Commentary

Playing for keeps: Elena Kagan vs. NFL

Supreme Court nominee's antitrust role, the Coyotes' future, and a Mark Cuban lawsuit

Originally Published: May 13, 2010
By Lester Munson | ESPN.com

To some people, "briefs" are what you wear instead of boxers. But not in our Courtside Seat.

To some people, a "related party transaction" happens when it's time to pass the hat and collect the cash for the second keg before closing time. But not in our Courtside Seat.

To some people, a "memorandum of understanding" is … well, even in our Courtside Seat, we can't see how a "memorandum of understanding" might apply to everyday existence. But it sounds like fun, doesn't it? It is here.

Today, we start with …

The Supreme Court of Sandlot Softball

Within hours of her nomination to the U.S. Supreme Court, old photos appeared of a 30-something Elena Kagan playing softball. The 5-foot-3 Kagan, who throws right and bats right, is shown taking a nice stance -- knees slightly bent, back elbow up, bat cocked, choking up a bit -- in a 1993 slow-pitch game between faculty and students at the University of Chicago Law School.

[+] EnlargeElena Kagan
Courtesy of The University of Chicago Law SchoolIn '93, Elena Kagan was hitting softballs. Earlier this year, she took a swing at the NFL's push for antitrust immunity.

The pictures are charming. But don't let the softball distract you. In her most important work in the sports industry, Kagan plays hardball.

In a brief she wrote for the nation's highest court as President Barack Obama's solicitor general in the potentially explosive case of American Needle v. National Football League, Kagan categorically rejected the NFL's plea for immunity from antitrust scrutiny and ripped the decisions made earlier by lower courts in favor of the NFL.

Although Kagan did not participate personally in the arguments to the court in January, hers is the first name listed on the brief, and she was sitting in the front row as one of her deputies, Malcolm L. Stewart, argued her position.

A decision is expected some time before the end of the court's current term in June, well before Kagan -- if she is confirmed as the next Supreme Court justice -- would take her seat.

Her amicus curiae brief in the case was filed in response to the court's request for the government's wisdom. Responding to the NFL's suggestion that team owners are entitled to immunity from antitrust litigation -- a decision that I believe would hurt players, coaches and fans -- Kagan wrote that the league's request for an exemption "should be rejected."

Her brief ridiculed the NFL's suggestion that its application for immunity is based on previous Supreme Court antitrust decisions, asserting that the NFL idea "extends far beyond the rationale" of those decisions. And in a final dismissal of the NFL argument to the court, she wrote, "Such blanket proposals are properly addressed only to Congress," maintaining that the change the NFL wants is so radical it can be enacted only by the legislative branch of government.

Responding to the NFL's suggestion that it is a "single entity" and not an association of competing teams, Kagan wrote that she envisions the NFL enacting a rule that would prevent one team from trying to hire a coach from another team.

Elena Kagan
Jim Watson/AFP/Getty ImagesKagan's brief in the American Needle case represents the government's stance.

"A rule forbidding teams from poaching one another's coaching talent," according to her brief, would "properly be classified" as an antitrust violation and be subject to successful attack by coaches in treble damages cases.

Kagan's written arguments in the American Needle v. NFL brief demonstrate considerable intellectual and analytical firepower. She is clearly a five-tool player in any form of Supreme Court hardball.

That might not be true, however, in her softball career. Three participants in those early-90s faculty-student softball games tell ESPN.com that Kagan fell into the good-hit, no-field category back then. They would not, however, tell that to ESPN.com on the record, for attribution. Like all lawyers, they dream of taking a case to the Supreme Court and arguing before its nine justices. If their dream is ever realized, they don't want to have to answer to Kagan on her softball skills.

Coyote ugly

What are they doing in Glendale, Ariz.?

Last week in this column, I described a deal the city of Glendale made with Jerry Reinsdorf. It was, I reported, a remarkable and precedent-shattering transaction that established Reinsdorf as the greatest dealmaker in sports.

As described in a two-page memorandum of understanding (MOU) approved unanimously by its city council, Glendale agreed to pay $65 million toward Reinsdorf's purchase price of $165 million to buy the Phoenix Coyotes from the NHL. In return for this investment of public money in the purchase of a sports team, Glendale was to receive no ownership interest.

No partnership.

No stock.

No equity.

Nothing.

In addition to helping Reinsdorf with the purchase, Glendale agreed to guarantee $100 million in possible operating losses that the team might suffer during the next five years. Are operating losses possible? They are beyond possible. The team has piled up a total of $300 million in operating losses since 1996 and just lost $25 million in the recently completed season, despite surprising success on the ice.

That's $165 million of public money for hockey from a Phoenix suburb of 246,000. Glendale is, of course, also the site of University of Phoenix Stadium (the home of the NFL's Arizona Cardinals) as well as the spring training home of MLB's Los Angeles Dodgers and Chicago White Sox.

[+] EnlargeJerry Reinsdorf
Jonathan Daniel/Getty ImagesIs Jerry Reinsdorf in or out as the next owner of the Phoenix Coyotes?

