Thursday, August 18, 2011

ESPN, the SEC, and the False Specter of Lawsuits Aplenty

Prior to Charles Robinson dropping a hydrogen bomb on Coral Gables, the big topic in college football as we while away the time before actual games has been Texas A&M potentially moving to the SEC. A&M is annoyed by the prospect of Texas using the Longhorn Network to increase its in-state recruiting advantage, so they are eying a move to a conference that isn’t dominated by their arch-rival. This sort of result was always likely as Texas increased its control over the Big XII. First, Nebraska and Colorado bolted, thus making Tom Osborne into a seer as he had worried about the southern members (especially the one in Austin) dominating the Big XII when the Huskers joined in the mid 90s. Now, A&M is seeing the same factors that pushed the Huskers and Buffaloes to new destinations.

Because of the legal issues involved in a major school decamping from one conference to another, this story has spawned all manner of commentary regarding the possibility of various parties ending up in court. Much of the commentary has been poorly reasoned. Exhibit A is the blogosphere’s Lionel Hutz, Clay Travis. Much of Travis’s writing on SEC expansion has been worthwhile. He claims to have sources that have told him that the SEC will not expand into any states in which it already has a member, which is an interesting and useful contribution to the discussion. That said, Travis’s claim that ESPN has a legal conflict of interest in its dealing with the Big XII and the SEC is simply wrong for a host of reasons. Here is the keystone of Travis’s theory:

OKTC hasn't read the entirety of the Big 12's agreements with ESPN, but every contract has a boilerplate "good faith" provision that obligates a party to act in the best interests of its partners. Would it be in good faith for ESPN to be negotiating with the SEC about increased payouts to a current Big 12 member that would lead to a breach of the Big 12 contract when that member leaps? Of course not.

Like Travis, I have a law degree from a good school in the South that starts with the letter “V.” Unlike Travis, I have a lot of experience litigating contractual disputes. That said, it does not take a law degree and experience to figure out why he’s wrong here. OK, maybe a legal background is necessary to figure out that a contractual agreement between two commercial parties does not create a fiduciary relationship as Travis claims. ESPN and the Big XII would be seen more as independent contractors and that sort of relationship does not create any fiduciary duties unless the contract creates such duties.

A legal background is not necessary to conclude that, unless its lawyers were committing malpractice, ESPN would never agree to the sort of provision that Travis describes. Think about ESPN”s position. They cover college football and have agreements with all six BCS conferences. Every week during football season, they make decisions that favor some teams and leagues over others. Which teams get plum timeslots? Which players and coaches are going to get puff pieces on College Gameday? Which highlights are they going to feature on SportsCenter? Moreover, ESPN has a dedicated news wing that is (at least in theory) separate and free from the commercial side of the business. In Travis’s world, ESPN's news apparatus would be forbidden from presenting a critical story on any Big XII team.

Assume for the moment that ESPN found evidence that an Oklahoma booster has been paying Sooner players for years and hosting orgies in the shadow of abandoned oil rigs. The implication of Travis's inference is that ESPN agreed to a contractual provision with the Big XII that would prevent it from running with the story because doing so would be antithetical to the Big XII’s interests as it would have negative consequences for one of the conference’s marquee members. ESPN has been accused of many things over the years, but being commercially naive is not one of them. So when Clay wrote the following embarrassingly self-congratulatory remark about how he’s the only one reporting this critical issue:

This is a massive story that OKTC is reporting, one that goes to the very essence of college sports in a televised era. The conflict brought on by Texas A&M to the SEC is just the tip of the contractual iceberg for the worldwide leader in sports. Texas A&M's situation isn't unique, it's just the first one to expose the internal hypocrisies and conflict of ESPN's college sports coverage.

This is a massive story that will be integral to all reporting on conference realignment for the foreseeable future.

…there’s a reason why Travis is the only one writing about the “massive story:” he’s almost certainly wrong. He’s right that ESPN has an inherent conflict of interest in that it is a business partner with a number of conferences that are in competition with one another, but this is a business conflict, not a legal conflict. Travis is right that ESPN will want to appear passive in A&M’s potential move by simply answering questions posed by the interested parties as to what it would pay in various scenarios, but this is almost certainly not because of contractual language.

The second legal issue that has been analyzed incorrectly is the claim that the SEC would face a tortious interference claim if it induced Texas A&M to join the Big XII. Again, we are going to have to make inferences as to the content of agreements that are not publicly available, but there are three problems with a tortious interference claim.

First, it is likely that the agreement between A&M and the Big XII sets out a procedure for A&M to leave the conference. That's fairly standard in conference-school agreements. If the agreement between A&M and the Big XII establishes that A&M can leave the conference based on certain notice and/or paying a certain amount as a penalty, then the SEC cannot be tortiously interfering with the contract because there is no breach in the first place.

