Conflictual sponsorship agreements insports least regulating them:

a model in jeopardy

Romain GonthierChicago-Kent College of Law

Entertainment Law class (Fall 2018)Pr: Hank H. Peritt Jr.

INTRODUCTION

Almost five years into effect, the UFC's Reebok deal still makes fighters' teeth grind1.

Although the organization made $70 millions out of this deal, fighters feel left behind. As in any

other sport, sponsorships represent a major part of the sports environment, especially concerning

professional sports. For many professional athletes, whether high-ranked or low-ranked in their

sport, sponsorships are the main source of revenue or funding2. As a matter of fact, many would

not be able to compete without sponsorships paying for equipment, travels, housing or facilities.

With high amounts of money at stake, it can appear decisive to legally frame such sponsorships.

Yet, there is no U.S. law per se, but just a set of federal and state-level regulations that deals with

Intellectual property, Labor law, Sports law, Contracts law, making it properly hard to

understand the full framework of sponsorships agreements.

A sponsorship agreement is an agreement where a person grants a license to use her

image, name, brand or any other identity asset to a sponsor who pays for such a right to use the

license. Usually in sports, it is a company paying to be able to use an athlete's image and name

with its brand or to require the athlete to display a trademark or logo, whether on him or her

property.

Sponsorships can be divided into different categories, these categories depending more on

the interests of the actors involved rather than the substance of the contract itself. The first

category concerns a sponsor and a league or sports promotion. If leagues and sports are easy to

picture, a promotion is something a little bit more particular. It is "the stimulation given to sales

through discounts, demonstrations, contests, exhibitions and trade shows, giveaways, special

1 https://www.bloodyelbow.com/2017/7/12/15953928/quote-compilation-ex-ufc-fighters-reebok-deal-free-agent-bellator-mma2

offers and merchandising"3. In the sports industry, it often relates to sports model organized live

event by event or pay-per-views. The most famous example of promotion would concern

fighting sports such as Golden Boy Promotions (boxing), UFC (MMA) or even WWE

(professional wrestling). Sometimes organization self promotes themselves and the term can

refer either to the position as a promoter but also as an organization, WWE being one example

among many others. The second category involves a sponsor and a team. The last category

involves a sponsor and an athlete. Each of these kind of agreements can sometimes overlap,

hence difficulties to enforce certain kinds of contracts.

Nonetheless, the main subject of sponsorship agreement is image rights. Sponsors get

money from the visibility of their mark or company during events, commercials or any other

possible way or from the visibility of an athlete, a team or an organization with their mark. In

other words sponsors can be active in displaying their marks, by using the name or image of a

person granting license, or passive while requiring that person to display such marks. Basically,

they make an investment on the visibility of a sport, a team or an athlete to try to make profit or

raise the value of the mark, through that visibility. Image rights touch different bodies of law:

the right of publicity, common law of contract, trademark law and sometimes copyright law.

Since sponsorship rights can overlap, it is important to analyze the different examples of

sports as their structures vary from one to another regarding regulations and financing. It can be

easily understood that sponsorship law differs from one sport to another, depending on the

structure of one league, the sanctioning bodies or even whether it is a collective or individual

sports, since teams are absent players in individual sports. Sports can have several layers of

3 What is SALES PROMOTION? definition of SALES PROMOTION (Black's Law Dictionary), THE LAW DICTIONARY(2011), available at https://thelawdictionary.org/sales-promotion/ (last visited Dec 09, 2018)

regulations, with collective bargaining, governing regulations, down to bilateral contracts only.

Whether a sport is unionized and strictly, regulated, more lightly regulated or purely based on

bilateral contracts, exclusivity is the epicenter of conflictual sponsorship agreements. Without

exclusivity clauses, overlapping goods and sponsor are a lot less likely to breach contractual

obligations and provoke litigation. Depending on the level of regulation over sponsorship

agreement from one sport to another, the issues might change. The case of the Olympics for

instance concerns a definite aggregate of sports, the Olympics, which through the International4

and the National Olympic Committees5 set the main framework of sponsorship agreements. As

these sports are considered amateur, even though this is not fully actual anymore6, unions are out

of the question. Indeed, unions are only reserved to employees7 and amateurs can not be

employees. On the other hand, some sport are fully contractual. The particular case of the

Ultimate Fighting Championship (UFC), the famous Mixed Martial Arts (MMA) promotion, is

the example which this paper develops for several reasons. It is an individual sports, thus without

teams, only athletes and the promotion are concerned, making it, with the absence of union, a

legal wilderness when it comes to sponsorships. The only legal ground in this case arises then

under contracts law and connected subjects contractually negotiated (trademark, right of

publicity...), making it a very free area, hence the qualification as a legal wilderness, as it is

submitted to the reality of the market and its business negotiations.

This paper centers around several themes, the fist one being a scope of sponsorship rights

(I), next the environment of lightly regulated sports sponsorship wise, especially considering the

case of the Olympics will be developed (II), moving on next to the case of the UFC, the sports

4 IOC Charter5 USOC bylaws6 Leigh Augustine-Schlossinger, Legal Considerations for Sponsorship Contracts of Olympic Athletes, 10 JE8REY S. MOORAD SPORTS L.J 282–283 (2003) 7 29 U.S.C. § 157 (1947)

being the least regulated in terms of sponsorship agreements(III). Confronting the different cases,

the different kinds of risks and what kind of solutions might be offered are going to be identified

(IV) both by the legislator or the negotiating parties to limit as much as possible the conflictual

aspects arising from overlapping sponsorship rights.

I. SCOPE OF SPONSORSHIP RIGHTS

Sponsorship agreements take different forms, yet it is important to try to define the most

common denominator, in order to try to depict the main characteristics of the typical sports

agreement (A). The different interests at stake should also be developed, to properly detail the

different visions of the protagonist in a negotiation contract (B). It is important to develop on the

contradictory sponsorship interests from one party to another, in order to fully qualify the

conflicts among the agreements.

A. Main characteristics of a typical sponsorship agreement

1. Definition of the key concepts concerning sponsorship agreements

Before getting into the core of sports sponsorship agreements, it is essential to define the

different parties in a sponsorship agreement. In such agreements, there is the sponsor, on one

hand and the property on the other hand8.

8 Steven B. Smith, Adam Brezine, A.C.C., Top Ten Issues in Sponsorship and Licensing Agreements That Are Most Likely to

The property is the element granting a license to use its image, mark or any other form of

recognizable asset, in other words the property owner contracts with a sponsor for such a use.

Property and property owners might be the same person, for instance when an athlete grants a

license to use his image rights, he is both property and property owner. Legally, the property

owner is a licensor, meaning "the person who gives or grants a license"9.

The sponsor is the person giving any kind of compensation in exchange of a license to

use, sell or make any other possible application of a property. Legally, the sponsor is "a person to

whom a license has been granted"10, in other words, a licensee.

In the case of sports, a sponsorship agreement usually involves an athlete, granting a

license over her image rights, use of the name or mark, to a licensee, the sponsor, giving

compensation to the athlete for such a right, its main purpose being to ride off the fame of the

athlete to sell more products or services, thus increase its market share.

In a sponsorship agreement, there are usually several clauses, some legal boilerplates11,

that are quite standardized and seen in the high majority of the sponsorship contracts. Rather than

enumerating the whole details of such provisions, their main subjects and purposes are detailed.

2. Legal boilerplates of sponsorship agreements

The first kind of these boilerplates is the listing of the goods and services concerned by a

sponsorship agreement. Although, not necessarily exhaustive, such clauses are commonly

Lead to Disputes and Litigation (2011), available at https://www.acc.com/legalresources/publications/topten/sla.cfm9 What is LICENSOR? definition of LICENSOR (Black's Law Dictionary), THE LAW DICTIONARY(2011), available at https://thelawdictionary.org/licensor/ (last visited Dec 09, 2018)10 What is SPONSOR? definition of SPONSOR (Black's Law Dictionary), THE LAW DICTIONARY (2011), available at https://thelawdictionary.org/sponsor/ (last visited Dec 09, 2018)11 What is BOILERPLATE? definition of BOILERPLATE (Black's Law Dictionary), THE LAW DICTIONARY (2012), available at https://thelawdictionary.org/boilerplate/ (last visited Dec 09, 2018)

included in an agreement. Thus, it is important to take the time to develop the clauses, in order to

avoid conflicts and further litigations. As an example, a biathlon athlete's, detailing the products

sponsored as "sports equipment" would not necessarily include sun glasses.

