Mohamed Sanu Wins $1.1 Million Arbitration Award Against Fantex

On November 21, 2021, 49ers’ wide receiver and NFL veteran Mohamed Sanu was awarded $1,147,593.60, resulting from a JAMS arbitration proceeding against Fantex. Last month, Sanu filed a petition in San Francisco County Superior Court to confirm the arbitration award and enter a judgment thereon. The arbitration was entitled: Fantex Inc. v. Mohamed Aasin Sanu, and related Counterclaims, JAMS Arbitration No. 1100107319 (Hon. Jay Gandhi (Ret.) presiding). The Arbitration Hearing was conducted over three days, on June 25, June 28, and July 2, 2021.

Fantex was launched in 2013, providing a unique investment opportunity to sports fans: the ability to buy and sell stock in individual athletes. The year Fantex was founded, Mohamed Sanu was selected in the third round of the NFL draft to play wide receiver for the Cincinnati Bengals. Sanu was the third athlete to sign a brand contract with Fantex. Only Vernon Davis and EJ Manuel had deals with the company before him. Sanu signed in May of 2014; a $1.6 million fee to Sanu in exchange for a 10% equity stake in Sanu’s future brand-related earnings. In November 2014, Sanu’s initial public offering went up and fans could officially “trade” his stock.

Sanu spoke with Fortune.com about his vision and taste for business:

“Definitely, Fantex is part of that, because I’m using football as my platform to catapult myself into business and learn more about business. I want to be a successful businessman outside of football. I’ve done being a successful football player, but I’m just learning about how business works. Even doing interviews like this, and talking to other business owners and picking their brain, learning how they established themselves, how they got started… You have to be real gritty with things like that, you need the determination to learn these things.”

Player stock prices mirrored their on-field production or popularity. This was a novel and creative idea from Fantex, though one that didn’t work out long-term. Sanu’s stock started at about $10 a share. After he posted career-highs in catches (56), yards (790) and touchdowns (5) in 2014, the stock rose to $13 a share.

According to the Arbitration decision, though Fantex sold 164,300 Sanu shares at $10 per share, the IPO failed to raise the amount necessary to pay Sanu under the Brand Agreement. Instead, as disclosed in Fantex’s Prospectus, certain Fantex directors entered into standby purchase agreements to purchase up to approximately 59% of the Offering, thereby raising the remainder necessary to pay Sanu and close the deal. That day, Fantex paid Sanu the $1,560,000 purchase price pursuant to the Brand Agreement.

Overall, Fantex signed contracts with eleven athletes and completed six IPOs worth a total of $25.8 million. However, in August 2016, the company closed its platform to individual investors, and in March 2017, the company's CEO and co-founder, Cornell French, left Fantex. Sanu stopped paying Fantex 10% of his future brand income in January 2019.

On October 28, 2019, Fantex filed a demand with JAMS. Fantex claimed Sanu breached the parties’ Brand Agreement by failing to continue making brand income payments after January 2019. Fantex sought an accounting and payment of what Sanu owed under the Brand Agreement to that point. Sanu filed his counter-claims on November 4, 2019. Sanu claimed Fantex (1) breached the Brand Agreement by shutting down the Platform in August 2016; (2) breached the covenant of good faith and fair dealing by refusing to factor the shutdown of the Platform into negotiations with Sanu to terminate the Brand Agreement; and (3) fraudulently induced Sanu into entering the Brand Agreement with promises of endorsement deals. Sanu also alleged Fantex violated California’s Miller Ayala Athlete Agents Act.

On the heels of Fantex's trading shutdown, Sanu attempted to terminate the agreement between the parties. The parties could not agree to mutually satisfactory terms. Sanu was aggrieved that he was obligated to pay 10% of his future earnings in perpetuity to Fantex, without the benefits of the trading platform. Litigation followed.

