SBD/March 2, 2011/Leagues and Governing Bodies

NFL Labor Watch: Judge Doty Rules In Favor Of NFLPA In Media Fees Case

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NFL, ESPN amended the work-stoppage provision in their contract
U.S. District Court Judge David Doty late yesterday overturned a decision that would have allowed the NFL to use $4B in media fees during a potential lockout next year. He said he planned to hold hearings to set damages. Doty's decision comes as the NFL and NFLPA are engaged in federally overseen mediation, which re-commenced near DC this morning. NFL owners also are set to meet today to decide whether to lock the players out with the CBA set to expire at the end of tomorrow. In his 28-page decision, Doty paints a picture of television network execs unwilling to agree to guarantee payments during a lockout, and an NFL that demanded it. "You know you've reached the absolute limits of your power as a major network," Doty wrote one network executive testified, "(when) the commissioner of the National Football League calls you ... and says ... 'We're done, pay this or move on.' ... (The NFL has) market power like no one else, and at a certain point in time, they'll tell you to pack it up or pay the piper." While Doty consistently wrote the NFL had not maximized revenue when it renegotiated its TV deals, as required by the CBA, he never addressed one of the league's core contentions: that the recession limited how much revenue the league could generate when it re-negotiated the deals. He also never addressed the NFL's contention that it had maximized revenues by stripping out digital and in game rights to create Red Zone, which was packaged with NFL Network, thus creating more revenue.

TACKLED FOR A LOSS: Doty's decision, while not unexpected, throws uncertainty into the overall negotiating process and, perhaps most unsettling for the networks and the NFL, exposed many deal terms that they would rather have kept under wraps. For example, Doty found the DirecTV deal particularly egregious and evidence that the NFL undersold its TV deals in '09 to secure payments during a lockout. He wrote extensively about terms of DirecTV's contract. "The extended contract provides that DirecTV will pay a substantial fee if the 2011 season is not cancelled and up to 9% more, at the NFL's discretion, if the 2011 season is cancelled. Of the total amount payable in the event of a cancelled season, 42% of that fee is nonrefundable and the remainder would be credited to the following season." The NFL consistently has said the work stoppage provisions are common in TV deals, but evidence outlined by Doty suggested differently. The old TV deals had language addressing work stoppages, but the league was not guaranteed money as a loan if games were lost. Under the new provisions, they would be. Many of the old TV deals required the NFL to pay for at least three lost games immediately; if the last year of the TV deal was lost to a work stoppage, the money would have to be repaid at the end of that year. Other highlights of Doty's report include: if NBC loses a whole season, its contract is extended by one season with a Super Bowl added; $421M of the $4B in fees do not have to be paid back even if games are lost; DirecTV fought the inclusion of a work stoppage provision; Verizon owes a non-refundable fee if there is a work stoppage. Doty also suggested the lockout provisions were evidence of collusion, though adding that charge was not before him. The NFL has the option to appeal. In a statement, the league said the decision would have no affect on its collective bargaining effort (Kaplan & Ourand, SportsBusiness Journal).

A LOOK INSIDE THE TV DEALS: Under the CBS and Fox contracts set to expire at the end of the '11 season, the NFL "would have been required to repay CBS and Fox that same year if there were a work stoppage." But Doty in his ruling noted under the contracts extended to the '13 season, the NFL "will repay the funds, plus money-market interest, over the term of the contract." If the season is canceled, the "contracts would be extended another season." Doty wrote that NBC's contract through '11 "contained the same work-stoppage provisions as the CBS and Fox contracts." While ESPN's contract was "not set to expire until 2013, the work-stoppage provision was amended." In negotiations, ESPN "requested that the rights fee not be payable if there is a work stoppage, but the NFL rejected the request" (AP, 3/1). In N.Y., Richard Sandomir reports Doty also found that during the negotiations to extend current media deals, the league "offered new rights, like an extra game last season to NBC, without charging an additional fee." With ESPN, the "lockout clause in the contract extension eliminated one from the previous deal that forced the league to pay the network damages if games were not played; in exchange, ESPN received new digital rights for the 2010 season" (N.Y. TIMES, 3/2). Meanwhile, in Minneapolis, James Walsh notes it is "unlikely that Doty's next decision -- on damages -- will come before a lockout could occur" (Minneapolis STAR TRIBUNE, 3/2).
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