Maintaining NCAA eligibility and accepting gift certificates
Nasir Pasha & Matt Staub

Maintaining NCAA Eligibility and Accepting Gift Certificates [e134]

The guys kick off the year by discussing the lengths a college QB has to go through to prevent profiting from his name or likeness and remain eligible with the NCAA.  They also answer, “I purchased a business and did not realize that there are all these gift certificates out there (I don’t know exactly how many) that customers keep coming in with. Since I had no knowledge of these certificates, do I have to honor them?”

Transcript:

NASIR: All right. Welcome to our podcast where we cover business in the news and answer some of your business legal questions that you, the listener, can send in to ask@legallysoundsmartbusiness.com.
Welcome to our first new episode of 2015. My name is Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: We’re recording this in 2014 but I think the most frustrating thing is just getting the dates right on these contracts. We get to make sure we put in 2015 instead of 2014.
MATT: Yeah, that’s the biggest challenge. I don’t want to change any words – just the date; just the year.
NASIR: Exactly. All these new contracts we’re signing and drafting.
So, let’s start off the new year correctly with a football issue.
MATT: New Year’s Day is always a big day for college football. I’m trying to think, when this comes out, I think we’re in-between the first round of the college play-off and the championship game.
NASIR: Okay.
MATT: The person we’re going to talk about is not someone who’s going to be playing in that because his team didn’t make it. Dakota “Dak” Prescott is suing a t-shirt company who is using his name or likeness. The shirt is this, it’s “Dak Dynasty” with a picture of their mascot bulldog and with the Duck Dynasty beard on it and a phrase on it, “That’s a Fact, Dak!” It’s all right, I guess.
NASIR: Very clever.
MATT: Yeah, so this company’s making this shirt and selling it. I’m going to take Prescott’s word for it that he’s not involved in it at all, so much so that the NCAA basically, the rules are in place saying that he has to take some sort of action to stop them selling the shirt and making money off it because, as an amateur athlete, he can’t make any money or else he loses his amateur status and then he can’t play college football anymore. So, like I said, he’s not involved in this and this company initially refused to take it off the shelves – or virtual shelves, I don’t know if they’re selling it online or in stores. But he has to go as far as to sue them in order for them to stop so he can retain his amateur status which, to me, is pretty crazy.
NASIR: Yeah, that doesn’t seem fair. I mean, all of a sudden, because you’re doing well in college sports, now you have to actually pay an attorney that you’re not getting paid anyway. I think, just like Johnny Manziel, I think there’s an NCAA fund for these kinds of things, right?
MATT: Yeah, he used – was it the NCAA Opportunity Fund? “It helps student athletes,” here’s how they put it, “…when they can’t afford certain things such as legal action or travel home due to family emergencies.” So, he’s not paying, at least.
NASIR: Well, I hope not, but it is strange that the actual bylaw – which is, by the way, for those that are interested, is 12.5.2.2 of the NCAA bylaws – some action, right? It doesn’t really necessarily describe what an action exactly that is required. It seems like a demand letter would be sufficient but I guess that’s what the fund’s for and some lawyers have to get paid. That’s what we do.
MATT: Yeah, he might have just been advised to just do this as a just in case because you never know if the NCAA, how they’re going to rule on things. They kind of seem to be all over the board in terms of who they rule eligible and ineligible every year so I would tend to agree with him or whoever advised him to air on the side of being overcautious just because you’d never know what the NCAA is going to do; they’re just a wildcard.
NASIR: And some of the concern is the earning potential of the name or likeness of this – what is it? – Dak Prescott, is that his name?
MATT: Yeah.
NASIR: I’ve never heard of him. What do you think? If this was let go and these people were allowed to continue to sell these t-shirts, wouldn’t his name brand be even better by the time he graduates or is that basically the point?
MATT: I’d think that’s the NCAA’s argument and why he can’t do that but it’s still ridiculous. I can’t imagine he did this himself. First of all, you don’t give yourself a nickname so I doubt that he came up with this “Dak Dynasty: That’s a Fact, Dak!” – any of this stuff. like I said, the logo in it is their mascot with a Duck Dynasty beard. I mean, the only involvement is his name is being used. The fact that he had to sue this company to stop doing it is just kind of insane.
NASIR: Well, basically, what the NCAA is doing is making sure that they are the only ones profiting from his unpaid labor. You know, god forbid, we don’t want anyone else doing that as well.
MATT: Yeah, I mean, that’s kind of how things work, I guess, with the NCAA. Really, it’s all about that bottom-line for them.
NASIR: Do you think that’s ever going to change? I mean, I know we’re talking about basically a topic that every sports radio show talks about all the time but what are your thoughts? From a legal perspective, is the trend going in any direction or are we just going to see it like this for the next ten years?
MATT: In terms of the athletes getting paid or the student athletes?
NASIR: Yeah, or even these kinds of private sponsorships or these restrictions of, you know, third-party sponsors and things like that.
MATT: I don’t think the athletes are ever going to get paid just because they get tuition and room and board if they get a scholarship so that’s basically like getting paid right there. If you start paying the athletes, it’s just going to be a very slippery slope because then there’s too many crazy things that are going to go on. I mean, think about this; if you’re an 18-year-old kid and you’re getting all these financial offers to go play at these schools, there’s so many bad things that can go wrong. Like, 75 percent of professional athletes can’t even handle this correctly. You’re going to expect a bunch of teenagers to handle the money thing correctly?
NASIR: I’m sure this has been discussed already. We’re not discussing anything new, but I’m sure there are alternatives – alternatives of paying into a trust that may not be released upon until graduating or some other alternatives like that. I mean, obviously, there are also plenty of athletes that have went straight into the NBA from high school and did okay. Money – for anyone, frankly – has corruption lined with it.
