Sports Broadcasting Revolution Potentially Gets Closer With Class Certification in Big Lawsuit

MLB All Star Game 2012 - H 2012
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MLB All Star Game 2012 - H 2012

New York federal judge Shira Scheindlin has put into play a possible shake-up in how telecasts of professional baseball and hockey games are distributed. On Thursday, she agreed to certify a class of plaintiffs who aim to cut down territorial restrictions on game telecasts in an antitrust lawsuit against MLB, the NHL, Comcast and DirecTV.

The lawsuit was first brought three years ago and took issue with how consumers must pay a lot for "out of market" games and how local "in market" telecasts are blacked out when consumers sign up for MLB's digital service.

To borrow the judge's example, a New York Yankees fan who lives in Iowa who wants to watch his favorite team has to buy a package that bundles all out-of-market games from every team. That's an expensive proposition when the fan might prefer to simply subscribe to the YES Network.

The YES Network, which broadcasts Yankees games, might make more money if it could sell its games online to that fan in Iowa, but thanks to the arrangements made between Major League Baseball and its broadcast partners, it doesn't. In exchange, the YES Network gets exclusivity in its home market. And so, a Yankees fan who lives in New York who subscribes to the league-wide package will have Yankees games blacked out, forcing this fan to also subscribe to a local cable package.

The plaintiffs aim to change this by winning their antitrust lawsuit, which could be radical in more than one way. For example, as the judge points out in her opinion (read below), a Yankees fan living in Brooklyn can now only watch a Yankees-Red Sox game on the YES Network, but in a world where territorial blackouts are lifted and fans are able to buy game telecasts on an a la carte basis, there could be the possibility of another option — the Yankees fan could tune into the NESN Network, which currently has rights for Red Sox games.

In short, there could be radical competition injected into the marketplace.

Judge Scheindlin, who previously rejected the defendants' summary judgment motion and determined that MLB's antitrust exemption doesn't apply here, examined whether class certification was appropriate.

The defendants put up two core arguments.

The first was that the territorial arrangements have procompetitive effects — that some purchasers of the out-of-market packages actually benefit from the restraints. The basis of this argument is that by putting an end to territorial exclusivity, consumers might have to pay more for out-of-market packages or they might not even have the option of getting out-of-market games at all. The defendants asserted that as a result, there wasn't enough commonality to certify a class of plaintiffs.

"Defendants’ claim fails three times over," responds the judge. "First, it confuses the question of whether a common injury unites the class with the distinct question of whether all class members agree about how best to respond to the injury ... Second, at a policy level, defendants’ argument threatens the integrity of the antitrust laws. If the fact that illegal restraints operate to the economic advantage of certain class members were enough to defeat certification, the efficacy of class-wide antitrust suits — and the deterrence function they serve — would wither. Third ... When the remedy sought is injunctive rather than monetary, divergent interests within the class militate in favor of certification — because certification gives affected parties a greater voice in the litigation."

So she rejects the lack-of-commonality objection. (Separately, the judge also threw out the damages model of the plaintiffs' expert and foreclosed monetary damages. So this lawsuit is just about what injunctive relief to set forth going forward.)

The second argument against certifying a class was that because some members of the class no longer subscribed to the out-of-market packages, they lack standing to pursue claims of declaratory relief.

Not impressed, the judge writes, "Here, every class member has suffered an injury, because every class member, as a consumer in the market for baseball or hockey broadcasting, has been deprived of an option — a la carte channels — that would have been available absent the territorial restraints. On top of this general injury, certain class members have also suffered the additional injury of having to pay too much for the content they wanted."

There's more legal nitty gritty, but what it essentially sets up is a trial where the parties argue about what territorial restrictions have meant to the business of sports telecasts. Although the judge has rejected some of the defendants' arguments for the purposes of class certification, it doesn't mean that those arguments won't be readdressed down the line in a different context. For example, she writes about one of the supposed procompetitive effects of the restrictions — that it results in cheaper out-of-market packages for fans. She writes, "If defendants can convince the trier-of-fact of this point, they will have a strong defense against antitrust liability."