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What Lessons Can Businesses Learn from Zion Williamson’s Contract Troubles?
Wednesday, May 20th, 2020
In the Bible, “Zion” refers to the city of Jerusalem or the dwelling place of God. Zion Williamson is named appropriately because he’s expected to be the next superstar to light the NBA.
Williamson is mortal too, because he’s embroiled in a contract dispute, the kind many businesses unfortunately stumble into. Learn from his mistakes.
You’ve probably heard about litigation between Williamson and a sports agency, Prime Sports Marketing. A few days after declaring for the NBA draft, Williamson signed a contract with Prime Sports Marketing for it to represent him in making marketing deals. About a month later, Williamson terminated the contract and signed with another agency. Prime Sports Marketing then sued Williamson for breach of contract.
This litigation made headlines recently because Prime Sports Marketing issued discovery requests to Williamson intended to gather evidence that he received illegal benefits while he was a student and basketball player at Duke.
Williamson argues his contract with the agency was void because it was not registered as a sports agent in North Carolina. Prime Sports Marketing counters that the North Carolina agency law didn’t apply because, it claims, Williamson had foregone his college eligibility by the time he signed the contract. Specifically, Prime Sports Marketing notes he had already declared for the NBA draft and possibly received illegal benefits beforehand.
I’ve read the contract between Williamson and the agency. It’s unusually short – just five pages.
From Williamson’s viewpoint, it’s horrible. It’s missing provisions Williamson should have had. These same provisions are important for protecting any business contracting with a vendor.
The biggest lesson is the language of a contract matters. Many businesses treat contracts like empty rituals. They don’t review and negotiate the terms. They rely upon promises from the salesman that the relationship will be a “partnership.” When a dispute arises, all of that disappears and the vendor will hold you to the details of the contract, which has been written in its favor. Shockingly, even officers of publicly traded companies sometimes sign big contracts without legal review and negotiation.
Let’s examine some provisions Williamson should have had in his contract with the agency but didn’t.
Termination for Convenience. The agreement didn’t allow Williamson to terminate it just because he wanted to – this is called “termination for convenience.” The agreement said it could be terminated only if the other side materially violates the agreement – this is called a “breach.”
Sometimes you have to agree to pay an exit fee to terminate early for convenience, but that would be better than where Williamson is now – facing a lawsuit seeking over one hundred million dollars.
Damages Limitation. Usually the parties to a fair contract agree to limit potential damages so neither party will face a threat of paying exorbitant damages if breach occurs. The parties could agree on a liability dollar-limit liability. They also could agree to exclude certain types of damages, such as lost profits or lost business opportunities.
Liquidated Damages. Sometimes the contract states that some breaches, such as wrongful contract termination, will be resolved by the breaching party paying liquidated damages to the other side. Such damages would be a fixed sum of money, or a sum of money calculated by a formula. This kind of provision gives each party certainty on how certain problems would be resolved.
Mandatory Confidential Dispute Resolution. Williamson’s contract didn’t provide for resolving disputes in a private setting and confidentially. Prime Sports Marketing is implicitly threatening to embarrass Williamson and Duke by making public during litigation any evidence gathered in discovery indicating that he or his family received illegal benefits.
He should have insisted on a provision that requires confidential, private, mandatory mediation, to be followed by confidential, mandatory arbitration if mediation fails. Such a provision would have helped Williamson to avoid the public disclosure of potentially embarrassing information that may be divulged in litigation.
Gatorade used to run a commercial featuring Michael Jordan saying “Be like Mike.” Williamson might be the next Michael Jordan but, in contracting, don’t be like Zion.
Written on May 19, 2020
by John B. Farmer
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