Within hours after last week's column was posted, in which I suggested that Reinsdorf had persuaded Glendale to do things that no other city or state had done in the long history of public financing of sports stadiums, the deal appeared to be dead. Reinsdorf and his MOU were "abandoned," according to numerous media reports. Glendale had reconsidered -- according to stories circulating through Arizona, the nation and Canada -- and was starting over.

We at ESPN.com did what we had to do. We took down the column and its assessment of Reinsdorf's MOU.

Glendale was reportedly looking at a new buyer. With the NHL desperate to sell a team it purchased when the previous owner threw the enterprise into bankruptcy, the new buyer was going to be Ice Edge Holdings, a group of former Yale hockey players.

Reinsdorf was out. The Yalies were in.

Or maybe not.

"We have one MOU. It is with Mr. Reinsdorf," said Julie Frisoni, a spokesperson for Glendale, on Wednesday. "We may have another one or two MOUs coming along, but right now we have only one. It is alive and viable."

Reinsdorf is back in?

Maybe.

The other guys are now out?

Maybe.

Where do these reports come from?

"Most of what has been reported about what we are doing has been inaccurate," Frisoni said. "We cannot as a city give day-by-day reports on what we are doing with the Coyotes. We are looking at all possibilities."

But where are these conflicting and occasionally inaccurate reports originating?

Frisoni: "I don't know where they come from. There are groups in Canada that are fiercely interested in what happens with this team."

[+] EnlargeJobing.com Arena
Christian Petersen/Getty ImagesGame 7 of the Western Conference quarterfinals in late April might have been the last NHL hockey in Jobing.com Arena for a while.

She has a point about the Canadians. There are at least two Canadian billionaires, Jim Balsillie and David Thompson, who would be happy to buy the team from the NHL and move it to Winnipeg or to Hamilton, Ontario.

In addition to the generous deals they've made (or not made) with Reinsdorf and with Ice Edge Holdings, the Glendale authorities have now told the NHL that the city will pay $25 million in losses if there is no deal and the NHL is forced to operate the team in Glendale in the 2010-11 season.

While the city is throwing money around in deals to keep a hockey team in the desert, Glendale is cutting staff and reducing library hours to meet a budget deficit of an estimated $14 million. In addition to normal retirements and resignations from a city workforce of 2,000, the city has laid off nine workers and is considering a reduction in homeless-shelter funds and the auctioning of city vehicles.

"They are different funds," Frisoni explains. "The money for hockey is not taxpayer money. It does not come from the general fund of the city. It will come from a 'community facilities district' [CMF] that is authorized by Arizona law."

Not taxpayer money? The CMF is indeed an entity separate from the city. But it is established by action of the city council. It must be approved by voters in Glendale. And it will collect real estate taxes and parking fees to pay for bonds that will pay for the purchase of the Coyotes and the team's operating losses. Some might say it is money that is extracted from taxpayers and is, therefore, taxpayer money.

Whether you use the term "public funds" or "taxpayer money," the Glendale subsidy for the Coyotes will be challenged in court. The Goldwater Institute, an Arizona think tank that specializes in issues of public finance, is looking hard at the Glendale maneuvers and is considering a lawsuit. The Arizona state constitution and a recent decision in the Arizona Supreme Court question the use of public funds for the benefit of private enterprises such as the Coyotes.

Back to the original question: What are they doing in Glendale? Does anyone know? Do the Glendale authorities know what they are doing in Glendale?

The NHL's deadline for a deal to sell the team is June 30. Will we know something by then? Will the next owner be Reinsdorf? Maybe. Will it be the Yalies? Maybe. Will it be someone else? Maybe.

Will the eventual transaction be a terrific bargain for the new owner? Probably.

Both the NHL and Glendale are desperate to make a deal and are clearly willing to consider terms that have never before been part of a purchase of a sports team.

Un-silent partners

Is there anything more limited than a limited partner of Mark Cuban?

Ross Perot Jr., whose life has not been one of limits, is discovering what it means to be on the wrong side of the word "limited." And he is not happy about it.

When he sold the Dallas Mavericks to Cuban in 2000, Perot retained a minority stake in the team in the form of a limited partnership. Cuban took over as the general partner, a typical ownership structure for a sports team that gives the general partner unfettered authority to run the franchise.

There is nothing complicated about the partnership structure, and Perot must have known what he was doing. But as he watched Cuban's team win on the basketball court, he couldn't help noticing that it seemed to be losing on the bottom line.

[+] EnlargeMark Cuban
Tim Heitman/NBAE/Getty ImagesMark Cuban has a thorn in his side in the form of two lawsuits from limited partner Ross Perot Jr.

In a lawsuit filed last summer, and in another lawsuit filed earlier this week, Perot accuses Cuban of "reckless" mismanagement of the team's finances. The first suit attacked Cuban's management of American Airlines Center, the team's arena. The recent suit claims the Mavs lost $289 million over the past nine years, with another $92 million in losses expected by 2013.

