Category: Government

Biden’s Impact on the Industry: The Stadium Subsidy Question

As we near the end of the first month of Joe Biden’s presidency, it may be interesting to investigate further what Biden’s impact on the sports may be. Beyond the previously highlighted potential changes in environmentally-mind legislation, the current administration may invoke impactful financial regulations. 

First, let’s take a look at the existing landscape. In 2017, when players knelt during the national anthem in protest against police brutality, Donald Trump extended his attack on the National Football League to tax policy. He took to Twitter citing the NFL’s “massive tax breaks” and, as a result, highlighted the stadium-subsidies that exist at state and local levels. Some of these subsidies rely on the ability to issue municipal bonds and generate income, which is then exempt from federal taxes, allowing owners to take advantage of cheaper financing. The foundational assumption here is that the federal government shouldn’t indirectly tax local governments on projects that support public infrastructure. However, the delineation of what is in the public’s interest, and therefore can be exempt from federal taxes, lacks clarity. Although most states have restrictions rooted in the Public Purpose Doctrine that bar them from using public money to support private enterprise, the extent to which sports stadiums are in the public’s interest has been a malleable issue. 

The 1954 Supreme Court ruling in Berman v. Parker may help contextualize why this issue is such a debate. In this landmark case, the Court unanimously ruled that the term “public purpose” may be extended to uses that serve “public welfare,” including those private uses that promote “public safety, public health, morality, peace and quiet, [and] law and order.” Therefore, the legal definition of “public interest” is subject to contestation. During the time of Trump’s tweet in 2017, subsidies for sports stadiums had cost the federal government $3.7 billion since 2000 (follow this link for a closer look at which stadiums were financed with tax-exempt municipal bonds). Under this system, fans may even be unknowingly financing the construction of their rival team’s new stadium. Many suggested that Trump’s tweets did not mean much since his administration’s actual tax plan did not reflect the same energy. 

Unsurprisingly, stadium subsidies are a highly contested issue and have received pushback over the years from both the House and the Senate. Furthermore, in 2015, the Obama administration’s budget included a provision aimed at changing how tax-exempt bonds are issued in hopes of dismantling these stadium subsidies. Six years later, and the sports industry continues to benefit from stadium subsidies. For example, the most expensive Minor-League Stadium in history set to become the Pawtucket Red Sox home may cost taxpayers upwards of $150 million.

Another particularly timely example comes from reigning Superbowl Champions and the first team to host their own Super Bowl appearance, the Tampa Bay Buccaneers. To better prepare for a football season during the pandemic, Raymond James Stadium received upgrades to health and safety measures that cost over $10 million of federal funds. Notably, the Florida Supreme Court holds a history of allowing public funding to go towards recreational, entertainment, and tourism projects (e.g., Rowe v. Pinella Sports Auth., State v. City of Miami, State v. Orange County Indus. Dev. Auth, and more). However, this case comes with a bit of a twist since the funds came from the Coronavirus Aid, Relief, and Economic Security (CARES) Act as the upgrades aimed to address public health concerns and decrease infection risk. Some of the upgrades included touchless equipment ranging from sinks and soap dispensers to ticket scanners and credit card readers as well as a new parking lot PA system. However, in an article published last week, The Hill notes that these upgrades were not completed until most of the season was over, calling into question whether fans’ health and safety were the sole priority. 

Regardless, the added layer of the pandemic and CARES Act only complicates the public interest question when it comes to private enterprise related to sports infrastructure. Phil Mattera, research director at Good Jobs First policy resource center, noted last fall, “The Trump Administration is paying little attention to how CARES Act funds are being spent or the track record of the companies receiving the aid.” Although not much has changed in terms of stadium subsidies since Obama’s efforts in 2015, the turnover of administrations in the White House could present new possibilities and restrictions, especially regarding CARES Act fund monitoring. The case of the Tampa Bay Buccaneers and how they have benefited from CARES Act funds highlights the potential for impact on the industry. 

