Friday, June 6, 2014

Big 12 Grant of Rights - SEC Rumblings - Apologies to BYU

Expansion never dies – it just sleeps like Cthulhu waiting to rise from the deeps and wreck havoc upon college football.

Last week I had a very lively Twitter discussion with @Expansion_Crush and @NebGradDubDub about the Big 12’s grant of rights, hereafter referred to as GoR, and how secure the GoR actually made the conference.

There is some who believe the Big 12’s GoR is nullified by the conference’s exit fee. That’s not true.

The GoR doesn’t stop any member from leaving the Big 12. Any member institution can give notice, pay the exit fee, and withdraw from the conference. The GoR has absolutely no impact.

That’s right – the Big 12’s GoR isn’t a barrier to leaving the conference if a member is dead set on leaving.

What the GoR does is retain the departing members tier 1 and tier 2 television rights for the Big 12 conference.

And it keeps the money allocated to the departing member too.

What it does, very effectively, is remove any benefit for any conference to add a current Big 12 member.

What about the argument that the Big 12’s GoR is punitive? Not even close…

The Big 12’s GoR isn’t punitive because its not intended to stop any member from leaving. It’s also technically not punitive because it’s a completed business transaction via contract.

Contracts are valid when two parties have a meeting of minds, have legal terms and due consideration is given. The Big 12’s GoR meets that standard.

Big 12 members agreed that a GoR was necessary to obtain the best possible TV contract with Fox Sports and ESPN. They agreed to terms and they received compensation for signing the contract by way of increased TV revenues and a $60 million signing bonus.

How is the fact that a departing member doesn't receive their share of TV money not punitive? They signed it. More importantly within the document its clearly stated that the provision within the GoR that forfeits TV money to the conference is not punitive because it was necessary to obtain the TV contract. 

Remember that in order for a contract to be valid all the terms of the contract must be legal. The provision that cedes TV rights money to the Big 12 upon leaving the conference is legal and enforceable. 

The exit fee is completely different. It’s included in the by laws to compensate the Big 12 for the loss of the departing member. The amount of the exit fee isn't important. What is important is the method used to determine the exit fee. It must be equal to the damages suffered by the conference. 

But the exit fee is moot anyway. Exit fees are recoverable. They are a non-factor in most cases. 

What's important to note that despite the fact that they appear linked that paying the exit fee does not void the GoR.

The Big 12 knows that exit fees are recoverable and a non-issue for schools like Texas and Oklahoma. If WVU could pay $20 million to exit the Big East how much could the Longhorns pay?

The GoR is the real glue binding the Big 12 together, but not why you think. 

The GoR means that neither the Big Ten or SEC could make money by adding a Big 12 school and that effectively removes the motivation poach from the Big 12. 

There are many who doubt the legality of a grant of rights. They claim it can be circumvented.  Some even go so far as to say its punitive because it prohibits school X from leaving the Big 12 for the greater profits of conference Y.

That’s not how contract law works. Again the details are that all ten members of the Big 12 signed the GoR and received compensation. They received due consideration – somewhat above fair market value – for the GoR’s implementation.  They all agreed, prior to its implementation, that the GoR was necessary to secure a new television contract and they each acted in their own best interests by signing the GoR.

The cost of challenging the Big 12's GoR in court would far exceed, and likely wouldn't be adjudicated before the GoR expired, the profit to be made by adding a current Big 12 school. 

Many people I talk to believe the ACC’s GoR could be circumvented or the same reasons that make the Big 12’s GoR solid: due consideration i.e. payment.

ACC members did not receive compensation for signing the GoR. They may have received intangible benefits like a sense of security and the like but as far as I can tell no money changed hands.

That opens up several valid questions about the ACC’s GoR. Do intangibles count as due consideration? Can a state institution sign away rights without receiving due consideration?

The Big Ten believes that’s the case and so may the SEC.

What if the Big Ten and SEC would collude to carve up the ACC by attacking the ACC’s GoR and using the upcoming autonomy of the big 5 to make it unlikely that the private schools in the ACC can compete with the rest?

At least four ACC schools will  find difficult to meet the financial needs of the highest echelon of college football.  Their athletic departments run at or near a deficit each and every year and with the price tag of competing going up I wonder how they will fund the changes.

Notes:

I’m staring to hear rumblings from SEC sources again. Right now its nothing more than background chatter but they openly wonder if the SEC and Big Ten could carve up the ACC with just a little pressure.  Both would benefit and neither would be seen as the villain.


I want to apologize to BYU fans. Certain WV based twitter personalities started rumors about BYU joining the Big 12 directly after comments by the Big Ten and SEC about BYU. There was absolutely nothing to those rumors. The individual who started them is known for trolling distressed fan bases in order to drive traffic to internet message board ran by equally nefarious cohorts.  I have nothing but respect for the BYU program and its fans.

