The Browns Employ Creative Use of NFL Salary Cap Structure For Future Success

In a league well known for the copycat tendencies among its franchises, the Cleveland Browns may have set a new National Football League (NFL) standard for evaluating and completing trades.

After flirting with a 0-16 season in 2016, the Browns entered the offseason with a record $100+ million in cap space. The NFL’s mandatory salary floor requirement would have forced the Browns to spend at least 89% of that amount on players’ salaries. The team’s unmatched spending power placed them in position to leverage their financial flexibility to potentially sign multiple free agent players to help reinvent the franchise.

In sharp contrast, while the Houston Texans finished the 2016 season with a 9-7 record, winning the AFC South before losing in the playoffs to the eventual Super Bowl champion New England Patriots, the team entered the offseason with the seventh smallest cap space to sign players, only about $25 million. Numerous NFL pundits suggested that the remaining three years of quarterback Brock Osweiler’s (Osweiler) four-year $72 million contract would be an albatross that would hinder the Texans’ ability to improve and move forward as a Super Bowl contender.

The immediate needs of both teams created the perfect opportunity for the type of trade that is frequently seen within the salaried cap structure of the National Basketball Association (NBA), but never before completed between teams in the NFL.

The Browns and Texans combined on a trade that sent the Browns fourth-round draft pick in 2017 to the Texans in exchange for their second-round draft pick in 2018, a sixth-round draft pick in 2017, and Osweiler and his contract. Suddenly, the Browns ability to add draft pick assets showed other franchises in the NFL that the Browns valued the cost of the combined draft picks, especially the second-round draft pick in 2018, at or above $16 million — the ultimate salary cap impact for Osweiler’s 2017 contract.

By acquiring Osweiler and a pair of draft picks, the Browns may have manipulated their cap space to acquire valuable draft pick assets that they view as more valuable than any free agent player they would have secured with the same $16 million.

Ultimately, the Browns were willing to absorb Osweiler’s contract in order to get the Texans’ second-round pick in 2018 and a sixth round pick in 2017.

While Cleveland will owe Osweiler $16 million in 2017, it can part ways with the him after next season with no penalty and his acquisition helps the team get closer to the mandated salary cap floor without having to enter into a risky long-term deal with a free agent player that could have easily exceeded $16 million in salary guarantees.

From the Texans’ perspective, the removal of Osweiler saves them $16 million in cash and provides $10 million cap space for the 2017 season and prevents future cap issues that would have remained as a result of Osweiler’s contract after the 2017 season.

The trade has been lauded as a creative win-win for both teams.

Browns’ senior executive officers Sashi Brown and Paul DePodesta have received substantial credit for the deal. DePodesta is renowned for his creation and application of the “Moneyball” analytic model during his time with Major League Baseball’s (MLB) Oakland Athletics. Despite being limited by one of the smallest payrolls in MLB, DePodesta helped the Athletics remain consistently competitive within MLB’s uncapped salary structure by using an analytic approach to exploit market inefficiencies to sign the best available players.

The deal’s novelty has not been universally celebrated.

Some have compared the trade to NBA “salary dumps,” in which teams absorb large contracts for draft pick compensation. Hall of Fame General Manager Bill Polian called the trade “a joke.” “Houston did a good job. They made a mistake and got out from under it…,” he said, “But the idea of paying $17 million for a second-round pick, to me, is ludicrous.”

Will other teams make similar moves in the future? Only time and the ultimate desire of each NFL franchise to win a Super Bowl will tell.

Judge Recertifies MLB Minor League Collective and Class Action

Federal Magistrate Judge Joseph C. Spero struck a blow to MLB when he reversed course on his earlier decision and recertified a minor league collective and class action against MLB.

In July 2016, the court decertified the minor league collective and class action in Senne, et al. v. Kansas City Royals Baseball Corp., et al., No. 14-CV-00608-JCS. However, on August 4, 2016, the Court granted in part the plaintiff’s Motion for Reconsideration, giving them the opportunity to narrow the class definitions and address the court’s concerns expressed in its July decision.

The previously proposed class included “All persons who under a Minor League Uniform Player contract, work or worked for MLB or any MLB franchise as a minor league baseball player within the relevant state at any time.” The court found too many individualized issues to certify the class.

The new classes approved by the court include a Fair Labor Standards Act collective consisting of minor league players participating in the California league, spring training, instructional league, or extended spring training on or after February 7, 2011. The court also recertified a California class consisting of minor league players who participated in the California league on or after February 7, 2010.