The second kind of clauses includes "in-competition" and "off-competition" clauses.

They are the ones defining the scope of one sponsorship agreement, allowing the licensor to

evaluate whether he can contract with other sponsors outside the scope of such provisions.

Usually, they define, the time line of the agreement, the place or events of display or use of the

sponsorship rights.

Then, there are the "default" or "breach" clauses, setting the scope of infringing behavior

whether toward the licensor or the licensee. Although not necessarily exhaustive, they set

behavioral guidelines for the parties in order to act according to the contract and avoid as much

as possible litigation. An example, is for instance "moral clauses", establishing that a fighter

convicted for battery would breach his contract.

The scope of exclusivity is the index setting the level of balance between the interests of

the licensor and the licensee. If sponsorship agreements interests were designed as a Bell curve,

exclusivity would be at the tip of it. It sets the ground of negotiation for interests that does not

necessarily converge in the same way for the sponsor (licensee) or for the property (licensor).

B. The different interests at stake while negotiating a sponsorship agreement

Usually, there is a big tension between licensee and the licensor, as generally, the first one

wants a broad scope of goods and services, to prevent as much as possible other sponsors from

conflicting with its visibility. The other one, wants to define them very narrowly, to not be

prevented from contracting with other sponsors. They need to make their need and wills fully

understood, as many litigations arise from miscommunication, general provisions or concepts

way too broad, or not precise enough, in the agreement. As an example, exclusivity might be a

starting point for antitrust challenge to licensing or sponsorship agreements, but this aspect is

developed later12.

1. Interests of the licensor

a. A narrow scope of exclusivity

It is crucial for the licensor to make sure to fully understand what needs to be

encompassed to fully protect the domain of the property. Such a security goes through

anticipating in what areas the agreement can extend during its term. For instance, a sponsorship

over "in-competition" equipment needs to define a precise time frame of what is "in-

competition". A detailed list including "post-game interviews", "arena walk outs" etc might be

very helpful.

Licensors want assignments to be as narrow as possible. Such licensors want to maintain

control over the parties with whom they conduct business. Broad assignments could force them

into a strategic partnership with a party they do not desire, especially concerning mergers and

acquisitions. If there is a company acquisition of an electronics company by a phone company, a

licensor might jeopardize agreements with a printing devices exclusive sponsor. Planning such a

possibility might prevent from a strategic partnership with the undesired printing devices

sponsor.

12 infra note, (III)(B)

In terms of exclusivity, it is better for the licensor to narrow its scope as much as possible.

The licensor does not want to see possible other agreements being prevented by overwhelming

rights of exclusivity by the licensee.

b. Licensor's goals while negotiating ROFN (Right Of First Negotiation) ROFR (Right Of First

Refusal)

The ROFN is a provision, where a licensor agrees to negotiate in good faith with the

licensee before he offers the sponsorship on the open market13. It is essential for the licensor to

ensure that ROFN period expires far enough before the expiration of the agreement, in order to

be able before the end of the agreement to negotiate on the open market, to allow negotiations

with other licensees and thus limit as much as possible sponsor-absent periods.

The ROFR, or Right Of First Refusal, is a right for the licensor to match the terms of the

deal that the licensee is able to negotiate with a competitor14. It is essential for the licensor to

avoid such clauses as much as possible. Such conditions are very restrictive and might preclude

new licensees from entering into negotiations.

2. Interests of the licensee

a. A broad scope of exclusivity

The scope of exclusivity should be as broad as possible for the licensee. As a matter of

fact, depriving the licensor from other sponsors, especially from competition, raises the visibility

of the sponsor, as it is not drown in a big display of other signs and brands.

Through broad assignments, they do not want to be required to obtain permission

13 Definition of ROFN Period, Law insider (2018) https://www.lawinsider.com/dictionary/rofn-period (last visited Dec 9, 2018)14 Definition of ROFR Period, Law insider (2018) https://www.lawinsider.com/dictionary/rofr-period (last visited Dec 9, 2018)

from a licensor to enter into other agreements (mergers, acquisitions, sales...)15. The requirement

of such a permission, represents a risk that a crucial deal could be waived out by a sponsorship

and/or licensing agreement or might just freeze a potential business contractor.

b. Licensee's goals while negotiating of ROFN and RORN

It is a major issue for the licensee to set the ROFN time frame as close to the terms of the

agreement as possible. This allows the licensee to negotiate fully and properly the renewal of the

contract. The timeline is decisive when it comes to negotiation, as it is possible that sports

counter-performances might allow licensees to leverage over the price of the agreement, yet still

granting an agreement with an athlete or a team with a powerful image.

ROFR are also useful provisions for licensees, as they are allowed to match the deals of

other potential licensees. It is very interesting for them as it allows them not to give up too much

on a deal, just by waiting for competitors to see what they bring to the table and just match them.

It might be tempting for the licensor to play with the different sponsors to try to make sponsors

bid up and that's a risk for the licensee. But there is still the possibility to opt-out if the offer does

not meet the licensee's standards anymore.

ROFN and ROFR are very powerful tools that licensees can also negotiate to use, even

with non-competing companies.

3. Precision of the concepts: a key to avoid definition

Precision in the definition and the scope of the key concepts of the contract is the corner

stone to avoid litigation. It is essential to at the very least, define which goods and products are

going to be impacted, develop over the concept of dominant sponsor or the concept of

15 Steven B. Smith, Adam Brezine, A.C.C., Top Ten Issues in Sponsorship and Licensing Agreements That Are Most Likely toLead to Disputes and Litigation (2011), available at https://www.acc.com/legalresources/publications/topten/sla.cfm

competition.

Goods and services licensed should be precisely defined. Typically, sponsorship

agreements include a list of this goods and services. Nevertheless, not everything might be

included in such a list. Usually, such provisions are non-exhaustive. That is very handy for the

licensee, who might forget to list some goods but might pretend exclusivity over them later if

related to their market field. For the licensor on the other hand, it is convenient to have a list of

exhaustive goods, as it is very simple and practical, from that observation to safely contract with

other sponsors. In reality, that scenario is very unlikely to happen.

The concept of dominant sponsor, when provided in the contract, should be precisely

defined. This precision goes through either a definite size, a percentage of the advertising space

used on the equipment or banner or even a scheme or draw of the area of display. Dominant

sponsor is not per se a definition. For one, it might mean, the bigger sponsor size advertised but

it might mean at least 50% of the area of display to one else. Detail in such a case is necessary to

avoid issues. "Dominant" could be defined in a contract as 80% of a banner size, for instance.

The concept of competition should also be developed in a sponsorship contract. Usually,

exclusive sponsorship agreements do not grant general exclusivity all kinds of goods or services.

It is very unusual for a sponsor to require full exclusivity over every product. The typical

exclusivity provisions concern competitive products or services. It is important thus to define

which market ares, products or services are in competition with the ones listed in the agreement.

Practically, a sponsor specialized in the food industry would only want to exclude other sponsors

related to food industry or beverage, for instance.

As the concept of competition emphasizes, exclusivity is the main core of conflictual

aspect between the parties to a sponsorship agreement. Without exclusivity provisions, most of

the litigations would not arise.

C) Conflicts between licensors and licensees arising from exclusivity

Problems arise when sponsorship rights overlap, but it is especially the case, concerning

exclusivity. As stated before, exclusivity is the epicenter of conflictual sponsorship agreements.

Litigations arising from exclusive conflictual agreements take different forms. They can involve

different parties each on with his sponsor. The example of skiing is developed to picture one of

the most complicated conflictual situation possible. Finally, it can even be a matter of exclusivity,

only toward competitive sponsors.

1- Parties at stake

In a sponsor agreement, most of the time, two parties are involved. Thus, in sports,

several kind of sponsorship agreements are possible, three of them being the main ones. The first

one would be an agreement between a federation, a league or a promotion and sponsor. The

second one being between a team and a sponsor. The last one would be an agreement between an

athlete and a sponsor. Now, these kind of agreement are not multipartite, but the different actors

do conduct business together. In other words, most of the time, the sponsors are not bound to

each other and the sponsorship agreements are not binding one to another. But an athlete, a team

and a league are bound one to another through other bodies of law than sponsorship, mainly

contracts law or sports regulations. What happens with these different relationships in regard to

sponsorship agreements?