Second, even if one assumes that the contractual provision says that A&M has to provide two years notice (or something to that effect) or else they have to pay a penalty, then that penalty should be the extent of the Big XII’s damages. In order to enforce a liquidated damages provision, the Big XII would have to establish that it would have a hard time calculating damages resulting from A&M breaching the agreement and therefore, the liquidated damages provision is a good faith estimate as to what its damages would be if A&M left the conference without complying with the notice requirement. Thus, the Big XII is committed to the position that its damages for early withdrawal are a certain number. If that number is the right number for A&M, then how could the SEC cause different, greater damages? The Big XII would be left arguing that a provision of its own contract is unenforceable. If the Big XII were at risk of losing $1B in the event that A&M left, then its agreement with A&M should have reflected that reality.

Third, the Big XII would have a duty to mitigate its damages caused by the actions of A&M and the SEC. If the issue is as simple as the ESPN/Big XII contract being voided by the league dropping below ten teams, then there is an incredibly basic way for the Big XII to keep its deal in place: add a new team. I wonder what the withdrawal penalty/procedure is for TCU with the Big East? Even if TCU is not an option, there would be a host of schools that would line up for the privilege of being in a BCS conference. I can immediately think of a school in Idaho whose recent football success far outstrips that of Texas A&M that would love the chance to move to an Automatic Qualifying Conference. In order to recover for the full length of its TV deal (which is how Burnt Orange Nation comes up with the $1B figure), the Big XII would need to establish that it could not find another school to bring its numbers back up to ten. Good luck with that.

One final caveat: the fact that I am pooh-poohing the legal claims that the Big XII would have against ESPN and the SEC does not mean that the former will not threaten or even bring claims. Parties posture in negotiations. Additionally, a plaintiff does not need a fully meritorious claim in order to initiate a lawsuit. There are some fairly complicated issues involved in a dispute that would ultimately be addressed by a judge or jury, which is a prospect that would scare any defendant, let alone two out-of-state defendants in a Texas court. ESPN and the SEC would like to avoid that fate and they are almost certainly governing their actions accordingly. That said, the claims that Outkick the Coverage and Burnt Orange Nation are describing are overblown.


Blogosphere's Chester J. Lampwick said...

I'd like a graph quantifying Clay Travis's move from funny writer who writes about UGA fake boobs and Florida flabby arms, to wanna be Finebaum. My law school friend had an axiom: Beware legal advice from law school graduates who aren't lawyers.

It's not catchy, but it's true.

Anonymous said...

Thanks, very interesting read

Hobbes said...

@Chester J. Lampsick: Beware legal advice from law school graduates who aren't lawyers.

Truer words never spoken. Worse than that is when the non-lawyer witha JD is a client. Ai-yi-yi.

Good analysis in the article.

Anonymous said...

I agree with much of this, but don't you think TAMU is going to try to leave without paying the stipulated penalty, by claiming that the Big XII failed to do something or other?

Anonymous said...

As a practicing attorney in the field of commercial litigation, I have to say that this is pretty damn comprehensive. If Clay doesn't realize he's been bested, it's only because he doesn't know enough to realize what he doesn't know.

Anonymous said...

Great article!
How does the Longhorn Network factor into all of this? Does that affect the discussion on ESPN not having a conflict of interest?

Anonymous said...

ESPN and UT have both acknowledged they are partners, and under Texas law partners owe each other a fiduciary duty. That means ESPN cannot do anything to harm UT. It's as simple as that.

Michael said...

So is it your understanding that Outside the Lines could not run a story alleging that Texas committed recruiting violations if they indeed came across a credible witness who made that claim? Leave aside the business reasons why ESPN would quash that story and think solely about the legal issue.

Put another way, does the Texas-ESPN agreement establish a formal partnership or are they using the term "partner" in a colloquial way? There's a difference between the every-day usage of partner and the specific legal meaning of the term.

I haven't looked at the LHN agreement, so these questions are not rhetorical. I honestly don't know the answer and would be happy to hear your thoughts.

Jon Morse said...


Not a lawyer, but maybe I can help anyway. Texas and ESPN aren't "partners" overall, but they are partners in the Longhorn Network. As a layman I would presume means that the two parties have a fiduciary responsibility to one another to do nothing to damage that specific entity, which I think would then tend to lead to a somewhat murky quagmire when it comes to the question of whether damaging (or destroying) the Big 12 constitutes damage to the network.

Hostpph said...

It is quite normal that it is hard to change from one conference to another but at least it is interesting to read how they are trying to do it.