In reversing course, Judge Spero stated,

“The Court now reaches a different conclusion and finds that the classes have been narrowed sufficiently that any individualized issues that arise in connection with the representative evidence offered by Plaintiffs will not predominate over common issues.”

In its previous decision, the court took issue with the plaintiffs including winter conditioning activities as part of the class definition. The court found that players are given wide latitude in their winter conditioning workouts, giving rise to too many individualized issues. By excluding these winter activities under the new class definition, the focus is on team activities and conditioning, rather than individualized winter programs of each player. The court also relied on the fact that “many of the individualized inquiries cited by Defendants go to damages and not liability, and therefore do not present an impediment to class certification.”

The court ordered the parties to file a proposed schedule of the case by April 28, 2017. Ultimately, MLB may be forced to take this issue to trial. We will monitor the case and provide updates. Please contact Jackson Lewis with any questions.





Texas Spotlights Transgender Athlete Issues as Bill Progresses in Legislature

The Texas University Interscholastic League’s constitution requires that student-athletes compete according to the gender on their birth certificate. In February, a 17-year-old transgender male was required to wrestle against females, despite his preference to compete in the boys’ league. He went on to win the Class 6A 110-pound girls’state championship in Texas high school wrestling to both criticism and support.

In a 21-10 vote, the Texas Senate has approved the controversial SB6, commonly known as the “bathroom bill.”

SB6 would not only require that all Texans use the bathroom matching the sex on their birth certificates in public schools and government buildings, it also would prohibit local governments from enacting anti-discrimination ordinances on the same issue.

This move comes on the heels of President Donald Trump’s decision to reverse the Obama Administration’s May 2016 guidance providing that Title IX protects the right of transgender students in public schools to use bathrooms and locker rooms corresponding with their gender identity.

If SB6 becomes law, Texas may be faced with opposition similar to that seen in North Carolina after that state’s controversial HB2 “bathroom bill” was passed into law in 2016.

The NBA, ACC, and NCAA have moved several lucrative events out of North Carolina, and this trend may continue as the North Carolina Sports Association has reported that the NCAA has threatened to pull the state’s bids for all major events through 2022. This could result in severe financial losses for the state.

The NFL and NBA have warned that Texas may be jeopardizing its chances at hosting future events should SB6 become law. Since 2004, Texas hosted three NBA All-Star Games and three Super Bowls – including Super Bowl LI played at Houston’s NRG Stadium between the New England Patriots and the Atlanta Falcons. While the NFL’s stance does not affect the state’s chances of hosting a Super Bowl in the near future since sites have been selected through 2021, none of which are in Texas, the same cannot be said for Texas landing the 2020 or 2021 NBA All-Star Games for which Houston has been considered a frontrunner.

Sports leagues have come down hard on North Carolina for passing its “bathroom bill.” Texas may expect the same treatment if SB6 is passed.





NFL Owners, Commissioner Consider Question of NFL Conduct Policies Regulating Non-Football Offenses Once Again

New York Jets player Darrelle Revis is entering the third year of his approximately $70 million five-year contract with the team. He is slated to receive a $13 million base salary ($6 million fully guaranteed) and a $2 million roster bonus this season, but only if he remains on the Jets roster. Unfortunately, the cornerback may not be making the flight back to “Revis Island.” Revis has become the latest professional football player to force owners and the National Football League to consider if they can reprimand a player for off-the-field conduct and if a criminal indictment is necessary to find a player violated league conduct policies.

In connection with an altercation in Pittsburgh on February 12, 2017, police have charged Revis with two counts of aggravated assault, one count of robbery, one count of conspiracy, and a misdemeanor charge of making terroristic threats. His preliminary hearing has been adjourned to March 15, 2017. The $2 million roster bonus, as well as a portion or all of the $6 million guaranteed salary, is due from the Jets if Revis is still with the team on March 10, 2017.

Whether the Jets can negate Revis’ entire salary (including the roster bonus and guaranteed money) will depend upon contractual provisions. His contract can be voided under certain circumstances, including being fined or suspended for conduct detrimental to the team or for violating the NFL’s conduct policy. Moreover, the contract’s general catch-all clause allows the Jets to void the contract if Revis “engages in personal conduct reasonably judged by [the Jets] Club to adversely affect or reflect on [the Jets] Club.”

The NFL is investigating whether Revis may have violated league policies, too. If the Jets or Commissioner Roger Goodell issue any disciplinary decision prior to a court ruling, Revis and the NFL Players Association likely will file a grievance subject to their collective bargaining agreement’s arbitration procedures to challenge what conduct, actual or alleged, violates these clauses and whether Revis is owed at least a guaranteed portion of his salary.

