LIV, Pay-for-Play and NFL Rules: Top Sports Law Controversies of 2022
The year 2022 was transformative in the sports industry, especially on the sports law front. Here are the 10 most significant legal controversies:
10) Operation Varsity Blues’ Hot Streak Ends
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By all accounts “Operation Varsity Blues” was a success for the Justice Department. It led to convictions, guilty pleas or deferred prosecutions for 55 of the 57 persons charged, and one of those outliers was pardoned. The DOJ’s basic theory of crime—that parents’ bribes to secure their children’s admissions into elite universities as “fake athletes” deprived those universities of their employees’ honest services—worked. Most of the parents, including Hollywood’s Lori Loughlin and Felicity Huffman, cut deals instead of taking their chances with juries.
But in 2022, courts questioned why the underlying activity is really a crime.
Amin Khoury, accused of using bribes to ensure his daughter was admitted into Georgetown University as a tennis recruit, won his trial. A wealthy parent using money to improve admissions odds at elite universities, Khoury’s lawyers argued, is not unusual and has never been a crime. Some wealthy parents (legally) donate large “gifts” to universities expecting that will influence admissions. Meanwhile, John Wilson, whose son and twin daughters were admitted into USC, Stanford and Harvard as members of water polo and sailing teams, is appealing his conviction to the First Circuit and might win.
The year also saw the U.S. Supreme Court review Harvard’s admissions policy, which awards “tips” for legacy status, being the child of a large donor, being the child of faculty or staff, being a recruited athlete or having a certain race or ethnicity.
9) Congress, Courts Take a Swing at Baseball’s Antitrust Exemption
On the 100-year anniversary of MLB’s antitrust exemption, which the U.S Supreme Court created in Federal Baseball Club v. National League, the ruling came under renewed scrutiny. Narrowed by the Curt Flood Act of 1998 but still applicable to franchise relocation, the minors and other business categories, the exemption drew the ire of lawmakers.
In July, the chair and ranking members of the Senate Judiciary Committee demanded that MLB explain why it should continue to enjoy the exemption. Commissioner Rob Manfred responded by insisting the exemption has promoted franchise stability. Big league owners can’t sue on antitrust grounds if MLB denies their move, and over the last 50 years, only one MLB team has relocated (the Montreal Expos became the Washington Nationals).
While many positions in Congress are partisan, opposition to the exemption draws applause from both Republicans and Democrats. But MLB has seen previous efforts by members of Congress attract flattering headlines and go nowhere.
Congress isn’t the only threat. Four minor league teams that MLB stripped of affiliations are appealing an antitrust case to the Second Circuit, with an eventual eye towards the U.S Supreme Court taking the case. Justice Neil Gorsuch noticeably questioned the merits of the exemption in his opinion in NCAA v. Alston, which also featured a concurring opinion by Justice Brent Kavanaugh, who argued for the use of antitrust law in evaluating sports business.
8) NIL Evolves Into Pay-for-Play
NIL is supposed to reflect the commercial value of an athlete’s celebrity power but has become a recruiting tool. Many NIL collectives, tied to boosters, barely hide their intentions.
Pay-for-play or pay-to-attend payments aren’t going to generate prosecutions or lawsuits. In fact, many celebrate college athletes’ (finally) receiving compensation for driving a multibillion-dollar college sports industry that generously profits the NCAA, conferences, schools, coaches, staff, television networks, apparel companies, media companies and many others.
But the NCAA still has amateurism rules. Although NCAA officials warn that NIL deals must not be used as direct inducements for recruiting, they haven’t held rulebreakers accountable. Many federal NIL bills have been proposed; none has advanced. New NCAA president Charlie Baker is pragmatic and results-oriented, but the former Harvard basketball player faces a tall challenge.
7) FTX Fallout Rethinks Celebrity Endorsement Liability
The stunning collapse of FTX and its founder, Sam Bankman-Fried, has sparked serious doubts about the crypto market.
The sports world is more than a mere bystander.
