Myth of the Big 12's Grant of rights
Published on: January 03, 2013 | Written by: Kofa
By Jason Hutzler
That a grant of rights prevents conferences from being raided is a myth. The Big 12 is still vulnerable because Texas and Oklahoma are still in play to be gobbled up in conference realignment. To give you some background, I am a contract lawyer in Phoenix. I litigate a lot of contracts. Some that have liquidated damages clauses and some that don't.
At the end of the day, the liquidated damages clause is essentially an estimate by the parties of the expectant damages in the case of a breach. The liquidated damage clause cannot be used to punish the breaching party, but is used to indemnify the non-breaching party. An exit fee provision is a liquidated damage clause. Because it cannot be used to punish, they are often negotiated down from the stated fee.
Contracts that don't have a liquidated damage clause have two remedies available to the non-breaching party; specific performance and compensatory damages. Contract law enforces the expectancy interests between contracting parties, providing redress for parties who fail to receive the benefit of their bargain. However, courts rarely use specific performance as a remedy, especially in an instance when compensatory damages are easily calculated.
A grant of rights is a contract between each individual school and the conference pledging the school's media rights to conference for a number of year. Like all contracts, it can be broken. School X, member of Conference A who has granted its media rights to Conference A, thinks it can make more money in Conference B. So School X leaves Conference A for Conference B placing its media rights in Conference B. Now School X's games will be distributed by both confernces. At this point School X has breached the grant of rights agreement, Conference A will sue School X over the media rights under the grant of rights agreement.
Conference A would love to force School X to leave its media rights with Conference A, requesting a court require specific performance of the grant of rights. This is the threat of the grant of rights, the tie that binds so to speak. If a court were to elect the specific performance remedy then School X of course provides no value to Conference B. However, because specific performance is often difficult to enforce and requires more of the court's resources most courts rarely ever use this remedy.
Courts are even less inclined to use it when there is an easy way to calculate damages. The resulting damages from a breach of grant of rights are easily calcualable. There is no reason to believe that a court would require specific performance in a suit over a breach of a grant of rights.
The court is going to look at the value and duration of the media rights deal between Conference A and the networks. Then it will look at the duration of the grant of rights by School X to Conference A. Is the media rights deal worth less for the remainder of the grant of rights. If it is then this is the measure of damages School X must pay Conference A. My premise is that the networks have never reduced their payout to an existing contract, and there is no evidence they will going forward.
In 2003, the Big East is raided for two of its name brand schools, and a regionally significant school. The Big East added some lesser brands, and their media partners did not reduce their ongoing media deal. 2010, the Big 12 lost 2 schools in Colorado and Nebraska, did not replace those schools, and the Big 12 lost a significant amount of content (1/6th) in football and basketball. The Big 12's media partners did not reduce the payout on existing contracts but actually negotiated for more money on an expiring one. 2011, Texas A&M and Missouri left, the Big 12 replaced them with less valuable TV properties in TCU and WVU, and neither ESPN or FOX required a reduction in the payout to the Big 12. 2012, Maryland leaves the ACC for the Big 10, ACC replaces them with a less valuable media property. Not a single word is mentioned about a reduced payout for the ACC.
Networks, and one specifically, won't reduce the amount they pay to the conferences because it would violate their fiduciary duties to the conferences. Because one network (ESPN) has a hand in every league's media deal (except new Big East if it even exists) it can't in good faith pay one league more for raiding one league, then reducing its payout to league that was raided.
Because there is no evidence there would be a reduced payout to the league, the damages calculation is simple. The media deal for Conference A remains unchanged despite School X leaving, therefore there would be no damages for breach of grant of rights. The Big 12 grant of rights runs concurrently to media deals. So unless the networks change their strategy and go against precedent and start reducing the payouts to leagues, the only thing that binds these schools is money. Once the SEC starts its network there will be a new conference shuffle, and the Big 12 is still vulnerable.