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October 24, 2007

The Ledger Domain

The Impact of the Fantasy Stats Ruling

by Maury Brown

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In baseball parlance, MLB Advanced Media is in the bottom of the ninth with two outs in their legal case with CBC Distribution and Marketing Inc., the fantasy sports company that has been fighting for the rights to use player names in conjunction with their statistics without paying a fee to MLBAM for licensing. On Tuesday, October 16th, the United States Court of Appeals for the Eighth Circuit in St. Louis ruled 2-1 upheld a lower court decision in favor of CBC, based on First Amendment rights, delivering yet another blow to MLBAM's legal case. "The decision is a big win for us. It is a big win for the fantasy sports industry, as well as entrepreneurs of the World," said CDM Fantasy Sports' Vice President Charlie Wiegert. "It's a win for all the underdogs. All the Davids who have a war with a Goliaths."

One major implication is that the MLB Players Association partnered with MLBAM in 2005, reaching a five-year, $50 million agreement that allowed MLBAM, with some exceptions, the exclusive right to use baseball players' names and performance information "for exploitation via all interactive media." Now that agreement may be in peril. Reached for comment on the ruling, the MLBPA would only say, "We are disappointed in the decision, and are considering our options." With the ruling, MLBAM is left with few options, and dwindling chances for victory. As one person familiar with the MLBAM/MLBPA agreement said, "There were contingencies built into the agreement that allow [ML]BAM to opt out depending on the returns. If those returns don't come in above or near the value of the agreement, I can see a reevaluation of the agreement."

There are three choices MLBAM can now make in the case. They can choose to not pursue the case any further, thus putting into motion a review of the agreement between MLBAM and the MLB Players Association. Or, they could request that the full appeals court convene and rehear the case. In that instance, they would need to do so by October 29th. Or finally, they can wait until January and request that the Supreme Court hear the case. As far as the latter two options, the courts can deem that the case is not worthy of a hearing, and turn it down. At that point, all avenues for overturning the prior court rulings would be exhausted.

In looking at the case, the affirmation of the lower court's ruling by the Court of Appeals for the Eighth District has broad implications, not just for Major League Baseball, but for other professional sports leagues, as well. To name a few, the NFL, NBA, NHL, and NASCAR all filed briefs in support of MLBAM's position, as hundreds of millions of dollars could be at stake for those sports, as they look to control what they deem to be their intellectual property. The investment in the case by MLBAM has taken a toll, as well-reports have Advanced Media spending well in excess of $1 million in legal fees, with their total fast approaching $2 million.

The outcome of the case impacts the fantasy sports industry, as well. Companies that were unable to pay the hefty fee to MLBAM for the rights to use player names and their associated statistics together would be able to conduct business again. Those that were not granted offers for licensing due to the limited number of them MLBAM issued would now be able to join in as well. Large companies such as CBS Sportsline, Yahoo, ESPN that agreed to pay the $2.5 million annual fee may most likely decide to not renew if CBC continues to prevail in the courts, choosing instead to save those millions in licensing fees. Already, there has reportedly been a drop in the number of those looking to renew their licenses after the lower court ruling.

In broader terms, the "Fantasy Stats case" has implications beyond purely monetary concerns. Are companies that provide statistics for their fantasy sports games providing information protected under the First Amendment? In the use of the players' names in conjunction with statistics that help sell fantasy sports, are the players being exploited? By extension, if the use of player names associated to their statistics can be licensed, then how does it impact how newspapers-or organizations like Baseball Prospectus-present statistics?

While the case presents questions about how for-profit companies use player statistics, MLBAM and the MLBPA have been quick to point out that they are not attempting to license the statistics themselves. They cite that the use of the players names in association is tantamount to using MLB players to help advertise a product, and therefore an infringement of privacy rights.

In contrast, according to Rudy Telscher, the lead council for CBC, the Eighth Circuit affirmed the district court's decision, that the use of publicly available statistics in fantasy games and the names of the players is protected by the First Amendment, and supersedes any publicity-minded privacy rights that the players might otherwise have. "Similar situations already exist," Telscher said. "For example, asking questions about the movies of Brad Pitt or Jennifer Aniston involve the use of their names, and [also] associated data and accomplishments in a game for profit as used in Trivia Pursuit and Jeopardy. So does Las Vegas' practice of betting on the accomplishments of individual players performances during a specific game. The broader holding of the case is legitimately interpreted to be that the use of historical information that relates to famous people in any way they see fit-there may be some limits depending on individual fact patterns-is protected by the First Amendment."

