By Ross Evans ’20
Editor’s Note: In light of the March 6th sentencing of the defendants in United States v. Gatto (the first NCAA hoops corruption trial), we wanted to share a piece—written by our managing editor (Ross Evans ’20) and published on The Global Anticorruption Blog (GAB) in January—that argues the federal government’s successful prosecution in the case does not necessarily represent a positive development for anticorruption efforts overall. We re-publish it here with permission from the GAB.
From the U.S. federal government prosecuting FIFA officials in New York City to Transparency International both announcing an organizational initiative on sports anticorruption and publishing a 398-page report on the topic, it seems clear that governments and NGOs alike have deemed sports corruption a high priority. One can debate whether sports corruption is sufficiently important to merit this level of attention, though there’s a case to be made (as Lauren Ross argued on The Global Anticorruption Blog a few years back) that sports’ broad appeal, media coverage, and status as a symbol for fair competition together give anticorruption efforts in sports an importance that exceeds the direct social harm caused by, say, match fixing relative to other forms of corruption (like medicine theft). That said, just because there may be special value to sports-related anticorruption initiatives in general doesn’t mean that all legally viable sports-related anticorruption enforcement opportunities should be pursued. Indeed, over-emphasizing sports can lead to a dubious allocation of government resources, a problem illustrated by a recent US case (United States v. Gatto) in which several defendants were convicted for their roles in a college-basketball bribery scheme.
To understand the Gatto case, it’s important first to understand the underground economy for student-athletes. In the U.S., the non-profit National Collegiate Athletic Association (NCAA) governs the $13-billion college sports industry, with most of the NCAA’s revenue coming from men’s college basketball. (If men’s college basketball programs could be bought and sold like professional sports franchises, the most valuable would be worth $342.6 million.) Critically, however, because of the NCAA’s amateurism rules, the student-athletes whose talent drives this industry can neither receive compensation from their universities (beyond cost-of-attendance athletic scholarships), nor earn money through endorsements, autographs, jersey sales, or any other monetization of their name or likeness. The value generated by the unpaid players is captured by others in this system, such as head coaches (who are the highest-paid public employees in 39 out of 50 states), NCAA executives, and university athletic directors. Given this system, it’s altogether unsurprising that top high-school basketball prospects often receive compensation for attending a given university via an underground economy. The corruption scheme at issue in Gatto was a particularly egregious example of this underground economy in action: Employees at an athletic-shoe company (Adidas), which sponsors a number of men’s college basketball programs, conspired with assistant coaches at those programs, and with an aspiring talent agent, to bribe elite high-school basketball prospects to attend the Adidas-affiliated universities. This deal looked to be win-win-win-win. The athletes benefited because they received compensation that better reflected their market value. Adidas benefited both from having elite college-basketball players wearing their brand on national television and from the increased probability that some of these players would sign an endorsement deal with Adidas if they turned professional. The universities profited from the economic windfall associated with enrolling an elite basketball prospect. And the aspiring talent agent boosted his odds of being formally retained when the player turned professional.
Nonetheless, this scheme was technically illegal, and so the jury was analytically correct in convicting the defendants at trial. But just because the defendants broke the law doesn’t mean that the prosecutors should have brought the case. Indeed, this case is one where, for three policy-related reasons, it would’ve been better if the U.S. Department of Justice hadn’t gotten involved: Continue reading on The Global Anticorruption Blog
After pleading guilty in 2007 to conspiracy to commit wire fraud and transmit gambling information, former NBA referee Tim Donaghy is back in the news. In an in-depth report, ESPN analyzed the games Donaghy officiated and interviewed his co-conspirators. The findings reveal that Donaghy did more than just bet on the games he worked – he fixed them.
The scheme was relatively simple. Donaghy would predict if a team playing in one of his games would cover the spread. If Donaghy was right, he received $2,000 from his gambling associates. If he was wrong – which he rarely was – he didn’t lose anything.
ESPN’s analysis shows that the chances that an unbiased referee would make the same calls as Donaghy was 6,155-to-1. The revelation doesn’t just challenge what Donaghy alleged, it challenges the NBA’s party line that games can’t be fixed. It’s unclear whether these revelations will have any impact on the recent trend towards legalizing professional sports gambling.
Thomas “Buddy” Bardenwerper is an Entertainment Highlight Contributor for the Harvard Journal of Sports and Entertainment Law and a current first year student at Harvard Law School (Class of 2021).
Tim Donaghy in 2010, Blurpeace, CC BY-SA 3.0.
