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. Private equity has also been involved in the investment in additional assets, such as the real estate surrounding the teams, including stadiums and arenas as well as entertainment districts. Investments in these properties are often done along with teams in public-private partnerships. There have been reports that private equity firms are engaging with college sports as a potential vehicle for new investment opportunities.

Sports Betting 

Sports betting is part of popular sports culture and many states have passed, and are continuing to pass, legislation to legalise 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. There has been a shift emerging in sports betting with the rise in Artificial Intelligence (AI). Centered on predictive analytics, companies are using AI to analyze historical data, player statistics and many other data points to identify patterns and determine game outcomes. Currently, almost 40 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-over-year, in part due to the proliferation of online sports books. Mobile wagering apps allow gamblers to bet not just on the outcome of a game, but also a number of metrics such as specific events within the game and players’ performances.

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 monetise 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.

The ability of college athletes to monetise their NIL has also provided new opportunities for women athletes, in particular NCAA women’s basketball, which is one of the top sports in generating NIL revenue. As time has passed, a landslide of enactment of NIL laws at the state level has continued. The potential collision between state laws, which have expanded on permitted NIL activities and the NCAA has led some to call for federal regulation to provide an NIL framework.

College Athlete Unionisation 

A development in its nascent stage is whether college athletes have the right to unionise. A college basketball team recently voted for unionisation with a service employee union. This unionisation vote opens the door for the National Labor Relations Board (NLRB) to decide whether college athletes can form a union under the National Labor Relations Act. The election took place after a regional NLRB director determined in February 2024 that the basketball players are employees. Notwithstanding that the basketball players were not eligible for scholarships, the director found that the players were given equipment, apparel and an early notice about financial aid, all of which were considered to be forms of compensation. The college has submitted a request for review of the decision to the NLRB.

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, has fluctuated 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. In 2022, the WNBA, a high-profile professional women’s athletic league, completed one of the largest-ever capital raises for a women’s sports property. The ongoing competition for sports programming has also created openings for women’s sports content. The Women’s Sports Network, a streaming service which debuted in 2022, provides continuous coverage of female athletes on and off the field, with original programming, live sporting events, competitions and studio shows modeled after ESPN’s SportsCenter. Equal pay for female athletes remains a major challenge in women’s sports.

Industry Trends 

Team valuations continue in an upward trajectory resulting in an ever-shrinking pool of individual qualified buyers. Key drivers of team valuation growth include:

- the limited number of sports teams;

- sports teams being viewed as “trophy assets”;

- as discussed further below, increased distribution outlets for sports programming; and

- sporting events being the last bastion of must-see live video programming.

Certain US-based leagues have modified ownership regulations to allow new investment opportunities such as multiple party ownership, private equity portfolio fund investments, sovereign wealth and pension funds, family offices, 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.

Sports teams and leagues are working to maximise revenue streams, mine data and provide novel services from increased streaming of programming, which could lead to virtual and interactive technology. There has been an increase in focus and availability in fan engagement technology including virtual reality and augmented reality experiences. The use of AI has become pivotal in the sports world in everything from sports wagering, to more sophisticated training programs to fan experience and interaction. Sustainability initiatives and practices have come into the conversation for both fans and teams ranging from green stadium designs, clean energy solutions and eco-friendly merchandise. The increased focus on diversity and inclusion is also a critical issue in the sports industry.