The case that was most responsible for the public’s awareness of IRS activity with respect to its examination of deductions claimed by professional athletes has been settled.

Lamar Odom and the IRS recently settled Odom’s tax court case, with Odom agreeing to a tax deficiency for the 2007 tax year in the amount of $7,827 plus interest.  This is considerably less than the $87,000 originally reported as the amount the IRS billed Odom.  A “victory” in anyone’s record book (note: while technically this settlement does not represent the “winning” of the case by Odom since the case was never tried, the author chooses to use poetic license in his use of the term “victory”).

As originally reported on many sports and tax blogs, the IRS billed Odom additional 2007 taxes stemming from his claiming the following deductions, which the IRS disallowed:

• $12,000 in fines levied by the NBA; and
• $178,337 for professional training and conditioning.

Many of the reports had “fun” with the fact that the tax court petition appeared to by filed by Odom himself, without representation of counsel.  Odom hired tax counsel, Robert T. Leonard, shortly after filing the petition, and it is Leonard who is responsible for negotiating the settlement on Odom’s behalf.

According to a report by William P. Barrett on Forbes.com, the settlement between Odom and the IRS reflects an amount due attributable to the IRS also disallowing a deduction for the cost of Lakers tickets that Odom bought and distributed for “promotional reasons”.

This settlement does not create a legal precedent with respect to these matters, but it does reflect, in the author’s opinion, the current position of the IRS with respect to these items.  The author has handled 10 IRS examinations of professional athletes over the past 2 years, several of which included filing petitions in tax court, and the results of this settlement are consistent with the results he has seen once the IRS has been provided with proper documentation.  As a matter of fact, a deduction for tickets to a team’s games is an item that has been allowed upon examination, but sometimes you need to agree to the disallowance of a small item in order to settle the case and have the IRS agree to the larger deductions.

While the settlement of this case does provide guidance as to items the IRS might allow a professional athlete to deduct on his/her income tax return, it does not highlight the importance of being able to document the deductions claimed on the athlete’s tax return.  Most of these types of examinations can be resolved fairly easily upon the submission of appropriate documentation, although some examiners may push back on certain deductions.  Even those deductions on which the examiners push back can often be resolved by providing a solid argument as to why the expenses deducted are ordinary and necessary to the athlete’s line of business.

The biggest problems most often occur when the athlete does not respond to the notices or fails to respond in a timely manner.  This often results in the examination being closed and taxes assessed based on the disallowance of all expenses.  This results in the need to argue against the assessment of additional taxes in addition to having to provide documentation for the deductions.  This might seem like a fine line to some, but it is often easier to argue the appropriateness of a deduction before a tax is assessed than afterwards.  Also, the more time that passes, the more likely the need to file a tax court petition.

So go ahead and deduct those fines and fitness fees, but make sure that you can document the amounts paid, the dates paid and the business purposes of the expenses.

Lamar Odom Scores Court Victory…Tax Court That Is from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Michael Beasley of the Minnesota Timberwolves is certainly thankful that the NBA season will soon commence.  He also has to be happy that he was granted summary judgment in the lawsuit filed against him by his former agent Joel Bell of Bell Sports, Inc.  As reported by the Washington Post, the judge granted Beasley summary judgment after finding that Beasley’s marketing deal with Bell was void based on the fact that Bell was not a licensed sports agent in Maryland.  Bell has stated that he plans to file an appeal.

Section 4-403 of the Maryland Uniform Athlete Agents Act is titled, “Acting as athlete agent without license.”  4-403(a) reads, “an individual may not act as an athlete agent in the State without holding a license under § 4-405 of this subtitle. ”  Does this mean that agents who sign agreements with any athletes, amateurs or professionals, must hold a license?  4-403(b) makes it seem as if it is a law regarding the signing of student-athletes.  This is an issue that will come up in appeal.

When Beasley left Bell Sports, Inc., the company filed the lawsuit against Beasley based on his non-payment of commissions stemming from a marketing deal with Adidas that Bell Sports believed it was owed.  Bell Sports claimed that it was owed its 20% commission, because the company supposedly negotiated most of the deal with Adidas prior to Beasley’s split.  A marketing agreement dated March 26, 2008 between Bell Sports and Beasley stipulates that Beasley agrees to pay Bell Sports 20% “pursuant to any agreement, arrangement, or association…on which negotiations substantially commenced during the term of this Agreement…”

Bell was a licensed agent in Kansas when he recruited and signed Beasley out of Kansas State.  Now the issue is whether he needed to be licensed when he served as Beasley’s marketing agent.  The marketing agreement that Beasley signed with Bell stipulates that the agreement is governed by and construed in accordance with the laws of the state of Maryland.

