31 January 2007

Optical Illusions

It's my objective, generally speaking, to try to find some way to say "yes" to a client request unless there's no feasible, responsible alternative except to say "no". When it comes to contract drafting, I can recall numerous occasions when I've accommodated a request to put something into a contract for purposes of "optics" -- that is, where the term has no practical effect but appeases someone's sense of how the contract should look. I've found that these little concessions help to get deals done such that the participants in the deal-making don't just receive an appropriate, well-drafted contract, but also walk away with a good feeling about the process and are optimistic about the transaction's prospects.

Whatever their value, however, one has to keep one's perspective and not let the tail wag the dog. In his latest Tuesday Morning Quarterback column, Gregg Easterbrook highlights one contract where the tail was undoubtedly in control:
Last winter, the Tennessee Titans' braintrust was faced with an odd contract clause that required the team to pay Steve McNair either $1 million or $50 million on the eve of free agency. Titans' managers scratched their heads, drummed on the table, gazed off into the distance, took long walks and finally decided that they would rather pay $1 million than $50 million. Attention Bank of Sweden! Maybe the Titans' front office should be nominated for the Nobel Prize in Economics. This puzzling clause was part of the fictional contract that enabled McNair's agent to announce, in 2004, that he had signed his client to a breathtaking "six-year, $100 million contract." In order for those numbers to be realized, Tennessee had to opt to pay him $50 million instead of $1 million in winter 2006 -- which was never terribly likely, was it? McNair changed employers to Baltimore, his "six-year, $100 million" contract ending up lasting two seasons and paying about $11 million. That is, 89 percent of the contract was fictional.

Honestly, does that clause serve the client's interests at all or is it just a sop to the agent's vanity? That "optic" is more a fun-house mirror, distorting the true meaning of the agreement. Still, if you're going to do it, why stop halfway? Why, when he had a pliable client on the hook, did McNair's agent not embrace his inner "Dr. Evil" and make that option year for one billion dollars? After all, "six-year, $1.05 billion" contract sounds much better than the paltry sum for which they eventually signed.

At the other end of the spectrum is a sports-related contract clause which strikes me as eminently advisable (via the Baseball Crank blog):
[San Francisco Giants outfielder Barry] Bonds' $15.8 million, one-year agreement contains a provision giving the club the right to void the deal if he is indicted, but the outfielder's agent says the language is unenforceable under baseball's collective bargaining agreement.

The unusual provision, included in the deal that was completed Monday night, is designed by the team to protect itself in case Bonds is charged in the federal government's steroids investigation. Bonds' personal trainer, Greg Anderson, is in a California federal prison because he has refused to testify whether Bonds committed perjury when he told a 2003 grand jury he never knowingly used performance-enhancing drugs.

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