This is not the first time that franchises and Goodell have considered punishing a player for non-football-related actions. In recent years, sanctions have ranged from suspensions for league policy violations (i.e., Josh Gordon and Le’Veon Bell) to immediate termination for actual or alleged criminal offenses (i.e., Ray Rice, Greg Hardy, and Josh Brown). These prior determinations, however, were subject to both positive and negative criticism. Thus, waiting for the court’s final determination on Revis’ criminal charges could delay a decision by the Jets camp or the NFL, which, in turn, would require the Jets to issue him at least $2 million on March 10, 2017. Quite a dilemma.



NLRB General Counsel Concludes Division I Scholarship Football Players are Employees under Labor Law

Scholarship football players in Division I FBS private sector colleges and universities are employees under the National Labor Relations Act, National Labor Relations Board General Counsel Richard F. Griffin has concluded. Accordingly, he explained, the players have all of the rights and protections available to employees under the Act. Click here to read the full article.

Update: Minnesota Football Team Ends Bowl Boycott

The University of Minnesota football team ended their boycott of the Holiday Bowl after attempting to overturn the suspension of 10 players for alleged acts of sexual assault and agreed to participate in the upcoming December 27th game against Washington State University.

After lengthy meetings with University President Eric Kaler and Athletic Director Mark Coyle, the team’s senior wide receiver Drew Wolitarsky read a statement on behalf of his teammates. In the statement,

the team acknowledged that their demand to have the suspensions of the 10 players overturned was “not going to happen”.

However, Wolitarsky also stated that during the course of the meetings an agreement was reached that assured each of the suspended players a “fair hearing” before a diverse review panel. The hearings will most likely be heard in January.

In addition, the team agreed that the players would use their status as “public figures to bring more exposure to the issue of sexual harassment and violence against women.” Wolitarsky comments further acknowledged how difficult and stressful the situation had been for everyone involved and he specifically recognized that

“there is only one way to treat all women, and that is with the utmost respect at all times.”

President Kaler reacted to the statement issued by the team and stated. “I think the statement by the students today around support for victims of sexual assault is important. I will continue to amplify the fact that the football team’s action in support of their teammates was not in support of sexual violence.”





Players To Boycott Football Activities, Bowl Game, Over Suspensions Of Teammates

University of Minnesota football players announced on December 15 that they are boycotting all football activities, including their December 27 Holiday Bowl game against the Washington State Cougars, to protest the University’s decision to suspend 10 teammates over a sexual assault allegation, according to the Minnesota Star Tribune. The University adopted an affirmative sexual consent policy in September 2015.

According to senior wide receiver Drew Wolitarsky, the University’s Athletic Director Mark Coyle failed to provide satisfactory answers to questions about why the 10 players had been suspended. Wolitarsky said that

“the boycott will remain in effect until due process is followed and the suspensions for all 10 players involved are lifted.”

The suspensions were handed down based on recommendations of the University’s Office of Equal Opportunity and Affirmative Action following a Title IX investigation into an alleged incident that occurred on September 2. Initially, four players were suspended, but were reinstated when the Hennepin County prosecutor declined to press charges. (None of the players were arrested.) Thereafter, the EOAA conducted its own investigation, resulting in the 10 suspensions.

Responding to the announced boycott, Coyle and Minnesota President Eric Kaler said in a joint statement:

We understand that a lot of confusion and frustration exists as a result of this week’s suspension of 10 Gopher football players from all team activities. The reality is that not everyone can have all of the facts, and unfortunately the University cannot share more information due to federal laws regarding student privacy.

We fully support our Gopher football players and all of our student-athletes. Situations like this are always difficult, and the decision was made in consultation with and has the full support of President Eric Kaler.

The decision was based on facts and is reflective of the University’s values. We want to continue an open dialogue with our players and will work to do that over the coming days.

It’s important that we continue to work together as we move through this difficult time.

Some of the suspended 10 players  may be expelled while others may be suspended or put on probation for a year. The suspensions can be appealed, but a hearing may not occur before the Bowl game. Northern Illinois University, which finished with a 5-7 record but won four of its last five games, is next in line for a bowl game and could replace the University if the boycott continues.

The Potential Trump Effect On The Sports World

While the nation and the world react to the victory of President-elect Donald Trump and theorize what his impending presidency will mean for national policy, the world of sports is not immune from similar meditation.

