BILL ANALYSIS SB 1098 Page 1 Date of Hearing: June 29, 2010 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair SB 1098 (Corbett) - As Amended: June 22, 2010 SENATE VOTE : 23-12 SUBJECT : Athlete Agents KEY ISSUE : Should the existing Miller-Ayala Athlete Agents Act be replaced with the Uniform Athlete Agents Act for the purpose of regulating the activities of athlete agents and better protecting student athletes? FISCAL EFFECT : As currently in print this bill is keyed fiscal. SYNOPSIS This bill would enact the Uniform Athlete Agents Act to regulate the activities of athlete agents in soliciting and contracting with student and professional athletes. The bill is based on a model statute drafted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2000. It would replace the existing Miller-Ayala Athlete Agents Act, the California law that currently regulates athlete agents in the state. The NCCUSL began work on model legislation in 1997 at the request of the National Collegiate Athletic Association (NCAA). Because agents solicit athletes from schools throughout the nation, the NCAA sought a common approach that would subject all agents to the same rules regardless of the state in which they solicit and recruit athletes. Because both the Miller-Ayala Act and the proposed Uniform Athlete Agent Act are comprehensive statutes, there is a great deal of overlap between them. However, the most significant differences concern registration requirements and the ability of the state to deny or revoke a person's authority to act as an athlete agent. Existing law only requires a person who wants to act as an agent to file information with the Secretary of State, but there is no body that can prohibit a person from acting as an agent. This bill requires a person to submit additional information to obtain a certificate of registration issued by the Department of Industrial Relations (DIR), prohibits anyone from acting as an agent without a certificate, and would give DIR the power to revoke a certificate for specified reasons. Finally, while both SB 1098 Page 2 existing law and this bill apply to both student and professional athletes, supporters contend that this bill will offer greater protections for student athletes than does present law. DIR, however, opposes this bill primarily on the grounds that it believes that it is not the proper entity to enforce regulation in this area and because of possible financial burdens. However, as the author notes, DIR already regulates talent agents - who have a similar contractual relation with clients - and points out that SB 1098 provides for self-funding through registration fees and a loan, as specified, for start up costs. SUMMARY : Enacts the Uniform Athlete Agents Act for the regulation of agents who represent student and professional athletes, and effectively replaces, as of July 1, 2011, the existing Miller-Ayala Athlete Agents Acts, the existing statutory framework for regulating such activity. Specifically, this bill : 1)Requires athlete agents to register with and obtain a certificate or registration from the Department of Industrial Relations. Requires an applicant for certificate to provide information concerning the prospective athlete agent's background, criminal and disciplinary history, and training and experience. 2)Prohibits, subject to certain exceptions, a person from acting as an athlete agent without a certificate of registration, and would make void a contract to represent a student or professional athlete made in violation of registration requirements, and would make voidable, at the athlete's election, an agency contract that does not conform to other provisions of the act. Requires the certificate to be renewed, as specified. 3)Requires the athlete agent to disclose the fact of registration to a student or professional athlete and inform the athlete as to where information may be obtained regarding the agent. 4)Specifies that the Department may suspend, revoke, or refuse to renew a registration for conduct specified and shall provide notice and an opportunity for a hearing in accordance with current law. SB 1098 Page 3 5)Specifies what an agency contract shall state or contain with a prominent notice to students concerning the implications of signing the contract. Requires that notice must also be provided to the athletic director of the educational institution, as specified. 6)Permits a student athlete to rescind a contract within 14 days of signing the contract. 7)Provides that certain conduct of the athlete agent may subject the agent to criminal and civil penalties and allows a court to suspend or revoke the registration of the agent for criminal violations, as specified. 8)Provides a professional athlete, student athlete or educational institution with a right of action against an athlete agent for damages caused by violation of the UAAA. 9)Requires an athlete agent to create a trust fund for any salary or funds received on behalf of a professional athlete. 10)Allows the Department to assess a civil penalty against an athlete agent not to exceed twenty-five thousand dollars ($25,000) for violation of the UAAA. Specifies this penalty shall become operative on January 1, 2012. 11)Creates the Athlete Agent Registration Fund and allows for the Department to establish by regulation a fee to fund the costs of the registration program. 12)Incorporates many of the specific restrictions on athlete agent conduct that are presently provided for in the Miller-Ayala Act. EXISTING LAW : 1)Provides, under the Miller-Ayala Athlete Agents Act, for the regulation of athlete agents who for compensation, directly or indirectly, solicit or recruit an athlete to enter into any agent contract, endorsement contracts, or other professional sports-related contracts. (Business & Professions Code Sections 18895 et seq.) 2)Requires any athlete agent, prior to engaging in or carrying on the business of athlete agent, to file a specified form SB 1098 Page 4 with the Secretary of State that includes specified information about the agent's background, criminal history and disciplinary actions, if any, the names of other athletes the agent has represented, a list of references, and a schedule of fees to be charged and collected in the conduct of the athlete agent business. (Business & Professions Code Section 18896.) 