Some of the most prominent athletes of this generation—including Tom Brady, Steph Curry and Naomi Osaka—are defendants in litigation where they are depicted as conspiring to trick fans into buying into FTX. While courts have ordinarily held endorsers not liable for companies’ wrongdoing, this situation is different in an important way: Some of these athletes were also FTX investors, which suggests they might have known more and ought to be held a higher duty of care.
Even if the athletes are found not liable, they could become witnesses in the prosecution of Bankman-Fried as well as other FTX officials. The more meetings, phone calls, Zoom meetings, texts, emails and direct messages the athletes held with FTX officials, the more central those athletes become in a story about a company that abruptly lost billions of dollars. The same is true of executives of pro teams, such as the Miami Heat and Golden State Warriors, that conducted business with FTX.
6) NLRB Takes First Step on Path to College Athlete Employee Recognition
While some college athletes reap the benefits of NIL, whether college athletes are employees of their schools remains unresolved.
In December, an NLRB regional director in Los Angeles found merit in the argument that USC, the Pac-12 and the NCAA are joint employers. The finding doesn’t change the law, and several big hurdles remain. A similar effort involving Northwestern Football players a decade ago enjoyed initial success only to fail.
But if the finding holds, private universities would be on the hook to pay their athletes—who might also unionize—and offer them health care and other benefits. As joint employers, the NCAA and conferences would also be responsible, including for athletes at public universities.
5) Deshaun Watson Saga Tests New NFL Personal Conduct Policy
In August, the NFL avoided another multi-month federal litigation with a star quarterback by settling with Cleveland Browns quarterback Deshaun Watson on a punishment for violating the league’s personal conduct policy. The 11-game suspension and $5 million fine capped the first “test” of the new CBA’s version of the policy, which, unlike the one that governed Tom Brady’s Deflategate dispute in 2015-16, featured a neutral disciplinary officer and factfinder.
Arbitrator and retired judge Sue Robinson agreed with the NFL that Watson partook in “predatory conduct” in relation to massage therapists. However, she reasoned that the NFL’s demand for a season-long-plus suspension was excessive and unwarranted. Robinson deemed a six-game suspension consistent with precedent. The league appealed, and Goodell tabbed former New Jersey attorney general Peter Harvey to hear it. Had the two sides not settled, Harvey would have issued a decision that could have been challenged in federal court.
As for Watson, he’s thus far disappointed for the 6-9 Browns. The former Houston Texans star has a meager 69.3 QB rating after four games. In March the team traded three first round picks for Watson and signed him to a five-year, $230 million guaranteed deal.
4) Johnson v. NCAA Moves to the Third Circuit
Why are work study students who sell burgers and sodas at college stadium concession stands paid, but their classmates who are playing in the games not paid?
That is the central question of Johnson v. NCAA, a lawsuit brought by college players who demand they be recognized as employees under the Fair Labor Standards Act. The FLSA guarantees work study students and other types of workers minimum wage and overtime pay. Last year U.S. District Judge John Padova refused to dismiss the lawsuit, reasoning that it appears college athletes are, in fact, FLSA employees and are owed pay.
In January, the U.S. Court of Appeals for the Third Circuit agreed to review the case. The Southeastern Conference and a group of education associations filed amicus briefs warning that colleges could shrink athletics programs if the athletes are employees. In an exclusive interview with Sportico, Paul McDonald, the lead attorney for the plaintiffs, rejected that concern and stressed the immense value college sports provide those colleges.
If McDonald prevails, athletes at some colleges would become employees, leaving the NCAA—which consistently demands uniform rules across the country—in a quandary. The U.S. Supreme Court might review the case since the Seventh and Ninth Circuits sided with the NCAA on this same question.
3) Brian Flores and Jon Gruden Sue NFL as Dan Snyder Keeps Teflon Coating
After the Miami Dolphins surprisingly fired head coach Brian Flores, who had won eight of his last nine games, Flores sued the NFL, Miami Dolphins and several other teams for race discrimination. He argues they violate civil rights law in how they hire, evaluate and fire black coaches, who Flores contends receive sham interviews so that teams can nominally comply with the Rooney Rule. Later joined by Steve Wilks and Ray Horton in the suit, Flores also claims that Dolphins owner offered to pay him to lose games in order to secure a higher draft pick, a.k.a. tanking.
