Protecting Your Signing Bonus
The Importance of Default Provision Language
by
Eugene T. Lee, Esq.
Since the inception of the current NFL Collective Bargaining Agreement in 1993, the amount of guaranteed money in player contracts has grown at an exponential rate. Signing bonuses have accounted for the largest share of these guaranteed dollars. Since 1993, NFL players have received over $8.5 billion dollars in signing bonuses. Over the same period, the number of signing bonuses has more than doubled while the average value of a signing bonus has increased by more than 440%, from an average value of $125,728 through 1992 to the current average of $679,934.
While the numbers themselves tend to paint a rosy picture of the financial windfall enjoyed by all NFL players, they can be misleading without recognizing the adversarial stance taken by NFL teams to counteract their economic impact. With the amount of guaranteed dollars escalating at such a furious rate, NFL teams have been actively looking for opportunities to recapture all or a portion of their signing bonus money for actions taken by players. As a result, for the past several years, teams have been inserting default provisions in almost all signing bonus addenda to their standard NFL player contracts. These default provisions require a player to forfeit and pay back his signing bonus to the team for actions including, but not limited to, his failure or refusal to report to the team, failure or refusal to practice or play, league-mandated suspensions and imprisonment for criminal offenses.
The singular importance of negotiating favorable default provision language with a team cannot be overlooked. Without paying meticulous attention to default provision language in the signing bonus addendum, an agent could potentially jeopardize and put at risk his client’s hard-earned and well-deserved signing bonus money.
In an ideal world, the best possible outcome of any negotiation regarding a default provision would be its complete elimination from the signing bonus addendum. However, the harsh reality of negotiating NFL player contracts in the post-1993 era requires that an agent accept their inclusion and work diligently to reduce and contain their potentially harsh effects.
There are several ways that an agent can minimize the potential risk of default provision language. Negotiating the insertion of “carve outs” in the actual default language represents the most effective method for reducing the risk of signing bonus default. Some examples of “carve outs” would include insertion of the word “voluntary” in any failure or refusal provision (to report, practice or play), inclusion of an injury or death exception for any failure or refusal provision (along with the explicit designation of “injury” to include both football and non-football related injuries), inclusion of a termination of contract by team exception for any failure or refusal provision and inclusion of a force majeure, or “act of God,” (i.e., hurricane, tornado, war, flood, massive power outage, airline strike) exception to any failure or refusal provision. Another method for lessening the risk of signing bonus default would be to insist on a very specific list of actionable offenses by the team such as “repeated violations of the NFL Policy and Program for Substances of Abuse” and “violation of the NFL Personal Conduct Policy for conviction of a felony offense” rather than general language relating to “conduct detrimental to the team.”
Paying careful attention to the actual default payback schedule represents another way to protect your client’s signing bonus. Assuming that a player commits an actionable offense, there are three ways that a team can require payback of his signing bonus. First, the team can require payback of the entire amount of the signing bonus. This is the least favorable payback option for obvious reasons. For example, let’s say that a player signed a four-year contract and received an initial signing bonus of $4 million. Assume that in Year 4 of the contract, the player commits an actionable offense that renders him liable for default. Under this payback option, the player would be required to pay back the entire $4 million signing bonus even though the default occurred in Year 4 (and the player had essentially “earned” the proportionate amount of the signing bonus in Years 1-3). The second payback option is more favorable to the player because it follows an annually pro-rated payback schedule. Under this same scenario, the player would only be required to pay back $1 million of his initial signing bonus because the default occurred in Year 4 and the player was deemed to have earned $3 million of the signing bonus in Years 1-3. The final payback option is the most favorable because it follows a two-tiered payback pro-ration. Under this option, the signing bonus default amount is first pro-rated on an annual basis. Subsequently, the annual amount is further pro-rated on a per game basis (based upon a 17 week regular season). Using our original scenario, assume that the player was suspended for four games in Year 4. Under this payback option, the player would be required to pay back only $235,294 of his original signing bonus (($1 million / 17 weeks) * 4 games)).
Although default provisions have become commonplace in signing bonus addenda, they represent a viable point of contention in contract negotiations, and, if carefully and skillfully negotiated, can protect and secure your client’s guaranteed money for years to come. Their importance should never be overlooked.
Eugene T. Lee, Esq.
Eugene T. Lee is an attorney admitted to the Bars of the State of New York, Southern District of New York, Eastern District of New York and Court of Appeals for the Federal Circuit who specializes in sports, contract and intellectual property law and who serves as CEO and President of ETL Associates, Inc.