In June, the Toronto Raptors won their first National Basketball Association (NBA) championship, bringing joy to their fans throughout Canada. Those fans will likely have less to celebrate next season, because Toronto’s star player and now-two-time NBA Finals MVP Kawhi Leonard then signed as a free agent with the Los Angeles Clippers. Leonard apparently agonized over the decision, grateful as he was to the Raptors for building a championship team around him, but in the end, the attraction of returning to his native Southern California to play for another contender was too tempting.
That’s just the way it goes, right? When professional athletes become free agents, they can sign with whatever team makes them what they regard as the best offer.
Yet if Leonard’s departure from Toronto as a free agent is simply part of the game, what are we to make of players leaving their teams by demanding to be traded while they remain contractually obligated to those teams? Leonard will be joined on the Clippers by one of last season’s three MVP finalists, Paul George, who demanded and received a trade from the Oklahoma City Thunder with three of the four years remaining on the contract he signed just last year. And the Clippers will share an arena with the Los Angeles Lakers, who will team all-time great Lebron James with newly acquired perennial all-star Anthony Davis after Davis demanded and received a trade from the New Orleans Pelicans.
In light of the successful trade demands by George, Davis, and others (including George’s erstwhile Thunder teammate Russell Westbrook, now-former New York Knick Kristaps Porzingis, and, let us not forget, Leonard himself when he was a San Antonio Spur), Golden State Warriors head coach Steve Kerr recently objected. Moves like these, Kerr said, are “bad for the league.”
NBA fans might think it hypocritical of Kerr to lodge this complaint. As a key role player on five championship teams that were loaded with talent, and as the coach of a team that has won three championships and been to the NBA finals in each of his five seasons, Kerr seems like the last person who should be heard to object to star players seeking to join other star players.
Yet Kerr did not mean that moves by the likes of Davis and George are bad for competition. After all, the salary cap and revenue sharing constrain large-market teams’ ability to stockpile superstars. No, Kerr drew a sharp distinction between free agents moving teams and players under contract demanding to be traded. He said: “When you sign on that dotted line, you owe your effort and your play to that team, to that city, to the fans. And then it’s completely your right to leave as a free agent. But if you sign the contract, then you should be bound to that contract.”
Kerr thus expressed the view that contracts create a kind of moral obligation. I suspect that many people hold a similar view. And yet, the law has long recognized a quite different view. Under the doctrine of “efficient breach,” a contract does not create an obligation to perform; it only creates an obligation to pay damages if one chooses not to perform. Kerr certainly knows basketball, but did he get the law of contracts wrong?
Efficient Breach and Damages
Suppose Jane makes a contract with Bob for Bob to sell Jane his 2011 Honda Civic sedan. Based on the car’s mileage, condition, and Bluebook value, they agree on a price of $10,000, with Jane to take delivery in a week. However, two days before Bob plans to deliver the car to Jane, Elaine sends him an email. She saw Bob’s ad and she thinks the car he is selling, which he himself bought used in 2017, was Elaine’s first car. It has sentimental value to her. She offers Bob $12,000 for it. What should Bob do?
Steve Kerr might say that Bob has to forgo the extra $2,000 and sell the car to Jane, because he signed on the dotted line with Jane. But putting aside various special regulations that states may enact, that’s not what contract law traditionally says. Contract law allows Bob to breach his contract with Jane and sell to Elaine.
Isn’t that unfair to Jane? Not really. Bob’s 2011 Honda Civic is not special, except to Elaine. Jane can now buy a different version of it. Indeed, she has a duty to do so. In contract law, we say that Jane has a duty to “cover,” i.e., to mitigate the loss. If Jane gets an even better deal than she made with Bob, then Bob has no contract liability to her. If she gets a worse deal—perhaps the best price she can find for a comparable car is the $10,500 that Joe wants for his Civic—then Bob needs to pay damages to put Jane in the same position she would have been in had Bob performed the contract. In this example, that means Bob would pay Jane $500. Jane ends up just where she would have been, while Bob nets an extra $1,500.
To be sure, in the foregoing example, you might still think the result is unfair to Jane. Bob could have sold his particular Civic to Jane for the $10,000 and then Jane could have turned around and resold it to Elaine for $12,000, whereupon she would pay $10,500 for Joe’s Civic. Everyone would end up with (and without) the same cars, but Jane rather than Bob would pocket the $1,500 surplus.
