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Tie Breaking

I am not a lawyer, but I did stay at a Holiday Inn last night. I also dug up everything I could find on the internet with an emphasis on the content of legal blogs, stripped the jargon, and found this:

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via i1281.photobucket.com

Breaking a Contract

Any contract can be broken as long as the breaching party (the party breaking the contract) pays the other party the damages.

The damages are the NET financial loss the breaching party caused the other. The damages can NOT be punitive - they cannot cost the breaching party more than the other expects to lose.

Example - you sign a contract with a contractor to paint your home for $1,000. The painter estimated it would cost him $700 to paint your house and he would make $300 profit. Before he starts you cancel the contract. The painter is entitled to reimbursement for his loss. The painter is not entitled to $1,000 because this includes his costs and would therefore be more than he expects to lose. The painter is not entitled to $400 because that is more than his expected profit and would be punitive. The painter is entitles to his expected $300 net loss.

If the contract includes a pre-determined cost for breaching the contract (such as a conference exit fee), and even if both parties agree to this amount, it can still be challenged if it is more than the other party expects to lose.

Example - Your contract with the painter has a clause that if you cancel the contract the painter gets $500. You go to the hardware store and realize it would have cost the painter more than $500 in supplies to paint your house. Even though you agreed to $500 penalty for breaking the contract, you can legally refuse to pay the amount because it is more than the contractor expects to lose - in other words, it is punitive. The painter is still entitled to his expected $300 net loss.

3 common misconceptions:

1. Any contract can be broken as long as the breaching party pays the damages.

2. The damages cannot be punitive - they cannot be more than the non-breaching party expects to lose.

3. The damages are the net loss to the non-breaching party, not the gross loss.

Conference Exit Fee

Calculating the numerous conference revenue streams' net losses is much more complex than the painter example. The net loss is not evident. In these situations, an estimate of the loss is often made and included in the contract. A Conference Exit Fee is an example of this estimate.

However, having the amount pre-determined like a Conference Exit Fee does not make it legal. It is still limited to the actual loss and cannot be punitive.

When Nebraska and Colorado left, Big 12 Commissioner Beebe said the Big 12 "Thought it would be closer to $30 (million each), and they thought zero." Colorado paid $6.86 Million and Nebraska paid $9.25 Million. Missouri and TA&M both paid $12.41 Million.

With an exit fee set to 3x the conference yearly operating budget, there is no doubt the ACC crosses over to being punitive. Rather than adding stability, the ACC's excessive exit fee guaranteed it wouldn't be a starting point by the courts.

This doesn't mean exit fees are useless

1. If they are high (like the Big 12) but not ridiculous (like the ACC) they provide a good starting point for the conference entering arbitration.

2. The do provide compensation to the conference. The $41 Million collected by the Big 12 was probably more than the actual net loss.

3. They act as a deterrent. Without an exit fee FSU might have jumped to the Big 12 - with the exit fee the nominal shared revenue gains of the Big 12 were largely offset.

Grant of Rights

Grant of Rights now exist in the ACC, B1G, Big 12, and PAC. In these agreements, the conference members sign over their broadcast rights to the conference for a set period of time - usually the duration of the longest current broadcast contract the conference has.

The law blogs had a difference of opinion on the effect of the GOR. The difference isn't a difference of opinion on the law but a lack of information on the details of the agreement.

In shorthand, it all depends on the agreement being a license or just a contract.

It is also uncertain because NCAA broadcast rights have not been challenged in court. If you hit a legal blog talking about NCAA Grant of Rights in definitive terms, they are full of shit because nothing has been formally tested and it isn't even known if the agreement is a license or just a contractual agreement.

If the Grant of Rights is a Contract...

The gross loss varies from program to program and, for all practical purposes, is determined by the broadcasters. The gross loss of a program like Texas could be huge, while the gross loss of a program like Kansas would be much less.

If you see a number (such as $300 Million) noted in an article, the author is making it up as he writes, or is quoting someone who was making it up as they wrote, because the amount varies from team to team and is unknown.

However, this is only the gross loss. To get the net loss you would need to subtract the portion of the broadcast contract which is paid to the departing team.

So far the broadcasters have not decreased the amount they pay for the contracts. In these cases the net loss would be a gain for the conference and the damages would be 0.

If the broadcasters decreased the contract by an amount equal to what the departing team was getting, the conference would be hard pressed to show notable damages as they try to claim a net loss from 3rd tier rights.

Even if the broadcasters decreased the contract by more than the departing program was receiving, that amount would still be partially offset to get the NET loss to the conference.

