Lloyds of London Sues Marlins: An often-overlooked part of sports economics is the business of insuring large player contracts. All teams insure their large (and sometimes all) guaranteed player contracts in case of injury. A summary of this case: Marlins sign pitcher Alex Fernandez (who helped them win the 1997 World Series) to a lengthy contract on the basis of one good season. Fernandez gets injured and cannot play, but the Marlins must pay this guaranteed contract. Because of the injury, the team makes a claim with Lloyds, who funded the insurance policy on the Fernandez contract.



But, Lloyds claims the team also had the contract insured with Hartford Life Insurance, and made claims with both companies without disclosing the double coverage. Now, Lloyds is suing the Marlins for fraud. The case is set for arbitration this fall. You can read more here.



Hat tip: Business of Baseball Blog (recommend his post).

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Opening Day: Never mind the two-game series in Japan and the made-for-TV game last night, today marks the beginning of the baseball regular season. Opening day has always been one of anticipation and excitement for baseball fans, as all teams have a shot at having a great season and making a play-off run. And as much as some (myself included) may lament the dominance of certain teams in baseball, I believe that at least twenty (and maybe more) teams have a legitimate shot at not only making the play-offs, but also winning the World Series.



Look at the past three seasons. In 2003, the Florida Marlins came from nowhere, capitalizing on great young pitching, a few key free agent signings, and a wise managerial change to defeat the giant Yankees. In 2002, it was the Anaheim Angels coming from nowhere to defeat the Giants and Barry Bonds in a thrilling Series. In 2001, the duo of Schilling and Johnson carried Arizona to a seventh game, final at-bat win. Are the Yankees always good? Yes, but they don't always win.



It seems like a long time until October (and it is-- like most professional sports, baseball's regular season goes on too long) but there is a great deal to look forward to in the mean time. Can the Cubs and red Sox live up to expectations? Will there be a "shortstop controversy" in the Bronx? What young players will step into the spotlight for the first time? Can the teams in Philadelphia, Arizona, Cleveland and Seattle bounce back and make the postseason?



Baseball needs to act quickly to dispose of the steroid scandal -- passing regulations on drug testing so that this story can be moved to the back burner and the country once again can focus on the greatness of the sport. Nothing beats going to the ballpark on a sunny afternoon or turning on a game when there is nothing better to do on a hot summer night. Let's hope this season focuses on the game and new teams continue to emerge as play-off contenders.



For all of your baseball needs, I recommend Only Baseball Matters, Baseball Musings, the Baseball Crank, Sabernomics, and the Business of Baseball Blog. Each of these sites also has links to team-specific sites and other great places for baseball news.



Play Ball!

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Court to Hold Hearing in Clarett Case: The Second Circuit Court of Appeals has agreed to an expedited hearing in the Maurice Clarett case and will hear arguments the week before the NFL draft. While the court did not grant a stay of Judge Scheindlin's decision, the NFL remains confident that the court will rule against Clarett, keeping him out of the 2004 NFL draft.



But what of the other players, most notably Mike Williams, the star USC receiver, who gave up their collegiate eligibility based on the original court's decision. More likely than not, if the NFL wins in the 2nd Circuit, the league will keep Clarett out but will allow Williams and the few other players to continue in the draft. This will save the league countless headaches and legal battles, while still punishing the player that caused all of this trouble. If the league takes a hard-line stance, though, or if it feels allowing even one younger player in will harm its position, then Williams and the others would have to sue for the right to be in the draft. Gary Klein reports, though, that Williams could be successful if he petitioned the NCAA for the right to be reinstated.



The NFL plans to appeal up to the Supreme Court if it loses again. It has said, however, that if players are drafted and then the league wins a subsequent decision, contracts will be honored and players will remain with their teams. If a stay is granted, but the original ruling is subsequently upheld, then the NFL will hold a supplemental draft for Williams and the other players.

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Court Upholds PGA's Right to Real-Time Scores: A unanimous panel of the 11th Circuit has affirmed a granting of summary judgment in the Morris Communications v. PGA Tour case. The case dealt with the issue of whether the PGA Tour could prevent media outlets from selling compiled real-time golf scores to third parties violated antitrust law. The Tour has employees at each whole of its tournaments that collect real-time scores for placement on its website. Once the data is collected and posted, it is made available for dissemination by the news media. The Tour balked, however, at the attempt of Morris to sell the information to a third-party, who then wanted to create a rival website also containing real-time tournament scores.



The court made clear that this was an anti-trust case only, and did not deal with copyright law or the 1st Amendment. The scores are a product, which the PGA Tour has a right to control. The opinion states in part (internal citations removed):

The compiled real-time golf scores acquired through RTSS are not a product that Morris has a right to sell because they are a derivative product of RTSS, which PGA owns exclusively. We agree with the district court that PGA "has a right to sell or license its product, championship golf, and its derivative product, [compiled] golf scores, on the Internet in the same way the [PGA] currently sells its rights to television broadcasting stations."