Joel Bell Does Not Agree With Interpretation Of Maryland Uniform Athlete Agents Act from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

On September 16, 2011, I wrote that Jamal Crawford was on to the next one after he officially terminated Aaron Goodwin of Goodwin Sports Management as his representative.  Crawford had not given any indication as to who would become his next agent of record.  According to the NY Daily News, Crawford has finally made a decision, opting to sign with Andy Miller of ASM Sports.

Frank Isola of the NY Daily News seemed to somehow think that Crawford’s new relationship with Miller, in particular, may lead him to signing with the New York Knicks or the New Jersey Nets.  He seems to base that theory on Miller being domiciled in New Jersey, close to both teams.  Yes, that logic sounds silly to me, as well.  However, Miller does have three clients on the Knicks roster.

Jamal Crawford Picks Andy Miller Of ASM Sports For Representation from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Why has Smith once again appeared on our radar?  A couple of days ago, the San Antonio Express-News reported that federal authorities are trying to seize California property owned by Smith because there appeared to be marijuana on the property.  Further,

“the federal government contends that Smith sent, or had someone send, numerous money orders, bank and cashier’s checks to buy the five parcels of property, which cost a total of more than $161,000.

The money orders and checks were bought in increments under $10,000, the feds allege, adding that it has the hallmarks of money laundering.”

It gets worse.  The San Antonio Express-News also states that former NBA player Antoine Walker, who has been arrested in the past based on charges related to owing over $800,000 in gambling debts, has informed Internal Revenue Service agents that from 2005-2009, Smith failed to report roughly $600,000 in gambling winnings to the IRS.

It is safe to say that LaPoe Smith has a lot more than the NBA Lockout on his mind.

O.J. Mayo’s Former Agent Owns Some Questionable Property from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Photo by Garrett Ellwood/NBAE via Getty Images

The biggest news of the weekend was undoubtedly the proclamation that there will be a 2011-12 NBA season (albeit reduced from 82 regular season games to 66 regular season games). The announcement was made between 3 a.m. and 4 a.m. early Saturday morning. The season will tentatively kick-off with 3 Christmas Day games, including the Dallas Mavericks vs. Miami Heat.

While the big problem regarding the split of Basketball Related Income (BRI) between the players and owners has been rectified, there are still a variety of “B issues” (including drug-testing and whether players will have to be 20-years old and 2 years out of high school to be eligible for the NBA Draft) that remain to be resolved. Once the parties come to an effective agreement on all issues, a majority of the owners and a majority of the players must vote to approve what will become the NBA’s next collective bargaining agreement. The NBPA must also reclaim interest in representing the players as their official bargaining entity. If a majority of either the owners or players are not in favor of the agreement, then the announcement of a 2011-12 season starting on Christmas Day was all for naught, and the players’ lawsuit filed in Minnesota against the NBA and its member teams will resume (the lawsuit has not yet been dismissed).

From what I have read, it seems that the players and owners have agreed to a 50/50 split in BRI with the possibility of that split sliding to 51/49 in either direction, year-to-year, based on meeting certain projections, which will be fleshed out once the agreement is finally (hopefully) signed. Players had been taking 57% of the BRI under the previous deal.

An important note for agents – free-agents will be permitted to sign with NBA teams as early as December 9, 2011 under the new agreement, if executed. December 9 will also be the official opening of training camps, although I am told that many agents working with their clients to put together more organized “un-official” workout program.

Another thing to follow – what will happen to the NBA players who signed in China? The biggest name to sign was Wilson Chandler, who is playing for Zhejiang Guangsha in the Chinese Basketball Association (CBA). Due to the fact that Chandler, and all other NBA players who signed in China this offseason, acquiesced to China’s demand that no opt-out clause exist in his contract, he is effectively prevented from leaving his CBA team and signing with an NBA team.

NBA and Players Close To New Deal; Is Wilson Chandler Happy? from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Last week, Caron Butler, Ben Gordon, Anthony Tolliver, and Derrick Williams filed a Class Action Complaint against the NBA and its member teams in the U.S. District Court for the District of Minnesota.  At roughly the same time, another class of NBA players filed a similar lawsuit in the Northern District of California.  The California lawsuit has since been dismissed without prejudice, and the Complaint filed in Minnesota has been amended to include the Plaintiffs from the California suit.

The following list displays the current class of Plaintiffs in the Minnesota lawsuit along with their respective agents.

