccer Federation and U.S. Women’s National Team Players Association Collective Bargaining Agreement

The Collective Bargaining Agreement between the U.S. Soccer Federation and the U.S. Women’s National Team Players Association expired on Dec. 31, 2016. Negotiations for a new collective bargaining agreement stalled due to a change in legal representation for the USWNTPA, but the talks are heating up again. One of the key issues in the negotiation is player compensation.

In March 2016, a group of players filed a complaint with the EEOC alleging the federation violated the Equal Pay Act and Title VII. The players asserted that many of their male national team counterparts earned far more than they did despite having the same employer, the same job and the same work conditions. There has been no decision in the EEOC complaint.

The USSF attributes much of the pay disparity to the separate collective bargaining agreements with each team. In the 2005 and 2013 agreements, the women agreed to a compensation structure that included a guaranteed salary rather than payment per game that increases if the team ties or wins. The agreement also provided the women other benefits such as health care and maternity leave that the men’s national team players do not receive.

The USSF also claims that revenue and TV ratings are a major factor because average audiences for men are larger than women, even though USSF actually sells both teams to broadcasters and sponsors as one entity.

The USWNTPA is hopeful that it will reach a fair deal with the USSF.

Merger Between FanDuel and DraftKings

In November 2016, FanDuel and DraftKings announced a proposed merger. If the merger is approved, the company would control about 95 percent of the daily fantasy sport marketplace in North America and align the MLB, NBA and NHL as partial owners of a single daily fantasy sports company. As such, the Federal Trade Commission or the Department of Justice are likely to highly scrutinize this deal for antitrust violations and possibly enjoin the deal.

The remaining competitors are small daily fantasy sports companies. The lack of sizeable operators is even more apparent because Fantasy Aces, one of the few competitors in the industry, filed for bankruptcy at the end of January.

The timing of the merger also comes when there is uncertainty regarding the legality and regulation of daily fantasy sports. For example, the 3rd Circuit rejected one of New Jersey’s many attempts to overturn the federal ban on state-sanctioned sports betting known as the Professional and Amateur Sports Protection Act, but the U.S. Supreme Court called for the views of the solicitor general in January.

Illinois, South Carolina, New York, Virginia, Indiana and Michigan have proposed legislation to legalize and regulate DFS in those states; however, some of those states are involved in internal fights.

Illinois’ proposed bill that was never voted upon by the state legislature nor signed into law conflicts with an outstanding negative Illinois attorney general opinion. New York residents filed a lawsuit against New York in October challenging the recently enacted New York’s Interactive Fantasy Sports Law.

The New York suit contends that the state legislature impermissibly expanded gambling in New York in violation of the state constitution by not seeking a constitutional exemption to the prohibition on gambling.

The outcomes in these states will likely affect FanDuel and DraftKings as FanDuel, DraftKings and Yahoo! all operate daily fantasy sports businesses in Illinois, and New York’s new law is generally favorable to daily fantasy sports.

Additionally, Virginia and Indiana passed bills that legalized and regulated daily fantasy sports but required licensing fees of $50,000 or more, essentially excluding smaller companies from doing business within those states.

The substantial licensing fees provide yet another barrier of entry that will likely weigh against the merger. It is almost certain that FanDuel and DraftKings are not only preparing for the proposed merger, but also keeping a close eye on these developments.

— Courtney Hirsekorn is an associate at Fairfield & Woods. Prior to attending law school, she held various positions in the sports industry.