Brooklyn Sports activities & Leisure Regulation Weblog

In March 2021, Miami-Dade County accredited a naming rights settlement with cryptocurrency platform FTX to rename the Miami Warmth’s house enviornment “FTX Area.”¹ The chance of partnering with a cryptocurrency platform was evident to some: cryptocurrency is a particularly risky trade, and Miami-Dade County’s chief operations officer famous on the time “[w]e acknowledge there’s a danger on this deal, notably with a comparatively new firm in a comparatively new trade.”² Nonetheless, with an consideration grabbing partnership in a brand new trade and a deal at $135 million over 19 years, Miami-Dade County accredited enthusiastically.³

In just below two years, the settlement performed out about as poorly as attainable. In November 2022, FTX filed for chapter in New York following a dangerous enterprise relationship with buying and selling agency Alameda Analysis and an alleged misuse of buyer deposits.⁴ In December 2022, the Securities and Alternate Fee charged FTX’s founder and CEO Sam Bankman-Fried with eight felony costs, together with fraud and conspiracy to commit cash laundering; Bankman-Fried was arrested within the Bahamas and extradited to america.⁵ The implosion of FTX left the Miami Warmth and Miami-Dade County in an uncomfortable place: the identify of a bankrupt firm, led by a presumably criminally liable govt, adorned their enviornment. Regardless of FTX’s tarnished status, the Miami Warmth had been caught enjoying in FTX Area for a number of months till a federal chapter court docket terminated the naming rights settlement between Miami-Dade County and FTX.⁶

Contemplating the high-profile failure of FTX, one might marvel the why Miami-Dade County needed to run to a chapter court docket in any respect. Why couldn’t Miami-Dade County terminate its settlement with FTX instantly? To reply that query, this text will discover the intersection of naming rights agreements and chapter and clarify why it took months for Miami-Dade County to get FTX’s identify off its enviornment. In brief, chapter regulation prevents collectors from emptying a bankrupt occasion’s belongings earlier than it will possibly undergo chapter proceedings, however well-crafted naming rights agreements might enable venue house owners to get out of agreements with bankrupt events as rapidly as attainable.

Table of Contents

Chapter & The Computerized Keep

When an organization or particular person declares chapter, it often implies that one thing has gone horribly improper. A bankrupt occasion is unable to pay all their money owed and must undergo chapter proceedings to both restructure their debt or dissolve their belongings to payout collectors. A chapter court docket facilitates the method of lowering or eliminating unsecured money owed or making a timeline for the manageable compensation of secured money owed of bankrupt events.⁷

When somebody declares chapter, collectors have each incentive to search for the primary door out. When a big firm akin to FTX declares chapter, there are undoubtedly tons of, if not hundreds, of collectors wanting to safe their debt earlier than FTX runs out of cash. Events in an settlement with the bankrupt occasion might wish to terminate these agreements, figuring out the bankrupt occasion is very unlikely to satisfy its phrases.

United States chapter regulation contemplates this creditor feeding frenzy. To that finish, the automated keep provision, triggered instantly when somebody declares chapter, stops all proceedings towards a debtor’s belongings till chapter performs out.⁸ The aim of the automated keep provision is to make sure collectors, of their race to safe their very own debt, don’t empty the bankrupt occasion’s property earlier than chapter proceedings can play out.⁹ As a result of collectors have each incentive to safe their very own debt on the expense of different collectors, the automated keep prevents all actions towards the bankrupt occasion which will deplete their property, broadly together with acts to gather claims towards the bankrupt occasion that arose earlier than they declared chapter.¹⁰

Evading the Computerized Keep

The automated keep provision appears formidable to anybody making an attempt to gather or get out of their relationship with a bankrupt occasion. So how did Miami-Dade County terminate its naming rights settlement? The automated keep provision has a “for trigger” exception, which the court docket might grant on the request of a celebration.¹¹ Whether or not somebody has enough trigger for aid from the automated keep provision is mostly on the discretion of the chapter court docket, contemplating the totality of the circumstances in every continuing.¹² Usually, to ascertain trigger, the occasion searching for aid from the automated keep should present the “steadiness of hardships” from not acquiring aid from the automated keep “suggestions considerably in its favor.”¹³

Miami-Dade County made a compelling trigger that the steadiness of hardships tipped in its favor. First, beneath the naming rights settlement, FTX’s subsequent fee to Miami-Dade County was due in just a few months, and Miami-Dade County would have been entitled to damages for FTX’s failure to pay.¹⁴ This is able to have elevated FTX’s liabilities in the course of chapter proceedings. Moreover, the Naming Rights Settlement had a Compliance with Legal guidelines provision, during which FTX agreed to adjust to relevant statutes, ordinances, guidelines, and laws.¹⁵ The breach of this provision constituted default beneath the Naming Rights Settlement, and entitled Miami-Dade County to termination.¹⁶ Lastly, the identify “FTX Area” on Miami-Dade County’s venue brought about reputational hurt contemplating the magnitude of FTX’s implosion, and any delay in searching for a brand new naming rights accomplice for the sector would value Miami-Dade County income within the short- and medium-term.¹⁷

Finally, the chapter court docket was satisfied. It lifted the automated keep on the subject of Miami-Dade County, and permitted Miami-Dade County to terminate its Naming Rights Settlement with FTX.¹⁸

Escaping Naming Rights Agreements

Going ahead, venue house owners can greatest place themselves to get out of naming rights agreements by giving themselves clear exits for unlawful or immoral habits by companions. The FTX implosion was an embarrassing episode for Miami-Dade County and the Miami Warmth. What might Miami-Dade County have finished in another way so the Miami Warmth weren’t caught enjoying in FTX Area after the corporate’s collapse? It seems, Miami-Dade County positioned itself comparatively effectively.

