Lawyers, in a sense, are like doctors. You might even compare them to car mechanics. Before you disagree, hear me out:
If you’re like most people, you have a general practitioner or “family doctor.” You see them regularly for checkups, in the same way you may go to your local car dealer for routine maintenance like an oil change. But what if you need something outside of the scope of work they cover? Say a hip replacement or a new paint job? You go to someone who focuses on your area of need, right?
You wouldn’t put trust in someone that doesn’t do work in those areas on a daily basis. And it should be the same when it comes to your attorney.
As a sports and entertainment lawyer, I often see a team, league, or vendor hire an attorney based on their personal relationship or out of a relationship built on convenience. Maybe you have an attorney that worked on your estate plan, sold the family business, represented your family in some form of litigation, lives next door, or even originally formed your sports league or organization (more on this later).
While that attorney may have done an adequate job for you in those matters, they aren’t always suited to help you with all matters. For example, acquiring new teams, reviewing stadium leases, negotiating concessions deals, and drafting league bylaws or member agreements all require specific expertise. And here’s why:
- As often said in the legal field, “you don’t know what you don’t know.” And the same holds true for your lawyer. Therefore, when you’re in the process of finalizing a sports deal, you need real-world, industry-based knowledge to navigate the ins and outs of your agreements. For instance, if you hire your personal attorney, lawyer-friend, or lawyer-neighbor to draft and negotiate your stadium lease, will they know the industry standard for naming rights percentage splits? Do they know the importance of having date controls over your stadium or arena, and how it will impact your bottom line? Do they have experience negotiating with sports leagues and vetting league business models? If you’re a long-time league operator, you may know these matters forwards and backwards. But, you still need an attorney to draft those matters on your behalf, and that may not be within their skillset. I’d contend it’s better to have an experienced thought partner as your attorney than one you have to educate about your business. Hiring a lawyer who focuses on sports will not only save you time, but equally as important, it will save you money.
- Contrary to popular belief, sports leagues are not like regular businesses, and therefore, cannot be set up as such. In my practice, I regularly see where an attorney has flatly organized a league(s) as an LLC by default, citing “flexibility” within that entity solution. The issues attorneys often miss by forming leagues as LLCs are complex and not easily understood. For example, when forming a league as an LLC, you are likely setting up the league to sell securities across state lines, raising a number of securities issues on both a State and Federal level. On top of that, most leagues never file a Form D Notice with the government, notifying the SEC of its sale of securities. These mistakes expose the league to multiple forms of potential penalties. Additionally, franchise issues are raised as boards mandate certain business functions of its shareholder teams. Adding to the complexity, if you need to remove a shareholder, your league must be appropriately setup to disenfranchise that stock. More secure solutions for league organization do exist, but you should consult a dedicated sports lawyer to determine the proper form. This will ultimately save you significant time and energy, if say, there’s a lawsuit for securities fraud or an ice cream vendor decides to sue the league because under state law, a shareholder is an agent of the league.
- It takes specific expertise to understand and coordinate the practical nuances of organizing several teams who regularly compete on the field to also cooperate on the business side, all with the focus to form a product. A typical corporate attorney doesn’t always understand the politics involved with everyday league affairs, and therefore, cannot advise on how to draft the league’s governing documents. For instance, Team X located on the East Coast, may have travel issues due to being hundreds of miles apart from the nearest team. Or, it may be obvious owners X, Y, Z are financially superior from the rest of the owners in the league and can sabotage the league if allowed by the league bylaws. Does your attorney understand the need to protect financially struggling teams through letters of credit, market protection, transfer, and members in good standing voting rights? If they don’t practice sports law on a daily basis, probably not.
Like most areas of law, the sports law practice is unique and takes specific industry knowledge to avoid the pitfall scenarios mentioned above. It’s a multidisciplinary approach that takes years to develop and one which is bolstered by experiences outside of working in law.
If you’re ready to talk to a lawyer that focuses on sports law, please give me a call at 651.968.415, or email me at joshua.schaub@gutweinlaw.com.
