With Robert Vanech Lawsuit, The AAF Continues to Face Roadblocks

Facing a lawsuit from Robert Vanech, the AAF must stay focused on its core business so that it does not end up like the USFL

The Alliance of American Football (AAF) continues to stay in the headlines, but not for the right reasons.  The AAF’s season started with a bang when it debuted on February 9th receiving impressive ratings by drawing in 2.9 million viewers.  There was a significant buzz surrounding the league with its potential to be a supplemental league to the NFL, as well as its potential to capitalize on legalized sports gambling with its new proprietary technology.

Following this promising opening weekend, however, it has been a spiral downwards for the Alliance of American Football.  Last week, amid reports of not having the funds to meet payroll, the AAF was bailed out by billionaire investor and current Carolina Hurricanes owner Tom Dundon.  Dundon made a $250 million investment in the league, thereby making him the league’s new chairman.

AAF co-founder Charlie Ebersol refuted reports that the new league was having financial troubles that could force it to miss payroll.  Rather, Ebersol claims that Dundon made an investment in the league based on its early positive reviews.  Ebersol further explained that the AAF is a startup business and startup businesses raise money in increments such as Series A, B, and C investing rounds.  Therefore, according to Ebersol, Tom Dundon’s $250 million investment in the AAF was just that, a sizeable investment into a startup business.

Now, Charlie Ebersol and the AAF face a lawsuit from Los Angeles businessman Robert Vanech.  On Friday, Vanech filed a lawsuit against Charlie Ebersol and the Alliance of American Football alleging that Ebersol has stiffed him of 50% ownership in the league.  In paragraph 6 and 7 of his complaint, Vanech alleges that in February 2017 he had a “handshake agreement” with Ebersol to start the league.  Therefore, Ebersol is seeking to have the court declare that he is 50% owner in the AAF.

Vanech alleges that Ebersol and himself held themselves out to the public as equal partners.  Paragraph 36 and 55 of the complaint state that Ebersol and Vanech created a business plan that displayed Vanech as COO and CFO.  Part of the business plan was attached to the complaint and is included below:

Vanech Lawsuit Paragraph 55

Then, in paragraph 81 of the complaint, Vanech alleges that Ebersol met with venture capitalist Keith Rabois who wanted some of Vanech’s equity in the league.  Consequently, Vanech alleges that a conspiracy was formed to oust him from the AAF.  In the following months Ebersol “ghosted” Vanech, ignoring Vanech’s messages until he cut out Vanech for good.  In paragraph 91 of the complaint, Vanech provides a text message conversation between Ebersol and himself on July 5, 2017, where Ebersol ousted Vanech from the project and denied having any agreement with him.  The text message conversation is seen below:

CE and BV Text Messages 1

CE and BC Text Messages 2

July 5, 2017 Text Conversation Between Charlie Ebersol and Bob Vanech

Central to this lawsuit is the proprietary technology platform that the AAF has developed.  As we discussed in a previous post, this technology has the potential to revolutionize gambling by providing for in-game betting on play outcomes.  Vanech claims that he invented this proprietary technology.  In paragraph 6 of the complaint, Vanech claims that in his first meeting with Ebersol he outlined his ideas for the new league.  In this meeting, Vanech proposed a partnership that would “commercialize and monetize his revolutionary ideas that included a fully integrated mobile phone application to allow fans a new football league experience involving gaming, real-time application of biometrics and big data, a proprietary fantasy concept, new ideas around digital distribution and social media, local selection and drafting of hometown players, meaningful educational opportunities for players’ life after football, innovative health and wellness initiatives and the concept of the ‘Alliance.’”

If this technology is anything close to what the AAF claims it to be, Robert Vanech will not be going down without a fight.  However, with early financial struggles, the AAF will not want this lawsuit to linger.  The AAF cannot afford to follow in the footsteps of the United States Football League (USFL).  Similar to the AAF, the USFL was struggling to stay afloat when it sued the NFL for violations of the Sherman Antitrust Act.  The USFL technically “won” its case against the NFL, but was awarded damages of only $1.  Because Antitrust cases provide treble damages, the USFL received a total award of $3.  The USFL subsequently appealed the award to the Second Circuit of the United States Court of Appeals, but this appeal failed.  This ended any chance of the USFL succeeding, as the league was $160 million in debt, and the USFL owners voted to disband shortly thereafter.

USFL NFL Antitrust Case

The AAF must tread lightly so it does not end up like the USFL.  The AAF has already had a tumultuous start to its season.  This lawsuit is now just another issue that the AAF must handle. However, with rumblings of financial trouble already, the AAF must stay focused on growing its league to stay viable.  With NCAA football in flux and the NFL’s viewership declining in recent years, there is a clear market for the AAF.  If the young league cannot make it through these growing pains, however, it will no doubt be grouped in with the USFL as a group that could not coexist with the NFL.

 

Photo Courtesy:

Ben Brinker – https://www.bizjournals.com/sanfrancisco/

Vanech Complaint – deadspin.com

Darren Rovell – pressofatlanticcity.com

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