The Legal Framework to Create a New Sport
THIS IS NOT A SPONSORED POST
When looking at sport leagues such as the NFL, NBA, NHL, or even the PLL, it’s hard to imagine a day when it was not a (more or less) well-known entity. However, like all things, before it sees the fruits of massive success, there is a period of grinding and growth. So hypothetically speaking, what if someone wanted to start a new sport?
Take the case of Canadian based growing sport, PurInstinct. PurInstinct is a sport that combines principles of football, rugby, soccer, and volleyball. It has spread throughout Canada, drawing fans and players running the gambit from elementary school aged children to CFL (Canadian Football League) players. More recently, there have been pop-up events also throughout the United States. I was fortunate to attend the “launch” in Miami on December 18-19th 2021.
My first impression after having played the game is 1) wow this is a lot of running, but seriously fun 2) what’s next for the game? Truthfully, I can see how it’s made a run through Canada and am beyond interested to see it take hold in the States as well. However, this raises a question, if it does gain popularity, what exactly can/will this look like? There are a handful of considerations. 1) if adopted by other schools or even on a pro-level, will there be some sort of league? If so, who or what will oversee it? Additionally, what exactly would this association of sorts look like? 2) What else is necessary in order to help the game become more established.
Talking to PurInstinct creator, Dominique Soucey, one big consideration and step that he is eyeing is setting up a US corporate entity. While this entity form has not yet been determined, there are a couple of routes it could go.
Fans generally see the league format, but very rarely see what goes on in the front office and in corporate offices throughout. Entity formation is crucial for any business in the United States, and there are different options of corporate structure that can impact corporate functions. A cursory overview of six of the most popular are below:
Regarded as the simplest business entity, a sole proprietor is owned by one person (or a married couple) that acts as the sole owner and operator of the “company.” When a business launched and there is only one owner, under the law, it is presumed to be a sole proprietorship, and accordingly, there is no need to register with a state. That being said, the owner may still need to file for local business licenses and permits, and the proper research should be done regardless to ensure that no snares arise while launching the business.
A general partnership is much like a sole proprietorship in that there is an automatic presumption associated with it meaning there is no need to file with a state. When a business is started with two or more owners, it is presumed to be a general partnership, and under this formation, all partners are to actively manage the business and accordingly share in its profits and losses.
The other type of partnership is a Limited Partnership (LP), which is different for a General Partnership in that it is a registered entity. In forming a LP, you have to file the proper paperwork with the state. Also under this entity format, there are “classes” of partners. The first is the General Partner, who owns, operates, and assumes liability and responsibility for the business (including debts), and Limited Partners, who are merely investors. A sidetone, Limited Partners are sometimes referred to as “silent partners”. Also under this entity format, Silent Partners don’t have any control over business operations, pay fewer taxes, and have fewer liabilities associated with their partnership.
A “C” Corporation is an independent entity that exists separately from the company’s owners. A C Corporation has shareholders, who are considered the owners, a board of directors, and officers. Worth noting though albeit unconventional, one person can perform all these functions. With a C Corporation, there are more regulations and laws that the company must adhere to, and these regulations, fees, and filing documents both for tax and formation purposes vary on a state-by-state basis.
“S” Corporations are known for “pass-through taxation,” which allows the corporation’s profits and losses to pass through to the owners’ personal tax returns. Essentially, it allows the business to reap the benefits afforded to a partnership (being tax exempt) while still maintaining the traditional corporate structure. Otherwise, it is incredibly similar to a “C” Corporation.
Limited Liability Company (LLC)
The last most noteworthy corporate entity format is the Limited Liability Company (LLC). Much like the standard corporation, the LLC offers limited liability protection to the owners, but the LLC also have less ongoing requirements and are similar to sole proprietorships and partnerships in that regard. Another noteworthy benefit to this format is the ability to decide how the IRS will tax the company; it can either be treated and accordingly taxed as a “C” Corporation or can be subject to pass-through taxation, making it more like an “S” Corporation.
If someone were looking to start a sport, in addition to deciding what sort of league format it would use, it also needs to think about the business structure, as it will be subject to tax, and the owners will have to decide how to handle liabilities that that company could incur. While this list is not exhaustive, if one were to also consider starting a new sport, these are considerations that must be made if it would like to see long term success.
As it relates to PurInstinct, at least getting started, perhaps it should take the form of a single-entity league. Under a single-entity league, each team would be a registered trademark owned and operated by the league, and accordingly, each team is not its own independent collective, but instead under the governance of the league. Said differently, every facet of every team is owned and operated by the league, ranging from sponsorships to contracts with the players and everything in between. A prime example of a single-entity league in the United States is Major League Soccer. The MLS is a not a collection of franchises, but instead each team does have an owner-operator, but they are shareholders within the league. In the MLS, the league, not individual teams, contract with the players. Under this form, one organization, in this case PurInstinct, would in theory own all the teams, and accordingly be responsible for paying all athletes and handling all other matters including but not limited to sponsorships, media agreements, marketing, and merchandising.
This is different than a multiple-entity league, an alternative to the single-entity league format. In a multiple-entity league, teams opt into the league and in participating, will be subject to the league’s rules and regulations. In theory, under the multi-entity league form, should a team no longer wish to participate, it has the ability to leave the league. As previously mentioned, each team individually is responsible for media agreements, sponsorships, and contracting with players.
An example of a multiple-entity league is the NBA. The NBA is a limited corporation in which each team is a franchise and its own corporation. As each team is its own corporation, each team is subject to different ownership. For example, the Washington Wizards is owned and operated by Monumental Sports & Entertainment, which is owned Ted Leonsis, whereas the Lakers team is technically owned and operated by the Buss Family Trust, in which Jeanie Buss is the controlling owner. Under this form, each team individually, not the league itself, contracts with the players. As previously mentioned, under this form, should Leonsis not like the direction the NBA is going in, in theory, he could leave the league. Additionally, each league reserves the right to revoke a franchise/club.
While I will not comment on what corporate structure it should take, these are the possibilities, and it would be a good move to weigh the pros and cons and also consult with an attorney to make the best decision. As for the part that the fans see, I do firmly believe that at least starting out, a single-entity league is the way to go. I’m excited to see what’s next for the game and highly recommend anyone looking for something new to check out how to get involved or even how to play the game and try it out in their own respective communities. More information on the game can be found here.
Stephon Burton is a 3L at Duquesne University School of Law in Pittsburgh, PA. He obtained his undergraduate degree from Washington & Jefferson College in 2019. He can be contacted via email at firstname.lastname@example.org, on twitter @stephonburton3.