Hypothetically, if an athlete contracts a sponsorship agreements with sponsor 1, a team

contracts a sponsor agreement with sponsor 2 and a league contracts a sponsorship agreement

with sponsor 3. What is contracted in such agreements?

It has been developed earlier that a sponsorship agreement is a licensing agreement16.

Contractually, a reference to the elements of a valid contract imposes itself, more precisely the

focussing on consideration. Consideration is "any benefit conferred, or agreed to be conferred,

upon the promisor, by any other person, to which the promisor Is not lawfully entitled, or any

prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time

of consent lawfully bound to suffer, as an inducement to the promisor"17. Consideration in a

sponsorship agreement is the promise from a sports actor (athlete, team, league...) to advertise a

sponsor (name, brand...) in exchange for compensation. In other words, the sponsor uses athletes

image rights to have visibility and ride off on that to sell more products or services. The

compensation in such an agreement can take different forms, it can be in nature through

equipment granted to an athlete in exchange for the use of such equipment with the apparent

brand on it serving advertisement purposes. It can also be, in a simpler manner, money in

exchange for the right to advertise. Consideration is granted for advertisement purposes, but it

gets tricky when exclusive advertisement is needed. There is not only an obligation to grant

visibility to a sponsor but to be the only sponsor (whether it would be the only one as whole or

for designated services or industries). In overlapping bilateral agreements, the exclusive

advertisement obligations pending on the different sports events actors, can create litigation

when one exclusivity obligation breaches the other one.

Moving back to the case between Sponsor 1, 2 and 3, is important to understand different

relationship in regard to sponsorship agreements. Let's imagine every one of the sponsorship

agreements deals with equipment or clothes goods. Legally, from a general perspective, nothing

16 infra note, introduction17 What is CONSIDERATION? definition of CONSIDERATION (Black's Law Dictionary), THE LAW DICTIONARY (2011), https://thelawdictionary.org/consideration/ (last visited Dec 09, 2018) - CHANGER authority

prevents the different sponsors from being labelled on the same goods. But contractually an

obligation of exclusivity might lead to litigation in case the same property right is granted over

the same products or services. The team has a contractual relationship with the athlete, who has a

contractual relationship with the league, whereas the team also has a contractual relationship

with the league. If each one has a different sponsor, the triangular contractual relationship should

be preserved from each other as there are usually provisions preventing from conflicting with the

sponsor of one another. Let's assume the contractual relationship between the athlete and the

team provides the athlete should not conflict with the team's sponsor, but also that the contractual

relationship between the athlete and the league provides the same clause. If Sponsor 2's contracts

for exclusivity over goods also provided in Sponsor 1's contract, whereas Sponsor 1's contract

provides for exclusivity over other goods also listed exclusive in Sponsor 3's contract but not

Sponsor 2's contract, which contract prevails? Apparently, none, unless priority provisions might

be included in the different contracts, but also such priority clauses might conflict each other if

there are several. It seems, the only ground would be liability for breach of contract could grant

damages to the affected party. But it seems complicated to sort out, which clause should be

enforced without asking a Court to sort it out. Basically, in such a case, the athlete, contracting

with Sponsor 1, might have to pay damages both to the league and the team.

Such a paradigm has to be analyzed through a true example of sports to be understood

and to understand when it is the most complicated.

2- A hypothetical example of one of the most complicated sponsorship situation possible

To understand the above stated example involving Sponsor, Sponsor 2 and Sponsor 3,

skiing might be an example easy to understand. If a ski athlete grants exclusivity over his full

equipment to a Sponsor, 1 a team grants exclusivity over the team's helmet to Sponsor 2 and the

league grants exclusivity over clothing to Sponsor 3. Let's assume there is in the contractual

relationship between the athlete and the league a mutual agreement to not conflict with prior or

contemporaneous sponsorship agreement, there is the same mutual agreement in the contractual

relationship binding the athlete and the team, but also the same mutual agreement between the

league and the team.

If the goods sponsored are defines, full equipment includes diverse things, such as

helmets, jackets, skis or clothing includes jackets and shoes. In such a case, helmets exclusivity

conflict between contracts with Sponsor 1 and contract with Sponsor 2. But shoes exclusivity

also conflict between contracts with Sponsor 1 and contracts with Sponsor 3. It is impossible to

know which contract prevails, as parties all have a mutual agreement not to conflict in terms of

sponsorship. Technically, they could all claim damages to the other one, really complicating the

situation. Without a Court, that kind of situation would be impossible to sort out.

When there are sponsorship exclusivity provisions and the goods or services governed by

the exclusivity overlap, it is very complicated to enforce any of the contracts. That is why some

legal tools should be thought of prior to the agreement to try to foresee and prevent such

situations. It is easy to see whether equipment or clothes violate exclusivity provisions in a

sponsorship agreement. But sometimes, it is a little bit harder when it comes to the quality of the

company or its market area, to prevent a party from contracting with a competitive company.

This is especially difficult for big corporations with very diverse activities.

TROP VAGUE + RAJOUTER DESSINS

3- Non competitive companies clauses

A company would want to prevent a licensor from granting sponsorship agreement from

its licensor, to another licensee who would be a business competitor. The idea is that it might

tarnish its visibility while advertising through the license granted. Usually, some famous

companies are non exhaustively listed in the sponsorship agreement. Over that, there is no

inference to make to deem that two video games companies are competitors. But sometimes a

company is not a competitor at first, but becomes it after a merger which can bring litigation.

Going further, some companies are sometimes competitors with prior sponsorship rights

contractually acknowledged by the junior sponsor, but a merger or an acquisition might change

the name of the senior sponsor and lead to litigation from the junior sponsor. That is what

happened in the AT&T v. NASCAR case18, there are many reasons for a sponsor to want to

prevent undesired competing companies from sponsoring its licensor.

The AT&T case involved NASCAR's Nextel Cup sponsorship. The telecommunications

company, Sprint Corporation became the sponsor of the 2003 edition of the Nextel Cup, after it

merged with Nextel. Sprint acquires Nextel's exclusive rights as a telecom sponsor for NASCAR

competitions. The agreement provided a non competition clause in the area of

telecommunications, more precisely, over "wireline and wireless telecommunication services,

local and long distance services, wireless services"19 and "associated equipment" such as mobile

phones20. In the agreement, a clause was authorizing individual cars to have a different sponsor,

the car team, the licensor, would have a senior sponsorship agreement. RCR, a NASCAR team,

18 AT&T Mobility LLC v. NASCAR, 494 F.3d, 1356 (11th Cir. 2007)19 Ibid 20 Ibid

and Cingular, a telecommunication company had a sponsoring agreement over car No. 31 for

NASCAR competitions. Car No. 31 would display "Cingular" on its coach-building. Such

agreement was set prior to the Sprint and NASCAR agreement. Later, AT&T acquired Cingular

and wanted to change the "Cingular" name on car No. 31 since the brand was set to be phased off

the market. Sprint objected and asked NASCAR to enjoin AT&T from doing so, on the ground

that the anterior rights of Cingular could not pass to the successor. NASCAR agreed with the

decision and required AT&T to display "Cingular" and not AT&T. AT&T went to Court to try to

enjoin NASCAR to allow AT&T to be advertised on car No. 3121. The U.S. District Court for the

Northern District of Georgia, granted a preliminary injunction to NASCAR, to allow AT&T to

be displayed on car No. 31. The Court referred to the third party status of Georgian law, as AT&T

although owner, was considered third party in the matter, as the contract was pre-existent to its

ownership. Under such a doctrine, a third party has to have sufficient standing in order enforce

RCR contract with NASCAR that the contract was in its benefit22, incidental benefit not being

sufficient. The Court ruled in favor of AT&T in this matter, as RCR made the promise to

“preserve and protect”23 the agreement between Cingular and RCR no matter which provisions

might be included in another agreement. AT&T could benefit from the third party status. The

Court then stated that "given that the Cingular brand was being phased out of the market on all

fronts, no claim of consumer confusion existed in the granting of the injunction and hence, no

real public interest was at stake"24 thus AT&T could advertise.

