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Federal Judge Rules Against NFL's Television Lockout Money, Owners Weep

The NFL owners were hoping to outlast millionaire players who would feel the pressure once paychecks stopped arriving and the bills were due. Now, you can add the owners among those who will be concerned about costly stadium tabs. Last week, Federal Judge David Doty delayed ruling on the NFLPA’s partial appeal of a Special Master’s decision in regard to the NFL’s negotiation of lockout provisions in its’ various television rights contracts. Presumably, this was to get the sides to get serious about reaching a negotiated agreement while the uncertainty of a large monetary ruling was still pending.

Late yesterday, a little more than 48 hours from the date set for the termination of the current collective bargaining agreement and start of a potential lockout, Judge Doty released his ruling. Judge Doty ruled that the NFL breached its duties to the NFLPA under a previously negotiated settlement agreement when it re-negotiated television rights deals with the various partners, including CBS, FOX, NBC, ESPN, and DirecTV. (for those that are into that sort of thing, you can see the full 28-page opinion laying out the facts and reasoning here)

Basically, Judge Doty found that the NFL had an obligation under the terms of the SSA (stipulation and settlement agreement) to exercise good faith and best efforts to maximize total revenue for the NFL and the players. Television contracts comprise about half of the total revenue, and soon after the owner’s opted out early from the current agreement with the players that expires this week, they began renegotiations to extend the television deals with the various providers.

The NFL insisted on altered lockout provisions with the various networks that would allow them to receive the rights fees and not refund them immediately in the event of a lockout by the owners. According to the opinion, these were “deal breakers” for the NFL. Several of the networks balked at these provisions, and so the NFL gave up things in return.

NBC felt that the NFL was “hosing” it, and the NFL gave NBC an extra game starting in 2010 without any additional rights fees. ESPN got additional digital rights (live streaming, online highlights) at no increase in the rights fees for 2009 and 2010. When ESPN sought to avoid the lockout provision that would allow payment without games, the NFL insisted the digital rights and lockout provision were linked. The DirecTV deal was most onerous. It included a provision that actually provided for a 9% increase in the rights fee in the event of a lockout, and made a chunk of it non-refundable. According to Doty, “[t]he DirecTV contract created a financial incentive to institute a lockout.”

Judge Doty did not object to the NFL negotiating future years beyond the existing CBA to get favorable terms in the event of the lockout. However, in his opinion, the NFL providing additional rights and foregoing increases in rights fees in 2009 and 2010 as part of an exchange to get the lockout provisions was a violation of the current agreement requiring the NFL to use best efforts and good faith to maximize revenue for the players and themselves. The NFL traded present profits in the years of 2009 and 2010 (which would have been split with players as part of the agreement) for very favorable provisions that would strengthen its future negotiating position.

The reason the NFL wanted these favorable lockout provisions in lieu of other increases in rights fees is so it could move to a lockout for leverage against players, still satisfy its debt obligations, and not have any conditions of default on the sizable bills for things like the construction of “Jerry World”. According to the opinion, some of the debt obligations require the NFL to maintain minimum levels of income from television money; a lockout and earlier refund of television money to the networks could be a condition of default. In total, the NFL was going to get $4 billion in rights fees in 2011 even if the season began with a lockout, and $432 million of it (DirecTV) would never have to be repaid, and the rest would be repaid under favorable terms over time (money market rates for all but the ESPN deal).

With Doty’s ruling, that is now in doubt. He has set a future hearing to determine damages or injunctive relief (i.e., preventing the NFL from collecting). The NFL publicly may say this doesn’t affect the negotiations, but Jerry Jones and other owners with shiny new stadiums partially funded by private loans have several million reasons now to want a deal done, that he didn’t have if the league was going to get billions from its TV partners without ever taking a snap next year. Sure, the NFL will appeal, but the pressure is now on. Will it result in an agreement before a lockout? It can’t hurt that both sides now have some incentive to still pay the bills.

[photo via Getty]

 

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