3)Requires the athlete agent, upon first contacting a professional or student athlete, either directly or indirectly, or the athlete's family member, to provide that person with a written notification stating that the agent has filed with the Secretary of State and that information filed about the agent is available from the Secretary of State. (Business & Professions Code Section 18896.6.) 4)Requires that all athlete agent contracts shall be in writing and specifies required contents of the contract, including a description of the services to be performed and a schedule of fees. (Business & Professions Code Sections 18897 and 18897.1.) 5)Requires athlete agents to keep records, as specified, and generally requires the agent to inform the athlete of all financial interests and to refrain from disclosing false, fraudulent, or misleading information or advertisements. (Business & Professions Code Sections 18897.2 to 18897.5.) 6)Imposes various restrictions on the manner in which an athlete agent may contact or recruit student athletes, including prohibitions on money or gifts, as specified. Requires that contracts with student athletes include, among other things, a conspicuous notice to the student athlete that signing a contract will likely result in a loss of eligibility to compete in interscholastic or intercollegiate sports. Grants to any student athlete who enters into a contract with an athlete agent a 15-day right of rescission. (Business & Professions Code Sections 18897.6 to 18897.77.) 7)Permits a professional athlete or a student athlete, or any educational institution, or any league, conference, association, or federation of the educational institution, or any other person, to bring a civil action for recovery of damages from an athlete agent, if that professional athlete, student athlete, or other person or entity is adversely affected by the acts of the athlete agent or his SB 1098 Page 5 representative that are in violation of the above provisions. Provides that a prevailing plaintiff shall recover actual damages, or $50,000, which ever is greater, as well as punitive damages, court costs, and attorney's fees. (Business & Professions Code Section 18897.8.) 8)Requires every athlete agent to provide security for potential claims against the agent through liability insurance or an escrow account, as specified. (Business & Professions Code Section 18897.87.) 9)Provides that any contract that is negotiated by an athlete agent who fails to comply with the above provisions is void and unenforceable, and that no person shall owe an athlete agent any money or other consideration if the athlete agent fails to comply with the above provisions. (Business & Professions Code Section 18897.9.) COMMENTS : In 1997, the NCAA and several academic institutions asked the National Conference of Commissioners on Uniform State Laws (NCCUSL) to draft a model bill that, according to the NCAA, would "provide a uniform system for regulating athlete agents." (See "Uniform Athlete Agents Act (UAAA) History and Status," available at www.ncaa.org .) In 2000, NCCUSL completed the Uniform Athlete Agents Act. According to the NCAA, as of March 18, 2010, 38 states and the District of Columbia had adopted the UAAA. According to the prefatory note to the UAAA, in an era of highly compensated professional athletes, competition among agents to solicit and recruit the best student athletes has intensified. Although prior to 2000 many states, including California, had enacted statutes for regulating athlete agents, there were substantial differences in registration and disclosure requirements, which made it difficult for agents practicing in several states to be certain that they were fully complying with different state laws. In addition, the NCCUSL concluded that there were still a minority of agents who used inappropriate recruitment techniques, including undisclosed payments or gifts to student athletes or their families. Such violations could result in athletes loosing eligibility to participate in intercollegiate sports and sanctions against universities and colleges. Thus, the NCAA and the NCCUSL have concluded that a uniform system will ensure that all athletes, educational institutions, and agents will be subjected to a known and consistent set of rules. SB 1098 Page 6 The Miller-Ayala Act . California was one of 28 states that regulated athlete agents at the time that the NCAA asked the NCCUSL to draft a model law. The Miller-Ayala Athlete Agents Act (AB 1987, Chapter 957, Stats. of 1996) created a comprehensive statute regulating the activities of persons who worked as athlete agents. This legislation came on the heels of a 1996 Senate Business and Professions oversight hearing on abusive practices of some athlete agents and the harmful effect that this had, not only on student athletes and their families, but on educational institutions and athletic programs as well. However, the Miller-Ayala Act lacks a registration system similar to that required under this model bill. Instead, a person can act as an athlete agent merely by filing required information with the Secretary of State. However, there is presently no body that can deny persons the ability to act as agents or revoke the authority of those who acted unlawfully. For the most part, the Miller-Ayala Act enforced its requirements by permitting persons or institutions that were harmed to bring civil actions, giving student athletes a 15-day right of rescission, and providing that any contract that violated the terms of the statute was either void or voidable by the athlete, depending on the nature of the violation. This bill takes a more proactive approach by authorizing the Department of Industrial Relations to demand more rigorous registration requirements at the front end and prohibiting anyone from acting as an athlete agent without a certificate of registration. This bill would require an athlete agent to renew the certificate every two years, and it would give DIR the right to deny or revoke certificates for specified violations or misconduct. The bill incorporates many of the provisions of the Miller-Ayala Act with minor modifications to make them consistent with the UAAA. The bill specifies that the Uniform Athlete Act shall not become operative until July 1, 2011, and provides that the existing Miller-Ayala Act will be repealed as of January 1, 2012. Major and Minor Differences Between Miller-Ayala and SB 1098 . As previously noted, the major difference between Miller-Ayala and SB 