indoorfootballfaninga
09-02-2006, 09:58 PM
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Guy's i had to truncate this email so it would post... I've attached a PDF of the Attorney's complete ruling... interesting material for the Shiver's and Haine's of the world... like I said I would be carefull about who you get in bed with...
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Straight from an attorney about your Franchise right's....
FRANCHISESMITH, L.L.C.
Franchise Law Analysis of National Indoor Football League “Team Participation Agreement”
OVERVIEW
The provisions of the NIFL’s “Team Participation Agreement” create a franchise, within the meaning of the Federal Trade Commission’s franchise disclosure rule and within the meaning of several state franchise disclosure and relationship statutes. Thus, the NIFL is required to comply with federal and state franchise disclosure laws and state franchise relationship and termination laws.
1. NIFL Names & Marks
The first prong of the FTC Rule’s definition of a franchise is the creation of the right to use another’s name, mark, or symbol or the requirement to meet prescribed quality standards related to operations under the marks, names, or advertising of another. In Section 5(B), the NIFL grants the team a “non-exclusive license to utilize the trade name ‘National Indoor Football League’ and all other trade names associated with the League.” Section 6(C) provides the standard that “each team will have the NIFL logo prominently displayed in the same spot on the uniform (to be determined by the League) and on any website maintained by Team.”
Analysis: The NIFL grants to its member teams the right to use and be “identified by” the NIFL’s marks, trade names, and advertising.
Indiana Case:
The state of Indiana had the opportunity to explore whether the Continental Basketball Association (“CBA”) was required to comply with Indiana’s state franchise disclosure laws. In Continental Basketball Ass'n, Inc. v. Ellenstein Enterprises, Inc., 640 N.E.2d 705, 708 (Ind. App. 1994), the Indiana court found, and the Indiana Supreme Court later upheld, that the CBA was subject to Indiana’s franchise disclosure laws.
The CBA argued that because federal courts have recognized that professional sports leagues have some of the characteristics of joint ventures (as in the CBA’s case where the purchaser actually becomes an owner of or investor in the seller) that the legislature did not intend for the franchise disclosure laws to apply to them. The court, however, found that there was no “joint-venture” exemption from the franchise laws and that the CBA fell squarely on the law’s definition of a “franchise;” namely, the CBA licensed out the right to use its name and marks for a fee and the teams agreed to comply with the CBA’s by-laws, operations manual, and its rules and regulations.
Conclusion
The NIFL has violated the FTC franchise disclosure rule and some state franchise disclosure laws. The consequences of these violations must be analyzed on a case-by-case basis vis-à-vis each team owner because of the varying differences in state laws. At a minimum, several team owners potentially have a private right of action to rescind their agreements with the NIFL and possibly receive a refund of initial or ongoing fees paid to the league.
There is a potential that the Federal Trade Commission or state administrators will get involved. State or federal authorities could levy significant fines and penalties, require the NIFL to offer rescission to some or all of the team owners, and require the NIFL to promise that it will not violate state or federal franchise disclosure laws in the future.
To rectify the situation (and pursuant to some state franchise or business opportunity laws), the NIFL should consider a preemptive plan to offer rescission to all current Team owners. Further, the NIFL should plan to either comply with franchise disclosure laws in the future or re-organize its structure to meet any available exemption.
LOOKING AHEAD: POTENTIAL SOLUTIONS
Comply with Franchise Disclosure Laws
To comply with federal and state franchise disclosure laws, the NIFL must prepare a Uniform Franchise Offering Circular, register it with the pertinent state administrators, and provide each prospective team owner with the UFOC at the earlier of their first face-to-face meeting with NIFL personnel or at least 10 business days before they pay the NIFL any money or sign any agreements. This may be the easiest and least expensive alternative.
Modify the League Structure
1) Multiple-Owner Associations
Many sports leagues are multiple-owner associations where an executive committee of owners and a commissioner make decisions for the group. The major decisions are ratified by the owners’ vote according to league Bylaws. Basically, the owners actually own the league and the league’s marks, logos, operations, etc.
Although most major sports leagues follow the multiple-owner association model, there is little judicial precedence as to whether the multiple-owner association is exempted or excluded from state and federal franchise disclosure laws. The CBA case illustrates that at least one state, Indiana (with a prototypical state franchise law), applies franchise disclosure laws to investor-owned sports leagues.
In the CBA case, the CBA teams followed a multiple-owner association model. The teams shared equally in: 1) the distribution of franchise fees from franchisees entering the CBA; 2) royalties, payments and profits from CBA and its affiliates; and 3) all revenue derived from television, radio and broadcasting or any other source. After the CBA teams had paid the full franchisee fee, the team received: 4) a share of designated NBA revenue (from the NBA and its affiliates).
