By Christopher R. Deubert, Senior Writer
In June, a trial will begin in a Los Angeles federal court that could dramatically alter the way clubs in the NFL and other leagues broadcast their games. The trial comes after a recent court decision denying the NFL’s motion for summary judgment on antitrust claims brought by subscribers to the out-of-market Sunday Ticket package. While technically only Sunday Ticket is at issue, the Court repeatedly stressed the importance of reviewing how all the league’s “interlocking” agreements (including specifically those with CBS and FOX) work together to determine their reasonableness under antitrust law. A loss for the NFL would shake (at least temporarily) the core of its highly lucrative business model.
The Court’s Decision
In the October 6, 2023 Sports Litigation Alert, I summarized the background issues, including their relation to the history of sports broadcasting, the 1961 Sports Broadcasting Act (SBA), and the Ninth Circuit’s 2019 decision reinstating the plaintiffs’ case. The crux of the case is that the plaintiffs allege that the manner in which out-of-market games are made available for viewing is a violation of antitrust law.
There are some important undisputed facts to know in understanding the legal issues. The NFL, on behalf of its member clubs, collectively negotiates and sells the broadcast rights to the clubs’ Sunday afternoon games to CBS and FOX. This combined sale of broadcast rights is exempt from antitrust law by the Sports Broadcasting Act because the broadcasts are free to viewers. CBS and FOX transfer ownership of those broadcasts back to the NFL. The NFL then bundles and sells those broadcasts as part of a subscription package called NFL Sunday Ticket. The CBS and FOX agreements require that such a subscription package only show out-of-market games, i.e., games not otherwise available on CBS or FOX. The CBS and FOX agreements also prohibit the “a la carte” or “pay per view” sale of games. NFL Sunday Ticket is the only way out-of-market fans can watch their favorite teams. The NFL Sunday Ticket package had been available through DirecTV for many years, until moving to YouTube this season. Sunday Ticket costs $399 per year.
The NFL’s motion for summary judgment raised several issues for adjudication.
First, the NFL argued that there was insufficient evidence of DirecTV’s involvement in any alleged conspiracy to reduce the output of game broadcasts. This is an important issue because claims under Section 1 of the Sherman Act require multiple parties to have engaged in a common scheme for an unlawful purpose. However, the NFL-DirecTV agreement provided DirecTV with the exclusive rights to broadcast out-of-market games and otherwise restricted how many games could be broadcast nationally and in any one location at one time. Consequently, the court determined that there was a “triable issue as to whether DirecTV had a conscious commitment to participate in the conspiracy.” The same facts led the court to conclude that there was also a triable issue of fact on the plaintiff’s Section 2 monopolization claim, specifically whether the “agreements between the NFL, the member clubs, and DirecTV were designed to maintain market power by reducing the number of telecasts available of the games.”
Second, the NFL argued that the Sports Broadcasting Act immunizes the conduct at issue. In the NFL’s view, the plaintiffs’ claims cannot proceed if they are “predicated on eliminating or altering the NFL-Network Agreements that provide CBS and FOX with exclusivity for the Sunday afternoon NFL games that they produce and broadcast.” The court was not persuaded, starting from the perspective that antitrust exemptions are to be narrowly applied, particularly when they are the result of special-interest legislation. It is well-established that the Sports Broadcasting Act “does not exempt league contracts with cable or satellite television services, for which subscribers are charged a fee [such as DirecTV], from antitrust liability.” Consequently, the NFL’s arguments improperly sought to “expand the SBA’s exemption to antitrust laws outside of the conduct permitted by the SBA.”
Third, the NFL argued that there is no agreement among its member clubs to pool their broadcast rights except for in the agreements with CBS and FOX, which is conducted protected by the SBA. Without an agreement by the clubs, there cannot be antitrust liability. This argument is mildly shocking, to say the least. Students and practitioners of sports law and business are well acquainted with the idea that one of the major successes of the NFL over the years has been the collective sale of clubs’ broadcast rights. In support of its argument, the NFL argued that the NFL Constitution permits clubs to broadcast their games, subject to certain restrictions, including Commissioner approval. However, the court noted that the restrictions are so onerous that no club realistically has the ability to sell broadcast rights outside the pooled arrangement. Moreover, multiple NFL executives testified during depositions that the clubs had ceded control over their broadcast rights to the league for their collective sale. The NFL’s argument simply does not match reality.
Fourth, the NFL resuscitates the somewhat infamous single-entity argument. Specifically, the NFL asserted that it and its member clubs are a single-entity for purposes of licensing telecasts and thus cannot violate Section 1 of the Sherman Act. In making this argument, the NFL tried to differentiate the current case from American Needle, Inc. v. NFL, 560 U.S. 183 (2010), in which the Supreme Court unanimously held that the NFL was not a single-entity for purposes of licensing intellectual property to apparel companies. The NFL argued that clubs “cannot compete to produce telecasts of an NFL game because such productions cannot exist without the cooperation of the NFL and its member clubs.” Televising games necessarily requires “visual display of the League’s and club’s trademarks.” Consequently, the NFL argued that plaintiffs failed to offer a plausible account of how a club, acting alone, could produce an NFL telecast.
The court was not persuaded. At plaintiff’s prodding, the court recognized that in the 1950s, before the passage of the SBA, NFL teams did in fact sell their television rights individually. Further, the court acknowledged that both the Notre Dame and BYU football teams – independent of any conference affiliations – have sold their telecast rights individually. Consequently, the court concluded, “the evidence shows it is possible for the member clubs to act individually to produce telecasts.”
Interestingly, the court did not address a statement from Justice Kavanaugh concerning the prior denial of the NFL’s petition for certiorari of the Ninth Circuit’s decision in this case. Recognizing the need for the NFL to act as a “joint venture,” Justice Kavanaugh opined that “antitrust law likely does not require that the NFL and its member teams compete against each other with respect to television rights.”[1] Plaintiffs had responded by stating that they “are not claiming that the teams must, as a matter of law, compete with each other and the NFL so long as they make their own independent business decisions and do not agree with each other not to compete.” The court did not specifically address these arguments.
The End Game
The outcome of the litigation be will monumental for the major North American sports leagues, all of which have some package that out-of-town fans must buy in order to watch certain teams. The NFL and its member clubs will need to demonstrate that their current method of making out-of-market games available to viewers – that is, through a wholesale subscription package – has procompetitive benefits that outweigh its anticompetitive effects. In other words, the NFL will need to show that its Sunday Ticket package maximizes the number of games available to the viewing public and at reasonable rates. The plaintiffs on the other hand may well gather evidence that shows that there is a substantial market for fans to purchase out-of-market games for just one team and a rate far lower than the $399 for Sunday Ticket. The NFL has insinuated that striking down the Sunday Ticket package will have significantly harmful effects on the NFL’s television model and revenues. However, sports leagues have a history of making hyperbolic claims about the possible effect of antitrust rulings on their business operations which later proved to be incorrect.[2] The leagues have proven adept at adapting. Moreover, given Justice Kavanaugh’s prior thoughts on the case, we might even see the Supreme Court take up the case. We will all be watching, regardless of our market.
Deubert is Senior Counsel at Constangy, Brooks, Smith & Prophete LLP.
[1] NFL v. Ninth Inning, Inc., 141 S.Ct. 56, 57 (2020).
