The natural, continued
"Endorsers want 'out' clauses for anything that could be damaging to their reputations when that affinity deal with the athlete is not what they thought it would be," said Carfagna. "Anybody who has a 'history' with drinking, drugs, et cetera--the next time he or she comes up for renewal, that's got to be front and center. So if it's, 'I fell off the wagon,' you get a cancellation letter the next day: 'We told you we were going to cancel. We're canceling.'"
The Baltimore Orioles recently invoked the morals clause to void the remainder of the contract of pitcher Sidney Ponson after his third arrest for alcohol-related violations. Ponson had one year left to play under a contract that would have paid him $10 million in 2006.
But in the sports world, as in other areas of contract law, cancellation letters don't necessarily end the contractual relationship. Sometimes they trigger a new round of negotiations. The decisive factor may be whether the athlete is playing well. "The question becomes, Is he hot right now?" said Carfagna.
The latest twist in the evolution of morals clauses, said McCann, is the "reverse morals clause," which gives athletes the right to cancel an endorsement deal with a corporation whose reputation is harmed by revelations of corporate malfeasance. Agents have been negotiating such clauses in the wake of Enron and other recent scandals, he says. "I don't know of an athlete invoking a reverse morals clause yet, but it's bound to happen," he added. In addition to running his blog, McCann teaches sports law at Mississippi College School of Law in Jackson.
Hand in hand with morals clauses have come clauses requiring mediation or confidential arbitration in the event of breach. "I pretty much insisted when I was running the legal department at IMG that there'd better be a good reason not to have a mediation clause in an athlete's contract," said Carfagna. "And there'd better be a good reason not to have a confidential arbitration clause, because high-profile athletes lose if they're in court--that's money lost."
Some sponsors fight confidential arbitration clauses because they want the option of publicly distancing themselves from athletes who violate morals clauses. "That in and of itself is another negotiation point--how public can the dropping of an endorsement be?" Carfagna said.
Carfagna's gravitation to sports law seems to have been natural. After playing football for Harvard College and capping his academic and athletic accomplishments with a Rhodes Scholarship, the self-described "sports nut" attended Harvard Law School just when Weiler was showing that sports law was a subject of serious merit. After graduating, Carfagna practiced law at Jones Day in Cleveland, where he worked frequently on IMG matters. He paid his dues writing up some of the informal understandings that Arnold Palmer had reached with Mark McCormack, IMG's founder. He moved to IMG's legal department in 1994.
In 1996, Carfagna found himself drafting Tiger Woods' first representation agreement. Woods, then a junior at Stanford, was trying to decide whether to join the professional golf circuit.
"The drafting of that agreement had to be very carefully done so as not to impinge upon his amateur eligibility," he recalled. "It was unclear when he won his third amateur title whether he could or should turn pro. We had a back-to-back agreement with Nike if he decided to come out. But he couldn't commit to those things, couldn't be represented, if he was going to remain amateur eligible. And yet the main thing he needed to know was, How much can I make if I turn pro?"
Lawyers in that situation learn to walk a tightrope, says Carfagna, to line up prospective deals but make sure the deals don't add up to mutual guarantees or commitments that mean, in effect, that the athlete has already crossed the line. "The way the NCAA rules break out, the player can't have any contact with the agent. But the agent can be in the living room while the kid's in the kitchen. Without losing his eligibility, that college kid can be asking, through his parents, if he comes out, where is he likely to be drafted, and if he's drafted in that spot, what is he likely to be paid?"
The answer to that last question depends on a host of variables, which sports lawyers and marketing firms must be able to calculate and communicate quickly to an athlete, since athletes are often in a hurry to seal their deals. Deals hinge on the kinds of guarantees that agents can round up from companies willing to pay for endorsements.
Carfagna recently left IMG to become senior counsel at Calfee, Halter & Griswold LLP in Cleveland. And, in the last five years, he and his family have bought two minor league baseball teams--Class A affiliates of the Cleveland Indians and the Seattle Mariners. The rosters for his clubs are picked by their major league parent organizations, so he doesn't negotiate player contracts. But if he ever steps up to ownership of a major league franchise, he'll know more about negotiating player contracts than most owners. "Maybe," he said, "it would be like having a bit of a home-field advantage."
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The Weiler Effect
Peter Carfagna is just one of many former students of Professor Paul Weiler's who have carved out careers specializing in sports negotiation. Among those who wrote third-year papers under Weiler are Jeffrey Pash '80, general counsel for the National Football League; Rob Manfred '83, head of labor relations for Major League Baseball; and Brian Burke '81, who oversaw labor relations for the National Hockey League before becoming president and general manager of the Vancouver Canucks and now general manager of the Anaheim Mighty Ducks.
Pash, Manfred and Burke are scheduled to return to HLS this spring, as guest lecturers in the law school's Sports and the Law course.
Next: Class notes profiles