According to the Arbitration decision, Fantex contended that Sanu breached his contractual obligations by refusing to continue payments to Fantex and sought its percentage of the remainder of Sanu’s earnings owed to date. Sanu believed the benefit for which he bargained no longer existed and that he was deceived into signing with Fantex in the first place. Sanu sought the nullification of the Brand Agreement and a return of the monies paid to date or, at the very least, a finding of no further obligations owed.

Arbitrator Gandhi held the following: “[O]ne must give due credit to the Brand Agreement as written and the parties’ course of conduct surrounding that contract. Accordingly, in the face of Sanu’s contractual and fraudulent inducement claims, the law and the evidence support Fantex’s position. Equally, one must give due credit to the Miller-Ayala Athlete Agents Act (the “Act”) as written and the parties’ course of conduct surrounding that Act. The Act is a broad and sharp statute enacted in California to govern athlete agents and protect athletes. While, for instance, Fantex may assert that it engaged in holistic brand advancement only, Fantex’s internal records, among other things, exhibit that Fantex acted “on [Sanu’s] behalf” to secure particular endorsement deals, including a “paid appearance” – conduct within the purview of the Act. That evidence and similar evidence cannot be lightly cast aside. The Arbitrator is understanding of Fantex’s viewpoint. The Arbitrator is mindful that any line crossing of the Act may seem unintended, or de minimis, or unequal. In the end though, on this specific record, including the entirety of the factual circumstances here, Sanu’s position that Fantex ran afoul of the Act is supported by the law as written and the proffered evidence. In the end, the Arbitrator is bound to follow both.”

The Final Award thereupon declared that: “As a result of Fantex’s violation of the Act, Sanu [sought] a finding that the Brand Agreement is null and void, .... Sanu is entitled to the remedy he seeks pursuant to Section 18897.9 of the Act. [ .... ] Accordingly, the Brand Agreement is void and unenforceable.”

Sanu successfully claimed that Fantex acted as an athlete agent under the Miller-Ayala Athlete Agents Act. Cal. Bus. & Prof. Code § 18895, et seq. The Act is a quasi-criminal statute that encourages private litigants to protect their interests in the face of improper or unethical contracts involving professional athletes. Cal. Bus. & Prof. Code § 18897.8. Specifically, Sanu pointed to examples of Fantex’s interactions with third parties and contended that Fantex promised, offered, attempted, and negotiated with potential endorsers to obtain endorsement contracts for Sanu in violation of the Act. Fantex argued the Act is not applicable to the relationship between Fantex and Sanu because the Brand Agreement and Fantex’s relationship with Sanu did not meet certain contractual definitions described in the Act.

According to the Arbitration decision, the reasoning for the final award is summarized by the following: “As a result of Fantex’s violation of the Act, Sanu [sought] a finding that the Brand Agreement is null and void, as well as a return of the monies paid by Sanu to Fantex in the amount of approximately $1,970,000. Sanu is entitled to the remedy he seeks pursuant to Section 18897.9 of the Act. Bus. & Prof. Code § 18897.9(a) (“Any agent contract that is negotiated by an athlete agent who fails to comply with this chapter…is void and unenforceable.”). The Arbitrator has found that Fantex acted as an athlete agent and that the Brand Agreement was an agent contract under the Act’s language. Accordingly, the Brand Agreement is void and unenforceable. The parties should return to the financial state in which they found themselves prior to execution of the Brand Agreement. Fantex must return the amount paid by Sanu to Fantex during the life of the Brand Agreement. Similarly, Sanu must return the amount paid by Fantex to Sanu in connection with the Sanu IPO.”

The Arbitrator also awarded $533,775.00 in total attorney’s fees to Sanu’s counsel for services relating to this matter and $203,818.60 in costs. Sanu is currently on injured reserve and is questionable to return for the 49ers' divisional round playoff game against the Green Bay Packers.

Jason Morrin is a third-year law student at Hofstra Law School in New York. He is the President of Hofstra’s Sports and Entertainment Law Society. Additionally, he is a Law Clerk at Geragos & Geragos. He can be found on Twitter @Jason_Morrin.