Category: Business

No…Let me set the record straight

In the never-ending relationship saga that is Robert Griffin III (“RG III”) vs. the Washington Redskins, the relationship has taken yet another U-turn and headed into on-coming traffic on the Washington Beltway. While not publically commenting on losing the starting quarterback job to Kirk Cousins, RG III’s social media account is the latest example of yet another athlete allowing an unqualified individual to steer their career into a head on collision with an employer and an industry. Sigh. In the words of Carrie Underwood – “Jesus take the wheel.”

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It always baffles me how this type of snafu coincidentally occurs at such an alarming rate in these industries. For those of you who are unaware of the story, RG III, via his social media account appeared to “like” an Instagram post that ripped Washington Redskins’, owner Dan Snyder and the front office while lauding RG III. When questioned regarding this issue RG III responded….via Instagram….with this image and this quote:

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I just wanted to set the record straight on this one. I did not “like” that IG post ridiculing our team. I have not been social media active consistently for awhile now and am ultra-focused on working to get back on the field and trying to help this team. One of our interns who helps with Instagram liked the post. As soon as I was made aware of it, it was immediately unliked. That is not how I feel and I appreciate your understanding. – Robert Griffin III
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Ok. So sounds simple enough huh? Wrong. It makes no logical sense why athletes continue to speed down the social media highway with an unqualified and unlicensed driver, with so much on the line from an legal, business and image perspective. When I advise my athlete and entertainer cliental regarding the legal and image related ramifications of social media it is a simple conversation: “Only you control you.” When you are entrusted with such a large platform and everyone is hanging on every word that you say, you have to be overly careful what you say – and you never entrust such a vital component of your brand to someone you barely know or is star struck by who you are. From a business and legal perspective you are asking for trouble. Yes, you have free speech “rights” – but those “rights” are being judged in the court of public opinion, not that building where you begrudgingly show up for jury duty. Interns should not be responsible for determining where the brand that is you is headed. Period. That is insane.

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Think about it from this perspective. If a major highly public company X decided to entrust their social media well being to their intern pool and said intern pool accidently agreed with the public undressing of let’s say the major highly public company X’s CEO, heads would roll and shareholders would demand legal compensation. So what’s the difference? Athletes are to themselves major highly public companies – brands of commerce. Athletes and entertainers today make more in endorsement deals than they do in their actual playing/entertaining contracts. It is a huge revenue stream. So why would you entrust the mouthpiece of that huge revenue stream to an intern? It reckless. Yet it happens every day in the athlete and entertainment communities. Every week there is the red-faced declaration, “I have been hacked” or “It wasn’t me” defense when it comes to social media. On Wall Street and in the business community this type of recklessness would never be tolerated. But hey, when you are rich, young and famous it takes more than a little snafu like raising the ire of your employer and jeopardizing your brand/revenue stream to change that behavior right? Because all I have to do is stand by the scene of the accident, jump back on Instagram and claim that now…now I am setting the record straight of what I think/”like”…

$500 Million New Years Resolution

The National Basketball Association’s (“NBA”) 2014 New Year resolution: Get out from underneath the worst sports contract in the history of sports (well, maybe with the exception of the 1st Century Roman Gladiators).   Meet Ozzie and Daniel Silna – Brothers who once owned the Spirits of St. Louis in the defunct American Basketball Association (“ABA”). It all began with the Spirits exclusion from the 1976 merger of the NBA and the ABA. The Silnas watched unhappily as the New York (now Brooklyn) Nets, the Denver Nuggets, the Indiana Pacers and the San Antonio Spurs were absorbed into the NBA, while they were left on the sidelines – scheming. And successfully scheme they did. The Silnas and their attorney, Donald Schupak, slyly negotiated an astonishing benefit that was critical to the merger: an agreement to be paid one-seventh of the national television revenue that each of the four teams was to receive, as long as the NBA continued to exist.  Yes that is right – That amounted to be paid in perpetuity- forever. To date the deal has provided the Silnas with approximately $300 million.

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The NBA has repeatedly been reminded of  its haste and folly in structuring the deal and has repeatedly tried to buy the Silnas out.  However, the gold nest egg of the Silnas’ has remained elusive in light of ever growing popularity of the NBA. Finally, earlier this month, the Silnas, the NBA and the four former ABA teams announced a conditional deal that will end the Silnas’ access to the gold pot at the end of the rainbow. Well sort of. The Silnas are to receive a $500 million upfront payment, financed through a private placement of notes by JPMorgan Chase and Merrill Lynch, according to sources familiar with the proposed agreement. The deal would end the enormous perpetual payments and settle a lawsuit filed in federal court by the Silnas that demanded additional compensation from sources of television revenue that did not exist in 1976, including NBA TV, foreign broadcasting of games and League Pass, the service that lets fans watch out-of-market games.