If the GOR is a contract, it isn't a game changer.

If the Grant of Rights is a License...

A license represents a transfer of ownership. For a period of time you no longer own the item (in this case, broadcast rights). If someone sells you something, they can't just take it back. At first glance this would seem simple - the conference keeps the broadcast rights.

Trying to find a parallel basis gets harder. It isn't like music or book or software publishing copyright or royalties, or even licensing a technology, because the product (future games) doesn't yet exist. The analogy might be musicians promising X number of albums over Y years, but these agreements have been broken and work like a contract so they aren't a good license example.

There is an issue of payment for the license. A team leaving a conference doesn't equate to a team not getting paid for its broadcasting rights. They could leave their rights with their old conference and get paid their share of the broadcast contract as before. They wouldn't expect full revenue sharing from their new conference, but they could get additional broadcast revenue by signing over their 3rd tier rights to their new conference and still share non-broadcast revenue streams.

There's more room for shenanigans. A team only owns the rights to their home games. A departing program could move all or part of their home games to a neutral venue, and then sign the rights to those games over to their new conference. For example, Georgia Tech changes conferences, leaves their home game broadcast rights with the ACC, moves all or part of their home games to a neutral site like the Georgia Dome, and then signs the rights to the neutral site Georgia Dome games over to their new conference. An analogy might be "The Artist Formerly Known as Price" who escaped a bad contract simply by changing his name.

This is just barely scraping the surface of the legal issues. As noted, NCAA broadcast contracts have never been tried in court.

If the GOR is a license it is a step up as a deterrent, but in the end would have the same results as being a contract since the conference the team is leaving wouldn't want to continue the relationship.

The GOR as a symbol of solidarity

My response in considering this is... fart noise.

When Maryland and Florida State were in discussions with other conferences, they voted against increasing the departure fee. When the big dogs of the old Big 12 were in discussions with the PAC, they would not sign over their rights to the conference. TA&M and Missouri did not sign over their rights to the Big 12 like the rest of the conference did when they were in discussions with the SEC.

No program who is considering leaving is going to sign an agreement that would make it more expensive and harder for them to leave. For now the programs who are candidates for the B1G and SEC want to stay in the ACC and Big 12 for a myriad of non-revenue reasons. Fiscally the Big 12 and ACC would be the same or a revenue drop after an exit fee and travel expenses. My belief is that FSU to the Big 12 was just a plan B if the ACC collapsed.

However, reports are the ACC top FB programs took a lot of convincing. ESPN increased their shared revenue and promised a good faith look at a conference network. Unlike when the Big 12 signed a GOR, the ACC members can't claim it was purely to stabilize the conference.

The Broadcasters

GOR agreements protect the broadcaster assets, and empower broadcasters to set the gross cost of a program leaving a conference.

Broadcasters could get into legal problems. College administrators have admitted the broadcasters were actively involved in conference expansion decisions. There is a conflict of interest since 1 or more carriers have rights to the conference a team is leaving and the conference a team is going to.

As a result, the broadcasters have never decreased payments to a conference a team leaves.

If the broadcasters own the upper rights to a conference, they have never increased payments since they are still getting the same number of games.

The B1G did not get a contract increase for adding Nebraska. The broadcaster wasn't interested in buying 7 of the cruddiest games of the season.

The PAC was near a new contract so it wasn't an issue.

The ACC got an increase, but only enough so that everyone got about the same broadcast revenue they were getting before realignment.

The SEC will likely get about the same type of adjustment as the ACC, with a little mores tossed in for 3rd tier rights for a conference network.

Conferences don't want to challenge GORs

The reasoning is that it would weaken their own GOR agreements... Bwah-hahahaha!

The PAC and B1G aren't held together by their GOR agreements -their GOR is financial protection, not protection of their existence.

It isn't the GOR that prevents the Big 12 and ACC from poaching conferences with GOR agreements - it is their inability to provide sufficient shared revenue to attract worthwhile candidates.

This doesn't mean a GOR is worthless

1. It is another agreement a departing program would have to fight in court.

2. It ensures a drop in the broadcast contract is part of the net loss calculation.

3. It flushes out programs who are privately considering leaving the conference.

4. It helps provide stability for the middle and smaller programs in a conference by making it less likely the larger programs will leave.

5. It makes it easier for programs to turn down offers from other conferences because they aren't risking having the rug pulled out from under them for staying.

If conference expansion is over, it didn't end because of GOR agreements - it ended because candidates chose to stay for non-financial reasons.

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