The 11th circuit, reversed the District Court over the Georgian third party status25. The

21 AT&T Mobility LLC v. NASCAR, Inc., 487 F.2d 1370 (N.D.Ga.2007).22 J. Cobbs, Legal Battles for Sponsorship Exclusivity: The Cases of the World Cup and NASCAR. Sport Management Rev.14, 287-296 (2011)23 AT&T Mobility LLC v. NASCAR, 494 F.3d, 1356 (11th Cir. 2007)24 J. Cobbs, Legal Battles for Sponsorship Exclusivity: The Cases of the World Cup and NASCAR. Sport Management Rev. 14, 287-296 (2011)25 AT&T Mobility LLC v. NASCAR, 494 F.3d, 1356 (11th Cir. 2007)

Court established that the contract between RCR and Cingular was intended to the benefit of

RCR, rather than Cingular26. The Court found that under the senior clause of the contract, RCR

was entitled to continue the sponsorship agreement as a right but not as an obligation to maintain

or renew its current sponsorship agreement, making AT&T an incidental beneficiary. That is why

the Court ruled in favor of NASCAR. Nevertheless, AT&T petitioned for a $100 million

counterclaim. NASCAR and AT&T finally settled the dispute by allowing AT&T to advertise car

No.31 for the 2008 season only, in order to avoid consumer confusion because of the phasing off

the market of Cingular27. AT&T finally dropped the claim28.

If the scope of sponsorship agreements is set out, a study of a factual sport sponsorship

structure like the olympics can highlight the practice in the area.

II. THE CASE OF THE OLYMPICS: LIGHTLY REGULATED SPONSORSHIP AGREEMENTS

A. The existing kinds of regulations

Regulations concerning sponsorship agreements differ from one sport to another.

Depending on the sport involved in a litigation, different sets of rules will apply. Yet, some are

very regulated, some others are lightly regulated.

1. The most regulated sports

26 Ibid27 Ibid28 M. Barnett, S. Smith and S. Horvitz, Law 360, (last visited Dec 9, 2018) available at https://www.law360.com/articles/35879/ever-expanding-exclusivity-at-t-v-sprint-nascar

The most regulated sports, when it comes to sponsorship agreements, are the one with a

mixed set of regulations. Regulations in this case come from different sets of law, the contractual

issues are topped with unions regulations, leagues' regulations, national governing bodies.

Basically, such regulations implies different bodies of law with intellectual property for the

image rights part, labor law concerning unions regulations or even sports law in the case where a

sponsor might infringe disciplinary issues.

The most famous sports in the U.S. falls under that category, such as NFL, MLB, NBA

etc. The whole set of regulation is set to avoid litigation, but it most likely favors athletes, as

sponsorship revues in such sports are the highest ones. As these sports have such a high level of

regulations and they operate under a frame stricter than purely contractual issues, they are not

least regulated sports sponsorship agreements. These sports will not be developed in this

reasoning.

2. Lightly regulated sports

Lightly regulated sports usually only involve promotional or organizational compliance

on top of contractual issues. Basically the league or promotion sets guidelines concerning

sponsorship issues. Although it exists in most of the sports, the scope of such guidelines can be

pretty narrow or left quite broad.

Most of the time, sports regulate through fuzzy guidelines, rather than precise and

definite regulations. Also it concerns more image rights or sponsor placement over the athletes,

leagues, equipment or facilities, rather than true and defined guidelines over the substance of a

sponsorship contract. The example developed for such a sports category is Olympics. Because of

its structure concerning mostly amateurs, or professional playing as amateurs for such events,

labor law can be waived. As an olympian is not an employee, there is no room for unions or

labor law. On the other hand, the governing bodies of the Olympics grant blurry sponsorship

guidelines. Such a sport is then regulated through contracts law, intellectual property and, on a

lesser part, governing bodies regulations. That makes it a sport more lightly or semi-regulated

rather than highly regulated.

B. Olympics's guidelines of sponsorship agreements

1. Legal structure of the Olympics

To fully understand the case of the Olympics, it is essential to analyze its structure. The

Olympic governing bodies are the IOC (International Olympic Committee), the USOC (United

States Olympic Committee) and on some aspects, the athlete's teams, usually, referred to as a

sport, such as the ski team, the wrestling team etc.

The IOC rules over the international events only and sets general standards such as

eligibility or age of the competitors, among other subjects. Basically outside, the general

standards, they rule over two weeks every two years, once for the Summer Olympics and once

for the Winter Olympics. The USOC rules over national olympic events and standards leading to

the international events. In other words, they organize the year-round tournaments, they decide

over the process of selection of the athletes and rule also over sponsors for the events they

govern, most of the times, the regional and nationals trials or regular season of a sport.

To understand how the Olympics operate, it is major to understand the status of the

athletes, especially considering the notion of amateurism. Until 1974, it was mandatory for

athletes to be amateurs, in other words not to be employees for their sports activity. Since 1974,

it has been made possible for teams or NGBs to introduce professional athletes, when the IOC

waived the notion of "amateur" athlete from its Charter. This is what happened for several sports

such as soccer, tennis, basketball. As stated before, the IOC rules over international events only29,

thus it is necessary to refer to National Governing Bodies, to fully understand which kind of

athlete is eligible and under what conditions. In its founding text, USOC defines eligible athletes

as "any athlete who meets the eligibility standards established by National Governing Bodies or

Paralympic Sports Organization for the Sport in which athletes competes"30. Instead of referring

to the status of the athletes, USOC decided to opt for a structure "amateur sports organization31"

or "incorporated as a not-for-profit organization in the United States"32.

From that observation, whether professional athletes would be eligible for the Olympics, differs

not only from one country to another, but also from one team, and the sport it represents, to

another. It is easy to understand why it would be very tempting, money wise, for an NGB to

introduce athletes with very lucrative recognition in their sport.

2. Olympics structure and guidelines regarding sponsorship agreements

Differences between each sport and nation can be seen pretty easily. A comparison

between different countries and sports is very significant of such an observation. The U.S.

basketball team and the French olympic soccer team emphasizes these differences.

Basketball and Soccer are worldwide shining sports, whose higher stars have quite

similar worldwide famousness. The French olympic soccer team does not prevent pros from

participating for the IOC's events, but limits the age of the professionals to athlete under 23 years

old33 for all the players but three. For instance, among the 2018 world champion French team,

around two third of the team would not be eligible for the Olympics. If we compare to

29 infra note, intro30 USOC Bylaws of 2018, § 1.331 USOC Bylaws of 2018, § 1.3(e)32 USOC Bylaws of 2018, § 8.12(b)33 Regulations for the Olympic Football Tournaments Games of the XXXI Olympiad Rio de Janeiro (2016), Art. 13.4

basketball, there no such restrictions. Only contractual provisions from NBA franchises can

prevent players from representing the national team for the olympics. There are usually a limited

number of superstars under 23 years old in professional sports, as it takes time to build image

and reach a certain level of greatness. If we take the example of Lebron James playing for the

Olympics, even in soccer, the most popular sport in the world, there is no 23 years old superstar

of the level of notoriety of James in the world. It is easy to see why some teams would want to

include these athletes as they might get some profit from the recognition of such athletes, using

the image and promotional rights of such athletes, in order bring attention to the sport and then

attract higher sponsors. In the end, that attraction arises not only from the status of the athlete per

se but also over the conditions of eligibility between two sports allowing professional athletes.

USOC guidelines define how athletes can be paid. The text lists several kinds of

sponsorship relationships. On one hand, it refers to the relationship between sponsors and teams,

on the other hand, it refers to the relationship directly between the USOC and sponsors. The

USOC bylaws provide that NGBs have the obligation to "actively seek, in good faith, to generate

revenue, in addition to any resources that may be provided by the corporation, sufficient to

achieve financial sustainability34" in order to be in "good standing with the [USOC]

corporation35". Factually, it is through that obligation that the USOC pays for athletes' prize

money ($25, 000 for a gold medal36), equipment and facilities. The USOC directly contracts with

sponsors and finances all the sports on a national level through that. Generally, over having

banner and being able to have vision during national events for the sponsor, the typical sponsor

34 USOC Bylaws of 2018, § 8.7(m)35 USOC Bylaws of 2018, § 8.736 Chris Smith, American Olympians Fighting For $25,000 Gold Medal Bonuses At Rio Olympics, Forbes available at https://www.forbes.com/sites/chrissmith/2016/08/04/american-olympians-fighting-for-25000-gold-medal-bonuses-at-rio-olympics/#5e0f0ece75ce

agreement is for the sponsor to be able to use the Olympics marks and logos to link it with its

advertising, products or services. Basically, it is a "license to use the USOC logos"37 whether it is

the five colored circles or the "Team USA" logos38. The USOC has a lot of worldwide sponsors

in 2018, such as Deloitte, NBC, Nike etc. Moreover, the USOC sanctions "the sponsorship of

international amateur athletic competition held outside the United State39". While the USOC

governing regulations deal with the Committee's sponsor agreement, although vaguely, it is

completely silent concerning sponsor agreements for teams or athletes "that potentially conflict

with USOC corporate sponsors"40.

