The NFL’s collective bargaining agreement with its players lives until at least next Friday.
After calling a 24-hour time-out on Thursday, the groups then decided to keep negotiating until March 11. After taking the weekend off, they’ll return to mediation talks Monday.
Many believe the push to extend the CBA deadline emanated from a March 1 ruling by U.S. District Judge David Doty. He overruled a special master’s previous call that the NFL had negotiated in good faith during its most recent round of contract renewals with its TV carriers. The NFL Players Association filed suit because it felt the NFL had not tried to get as much money as possible for the extensions, something deleterious to the fiscal fortunes of its membership. Instead, the league, according to the suit, opted for less coin in order to ensure that it would have access to $4 billion in rights fees as de facto lockout insurance.
Doty sided with the players, but he has yet to rule on damages and, more importantly, whether to put those rights fees into in escrow, which could officially close that portion of the league’s war chest. Presumably that hammer could drop later, but Doty’s ruling in the eyes of many is what kept the NFL at the negotiating table, a notion commissioner Roger Goodell and the league’s lead counsel Jerry Pash dismissed on Friday.
Whatever the reason(s) — and whenever Doty might set a court date to talk about placing the funds in escrow — the parties now have until March 11 at 5 p.m. to chew on new ways to save their $9 billion-plus, soon-to-become-at least-a-$10-billion, industry. Hurdles remain about rookie wage scale, an 18-game schedule, added health/retirement benefits and the ultimate splitting — the owners want to take the first $2 billion, instead of $1 billion before the players can get their slice — of that large revenue pie. In the meantime, Doty’s ruling provides some interesting vistas into the league’s rights negotiations and the power wielded by the king of professional sports.
According to Doty, the NFL, which began simultaneous negotiations with Sunday afternoon carriers Fox and CBS in April 2009, did not seek increased rights for the 2009, 2010 and 2011 seasons. Under their contracts that were to expire in 2011, the NFL would have to repay CBS and Fox that year in the event of work stoppage.
Instead, the take and give (and you’ll like it seemed to be the tone of the league’s work-stoppage negotiations, opposition to which would be “a deal-breaker”) afforded highlights and streaming rights, plus advertising flexibility to the Sunday afternoon carriers at no additional rights costs. However, they ceded “look-in” capabilities to the league that set up its “Red Zone” scoring channel and similar rights for its wireless provider, Verizon.
Approved in May 2009, the revised contracts, which were extended through the 2012 and 2013 seasons at slightly increased rights fees, “eliminates the requirement that the NFL repay rights fees attributable to the first three lost games in the affected season; allows the NFL to request less than the full rights fee; and allows the NFL to repay the funds, plus money-market interest, over the term of the contract.”
For its part, NBC, like Fox, expressed reluctance to pay what the league wanted for an extended contract beyond its deal through 2011. For agreeing to similar payment terms in the event of a 2011 work stoppage, NBC received an extra regular-season game from 2010-13 and is paying increased rights for the last two years of the revised pact. The league gained look-in capabilities and the capacity to assign streaming rights to wireless partner for NBC’s Sunday Night Football.
As is the case with DirecTV and ESPN, the NFL will extend the broadcast carriers’ contracts for a year if the 2011 season is punted on its entirety.
Things were evidently somewhat different for rookie wireless sponsor Verizon and more complicated where DirecTV and ESPN stood.
In Doty’s summation, “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 obligations to repay $421 million.” Those non-refundable monies would come from DirecTV and Verizon Wireless.
According to Doty’s document, the top DBS provider’s contract with the NFL for the out-of-market Sunday Ticket package, a major subscription driver for the satellite leader, was set to conclude with the 2010 campaign. It didn’t contain any work-stoppage provision, meaning the league couldn’t collect any rights fee. DirecTV, which entered into negotiations in July 2008, said it would have considered paying more in 2009 and 2010 “to have [the work-stoppage provision] go away.” But the league was having none of that.
In the deal for the 2011-14 seasons announced in March 2009, DirecTV gained the right to distribute Sunday Ticket over broadband; secured packaging flexibility; “maintained the exclusive right to carry out-of-market games”; and kept carriage for NFL Network until the end of the 2014 season. The NFL, meanwhile, gained the look-in rights it needed to open its Red Zone playbook to cable operators and other distributors, via an almost mirror of the scoring/highlights service that DirecTV has been presenting as part of Sunday Ticket for years.