By Stuart N. Brotman
Matt Lauer and Louis C.K. may be the latest answers on Jeopardy. But here is the real question: How do you control talent behavior in the entertainment and media fields? This inquiry has been posed for over 80 years now. When Hollywood had a studio system for the movie industry, most of the major talent was under long-term contract. Typically, those contracts would last seven years. At that point, studios were placing a major bet on talent. These were people that the studio was going to nurture, but as part of that bargain, what the studios wanted was a level of legal protection in case something went wrong in the professional relationship.
Among the things that might go wrong included activities that the performer did away from the set, outside the context of the movie production. These activities could affect their job performance, their relationships with people on the set, and most importantly, the public perception about the revenue-generating performer. This created the necessity of a contractual provision known as the Morals Clause, which initially was designed to establish some boundaries around the behavior of performing artists. The clause gave the studios an effective ability to terminate a performer’s contract quickly if the clause was violated.
What happened when a performer that a studio had under contract was no longer attracting big box office dollars halfway through the seven-year contract term? The Morals Clause might be the only provision that would give studios the ability to rescind the contract, hence its initial importance. Consequently, a clandestine studio infrastructure was built around the Morals Clause, including private detectives and other investigative resources who were tasked with tracking performers’ activities in their spare time. Such information was accumulated and reported back to the studios for leverage. If and when a “morality” problem with a performer arose, the studio executives would call him or her in (usually with lawyers on both sides invited to the meeting) to indicate that there was some evidence-based violation of such performer’s obligations under the Morals Clause. On the basis of that dramatic confrontation, a number of high-profile talent contracts were rescinded.
During Hollywood’s formative years, Roscoe “Fatty” Arbuckle was one of the great silent movie stars. He was at the level of Charlie Chaplin or Buster Keaton—a shining comedic star with a very memorable physical presence on screen (and a very large one, too, hence his nickname). In 1921, Arbuckle had just signed a three-year, three million dollar contract with Paramount Pictures when a female guest at a party he hosted at San Francisco’s St. Francis Hotel was found severely injured in his hotel suite. After the guest died from her injuries, he was arrested on rape and murder charges, turning public opinion against this once beloved performer. Although Arbuckle ultimately was acquitted at trial, the court of public opinion already had made its damning judgment.
Arbuckle’s career came to a crashing end. He could not find work in the movies, even though the rescinded contract was only between Arbuckle and one particular studio. It turned out that other studios were loath to employ someone with that version of a Scarlet Letter on his sweater. Soon, the concept of a Morals Clause began to be considered throughout Hollywood. Universal Studios, which was not involved with the Arbuckle case, recognized the fallout could affect its own contract players down the road. It began to include Morals Clauses in all its talent contracts.
In the 1930s, the Hays Office was set up by the Motion Picture Producers and Distributors, precursor of today’s Motion Picture Association of America. It developed operating standards and practices for the entire movie industry. While there was no rating system at the time, the Hays Office indicated certain things that could not be depicted in movies because they violated then-prevailing standards of morality (often influenced by the Catholic Church, which was active in screening movies for objectionable content). For example, an unmarried couple never could be depicted as sleeping together in the same bed. In effect, the Hays Office created an industry-wide Morals Clause, which was independent of any individual contractual provision. Certain specified behaviors would be morally out-of-bounds and thus invisible on the screen.
One of the vexing issues, of course, was where the morality lines would be drawn. What would be considered immoral behavior? Sex? Politics? Over time, perceptions of what is moral or immoral have changed. During the 1950s, the House Un-American Activities Committee (HUAC) conducted major public hearings to expose people working in the entertainment industry by virtue of their prior (often tenuous) connections with the Communist Party.
Ten influential actors and screenwriters—dubbed the Hollywood Ten—were jailed and blacklisted by the major movie studios for publicly denouncing the activities of HUAC during its investigation of Communist influence in Hollywood at the height of the McCarthy Era. They all refused to cooperate by naming names of those they worked with who had expressed Communist sympathies. Studios used the Morals Clause against these individuals to forestall boycotts and a decline in box office spending. They cited the Morals Clause as the explicit rationale for dismissal.
The three most notorious of the Hollywood Ten cases were litigated before the U.S. Court of Appeals for the Ninth Circuit between 1947 and 1957. All three opinions held that the Morals Clause was enforceable since the damage dealt to the image of the studios (i.e., employing Communist sympathizers) was sufficient grounds for dismissal since it would produce a significant public backlash. These cases also helped establish the reasoning for judicial affirmance of a Morals Clause where the clause was challenged by talent—a record that has been supported by case law precedents in other federal courts, as well.