3. Silent guidelines concerning individual athletes sponsorship agreements

"The USOC may review all matters relating to the continued recognition of a National

Governing Body or Paralympic Sports Organization and may take such action as it considers

appropriate, including, but not limited to, placing conditions upon the continued recognition of

the National Governing Body or Paralympic Sports Organization.41" Such a rule, establishes for

the USOC, control over its sponsors and its signs. But such a rule is silent toward sponsors for

teams and athletes. This means, that as long as it does not violate this rule or any moral or

behavioral rule, teams and athletes are free to contract the way they want, like it is the case of

swimming for instance.

The Olympic swimming team in its Rulebook relates to sponsorship rules in its

37 Leigh Augustine-Schlossinger, Legal Considerations for Sponsorship Contracts of Olympic Athletes, 10 JE8REY S. MOORAD SPORTS L.J 281–296 (2003).38 https://www.teamusa.org/brand-usage-guidelines39 Ted Stevens Olympic and Amateur Sports Act of 1978, 36 U.S. § 220523(a)(4) (1998)40 Leigh Augustine-Scholssinger, Legal Considerations of Sponsorship Contract of Olympic Athletes, 10 Jeffrey S. MooradSports L.J. 281 (2003)41 USOC Bylaws of 2018, § 8.1

"advertising" rule42. The main purposes of such a rule is to define what kind of sign is a sponsor

and what is not, but also to precisely set the number and the size of the said sponsors. The

sponsors referred to as "advertising"43 are divided into three categories: "swimsuits", "caps" and

"goggles"44. Caps have precise guideline concerning the sponsors, in this way, only two sponsors

are allowed with a maximum size of 3.1 sq.in. The rule provides other guidances such as not

considering the logo of a club or team as a sponsor45 or the prohibition of temporary body tattoos

as a sponsor46. In this case, if we go back to the hypothetical situation established before47 there

is little litigation possible as the number and the size of the sponsors are precisely defined.

Nevertheless, the Rulebook deals with the uniform itself. there is no provision as to the moments

short before or short after the swimming. Conflictual aspects might still happen with any kind of

display covering the mandatory equipment. The rules do not address to the timeline of the

sponsor guidelines. Is it only during the swimming? Is it during the whole event? Does that

include media conferences? The rules do not answer any of these questions.

All together, the Olympics set guidelines concerning sponsorship agreements on the

different territorial levels of competition. Rather than substantial guidelines, it is mainly display

guidelines, which are the only precise rules. Rules all together are rather fuzzy or vague and not

uniformed as most of the teams set their own guidelines. This makes of Olympic sports still a

lightly regulated group of sports rather than a strictly regulated one, contrary to the UFC which is

a quite unregulated sport when it comes to sponsorship agreements.

42 USASwimming rulebook (2018), § 102.8(1)(F)(3)43 Ibid44 Ibid45 USASwimming rulebook (2018), § 102.8(1)(F)(3)(a)(1)46 USASwimming rulebook (2018), § 102.8(1)(F)(3)(b)47 infra note, I(C)(2)

III. THE LEGAL WILDERNESS OF SPONSORSHIP

AGREEMENTS NEGOTIATIONS IN THE UFC

Fighting sports are genuinely gambling sports, making them very attracting for sponsors.

Also, they are moving sports, as each event could take place wherever, contrary to Football for

instance that might only take place in the stadium of one of the two teams competing, Boxing or

M.M.A. can happen anywhere, anytime. Because of that, sponsorship agreements have to be

seen through the spectrum of the promotions regulations and policies but also through States

Athletic Commissions.

A. Frame of sponsorship in the UFC

There are no federal or Athletic Commission rules when it comes to sponsorship in the

U.S. Most of the State Commissions are silent over that, at least Nevada is, which is the state

where most of the events take place, because of gambling in Las Vegas. California, which is

probably the biggest MMA state host after Nevada, is the exception though. Over the last years,

California introduced a few regulations over the fighters contracts. California has a set of law

ruling over MMA contracts, with some rules over sponsorship agreements deeming when

provisions violate these rules, making them as coercive provisions, a legal ground for contractual

recision.

The first rule, limits the period of a contract to five years maximum. A contract extending

over five years could be rescinded. This raises a problem though, as fighters sign contract for a

number of fights or events and not for a duration48. This gets tricky when fighters get injured. In

a clearer way, at a high level, the athletes usually fight twice a year if they are medically cleared.

Let's imagine there is a ten fights contract, it becomes complicated when there is a long injury

lay-off and the contract eventually extends over the five years timeline. Another case is when a

fighter lay-out upon retirement clause and comes back. There is no answer to these legal or

precedent specifications over that. Such situations must then be contractually planned in a very

precise way.

The second rule deems coercive the automatic extension of "the term or conditions of the

contract"49. That is when ROFN and RORN come in play to properly prepare for the aftermath of

the contract without infringing such a provision.

The third rule deems coercive to require a party to "negotiate exclusivity with another

party"50. Technically, that would prevent a company from imposing a sponsor. The situation of

the Reebok deal, set as the only outfit sponsor for UFC athletes, will be, in the light of this,

developed in the third part of the research.

The fourth rule is the coerciveness of the "unrestricted rights to use the identity of the

other party"51. In the light of athletes' image rights, it might be problematic. Same might arise for

sponsor. That means that the agreement should precisely describe the use of an athlete image

rights and conceal it to specific areas such as a way of broadcasting, a timeline or a platform.

Such clauses might impact sponsorship in the case where an athlete applies for his/her name as a

mark. The company of the athletes becomes a sponsor and the promotion should be precise while

48 Cal. BUS. & PROF., § 18649 (b)(1)49 Cal. BUS. & PROF., § 18649 (b)(2)50 Cal. BUS. & PROF., § 18649 (b)(3)51 Cal. BUS. & PROF., § 18649 (b)(5)

using a name or a mark in a confusing way.

All together, other than the Californian bill, there are very few federal regulations or state

statutes concerning MMA. We could say there is even not much regulations for MMA at all.

Some states incorporated MMA into the Boxing Commissions, making it an "Unarmed

Combat"52 regulation but there is no federal regulation other than general athletics regulation for

MMA. As a matter of fact, the Ali Act (Boxing federal Act) is still in talk to know whether it

applies or not, to MMA53.

A mere absence of regulation leaves sponsorship agreements to be under the authority of

purely contractual regulations. Up to 2013, athletes were free to contract with any sponsor for

outfits and equipments, to the exception of the gloves. Most of the time, they had sponsors, for

the post-fight octagon interviews, over rash guards, t-shirts, trunks or caps. Pre-fight, they also

had the right to set-up their banners which sometimes displayed a lot of sponsors. But the

absence of regulations or unions is what left the door open for the UFC to set Reebok as the only

outfitting sponsor for its events and turn the former system down.

B. Case of the Reebok deal

1. Background of the Reebok deal

In 2013, Zuffa (UFC's owner) signed a deal with Reebok to sponsor every UFC event,

depriving fighters from the individual sponsors they used to have so far. The Reebok deal set

clauses prohibiting athletes from contracting "outside sponsor logos on athletic apparel during

UFC fight week official events, including fight night, UFC-produced content or other official

52 Nev. Rev. Stat. § 467.01037 (2005)53 E. Magraken, ombat Sports Law, available at https://combatsportslaw.com/2017/11/13/bellator-officially-supports-expanding-ali-act-to-mma/

UFC events54" or stating that "individual sponsor banners will no longer be permitted for the

walkout or inside the Octagon beginning with UFC event on July 11, 2015"55. Starting from such

clauses, the main points of the deal can be developed.