The CBA argued that the initial fee from each team and the “CBA membership” purchased merely covered a part of the CBA’s operating expenses. However, the court held that the initial fees that were shared equally by all the clubs simply offset each club’s share of league expenses that would ordinarily be paid by dues and that all revenue received by the CBA was property of the CBA and not the clubs.
In addition to franchise disclosure laws, there may be securities law issues related to the formation and operation of a multiple-owner association.
Further, the multiple-owner association structure leads to anti-trust and labor law issues. Disgruntled players argue that a league’s rules (such as salary caps, age limits, contract length limits, draft/acquisition restrictions, etc) are “restraints on trade” between competitors that violate anti-trust and labor laws. To avoid this, the league helps the players form a player union that bargains with the teams. The collective bargaining process can possibly provide the league and the teams with an exemption to the anti-trust laws and to help the league comply with labor laws.
2) A Non-“Franchise” Structure
To fall outside the ambit of the FTC franchise disclosure rule, the NIFL would have to eliminate one of the three “franchise” prongs from its structure. This type of structure does not make sense. The NIFL would have to make one of the three following alternations: 1) no name associated with the league; 2) no upfront fees above $500 for the right to participate in the league; or 3) no control or assistance by the league in scheduling, operations, league rules, game rules, marketing, etc.
Any attempt of this nature would have to be analyzed in reference to state “business opportunity” laws that apply in over half the states.
3) Cooperative Association
To meet the Cooperative Association exclusion, the league would have to re-organize its ownership and control. The NIFL would need to be owned and controlled by its member teams on “a substantially equal basis.” The only guidance on what constitutes a “substantial equal basis” is an FTC advisory opinion which deemed a religious bookstore association to meet this definition where it had 82 member bookstores and no person or entity owned more than 3 bookstores and there were only three cases of multiple bookstore ownership (one vote per bookstore).
Neither the league nor its members could not make a profit from any licensing or royalty fees or from the sale of goods and services to member team owners; goods and services offered to league members would have to be done “at cost.”
The FTC has held that a non-profit educational corporation fell outside the rule because it “did not receive any profits from the sale of its services, directly or through its licensees.” The court recognized that it is possible for the directors and officials of a non-profit organization to earn income from the sale of its materials or royalty fees from its licensees
Guy's i had to truncate this email so it would post... I've attached a PDF of the Attorney's complete ruling... interesting material for the Shiver's and Haine's of the world... like I said I would be carefull about who you get in bed with...
************************************************** *********************************************
Straight from an attorney about your Franchise right's....
FRANCHISESMITH, L.L.C.
Franchise Law Analysis of National Indoor Football League “Team Participation Agreement”
OVERVIEW
The provisions of the NIFL’s “Team Participation Agreement” create a franchise, within the meaning of the Federal Trade Commission’s franchise disclosure rule and within the meaning of several state franchise disclosure and relationship statutes. Thus, the NIFL is required to comply with federal and state franchise disclosure laws and state franchise relationship and termination laws.
1. NIFL Names & Marks
The first prong of the FTC Rule’s definition of a franchise is the creation of the right to use another’s name, mark, or symbol or the requirement to meet prescribed quality standards related to operations under the marks, names, or advertising of another. In Section 5(B), the NIFL grants the team a “non-exclusive license to utilize the trade name ‘National Indoor Football League’ and all other trade names associated with the League.” Section 6(C) provides the standard that “each team will have the NIFL logo prominently displayed in the same spot on the uniform (to be determined by the League) and on any website maintained by Team.”
Analysis: The NIFL grants to its member teams the right to use and be “identified by” the NIFL’s marks, trade names, and advertising.
Indiana Case:
The state of Indiana had the opportunity to explore whether the Continental Basketball Association (“CBA”) was required to comply with Indiana’s state franchise disclosure laws. In Continental Basketball Ass'n, Inc. v. Ellenstein Enterprises, Inc., 640 N.E.2d 705, 708 (Ind. App. 1994), the Indiana court found, and the Indiana Supreme Court later upheld, that the CBA was subject to Indiana’s franchise disclosure laws.
The CBA argued that because federal courts have recognized that professional sports leagues have some of the characteristics of joint ventures (as in the CBA’s case where the purchaser actually becomes an owner of or investor in the seller) that the legislature did not intend for the franchise disclosure laws to apply to them. The court, however, found that there was no “joint-venture” exemption from the franchise laws and that the CBA fell squarely on the law’s definition of a “franchise;” namely, the CBA licensed out the right to use its name and marks for a fee and the teams agreed to comply with the CBA’s by-laws, operations manual, and its rules and regulations.
