TRIPLE A FOR ACTION SPORTS
WHAT ATHLETES, AGENTS, AND SPONSORS NEED TO KNOW ABOUT CONTRACT LAW
What’s more risky than dropping in on a 50-foot wave at Mavericks? Legally speaking, it could be acting as the athlete agent for the guy who’s doing it. California’s law governing athlete agents, the Miller-Ayala Athlete Agents Act, or AAA, is an important, and frequently misunderstood piece of legislation with serious consequences. In fact, it is quite possible for a person to act as an athlete agent – and risk the serious consequences that go along with it – without even knowing they have responsibilities under the act. For industry players, it is important to know what kind of deals is covered by the AAA, and whether they need to be concerned about an agent’s compliance with the act.
The AAA was enacted in 1997 in large part to address the growing problem of predatory sports agents. One of the bill’s sponsors, USC alumni and sports enthusiast Senator Ruben Ayala, was quoted as saying, “I’ve had enough of these unscrupulous agents who offer kids money to sign with them. Under current law, they can get a university on probation or make a kid ineligible to play and nothing happens to the agent. They just move on to the next kid.” The AAA addressed these perceived problems by imposing strict requirements on athlete agents. For instance, the law requires athlete agents to file certain background information with the Secretary of State for public disclosure and to notify potential clients the information is available. While these requirements are primarily designed to protect athletes, they also protect companies considering working with an athlete.
The AAA is filled with pitfalls and its penalties are harsh. For example, the act requires every athlete agent to carry insurance of at least $100,000 for claims that might be brought against them, yet insurance policies or bonds for this kind of liability may be difficult to procure. Also, athlete agents are required to update their disclosures with the Secretary of State within seven days of any change in their disclosure information — such as taking on a new client or revising a fee schedule. Violation of any provision can result in criminal prosecution, civil liability, and forfeiture of any money earned as an athlete agent.
Given the high stakes for athlete agents and the people they deal with, it is extremely important to know whether the act applies to a given contract. Simply put, the AAA applies in two situations: (l) where an agent negotiates directly with an athlete; and (2) where an agent acts on behalf of an athlete to negotiate a deal with a sponsor, team, or other organization for money.
To determine whether a contract is governed by the AAA, the first question to ask is whether an athlete is involved in the transaction. If the deal will require the contracting party to pay some kind of compensation to an athlete, it is likely covered by the AAA and the parties should make sure all athlete agents participating in the deal are in compliance. Another common situation that could raise concerns is when a company sponsors an athletic team rather than the athletes on the team. If the company were to sponsor individual athletes, then the AAA would apply to those athletes’ agents. On the other hand, if the company were to sponsor the team itself, the contract would be enforceable even if the agent acting on behalf of the team had not satisfied the requirements of the AAA. Furthermore, the company’s agents who, for example, assist in obtaining opportunities to sponsor events, or connect with a drink sponsor, or find other marketing opportunities, would not be considered athlete agents under the act. In these situations, where no athlete is involved, the agents who negotiate the deal are not “athlete agents,” as defined in the AAA.
The AAA’s definition of an athlete agent is narrowly tailored to only include persons who negotiate deals on behalf of athletes, but it is broad in the sense that it covers a wide array of deals involving athletes. Unlike acts in other states, which are designed only to protect student athletes, the AAA also extends protection to professional athletes and defines “employment as a professional athlete” broadly to include employment through endorsements in addition to employment in the more traditional “player on the team” sense.
As a practical matter, action sports athletes are often represented by agents who are not familiar with their responsibilities under the AAA. Unfortunately, the AAA is harsh, and failure to know the law is not a defense. Unlike other industries, where sports agents must be “certified,” agents in the action sports industry are not “certified,” so they need to educate themselves. If they fail to comply with the AAA, both the athletes they represent and the companies involved in the deals they negotiate may have recourse against them for significant sums of money.