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Bankruptcy = free agency?

The Sports Law Blog discusses an interesting twist in the Ricky Williams case. An arbitrator has ruled that Williams was in breach of his contract with the Dolphins (no surprise), and is on the hook for $8.6 million (ouch!). The $8.6 million includes $3.3m in pro-rated signing bonus and $5.3m in incentives from the past two years. I don't quite understand the logic of tying incentives for past performance in the scheme, but if that is the language of the contract, Ricky must pay.

Except that he probably can't pay, and may now send the case to bankruptcy court. Apparently, the remnants of his contract won't generate much income should he return to football. As a result, a bankruptcy court could negate the Dolphin's rights to his services, making Williams a free agent so that he could earn millions again, and pay off the debt.

Would this be a bad thing for the Dolphins? Yes, but it's not as bad as it seems. Assume that ill feeling is such that Williams could never play again for the Dolphins. (Think Carlos Guillen of the Angels, who has been suspended for conduct in the heat of a pennant race, despite his ability and potential contribution). For the Dolphins to benefit from the current contract retaining its force, they'd have to capture the difference between what Williams would be due under the contract and his market value at the time. The latter is a very hazy concept at the moment, and indeed might not be very much should the contract remain in force. Unleashing Williams gives him the opportunity to capture - indeed make the effort to restore - his potential market value, and in so doing, pay off his debt to the Dolphins. In the absence of this, the Dolphins might not see much of the $8.6m they are owed.