Conclusion
The NIFL has violated the FTC franchise disclosure rule and some state franchise disclosure laws. The consequences of these violations must be analyzed on a case-by-case basis vis-à-vis each team owner because of the varying differences in state laws. At a minimum, several team owners potentially have a private right of action to rescind their agreements with the NIFL and possibly receive a refund of initial or ongoing fees paid to the league.
There is a potential that the Federal Trade Commission or state administrators will get involved. State or federal authorities could levy significant fines and penalties, require the NIFL to offer rescission to some or all of the team owners, and require the NIFL to promise that it will not violate state or federal franchise disclosure laws in the future.
To rectify the situation (and pursuant to some state franchise or business opportunity laws), the NIFL should consider a preemptive plan to offer rescission to all current Team owners. Further, the NIFL should plan to either comply with franchise disclosure laws in the future or re-organize its structure to meet any available exemption.
LOOKING AHEAD: POTENTIAL SOLUTIONS
Comply with Franchise Disclosure Laws
To comply with federal and state franchise disclosure laws, the NIFL must prepare a Uniform Franchise Offering Circular, register it with the pertinent state administrators, and provide each prospective team owner with the UFOC at the earlier of their first face-to-face meeting with NIFL personnel or at least 10 business days before they pay the NIFL any money or sign any agreements. This may be the easiest and least expensive alternative.
Modify the League Structure
1) Multiple-Owner Associations
Many sports leagues are multiple-owner associations where an executive committee of owners and a commissioner make decisions for the group. The major decisions are ratified by the owners’ vote according to league Bylaws. Basically, the owners actually own the league and the league’s marks, logos, operations, etc.
Although most major sports leagues follow the multiple-owner association model, there is little judicial precedence as to whether the multiple-owner association is exempted or excluded from state and federal franchise disclosure laws. The CBA case illustrates that at least one state, Indiana (with a prototypical state franchise law), applies franchise disclosure laws to investor-owned sports leagues.
In the CBA case, the CBA teams followed a multiple-owner association model. The teams shared equally in: 1) the distribution of franchise fees from franchisees entering the CBA; 2) royalties, payments and profits from CBA and its affiliates; and 3) all revenue derived from television, radio and broadcasting or any other source. After the CBA teams had paid the full franchisee fee, the team received: 4) a share of designated NBA revenue (from the NBA and its affiliates).
The CBA argued that the initial fee from each team and the “CBA membership” purchased merely covered a part of the CBA’s operating expenses. However, the court held that the initial fees that were shared equally by all the clubs simply offset each club’s share of league expenses that would ordinarily be paid by dues and that all revenue received by the CBA was property of the CBA and not the clubs.
In addition to franchise disclosure laws, there may be securities law issues related to the formation and operation of a multiple-owner association.
Further, the multiple-owner association structure leads to anti-trust and labor law issues. Disgruntled players argue that a league’s rules (such as salary caps, age limits, contract length limits, draft/acquisition restrictions, etc) are “restraints on trade” between competitors that violate anti-trust and labor laws. To avoid this, the league helps the players form a player union that bargains with the teams. The collective bargaining process can possibly provide the league and the teams with an exemption to the anti-trust laws and to help the league comply with labor laws.
2) A Non-“Franchise” Structure
To fall outside the ambit of the FTC franchise disclosure rule, the NIFL would have to eliminate one of the three “franchise” prongs from its structure. This type of structure does not make sense. The NIFL would have to make one of the three following alternations: 1) no name associated with the league; 2) no upfront fees above $500 for the right to participate in the league; or 3) no control or assistance by the league in scheduling, operations, league rules, game rules, marketing, etc.
Any attempt of this nature would have to be analyzed in reference to state “business opportunity” laws that apply in over half the states.
3) Cooperative Association
To meet the Cooperative Association exclusion, the league would have to re-organize its ownership and control. The NIFL would need to be owned and controlled by its member teams on “a substantially equal basis.” The only guidance on what constitutes a “substantial equal basis” is an FTC advisory opinion which deemed a religious bookstore association to meet this definition where it had 82 member bookstores and no person or entity owned more than 3 bookstores and there were only three cases of multiple bookstore ownership (one vote per bookstore).
Neither the league nor its members could not make a profit from any licensing or royalty fees or from the sale of goods and services to member team owners; goods and services offered to league members would have to be done “at cost.”
The FTC has held that a non-profit educational corporation fell outside the rule because it “did not receive any profits from the sale of its services, directly or through its licensees.” The court recognized that it is possible for the directors and officials of a non-profit organization to earn income from the sale of its materials or royalty fees from its licensees