Judge David S. Doty, ruled this week in favor of the NFLPA against the NFL. This ruling could have a significant impact on the current negotiations regarding a new Collective Bargaining Agreement (the “CBA”).
The Players had alleged that the Owners and the NFL had ignored their obligation to act in good faith and to use their best efforts to maximize the total revenues for both the NFL and the Players when they were renegotiating or negotiating the most recent broadcast contracts (“TV Deals”). These obligations were in place as part of the White Stipulation and Settlement Agreement (the “SSA”). The matter was heard in January by Stephen B. Burbank, the special master assigned to hear the action.
The SSA has been in place since 1993. It was part of a settlement in antitrust class action brought by Reggie White and other players. It is often referred to as the White Settlement or the SSA. The NFL and the NFLPA entered into a CBA at that time that mirrors the SSA. The CBA was amended and extended in 1996 and 1998 and then renegotiated in 2006 covering the period of 2006-2012. The NFL had the right in the CBA to opt out of the last two years of the CBA and on May 20, 2008, they took advantage of this provision and opted out. Based upon this opt-out the SSA and the CBA are set to expire on March 4, 2011. The NFLPA and the NFL have been negotiating in an attempt to reach an agreement for a new CBA. During these negotiations the Owners have recognized that a lockout was “Realistically possible in order to achieve a new agreement more favorable to their interests.” This perspective is crucial to embrace when reviewing Judge Doty’s decision. You must also remember that this is not a work stoppage on the part of the Players but a lockout by the Owners.
The TV Deals generate about one-half of the NFL’s total revenues. These revenues are shared by the Owners and the Players. The NFLPA does not negotiate the TV Deals the NFL does it alone. The existing TV Contracts did not require the Networks to pay the NFL if there was a lockout in 2011. The NFL was concerned about lost revenue and the possibility that certain of its loan obligations could be considered in default if the TV revenue was not being received as a result of the lockout. The NFL thought that all of these events would decrease their bargaining power with the Players.
The NFL shortly after opting out of the CBA began negotiations with the Television Networks that broadcast NFL games in the hope of modifying the existing TV Deals. It renegotiated the DirectTV deal so that the NFL was actually paid more in 2011 if they locked the Players out. DirectTv “would have considered paying more in 2009 and 2010 to have the [the work-stoppage provision] go away” but that was not part of the final agreement. The agreement was extended and the rights fees for 2009 and 2010 stayed the same. The TV Deals in place with CBS and Fox prior to the renegotiation required the NFL to pay the Networks refunds in 2011 if there was a lockout. The renegotiated deals again did not have increased fees for 2009, 2010 or 2011, but the lockout penalties were decreased. The deal with NBC also had the same work-stoppage penalty in it. Again the NFL did not seek increased rights fees for 2009, 2010 or 2011, but the new agreement had increased rights fees for 2012 and 2013. A common theme was developing the deals had been modified so that the lockout penalties were significantly diminished and later revenues increased, assumedly after the end of the lockout. ESPN had a contract in place that was to expire in 2013. The contract was not extended but “the work-stoppage provision was amended”. The new deal was directly linked to a work-stoppage. There were also the deals with Comcast and Verizon that were renegotiated. Judge Doty wrote “In total, the NFL negotiated access to over $4 Billion in rights fees in 2011 if it locks out the Players. Of that sum, it has no obligation to repay $421 million to the Broadcasters.”
The Players claimed that the owners had failed as required by the SSA to maximize total revenues for 2009 and 2010 which would benefit both the Players and the NFL. After a trial in January the special master ruled that the NFL had violated its obligations under the SSA in negotiating the TV Deals, but only partially. The special master granted the players $6.9 million in damages for the NBC contract. Judge Doty ruled that the reasoning applied by the special master was incorrect. When the NFL was negotiating these deals it could apply the principle of “Sound Business Judgment” but this does not allow the NFL to do this “at the expense of maximizing total revenues during the SSA.” The NFL had negotiated or renegotiated these TV deals “to benefit its exclusive interest at the expense of, and contrary to, the joint interests of the NFL and the Players.” In addition the NFL by failing to seek revenue modifications for 2009-2010 seasons when it modified practically every other term of the agreements did not make the required Best Efforts in these negotiations.
Judge Doty seemed to be particularly moved by the NFL’s vast market power which one television executive described as the ability to have the NFL Commissioner call you and state “we’re done, pay this or move on … [the NFL has] market power like no one else”. As a result of this market power the NFL could have gotten more revenues for the 2009 and 2010 seasons when it entered into these modified contracts, but chose to emphasis the best way to position the Owners if there was a lockout to the determent the Players. The NFL had told the networks during these negotiations that “opposition to lockout provisions to be a deal breaker and clearly a deal it would not consider.”
The Court’s has ordered a new hearing to be held to determine what relief it should grant the Players. The Court has indicated that both money damages and the possibility of injunctive relief would be considered.
The NFL has indicated that it was prepared for this ruling and that it does not effect its negotiating position. This may be the case, but it seems to fly in the face of logic. If the NFL negotiated these deals to position itself for a lockout and there is now the possibility that you may not have this revenue and if as the NFL believed the lockout could result in the default of some of its obligations there is a substantial price to pay as a result of the lockout that otherwise would not have to have been paid. We may know if this decision effected the NFL by the result of this week’s mediated negotiations. Hopefully, a fair agreement will be reached so the league can continue to function to the benefit of both the Owners and the Players and for all those people that rely on the NFL for their livelihoods.