The court cited the 2001 California case of Gionfriddo v. Major League Baseball, where Major League Baseball was defending its use of players' names, likenesses, and information against the players' asserted rights for publicity, observed, "Major League Baseball is followed by millions of people across this country on a daily basis ... The public has an enduring fascination in the records set by former players and in memorable moments from previous games ... The records and statistics remain of interest to the public because they provide context that allows fans to better appreciate (or deprecate) today's performances." In that case, the California court concluded that the "recitation and discussion of factual data concerning the athletic performance of [players on Major League Baseball's website] command a substantial public interest, and, therefore, is a form of expression due substantial constitutional protection [under the First Amendment]"

But what of any monetary damages to the players? After all, people have the right to earn a living based on creating publicity for a sports entertainment product, like baseball. One could argue that the players' star power is what draws fans to play fantasy sports. The court ruled that Major League Baseball players are already rewarded, and that the consumers would not be misled into thinking that the inclusion of MLB player names in association with their statistics creates a false sense of "star power" endorsement of CBC's products. In other words, having "Derek Jeter" next to his stat line was not the selling point of the fantasy sports product. Instead, Jeter's performance-his stats-would dictate the value of selecting the player in a fantasy stats game, not his star power.

One issue of the case that MLBAM may see as representing a possibility for reversal revolves around the contractual agreement in 2002 between CBC and the MLBPA before MLBAM negotiated to negotiate licensing. As part of that licensing agreement with the MLBPA, CBC agreed that upon the expiration or termination of the contract, they would "refrain from further use of the Rights and/or the Trademarks or any further reference to them, either directly or indirectly," as part of a "no-use provision" in the contract. The MLBPA argued that the breach of contract by CBC was fatal to CBC's claim. However, the court ruled that a section of the agreement provides that the Players Association "is the sole and exclusive holder of all right, title and interest" in and to the names and playing statistics of virtually all MLB players. The court viewed this representation as the MLBPA owning the right of publicity under state law, and that the MLBPA "did not have exclusive 'right, title and interest'" in the use of such information, and it therefore breached a material obligation that it undertook in the contract.

The case hinges in part on the interpretation of Missouri state law. Whether it was a calculated effort by CBC to sue MLBAM, and thus have the case heard in Missouri and not New York is something worth noting. The Eighth Circuit did, however, touch New York state law on the matter of contractual obligation when it defined contractual warranty as "an assurance by one party to a contract of the existence of a fact upon which the other party may rely," from CBS Inc. v Ziff Davis.

With the stakes so incredibly high for Major League Baseball and the other professional sports leagues in United States, there will certainly be questions as to whether to pursue the case further. Given MLB's deep pockets, and their continued belief that privacy rights are at issue, and that the case impacts the interpretation of the First Amendment, it seems very possible that MLBAM might ask the Supreme Court to hear the case. Asked whether America's highest court would take the case, Telscher has doubts that the case would be heard. "I think the only reason the Supreme Court would take this case is if it is interested in the interplay between the First Amendment and state law rights of publicity. It has only decided one case in that area before, and that was back in the 1970s."

There are caveats, even if MLB were to find themselves in a position bound by decisions that would prevent them from ever re-litigating the case. The NFL could sue a fantasy sports company in another circuit, for example, the Second Circuit in New York. As a matter of federalism, the Second Circuit is not technically bound by the Eighth Circuit's decision. To that end, the Second Circuit might view the First Amendment issues differently than the Eighth Circuit did. That would create a split between the courts. In such a scenario, "(t)he odds of the Supreme Court taking the case would go way up," adds Telscher. "Given that the Eighth Circuit's decision is consistent with some similar type cases, I think the odds are that other Circuits will follow the Eighth Circuit's lead, but there are no guarantees."

Maury Brown is an author of Baseball Prospectus. 
Click here to see Maury's other articles. You can contact Maury by clicking here

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