9:18am PT by Eriq Gardner
TV Networks Hit With Antitrust Lawsuit Over NFL Rights Deals
Imagine for a moment if each of the 32 teams of the National Football League were licensing their games. That would be a tremendous change from the current system where the teams pool game rights and the league as a collective licensor sells them to broadcast distributors for about $6 billion a year. Under the alternative scenario, some teams might be licensing their games to online distributors. And if each team was doing independent licensing, there might be more than one or two games on broadcast television at any given moment on a Sunday afternoon.
At the moment, for those who wish to watch a fuller slate of NFL action, a DirecTV Sunday Ticket subscription is necessary. In the past few months, the arrangement has been the subject of no fewer than a dozen proposed class-action antitrust lawsuits alleging that NFL teams are colluding with each other on a product whose anticompetitive harms are said to be inflated costs and lower output.
On Friday, a new lawsuit was filed by a range of lead plaintiffs including the Bounce Sporting Club in New York, the Pedal Haus Brewery in Arizona and a DirecTV subscriber named Jonathan Frantz living in Oakland, Calif. Similar to the prior lawsuits, the new complaint is looking to take advantage of the 2010 Supreme Court ruling American Needle v. National Football League, which held that NFL teams are capable of conspiring when making licensing deals.
However, this one expands the playing field to new co-defendants including CBS Corp., Fox Broadcasting Company, NBCUniversal Media and ESPN.
According to the complaint, when the NFL first developed a plan in 1987 for a package of games to be sold to consumers, CBS opposed the idea, fearing the impact on ratings and advertising revenue. This impediment is said to have gone away six years later when Fox outbid CBS for broadcast rights. (CBS would later regain rights.) In 1994, DirecTV would begin selling its Sunday Ticket package. The complaint alleges though that the networks won concessions for this.
"For example, Fox insisted on and received a commitment that Sunday Ticket be capped at one million subscribers annually," states the lawsuit. "This cap has increased over the years but, on information and belief, remains a contractual obligation."
The lawsuit also alleges that part of the blame for the hefty price that DirecTV and the NFL charge for "Sunday Ticket" — anywhere from $250 for individual subscribers to up to $120,000 for commercial subscribers — is a result of the league satisfying the concerns of TV networks. The plaintiffs are also taking aim at restrictive contracts that ensure a limited number of games broadcast on television in any given week. Supposedly, the networks have contractual clauses that guarantee that rights are only sold through the NFL.
"In a competitive market, up to seven games would be broadcast simultaneously," states the lawsuit. "This would represent a massive increase in consumer choice — but would give CBS and Fox direct competitors that would reduce their ratings and revenue. By keeping those games off regular television and restricting them only to DirecTV subscribers who are willing to pay for the supracompetitively priced bundle, the scheme gives CBS and Fox an artificial duopoly over one of the most valuable commodities in all of television."
Neither CBS nor Fox had comment about the lawsuit.
As for other defendants like ESPN, the lawsuit alleges they too are participating in the conspiracy. By winning exclusivity, a network like ESPN is able to earn more than $6 a subscriber from cable and satellite companies in carriage contracts.
If the system of rights bundling and exclusivity were to change through the injunction being proposed by plaintiffs, it would be an enormous shake-up to the television industry. The lawsuit nods to a scenario of more output, referencing what happened to Division I college football after the U.S. Supreme Court in 1984 ruled that the NCAA's plan to control television licensing constituted a restraint of trade under the rule of reason. Since then, with NCAA member divisions like the SEC and Big Ten taking charge of licensing, the number of games on air has exploded with new national and regional sports networks like ESPNU and the Big Ten Network launching.
There's also cord-cutting implications given the importance of live sports to cable and satellite companies and the fact that some teams in professional sports (most prominently, the NHL's New York Rangers) have signaled past interest in delivering games online. If 32 teams were to independently license, who knows what the chaos would bring? Supposedly, it's been DirecTV standing in the way. "Because of DirecTV’s participation in the scheme, the United States is one of the only countries in the world where NFL games are not offered online to all consumers," says the lawsuit.
The NFL hasn't yet made any substantial arguments to any of the lawsuits over their Sunday Ticket arrangement. The various lawsuits seem destined to be consolidated under procedures for multidistrict litigation. Once that happens, the NFL could throw some attempted tackles over the plausibility of the claims and whether or not they are barred through federal law. Ultimately, the debate could come down to whether there are procompetitive benefits to the current licensing arrangement and whether there are less restrictive means. Major League Baseball is on the cusp of its own trial next January over its television deals — something the NFL is surely watching closely — while the lawsuit filed on Friday aims to undercut eventual arguments that the current system is needed to boost live attendance and foster competitive balance.
Here's the full complaint by plaintiffs suing the NFL, its teams, DirecTV, CBS, NBC, Fox and ESPN.