The NFL found Ross vocally supported tanking and acknowledged Ross may have offered Flores money to lose. But the league sees tanking as a possible legal defense. Ross could have fired Flores for refusing to go along with tanking, not because of racism. The NFL also insists that regardless of the merits of Flores’ claims, he contractually relinquished the right to sue. Flores’ Dolphins employment contract contemplated the commissioner as the arbitrator over employment-related grievances. Whether that language ought to govern Flores’ claims against the league and other teams is debatable.
Flores’ attorneys have reason to believe the NFL’s contractual defense might fall short. Former Oakland Raiders head coach Jon Gruden, who was fired after The Wall Street Journal and The New York Times published his emails containing racist, homophobic and misogynistic remarks, defeated the NFL’s motion to dismiss his interference lawsuit. Gruden contends that Goodell leaked the derogatory emails, a claim the league flatly disputes. The league also asserts any claim is preempted by arbitration language in Gruden’s Raiders contract, but Nevada Judge Nancy Allf disagreed.
Meanwhile, a report issued earlier this month by the House Oversight Committee suggested that Washington Commanders owner Daniel Snyder may have been the leaker. Speaking of Snyder, 2022 was another tumultuous year. He very reluctantly testified in Congress about workplace misconduct allegations and saw Indianapolis Colts owner Jim Irsay float the possibility of his removal. Federal prosecutors are also reportedly probing whether Snyder used two sets of books for sharing revenue.
But as 2022 comes to a close, there is no plot to force Snyder out. It is extremely difficult to remove an owner under the NFL’s constitution. Snyder might sell the team, but it would be on his terms.
2) USWNT Soccer and Minor League Baseball Players Class Actions Settle
Two major and multiyear sports class actions ended via negotiation in 2022.
In February, a group of USWNT players settled their pay discrimination case with U.S. Soccer in a deal that will pay the players $22 million, plus an additional $2 million for post-career planning. A few months later, U.S. Soccer announced new CBAs with USWNT and USMNT teams that feature “identical compensation, including the FIFA World Cup.”
Former USWNT goalkeeper Hope Solo, who has her own pay discrimination case against U.S. Soccer, has sharply criticized the $22 million settlement as falling far short of the players’ $66 million demand—especially with nearly $8 million going to the lawyers—and has questioned how the money will be distributed. Solo’s legal issues went beyond pay in 2022, as in July the two-time Olympic gold medalist pleaded guilty to driving while impaired. She had been found passed out in her car in North Carolina with her two young children.
In May, minor league baseball players scored a $185 million settlement with Major League Baseball over alleged FLSA violations. The money will be distributed to more than 20,000 players. A few months later, MLBPA agreed to represent minor leaguers in labor talks, which should lead to higher pay. However, MLB has described minor league baseball as extremely unprofitable, with the league spending at least $1.03 billion on the minors in 2022 in anticipation of generating just $25 million in operators’ revenue. The minors (of course) provide great developmental value to MLB, but whether MLBPA will succeed at negotiating higher wages remains to be seen.
1) The Rise of LIV Golf and a Historic Lawsuit Against the PGA Tour
Most new sports leagues fail, but LIV Golf is financed by Saudi Arabia’s $620 billion Public Investment Fund. LIV has lured some of the sport’s best golfers with wildly high payouts.
But LIV’s ascension has sparked a feud with the PGA Tour, which has used membership rules to suspend golfers who joined LIV. In August, Phil Mickelson and 11 other golfers sued the PGA Tour, arguing its dominance over the marketplace for elite golfers’ services violates antitrust law. Judge Beth Labson Freeman denied three suspended golfers a temporary restraining order to play in part because the golfers also counterintuitively argued LIV was superior to the PGA Tour. The list of plaintiffs has changed, with Mickelson and others dropping out and LIV joining the lawsuit and being countersued by the tour.
Should LIV’s case against the PGA Tour advance to trial—one isn’t scheduled until 2024—the ruling would set important precedent over how antitrust law governs the business decisions of sports leagues and the ability of those leagues to prohibit players from playing for rivals.
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