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The “sort of” part of the deal is that the Silnas’ will continue to get some television revenue, some of it from the disputed sources named in their lawsuit, through a new partnership that is to be formed with the Nets, the Pacers, the Nuggets and the Spurs. Albeit, the Silnas can be bought out of their interest in the partnership in the future.

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Super Bowl Bids About Much More Than The Game

The Super Bowl is one of the most watched events on television each year in the United States. Due to the immense popularity of the game, the game itself is sometimes secondary to the week-long spectacle that goes along with hosting this event. It almost seems as though New Orleans and Miami simply alternate years hosting the NFL’s Championship, with each city hosting 10 times out of 47 Super Bowls. Because the game is played in February, a concern has always been the weather during that time of year in the hosting city. This year, being held in MetLife Stadium in East Rutherford, New Jersey, will be the first time the game has been hosted in a cold weather city in an outdoor stadium. Detroit and Indianapolis have hosted the game recently, but both the Lions and Colts play in domes.

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As important, maybe more, as the weather of the city in February, is how commercially sophisticated the city is due to the magnitude of the game and all of the events that surround the game. Miami and New Orleans are famous for their nightlife and plethora of restaurants, hotels and other social venues. The sheer number of guests visiting a city hosting the Super Bowl is cause for concern if the city does not have suitable and adequate lodging and cuisine options. Arizona experienced a sport’s follower’s ultimate dream the last time the biggest day in American sports was in Glendale, Arizona. On February 3, 2008 not only was Super Bowl XLII played in the metropolitan Phoenix area, but the final round of the Waste Management Open (formerly known as the FBR Open) was hosted in the Metropolitan Phoenix area and ended minutes before the Super Bowl kicked off. In 2014 Glendale, Arizona will again host the Super Bowl. Recently however, the city has been forced to defend its commitment to hosting, as the NFL has expressed concerns regarding the lack of support for the event. The league has stated that numerous fan oriented events will be moved to other cities in the Phoenix metropolitan area if the city of Glendale does not find “a serious attitude adjustment.” It seems plausible that the actual game could be the only event held in the University of Phoenix Stadium in Glendale. A league spokesman has hinted that the popular NFL Experience event, an interactive theme park, will be moved to Phoenix, stating, “It will not be in Glendale.” Super Bowl XLII’ s NFL Experience was moved to Phoenix in 2008 as well, causing the city missed out on the revenue from hundreds of thousands of paying attendees during the week of festivities. The media center, which houses the media dispatched to cover the event, will most likely be moved to Phoenix as well.

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 The league has also expressed concerns with parking, the refusal of hoteliers to guarantee room prices, and the lack of leadership by city officials. It is still uncertain whether the city will attempt to make nice with the NFL. However, what is for certain is that a failure by the city to cooperate and secure the needed financial windfall for the surrounding small businesses will only add another black mark to the city’s inept inability to manage its sports franchises and sporting events. It would behoove future cities to have, not only an efficient and elaborate plan in place when bidding to host this massive spectacle, but also make sure to have adequate and efficient communication with league officials. Business 101. Communication.

Age Before Bonus…

In a saga more than four years in the making, the Washington Nationals are suing Westchester Fire Insurance Company in an effort to recover $1 million of the signing bonus they gave to a fraudulent Dominican prospect Carlos David Alvarez Lugo – aka Simley Gonzalez. The implications/effects of this suit are far reaching and potentially will change the way that many MLB teams sign foreign talent.

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In 2006, the Nationals signed 16-year-old shortstop Smiley Gonzalez with a $1.4 million signing bonus. Gonzalez’s story is murky, involving his own impoverished past and the way lives can change with a sum as great as $1.4 million, the largest bonus the Nationals have ever granted a Latin American prospect. However, in 2009 it was discovered that Gonzalez had actually lied about his true identity. Gonzalez was in fact 20-years-old and thus his value as a baseball player was greatly diminished. The Nationals ultimately fired General Manager Jim Bowden and his special assistant in charge of Latin America, Jose Rijo in the wake of the scandal.  In 2008, Bowden and Rijo acknowledged speaking with the FBI about the matter as part of a federal probe into baseball’s Latin American scouting practices. Indeed, the practice of changing personal information is so common that it is an assumed part of the landscape in the Dominican Republic.

The Nationals are now trying to recoup the money they spent signing Gonzalez/Lugo, who, incredibly, has played this season in the team’s Gulf Coast League, the lowest rung of the minors. In their complaint against Westchester Fire Insurance Company, the Nationals make a claim that validates a long-speculated belief: the player once known as Smiley kicked back part of his signing bonus to Rijo. To bolster its claim, the Nationals had Lugo/Gonzalez  executed an affidavit detailing his fraud, including that “he kicked back $300,000 of his bonus to Jose Rijo.” In January 2011, Rijo told the Washington Post that he had not received any payment from Alvarez.

