Richard T. Karcher is a professor at Florida Coastal School of Law while also serving as director for the Center for Law and Sports. His latest article, Rethinking Damages for Lost Earning Capacity in a Professional Sports Career: How to Translate Today’s Athletic Potential into Tomorrow’s Dollars, delves into a fascinating and complex issue. How does a star athlete get compensated in tort law when his career is ended (or diminished) before it even started? Professor Karcher has a unique perspective on this issue and has served as an expert witness in a related lawsuit. The Legal Blitz caught up with him for this interview.
Discuss the two-step test an athlete must meet to be entitled to lost earnings potential.
The “two-step burden” is a term I made up to describe what I believe to be the two main hurdles for plaintiffs’ attorneys to overcome in recovering damages for lost earning capacity in a professional career. First, the plaintiff must prove that the defendant’s wrongful conduct did in fact cause the plaintiff a loss of the chance or opportunity to earn money in the future as an athlete, which is essentially a factual cause link. Second, the plaintiff must be able to prove the amount of that loss to a reasonable degree of certainty.
One of the main difficulties in this area of law seems to be proving that an athlete would have earned money through professional sports, “but for” the tortious conduct. How do plaintiffs’ attorneys try to prove this seemingly tenuous causation, and what factors does the court consider?
The defendant’s first line of defense is going to be: How can we possibly say today that the plaintiff would eventually become, or continue to be, a professional athlete, or much less that the tortious conduct is the reason the plaintiff will not earn any money (or will earn less money) in the future as an athlete? Well, in response to that, the plaintiff doesn’t need to prove that he would have become, or continued to be, a professional athlete absent the tortious conduct. It’s not an all or nothing proposition. Rather, the plaintiff need only prove that he had the opportunity to become or continue to be a professional athlete, and that opportunity was lost or diminished by the defendant’s conduct. So as a preliminary matter you have to ask whether the plaintiff had such opportunity, which is going to be based upon the extent of the athlete’s skills and physical attributes that existed at the time of the tortious conduct. Obviously we don’t have a crystal ball, but in many ways it’s analogous to a lost profits case whereby the plaintiff must show that, at the time of the tortious conduct, the transaction in question had potential to be profitable and that there was a real and substantial chance the plaintiff would have entered the transaction with a third party. It’s a highly fact-intensive inquiry. In my article I discuss the varying degrees of earning potential that athletes (both amateur and professional) possess, and I explain how scouts evaluate tools and make-up, how some athletes are viewed as “prospects” and how players are determined to be “projectable” as high round draft picks. There are a whole host of factors that go into assessing an athlete’s earning potential, including looking at their previous accomplishments as well as any earnings, and I explain that it is helpful to view it on a sliding scale of earning power, or Earning Potential Range (EPR). For example, a player who was a first round pick has greater earning potential–and is therefore higher on the EPR–than a fifth round pick, and a 6’3″ high school pitcher who consistently throws 92-95 mph is higher on the EPR than a 5’10″ college pitcher with an 8-0 record who consistently throws 85-87 mph.
How does the “lost chance” doctrine fit into calculating damages for an athlete-plaintiff?
The lost chance doctrine, which is often applied in medical malpractice cases, allows a plaintiff to recover for the impairment of the plaintiff’s ability to achieve a more favorable outcome or result that was caused by the defendant’s conduct. For example, suppose a patient has a 40% chance of survival and a doctor’s negligent failure to diagnose or properly treat reduced that chance to 15%. This presents an interesting and complex factual causation question. We could apply an all or nothing approach and merely say that it is more probable than not that the plaintiff would not have survived anyways and therefore the plaintiff is entitled to nothing. But the loss of chance doctrine attempts to achieve a more equitable result and awards the plaintiff the monetary value of the lost chance or opportunity of survival, in other words, the value of the lost 25%. I think, conceptually, the doctrine is applicable and appropriate in the context of valuing an athlete’s lost or diminished chance or opportunity in a professional career because, as I previously indicated, it’s not an all or nothing proposition.
When seeking lost earning capacity, a plaintiff must prove damages with “reasonable certainty.” Can you explain this standard and how it is applied to a situation that appears inherently speculative.