Regarding tax policy, the Biden administration has conveyed that changes are incoming. The official Biden Harris campaign website systematically defines their plans to put more pressure on big corporations. These changes will, of course, affect the wealthiest members of the sports industry, such as team owners and other executives, as they may consider fluctuations in capital gains tax, estate tax, and gift tax when making decisions. Sportico reported in October that the NFL sent out a memo to all executives across the 32 teams reminding them to inform the league of any ownership transactions before the end of the year. Although the league denies that the upcoming election had anything to do with the memo, Sportico emphasized that NFL owners and their families could have saved millions by making changes before the turnover towards Democratic leadership and the tax changes it may entail. Under the Biden administration, there is an increased likelihood that plans to end stadium-subsidies may re-energize.

Jeanette SubkhanberdinaLeave a comment

2021 Preview: Litigation

In this second installment of previewing 2021, I take a look at some of the compelling storylines to follow in the world of sports litigation. As trials now occur virtually, several ongoing disputes are expected to reach resolutions this year, including a six year-old lawsuit against the National Collegiate Athletic Association (NCAA), which will fundamentally rearrange the way college athletes are “defined” and compensated. Let’s take a look at what is on the docket to be decided this year.

NCAA v. Alston
For fans of EA Sports’ NCAA Football, the dream of the beloved video game making a comeback has become a reality following a surprise announcement last week. O’Bannon v. NCAA, a class action lawsuit against the NCAA, Collegiate Licensing Company, and video game publisher Electronic Arts, brought an end to the game franchise in 2014 when college players sued over the unauthorized use of their name, image, and likeness (NIL). A $60 million settlement ended the dispute — and with it — any NIL-related profit opportunities for college players, such as broadcast rights and merchandising. Rather than simply license NIL rights with college athletes, all profiting parties were forced to abandon these lucrative areas of college sports, stemming from the NCAA regulations prohibiting athletes receiving outside compensation. This concept had become known as amateurism. Amateurism has prevented college athletes from profiting from their NIL.

This is just a snippet of the NCAA’s long battle against its athletes and their authority over NIL rights, however a new chapter may be on the horizon. The relevant lawsuit, NCAA v. Alston, is a years-old case that will be making its way to the Supreme Court. Following the Ninth Circuit’s decision in favor of the plaintiffs, the NCAA’s petition for certiorari was granted, meaning the Supreme Court will hear the case and make a final ruling. If the Supreme Court affirms the Ninth Circuit’s judgment, the NCAA rules restricting education-related pay and benefits for college athletes will be stricken down. However, if the Supreme Court goes a different route, a win for the NCAA may essentially grant antitrust immunity to the organization, which would allow it generous latitude in terms of what changes — if any — the NCAA would make to its current compensation structure. The debate over amateurism will take place on March 31st, and regardless of outcome, will have permanent, far-reaching consequences for the future of college sports.

Jeffery Kessler, head attorney at Winston Strawn LLP, will be arguing on behalf of Alston and college athletes as a whole, while the NCAA and its athletic conferences will be represented by a plethora of law firms.

Bryant v. Island Express Helicopters Inc.
Little more than a year ago, the helicopter carrying Kobe Bryant, his daughter Gianna, and seven other passengers crashed, tragically resulting in the deaths of everyone on board. Many of the details are well-known at this point: despite traveling the same route to a girl’s basketball tournament 24 hours earlier, pilot Ara Zobayan became disoriented in the heavy fog that hung over the Calabasas hillside that day and misperceived the helicopter’s final plunge, apparently believing that they were climbing to four-thousand feet shortly before impact. However, what still remains to be determined is the outcome of the litigation against Island Express, Zobayan’s employer and the owner of the helicopter.

Vanessa Bryant, the widow of the Lakers’ legend, brought suit against the helicopter company and Zobayan on twenty-eight counts alleging negligence resulting in the wrongful deaths of the passengers. Island Express attempted to cross-claim the Federal Aviation Administration, alleging that the air traffic controllers had negligently handled a shift change that occurred during the flight, according to Law360. Both Bryant and the federal government have filed a motion to dismiss, which — if granted — would remand the case from federal court to Los Angeles Superior Court, where Bryant is more likely to find a favorable verdict if the case goes to trial. However, both sides must first await the investigation results of the National Transportation Safety Board (NTSB). These findings will determine if the crash was due to a mechanical failure or human error, as previously suspected. The NTSB is expected to announce the release of its report tomorrow on Tuesday, February 9th via livestream.