If Morris wishes to sell PGA's product, it must first purchase it from PGA. Section 2 of the Sherman Act does not require PGA to give its product freely to its competitors. PGA is willing to sell its product to its competitors, including Morris, thereby allowing credentialed media organizations like Morris to syndicate compiled real-time golf scores after paying a licensing fee to PGA. Accordingly, we conclude from the record that PGA has satisfied its burden to show a valid business justification.

Jeff Mishkin, a renowned "sports lawyer" of Skadden Arps represented the PGA Tour. You can read more here.

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NIT v. NCAA: Skip (aka the Sports Economist) links to a story about the NIT, which has filed an antitrust suit against the NCAA. The summary of the lawsuit (as written by the lead attorney for the NIT) is that the NCAA prevents teams from entering the NIT if it receives an invitation to the NCAA tournament, under pain of NCAA penalties.



Dave Gavitt, a former commissioner of the Big East, responded to the story in an article this weekend. His argument is less of a legal one, and more one of common sense and sports:

The model Mr. Kessler promotes of competing tournaments would lead to a chaotic championship selection process, rife with special deals, special payments and competing titles, as has been the case in other sports such as boxing. This, of course, is not what the N.C.A.A. membership requires or demands. In fact, the antitrust lawsuit is merely an attempt by a small minority to force through pressure what it was unable to persuade the majority of the membership to do more than 20 years ago.



Imagine, if you will, a group of sports promoters deciding to put on an invitational tournament at the end of the N.B.A. season and then suing the N.B.A. because the league would not let its best teams participate in the new event. Except for its historical presence, that is exactly what the postseason N.I.T. attempts to argue in its antitrust litigation against the N.C.A.A.



When the players on the 2004 N.C.A.A. championship men's team begin cutting down the nets tomorrow night in San Antonio, they want to know — and basketball fans want to know — that they are the best because they beat the best. A true national champion will have earned that high honor on the court.



That is not a monopoly. That is the difference between an invitational tournament geared to promote basketball in Madison Square Garden and a true national championship.

I agree with the realistic arguments made in the Gavitt piece. Can you imagine the shady dealings that would emerge if teams could jockey for spots in the NIT versus coming to the NCAA? It would only take a few high-profile teams jumping ship (perhaps because of some hefty pay-out guarantees) for the NIT to regain its previous prominence. While this may not seem likely, there are a number of high-profile coaches that could protest a poor seeding, a perceived unfair bracket or a number of other NCAA actions by moving over to the NIT. In addition, the NIT could make under-the-table financial payments to schools or athletic departments. Once again, the players would be the ones hurt, as they most likely would have no choice in the matter and could possibly lose out on their chance to play in the NCAA Tournament.



Legally, though, there may be an anti-trust problem. The NCAA sanctions the NIT, and allows its teams and players to participate, so long as it does not interfere with their own tournament. By seeming to selectively grant permission, there seems to be a legal issue. I do not know a great deal about anti-trust, but perhaps the NCAA could avoid this problem by not sanctioning the NIT. The NCAA should not be forced to sanction events; all of its members are in the association voluntarily and if they do not approve, they could pull out. Many schools threatened to do this in football before the NCAA sanctioned the Bowl Championship Series (a group of games the association does not run). I would love to learn more about this, so please email me or post comments if you have insights.



In the end, there is probably little threat, because almost every team (and definitely all from the 10's down) thinks that they have at least an outside shot at advancing, giving its team invaluable exposure and a chance to play for a championship. This would not be present in the NIT. So, even if the NCAA loses this lawsuit, or settles and changes its rule, the sport should not change greatly. At least I hope not.



Correction: In the original post, I misread the Sports Economist's take on the issue. His quote: "A simple requirement that a school commit to the NCAA tournament if an invitation were accepted would have been sufficient, and lawful." Thus, the key is that once a team accepts a bid to the NCAA tournament, they should not be able to pull out (which makes perfect sense). I have updated the above post accordingly.

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Accountability for Problems in College Sports: Michael Granof, a professor of Accounting at the University of Texas suggests that the theories behind Sarbanes-Oxley should be used to hold university presidents responsible for the athletic scandals occurring in their schools.

The key to the law is accountability. Directors and senior executives must be answerable for what goes on in their organizations. The usual defense of being oblivious is no longer acceptable: senior executives must not only certify to the accuracy of their firm's financial statements, but they must also show that a system is in place to track and control costs.



Big-time athletic programs are often the most visible and high-risk activities of a university. Whether the president of a scandal-ridden college actually knows about any charges of rule violations is beside the point. He should know. Basketball and football programs, after all, are more likely to embarrass a university than its art history department.

I am not sure if this is the answer, but Granof is absolutely correct: there must be greater accountability for scandals that rock college sports. Too many times, athletic directors and coaches are given a free pass, so long as they continue to win. Sarbanes-type regulations may be an over-reaction, but they may be exactly what is needed to ensure the integrity of college athletics.

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Catching Up: Let me tell you, there is nothing more depressing than returning from a week in Texas (sunny, 70s) to cold, rainy Boston (highs in the 40s). After a week off, I will be catching up and posting interesting stories throughout the day. The most exciting news from the break may be the Second Circuit appeals court agreeing to hear the appeal in the Clarett case five days before the NFL draft. More on this and other stories throughout the day.

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