SBJ/May 9-15, 2011/Labor and Agents

NFLPA looks to widen ‘lockout insurance’ case

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As NFL players argue this week before a federal judge that the NFL should pay them up to, and possibly more than, $1 billion for inserting so-called lockout insurance into broadcast contracts, the NFLPA is now urging him to expand the scope of his ruling to include all league commercial contracts.

That request could trigger a new, potential financial liability for the NFL and become another point of leverage in the labor battle between the two sides.

“One can assume Defendants’ illegal scheme extended to vendor contracts beyond the broadcast contracts at issue here,” the NFLPA wrote to the court late last month. “Notwithstanding the limited scope of this proceeding, as guardian of the Class, this Court has authority to expand the inquiry beyond the broadcast contracts and redress related violations, in further proceedings.”

Almost all NFL contracts with sponsors have clauses that guarantee payments even in the event of a lockout, sources said.

“The commercial agreements are written favorably to the league,” a source said, adding that in many cases the sponsors are not due to get money back until after several games are lost.

The same source, who is close to several NFL sponsors, said the league began insisting on such language after 2006. That is when the NFL renewed the collective-bargaining agreement that it soon grew disenchanted with. The league began reworking media contracts in 2009 to ensure the league would get paid in 2011 even if no games were played.

It’s unclear if Judge David Doty will launch proceedings over non-broadcast contracts.
It’s unclear whether Minnesota federal Judge David Doty will launch further proceedings to look into non-broadcast contracts. The current subject of dispute, the $4 billion of media contracts, started with a special master complaint from the NFLPA in June 2010. The special master ruled in early February that the NFL exercised sound business judgment in the contracts, but Doty disagreed, saying the NFL agreed to less revenue from broadcasters in order to get their commitments of payments during a work stoppage.

That March 1 decision shifted the dynamic of the collective-bargaining negotiations between the players and league, followed by the union decertifying on March 11. The league locked the players out shortly after.

Now Doty is hearing arguments about the damages. While the actual amount has not been released because of sensitivity about the confidentiality of the broadcast contracts, the league disclosed last month that the players were seeking hundreds of millions of dollars just in compensatory damages. The players are also seeking treble punitive damages.

Whatever Doty rules, and sources said the league is expecting a big award to the players, the NFL will almost surely appeal to the 8th U.S. Circuit Court of Appeals. The league could also push players in settlement discussions to drop the media fees case. That, of course, depends on which side has the leverage, and that may depend on the outcome of the lockout case currently pending at the 8th Circuit.

While mediation between the two sides is scheduled for next week in federal court in Minnesota, until the 8th Circuit rules on the lockout, neither side is likely to make a major move.

The sides last week were waiting to hear from the 8th Circuit whether it would grant a full stay of a lower court ruling lifting the lockout. The 8th Circuit issued a temporary stay and was considering a permanent stay. The court also set June 3 for oral arguments on the NFL’s appeal of the lower court’s decision enjoining the lockout.

The players’ principal outside counsel, Jeffrey Kessler, did not reply for comment for this story. Neither did the NFL, though one source close to the league responded to news that the players may attack lockout language in all commercial contracts with a resigned air, saying it was all about leverage in the labor battle.

The bulk of the contested media fees have already been paid to the NFL, according to the league’s brief to Doty last month.

“All of the broadcasters except DirectTV were obligated prior to entering into the challenged contracts, to advance rights fees to the NFL in the event of a work stoppage,” the league’s brief noted.

The players want that money put into an escrow account.

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