The international nature of professional and collegiate sports has continued to grow during the early portion of this millennium and the momentum from international events such as NFL contests in London, NBA games, and NCAA contests in China and potential Major League Baseball contests in Cuba and Mexico might be affected by a Trump presidency.

As world leaders react to the new order in American politics, numerous international events and the awarding of the cities to host those events are under consideration.

The early portion of the Trump presidency and its initial policy decisions on immigration issues and the proposed revamping of trade policy could directly affect the International Olympic Committee’s decision the United States’ bid to host the 2024 Summer Olympics in Los Angeles.

While the bid is receiving strong competition from rival Paris, Los Angeles Mayor Eric Garcetti has acknowledged that IOC members have concerns about Trump. Garcetti stated, “An America that turns inward,…isn’t good for world peace, isn’t good for progress and isn’t good for all of us.” The 2024 Olympic Games decision will be made in September 2017.

The awarding of the 2026 World Cup for soccer is also approaching. While FIFA, the international governing body, has discussed potential expansion of the World Cup competition to 40 or 48 countries, many have stated that the United States either may host or co-host the event with Canada or Mexico. Will President-elect Trump’s campaign pledge to erect a wall along the U.S.- Mexico border and deport illegal immigrants affect international relations? Will FIFA’s leadership to avoid potential international reaction to awarding the United States the event? The President-elect said on election night, “We [the United States] will get along with all other countries, willing to get along with us.”

Additionally, President-elect Trump’s forthcoming trade initiatives may also affect professional sports leagues and their franchises.

Will President-elect Trump revoke many of the trade agreements that exist under the current administration? Will he enact severe tariffs on internationally manufactured goods that are imported in the United States? The answers could directly affect the global ambitions of the NFL, the NBA, and Major League Baseball.

While the commissioners of these major American sports have plans for the expansion of their sports overseas, with potential international franchises and more international games being held in cities such as London, Barcelona, Mexico City, Berlin and Shanghai, the potential imposition of proposed 45% tariffs affect how willing the international community would allow United States professional sports franchises to benefit at their expense.

Like the world’s leaders, the world of sports is waiting to see what impact a Trump presidency will have on their future goals and objectives.



Labor Board Reviews Northwestern Student-Athlete Policies

The National Labor Relations Board (NLRB), in a recent Advice Memorandum (NLRB Case No. 13-CA-157467), has effectively ended the closely-watched enforcement action against Northwestern University on whether certain intercollegiate student-athletes are statutory employees for purposes of the National Labor Relations Act.

The NLRB had declined in August 2015 to assert jurisdiction over a representation petition filed by the College Athletes Players Association to represent the grant-in-aid scholarship student-athletes at Northwestern, Northwestern University, 362 NLRB No. 67 (2015). In that decision, the NLRB, while assuming without deciding that scholarship student-athletes were statutory employees, determined that asserting jurisdiction over the student-athletes “would not promote stability in labor relations.” The decision, in large part, was based on the fact that “of the roughly 125 colleges and universities that participate in FBS football, all but 17 are state-run institutions.” By statute, the NLRB does not have jurisdiction over government entities. The NLRB also noted that “Northwestern is the only private school that is a member of the Big Ten” athletic conference.

The NLRB might decide differently if those “stability of labor relations” considerations are not present in an unfair labor practice case at a private college or university where considerations of collective bargaining and a possible competitive imbalance with public institutions playing in the same league may not be present.

Still an open question, however, is whether the University had engaged in unfair labor practices for policies that restricted student-athlete social media postings. An October 2016 memorandum by the Division of Advice of the Office of the General Counsel – the NLRB’s prosecutorial arm – recommended that the General Counsel not issue an unfair labor practice complaint against Northwestern University or the NCAA over the restrictions, which, it was argued, interfered with the ability of student-athletes to communicate regarding safety concerns and other issues relevant to collective bargaining. The recommendation was based on several factors: the policies had been revised and the revisions communicated to the players, the University had no history of prior similar unfair labor practices, and there was no likelihood of repetition of the rules.

However, as the NLRB again did not decide if scholarship student-athletes are statutory employees subject to its jurisdiction, the question remains whether the NLRB might find grant-in-aid scholarship students-athletes to be statutory employees and assert jurisdiction over them in another unfair labor practice case.

In the Advice Memorandum, the Division also “assume[d], for purposes of this memorandum, that Northwestern’s scholarship football players are statutory employees.”