The 1950s also saw the Morals Clause adapt to cover what was then considered deviant sex—homosexuality. At the time, a number of prominent stars remained in the closet, with the tacit approval of the studios in order to protect the economic interests reflected in their contracts. But the Morals Clause created considerable power for the studios; their investigative activities continued, and in some cases, intensified. Typically, private detectives would be hired to follow these stars to see if they were engaging in homosexual behavior. When the studio felt that other parties had the same information and might publish articles that would cause negative publicity, the studio would support a remedy that did not require the invocation of the Morals Clause, if the star was a big enough money maker.
Most famously, leading man Rock Hudson, who was gay and ultimately died of AIDS in 1986, was forced into a very public arranged marriage. Phyllis Gates worked as a secretary for influential Hollywood agent Henry Willson, who represented Hudson. In 1955, Hudson’s career was soaring, but he was struggling to keep his private life private. Willson had negotiated Hudson’s movie contracts with Universal Studios and knew the importance of not violating the Morals Clause to both Rock Hudson’s livelihood and his own. The agent paid off a blackmailer who said he had incriminating photos, but Willson soon learned that Confidential magazine was working on an exposé of Hudson’s homosexuality. Even Life magazine in September 1955 ran a cover story on Hudson, “Hollywood’s Most Handsome Bachelor,” which noted cryptically, “Fans are urging 29-year-old Hudson to get married – or explain why not.”
Two months later, Hudson married Gates in Santa Barbara, California, with Willson and three friends as the only guests in attendance. But millions soon knew every detail of this secret wedding, since they were relayed by Willson within minutes to the two most prominent Hollywood gossip columnists of the day, Hedda Hopper and Louella Parsons. Photos of the happy couple soon followed.
The issue of Rock Hudson’s homosexuality went away soon after, not raised again publicly until he announced his AIDS diagnosis shortly before he died. Universal Studios realized that he was making a lot of money for it (especially when paired with America’s sweetheart, Doris Day) and did not want to see that revenue source vanish. In pure “dollars and sense” terms, it was not worth it for the studio to invoke the Morals Clause as long as it could find a way to deal with the negative publicity through artful public relations.
Tab Hunter, a rising gay star for Warner Bros. in the mid-1950s, learned this lesson well, too. The scandal magazine Confidential revealed that Hunter had been among several people arrested five years earlier at a “gay house party,” and was charged with being “idle, lewd or dissolute.” This was reduced to disturbing the peace, and he received a suspended sentence and a $50 fine. But such a revelation still could have ruined his career — Confidential had called the party a “queer romp.”
Not coincidentally, the studio publicists began to work overtime to publicize Hunter’s supposed heterosexual interests. He quickly was signed in 1956 to play in two movies opposite Natalie Wood, primarily so Warner Bros. could create the public illusion that they were a couple. This strategy, combined with the studio’s enforced silence about the tabloid scandal, proved to be the preferred alternative to invoking the Morals Clause, which would have damaged or even ended Tab Hunter’s career. As studio head Jack Warner quipped to Hunter after the morality crisis had passed, “Remember this: Today’s headlines — tomorrow’s toilet paper.”
Various invocations of the Morals Clause continued in the 1960s and 1970s; typically, these were done without publicity, but rather in private negotiation sessions with lawyers. The standard remedy was a termination of the contract, with no dollars changing hands on either side. The studio nullified the contract, which left the performer or the writer in the position to seek employment elsewhere. But the close-knit nature of Hollywood meant that in practice, anyone who had been dismissed because of a Morals Clause infraction would find it difficult, if not impossible, to find lucrative work elsewhere. The stain would carry forward for years, maybe always. This meant that there was very little information about whether talent contracts had a Morals Clause in them at all, or if so, whether they were invoked to rescind a contract.
Changing, less prurient standards for behavior and content, combined with the end of the rigid Hollywood studio system, also fostered predictions that the Morals Clause might be headed to legal extinction. But ironically, another rigid system of mass entertainment was emerging during this period that made the Morals Clause more important than ever. The major professional sports leagues – the National Basketball Association (NBA), Major League Baseball (MLB), National Hockey League (NHL), and the National Football League (NFL) – negotiated the inclusion of a Morals Clause in their collective bargaining agreements with their respective players’ unions. This means that any professional athlete playing for those leagues is legally bound by such a contractual provision. Furthermore, the commissioner of any one of those leagues has the wide discretion to discipline a player on the basis of a Morals Clause violation.