“Nobody ever said that I took money from him or that I changed his [expletive] age,” Rijo then said “Nobody can ever do that, because it never happened. It never happened. I don’t even know that kid.”

(Note: It was later discovered that the facility where Lugo/Gonzalez honed his skills after signing with the Nationals is owned by Rijo). To make matter worse, in July 2012, Rijo, the 1990 World Series MVP, was charged in the Dominican Republic with money laundering for a suspected drug trafficker.

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The Nationals, who are represented in the case by D.C. law firm Williams & Connolly, claim Westchester “denied the claim without reasonable basis and only after dragging its feet and delaying its investigation for months.” The Nationals claim that this is an incident of “employee theft and fraud” following the revelation that Lugo/Gonzalez had faked his age and identity. “Had they known Lugo’s true age and identity at the time, more likely than not, the Nationals would have paid Lugo no bonus at all,” the suit reads.

“The $1.4 million signing bonus thus represented a complete loss resulting from the employee dishonesty, theft, and fraud of Rijo, Jose Baez and Lugo.”

The Nationals are not the first team to be suckered into paying a huge signing bonuses for a prospect whose value is greatly inflated due to fraudulent age assertions. However, like any savvy business organization the Nationals implemented a safety net that protected their investment in an asset. While the Nationals due diligence is less than desirable, their ability to effectively have a viable contingency plan in place is a great lesson for any aspiring business owner – preventative measure are always worth their time and money. For the Nationals, it is now time to see how effective of an insurance plan they actually negotiated.

The NFL Al Carte’

John McCain

This past month, Sen. John McCain (R-Ariz.), introduced the Television Consumer Freedom Act of 2013. It is legislation aimed at pressuring cable and satellite TV providers into allow their customers to pick and choose the channels they pay for and do away with the annoying, yet financially successful concept of “bundling”.  As expected, the bill will face stiff resistance from both the The National Association of Broadcasters and the National Cable and Telecommunications Association.  Cable and satellite heavy hitters Cox, Comcast and DirecTV, are also ready to mount a strong opposition, as the meat of their profits and marketing agendas are built around the bundling concept. (Side note: The bill also includes a provision that would boost Web TV service Aereo, according to the industry sources. Aereo allows customers to stream broadcast TV on their computer or mobile device, but the TV networks are suing the company, claiming that it is stealing their copyrighted content….Napster anyone?) Rather than mandating his desired end result, Sen. McCain notes that his bill is completely voluntary, offering incentives that would ideally result in consumers being able to purchase their preferred channels individually.

Additionally, industry officials have stated that the bill would effectively end the sports long observed “blackout rule”, which prohibits cable companies from carrying a sports event if the game is blacked out on local broadcast television stations. Dropping the rule would have the most effect on the National Football League, which requires broadcasters to black out games if the local team does not sell out the stadium. The rule is meant to encourage fans to buy tickets to see the game live. However, for many fans stuck with teams that can’t seem to just get out of their own way (i.e. Browns, Bills, Cardinals, Chiefs, Jags and Raiders) a television blackout sometimes equates to a chance to watch quality professional football….just sayin…

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While that proposal has no shot of standing up in privately owned stadiums, McCain wants it implemented for any team whose stadium was funded with taxpayer dollars.

“When the venue in which these sporting events take place has been the beneficiary of taxpayer funding,” McCain said, via the Los Angeles Times, “it is unconscionable to deny those taxpayers who paid for it the ability to watch the games on television when they would otherwise be available. In the end, the Television Consumer Freedom Act is about giving the consumer more choices when watching television. It’s time for us to help shift the landscape to benefit television consumers.”

This bill proposes an interesting development. The National Association of Broadcasters and the National Cable and Telecommunications Association argue that the government should not micromanage how they offer their products to customers and that bundling can promote diverse offerings. Really? In all reality, bundling is simply a better bottom line revenue generator for the telecommunication companies. If as an attorney, I “bundled” useless “services” to you, packaged with useful ones, I would able to drastically increase my profit margin, as would almost any other business owner. However, such a bundling technique would be unethical in my field of practice and I would venture to say, unethical in most other business practices as well. However, the telecommunication industry and more specifically, Viacom Inc.’s Chief Executive Officer Philippe Dauman has mocked  this idea and argued that bundling actually lowers prices and increases value for consumers because it allows smaller networks to invest in their shows while knowing they will have distribution.

“Consumers are enjoying what many have called the golden age of television,” Dauman said. “It’s good value for consumers.”
Well, okay Mr. Dauman… Stay tuned folks. This should be interesting.