Money-Back Guarantees—A Commentary by Ian Ayres ’86
The following commentary was published in The New York Times on April 7, 2009.
By Ian Ayres ’86
Oklahoma’s loss in the N.C.A.A. tournament raises interesting questions of both economics and law. The Sooners’s star player, Courtney Paris, promised before the tournament to pay back her scholarship if the Sooners didn’t win the championship. As an economist, I can’t wait to find out whether Paris will follow through (and if so, what price she will put on the scholarship’s value).
Paris’s innovative action opens up a whole new dimension for athletes to back up their predictions with promises. The next time an athlete guarantees that his or her team will win the upcoming big game, savvy reporters would do well to ask a follow-up question: “Is that a money-back guarantee?”
Imagine how deflating it would be for an athlete to say, “I absolutely guarantee that we’re going to win, but, ah, no, I’m not willing to put my money where my mouth is.” At a minimum, a money-back guarantee might entail giving up any pay from the guaranteed game if your team ends up losing.
You could even imagine teams making money-back guarantees to their fans: “Buy a ticket to see us play next Tuesday. If we don’t win, you’ll get your money back.” Freakonomics nation, can you provide examples of athletes or teams making money-back guarantees? Unlike “free taco, if we break 100,” this kind of promise gives fans a reason to root at the end of a close game for their team to lose.
As a contracts teacher, I can’t help mentioning that athlete guarantees of victory also raise interesting questions of contract law. To be legally enforceable, promises normally need to be clothed with consideration. Courtney Paris’s promise under traditional contract law would not be enforceable because there was no quid pro quo. Paris didn’t make her promise in order to induce a return promise from Oklahoma. Gratuitous promises are usually not legally binding. But promises made to charities are different — even without consideration, they are often enforceable because of special state statutes promoting charitable subscriptions.
Athletic guarantees might also be legally enforceable because of “promissory estoppel.” If Joe promises the Jets will win next week, a fan who relies on the promise by buying a ticket might be able to convince a court that Joe should compensate the fan for part of the ticket price. Hearing Joe’s guarantee, a really savvy reporter might ask: “Can fans rely on that guarantee?” — or less gracefully, “Do you intend for people to rely on that guarantee in deciding whether or not to buy a ticket?” If Joe says “Yes, they can rely on it,” and the Jets lose, he might face a plausible suit to compensate those who took him at his word.
The world might be a slightly better place if we gave athletes the legal option to put their money where their mouths are. My high-school basketball coach had a pithy phrase that began: Money talks…