The gridiron giant also secured significant rights fee increases from DirecTV for the four seasons and the requirement that the DBS leader “will pay a substantial fee if the 2011 season is not canceled and up to 9% more, at the NFL’s discretion,” if it is. As such, the NFL would get a lot more rights more money from DirecTV in 2011 if the players are locked out, than if they take the field. Of that total if the season is destroyed, “42% of that fee is non-refundable and the remainder would be credited to the following season.”
At first glance at that math, it looks like DirecTV could foot almost that entire non-refundable bill, given the $4 billion value of its Sunday Ticket contract from 2011-14 seasons. However, the contract likely escalates from deal that ended in 2010, which averaged some $700 million annually. There are also other terms and credits that would reduce DirecTV’s rights exposure, including a heavily discounted deal for an additional season if the lockout claims the 2011 campaign.
While the broadcasters and ESPN contracts don’t include non-refundable payments provisions, Doty’s ruling also mentioned that Verizon Wireless would be on the hook. Supplanting Sprint as the official wireless provider of the league through a $720 million contract in February 2010, Verizon Wireless gained access to the Red Zone, the streaming of Sunday and Thursday night games and other highlight rights. But under the contract, Verizon Wireless, too, is obligated to pay a non-refundable rights fee,” even if pigskins with Goodell’s signature on them don’t fly in 2011.
Welcome to the club, rook. Can you hear me now?: Where’s the check? A Verizon Wireless spokeswoman declined to comment on the payments.
As for ESPN, the worldwide leader already had an NFL contract through 2013. That agreement contained a work-stoppage provision similar to those of the broadcast networks, except that “the NFL could be required to pay damages incurred by ESPN due to lost subscription fees.” The parties worked on a new deal in the fall of 2009, with the new work stoppage language providing that ESPN, at the league’s discretion, would pay up to the full rights fee; “a credit for the first three games of the season would be applied the same year; the NFL may request less than the full rights fee;” and that the league would “repay the funds, with LIBOR interest, plus 100 basis points, over the term of the contract.”
Through the negotiations, ESPN didn’t add term, but picked up various assets: to use NFL footage in linear distribution of regular programming across digital platforms, excluding the right to distribute Monday Night Football wirelessly; the right to stream live MNF highlights on its website; the right to show game highlights online; more international rights; and broad wireless rights. The league, in turn, was allowed to show in-progress MNF highlights on NFL.com and wireless devices.
ESPN, according to Doty’s document, agreed to expend rights from July 2010 through July 2014 and requested that the fee not be payable in the event of a work stoppage. The NFL shut down that request, saying the work-stoppage provisions and the digital deal were “linked.”According to the ruling, the NFL, to secure ESPN’s agreement to the work stoppage provision, granted the programmer the right “to a Monday Night Football ‘simulcast’ via the wireless partner.”
Was the latter clause what enabled ESPN to offer its top property as part of its authenticated, online simulcast of the network? ESPN officials wouldn’t say.
However, Time Warner Cable began proffering an authenticated online simulcast of the network, including MNF, kicking off with New York Giants-Dallas Cowboys game on Oct. 25. That came as part of far-reaching carriage deal it struck with Time Warner Cable last September. Since then, Bright House Networks (TWC handles programming negotiations for the operator) and Verizon FiOS, have launched similarly authenticated, online ESPN services. MNF, in the event the league is playing next fall, would be available to those distributors’ subscribers — and to any other affiliates it could reach a similar pact with it — as well.
Lest you’ve forgotten — and rest assured Goodell and NFL Players Association executive director De Smith and their respective charges haven’t — the league is reported to be sitting on a new ESPN deal, under which rights would soar to almost $1.9 billion annually from the current contract average of $1.1 billion per season.
If all other revenues sources held equal, the lucrative, long-term ESPN deal would push the NFL’s revenue total to the $10 billion plateau. That’s without as much as another nickel emanating from any other source, network or otherwise. Small chance the NFL, particularly if it can convince the players to engage in the 18-game schedule and with it the possibilities it opens for such other potentially interested parties as Versus, FX and Turner — or a full-season primetime slate for NFL Network — won’t be asking for a lot more.
If it didn’t that wouldn’t be bad faith, just bad negotiating.
Check out Doty’s ruling here.