It is not currently clear whether the October 2016 memorandum will affect how the NLRB might approach a future petition for representation of intercollegiate student-athletes. In an unfair labor practice case, the allegations and, more importantly, any remedy are typically limited to one employer. In another unfair labor practice case involving a private college or university, perhaps one that has not revised allegedly unlawful policies or has taken disciplinary action against a scholarship student-athlete allegedly in retaliation for the player having engaged in protected concerted activity under Sec. 7 of the NLRA (such as advocating for player safety measures), the NLRB may determine that any remedy would not have a negative impact on the “stability of labor relations” because there may not be a spillover effect to the competitive playing field.

The chief consideration relied upon by the NLRB in not asserting jurisdiction in Northwestern Univ. would be absent, and NLRB may feel free to consider the fundamental question whether scholarship-athletes are statutory employees and decide to assert jurisdiction. (The NLRB may also consider doing so in a representation case in which all the members of the league are private institutions, such as the Big East conference in basketball.)

The General Counsel of the NLRB is the office that decides which unfair labor practice cases to litigate. There is no indication the General Counsel has decided that scholarship student-athletes are not statutory employees.

In fact, by referring the Northwestern case to the Division of Advice, it might suggest that whether a scholarship student-athlete is an employee is very much in play for the General Counsel.

In a different case—at Northwestern or another private college or university—the General Counsel may decide to issue an unfair labor practice complaint and urge the NLRB to decide the core issue. The NLRB, for its part and recognizing that less than 7% of private sector employees are represented by a labor union, may be receptive. Until the NLRB decides that scholarship student-athletes at private institutions are not statutory employees, the possibility that it may do so in an appropriate case remains.

Supreme Court Declines To Consider Antitrust Case Against NCAA

The U.S. Supreme Court has declined to review a decision holding that NCAA athletes did not have to be paid beyond the cost of attending college. NCAA v. O’Bannon, Nos. 14-16601, 14-17068 (9th Cir. Sept. 30, 2015), cert. denied, No. 15-1167 (Oct. 3, 2016).

A U.S. district court had decided the NCAA’s use of the names, images, and likenesses of college athletes without compensation violated antitrust laws. It ruled schools could (but are not required to) pay college players up to $5,000 per year. That amount, placed in a trust, would be available to the athletes after leaving college. A panel of the U.S. Court of Appeals for the Ninth Circuit, in San Francisco, overruled the $5,000 holding, but upheld the lower court’s antitrust finding.

The Ninth Circuit said compensation for athletes should be limited to funds related to their education. While the NCAA is not above the antitrust laws, it continued, “the difference between offering athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor.”

Appealing to the Supreme Court, the NCAA claimed the Ninth Circuit antitrust ruling misapplied a 1984 Supreme Court decision, NCAA v. Board of Regents of Univ. of Oklahoma, 468 U.S. 85. It said part of that decision acknowledged that “in order to preserve the character and quality of the (NCAA’s) ‘product,’ athletes must not be paid, must be required to attend class and the like.” Groups advocating for student-athletes wanted the Court to affirm the Ninth Circuit’s refusal “to confer categorical antitrust immunity on the NCAA for what in any other industry would be an unreasonable restraint of trade.”

The effect of the Supreme Court’s denial of review leaves the NCAA susceptible to other ongoing legal challenges, but it also gives the Association time to make changes to blunt such threats. A Supreme Court review of O’Bannon could have further clarified if and to what extent college athletes should be compensated for the commercial use of their names, images, and likenesses and provided guidance on how such compensation could affect Title IX and the federal mandate that male and female college athletes be treated equally. Without such Supreme Court clarification, the Ninth Circuit’s decision stands as favorable precedent for other legal challenges to NCAA amateurism rules, such as the case pending on behalf of former Clemson University football player Martin Jenkins.

In 2014, Jenkins sued the NCAA, alleging the NCAA and its universities and conferences have violated federal antitrust law by conspiring to limit the value of athletic scholarships to tuition, room, board, books, and fees.

The Jenkins action seeks a proposed remedy that would allow schools to compete for star athletes in a “free agent” type system by bidding for the services of those athletes. Student athletes with superior athletic talent would be able to require schools vying for their enrollment to enter into a financial bidding war to convince them to attend their university.

This would be more reflective of a free agency system at the professional sports level than the current amateur athlete recruiting process that provides athletic scholarships.

The Jenkins case is being heard in the U.S. District Court for the Northern District of California, the same court that heard the O’Bannon case. In addition, the ruling federal district court judge in O’Bannon also is presiding over this litigation.

While O’Bannon may have reached its ending after seven years of protracted litigation, other potential actions can still be brought by student-athletes outside of the Ninth Circuit. Different legal interpretations among the circuit courts could bring the issue to the Supreme Court once again.