NFL, DirecTV Defeat 'Sunday Ticket' Lawsuit

New England Patriots - Los Angeles Rams -December 4, 2016 -Getty-H 2017
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DirecTV and the NFL are dancing in the legal endzone after a California federal court dismissed a nationwide class-action lawsuit over Sunday Ticket.

Both commercial and residential fans had accused the league and provider of restraining broadcasts of out-of-market games and charging "supracompetitive premiums."

In February, U.S. District Judge Beverly Reid O'Connell heard arguments centering on what constitutes a "blackout" of games. The NFL and DirecTV argued that every game is available to watch every week somewhere and multiple games are available for free everywhere — therefore there is no blackout. The plaintiffs argued that isn't good enough, and consumers should be able to access the games they want to watch without paying for Sunday Ticket no matter where they live.

On Friday, O'Connell officially sided with the NFL and DirecTV, dismissing the fans' suit with prejudice.

There are two agreements at issue in this dispute: the agreement among all 32 NFL teams that the league negotiates pooled television rights on their behalf, and the exclusive agreement between the NFL and DirecTV. While O'Connell found the plaintiffs had antitrust standing to challenge the Sunday Ticket agreement, she found they lacked standing to challenge the horizontal agreement among the NFL and its teams.

As to the Sunday Ticket agreement, O'Connell assessed whether it reduced output, inflated prices and resulted in procompetitive effects. 

First, she found output is not restricted — regardless of how the term itself is defined.

"Because limitations on 'output' occur when an agreement altogether prevents the broadcast of a game — which does not occur here — Plaintiffs have failed to establish that the exclusive distributorship arrangement between DirecTV and the NFL reduces output," writes O'Connell. "Even assuming output was measured by viewership, as Plaintiffs suggest, because Sunday Ticket has increased access to out-of-market games, it has also increased viewership and, thus, Plaintiffs have not established that the agreement limits output under this definition."

Next, rather succinctly, she found "the mere fact that DirecTV may be charging inflated prices for Sunday Ticket does not, on its own, constitute harm to competition."

Finally, she found that because DirecTV is required to renegotiate its agreement with the NFL every few years competitors have the opportunity to compete for rights, resulting in procompetitive effects.

While O'Connell found the plaintiffs lacked standing to challenge the teams' agreements with the league she still analyzed whether the pooling of broadcast rights violates the Sherman Act — and she draws comparisons to similar complaints involving professional baseball and hockey. (Both of them ended in settlements.)

"Because the NFL owns the rights to NFL game broadcasts, the NFL functions differently than Major League Baseball (“MLB”) or the National Hockey League (“NHL”), where the League does not necessarily own the rights to every game broadcast," writes O'Connell. "Therefore, unlike the MLB or the NHL, the NFL must be involved in the sale of every game’s broadcast rights; without an agreement between the NFL and its teams, there would be no way to broadcast the game footage."

As to the issue of the out-of-market games, O'Connell finds that the plaintiffs failed to show a restraint on trade or that the defendants have the power to inflate prices. 

"By offering free game broadcasts on CBS and Fox, the NFL Defendants lack the ability to artificially control out-of-market games pricing because consumers may choose to view these free games as alternatives to paid-for out-of-market games, thereby driving market prices down naturally," she writes.

Further, she found there's no proof that offering Denver Broncos games on the open market wouldn't also lead to inflated prices for die-hard fans.

"Rather, even if these games were sold on the open market, because that same consumer would care about only the Denver Broncos and no other in-market or out-of-market game would be an effective substitute for that consumer, whoever ultimately owned the rights would always have some ability to artificially control prices, regardless," writes O'Connell. "In that case, neither the horizontal agreements between the NFL and the NFL teams nor the vertical agreement between the NFL and DirecTV would affect artificial price inflation; whoever owned the rights to any specific game — whether those rights were obtained through an exclusive distributorship agreement like Sunday Ticket or on the free market — could artificially inflate prices." 

The court found there is no way in which plaintiffs could amend their complaint without contradicting their current allegations and dismissed them with prejudice. The full decision is posted below.