Basically, Reebok becomes the only outfitting for in-competition athletes fighting

equipment (gloves, ankle support) allowed for the promotion's events. The Zuffa/Reebok is

supposed to last for six years, from 2014 to 2020. The provisions are quite focussed on the

events, listing the different kind of events such as UFC Fight Night, UFC pay-per-views (PPV)

etc. The deal also sets a transparent pay for the athletes, starting from $2,50056 per fight for

fighters having fought under Zuffa banner between one and five fights, up to $30,000 for a title

challenger or $40,000 for a Champion57. Clearly, for top ranked athletes, it is less money than

they would make before. It is also a deprivation of freedom of negotiation for non top ranked

athletes, some of them being also models, actors, very much hyped and making a lot of money

from sponsorship agreements before Reebok became a player in the industry. There is no issue as

to whether such provisions would be enforceable for contracts signed after the Reebok deal. The

issue is that Zuffa did not wait for the priorly engaged contracts to come to term before setting

Reebok as the main sponsor. Reebok was enforced straight after the deal, so how did they

manage to do that?

The answer is concealed in Zuffa prior boilerplate clauses containing a standard "entire

agreement clause" set as such: "This agreement sets forth and integrates the entire understanding

between (Fighter) and Zuffa llc (Owner of UFC), and supersedes any and all prior or

contemporaneous written or oral agreement or representations between the parties with respect to

54 E. Magraken, Combat Sports Law, UFC Reebok unifrom and Zuffa contracts, available at https://combatsportslaw.com/2014/12/05/ufc-reebok-uniforms-and-zuffa-fighter-contracts/55 Ibid56 Mike Bohn, Jorhn Morgan, MMA Junkie, available at https://mmajunkie.com/2017/12/ufc-reebok-athlete-outfitting-policy-pay-scale-adjusted-newcomers-receive-bump-in-base-pay57 Ibid

the subject matter hereof. This agreement may not be altered, amended or discharged, except by

a subsequent writing signed by the parties hereto"58. So the clause can be used to supersedes

prior or contemporaneous agreements, but between the parties only. It does not apply to

agreements between one of the parties and a third party. But ZUFFA mixes it with the "Fighter

conduct" provision that states that "(Fighter) agrees that during a bout, or while training for a

bout, as well as during any pre-bout events or post-bout events, neither (Fighter) or any of his

managers, trainers and assistants shall wear any clothing [...] which conflicts with a Zuffa

sponsor"59. Contrary to Car number 31 in the AT&T case60, there is no grandfather clause,

granting the fighters a right to keep their senior sponsorship agreements. Zuffa, thus, did not

have to wait for ongoing individual sponsorship to come to term. Zuffa then, can enforce the

Reebok contract right away, putting fighters in difficulty regarding the respect of the obligations

of their individual sponsorship agreements.

Reebok, although enforced right away as a sponsor, is not technically mandatory. There is

no obligation to wear Reebok but an obligation, preventing from having a conflictual sponsor,

meaning a fighter could wear blank outfit and equipment. But the promotion uses the reality of

the business to leverage a legal tool. Basically, the reality of the business makes that a fighter

would never turn down money for nothing even though it is less than before. Except for a

political protest, there is very limited hypothetical cases where a fighter would opt for blank

outfits. The Reebok deal is thus enforced through such provisions, impacting the reality of the

business.

58 E. Magraken, Combat Sports Law, UFC Reebok unifrom and Zuffa contracts, available at https://combatsportslaw.com/2014/12/05/ufc-reebok-uniforms-and-zuffa-fighter-contracts/59 Ibid60 AT&T Mobility LLC v. NASCAR, 494 F.3d, 1356 (11th Cir. 2007)

Although the Reebok deal seems legally enforceable, it might not be the case confronted

to state legislative initiative, such as the Californian bill AB 2100, stated before.

2. Application of the Californian bill AB 2100 to the Reebok deal

Let's get back to the Californian bill provisions, which set stricter rules for events

happening in California. The first rule states that an agreement should not exceed five years61. In

that case, the Reebok agreement would be rescinded if exceeding five years. So technically, the

athlete would be a free agent and could contract back with his/her sponsor. It is very unlikely that

ZUFFA would contract with them again with their own sponsor, as it would infringe their

agreement with Reebok. Thus, either the athlete resigns with ZUFFA under the Reebok

sponsorship scope, or he goes to negotiate with competition. The second rules is about automatic

extension of the provisions. That means, that there is a systematic need to negotiate at the end of

the contract, no matter what the behavior of the parties would be. Depending on the

performances of the athlete or the hype around him, it is a good moment to negotiate the payroll,

in order to compensate the loss from the Reebok agreement or simply leave to another

promotion. This is a legal tool pretty protective for the athletes. The third rule prevents from a

party to require exclusive negotiation from the contractor with another party. This rule, seems to

contradict Zuffa policy, as it seems like Reebok has been imposed on the fighters. Moreover,

athletes can see their right to negotiate deprived. But the fact that fighters can opt for blank

equipment seems to show there is no legal obligation to wear Reebok outfits. It is rather a

business incentive to convince athletes to wear it. So the Reebok deal does not even seem to

violate the Californian bill. As far as the fourth rule is concerned "unrestricted rights to use the

identity of the other party" is considered coercive. The approach to that rule does not change,

61 Cal. BUS. & PROF., § 18649 (b)(3)

everything should be properly and precisely concealed and detailed in the agreement.

If the deal seems to fit with the California athletic commission rules, it still raises other

problems for the athletes and the promotion.

3. Problems for the fighters

Several problems concern the fighters with such a deal. First, there is a vagueness about

what a "pre-bout" and "post-bout" events62 is. It is not easy to understand when the events are

hosted and organized by the UFC, such as press conferences. But what about other events like

talk shows or podcasts. It is very unclear whether these are part of the obligations of the contract

and whether the individual sponsor of the athlete or Reebok should be worn. For the UFC Fight

Night events, ZUFFA contracted a broadcasting rights agreement with ESPN+63. ESPN TV hosts

sometimes interview fighters, on the set, during or right after the event. There is no clear rule as

to whether this is "post-bout"64 event, if it is considered relevant of Zuffa's provisions. There is

no timeline for before and after the event, nor precise list of the interview.

Another problem concerns the payroll, not favoring most of the fighters. A fighter earns

$20,000 per fight if she fights 21 fights or more under ZUFFA banner. If an athlete can last that

long at such a high level, there is a high probability she is already pretty recognizable in the sport

and she probably makes more than that over outfits, if she could contract with her own sponsor.

Looking at Championship numbers, a Champion makes $40,000 per fight. As an example, Conor

Mcgregor would probably make way more money than $40,000, considering the level of starship

he acquired. An athlete would then have to leverage more money on the fighting revenue, which

62 E. Magraken, Combat Sports Law, UFC Reebok unifrom and Zuffa contracts, available at https://combatsportslaw.com/2014/12/05/ufc-reebok-uniforms-and-zuffa-fighter-contracts/63 Brett Okamoto, ESPN, available at http://www.espn.com/mma/story/_/id/23440573/ufc-espn+-reach-multiyear-media-rights-agreement64 E. Magraken, Combat Sports Law, UFC Reebok unifrom and Zuffa contracts, available at https://combatsportslaw.com/2014/12/05/ufc-reebok-uniforms-and-zuffa-fighter-contracts/

is hard because it is related to PPV sales sometimes. And that is when it represents a loss for the

athletes, as some of them would make more money outside payrolls and PPV cuts. A marketing

image or power is not always linked to PPV sales. The UFC fighter, Georges Saint-Pierre (GSP)

is a big PPV sale, not a huge one but a very solid one. Nevertheless, in Canada he is a superstar,

arguably as big as Wayne Gretzky. Sponsors would give him a lot of money no matter what PPV

sales of his fights are, because his recognition really opens a lot of profit on the Canadian market

for them. Fighters also complain a lot as only superstars can leverage the money lost from the

Reebok deal to the payrolls. Why, talking about that? Because, linked to the problem of the

promotion, who loses fighters to competition because of that, it makes sense.

4. Problems for the promotion

The main objective of a well established sports promotion, is obviously to make money,

but also to maintain a good share of its market. In the case of the UFC, it is to keep its position as

a leader in MMA promotion. The Reebok deal seems to fulfill such purpose, as the promotion is

making profit over goods it was not making profit before. But the real asset for a promotion is to

put up good shows, in other words, good and attractive fights for the audience. But a lot of

fighters are leaving to competitive promotions because of the Reebok deal. Indeed, other major

promotions do not have deals such as the Reebok deal. Losing fighters might not seem like a

good deal on a long term basis, as losing top fighters means losing appealing shows and granting

competition better assets; This is not a good way to secure its position as a leader for the UFC.