That is a fair criticism. It shows why the idea of “efficient breach” is “efficient” only in the sense of so-called Kaldor-Hicks efficiency, which does not pay attention to distributional questions like the one just raised. And, as I shall explain momentarily, in some circumstances, when goods are considered unique, specific performance will be required. In those cases, efficient breach does not apply. Nevertheless, the very concept of efficient breach—and its widespread availability in contract—shows that in general the law does not impose an obligation to carry out one’s end of a bargain; it imposes only an obligation to make the other party whole if you do not.
From Basketball to Opera
But wait. What has any of this to do with star professional athletes, whose services surely are unique? Although statistical analyses of sports now routinely include such categories as the number of wins a particular player adds above an average replacement player, professional athletes are not simply packages of statistical production. It might be possible to replace Anthony Davis’s scoring, rebounding, and defense with some combination of above-average players, but star players bring other qualities, like leadership and excitement. As Kerr observed, fans form emotional connections with particular players, not just with the WAR (wins above replacement) such players provide.
Accordingly, the law might treat the services of a star player as unique, in the same way that the law treats a particular parcel of real estate as unique. Whereas the breach of a contract for the sale of interchangeable commodities gives rise only to a claim for money damages—because the disappointed buyer can simply purchase replacement commodities on the market and sue for the difference in price—courts will order specific performance for unique goods.
But now we encounter a further wrinkle. A basketball player’s contract is not a contract for goods. It is a contract to provide a kind of personal services—making use of the player’s body and skill. Even apart from concerns about involuntary servitude that arise under the Thirteenth Amendment, courts typically do not order specific performance of such contracts. The leading case involved an opera singer.
In the 1852 English decision of Lumley v. Wagner, the court acknowledged that it lacked the power to order Johanna Wagner to sing for three months at Her Majesty’s Theatre, notwithstanding her contractual obligation to do so. Nonetheless, the judge explained that he could do the next best thing, by forbidding her to perform at the rival Royal Italian Opera, Covent Garden during the period of the contract. Although the contract with Her Majesty’s Theatre contained an express non-compete clause, the judge said that if Wagner “had attempted, even in the absence of any negative stipulation, to perform at another theatre, she would have broken the spirit and true meaning of the contract . . . .” For generations since, first-year contracts professors have used Lumley v. Wagner to illustrate the proposition that while courts cannot typically require people to perform personal services, negative injunctions are permissible.
If, instead of acceding to Davis’s trade demands, the Pelicans had gone to court, they could have obtained an order forbidding Davis to play for a rival team and/or to pay them back his salary for games he refused to play.
Good Faith and Fair Dealing
Yet everyone knew all along that Davis was not going to just start playing for the Lakers or any other team but the Pelicans without a trade. And even if a judge issued an order to Davis forbidding him from taking his talents to another team, that would not ensure that Davis would play well for the Pelicans. The very factors that lead courts not to order specific performance of personal services contracts also limit the utility of negative injunctions. Forbidden to sing at Covent Garden for more money, Wagner might have resented the owners of Her Majesty’s Theatre and given each aria less than her best effort.
Something like that happened with Davis. Looking to the post-Davis future, the Pelicans reduced Davis’s minutes. Davis, in turn, may have been grateful for the reduced risk of injury. Once it was clear that Davis wanted to leave, his continuing to be under contract with the Pelicans was at best awkward.
To be clear, the problem that arises when a star player with substantial time remaining on his contract demands to be traded is not a question of the player’s legal obligation. Contracts come with an implicit obligation of good faith and fair dealing, so even a player who wants out must provide his best effort for the team.
The problem is that the law does not and cannot fully enforce the obligation of good faith and fair dealing during an ongoing contract for personal services. If a star player’s scoring average dips, who can say whether he is tanking or just in a slump? And even if he is tanking, his current team will have an impossible time proving it in court and then getting a damages remedy. The only sure remedy available—an order barring the player from joining a competing team, as in the opera singer case—is unnecessary and therefore unhelpful.
Accordingly, it looks like Kerr was right after all. Although he was perhaps confusing the issue by using moralistic language, Kerr might have meant that because the legal remedies for enforcing sports contracts are inadequate, the NBA and its fans must rely on the consciences of individual players to honor the obligation of good faith.
In that regard, professional basketball is not that different from just about every other human endeavor. As Donald Trump illustrated in his pre-political career in business, someone who holds others to their bargains but does not feel bound to pay his outstanding bills can get away with an awful lot, because even when the law provides a full remedy in theory, stiffed contractors and others will face stonewalling and long delays before they get paid, and may have to settle for pennies on the dollar. There may be no moral obligation to fulfill all the terms of a contract, but there is a moral obligation not to be a jerk.