A pair of former players filed a class-action lawsuit this week against the Alliance of American Football, alleging leaders of the defunct spring league concealed its financial status and defrauded players out of millions of dollars.
But to recover damages from a league probably too insolvent to remunerate hundreds of former players, attorneys say they will target the proprietary sports gambling software the Alliance was developing in conjunction with MGM.
That software promised to track player movements in real time and transmit that information almost instantly to mobile devices, giving bettors biomechanical data that they could use in play-by-play wagering.
Colton Schmidt, a punter for the Birmingham Iron, and Reggie Northrup, a linebacker for the Orlando Apollos, submitted their complaint Wednesday in San Francisco Superior Court. The league’s former chairman and chief investor, Tom Dundon, who also owns the NHL’s Carolina Hurricanes, and founder and chief executive, Charlie Ebersol, are named as defendants, along with holding companies that make up the AAF’s corporate structure.
If a jury finds in favor of Schmidt and Northrup, the AAF probably doesn’t have enough money in its coffers to pay damages to hundreds of players covered in the suit. And if league representatives were found liable for a fraud charge, the Alliance’s insurance could balk at paying restitution, said Tammi Gaw, a Washington attorney focused on sports law.
Boris Treyzon, the attorney representing Schmidt and Northrup, said his team probably would look toward the value of the wagering software to make the class-action members whole. Complicating the matter is that MGM reportedly claims complete ownership of the gaming app, which hasn’t been publicly released, thanks to a financing lien filed when MGM invested in the Alliance. The Action Network reported this month that the lien gave MGM ownership of the product if the AAF folded.
Still, Treyzon said that does not deter his suit from examining the platform’s value in recompensing class-action members.
“There is an asset, and we understand that asset has value,” he said. “To the extent that someone came in in bad faith to attain that asset and hurt our players, that has to do with our claim.”
The AAF folded April 2, just eight weeks into the season, after a year’s worth of fanfare about its kickoff.
Ebersol brought on former NFL front-office executive Bill Polian to run the football side of the business and recruited retired NFL greats Troy Polamalu, Hines Ward, Jared Allen and Justin Tuck as league leaders and boosters.
At the Alliance’s introductory news conference, Ebersol claimed the league had $250 million in backing and told onlookers and prospective partners, “If you are not committed to seven to 10 years, you are not taking this seriously.”
The season debuted in prime time on CBS on Feb. 9, and that game was the highest-rated sports program of the weekend.
But the Alliance struggled to make payroll after its first week of regular games. Dundon threw in another $250 million and became the league’s chairman, and he also became involved in the development of proprietary sports gambling software that Ebersol had alluded to during the league’s launch. Seven weeks later, the league shut down.
Schmidt and Northrup allege a whole host of illegal actions, including breach of contract, failure to pay wages, business code violations and fraud.
“Defendants intentionally concealed or suppressed their disregard for the long-term viability of the league intending to defraud plaintiffs and class members and intended to conceal the fact that the league was insolvent,” their lawsuit argues.
They are asking a jury to award them each the $250,000 provided in their three-year contracts with the AAF, plus damages for physical and emotional “pain and suffering,” medical bills and lost potential earnings.
“When you shake someone’s hand and make a deal, it’s understood that things can go wrong, but then everyone needs to be on the straight and narrow, and it seems like that wasn’t the case here,” Treyzon said. “At the end of the day, every deal has to pass the smell test, and this one never did.”
A representative from AAF did not return a request for comment.
One of the league’s former front-office employees, the community relations director of the Birmingham Iron, also filed suit in California alleging the league violated the Worker Adjustment and Retraining Notification Act. It requires employers to provide 60 days’ notice in advance of massive layoffs. The employee, James Earnest Roberson Jr., is also seeking to recover unpaid wages.
The league’s demise was ugly: Players were kicked out of hotel rooms and found their belongings in the lobby and in some cases had to pay hotel bills themselves. Some players were without transportation home from team facilities.
“I think that anybody could bet these lawsuits were coming down the track. I mean, they screwed them. There’s no way around it,” Gaw said. “To not pay for these guys’ hotel rooms? To have their stuff waiting for them in the lobby? That’s a slumlord thing to do.”
Those abrupt measures taken as the Alliance closed up shop were perhaps unfortunate but not necessarily illegal. Where former players probably have a case, Gaw said, is in the contract language and the statements Ebersol and Dundon made about the league’s financial future.
Even if the league were not as viable as they at times claimed — Dundon said his $250 million investment was “enough money to run this league for a long time, we’re good for many years to come” — players had a reasonable expectation the AAF would last more than eight weeks and would make at least a year’s salary.
Misrepresenting the league’s financial status is problematic, Gaw said, and so is potentially frittering away $250 million of investment money.
“If you looked at everybody and said we have all this money in the bank and you lied, that’s where fraud comes in,” she said. “They’re going to have to have an accounting of where this money went."
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