Here is an article that I contributed to Holt Hackney’s outstanding Sports Litigation Alert. Lot of other good information there you should check out.
As someone who has represented many business owners and entrepreneurs seeking to shelter their assets from various risks in their lives, I find the Leigh Steinberg situation fascinating.
Steinberg has mostly been portrayed as the prototypical sports agent. He is one of the pioneers in the industry and supposedly the inspiration for the famous movie Jerry McGuire and his “SHOW ME THE MONEY” mantra.
Lately though, Steinberg seems to mostly be on the other end of that line. Rather than demanding money from teams and negotiating record setting contracts, he has apparently been spending a lot of time and effort sheltering his assets and structuring arrangements that would circumvent creditors’ efforts to collect amounts owed on various judgments.
It is a given that many allegations in complaints, especially those against high profile figures, are written primary for the PR value, so that media outlets can sensationalize the allegations. So we have to be careful to accept them at face value. However, when the core of the allegations in multiple complaints filed almost a decade apart have many similar claims about the behavior, we have to wonder whether there is not a great deal of truth to the claims.
David Dunn Litigation
So the current allegations against Steinberg are not a surprise to anyone who followed the landscape shifting litigation between Steinberg and his former partner David Dunn.
Dunn left the partnership and was sued by Steinberg for violating his employment agreement, which restricted Dunn’s ability to leave the sports agency and take clients with him. After extensive litigation, Steinberg won a jury verdict in the amount of $44.6 against Dunn. Dunn was also suspended by the NFLPA for having taken clients in contravention of NFLPA regulations. But for purposes of this discussion, the details which came out about Steinberg during the litigation were very disturbing. Many of these facts came out in sworn depositions and at trial. They included numerous stories about Steinberg’s drinking habits and womanizing behaviors. Even just the brief summaries in the link above show that the trial painted a picture of Steinberg that was far different of anything, which had been presented up to that time. From Steinberg’s perspective, despite winning the enormous judgment, the details significantly and detrimentally impacted his ability to stay at the top of the football agent landscape.
So looking at the current allegations in this spotlight we see that they are not a new development for Steinberg, but rather an indication of how difficult things have become for him in recent years. We covered some of the developments in our FROM THE BENCH-Sports Law Blog post on December 23, 2011. At that point, reports were circulating that Steinberg has missed a court appearance and an arrest warrant had been issued. The reports then circulated that Steinberg was missing and nobody had heard from him. The speed with which the “problems” escalated is more a reflection of the immediacy and urgency of Twitter and other social media than anything about Steinberg, but it fueled the potential concern about whether something had happened to him: illness, accident, suicide? The reality was that Steinberg seemed fine. He came out with statements that the missed court appearance was simply a misunderstanding and that he was not told he needed to be at the hearing. Steinberg claimed that no arrest warrant was ever issued. But one development did come out: Steinberg acknowledged that he had been facing financial issues.
The list of issues reportedly facing Steinberg is extensive:
- $1.4 million judgment for unpaid rent on his Newport Beach office space;
- $900,000 judgment owed to former client Chad Morton for loans taken by Steinberg and his associates (with a jury trial now set for February 21, 2012 for punitive damages);
- Multiple judgments and tax liens including:
- Wells Fargo (2002 loan): $185,258.00
- American Express (purchase balance): $43,516.00
- IRS (tax lien): $17,384.00
- State of California (tax lien): $10,464.00
- Account Management Services: $7,924.25
- The Irvine Company (back apartment rent) $3,051.97
- State of New Jersey $73,041.00 in back taxes.
- Other signs of distress, such as Steinberg keeping a low public access profile with security protection around him that prevents process servers from gaining access to him.
- Testimony from an ex-executive assistant about the efforts of Steinberg to hide assets by putting them in the name of others. This very detailed information provided under oath is among the most damaging and includes claims that Steinberg:
- Put accounts in her name to shield it from creditors
- Put funds belonging to Steinberg’s businesses in those accounts to hide them from judgment creditors
- Co-mingled personal and business funds
- Used the accounts to pay Steinberg’s personal and business expenses including Steinberg’s rent, utilities, child support payments, car lease payments and insurance premiums, medical expenses, entertainment expenses, his credit card, and gifts.
- Took out other loans to pay expenses but hid the proceeds from the loans from judgment creditors.
- Had a girlfriend (also an attorney) set up a Client Trust Account for income of Steinberg so that judgment creditors would not be able to garnish the accounts.
For his part, Steinberg disputes his unavailability by listing the following factors:
- Current office in Irvine is open
- He has thousands of followers on Facebook and Twitter
- He is still involved in various projects in television, film, video games and sports
Despite all of these problems his reputation seems to be surviving intact. He was recently given a platform for additional articles in The National Football Post, one of the leading online publications covering the business of football. But you have to wonder how long Steinberg will be able to navigate the waters of creditor avoidance. Typically, as word of these suits spread, other creditors become emboldened to take more aggressive collection actions to enforce their judgments.
Ultimately a group of creditors may be in the position to file an involuntary bankruptcy petition if they are unhappy with the lack of responsiveness from Steinberg. Such a filing would be a great danger to Steinberg because it could require him to public disclose all of his financial affairs and would subject him to drastic sanctions if he commenced or continued the actions of hiding assets from creditors. It could potentially change the tenor of the acts from “asset protection” to “bankruptcy fraud” similar to what we saw in 2011 when former Phillies and Mets OF Lenny Dykstra faced such charges. Dykstra was accused of selling items without authorization from the bankruptcy trustee and also of underreporting and obscuring his assets.
It will be interesting to see whether Steinberg still throws his lavish party at the Super Bowl in Indianapolis in February. According to reports, last year’s party had over 2500 guests with tickets going for over $3500.
If the allegations about his asset hiding activities are true, and if the proceeds from the Super Bowl party are not reported as income, Steinberg may also have concerns with the IRS.
Based on all the facts listed above, you can see that Steinberg’s problems are not just beginning. Rather than representing a short term blip on the radar, these financial problems have been brewing since the Dunn trial. The current spate of lawsuits are likely to lead to a lot of negative publicity and collection activity in the next 12-24 months. It is hard to see how Steinberg will be able to maintain an active sports business practice under these circumstances. The reality for Steinberg is that despite his victory in the lawsuit against David Dunn, that “victory” was the beginning of his downfall and we seem to be closing in on the end of the road for Steinberg and his leadership presence in sports.