McIlroy v Horizon: Could Rory risk losing $30m plus?
The Four Courts, Dublin
Rory McIlroy missed out on a $11.4m pay day in the FedEx Cup finale in Atlanta on Sunday but he could be back in Georgia next April having lost at least $30m, not to mention his brand image, if his case against Horizon Sports Management goes all the way to the High Court in Dublin in February and he loses.
It's a huge risk for the game's leading figure — announced as the winner of the PGA of America Player of Year Award yesterday and a racing certainty for the PGA Tour equivalent since he sandwiched a WGC between back-to-back major wins this summer having already won the BMW PGA at Wentworth.
With Mr Justice Brian McGovern of the High Court recommending that McIlroy and Horizon sit down for mediation, given the sensitive commercial nature of the material involving Graeme McDowell's contractual arrangements with Horizon, the warring parties have just 28 days to find some common ground before the case proceeds inevitably towards a February 3 court date. {Here's the Irish Independent report of the proceedings in the Commercial Court yesterday}
“Is this not a case that is made for mediation?” he asked barrister Rossa Fanning, for McIlroy, and Ciaran Lewis for Horizon and two related defendants. “The case has all sorts of sensitivities involving two players on tour, a manager of one of them and a former manager or agent of the other. It has all sorts of complex issues involving relationship matters."
With the world No 1 preparing to share a team room with McDowell in the Ryder Cup at Gleneagles next week before heading to St Andrews for the Dunhill Links Championship in a fortnight, McIlroy effectively has just 14 rather than 28 days to sit down with mediation professionals and make this huge legal mess go away.
But given then language used by Horizon's lawyers yesterday, both sides are world's apart, as they have been since the start.
Click to read Horizon's letter to McIlroy's lawyers.
Conor Ridge’s solicitor also sent a letter to McIlroy’s lawyers at AL Goodbody, describing the addition of McDowell to the case as one of a series of "cynical devices designed to extricate him from his continuing legal obligations to pay lawfully due commissions.”
The letter goes on:
“Your continued criticisms of our clients completely ignores the central and fundamental commercial reality of the relationship between Mr. McIlroy and the Defendants. Our clients were extraordinarily successful in building a very strong commercial platform for Mr. Mcllroy on the basis of which he has already been paid in excess of $70 million over the past 2 years and on the basis of which he will, or at least should, earn several hundred million dollars more during the period that our clients remain his agent. His thanks was to hijack the commercial platform and management structure built by our clients and attempt to avoid paying the agreed commissions or indeed any commission to the Defendants.”
Ciaran Lewis for Horizon told the Commercial Court that McIlroy, “enjoys all of the benefits without assuming any of the responsibilities. He has signed a deal with Nike worth 100 million dollars over five years and has already received 50 million dollars of that figure with a further 50 million dollars to come over the next two years."
The entire scenario will have the powers at Nike Golf twitching nervously in their swivels chairs. As the world No 1 and Nike Golf's primary asset while Tiger Woods battles to get his career back on track, it remains to be seen if he and his advisors are willing to do what they have refused to do since the start — sit down and negotiate some kind of settlement.
The alternative is scary in the high risk world of litigation with tens of millions of dollars, not to mention a priceless brand image, at stake should things go wrong.
A February 3 court case could last a fortnight and require McIlroy's presence in the witness box. And with a judgement likely to take several weeks, a decision could come shortly before his date with destiny at Augusta in April. In other words, the stakes are very sky high indeed.
Never mind the effect a legal defeat would have on him personally in the run up to a potential bid for the career Grand Slam and that coveted green jacket. The damage to his brand image would also be enormous should he fail.
Click image to read affidavit filed by Horizon Sports Management's Conor Ridge on Tuesday. The amount of documentation that has been produced is enormous though McIlroy has offered little and allegedly "destroyed" a mobile phone that could have contained important data.
McIlroy announced he was leaving Horizon and setting up his own management company in September 2013. He decided to break his contract and sue his agents and have what his lawyers described as an “unconscionable,” “improvident,” and “oppressive” contract — a deal he accepted in December 2011 and extended under amended terms in March 2013 — declared void.
