Series on the Alliance of American Football: The Fall of the AAF

This is the second part of a two-part series chronicling the rise and fall of the Alliance of American Football (AAF). In the first part, we delved into the unprecedented growth of the AAF, much of which was based on an unsustainable dream to bring a successful professional football league to the United States. In this part, we analyze the ultimate collapse of the AAF, a reality of insurmountable debts and a lack of supporting investors.

The Failed Hail Mary

On April 2, 2019, the AAF suspended football operations, just two weeks before the end of its inaugural season. The league announced in a published statement, “[t]his week, we made the difficult decision to suspend all football operations for the Alliance of American Football. We understand the difficulty that this decision has caused for many people and for that we are very sorry. This is not the way we wanted it to end, but we are also committed to working on solutions for all outstanding issues to the best of our ability. Due to ongoing legal processes, we are unable to comment further or share details about the decision.”

Most AAF players learned of the suspension via Twitter, before their coaches or the league could confirm the news. Players were suddenly evicted from their hotels — with some being personally charged for unpaid hotel bills — and required to pay their own way home. Players lost their health insurance and were forced to cover their own medical bills from injuries sustained during AAF league play. League employees were notified via letter, but were not given a reason for the suspension. In short, even the AAF’s suspension became a public relations nightmare.

Stunned by the news, AAF co-founder Bill Polian stated, “I am extremely disappointed to learn Tom Dundon has decided to suspend all football operations of the Alliance of American Football. When Mr. Dundon took over, it was the belief of my co-founder, Charlie Ebersol, and myself that we would finish the season, pay our creditors, and make the necessary adjustments to move forward in a manner that made economic sense for all. The momentum generated by our players, coaches and football staff had us well positioned for future success. Regrettably, we will not have that opportunity.” In order to comprehend the fall of the AAF, one must understand the myriad of issues facing the league.

Tom Dundon Investment

On February 15, 2019, The Athletic reported that the AAF, in its second week of operation, was in danger of “running out of cash” and was in jeopardy of missing payroll on February 19, 2018. “Without a new, nine-figure investor, nobody is sure what would have happened,” a source told The Athletic. “You can always tell people their checks are going to be a little late, but how many are going to show up on the weekend for games when they don’t see anything hit their bank accounts on Friday?” However, on February 19, 2019, Charlie Ebersol dismissed the rumors as a glitch in the payroll system and announced Tom Dundon, owner of the NHL’s Carolina Hurricanes, would be investing $250 million in the AAF and would become the league’s new chairman.

“I had seen the deal when they were conceptualizing the league,” Dundon said on the ESPN On Ice podcast, “[t]he competitive and high quality product on the field, the vision of the league and the void in the marketplace were all factors that impacted my decision [to invest]. I understood they had a need for someone like me to step in. I wish it was more thought out than that, but it was that simple.” However, reports soon surfaced that Dundon did not invest the full $250 million; rather, he only “committed” to fund $250 million over an undisclosed period. Dundon said, “I have committed to investing $250 million into the Alliance of American Football. We now have the necessary capital to accelerate growth. We have the capital to make this a sustainable and profitable league.” Dundon’s commitment was week to week, meaning Dundon could stop funding on almost a moment’s notice. Notably, at the time of the league’s suspension, Dundon had only invested $70 million. After becoming chairman, many believed that Dundon would save the AAF. They were wrong.

NFLPA

On March 27, 2019, Dundon told USA TODAY Sports that the AAF needed to secure cooperation from the NFL Players’ Association (NFLPA) in order to use young players from NFL rosters and practice squads; otherwise, the AAF was in danger of folding. Dundon said, “[i]f the players union is not going to give us young players, we can’t be a development league.” However, a source told CBS Sports that Dundon was acting without seeking the advice of NFL experts employed by the AAF. The source went on to say that “no one is sure why Dundon is doing what he’s doing.”

However, there was a correlation between Dundon’s statement and the concept of the AAF. As we previously reported, Polian saw the AAF as a potential “feeder system” to the NFL. According to Polian, the “objective is to take some of those people who can’t quite make it and make them into quality NFL players.” Dundon echoed these statements; he said that Ebersol, Polian, and their team “have created something that I believe has the potential to positively impact the ecosystem of professional football. Fans want more football and the alliance is the best place for players to develop if they have not had reps in the NFL.” Thus, an influx of young players from NFL rosters and practice squads may have been exactly what the AAF needed. However, Dundon would be disappointed; the NFLPA showed no interest in loaning certain back-of-roster NFL players to the AAF.

