NATIONWIDE: An Introduction to Sports Law

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. 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. The NFL has the most restrictive rules for team ownership in professional sports. These rules ban private equity investments, public corporations or sovereign wealth funds from owning any shares in the league and its teams. With growing valuations of NFL teams, there may be a barrier to continued growth if the ban on institutional capital remains. Further, certain professional sports leagues are considering placing a limit on the total number of team owners.

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 30 states permit sports betting in some form, with over half of states allowing mobile betting. There is significant growth in sports betting in the US year-on-year, in part due to the proliferation of online sports books. In 2022, it is estimated that over USD70 billion was legally wagered on sports, a reported 70% increase over the previous year.

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. This has led to the formation and growth of entities known as “collectives”, that exist to generate and pool revenue for use in NIL opportunities. As time has passed, a landslide of enactment of NIL laws at the state level has continued, with over 30 states passing legislation. Currently, there are indications that the NIL industry could become a billion-dollar industry, causing many to push for enactment of federal laws to provide uniformity in legislation.

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. 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. The developing security and valuation issues in the broader cryptocurrency market may also cause teams, leagues and other players to reassess their use of NFT, given crypto’s status as a common currency for NFT purchases and the overlapping use of blockchain technology in both crypto and NFTs.

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. While NIL opportunities have been beneficial for women collegiate athletes, NIL collectives have not fully supported women’s sports. 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 and securing new partnerships to continue to grow the sport. 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. The Women’s Sports Network, which debuted in 2022 as an ad-supported streaming service, provides continuous coverage of female athletes on and off the field, original programming, competitions and studio shows modeled after ESPN’s SportsCenter. Several women’s sports organizations, including the WNBA and 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. Team valuations continue in an upward trajectory resulting in an ever-shrinking pool of individual qualified buyers. Key drivers of team valuation growth include (i) the limited number of sports teams, (ii) sports teams being viewed as “trophy assets”, (iii) as discussed further below, increased distribution outlets for sports programming and (iv) sporting events being the last bastion of must-see live video programming. Certain United States-based leagues have modified ownership regulations to allow new investment opportunities such as multiple party ownership, private equity portfolio fund investments, foreign team investments and minor league opportunities. Succession planning in team ownership has become a critical issue, particularly in the NFL. 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. This has also caused an increase in competition among the wide selection of streaming platforms. 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.