• Carmelo Anthony – Leon Rose (CAA)
• Chauncey Billups – Andy Miller (ASM Sports)
• Caron Butler - Raymond Brothers
• Baron Davis – Bill Duffy (BDA Sports)
• Kevin Durant – Aaron Goodwin (Goodwin Sports Management)
• Ben Gordon - Raymond Brothers
• Kawhi Leonard – Brian Elfus (Impact Sports Management)
• Steve Nash – Bill Duffy (BDA Sports)
• Leon Powe – Aaron Goodwin (Goodwin Sports Management)
• Anthony Randolph - Bill Duffy (BDA Sports)
• Rajon Rondo - Bill Duffy (BDA Sports)
• Sebastian Telfair - Andy Miller (ASM Sports)
• Anthony Tolliver - Larry Fox
• Derrick Williams - Rob Pelinka (Landmark Sports Agency)

With the addition of the new Plaintiffs, there no longer appears to be a claim that all Plaintiffs are somehow tied to the state of Minnesota (other than the fact that they all travel to Minnesota in away games against the Timberwolves).  My friend Marc Edelman, who I consider to be one of the leading experts on Antitrust in Sport, believes that the NBA players smartly dismissed their California Complaint in favor of joining up with the class in Minnesota.  He feels that it will be easier for the class to argue market power in the Minnesota jurisdiction as opposed to the Northern District of California jurisdiction, where precedent may have worked against the players’ arguments.

NBA players will now put up a fight, in unison, in the same court that NFL players were heard within the past year.  The Honorable Patrick J. Schlitz is the judge that has been randomly selected to hear the NBA case.  As Michael McCann has pointed out, Judge Schlitz was a lawyer in the case concerning the Timberwolves’ attempt at relocating to New Orleans and has represented the NFL in several cases.

NBA Amended Complaint in Minnesota

Players Add Plaintiffs, Amend Their Minnesota Complaint v. NBA from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

“By some combination of mendacity and greed, the agents who are looking out for themselves rather than their clients are trying to scuttle the deal.  They’re engaged in what appears to be an orchestrated Twitter campaign and a series of interviews that are designed to deny the economic realities of the proposal.” – NBA Commisioner David Stern on 11/12/2011

I must have the wrong agents listed on The Master Twitter list of sports agents/agencies, because I have missed any semblance of a “Twitter campaign” led by agents who hope to quash a potential deal to end the labor battle between the NBA and the NBPA.  In fact, most agents that I talk to are eagerly anticipating the day that a new collective bargaining agreement will be struck, albeit with terms more favorable to the agents’ client.

Are agents looking out for themselves?  You better believe it.  But they are also looking out for their clients.  While money is not the be-all and end-all for every player, many of them are genuinely interested in keeping the various exceptions to the salary cap, increasing minimum salary, etc.  Agents certainly fear an environment where there is little room for contract negotiations, because that takes away their ability to legitimize a full 4% commission on individual contracts.  However, players should also be concerned about implementing any new restrictions on negotiating their salaries.

Stern is right about one thing, though.  Decertification is a losing strategy.  But it is not a losing strategy for the players.  It is a losing strategy for the entire NBA, which includes all owners and players.  Decertification will likely end the hope of any kind of 2011-12 NBA season, force the NBA and NBPA to spend a large amount of money to their respective lawyers, and kill whatever goodwill the league earned in a fantastic 2010-11 NBA slate of games.

Basketball Agents Are Greedy Twitter Campaigners from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Steve Weatherford has done what few (if any) football players have accomplished before him; he has gone from one RSR to another.  Weatherford had been represented by Ron S. Roche of RSR Sports Management, but very recently switched to Drew Rosenhaus of Rosenhaus Sports Representation (which is often abbreviated “RSR”).

In 2007, Sports Agent Blog interviewed Steve Weatherford, who at the time was a 24 year-old punter for the New Orleans Saints.  We asked Weatherford what factors he had considered when selecting an agent and ultimately picking Roche.  He responded,

“I was very careful during the agent selection period to make sure that I found an agent that was as similar to me and my family as possible. Rob is a family oriented type of guy, and I felt he was truly concerned with my well being as a person as he was as an athlete.”

We also asked Weatherford what factors enticed him to choose a smaller agency or independent agent over a full-service agency.  He said,

“My agent is an independent guy and that appeals to me because it is more one on one, he has about 15 to 20 clients and I feel like that gives me personal communication time and a closer relationship with him in comparison to a huge firm.”

It appears that Weatherford’s interests have changed.  He has made the transition from small agency to mega firm by going from Roche to Rosenhaus.  The former punter from the University of Illinois is currently playing for the New York Giants.

On To The Next One: Steve Weatherford from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Michael Beasley of the Minnesota Timberwolves is currently a client of Jeff Schwartz at Excel Sports Management, but that was not always the case.  Prior to hiring Schwartz, Beasley had been represented for team contract negotiations and off-court marketing deals by Joel Bell of Bell Sports, Inc.

