NATIONWIDE: An Introduction to Sports Law

Chambers Overview

Set forth below is an overview of current considerations, trends and evolving legal issues that are at the forefront of the sports industry.

Access to Capital: Generally, there has been a great deal of competition for lending deals in the sports space. In addition, on the equity side there has been an increase in the SPAC market notwithstanding increased regulatory scrutiny and an increase in M&A deals. There has also been a proliferation of private equity investments in minority interests in professional teams. These options, among others, help a team to bolster its balance sheet and provide liquidity. In connection with drawing on or putting in place a new debt facility, an opportunity exists to ease current financial covenants and draft alternative covenants that provide greater flexibility for the teams.

Sports Betting: Sports betting is part of popular sports culture and many states have passed, and are continuing to pass, legislation to legalize sports betting in varying forms. Such forms include mobile sports betting with multiple sportsbooks options, one mobile betting option, in-person online betting (ie, proximity to brick-and-mortar sportsbooks) and only physical sportsbooks. Some states restrict sports betting to only in-person betting, while others allow both in-person and mobile betting options. Since the start of 2022, over two dozen states permit sports betting in some form. The final outcome is yet to be determined for sports gambling as legalization grows in the U.S. However, New York is one state that approved online wagering for the first time in 2022, immediately breaking records for the most money wagered on sports betting in a single month.

Name, Image and Likeness: The rights of college athletes to be able to financially exploit their own name, image and likeness (‘NIL’) experienced a groundbreaking moment in 2021. This occurred when some new state laws and National Collegiate Athletic Association (‘NCAA’) rule changes provided such athletes, for the first time, with the right to profit by licensing their NIL rights. In the past, NCAA rules prohibited college athletes from accepting any such compensation as a condition of being able to compete as an “amateur.” As these rights develop, allowing college athletes to monetize their success, a new world of sponsorship opportunities will open up from endorsements, custom apparel, releasing NFTs, personal appearances and sponsored content on social media.

Non-Fungible Tokens: Non-fungible tokens, or NFTs, are unique digital assets that use blockchain technology to record ownership. Each NFT has a unique identifier that is recorded on a blockchain database, which acts as a public ledger to verify ownership and transfers. As interest in NFTs continues to increase, NFTs are expanding to new areas and industries. In sports, NFTs have been created for the ownership of video clips, highlights, images of iconic moments and player trading cards. NFTs also provide teams and leagues with additional opportunities to further enhance relationships with fans and allow for real-world applications beyond investment. For example, holders of NFTs may be granted special in-person experiences or discounts on merchandise. NFTs also provide athletes with ways to reach a broad consumer base with their own licensed NFTs, such as athlete designed artwork or images. Players have paired the sale of their own NFTs with the opportunity to meet them in person and attend games. The ability of athletes to continue marketing their own individual NFTs may become a point of discussion with leagues and teams going forward. The NFT market poses risks for both investors and creators. Little regulation currently exists, and it remains to be seen how regulatory authorities will look to assert control over the market. Further, investing in NFTs is speculative in nature with limited historical information to make informed decisions. Valuations, based heavily on demand and scarcity, can fluctuate and the ability of others to create new NFTs poses a risk for value retention. Finally, most NFT purchases are made with cryptocurrency, which imposes risks of its own including price volatility and high transaction fees.

Women In Sport: The evolution of the sports business landscape has created new opportunities for women athletes as well as for women’s sports generally. The WNBA, a high-profile professional women’s athletic league, recently completed one of the largest-ever capital raises for a women’s sports property. The league intends to focus on modernizing its distribution and merchandising strategies. In addition, Nike, a current marketing partner of the WNBA, acquired an equity stake as part of the fundraising, reflecting the new emphasis placed on women’s sports. The ongoing competition for sports programming has also created openings for women’s sports content. This summer will see the launch of the Women’s Sports Network, which intends to provide continuous coverage of female athletes on and off the field. The WSN will cover a range of sports as well as provide original programming and studio shows modeled after ESPN’s SportsCenter. Several women’s sports organizations, including the LPGA, have partnered with the network and agreed to provide content.

Industry Trends: As professional sports have resumed normal operations, numerous trends have emerged indicating the overall health and growth of the industry. As U.S. leagues have modified ownership regulations to allow new investment opportunities, private equity funds have become a novel investment vehicle for minority ownership interests of professional sports. In addition, sports and entertainment venues have, in recent years, paired with and become integral components of mixed-use development projects. Another industry trend has been a rise in streaming services resulting in new ways of viewing sports programming, new industries entering the streaming market and new methods of consuming sports content. The rise in consumer interest in viewing sports on demand has increased since the pandemic. Sports teams and leagues are working to maximize revenue streams, mine data and provide novel services from increased streaming of programming, which could lead to virtual and interactive technology. The increased focus on diversity and inclusion has also become a critical issue in the sports industry.