SBD/February 25, 2011/Leagues and Governing Bodies

Special Master's Redacted Report On NFL Broadcast Contracts Made Public

The NFL had sound business reasons to renew its broadcast contracts in ’09 and ’10 and not just to amend work stoppage provisions, special master Stephen Burbank wrote in his report that is on appeal in a federal court. The redacted report, issued earlier this month, was made public for the first time late Thursday, along with the NFL’s and NFLPA’s briefs arguing their cases to the court. Burbank ruled against the NFLPA, allowing the NFL to receive the $4B in media fees it is due in ’11 even if there is a lockout. The NFL CBA expires next Friday, so the Minnesota federal court’s decision on the appeal could have a great affect on the negotiations. The NFLPA contended that the league had prematurely renewed the deals to insert work stoppage provisions into them, and in return agreed to lower rights fees than it otherwise could have had. The league has a duty under the CBA to maximize revenues. Burbank rejected the union's contentions on almost all points. “The depressed economy and depressed advertising market did not provide meaningful opportunities for the NFL to obtain more television rights fees for games already under contracts for 2009 and 2010, and it was not obligated by the [CBA] to do so,” he wrote. Burbank wrote the league exercised sound business judgment in not pursuing much higher fees because it would have meant asking for more money on existing contracts in newly lean years. He also agreed with the NFL’s contention that it was able to win important concessions from the networks for digital rights and use of live game action for Red Zone. The Red Zone channel is an important tool in the league’s effort to market NFL Network.

WORK STOPPAGE AGREEMENTS IMPORTANT FACTOR: Burbank did find that restructuring the work stoppage agreements (only DirecTV’s deal did not have the language) was an important factor in the new deals. Burbank wrote the NFL’s objectives in the negotiations included “securing work stoppage provisions that would … provide funding for debt service and operating expenses, thereby shifting leverage away from the players during a potential lockout.” Burbank also found that the NFL had committed a violation in the restructured ESPN contract related to the new work stoppage language, but found no damages. He found damages in the allocation of money for the NBC Sunday night game that ran against the World Series, for which he fined the league $6.9M. The NFLPA contends that Burbank is misinterpreting what is sound business judgment and that the NFL should have insisted on more money from the networks. The NFL in its brief pointed out that Burbank had agreed with its position that the union’s narrower view of the TV deals would hurt future revenue growth.

DEALS CARRY FUTURE ASSETS: The league argues the TV deals bartered a great deal of current and future assets: securing TV fees in uncertain times; getting league digital rights that could then be sold to Verizon; and the Red Zone rights. But the union’s position, the league said, is that each category should have been sold for cash. The union in its brief wrote the federal court should ignore the Red Zone argument because it was a completely unrelated business transaction, no different than a decision by the Vikings to raise ticket prices. However, part of the deals with CBS, Fox and ESPN were to allow Red Zone access to their games when teams were close to scoring. Red Zone could not have existed without those rights, and the league packaged Red Zone with NFL Network in selling to cable carriers. There is no mention in the briefs or in Burbank’s report of the restructured TV contracts having any ties to teams’ ticket prices.
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