Gambling has been a major issue in all professional sports and gambling activity by those involved in professional sports, due to its perceived effect on competitive integrity, would trigger a severe Morals Clause penalty. When Pete Rose voluntarily agreed in 1989 to a lifetime ban on any baseball activities, it was on the basis of well-documented gambling violations, which violated the Morals Clause that was in MLB’s collective bargaining agreement. When Washington Wizards star Gilbert Arenas was found with a loaded gun in his locker, he was suspended by NBA Commissioner David Stern based on the Morals Clause in the NBA’s collective bargaining agreement. Although there was no indictment and certainly no conviction, Arenas’ gun possession was sufficient to elicit a league-imposed penalty.
In the 1980s, professional athletes like Rose and Arenas began to generate large multi-year endorsement deals for a variety of athletic and non-athletic products and services, often far exceeding the income they could generate on the field or in the arena. Fashion models such as Kate Moss also became household names, replacing the studio stars of years gone by. These high-profile models also signed financially enormous endorsement contracts which included Morals Clauses.
Since then, as a practical matter, any significant endorsement deal – whether in sports, fashion, or any other type of entertainment – will have a Morals Clause provision that is carefully negotiated. In the case of Tiger Woods, caught in 2009 at the other end of a golf club for adultery, both Accenture and TAG Heuer indicated that they had a Morals Clause in their endorsement deals with the PGA Tour phenomenon. Once news of his adulterous behavior reverberated around the world, they pulled their endorsement deals with him, which were generating millions of dollars for Woods every year.
When someone signs an endorsement contract, they are signing a multi-year deal. They are not employees in the way that a studio contract player used to be. When a company pays $50 million or $100 million for the right to use a celebrity’s image, and in most cases, have that celebrity do personal appearances, the Morals Clause is a form of insurance that the celebrity must maintain a positive public image. If his or her image becomes tarnished, then the company has the right to terminate the contract and end the relationship as soon as possible.
Today, in the ever-expanding world of celebrity (with politics now part of the mix), we have a permanently transparent situation where people are learning about celebrities in real time. Social media plays a big part, since everyone with a smartphone now has the same power that paparazzi like the legendary Weegee, and more recently Ron Galella, exercised in their primes. Actually, access to a smartphone provides even more power, since the photo or video once captured now can go viral instantly on Facebook, Twitter, and Instagram. This also minimizes the former impact of negative tabloid coverage, which is typically published days later. Viral accounts also can be accompanied by hashtags to elicit further discoveries about celebrity behavior.
To its credit, the #MeToo movement has contributed greatly by creating a positive environment where women (and in some cases, men) have come forward to convey in detail the reprehensible (and in some cases, criminal) behavior that violates our collective moral sensibilities. The new Morals Clause includes #MeToo, but it is more expansive, since it covers a range of behaviors that were once tolerated, but no more (Roseanne, take note).
This means that whether or not an explicit Morals Clause has been negotiated, we are facing a new era of Morals Clause enforcement. Today, the Morals Clause is no longer just an element of a legal contract; it now is also part of a larger and more expansive social contract. There is an implicit agreement that there are boundaries that will be set by viewers, fans, and consumers. If the public somehow finds that certain behavior has crossed the line, such as through unwanted sexual advances or exposing private parts, the social Morals Clause will kick into high gear.
Just like there is an implied warranty in many goods and services, there now is an implied warranty for celebrity talent, including for executives who are responsible for their employment (Harvey Weinstein, take note). This phenomenon should not displace the force of criminal law (Bill Cosby, take note), nor should it reduce the need for a Morals Clause in a commercial context where large dollar amounts are at stake. Rather, the new Morals Clause represents another remedy— often quicker and surer — than ones which rely on a more deliberate journey through the legal system.
Critics of this new approach decry that the viral nature of accusations undercuts due process by representing a rush to judgment before all evidence has been evaluated in an adversarial context. But in virtually all the incidents that have arisen during the last year, there is little to show that many, if any, have been wrongly accused. Most have had multiple people come forward with detailed accusations. And in many instances, there is no legal remedy available any longer due to time limits for lawsuits or prosecutions under statutes of limitations.
Unlike the contractual version, this expanded Morals Clause may allow some to redeem themselves over time (Al Franken, take note), but not others (Charlie Rose, take note). It will be far more difficult, however, to forestall it with a PR blitz (Kevin Spacey, take note).
Assessing where the boundaries should be will take time, too, but as history has shown us, that is an essential part of the Morals Clause process. Neither a moment nor a movement, it now represents a powerful feedback loop between the public and those who make us laugh, cry, cheer, and buy.
Stuart N. Brotman is the Howard Distinguished Endowed Professor of Media Management and Law and Beaman Professor of Journalism and Electronic Media at the University of Tennessee, Knoxville. He is Harvard Law School’s first Visiting Professor of Entertainment and Media Law.
Image: Thomas Wolf, www.foto-tw.de, Hollywood Sign, CC BY-SA 3.0