Maybe Miami-Dade County didn’t even have to hunt an exemption from the automated keep to terminate its Naming Rights Settlement with FTX within the first place. Of their movement, Miami-Dade County acknowledged they sought aid from the automated keep provision “[i]n an abundance of warning.”¹⁹ In different phrases, the venue proprietor might throw warning to the wind, and gamble that the automated keep wouldn’t apply to a default on a naming rights settlement as extreme as FTX’s wouldn’t require an exemption from the automated keep. Such a raffle carries the draw back danger of sanctions for violating the automated keep.

The best choice could also be to do precisely what Miami-Dade County did and pursue contractual cures in court docket as rapidly as attainable. Provisions requiring compliance with regulation and different morality clauses, paired with a proper to terminate for violation of such provisions, present a fast path out of an settlement with an undesirable accomplice. Sadly, regardless of how thorough a naming rights settlement, a venue could have to attend for a chapter court docket to resolve chapter proceedings in an orderly trend.

Naming rights agreements are an important device for up-and-coming corporations to extend their model recognition. Nonetheless, up-and-coming corporations are probably probably the most prone to implosions like FTX’s. Regardless of these dangers, venues are prone to accomplice with corporations who wish to enhance model recognition, and keen to pay the very best value attainable. To guard themselves from corporations failing and relationships deteriorating, venue house owners ought to proceed to wield morality clauses and different provisions to present them as fast an out as attainable when partnerships flip bitter.

Written By: Mathew Santoyo
Mathew is a 2024 J.D. Candidate at Brooklyn Regulation Faculty

¹ Douglas Hanks, Miami Warmth to play in FTX Area after county approves $135M take care of crypto alternate, Miami Herald (Up to date June 24, 2022); see additionally Naming Rights Agreement.
² Id.
3 Id.
4 Suvashree Ghosh, FTX Bahamas Unit Information for Chapter 15 Chapter in New York, Bloomberg (Nov. 16, 2022); David Yaffe-Bellany, How Sam Bankman-Fried’s Crypto Empire Collapsed, N.Y. Instances (Nov. 14, 2022).
5 Dominic Rushe, Kari Paul, Alex Hern, Edward Helmore, FTX founder Sam Bankman-Fried charged with defrauding traders, The Guardian (Dec. 13, 2022).
6 Tim Reynolds, Miami-Dade County wins proper to strip FTX identify off Warmth enviornment, WPTV (Jan. 12, 2023).
7 Sensible Regulation Chapter & Restructuring and Sensible Regulation Finance, The Computerized Keep in Chapter: An Overview, American Bar Affiliation (Sep. 22, 2022).
8 See 11 U.S.C. § 362 (West 2023); Sensible Regulation Chapter & Restructuring and Sensible Regulation Finance, The Computerized Keep in Chapter: An Overview, American Bar Affiliation (Sep. 22, 2022).
9 United States v. Inslaw, Inc., 932 F.second 1467, 1473 (D.C. Cir. 1991).
10 11 U.S.C. § 362 (a)(6).
11 U.S.C. § 362 (d)(1).
12 In re Heine, 2022 WL 883938 (3d Cir. 2022).
13 In re American Traditional Voyages, 298 B.R. 222, 225 (D. Del. 2003).
14 See Movement of Miami Dade County, Florida, For Reduction From The Computerized Keep To Terminate The Naming Rights Settlement, In re FTX Buying and selling, LTD., Case 22-11068-JTD (D. Del. Bankr. Nov. 22, 2022).
15 See Naming Rights Settlement § 35.
16 See Naming Rights Settlement §§ 9.2.2, 9.2.3.
17 Movement of Miami Dade County, Florida, For Reduction From The Computerized Keep To Terminate The Naming Rights Settlement, In re FTX Buying and selling, LTD., Case 22-11068-JTD at 5–6. (D. Del. Bankr. Nov. 22, 2022).
18 Christina Vasquez, Choose guidelines Miami Dade County can take away FTX Area identify from downtown venue, Native 10 (Jan. 12, 2023 7:58 AM).
19 Movement of Miami Dade County, Florida, For Reduction From The Computerized Keep To Terminate The Naming Rights Settlement, In re FTX Buying and selling, LTD., Case 22-11068-JTD at 2 (D. Del. Bankr. Nov. 22, 2022).