1098 concerns the more stringent registration requirements and the power that SB 1098 gives DIR to deny and revoke certificates of registration to athlete agents. However, there are a number of other differences as well, mostly minor but some potentially significant. For example, following the UAAA, SB 1098 provides more detail on the required contents of SB 1098 Page 7 the agent contract, including information relating to the basis and method of calculating consideration. SB 1098 also has expanded requirements relating to student athletes, since this has been one of the major areas of concern. Both existing law and SB 1098, for example, give students athletes a right of rescission, 15 and 14 days respectively, to rescind an agent contract. Most of the other differences between existing law and SB 1098 do not reflect substantive policy changes so much as an effort to establish conformity with the UAAA. Funding for Registration and Enforcement . SB 1098 expressly provides that the costs of administering this act is to be funded by the fees that DIR is authorized to collect for each application for registration and renewal. The bill specifies that such fees shall be deposited in a newly created Athlete Agent Registration Fund. To cover start up costs, the bill requires the Department of Finance to approve a loan from the Labor Enforcement and Compliance Fund to the DIR. The bill also provides that these funds shall be repaid, with revenue generated from registration fees, on or before July 1, 2014. ARGUMENTS IN SUPPORT : According to the author, this bill will not only bring California into line with the vast majority of other states that have adopted the UAAA, it will also "be helpful for the many California agents who do business across state lines." California, the author notes, "has a large number of student athletes and professional teams and this will give athlete agents a legitimate way to register." The author also believes that, overall, this measure will increase protections for student athletes and educational institutions. The NCAA contends that while most agents perform a valuable service for both student and professional athletes, "far too often dishonest agent conduct, intended to take advantage of the student-athlete for financial gain, results in the loss of the student-athlete's eligibility, the imposition of financial penalties on the student-athlete's institution, and the taint of 'scandal' on both the institution and the entire community of amateur athletics." NCAA adds that, too often, while the athlete and school face repercussions, the agent is not held accountable. NCAA believes that this bill will help create "uniformity of state athlete agent laws by establishing a standard set of registration requirements, fees, consumer protection requirements and notice provisions for both athletes and their institutions." SB 1098 Page 8 The NCCUSL notes that with the proliferation of professional sports franchises and large athlete salaries, competition between athlete agents has become more intense, and includes efforts to inappropriately recruit student athletes through undisclosed payments or gifts. NCCUSL believes that the UAAA and SB 1098 will provide important protections for student-athletes and educational institutions alike. As importantly, NCCUSL contends, it "creates a uniform body of agent registration information for use by state agencies, simplifies the regulatory environment faced by legitimate sports agents, and provides public and private recourse against unscrupulous actors." The University of California, UCLA, San Diego State University, and the Association of Talent Agents support this bill for many of the same reasons stated above. They particularly support the creation of uniform and nationally consistent standards. ARGUMENTS IN OPPOSITION : The Department of Industrial Relations (DIR) opposes this bill because it believes that it will "add regulatory and oversight functions, and new costs to the DIR's regulatory role." In particular, DIR believes that the bill would add duties "outside of an employment context as a contract between an athlete agent and a student or professional athlete does not involve an employer-employee relationship." DIR states that of the 38 states that have adopted the UAAA, DIR is unaware of any state that manages the program through its labor and workforce agency. Author's Response to Opposition : The author responds to DIR's concerns about costs by pointing out that the program will be self-funding through registration fees and that start up costs are covered by the required loan, as discussed above. The author also rebuts DIR's contention that the agent-athlete relationship falls outside of the DIR's usual concern with the traditional employment relationship. The author points out, for example, that talent agents, who enter into similar contractual relationships with clients, are presently regulated by DIR. Finally, the author contends that amendments taken in the Senate delayed implementation until July 1, 2011, giving DIR added time to make needed adjustments. Indeed, the author is correct that talent agents are regulated by the Labor Commissioner, the Chief of the Enforcement Division SB 1098 Page 9 within the DIR. Talent agents are required to make their written application for a license directly to the Labor Commissioner. As with the athlete agent under this bill, the prospective talent agent must provide specified information not unlike that which is required for the certificate of registration under SB 1098. The Labor Commissioner has the power to review contracts and deny or revoke licenses, and the Commissioner enforces disclosure and notice requirements for talent agents that are similar to the parallel requirements for athlete agents under this bill. (Labor Code Sections 1700-1700.44.) In short, the contractual relationship between talent agents and clients is quite similar to that between athlete agents and their clients. If DIR has the capacity to license and regulate talent agents, it would seemingly have the capacity to certify and regulate athlete agents. REGISTERED SUPPORT / OPPOSITION : Support California Commission on Uniform State Laws (sponsor) Association of Talent Agents NCAA Uniform Law Commission UCLA University of California San Diego State University Opposition Department of Industrial Relations Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334