6:23am PT by Eriq Gardner
NFL Heads to the Supreme Court in TV Rights Case
On Feb. 2, the NFL will showcase Super Bowl LIV in Miami. But those looking for an even more ferocious competition may look past the big game to something that’s coming just a few days later. On Feb. 7, the NFL is set to file a high-stakes petition to the U.S. Supreme Court with major implications for the television industry.
NFL teams currently pool telecast rights to all live games and collectively negotiate licensing packages with broadcasters. In an era when football has proved uniquely resilient with viewers, even as they increasingly abandon traditional broadcasters for subscription video on demand services, CBS, Fox, NBC, ESPN each pay tens of billions of dollars for these rights. But in August, the 9th Circuit Court of Appeals hinted at potential upheaval. In reviving a class-action lawsuit concerning DirecTV’s Sunday Ticket — a package of the league’s out-of-market games — the federal appeals court ruled it was plausible that the “horizontal” agreement among the NFL’s 32 teams to pool TV rights along with the league’s “vertical” agreement with a satellite distributor amounted to an illegal restraint of competition under the Sherman Antitrust Act. On Nov. 25, NFL lawyers wrote to Justice Elena Kagan previewing for the first time the “significant questions” that will be detailed to the high court in the days after the Super Bowl.
Before getting to those questions, though, imagine a world where every NFL team retained all TV rights to its own games. Now envision the potential for each of these teams producing telecasts and licensing them to digital streamers. That would be quite disruptive to the current ecosystem. Could a streamer like the sports upstart DAZN make a run at Disney’s ESPN by buying up individual team rights? Could NBC’s new Peacock streamer take on Netflix by combining scripted entertainment with some of these games? Might any team and streamer dare sell games a la carte? And how many people would cut the cord if a vibrant online marketplace of games existed?
What has stopped all this from unfolding is decades worth of jurisprudence, lobbying and lawmaking that have minimized off-the-field competition among teams. A long time ago, back in the pre-Super Bowl days, the NFL began taking steps to restrict its franchises from competing with each other in the television market. That led to the involvement of the Justice Department in the 1950s and an injunction by a federal court. Then, the American Football League came along with a different way of doing things, and upon pressure from the NFL, Congress passed the Sports Broadcast 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. Nowadays, NFL teams are beholden to Article X of league bylaws, which gives ultimate authority over the league's TV contracts to Commissioner Roger Goodell and restricts teams from telecasting a game into the home market of another club.
But there's a different model, and there's precedent for disruption.
The NCAA once pooled all its games, too. In the early 1980s, however, that arrangement was challenged by certain colleges that wanted to negotiate more lucrative TV deals for their popular football teams. In 1984, in NCAA v. Board of Regents, the Supreme Court held that the NCAA's TV rights system violated antitrust law, which is one of the big reasons why conferences such as the SEC, the Big Ten and the Pac-12 are now each able to make their own licensing deals. The decision led to an explosion of college games on TV and contributed to the rise of ESPN.
The Ninth Circuit relied in part on this 1984 decision along with another high court opinion (2010’s American Needle case) in reviving the Sunday Ticket class action. In doing so, the court rejected the NFL’s contention that telecasts could only be created through cooperation between competitors. As the opinion put it, “Just as the University of Oklahoma was forbidden from increasing the number of telecasts made of its games, so too are the Seattle Seahawks forbidden from selling their telecast rights independently from the NFL.”
Now, the NFL wants the Supreme Court to step in.
In its letter to Kagan, the league writes, “Unlike the NCAA, the NFL is a highly integrated joint venture that produces an entertainment product — the on-the-field competition of NFL Football — which the NFL then distributes to consumers through broadcast television and other means.”
In other words, the high court is being asked to take a hard look at the agreement by the NFL’s 32 teams to pool TV rights as well the nature of its intellectual property. The league states that the arrangement is “integral to the creation of the [NFL’s] product,” setting up the argument that the 9th Circuit has misconstrued legal precedent and that game telecasts are nothing like the kind of licensed apparel that the Supreme Court focused on in American Needle.
The NFL wants the justices to decide what an antitrust plaintiff must allege in any case against a “joint venture,” plus address whether DirecTV customers have standing to sue since these consumers are not directly purchasing anything from the league. The NFL says that the 9th Circuit decision, if left undisturbed, will impact nonsports sectors of the economy by diminishing inter-brand competition whenever affiliated entities get together to create something. Pleading standards in antitrust cases are the first big question being presented. As for second question of when indirect purchasers can sue, that, too, is a topic of recent concern for the high court and the entertainment industry. (See this recent case involving Apple.)
If the Sunday Ticket case moves forward, it won't necessarily disrupt the status quo immediately. The NFL may be able to justify some of its rules — for instance, those ensuring healthy stadium attendance. But other rules that merely serve to fatten a league's profits without benefiting sports consumers could be subject to newfound legal scrutiny.
The timing of the dispute is notable for another reason. The NFL’s deals with its broadcasters expire in the next few years. The league also has yet to come to a new collective bargaining agreement with players — the split of TV money is traditionally the biggest issue. So this deep pass to the Supreme Court is of much larger import than just what it means for football broadcasts. Expect many in television to have at least as strong a rooting interest.
This story appears in the Dec. 4 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.