Sports contracts are another cash flow note niche for note investors
or note brokers.
Sports contracts are employment contracts between
professional athletes and the teams for whom they play.
Generally, when these contracts are negotiated they are
for multiple years and have a variety of deferred payment
obligations payable to the player and his or her agent. What
investors usually purchase are the deferred payment portions
of the contracts.
The challenge in buying the payments from these contracts is
that a majority of the deferred payment clauses are contingent
upon the player’s future performance, both on and off
the field. In other words, if the player doesn’t accomplish the
predetermined goals, the money will not be paid. As an example;
a contract for a football player might be for three years, with a
base salary for each year with a variety of incentive clauses.
These clauses vary based upon the position the athlete plays and,
of course, his status as a player. Examples of these incentives are
things such as total number of passes caught by a specified date,
number of points scored, or winning the division title.
The Major Key to Salability
The first contingency in most of the contracts is that to
receive the salary the player has to make the active roster by a
certain date, usually just prior to the season opener. This
contingency prohibits most investors from purchasing these payments
since the payment is not guaranteed to be paid unless the player
makes the team. No matter how good the athlete is, there are a number
of events out of his or her control which would prevent them from
meeting this contingency. The athlete may be injured in the pre-season
on the field competing or off the field in an automobile accident.
The athlete might become ill or simply decide he just doesn’t want to
play under the terms of his current contract. If the player doesn’t
make the team then all of the other incentive clauses have no value
since the player can’t accomplish any of them without playing.
There are some contracts without many of the above-mentioned
contingency clauses, but these will most likely not be for sale.
The reason is that these so called “guaranteed contracts”
will be with high-profile or “franchise” players who can demand it.
Of course, these players are also the wealthiest and have very little
need or incentive to discount the future value of portions of their
contracts. What would be more likely is that one of the player’s
agents might be interested in selling his or her future benefits
from the contract. A player’s agent normally is compensated by
having the right to receive a percentage of the player’s future
income under the contract. It is important to remember that the
agent’s future payments are subject to the same contingencies as the
player’s.
A majority of the contracts cannot be purchased because of
the above-mentioned reasons. If you read the contract you can
probably determine if there is a portion of the payments
which might be salable. If the seller is reluctant to give you the
contract before they have an idea what you can pay for it, ask the
following questions:
· What is the term of your contract?
· What is the salary portion of the contract?
· What are the different incentive clauses that are in the contract?
· What contingencies do you have to satisfy to earn the future
payments?
You want to ask specifically “do you have to make the team and by
what date?” in order to know the potential from the future
payments.
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Contracts, forms, sample letters, articles and advice from the
experts, most just $1.00 each: www.cashflows.org
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By getting the answers to these questions you should be able to
give your investor enough information so they can give you an answer
regarding their ability to purchase any of the contract payments.
If you have any questions or are uncertain, you can fax the contract
to them and they will be able to give you an answer as to what, if any,
of the payments they can purchase. You will also be putting your
professional foot forward by asking questions that will allow you to
make an informed decision immediately and to get an answer back to the
contract seller very quickly; in most cases, the same day.
The stark reality is that most sports contracts cannot be purchased,
but don’t hesitate to explore the transaction fully to insure you don’t
pass up a valuable opportunity. There are other sports-related guaranteed
payment contracts that are not contingent on income or salary and
that can be purchased. They shouldn’t be confused with “sports contracts.”
Examples of these are settlements due to an injury and class action
settlements. The best known of these is White vs. NFL. This is a class
action settlement in which the National Football League is the obligor
under the settlement agreement where the future payments to the claimants
are guaranteed to be paid annually. These types of contracts can be
purchased in a manner similar to any structured settlement transaction.
If you are presented with a sports-related contract, analyze it completely
to insure you understand what you have. If you categorize it too quickly
you may miss an opportunity!
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