There is a lot of risk, overall PPV numbers lowered so far in 2018 compared to the latest prior

years. Some media talk about the end of the PPV era and a market positioning itself on a full

broadcasting rights model. On the other a lot of disappointed fighters talk about creating a union

to leverage better working conditions under collective bargaining. Such a deal raised a sense of

urgency from the fighters wanting to be paid more and fans wanting to pay less. Such factors

would greatly damage the huge margins the promotion operates. Going back to the prior system

in 2020 seems like a solution to restrain such threat and secure the position as a leader on the

market. Such events might greatly jeopardize the leading position of the company, who is far

statistically above competition right now.

Last but not least, such practice from the promotion can lead to anti-trust litigation from

the fighters, because of one-sided clauses in the fighting agreement.

C) UFC Antitrust Law suit

In 2015, many fighters introduced a class-action on the ground of monopoly, against the

UFC. This actions were brought on several antitrust grounds for malpractice, among which some

were directly input to the Reebok deal65.

One of them was the reduced compensation for elite professional MMA fighters. In other

words, the Reebok deal deprived elite fighters from a lot of sponsorship revenue that was not

compensated by the fighting revenue for many of them. Many of them claim to have seen their

salaries drop from the previous years, no matter what the performance or the notoriety might

have been for them since.

Another claim, was that the UFC imposed promotional obligations on their fighters, with

no additional compensation. Indeed, the fighters have an outfitting revenue per fight, but they

have no other compensation for media tours and other official events surrounding fights, whereas

before, they could work it out with their sponsors.

65 Cung Le et al. v. Zuffa, LLC, 108 F. Supp. 3d 768

Another claim was against tolling provisions extending athletes contracts during the

periods of injury and retirement. A tolling clause "relates to the running, or, tolling of the periods

of certain contractual obligations. Typically, the clause stipulates that after a violation of an

obligation [...] the period for which that obligation is in effect will not continue to run, or toll,

until the breach is cured"66. Tolling clauses usually concern non-competition clauses, among

others, which is the case for the UFC anti-trust lawsuit. Such provisions are claimed to extend

the fighters contract during periods of injury and retirement, depriving the fighters from their

individual sponsors in case they would attend to an official event for instance. The Californian

bill67 answered to such an issue with its rule preventing contracts from extending over five years.

It is easy to understand the will of the promotion to avoid granting fighters the chance to use

retirement clauses to circumvent, their contractual obligations and become free agents. If the

contract is not on hold during injuries and retirement and an athlete injures himself one year

before the contractual term, he might be tempted to extend the lay-off a little bit over that year, to

get out of the contract. But if such a provision would be deemed violating antitrust law, it might

be a game changer for the fighters.

The complaint also contains a claim stating that Zuffa is blocking sponsors from working

with fighters through a sponsorship and endorsement clause. In other words, the clause

establishing Reebok as the main sponsors for UFC events blocks other sponsors from working

with athletes. The athletes claim it is antitrust, to deprive them from their individual sponsors,

forbidding cage side banners being one of the most significant, it could be thought of.

The Reebok deal impacted, according to the fighters, sponsorship agreements for the

fighters in many ways, violating antitrust regulations. Zuffa though argued that they are not in a

66 Tolling, Contract standards Public clauses, Contract Stabdards available at https://www.contractstandards.com/public/clauses/tolling-obligations67 Cal. BUS. & PROF., § 18649 (b)(1)

monopoly situation since there is an actual competition, such as Bellator MMA, a company

owned by Viacom Inc. whose value is over $22 billions68 or the World Series of Fighting (now

named the Professional Fighters League, PFL). Another of their argument is that their position as

the most recognized or prestigious MMA organization has been acquired through "business

acumen and hard work, not anti competitive practices69". Factually, the UFC was worth on $2

millions back in 2001 when it was bought by Zuffa70 and was sold in for over $4 billions in 2016

to WME-ING group71, such an argument might be justified. One other strong argument from the

UFC has previously been under anti competitive investigation by the FTC priorly, during the

acquisition of the Strikeforce promotion, back in 2012, and such an investigation was closed

without any charge72. Zuffa sought summary judgement based these arguments.

The case has been consolidated and transferred to the U.S. District Court for the District

of Nevada73 and is still in talk.

Whether or not there is an actual case of antitrust does not change the fact that such a

motion was introduced for the bigger part due to the Reebok deal. Looking at the time line, the

complaint was introduced right of the wake of the deal, in 2014.

Purely contractual issues are the one leading the most to litigation. The model of the UFC

is the most difficult and wild to apprehend, which present the most risks of litigation for both

promotions and athletes. It is the model that needs the most solutions to be offered to.

68 Ycharts, Viacom Inc. Entreprise Value, available at https://ycharts.com/companies/VIA/enterprise_value69 E. Magraken, An overview and analysis of the UFC anti-trust lawsuit, available at https://combatsportslaw.com/2014/12/16/ufc-class-action-lawsuit-filed-court-complaint/70 Chris Isidore, CNN Business, available at https://money.cnn.com/2016/07/11/news/companies/ufc-sold/index.html71 Robby Kalland, Adam Silverstein, CBS sport, available at https://www.cbssports.com/mma/news/reports-ufc-sells-for-4-billion-to-wme-img-dana-white-remains-president/72 Luke Thomas, Federal Trade Commission ends second investigation of UFC, MMA Fighting, available at https://www.mmafighting.com/2015/11/24/9796478/federal-trade-commission-ends-second-investigation-of-ufc73 Cung Le v. Zuffa, LLC, 2016 U.S. Dist. LEXIS 69813

IV. RISK AND SOLUTIONS FOR AN UNREGULATED BUSINESS

The situation of alleged monopoly of the UFC, the antitrust law suit and the displeasure

of the fighters in such a system, because they are considered independent contractors legally, but

they feel in a position similar to the one of employees, all of this could lead to major legal and

business risks for a promotion. Some solutions can be offered though.

A. Risks for sports not regulating sponsorship agreements

1. Free agency: a legal tool threatening and favoring different sports business models for

promoters

The main risk as a business model for a promotion, is to loose the talent of high level

athletes, who represent the main core of the show. Free agency is the embodiment of such

process. In sports law, a free agent is a professional athlete, free of any contract and able to

negotiate with any team or promotion. In Leagues, free agency is not a problem for the

organization, as most of the time, a free agent moves from one franchise to another, staying

within the League. That is at least the case for major Leagues, who keep their assets, being top

level athletes, the high level show, thus the fan base and their market share. Going back to the

case of the UFC, since fighting sports are individual sports, losing an athlete is a loss for the

promotion. A greater of marketable, high level fighters leaving to the UFC, most of the time

because of the Reebok deal, as it is the case for Gegard Mousasi74. Mousasi is one top 10 ranked

74 Damon Martin, Gegard Mousasi explains why he left the UFC to sign with Bellator MMA, MMA Weekly, available at

athlete among many other fighters who left the UFC for competition because of the Reebok deal

such as Rory Macdonald or more recently, Eddie Alvarez. The induction can be made that one

day, losing a top draw like Conor McGregor could toughen up the competition. As it was stated

in III (B)(2), pushing toward free agency might highly jeopardize the position as a leader. On the

other hand, that might be a way to leverage for an up-and-comer promotion.

This situation does not apply to the Olympics though, as athletes are not professional

fighters (at least under under the Olympics banner). It is regulated by countries and NGBs. It also

does not apply to most regulated sports also, as they have a heavy and pretty old set of

regulations in place through Unions and different legislative acts. The main points of sponsorship

agreements rules and distribution of the revenues have been set for a while now

Finally, the raise of requirement for Union in MMA leaves less room to negotiate for

deals as a promoter. It is definitely a constriction a promotion would want to avoid business wise.

2. Other legal risks

The other legal risk than free agency are the one stated throughout the examples of this

paper. Two main risks arises, the first one being overlapping sponsors ending with lawsuit

against athletes and the other one, antitrust law suits.

Overlapping exclusive sponsors is, for a licensor, like selling the same property to

different parties. That is one the highest possible risk in sponsorship agreements litigation. That

is a high risk for the licensor, as his liability might engaged in Court. It is a double liability, since

he would be liable toward both of the sponsors. That is also a business risk for the licensees, as it

might tarnish the kind of visibility they looked and paid for.

https://www.mmaweekly.com/gegard-mousasi-explains-why-he-left-the-ufc-to-sign-with-bellator-mma

Antitrust lawsuits are also big risk for an organization. The main risk is that contrary to

most of contracts law, there is high amount of punitive damages granted in antitrust cases. Over

the risk of a forced change in business model, there is a high cost risk for such business

behaviors. It is very hard for a company to maintain its position as a leader while not violating

antitrust regulations.

