Tuesday, October 17, 2023

What's the Catch?

As fall starts, so does collegiate sports. I recently sat down to watch one of the numerous Saturday college football games and heard the announcers discussing all the money this year’s collegiates were making through their recently sanctioned ability to use their name, image, and likeness (NIL).

This led me to thinking about how these young entrepreneurs are rapidly building their brands and generating income, but at what cost?

A recent article published by ESPN discussed an NIL deal involving current Chicago Bears rookie Gervon Dexter. Dexter signed an NIL deal with Big League Advance Fund in 2022 while attending the University of Florida. Dexter’s deal provided for Dexter to receive a one-time payment from BLA of $436,485 in 2022 in exchange for 15% of Dexter’s pre-tax NFL earnings for 25 years. For Dexter, this means paying BLA an estimated $1.008 million based on his present NFL contract terms ($6.72M over four years).

Dexter is currently seeking to have the contract voided, alleging the contract violates the Florida NIL and agency laws. Sources in the article acknowledge that Dexter’s case is unique and is not the norm for NIL contracts. It is worth noting that Dexter’s contract included examples of how the income provision would work. Still, Dexter’s situation made me think about how important it can be for business owners and entrepreneurs to seek legal advice in the early stages of building their company before committing to investors.

There are three key areas an attorney can help guide an entrepreneur from the onset.
  • Seeking legal counsel can help an entrepreneur recognize and navigate risks early on.

    Having attorneys review contracts can help entrepreneurs fully understand the terms and implications of a binding agreement. An attorney’s review might not necessarily provide the most desirable answer under every circumstance, but it could flag concerns to consider before committing to a lasting arrangement.

    At a minimum, the attorney should be able to determine whether a contract’s terms fall within the bounds of the law. In Dexter’s case, an attorney’s review of his NIL contract and Florida law would have revealed that the agreement was unenforceable under the then Florida Senate Bill 646 law, which prevented NIL contracts from extending beyond a collegiate athlete’s participation in a collegiate athletic program. Legal counsel could have advised Dexter to negotiate a contract that better protected his future earnings and outlined the risks of agreeing to the proposed deal terms. Unfortunately for Dexter, the law was amended in February of 2023 allowing similar agreements to extend past collegiate careers, leaving all of us to wait and see how the matter will be settled.
  • Attorneys can help mitigate financial costs.

    The longer an entrepreneur waits, the more expensive the legal bill. The price of legal guidance can increase substantially when a situation needs to be untangled retroactively. The cost of a preliminary attorney review a contract can be reasonably estimated and straight forward, but litigating an already executed contract will likely entail uncertain legal fees and long-term financial implications. Consider Dexter’s situation: he faces increasing and unpredictable legal fees in connection with trying to terminate his NIL contract, and if is faced with multiple potential outcomes of varying financial impacts.
  • Finally, engaging a lawyer early on can assist an entrepreneur in planning the growth of their business.

    Seeking counsel initially can clarify future steps based on the company’s goals and set a clear path through any legal issues they may encounter. For example, raising capital investment can occur at different stages in a company’s lifespan. Depending on when and where you are trying to raise capital there may be federal and state regulations with which you need to comply. An attorney can guide an entrepreneur to the most advantageous structure to achieve the company’s financial goals. In Dexter’s case, an early review of the proposed BLA contract likely would have revealed the high price Dexter would pay in exchange for the up-front payment from BLA.
All this is to say that entrepreneurs, of any kind and at any stage in their businesses, can learn from Dexter’s story. You do not need to be a young college student to be subject to a “predatory loan” or unfavorable contract. There are talented attorneys out there wanting to help entrepreneurs succeed by navigating risks, easing financial costs, and mapping future business steps. If you are looking to start a new venture, or grow your existing business, Lathrop GPM is here to help clear hurdles to help you achieve your goals now and in the future.

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