According to an NFLPA official, the NFLPA believed using active NFL players and practice squad members would violate terms of the NFL’s collective bargaining agreement and run afoul of limitations on mandatory off-season workouts and practices. Further, any serious injury suffered in the AAF could significantly impact a player’s potential NFL earnings. Lastly, the NFL and the NFLPA, in the wake of CTE litigation, have been vigorously working to reduce the amount of time players are hit during practice and games. Thus, it seems unlikely that the NFLPA would be receptive to subjecting its players to an additional ten weeks of regular season professional football in the AAF.

Some have even gone as far to speculate that using obscure NFL players would not have helped the AAF, if the AAF was already poised to fail. Others have speculated that the idea of the AAF as a feeder system for the NFL was always a fantasy. They claim that, first, if the NFL wanted to run a development league, the NFL would control the league, rules, and revenue. Second, the NFL already uses, without any financial burden or risk to NFL players, NCAA college football as a quasi-development league, with many colleges and universities specifically changing their football programs to a more “pro-style game.”

Robert Vanech’s Lawsuit

Compounding the AAF’s issues was a lawsuit brought by entrepreneur, Robert Vanech. On February 22, 2019, Vanech filed a lawsuit against Ebersol and the AAF, which alleged that Ebersol stole Vanech’s idea for the AAF. The lawsuit also claims that Vanech approached Ebersol with the idea for a new football league. According to the court documents, Vanech claims that he and Ebersol were actually co-creators of the AAF and that Vanech was owed a 50 percent ownership stake in the league. Allegedly, in February 2017, the two had a handshake agreement to evenly divide the league’s equity. Further, the lawsuit claims that Vanech is responsible for many of the AAF’s notable innovations, including the idea of assigning former college stars to local AAF teams, an emphasis on big data, and the league’s focus on an in-game app.

The suit claims that Vanech would serve as the league’s CFO and COO; however, things allegedly changed in May 2017, when Ebersol met with Keith Rabois – of Khosla Ventures –  about investing in the AAF. Ebersol allegedly told Vanech that an investment from Rabois would come “with certain conditions,” including that Rabois would become the COO of the AAF and that Rabois would re-allocate some of Vanech’s equity in the AAF. Allegedly, at the time, Vanech believed the negotiations with Rabois were in good faith; later on, after he lost out on all of his purposed equity in the AAF, Vanech believed that negotiations were evidence “that a conspiracy had been formed to oust Vanech.” By July 2017, Ebersol was denying the existence of any agreement with Vanech, claiming there were only “exploratory conversations” and “high-level discussions.” Of note, Rabois was listed on the AAF’s website as a member of its board of directors and Kevin Freedman, who was also a partner at Khosla Ventures, was listed as the COO of the AAF.

In response to the lawsuit, the AAF issued a statement saying “Mr. Vanech’s claim is without merit,” and that “[t]here was never any agreement, oral or written, between Mr. Vanech and Mr. Ebersol relating to The Alliance.”

XFL

Had the AAF returned for a second season in 2020, it would have found itself in direct competition with a revived Xtreme Football League (XFL). On January 25, 2018, XFL owner, Vince McMahon, announced that he planned to relaunch the XFL. The rebooted XFL is set to begin play in 2020 and McMahon has been self-funding the venture by selling hundreds of millions of dollars in World Wrestling Entertainment (WWE) stock.

After the AAF announced that it was suspending operations, reports surfaced that, back in December 2018, the AAF had approached the XFL about a possible merger. Per the report, the AAF “was already running out of money,” and “was on life support,” but McMahon rejected the offer. It seems unlikely that McMahon would be willing to save the AAF from financial straits, as the two would have been in direct competition for players, coaches, personnel, viewers, broadcasting rights, and much more.