The heart of the case concerns the $100m, five-year endorsement deal he signed with Nike and the terms of his management agreement with Horizon Sports Management. He sought orders cancelling “restrictive” and “unconscionable” representation agreements with Horizon and related companies (Gurteen and Canovan) on grounds including alleged negligence, breach of contract, and breach of fiduciary duty. In other words, he claims he was young, inexperienced and didn't know what he was doing and trusted his agents to look after his best interests.
His lawyers alleged that agreements providing for payment of 20% of all pre-tax sums due to him under the Nike deal up to 2017, and 15% of all sums if that contract is renewed after 2017, even if that company was no longer his agent, were “oppressive".
McIlroy also claimed to have paid "excessive" fees of more than $6.8m to Horizon based on commission rates of 5% on his pre-tax, on-course earnings and 20% for off-course.
He claimed “reasonable” commission should have been 0% for golf course and 5% to 7% for off-course earnings, and he should be repaid the difference. He also claimed damages.
When he agreed to the contract extension in March 2013, his terms were adjusted to 0% commission for on-course earnings and 15% of the off course deals negotiated by Horizon, not including the Nike deal.
In his initial statement of claim, McIlroy alleged that he signed the extension “in circumstances of great informality” and did not get proper legal advice with the inference being the signed the contract at Horizon's Christmas party rather than on the morning of the day the Christmas party was held.
Conor Ridge, Shane Lowry and Rory McIlroy at the press conference for the announcement of Paul McGinley as Ryder Cup captain in Abu Dhabi in January 2013. Picture: Fran Caffrey / www.golffile.ie
Horizon denies all his claims, saying that McIlroy was advised to seek independent legal advice on several occasions and afforded the opportunity to seek advice on the day he signed the renewal but refused. They countersued for around €3.4m in unpaid fees and commissions, which have continued to rise over the past year and a half since McIlroy struck out on his own, setting up Rory McIlroy Inc and taking several Horizon staff with him.
Tuesday's Commercial Court hearing was part of the long discovery process that was exacerbated on 30 June this year when McIlroy's lawyers decided to bring McDowell into the equation.
They amended the original Statement of Claim lodged nine months earlier alleging that Horizon had promised McIlroy the same commercial terms as McDowell but actually got a "markedly inferior" deal, Horizon denies this was ever the case.
According to an affidavit filed by Conor Ridge on Tuesday, mention of McDowell was a new tack entirely to the original complaint:
"It was at this time and for the first time ever that the Plaintiff made a fresh allegation that a representation had been made to him that the terms of his contract ... were to be the same as Mr. McDowell’s commercial terms with Horizon. There is no basis whatsoever to this allegation. The Defendants (Horizon) have never suggested that Mr. McDowell’s terms were the same as the Plaintiff’s (McIlroy's) and accept absolutely and without reservation that Mr. McDowell had different terms to the Plaintiff."
According to documents lodged with the court, McIlroy's original deal with Horizon offered him ver similar terms to those agreed with his previous management company, ISM — 5% commission on his on-course earnings and 20% of off-course earnings.
Horizon released documents to show that McDowell's arrangement was for 3% of on-course earnings and 20% off-course earnings.
In order to gain access to McDowell's contractual agreements with Horizon, McIlroy's lawyers requested and received thousands of documents (including emails and texts), which forced Horizon "to engage information technology experts" to review their computer systems.
Horizon then had to hire an external team of reviewers "for this mammoth task" which took two months to complete.
"The total cost to the Defendants in producing these documents was approximately €44,832.50" in addition to an earlier discovery process that cost more than €140,000.
Yesterday's hearing was set to determine how many more documents were to be handed over to McIlroy's lawyers, resulting in a minor victory for Horizon after Conor Ridge lodged an affidavit to request that limits be imposed on McIlroy's side in their "trawl" for information.
Horizon's main complaint is that McIlroy's lawyers have involved McDowell in the proceedings "in order to pressurise the Defendants and to damage Horizon’s ‘relationship with Mr. McDowell and ultimately inflict further damage to the Defendants’ business and reputation."
McDowell recently announced that he is leaving Horizon when his contract ends at the end of the year, backing up Horizon's claim of damage to its business and reputation.
While Horizon has suffered serious collateral damage and lost its two biggest clients in McIlroy and McDowell as a result this legal war, McIlroy also has much to lose.
An amicable settlement looks a long way off but when the alternative is potential annihilation in court at the hands of wily barristers, sorting things out behind closed doors might be best. As Nike like to say: Just Do It.