Over simple market factors, business models can be threatened by legal tools. Actions,

especially class actions, might be game changers for sports business toward sponsorship policies.

Changing a business model, require to change its legal model, to comply with every regulation,

avoid litigation and thus run a healthy business.

B. Tracks of solutions or prevention of the sponsorship conflictual issues

When you have a sport with a major promotion and one sided collateral terms, there are

only 2 ways to fight them and to guarantee some kind of rights. the first one is create a fighters

association to create a fighters association or push for the legislative answer.

Other than these solutions, the only other way is contractual negotiation, but it seems

pretty hard to leverage anything in reality unless athletes or franchises are top level image

businesses.

1. Practical solutions: contractual tools to keep in mind

Like in any other field of law, in sponsorship agreements, foreseeing a situation is

preventing litigation. Over any other legal solutions, the contractual tools should be the first ones

to think about while negotiating the provisions. Precision in an agreement is a safeguard of

litigation.

Definitions is the first step in a contract of sponsorship agreement. Defining and listing

the products or services categories and the competitors is a key concept. Listing can be pretty

useful as it gives names straight up of products or competitors. Although it helps, such a list

should never be exhaustive, because it is impossible to know every single player on the market,

especially when it is international, and there might still be litigation for breach of the exclusivity

clause afterwards. Defining every concept is essential, like stated before about the example of

"dominant sponsor"75. Business realities make that a lot of time, contractors include general

terms or provisions, believing they both understood the same thing while in fact they did not.

Many dispute arise from failure by one or both sides to understand fully the business and what's

expected for a specific area, thus a specific deal76.

It is also essential to establish what constitutes a default or a breach. Precise listing of

prohibited behavior can allow both parties to fully understand duties and obligations. Adding a

liability clause for every matter might is also a way to circumvent litigation. Sometimes, paying

contractual damages is quicker and less expensive than going to Court.

Specific provisions required by the League or a promotion should also be contractually

addressed. That is an important part of contracts drafting. If an agreement between an athlete and

a league includes provisions over sponsors, it is very helpful to introduce the ones set by the

League toward sponsorships. To avoid triangular legal matters, introducing a reference to n

organization body regulations over sponsorships is important to avoid conflictual contractual

aspects.

2. Intervention of the legislator: Initiative of the Bill AB 2100 in California concerning

75 infra note I(B)(3)76 Steven B. Smith, Adam Brezine, A.C.C., Top Ten Issues in Sponsorship and Licensing Agreements That Are Most Likely to Lead to Disputes and Litigation (2011), available at https://www.acc.com/legalresources/publications/topten/sla.cfm

the UFC

The situation over the Californian bill as been raised before, nevertheless, it odes not

address most of the problems. But in the initial initiative, some provisions were waived by the

Californian Legislature.

One rule of the initiative was to deem coercive unreasonable period of exclusivity for

"future merchandising rights to a promoter"77. Such a rule would greatly impact the Reebok deal

as it sets a period exclusivity over sponsors. Mixed with the other clauses such as the five years

maximum rule78 or the extend retirement clause rule79. The same analogy can be made for

another waived rule, which is "unreasonably restricting"80 a martial artist from outside

sponsorship. Back to the idea of media tours, when does the exclusivity of sponsorship applies.

For instance, the media tour for the Aldo v. McGregor fight lasted 3 months, which is a lot of

time lost for individual sponsors for the athletes, would that be considered unreasonable

restriction? It seems like it might be, since a fighter travels a lot and over the simple time of the

press conferences and video shots, there is also a lot of time spend traveling from one city to

another. It might lead to litigation for the fighter with a very demanding out-of-competition

sponsor. That would also mean difficulties to negotiate individual proper revenue for famous

athletes because of such media obligations. This is completely opposite to the idea of sponsor

based on notoriety, meaning a very famous athlete would be in a position where he earns less

than others because of higher media obligations.

Another waived rule was to deem coercive the requirement for "a fighter to grant or

waive any additional rights not contained in the promotional contract as a condition precedent

77 Cal. BUS. & PROF., § 18649 (b)(1)78 infra note I(B)(2)79 Ibid80 Cal. BUS. & PROF., § 18649 (b)(3)

to the fighter's participation in any contest"81. Such a situation might deprive a fighter over

his/job for sponsorship issues. It seems like the aim of the Californian legislature, was to settle

such matters, mainly through liability clauses and not through depriving a party from being able

to perform the substantial obligations.

Such a legislative initiative is a true example of a first stone toward ruling over the sport,

but it is still very minor in the States. If the fighters want to have even 20% of the rights NFL or

MLB players have, there is a need for more legislative initiatives.

3. Working through collective rights

Creating a union seems a good way to defend Athletes rights. Athletes can reunite to

leverage some guarantees unregulated of lightly regulated sports. This is what happened decades

ago in most of the American major sports. Concerning the case of the UFC, collective bargaining

does not necessarily prevents a situation like the Reebok deal. Nevertheless it might be a tool to

negotiate over the revenue of such a process through different ideas such as lowering the number

of fights under Zuffa banner to get up to $30,000 or $40,000 sponsorship revenue per fight, or

more easily, just raising the revenue in the different outfitting pay categories.

Similarly to other major sports, collective bargaining sets minimum and caps, but also

working conditions. It might also be a way to precisely define the qualification of "pre-event

bout", "post-event bouts" or even negotiate the come back of individual banner. It is a profitable

tool for athletes, but a promotion would not want that, as it represents a huge restriction in the

freedom of contractual negotiation. Every union has to take into account the fact that most of the

unions were created after a common crisis from the athletes, and too many athletes displeased on

81 Cal. BUS. & PROF., § 18649 (b)(5)

a roaster might not be a good move legally and business wise, on a long term basis.

Collective agreements do not apply to the case of the Olympics as athletes do not operate

as professional for olympian events. They are either amateurs, or acting on behalf of non-profit

organization. In such a context, unions or representative institutions for labor purposes can only

be constituted by employees or independent contractors.

CONCLUSION

It has been developed that least regulated sports concerning sponsorship agreements, have

a complete freedom and let place to contractual creativity. If regulations whether from NGB,

sanctioning bodies of an organizations or labor law can help to set a full landscape of the legal

implications restricting sponsorship agreements whether very strictly or in a lightly manner, for

the least regulated sports it is left to purely contractual issues. Such sports embody a minor part

of U.S. professional sports as it mostly concern fighting sports, for the biggest ones.

Through the example of the UFC, setting no regulation over sponsorship agreement

seems to raise the discontent of the athletes on the roaster. The athletes deem their situation

unstable and this discontent, could bring some actions to the detriment of the promotion. A

growing idea for the creation of a union or legislative initiatives might jeopardize a model where

everything is contractually negotiable. The freedom of purely contractual negotiations is a legal

tool very useful for an organization as they can negotiate pays, RORN, ROFN, opt-out clauses or

liability clause the way they want. Freedom for a company is interesting as the purpose is to

maintain the contractual relationship as much as possible when it is beneficial or being able to

opt out in an easier way if the contractual relationship is not so beneficial anymore. Setting other

sets of laws would put more restrictions over such a freedom and would jeopardize that model.

Even though the ideas of unions or legislative initiatives are still baby stepping, this is not a

possibility to deny. Of all the sports with the highest audiences in the U.S., only MMA has not a

full set of regulation over sponsorship agreements. It seems like the idea of taking as example

major sports like professional baseball or football and mimic them is the trend.

The Olympics, establishes a minimum set of regulations, mostly concerning the display

of the sponsors over equipment or facilities. Such minimum regulations, implies that fighters

have designated spaces for sponsor, thus they can look for in competition sponsors. Such a

minimum has been waived out by the UFC with its Reebok deal. It probably was the main reason

of discontent, that highly activated ideas of restriction. Such an overwhelming business and legal

model would be jeopardized with the implementation of higher restrictions. Contractual freedom

would become at this point the origin of such model. It seems like opting for a model at least like

the Olympics, which still grants a lot of freedom for an organization, would prevent unionization

or legislative initiatives, which might very well spread from California to other states or even to

the federal level.