Unlike the AAF, the XFL took a broader approach to player supply. The XFL has not ruled out the pursuit of early college players, who might be NFL-ready but not yet eligible for the NFL, as potential XFL players. In addition, the XFL has not ruled out the hundreds of former college players, willing to play for money, as potential XFL players. According to Oliver Luck, XFL commissioner, “[w]e think there is a very broad and rich and deep player pool, quite honestly.” In fact, many believe that Dundon’s push to secure cooperation from the NFLPA – to use young players from NFL rosters and practice squads – was a direct attempt to secure a crop of players that would be eligible to play in the XFL. Thus, when the NFLPA showed no interest in loaning certain back-of-roster players to the AAF, along with severe financial straits, Dundon knew that the future of the AAF would be impossible come 2020 and against a revived XFL.

The Fallout

The sudden decision to suspend all AAF operations caught many people off guard. For the most part, from the perspective of a viewer, the league was successful. The first week of AAF action earned plenty of attention on large television networks, like CBS and the NFL Network, but also plenty of attention on social media. Notably, the ratings of the first AAF game on CBS beat the NBA’s Houston vs. Oklahoma City matchup on ABC. The next morning, the AAF was also ranked first among sports apps in both Apple’s app store and Google Play. Thanks to a combination of innovative rules, as well as exciting but sometimes sloppy play, it appeared that the AAF could survive.

Now the question appears to be, what will become of the numerous unfulfilled player, coach, vendor, and AAF employee contracts? For players and coaches, most were receiving a weekly game check, but the sudden halt to the season meant they were not paid for all 10 regular-season games. Nightmare stories persist about players who were suddenly evicted from their hotels, with some being personally charged for unpaid hotel bills, having to pay for flights home, and personally paying medical bills from injuries sustained during AAF league play. According to an AAF source, injured players were still eligible for worker’s compensation, and players who were incorrectly charged for expenses that should have been covered by the AAF were still eligible for reimbursement until April 15, 2019. Most importantly, players who collected their weekly checks knew the risks involved with being cut/terminated, thus likely lacking legal recourse. Luckily, and perhaps ironically, numerous AAF players have gone on to sign contracts with NFL teams.

Johnny Manziel, who joined the AAF on March 16, 2019, urged his fellow AAF players not to sue the league. In a tweet, Manziel said, “[i]f you’re an AAF player and the league does dissolve. The last check you got will be the last one that you get. No lawsuit or anything else will get you your bread. Save your money and keep your head up. It’s the only choice at this point unless something drastic happens.” However, AAF players Colton Schmidt and Reggie Northrup recently filed a lawsuit seeking damages for: breach of contract, breach of good faith and fair dealing, failure to pay wages in violation of labor code, and fraud.

Adding to the fallout, Daryl “Moose” Johnston, General Manager of the AAF San Antonio franchise, told ESPN Radio that he and others who worked for the AAF were “misled” about the long-term viability of the league. “There were several people who took jobs with the Alliance because they were told they had two years, and they’re in a very difficult spot now at this stage. This was something that caught me totally by surprise.” Multiple sources confirmed to CBSSports.com that AAF employees were at-will employees; however, most were under the impression the AAF would have enough funding to last at least two or three years. Even though most employees were at-will, this has not stopped some – like former vice president for the Salt Lake Stallions, Richard Muirbrook – from filing a class action lawsuit against the league. According to Muirbrook’s lawsuit, giving employees only one-day notice that they would be laid off violates the federal Worker Adjustment and Retraining Notification — or WARN — Act.

Lastly, many vendors collaborated with the AAF to create the on-field product and now these vendors need to be paid. However, we already have reports that vendors are unlikely to receive reimbursements for their work. For example, WFTV reported that UCF’s Spectrum Stadium was never paid for the $1 million agreement it had with the AAF to host the Orlando Apollos. Another source told CBSSports.com that Arizona State’s Sun Devil Stadium, where the Arizona Hotshots played, still had a sizable outstanding debt as of last week. Regarding local San Antonio businesses, Johnston said, “[t]here are multiple businesses in the San Antonio area that are still awaiting payments and will probably have to go into the legal process to get that resolved. That is extremely disappointing to me.” It is unlikely that these are isolated incidents and it is highly possible that the remnants of the AAF will face several lawsuits.

Conclusion

The fall of the AAF serves as a warning for all future startup sports leagues: make sure to have your finances in order or prepare for the almost certain collapse. The legal fallout will likely last longer than the lifespan of the league, dragging many former associates of the AAF through years of litigation. As the AAF continues to unravel, we will continue to provide supplemental analysis and updated coverage.

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