Tuesday, May 03, 2005

When is a contract not a contract -- in the sports industry

Truth. Honor. When one signs their name on a contract, the document represents more then a legal binding agreement. It stands as ones bond, their word that they will live by the terms and conditions of the contract. In the sports world often contracts aren’t worth the paper they’re written on. More often then not athletes attempt to renegotiate contracts. When was the last time a professional sports franchise was asked to contribute 25 percent toward the cost of the building a new stadium but broke that agreement in order to remain in a facility they deemed terrible a few months ago.
Terrell Owens signed a seven-year $48.87 million contract with the Philadelphia Eagles last year. The contract included a $9.6 million bonus. In the National Football League only bonuses are guaranteed and are paid entirely in the first year of the contract. Owens’ contract includes a $3.25 million salary this year.
The Eagles held a mandatory mini-camp over the weekend. Owens was a no show. The Eagles can fine Owens $6,000 per day for missing the mini-camp. A report in Sunday’s Philadelphia Inquirer suggested the team may consider recouping $1.8 million, the prorated portion of his bonus for this year after he missed the mini-camp. According to the Inquirer report, ‘an Eagles source said he believed that both the receiver and his agent (Drew Rosenhaus) knew of the potential for the team to recover just under 20 percent of the signing bonus. The source said the Eagles would soon decide if they would take that course of action against Owens.
Owens hired Rosenhaus in the hope that one of the league's most prominent agents could get the Eagles to rework the seven-year, $48.97 million contract the wide receiver signed before last season.’
Rosenhaus is an agent with a ‘reputation’. Based in Miami, Rosenhaus and his brother spent their early years as agents hanging out in the Miami Dolphins players’ parking lot often ‘allegedly’ attempting to steal members of the Dolphins already represented by other agents.
Putting Terrell Owens and Drew Rosenhaus together is a lot like splitting the atom and adding the needed ingredients that result in an Atomic Bomb, nothing good can take place. Owens may indeed believe he signed a bad contact last year. Rosenhaus’ bluster aside, remains one of the NFL’s premier agents working like a bulldog for his clients. However the bottom line is just that, the bottom line. The Eagles negotiated a $48.97 million contact with Terrell Owens in good faith and while only Owens bonus is guaranteed, the $9.6 bonus represents a significant commitment by the Eagles.
The Eagles have three choices in dealing with Owens: they can renegotiate the contact, trade the disgruntled Owens, or force Owens to accept the terms and conditions he agreed to a year ago. The precedent in renegotiating a contract wouldn’t be unique to the Eagles but nonetheless would send the wrong message to the players they have under contact. Have a great season, no problem we’ll give you a new contact, even if you already have a contact. Trading Owens would be a bad idea as well. The team will never get Owens real value back in a trade, the obvious leverage any trading partner would have being Owens terrible reputation. That leaves option three, force Owens to live by the terms and conditions he readily agreed to a year ago. Owens doesn’t have a great many options if the Eagles force his hand. Owens is likely well aware he’d be forced to payback the prorated $1.8 million of his bonus and lose his $3.25 million salary for the 2005 season. Is Terrell Owens really prepared to give up more then $5 million?
In Canada the economics of operating a sports franchise is very different from how teams operate in the United States. Stadiums and arenas often are paid for with private (non taxpayer dollars) in Canada. In the United States stadiums and arenas are either funded with taxpayers’ dollars or a combination of private and public dollars.
Monday the owners of the Toronto Argonauts walked away from an agreement that would have seen a 25,000 facility built in the city. The teams’ management had contended for several years they needed an open air stadium for their team with a seating capacity of around 25,000. The Argonauts have played in the Rogers Centre (formally the SkyDome since 1989). The teams’ owners negotiated an agreement in good faith with the City of Toronto, the Province of Ontario, the Canadian Government, York University (where the stadium was to be built) and most importantly the Canadian Soccer Association (CSA) to build a $90 million stadium. The football team would contribute $20 towards the cost. Its well worth noting that Toronto’s Air Canada Centre, Ottawa’s Corel Centre and Montreal’s Bell Centre (all home to Canadian NHL teams) where built entirely with private dollars.
The Argos managed to find the needed public support (taxpayer dollars) for their stadium ‘dream’ when the CSA bid for the World 21 and Under World Soccer Championships. The centerpiece of that bid was FIFA (soccer’s international governing body) belief the event would be showcased in a new soccer friendly facility in Toronto, Canada’s largest city and the third largest media center in North America (after New York and Los Angeles). For the CSA the opportunity to host the world class event represented an opportunity to spur the growth of soccer in Canada. While the proposed Toronto facility will represent the cornerstone of the event, seven other Canadian cities are scheduled to host games.
“Our passion is for our team and for our fans,” said Argonauts co-owner David Cynamon. “We want to be in a stadium that can accommodate our growing support, with a fan and family-friendly schedule, and fit with our economic structure.”
Added Argo co-owner Howard Sokolowski, “There is a special responsibility that comes with owning an historic franchise like the Argos. We owe it to our fans and, indeed, to the entire community, to make sure that this 132 year old club continues to prosper and grow.”
Those where the comments the Argonauts owners made in their official release. The entire release unedited appears in Tuesday’s DailyDose. No where in the release did Cinnamon and Sokolowski recognize the commitment they had made to the Canadian Soccer Association or too York University. The agreements they had reached in good faith but agreements they now believe are null and void. The Argonauts release focuses on the benefits of staying at the Rogers Centre, its as if they never agreed to the York University stadium partnership.
The Canadian Soccer Association based in Ottawa, quickly moved into damage control holding an afternoon media conference in downtown Toronto, releasing the following statement: "We are disappointed with the confirmation today from the Toronto Argonauts that they have decided to stay at the Rogers Centre. We have been working for the past 10 days with our partners at York University to ensure the success of a 20,000 soccer stadium for the FIFA World Youth Championship Canada 2007.
Our discussions with both York University and our partners at the federal and provincial levels have been most positive and encouraging. The CSA continues to work toward the construction of the York University stadium in partnership with our stakeholders and looks forward to its grand opening in July 2007 for the FIFA World Youth Championship.”
The University released the following statement: “"At this time we are focusing on updating the project requirements and plans to reflect the decision by the Argos, in order to develop a viable solution," stated Gary Brewer, York's vice-president, finance and administration. "This has been a very time-sensitive project from the beginning. We continue to work to tight timelines and will be dealing with many variables over the coming weeks."
In business successful business people do what they believe suits their interests best regardless of the implications. Businesses make decisions along the lines of what Cynamon and Sokolowski decided to do Monday without any regret nor should they have.
Professional sports is a business and in business you’re goal is to make money, or at the least break even on your investment. However the ‘rules of the game’ are different for sports franchises. Owning a sports franchise has its share of public trust, you’re afforded an opportunity to own a business that when you really come down to it, is owned by the people who support the team its fans and sponsors. Owning a sports franchise can truly be a double edged sword.
If success in sports is at least partially based on one’s reputation then the owners of the Toronto Argonauts and Terrell Owens should take heed and pay attention. They may have damaged the trust people have in their abilities and that may cost them more then they believe they stand to gain by not honoring the contracts and agreements they reached and negotiated in good faith.
For SportsBusinessNews.com this is Howard Bloom