Vanessa Bryant is represented by Munger, Tolles & Olsen LLP and Robb & Robb LLC. Island Express is represented by Cunningham Swaim LLP and Worthe Hanson & Worthe. The federal government is represented by the U.S. Attorney’s Office for the Central District of California and U.S. Department of Justice

Senne v. Office of the Commissioner of Baseball
The Minor League (MiLB) system of Major League Baseball (MLB) has been a lightning rod of controversy over the past year following the MLB’s decision to cut the number of minor league teams from 162 to 120 — or one affiliate per MLB team for each of the four “levels” of MiLB. Commissioner Rob Manfred has faced backlash from minor league team executives and Congress alike. However, it seems that the MLB’s “120 Plan” not-so-coincidentally comes at a time where the league awaits a verdict on a class action lawsuit that would make the operation of the Minors Leagues exponentially more expensive. Enter Senne v. Royals.

Seven years ago, former minor leaguer Aaron Senne filed a lawsuit against the Kansas City Royals. The litigation has since expanded to include thousands of players — past and present — who are alleging that they have received unlawfully low wages from MLB for their services. These claims include zero compensation for spring training as well as its fall counterpart, both of which are reportedly “strongly implied” to be mandatory. Further, some players even claim to have made as little as $1,100 per month during the five-month regular season, which, assuming a minimum forty-hour workweek, would make their hourly wage $6.875. Of course, this figure falls well below the $7.25 federal minimum wage; however the MLB may already be shielded from this apparent discrepancy.

Hidden on page 1,967 (of 2,232 total) of Congress’s 2018 $1.3 trillion spending bill, the “Save America’s Pastime Act” essentially exempts minor league players from the protections of the Fair Labor Standards Act (FLSA). This legislation meant that minor league players could no longer receive overtime, nor payment for spring training, rendering minor leaguers “seasonal employees” by default. There are many other considerations that fill out this complicated picture, but in short, the MLB’s lobbying for these provisions may signal that the MLB is not expecting the court to rule in its favor. Hence, why eliminating 42 teams – or roughly one-thousand players – will mitigate some of the blow the MLB will face if it loses this case.

The MLB petitioned the Supreme Court to reject the class action on the basis that the claims lacked commonality; however the land’s highest court declined to hear the case. Therefore, the lawsuit will proceed in the Ninth Circuit where Judge Joseph C. Spero has tentatively scheduled a trial for June 2022. However, allowing such an expensive (and contentious) lawsuit to reach trial may threaten the MLB’s most valuable commodity: its antitrust exemption. While a settlement appears unlikely, all eyes are on the league as it prepares for its next move.

The minor league class is represented by law firms Korein Tillery LLC and Pearson, Simon & Warshaw, LLP. MLB is represented by Elise Bloom of Proskauer Rose LLP.

Oliver GreenLeave a comment

Biden’s Impact on the Industry: Sports Venues and the Environment

The Biden administration has repeatedly emphasized its commitment to environmental justice and climate change, generating some hope of increased momentum toward environmentally-minded legislation. For the sports world, this may mean more legislation encouraging or requiring the reduction of organizations’ impact on the environment. Specifically, these changes may occur in the infrastructure and maintenance of sports venues. Currently, there are several ballparks, arenas, and stadiums under construction across the United States. For example, David Beckham’s soccer-specific stadium Miami Freedom Park is scheduled to open in 2022 while the currently under construction multi-purpose Protective Stadium is set to become the UAB Blazers football program’s home later this summer. 

The 1970 National Environmental Policy Act (NEPA) is foundational in environmental policy law. The act requires federal agencies to consider the environmental implications of their proposed actions. These actions may include: decisions on permit applications, adopting federal law management actions, and constructing highways or other publicly owned facilities. Throughout his presidency, the Trump administration conducted several environmental rollbacks that have made significant cuts in the NEPA and affected the building industry. 