Perot asserts that the "long-term viability" of the team is "in serious question."

It's a dubious claim. Cuban, one of the first Internet billionaires, can easily make up the losses that Perot insists are there. Cuban's wealth is of such a magnitude that he could personally guarantee replacement of the losses, or simply put more money into the team. League officials who keep track of the finances of each team are not worried about Cuban or the viability of the Mavericks.

But in the more recent lawsuit, Perot makes potentially explosive charges that could become a problem. Perot suggests that Cuban has indulged in "related party transactions" that have diverted money from the Mavericks and moved it into other Cuban ventures.

Perot's lawyers, the Dallas firm of Figari & Davenport, are very careful in their allegations. They use the legal phrase "based on information and belief" in their descriptions of these financial maneuvers. It's a phrase lawyers use when they think they might be on to something but aren't sure, and want to use the lawsuit subpoena power to gather information that will confirm their suspicions.

Perot and his lawyers claim that Cuban has taken Mavericks money and used it in something called "MLW Aviation," and that he has used Mavericks "tv content, office space, staff, and bartering arrangements" in HDNet, the cable channel Cuban launched in 2001 shortly after his purchase of the team.

If Perot and his attorneys are able in the pretrial investigations and depositions to show that Cuban invested team funds in personal projects, they will put Cuban in an embarrassing position. As the general partner, Cuban owes a duty of fair dealing and integrity to the limited partners, a duty that would be breached if he took team funds and invested them in activities that were of no benefit to the team and the limited partners.

Perot's lawyers have not responded to phone requests and e-mails from ESPN.com asking for details on the allegations. The lawsuit offers neither specific times nor specific amounts in support of the allegations.

Perot wants a state court in Dallas to require Cuban to explain his use of Mavericks money. He wants a detailed look at the team's accounts. And he wants "exemplary damages" to replace the money he claims he has lost as Cuban's limited partner.

Cuban is clearly irritated by Perot's lawsuits. Quickly and glibly, he responded to the later lawsuit in an e-mail to The Dallas Morning News, saying "The biggest mistake I have made with the Mavs was keeping him as a partner. The Mavs are just fine -- except for the time and money we will have to waste dealing with Perot."

Perot's lawyers are familiar with Cuban. They succeeded in nailing him for more than $7 million in an arbitration action for former Mavs coach Don Nelson that they filed after Cuban refused to pay Nelson some deferred compensation.

But with all the assertions and allegations in his two lawsuits, Perot now knows that the more important of the two words "limited partner" is the first one.

Judges tarry over Barry

This update was in last week's Courtside Seat, but it was scrubbed when the Glendale-Reinsdorf follies forced us to take the column down. It's worth repeating, because the situation in San Francisco hasn't changed.

The three judges who are deciding the fate of the Barry Bonds perjury prosecution have been working on their decision for nearly eight months now, a period of contemplation that is more than double the norm for criminal cases in the U.S. Court of Appeals for the 9th Circuit.

After filing the necessary briefs and paperwork last year in accordance with a rigid schedule, federal prosecutors and lawyers for Bonds presented their verbal arguments to the court Sept. 17. The issues presented by the attorneys appear to be relatively simple; they concern a series of rulings by U.S. District Court Judge Susan Illston in San Francisco that barred prosecutors from using positive drug tests, drug calendars, purchase records and other evidence that supported the government's theory that Bonds used steroids and lied to a grand jury about it.

[+] EnlargeBarry Bonds
Kevork Djansezian/Getty ImagesHow is Barry Bonds biding his time? Taking in a Lakers playoff game last month, for one thing.

There was no trial. There was no lengthy record of witnesses and their testimony. There were only a few documents to consider. The briefs and the other papers are minimal, only a fraction of the typical appeal considered by the high court.

But there has been no decision.

In the past 10 criminal cases decided by the judges of the 9th Circuit, the average time between the lawyers' oral arguments and the judges' decision has been 116 days, according to an ESPN.com survey of those decisions. Some of those 10 cases involved voluminous records of trials on charges such as bank robbery, immigration fraud, wholesale distribution of cocaine and child pornography.

It has now been 238 days (as of Thursday) since the arguments in the Bonds case. That's a long time even for the 9th Circuit court, the slowest-moving court in the federal system.

Court officials and judges will not discuss the time spent on the court's decision. They will say only that decisions from the court are posted at 10 a.m. Pacific time each day.

What is taking so long? The three judges making the decision include the most notorious liberal on the nation's most liberal appeals court, another judge known to be left of center and one Republican conservative.

It is difficult to be certain, but the delay might be the result of a split decision, with one of the judges writing a dissenting opinion. Judge Stephen Reinhardt, 78, who is known for lengthy and literary opinions, might be writing another of the opinions that has made him the prototype of the liberal activist judge.

Judicial protocols and courtesies require the three judges to share their thoughts and their writing with one another before they publish their decision.

How long will the process go on? The decision is already overdue. It might be a good idea to check the court's website at 10:05 a.m. PDT each day.

Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.

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