| NFLPA Files Complaint Over League's Guaranteed TV Deals | Posted By: Sweets
06-09-2010
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12:47 PM
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In a move that is sure to up the ante in the collective bargaining negotiations between the NFL and NFL Players Association, the NFLPA on Wednesday initiated a legal challenge to the structuring of the league's television deals to provide them with guaranteed payment even when no games are played.
In a complaint submitted to the Special Master, the NFLPA states that the league effectively purchased billions in financial lockout funding for 2011 by reworking its television contracts to the detriment of the Players.
According to the NFLPA, the filing is intended to prevent windfall profits for owners who choose to lock out the players and cancel games. The guaranteed television revenues that approach $4 billion, coupled with the elimination of $4.4 billion in player salaries and benefits in a lockout, could make a 2011 season without games profitable for the owners.
"It appears that the Owner's bought a strategy to lock players and fans out and nonetheless financially protect themselves," says Baltimore Ravens cornerback Domonique Foxworth, a member of the NFLPA's Executive Committee. "The players want to leave no stone unturned to make sure that CBA negotiations proceed in good faith and that next season is played in its entirety."
The NFLPA argues in the complaint that, under their 17-year-old agreement with the NFL, the NFL cannot breach its fiduciary duties to the players in order to strengthen its bargaining position. Furthermore, the NFLPA says that the NFL's inclusion of the lockout provisions is a clear violation of the contract because the league didn't use its best efforts in good faith to maximize total revenues from DirecTV, Fox, CBS and NBC. Reports on the recent re-negotiations of the ESPN contract indicate that it will likely incorporate similar lockout payment provisions.
"The NFL gave [its television partners] immediate and new valuable media benefits in 2009 and/or 2010 for nothing," writes the NFLPA's counsel Jeffrey L. Kessler. "In essence, the NFL knowingly left money on the table … at the expense of the players. The NFL thus has acted in bad faith."
As if that wasn't serious enough, the complaint points out that "every dollar … that the NFL left on the table to obtain its lockout protection devices is … paid for out of the players' share of Total Revenues."
The DirecTV deal may be the most glaring example of the NFL's "financing" strategy in the event it locks out the players. The league opted not to allocate any of the increased revenue from the deal with the satellite service during the 2009 and 2010 seasons, moving all of that money into 2011 and beyond, after its current contract with the players expires. So DirecTV was given immediate new broadcast benefits for two seasons with no price increase for those two seasons. These immediate benefits include access to a new REDZONE channel and the right to sell access to broadband and mobile phone transmission of games.
At the time of the signing, DirecTV Senior Vice President Jon Rubin lauded the deal saying in public filings with the Securities and Exchange Commission, "the real significance of the NFL SUNDAY TICKET is the contribution to our brand … this sports leadership is probably the most noticeable part of our brand and the NFL anchors that … claim."
And yet the NFL gave DirecTV this credibility at no extra charge?
The Sports Business Journal recently reported that DirecTV would not get all of its money back if there were no games, but NFL General Counsel Jeff Pash has explained that the billions in lockout protection from the league's television partners is a loan, not a giveaway.
"The networks aren't going to hand over larger amounts of money to us, and if they don't get a product [in return] tell us to go ahead and keep that money," Pash told NBCSports.com. "We will have to give it back to them and take reductions about what we get from them in future years. … It is not a payment, it is a financing mechanism. It is no different than borrowing on a home equity line. You still have to pay it back." That statement may become crucial in the litigation.
A spokesperson for the players stated, "that's the problem if two people co-own a house, one cannot take a home equity loan without the consent of the other, and one certainly cannot, without consent, use the other's money to finance that loan or allow for less money in the future if the loan has to be repaid. The NFL executed these deals for billions in lockout funding without the consent of the players, who are contractually entitled to receive more than half of league revenues. If less money comes in later, that's money from the players as well."
In the NFL, television money accounts for roughly half of total NFL revenues. The contracts with Fox, CBS, NBC, ESPN and DirecTV generated approximately $4 billion in 2009 out of total league revenues of close to $8 billion.
"They went out and obtained financing to take a whole year off," said Seattle Seahawks receiver Sean Morey, another member of the NFLPA's Executive Committee.
While the NFL has always negotiated its television contracts without input from the NFLPA, the league is contractually obligated to maximize total revenues and act in good faith for the benefit of the players during each year of the contract. The NFLPA's complaint argues that the NFL has clearly violated that principle, not just with the DirecTV deal, but with at least those with Fox, CBS and NBC as well.
Those contracts included relatively small increases in payments to the NFL even though ratings for the 2009 season went through the roof, up 14 percent from the previous season and were the highest since 1990. In particular, the AFC games on CBS drew the largest audiences in 23 years – coincidentally just before the sport's last work stoppage. Fox's ratings for the NFC games were its highest since 1995. Ratings for NBC's Sunday night games rose 15 percent from 2008. ESPN did even better with "Monday Night Football," as its ratings zoomed 17 percent. And Super Bowl XLIV finally knocked the 1983 M*A*S*H finale from the record books as television's most-viewed program.
As The Sports Business Journal wrote, "The NFL's strength as a media property has never been more evident. The [recent] Super Bowl numbers were astonishing in the face of increasing media fragmentation. … No one can deny the NFL's influence on the cultural experience. It is easily the strongest entertainment programming vehicle in North America."
And yet, the NFL gave the broadcasters benefits in 2009 and 2010 for nothing in 2009 and 2010. The players are arguing that this was money left on the table to finance the lockout at the expense of maximizing total revenue.
Like any consumer or business, the NFL is free to protect itself against unexpected losses. Most American consumers and companies do this by purchasing auto, property, liability, and life insurance. In the late 1990s, Major League Baseball paid premiums to Lloyds of London to cover an unexpected loss resulting from a players strike.
However, the NFL has not purchased a traditional insurance policy nor obtained loans from banks to provide a financial reimbursement for its intentional loss should it decide to lock out players.
"Doing that would be comparable to telling an insurance company that you will be burning down your home at the end of the week and need a policy today to cover all your intended losses," says Timothy J. Noonan, CEO and president of Lockton Insurance Brokers, LLC. "I'm sure no insurance company would write such a policy."
Instead, as the NFLPA states, "The NFL breached its special duties to the players by leaving those dollars on the table to be used against the very players whose interests in revenue maximization the NFL had … the duty to protect when negotiating its broadcast agreement extensions."
The NFLPA is asking that the Special Master, appointed to hear these cases after the NFL settled the Reggie White Class Action in 1993, to find that itsrights have been violated, to award damages, and to place the NFL's "lockout funding" in an escrow account in order to prevent the NFL from using any of that money during any work stoppage.
The expectation is that the case will be argued and decided quickly. The losing side will likely appeal to Judge David Doty, who has supervised the NFL-NFLPA contract since 1993. The contract, which settled historic antitrust litigation against the NFL, ushered in the current 17-year era of labor peace, which is now being seriously jeopardized by the threat of a lockout by the NFL in 2011.
Article posted in it's entirety with permission from the nflpa
Source: NFLPA.com
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