MATT: I think that’s Michael Scott’s belief because he has that quote. Kobe Bryant didn’t go to college; Tracy McGrady didn’t go to college; somebody else. Like, they did fine. There’s all these professional basketball players.
NASIR: Exactly.
MATT: Good argument.
[MUSIC]
MATT: All right. Well, question of the year so far – 2015.
NASIR: Our first and only question of the year.
MATT: It’s a 150-part question. This is part one.
“I purchased a business and did not realize that there are all these gift certificates out there – I don’t know exactly how many – that customers keep coming in with. Since I had no knowledge of these certificates, do I have to honor them?”
NASIR: Oh, no state? I really wish this person gave a location here. Very important when you send in a question to give your location – most of the time, I would say.
Gosh, a couple of issues here, right, Matt? I mean, we have gift card law and gift certificates which is one issue, but then also the aspect of buying a business. When you buy a business, do you automatically take on all the liabilities of that business, including any kind of gift certificates or even coupons out there, and do you have to honor them?
MATT: Yeah, luckily, I took a gift card law class in law school.
NASIR: Oh, perfect. That’s a huge area of law, right?
MATT: Somehow, we stretched it an entire semester. I don’t know how.
NASIR: I took a Black Friday law just one day of the year covering that. It’s a whole different issue.
MATT: So pertinent. But, yeah, I mean, on the purchasing side, you know, it’s really going to depend. I don’t think we have, what did he say? “I purchased a business” so we don’t know if that means they purchased the assets or if they purchased the equity of the company. You know, if they purchased the equity, then you kind of just bought everything – not “kind of” – you bought everything and now you’re stuck with the good and the bad.
NASIR: That’s right.
MATT: That’s why, if you’re going to do that route, you need to do some due diligence to make sure that it’s all okay.
NASIR: Yeah, almost always, the best way to structure an acquisition is an asset purchase. I mean, there may be some tax considerations and other aspects that may change that general rule. When you buy the assets, you can also choose to assume certain liabilities for which may be part of the deal. In other words, the company may refuse to sell you the company unless you also take on this lease or what have you. But, in my mind, gift certificates are definitely a liability and, if it’s structured properly, you shouldn’t have to honor that. But let’s just say, for discussion, that this was an equity purchase, right? So, now, even though Matt’s the gift certificate, gift law, or gift card law expert here, I am going to give my two cents as well – and please correct me if I’m wrong, Matt, but – there’s a national standard that gift cards don’t expire within five years. It’s a law that was passed in – I don’t know – a few years ago. It’s actually not too new or I should not too old. Now, it’s 2015, it’s been years – one more year longer than it would have been if I had this episode weeks before. Anyway, I’m getting distracted.
If you’re in certain states, almost every state has its own laws. I know, in California, I don’t believe they ever expire so that’s something to consider when you’re buying a business with any kind of retail environment or non-retail that would have this gift card liability out there.
MATT: Unfortunately, when I took that class, all the laws have changed so I lost all of my knowledge of gift card law.
NASIR: Aww. Yeah, the law was passed; it looks like the national law was passed in 2009. I think gift card law for California has been around for a while.
MATT: In 2010 it looks like.
NASIR: Okay. I was going to say four years but five years.
Also, keep in mind that you can have expiration dates with gift cards and there are some exceptions to the rule when it comes to California if you put it in within the actual gift card and things like that – as we clearly printed on the card – but this was a huge issue with Groupon when Groupon became really popular, right?
MATT: Yeah.
NASIR: Because, whether they were considered gift certificates or not and the expiration dates were properly placed and then there was the whole issue that you were paying money and you may not be eligible for that coupon within a certain period of time but you at least were able to apply that as money paid to that particular store.
MATT: I feel like we’ve talked about that before on some story that’s happened with a company not honoring. There was the details in the Groupon that they weren’t honoring – not how long it’s been open.
NASIR: I’m trying to remember if we have to cover that but, yeah, it was the one where it was about a fixed menu or not, right? That was just not too long ago.
MATT: Yeah.
NASIR: It was that lawyer that did the same thing, right? He made all this issue at that restaurant that didn’t honor the Groupon.
MATT: Yeah, that’s right. I’m going to say probably yes to this question, that he’s going to have to honor them.
NASIR: If you have an equity purchase and you actually have assumed those liabilities then most likely. It depends upon whether maybe you’re in a different state, maybe it’s been more than five years and it didn’t have those kind of requirements, I don’t know.
MATT: Most likely yes, though.
NASIR: All right. So, takeaways for today? Don’t play college sports and expect to get paid.
MATT: Yeah. Don’t be good at college sports and…
NASIR: The reality, for this question, you should know – this person should know the answer to this question whether they should be liable for these gift certificates before actually purchasing the business. It’s a pretty key question, you know?
MATT: That was my takeaway. Do you due diligence of the business before you purchase it. I mean, they might have and maybe it was just hard to figure out.
NASIR: Hopefully the seller didn’t hide it or something like that.
MATT: Yeah, because you don’t want a situation where the seller was trying to just make a bunch of money quickly right at the end before they sold it and then the purchaser is going to end up suffering from that.
NASIR: It says gift certificates are redeemable for products or services then it should be a line item as a liability in the books so, if it wasn’t there, then I would definitely raise issue of that, for sure.
MATT: Yeah.
NASIR: All right. Well, thanks for joining us everyone.
MATT: Yeah. Keep it sound and keep it smart.

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