NFL, DirecTV Face Revived Antitrust Suit Over Telecasts of Out-of-Market Games

The Ninth Circuit Court of Appeals reverses a decision to end a nationwide class-action lawsuit over "Sunday Ticket."
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What would the television market look like if the NFL couldn't pool all of the league's out-of-market games and sell them as a package? What if NFL teams competed against each other and made their own TV deals? These provocative questions will be moving forward in a court of law thanks to a potentially huge decision on Tuesday from the 9th Circuit Court of Appeals.

Subscribers of DirecTV's "Sunday Ticket" are challenging the league's dealmaking in a bold antitrust case. The action was dismissed by a federal judge who two years ago rejected the proposition that restraining broadcasts of out-of-market games resulted in less output and higher prices.

On Tuesday, 9th Circuit Judge Sandra Ikuta leads a majority decision reversing the dismissal.

Here's the opinion.

There's no doubt that when it comes to the reason why many stick with cable television or sign up for satellite service, sports play a big role. In particular, professional football is probably the most valuable commodity for the broadcast industry.

For years, the NFL has a particular way of licensing the telecast of games. The league sells packages of games for billions of dollars to broadcast networks, which showcase local action. The league carves out Sunday nights, Monday nights and Thursday nights for yet more multi-billion dollar deals. And finally, the league gathers together all out-of-market games, and for football obsessives or those whose favored team plays home games far way, the league licenses DirecTV's "Sunday Ticket."

Back in 2010 came some rumbling that the NFL's TV dealmaking might undergo some scrutiny. That was the year that in American Needle v. National Football League, the Supreme Court held that NFL teams are capable of conspiring when making licensing deals.

Along came residential and commercial customers of DirecTV's "Sunday Ticket," who each ponied up hundreds if not thousands of dollars for a subscription, to take on the NFL over its system of bundling. Without the NFL pooling these out-of-market telecasts, they contend, there would be multiple telecasts of each game with teams competing against each other by distributing telecasts through various cable, satellite and internet channels.

In a way, although plaintiffs nodded to newer digital forms of delivery, it all harkened back to the 1950s when individual teams did control licensing rights. But then, the NFL amended its bylaws to address the issue and required that teams minimize competition by refraining from telecasting their games in another team's local market. 

That led to a Justice Department suit over an alleged violation of the Sherman Act and a limited injunction against the NFL preventing teams from broadcasting games into another team's market when that team was playing road games.

What paved the road to the modern approach was Congress' passage of the Sports Broadcasting Act of 1961, which basically gave an exemption to antitrust laws by allowing members of a professional sports league to sell rights in a cooperative fashion.

But there's a catch.

"It is significant here that the defendants do not argue on appeal that the SBA applies to the Teams-NFL or NFL-DirecTV Agreements," writes Ikata. "Because the defendants do not argue that the SBA applies to satellite broadcasting, we assume (without deciding) that it is not applicable to the Teams-NFL or NFL-DirecTV Agreements."

As such, the 9th Circuit begins to review the allegations through the prism of a Supreme Court decision that analyzed the approach of the National Collegiate Athletic Association in televising its games.

"In that case, the Supreme Court held that an agreement among college football teams and the NCAA violated Section 1 of the Sherman Act because the agreement eliminated competition in the market for college football telecasts," states the 9th Circuit opinion. "Here, the interlocking agreements impose similar restrictions ... plaintiffs assert that the Teams-NFL and NFL-DirecTV Agreements limit the 'amount of televised [professional] football' that one team may televise because they restrict the number of telecasts made to a single telecast for each game."

Ikata adds that no individual NFL team is permitted to sell its telecasting rights independently, because to do so would mean competition within the league and a threat to DirecTV's arrangement. She sees a plausible allegation of horizontal restraint from the way that teams are dealing with each other.

"Because the complaint alleges that the interlocking agreements in this case involve the same sorts of restrictions that NCAA concluded constituted an injury to competition, we likewise conclude that the complaint plausibly alleges an injury to competition," continues the opinion. "Further, because the alleged restrictions on the production and sale of telecasts constitute 'a naked restriction' on the number of telecasts available for broadcasters and consumers, the plaintiffs were not required to establish a relevant market."

The NFL put up several arguments to foreclose the conclusion. Among them was the proposition that it was necessary to analyze the horizontal agreement separate from the vertical agreement — the NFL-DirecTV deal — and that the latter effort to enter into an exclusive distribution agreement was presumptively legal.

The 9th Circuit rejects the approach, saying it is required to take a "holistic" look at how the interlocking agreements actually impact competition.

And citing American Needle, this court writes, "The Supreme Court has held that a horizontal agreement among competitors to pool separate property rights and enter into an agreement to license their rights vertically can constitute a Section 1 violation."

The appellate court then turns its attention to the NFL's argument that American Needle dealt with "separately owned intellectual property" — team logos for merchandising — whereas this case deals with telecasts, something the NFL argues could only be created through cooperation.

"We disagree," responds Ikata. "Defendants have failed to identify, and we are unaware of, any binding precedent requiring the teams and the NFL to cooperate in order to produce the telecasts."

Putting it more plainly for football fans, she adds, "In the absence of a legal requirement that the NFL teams, NFL, and broadcasters coordinate in filming and broadcasting live games, the Los Angeles Rams (for instance) could contract for their own telecast of Rams games and then register the telecasts for those games with the Rams (and perhaps the team against whom they are playing). Only the agreements that are the subject of plaintiffs’ antitrust action prevent such independent actions. ... Indeed, the history of the NFL, as well as the practice in other professional sports leagues, supports our conclusion."

The rest of the decision has just as much to chew on, from whether the plaintiffs have standing to sue (a recent Supreme Court decision about indirect purchasers on the distribution chain gets some attention) to plaintiffs' allegations directed at DirecTV for conspiring with the NFL and its teams. Ultimately, the 9th Circuit believes there's support to notion that output of game telecasts is impacted adversely from these restrictive agreements and thus permits claims premised on Section 1 and 2 of the Sherman Antitrust Act to move forward.

The decision comes as DirecTV's deal with the NFL for "Sunday Ticket" is near expiration, with the league considering its options.

AT&T, owner of DirecTV, responded to the decision with this statement: "We respectfully disagree with the court’s ruling. It’s important to note, however, that the court did not rule that the plaintiffs’ allegations were true; only that they had alleged enough to proceed with their case. We will continue to fight this case."