When Beasley left Bell Sports, Inc., the company filed a lawsuit against the NBA player based on his non-payment of commissions stemming from a marketing deal with Adidas that Bell Sports believed it was owed.  Bell Sports claimed that it was owed its 20% commission, because the company supposedly negotiated most of the deal with Adidas prior to Beasley’s split.  A marketing agreement dated March 26, 2008 between Bell Sports and Beasley stipulates that Beasley agrees to pay Bell Sports 20% “pursuant to any agreement, arrangement, or association…on which negotiations substantially commenced during the term of this Agreement…”  However, the marketing agreement attached to Bell Sports’ Complaint is not signed or dated by Beasley.  Further, it is poorly drafted in general (Bell Sports could certainly use my services to draft a better marketing agreement for future use…but I digress).

Beasley lawyered up and responded to Bell Sports’ Complaint with his own Counterclaim.  In Paragraph 24 of his Counterclaim, Beasley states, “On information and belief, in addition to funneling money to Beasley’s mother, [Bell Sports, Inc.] paid money to Malone “on the side” or “under the table,” in exchange for Malone, at least attempting to manipulate, NBA prospects like Beasley, but typically far less-talented than Beasley, into signing an agency agreement with [Bell Sports, Inc.].”  Malone is Herman C. Malone a/k/a Curtis Malone, co-founder and operator of the Amateur Athletic Union (AAU) DC Assault.  The team is based in the Washington D.C. area.

Count Five (of Eight) of Beasley’s Counterclaim is for Civil Conspiracy.  Beasley claims that Bell Sports violated NCAA rules, the Uniform Athlete Agents Act (UAAA), and the Sports Agent Responsibility and Trust Act of 2004 (SPARTA) based on the financial benefits it provided to Beasley while he retained student-athlete eligibility.  Beasley also named Malone as a third-party Defendant, and filed a separate Six Count Complaint against the co-founder of the AAU team.  Claims include that Malone funneled money to Beasley’s mother from Bell Sports and also violated NCAA, NBPA, UAAA, and SPARTA rules.  Paragraph 51 of the Complaint against Malone reads, “In summary, Third-Party Defendant, in concert with [Bell Sports, Inc.] corrupted every mechanism of honest guidance Beasley had in his life to assist him to pursue the best NBA agent available, which seriously deprived Beasley, both economically and otherwise.”

Michael Beasley v. Joel Bell, Inc. Exposes Dark Side Of Youth Basketball Recruiting from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

John Lennon wrote a song entitled “Nobody Told Me”.  Couldn’t the same be true of professional basketball players when their playing days are over?

Most people could only dream of having a lifestyle like those of NBA players; they are paid millions, eat in the finest restaurants, sleep in the most elite hotels and, due to their status, are able to party and associate with countless entertainers and rock stars.  Often times, though, lives continue to exist in this fashion after the final buzzer goes off.

Statistics show that 60% of the players are broke five years after retirement.   Considering what they are paid, the average John Q. Public in America would likely feel little sympathy for them.  Moreover, how often is the emotional effect on one’s psyche addressed, after a player stops doing the only thing he’s ever known in life?  Certainly, agents and financial advisors do their best to ensure their clients are well taken care of,  but doesn’t it go beyond that?

We who are in the business need to take greater steps vis-à-vis the player’s lifestyle, to assist the players in more ways than we already are.  Though statistics do show a downward monetary trend post-career, they do not indicate that players are broke immediately after retirement. This indicates the agents and financial advisors are helping the athlete save their money.   The players must also be made to realize, however, that unless they are amongst the top five or ten players in the league, they cannot continue the type of lifestyle afforded by the NBA.

It must be emphatically and more continually stressed to the players the gambling must stop.  The entourage must vanish.  The private jets must be downgraded to commercial flights. The clubbing every weekend (or more) is not the “real life”.  The mansions should be downsized to an “average” sized house.  A player’s mindset should be staying in a Hilton Garden Inn rather than the Four Seasons or the Ritz.   Eating out at expensive restaurants is not a “given”, and eating home cooked meals is not only healthier, but it is more cost effective as well.

I submit to you the idea that if a player is made to train his mindset more about life as a whole, in addition to physically training his body,  his transition to post basketball life would be much more smooth as well financially acceptable.

Disclosures.  The information contained herein is neither an offer to sell nor a solicitation of an offer to buy any security.  Past performance is not a guarantee of future results.  Further, the information herein is intended solely to provide general information and does not constitute a promotion of any offerings or products.  Donald J. Kushner is an independent financial advisor with Arque Capital, Ltd., and does business as DK Sports Financial.  Arque Capital, Ltd., and DK Sports Financial are unrelated entities.  Securities offered through Arque Capital, Ltd.  7501 E. McCormick Parkway, Suite 111 North Court, Scottsdale, AZ 85258.  (602) 971-9000.  Member FINRA/SIPC.  Any unauthorized reproduction of this information is strictly prohibited.

Who Talks To Pro Basketball Players After Playing Days Are Over? from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules