Contracts for Professional Athletes & Legal Considerations
When professional athletes negotiate contracts with sports franchises, massive amounts of money may be at stake. In most major American sports, contracts are longer and more lucrative than ever before. In general, a player contract provides that an athlete will play for a team for a certain length of time. They also may be required to participate in team-related activities outside the games, such as marketing campaigns and media events. In addition to their salary, the player receives access to training facilities, equipment, and staff provided by the team.
The collective bargaining agreement in a sports league may provide for a standard contract. This includes generic terms like applicable laws and arbitration procedures. Many contracts adjust the generic terms or integrate more specific terms, though. For example, an athlete may want to protect their rights regarding royalties for merchandise with their name or image, or they may want a guarantee that they will receive a certain amount of money if they get injured and cannot play. An athlete might hire an agent or even an attorney to assist them in negotiating these more complex and potentially high-stakes terms.
Among other non-monetary terms, a player might pursue a no-trade clause that would make a potential trade to another team contingent on their approval.
Signing Bonuses and Salary Caps
One important provision in a player contract is the signing bonus. This is a lump sum payment offered as an incentive to join the team. For the most talented athletes, a signing bonus can be worth millions of dollars. While it is worth much less than the overall salary, it still represents a substantial sum that is guaranteed upfront to the athlete. The bonus may not count toward the team salary cap, which is a limit on how much money the team can pay its players each year.
The idea behind salary caps is preventing the wealthiest franchises from signing all of the most talented players, leaving most teams with no real chance to compete. In addition to fairness concerns, economic considerations drive salary caps. This is because fewer fans watch or support teams that are not truly competitive, leading to lower TV ratings, attendance, and overall revenues.
Free Agency in Professional Sports
When a player contract expires, that athlete becomes a free agent. This usually means that they can sign a contract with any team of their choice. If a player is not selected in the draft for the league, they also will be considered a free agent and can join any team that wants to develop their talents. In contrast to these players, who are known as unrestricted free agents, players known as restricted free agents might be able to join a new team before the contract with their current team expires. A restricted free agent must stay with their team, however, if the team matches any offer that they receive from another team.
Becoming a Restricted Free Agent
A player’s current contract will define whether and when they can become a restricted free agent, but often these provisions take effect when a player completes a certain number of seasons with the team.
As the end of a contract approaches, a professional athlete often faces a difficult decision. Their current team may offer them a contract extension, and they can choose whether to sign the extension or enter free agency. Sometimes this decision is personal, based on a player’s attachment to a team or city, but sometimes it is driven by an estimate of how the contract extension compares to their likely value in the free agency market. Players who are open to testing the waters of free agency may seek advice from an agent and other experts. Factors that may drive their decision include the projected strength of the free agent market during that offseason, the player’s recent performance, and the level of need for their skill set around the league.