MINNEAPOLIS (CN) – A crucial hearing comes today in the battle between NFL players and team owners, whose lockout threatens to cancel the season, in a fight over how to divvy up billions of dollars in television revenue. The NFL claims its annual receipts come to $9.3 billion a year, but players say that number “just scratches the surface” of the real money involved.
Owners’ refusal to open their books is one of the players’ key complaints.
There are now three class actions against the NFL and its teams, with the latest filed on Tuesday. The first class action, led by Tom Brady, is on behalf of active players. The second, led by Carl Eller, is on behalf of retirees. The third, led by Garrett Andrews, is on behalf of would-be rookies and prospective players.
In the Eller case, retired players cited Dan Greeley, CEO of Network Insights, who doubted the NFL’s self-reported income and expenditures: “The NFL is like Procter & Gamble. That’s the holding company, the core operation, but then each brand has its own team and world of revenue. … So the $9.3 billion pie just scratches the surface and doesn’t get into how much is spent around stadiums, merchandise, agents and all the way down to mom-and-pop shops.”
The Eller complaint cites a slew of revenue streams, each of them enormous: “the NFL redistributes upwards of $4 billion in radio, television and digital earnings across its 32 teams $125 million apiece, plus an equal share for the league … The NFL earns huge amounts annually from its telecasting deals with, inter alia, ESPN ($1.1 billion), DirecTV ($1 billion), NBC ($650 million), Fox ($712.5 million), and CBS ($622.5 million).”
And, the players say, companies “pour money” for the right to associate their brands with the NFL. Among them: Nike’s $1.1 billion for the NFL’s apparel sponsorship, Pepsi’s $560 million over 8 years, Gatorade’s $45 million a year, Verizon’s $720 million over 4 years, and Anheuser-Busch’s $1.2 billion over 6 years. Teams cut their own deals for “pouring rights” over beer at stadiums, and stadium-naming rights are also enormous: $10 million a year from Reliant Energy to the Houston Texas, and, “In Los Angeles, Farmers Insurance has promised $700 million over 30 years to name a stadium that doesn’t exist yet,” according to the Eller complaint.
Players say the league has been planning a lockout for some time.
The Eller complaint, which joined the Brady complaint 2 weeks ago, claims the NFL has made contract negotiations with advertisers and broadcasters that would financially support the NFL in the event of a lockout.
The NFL negotiated a contract extension with DirectTV that would have DirectTV pay a heavy fee if the 2011 NFL season is not canceled, and an extra 9 percent if the season is canceled – so the NFL will make more money from the cable broadcaster if there is no season, according to the complaint.
The players say that in 2009 the NFL negotiated with broadcasters that in the event of a work stoppage, CBS and Fox would still pay rights fees. If the whole season is canceled, the contracts would be extended for an additional season. In total, the NFL “obtained a $4 billion war chest to use against the NFLPA [NFL Players Association] in the event of a lockout,” according to the complaint.
At today’s hearing, U.S. District Judge Susan Nelson is expected hear whether a nonstatutory labor exemption protects the owners’ lockout, as the players dissolved their union 8 hours before the previous collective bargaining agreement expired.
The owners claim that the Norris LaGuardia Act prohibits the court from issuing an injunction, because the case “involves or grows out of” a labor dispute, which should be handled by the National Labor Relations Board. They also say that the players union acted in bad faith by entering dissolution hours before the collective bargaining agreement expired to circumvent the 6-month delay normally required to file an antitrust lawsuit.
Judge Nelson must also weigh whether an injunction, or lack of one, could expose the NFL and its teams to more antitrust lawsuits, and whether the very existence of the league, and its draft system, violates the Sherman Act.
But in the end, it comes down to money.
On March 31, the NFLPA demanded unspecified damages in a memorandum pursuant to the court’s March 1 order. The NFLPA’s lead counsel, Timothy Thornton, with Dewey & LeBoeuf of Manhattan, filed the document, which blacks-out dollar amounts.
“As this Court found [on March 1], the NFL Defendants breached the SSA by failing to ‘in good faith act and use their best efforts … to maximize Total Revenues for each playing season during the term of [the SSA].’ SSA, Art. X, § 1(a),” the filing states. “Specifically, Defendants acted with ‘a design … to seek an unconscionable advantage’ over the Players in direct contravention of their SSA ‘good faith’ obligations. Order at 20. Defendants also breached their ‘best efforts’ obligations by, among other things, not using their market power to benefit joint NFL-Player interests, but to ‘actively renegotiat[e] broadcast contracts to ensure favorable changes for [themselves] and [to] disadvantage the Players. Id. at 21 n.6, 24.
“Defendants’ SSA breaches were deliberate, contemplated and willful. Defendants committed these breaches ‘to ensure revenue for [themselves] in the event of a lockout,’ which had been planned since at least October 2008. Id. at 19; Trial Ex. 221, R. 193 (‘need to realistically assume we are locking out in 2011’). True to their plan, on March 12, 2011, Defendants ‘locked out’ the Players.”
At the conclusion of the memo, the players asked the court to “enter a judgment awarding (1) additional compensatory damages of $XX million, plus interest as permitted by law; (2) punitive damages at least three times the total compensatory damages award (including the $6.9 million already awarded by the Special Master), plus interest as permitted by law; (3) an injunction prohibiting Defendants from exercising their contractual right to access the repayable Lockout Provision funds unless they first reach an agreement with Class Counsel in White on how to share such ‘lockout loans’ with the Players; (4) an injunction ordering that the $XX million, non-refundable DirecTV payment be placed into an escrow account until after the lockout has ended; (5) if the Players are not awarded damages in connection with the $XX million, non-refundable DirecTV payment, an injunction ordering those funds to remain in the escrow account until after the lockout has ended and until Defendants reach an agreement with Class Counsel in White on sharing such funds between Defendants and Players; and (6) any further and additional relief that this Court deems proper under the circumstances to prevent Defendants’ from continuing to benefit from their bad faith conduct.”