7 comments:

  1. Expansion_Crush here. I'd like to expand further on our Twitter conversation. I feel like it might be a good idea to give a little background on myself. I live in Indiana. I am a fan of the Big Ten in general but particularly I am a fan of the Indiana Hoosiers. That might tell you a little. I am a fervent Purdue and Notre Dame hater, because they are in-state rivals but more importantly because they suck at everything. I have no inside information, I'm only pitching ideas that I personally would like to see fulfilled as a fan of the Big Ten. Okay, The Dude and I actually agree more than we disagree and or Twitter disputes are always civil. I respect his opinion and believe that he only states information with the utmost sincerity (unlike some other M%$R3). We disagree on how ironclad the GOR is but I think he has a super solid argument for why they are ironclad. I just happen to think these GORs are ripe for some lawyering. I'm no legal expert but I see the GOR as a non-compete contract. I can't see where any court would uphold a conference taking complete ownership of a schools media property without anything in return. I think they're as negotiable as an exit fee.
    I've read the Big Twelve bylaws and it seems to me that to get out of the GOR a school would have to forfeit the equivalent of two years revenue, which right now would be about 56 million dollars. So it is a hefty deterrent and one that will more than likely be very effective in keeping the conference together. But if your a school that thinks that there might be a 200 million dollar gain in the next ten years would it be worth challenging? Who knows? After all, the numbers being put out by the Big Ten are only projections. But here's the one thing that the Big Ten has that the Big Twelve doesn't - perceived long-term stability. And perception is reality. So I think that a school like Kansas or Oklahoma might take that chance late in the GOR before it comes up for renewal and the costs of challenging are lower.They would be joining a conference with a national presence and the stability that only the SEC, Big Ten and Pac12 (because of isolation) could offer. I'm not one who believes in the academic elitist idea that only AAU schools should be in the Big Ten. Geographically, West Virginia belongs in either the Big Ten or the ACC. But, because of elitist bigotry, they aren't. That's the weird world of conference realignment. I do agree with Chris that we very well might not know until the end of this GOR contract. I'm sure the Big Twelve lawyers are already drafting the next contract.
    Go Hoosiers!

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  2. No problem with the discourse. It's fun. I've just talked to about 100 lawyers and 99 of them say the GoR is solid. The risk is just too high.

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  3. Is the GoR not moot since the next big change in college sports will be the result of à la carte programming?
    With that change and the movement of TV from traditional cable internet streams, schools like WVU that purport to have a fanbase obscured by the Mountaineer Diaspora will become hot properties (if the dispersed fanbase exists).
    WVU is unquestionably out of place in the Big 12 and, in my experience, would be a poor fit for the B1G. The ACC is afflicted with the same kind of academic academic snobbery resulting from a poor understanding of AAU qualifications and it effect on undergraduate education (almost zero).
    WVU will have to suffer through high costs and no schedule related recruiting benefit until conferences contract and reorganize in the face of the new economic reality of à la carte.

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  4. The distribution channel doesn't matter. The ten member institutions have basically leased their TV rights to the Big 12 conference. None of the schools can back out of the lease just because someone else offers to pay more money after the contract is signed. The Big 12 conference could show the games on Netflix or HBO and the individual members would have no recourse as long as they are paid.

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    1. Lets say that the GOR itself is not punitive and is enforceable. Then the punitive part of this isn't the GOR itself but the idea that the league keeps the all the money for all the departing teams ongoing (post B12) home games of the team.

      I would assume that any team departing the B12 could and would successfully sue the B12 for the slice of revenue coming from those post B12 games.

      So the network is legally obligated to pay the B12 for televising the games, and the departing team can't use their home games for B1G or other contracts until the GOR completes. But I'd suspect that they will still get their share of the money from the B12 for the GOR-eligible games (for punitive reasons). If that is the case then any prospective conference can take these issues into account when inviting a B12 team to their conference.

      The GOR wouldn't be the "expansion killer" that it is thought to be. Perhaps its more of an strong inconvenience (years of legal battles, years of a conference team that isn't 100% in the distribution contracts).

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  5. so let's say hypothetically the B1G poaches Oklahoma and the GOR is enforceable for the remainder of the contract. I would expect Oklahoma to fight successfully to get their share of the GOR proceeds (not from the networks in the GOR the but from the Big12 itself). So then for the remainder of the GOR, Oklahoma get compensation from the B12 for all its home games (and the B1G excludes Oklahoma partially or entirely from their conferences distribution payouts). That said, the B1G still gets value from all of Okahoma's away games (normally 4-6 per year) and any game that is played in a 3rd party venue (ie: Cowboy Stadium in Dallas). I'd also expect the BTN to make inroads into Oklahoma's markets.

    Once the GOR is over then Oklahoma would become a fully entitled member of the conference. It's worth noting that conference expansion is played out like a decades long chess match. I'd expect that its not a deal breaker in the short term for the B1G or other conference to not realize the full potential of a new member (especially if it doesn't lose money in the process). That the B1G gave special handling to Maryland in its fight to separate from the ACC gives precedent that they would do the same for other joining members.

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