Last June, the Trump administration signed an executive order that weakened clean air and climate change regulations in response to the COVID-19 pandemic. The executive order waived parts of the NEPA to speed up infrastructure projects by citing economic arguments in light of the pandemic induced financial crisis. The New York Times highlighted that lawyers and activists questioned the legality of such an order and suggested that the administration used the pandemic to speed up slow-moving actions on their agenda through the regulatory process. These policies also violated the intent of the Clean Air Act of 1970, the goal of which is the regulation of hazardous air pollutant emissions.

Zoning back into the context of sports venues, a number of new arenas have opened over the last four years—the SoFi Stadium in L.A. and the Hard Rock Stadium in Miami, to name a few. Notably, Irwin Kishner, attorney at Herrick, Feinstein LLP, told Construction Dive that environmentally-minded pushback against sports arena construction is not uncommon. For example, when the Chase Center (the new home of the Golden State Warriors) was still in the planning phase in 2016, the project was met with lawsuits from neighboring businesses accusing the developers of violating the California Environmental Quality Act (CEQA). The case lasted over a year until the Warriors ultimately broke land. 

Sometimes, the push back has less of a grassroots nature and comes from other major organizations. For example, last year, Madison Square Garden Group (MSG) filed a lawsuit against Gov. Gavin Newsom and the state’s Joint Legislative Budget Committee over the California Assembly Bill No. 987. The bill fast-tracks requirements for the construction of certain sports and entertainment venues. MSG’s side argued that the new arena would cause “substantial harm” through traffic and pollution and “lightens the burden” on the project developers to meet CEQA requirements.  It’s important to note that the Los Angeles Clippers’ new Inglewood arena would have also been in direct competition with MSG-owned venue, the Forum. The dispute was settled when Clippers owner, Steve Ballmer, purchased the Forum from MSG for $400-million. Although it is difficult to assess whether the construction of any of the projects mentioned above has significantly benefited from Trump-era environmental rollbacks, the sports arena construction domain will be a worthwhile one to observe as the new administration rolls out environmental policies. 

On his first day in office, President Joe Biden signed an executive order on “protecting public health and the environment and restoring science to tackle the climate crisis.” Section 1 of the document lays out Biden’s overarching environmental policy. The policy includes, but is not limited to, ensuring access to clean air and water; limiting exposure to dangerous chemicals and pesticides; holding polluters accountable, including those who disproportionately harm communities of color and low-income communities; and reducing greenhouse gas emissions. Heads of all agencies must review all existing regulations and policies made between January 2017 and today to ensure compliance with Section 1. Additionally, Section 7 of the executive order revokes Trump’s two orders in 2017 that expedited procedures and deadlines for completion of environmental reviews for certain infrastructure projects. 

These new regulations may not present much of a hurdle for some organizations, given the momentum that sports arenas have gained in environmentally-minded efforts. For example, 2020 was also the year during which Amazon joined forces with NHL expansion team Seattle Kraken and the OakView Group to rename Seattle’s Key Arena to “Climate Pledge Arena” and renovate it to be a leader in sustainability. The venture’s goal is to create the “most progressive, responsible, and sustainable arena in the world.” A move that Bloomberg Law highlighted as the “highest-profile pro sports venue naming rights deal to be centered so prominently around sustainability.” The Seattle Kraken’s new home is set to open in the Fall of 2021 and will have the “greenest ice” in the NHL while being a carbon-neutral facility and eliminating single-use plastic completely by 2024. 

Not all sports organizations can partner with multinational tech companies such as Amazon; therefore, resources for plans unaffected by shifting legislation may vary. President of the Green Sports Alliance, Dr. Allen Hershkowitz, notes, “I know from first-hand experience that many environmental initiatives at ballparks and arenas are on hold due to COVID. Teams need revenue from fans in the seats to respond to environmental challenges.” Besides environmental-concerns pertaining to the infrastructure of sports venues, there will certainly be more changes to look out for as more policies roll out.

Jeanette SubkhanberdinaLeave a comment