Speculation is inherent in any calculation of damages that compensates the plaintiff today for future loss, simply because we don’t have a crystal ball. For example, there is speculation in trying to assess how much a doctor, lawyer or salesman will make over the next 30 years, or in a personal injury lawsuit assessing the extent and cost of a plaintiff’s future medical treatment and the future pain and suffering that will result. As a result, the law does not impose a standard of absolute certainty but only reasonable certainty. In the context of calculating an athlete’s lost earning capacity, the challenge is coming up with a methodology that is reasonable, logical and reliable, and one that is not too complex for a judge or jury to understand. The methodology used depends upon the particular case — whether the plaintiff is an amateur or professional, whether the plaintiff has a history of wages as an athlete, the nature of the defendant’s tortious conduct, whether the plaintiff is permanently unable to compete or prevented from competing for a limited period of time.
Discuss the “Appraisal Method,” and how it is used to determine an athlete’s future lost earnings.
While athletes are legally characterized as employees of professional clubs and earn wages, they do not exhibit attributes typical of most employees in the work force because they possess unique skills, they are not fungible, they are the “product,” and clubs view them as assets or investments that yield a monetary return over time. An appraisal is the typical method of determining the fair market value of an asset or unique business using sales of comparable businesses with similar characteristics and attributes. The more accurate the comparables, the more confident we are that previous sales of those comparables accurately reflect the appraised asset’s fair market value. So in these respects, I think it is important to utilize a methodology that is akin to an appraisal or one that is based upon comparisons in some way, shape or form, which, again depending on the particular case, might entail looking at similarly situated players based upon performance as well as past and current earnings or perhaps looking at what comparable draft picks received over a period of years based upon where they were selected in the draft.
Talk about the importance of expert testimony when determining an athlete’s lost earnings.
I don’t know how it can be done without the use of expert testimony. And, unlike most cases involving damages calculations, this just doesn’t lend itself well to calculations performed by economists or accountants. It requires a sufficient understanding as to how players are evaluated in the industry and how the market attributes value to those evaluations, as well as an understanding of league rules pertaining to the draft, free agency, etc.
You were retained as an expert witness in Andy Oliver’s lawsuit against the NCAA. Give some brief background on the case what you were hired to do.
Oliver was a pitcher at Oklahoma State who was suspended by the NCAA at the end of his sophomore year (which carried into his junior year) for violating the NCAA’s “no agent” rule because when he was drafted out of high school, rather than negotiate the contract against half a dozen lawyers and front office people working for the club, he had a lawyer negotiate it on his behalf (if you think that is ridiculous and outrageous, don’t worry you’re not alone). I was asked to give an opinion as to whether the no agent rule itself, as well as the enforcement of the rule against Oliver, was arbitrary and capricious. Because hiring a lawyer to look after your best interest in a contract negotiation has no rational relation to “amateurism” and because it violates public policy for a private association to regulate directly or indirectly the attorney-client relationship, the court struck down the rule. I was also asked to give an opinion as to how being wrongfully suspended from competition during Oliver’s draft eligible year impacted his earning capacity as a professional baseball player. Just prior to the scheduled hearing on damages, Oliver and the NCAA settled the case for $750,000 (which included vacating the trial court’s ruling that struck down the no agent rule).
Oliver was suing for diminished potential earnings due to his suspension. How did you prove the factual link between OSU’s suspension, and his lost earning potential? How did you calculate these damages?
Extremely difficult to address in an interview, but I explain it in great detail in the article. First it should be noted that Oliver was not claiming an interest in a future professional sports career nor a property right subject to constitutional due process protection. Rather, he was seeking damages, as a third-party beneficiary to the NCAA’s bylaws, that he incurred due to an arbitrary and unjust suspension, and therefore any authority for the proposition that an interest in a future professional career does not rise to the level of a constitutionally protected property right is simply not applicable here. Oliver’s earning potential as an athlete was very apparent–he is a 6’3″ left-handed pitcher who throws consistently in the low 90 mph range, was drafted out of high school, was heavily recruited by the top college baseball programs, posted unbelievable numbers in the prestigious Cape Cod League, and at one point was ranked the 8th best professional prospect out of all college players by Baseball America, the most widely recognized and reputable amateur baseball publication. So the question was, how does a suspension of a top draft prospect, during his draft-eligible year, impact Oliver’s draft stock, all other things being equal. Such a suspension would preclude Oliver from developing his skills as a pitcher, prevent professional scouts from evaluating him in a competitive collegiate environment against other draft-eligible prospects and affect his value to some degree by some clubs who would view him as a “rule violator”. I was very confident that a judge or jury would fairly easily see that the suspension caused Oliver some harm in the nature of a lost opportunity to maximize his draft stock and bonus, and it was my job to assign a reasonable dollar figure to that harm (or lost opportunity) using a logical and reliable methodology that makes sense. At this point, if the suspense is killing you, you’ll need to read the article.