Common Pitfalls and Important Considerations for Athletes and Managers Alike
As professional sport continues to develop into one of the biggest industries globally, so too do the complexity and substance of professional sporting contracts. Whether they are general competition contracts or lucrative sponsorship agreements, long gone are the days when athletes were able to adequately protect their legal and financial interests without professional assistance. This complexity has led to the advent of the athlete-manager relationship.
Athlete-manager relationships are predominately governed by contractual agreements. As the payments to professional sportspeople continues to grow, so too does the litigation surrounding athlete management agreements. While many management agreements are unique, most litigation surrounding these agreements is confined to a number of common clauses.
Extent of Agency
Most management agreements create an express or implied appointment of the manager as the athlete’s agent. Management agreements will generally contemplate the extent of the agency granted to the manager in performing their obligations under the agreement.
The duties which the manager is permitted to undertake on behalf of the athlete are commonly limited to the negotiation and procurement of competition and sponsorship contracts. It is generally best practice, for both manager and athlete alike, to expressly reserve the athlete’s right to formally enter, or decline to enter, into competition and sponsorship contracts. This essentially means that the management agency will not be able to bind the athlete to any contractual obligation unless the athlete has explicitly accepted its terms.
Term and Termination Rights
While more liberal management agreements provide a unilateral termination right, even in the absence of a breach of the agreement, some management agreements will specify a term and only allow for early termination of the agreement in the event of a breach. More restrictive management agreements will tie the term of the agreement into the predominant competition contract negotiated by the manager. This means that each competition contract that the manager procures, extends the term of the management agreement until the expiration of the competition contract. As it is rare for athletes to see out a competition contract without a new one being negotiated, management agreements with terms linked to competition contracts can present athletes with great difficulty should they wish to seek new representation.
With many athletes failing to seek adequate legal advice prior to executing a management agreement, it is a common scenario to see an athlete locked into restrictive contracts for long periods of time. It is of paramount importance that, when executing a management agreement, an athlete fully understands the term of the agreement and how executing further competition contracts may potentially extend its term.
Continuing Right to Remuneration Clauses
The overwhelming majority of management agreement disputes relate to the manager’s entitlement to remuneration under existing competition and sponsorship contracts upon the termination or expiration of a management agreement. This is because the majority of management agreements contain clauses providing that the manager is entitled to the agreed upon commission rates on contracts negotiated by them during the term of the management agreement, even if the management agreement itself is lawfully terminated prior to the completion of the negotiated contract.
Continuing right to remuneration clauses are essential from a management perspective to ensure that athlete’s do not simply look to engage managers when a new contract is to be negotiated, then terminate the management agreement once said contract has been executed.
Structuring of competition and sponsorship contracts can also be of very high importance because of these clauses. If an athlete looks to extend a competition or sponsorship contract as opposed to executing a new deal, a prior manager can have claim for remuneration under a continuing right to remuneration clause. These types of clauses can create the potential for an athlete to be liable for a double commission under competition and/or sponsorship contracts when an athlete looks to extend the term of a competition or sponsorship contract that was initially negotiated by a previous manager.
Non-exclusivity of Management Agency
Many management agencies operate within a niche sporting market, often as narrow as a single sport or sporting franchise. With this in mind, conflicts of interests may arise when a manager seeks to represent competing athletes. While this scenario is commonly encountered across numerous sports, contractual provisions must be in place to properly disclose the non-exclusive services of the management agency to the athletes they represent. In the absence of appropriate contractual terms, management agencies may find themselves defending claims alleging various breaches of fiduciary duties owed to their clients.
Prior Management Agreement Indemnity
Due to the growth in the player management industry, athlete ‘poaching’ is becoming more and more prevalent. As a result of this, management agencies are becoming increasingly cautious of potential tortious interference claims. To best shield themselves from potential litigation, most management agencies will include a clause in their agreements where the athlete agrees to indemnify the management agency from any claims brought against the agency in relation to prior management agreements.
These clauses can potentially open an athlete up to significant liability if the new manager acted in a way that would cause the athlete to breach their prior management agreement or if the new manager has poached several clients from a single management agency. Prior to entering into a management agreement, it is important that an athlete seek legal advice with respect to the surrounding circumstances of the termination of their previous management agreement.
Unfortunately, the promising young athlete who was pressured into signing an unfair management agreement is a story that appears to be increasing in prevalence. While on the other side of the coin, managers who fail to observe the legal consequences of certain actions in acquiring talent can quickly find themselves neck-deep in litigation. The importance of independent legal advice for both athletes and managers when drafting and executing management agreements cannot be overstated.
Whether you’re an athlete presented with a deal that appears too good to be true, or a manager seeking to adequately protect your business from the ever-evolving dangers in the professional management industry, reach out to Sajen legal so we can assist you in ensuring all you have to worry about, is the action on the field.