The Confidential

The ACC Sports Blog

Archive for the tag “exit fees”

05 Feb 2013
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The ACC’s Lack of a Grant of Rights Needs to Be Addressed

The Confidential is on record as disagreeing with the notion that the Big XII’s grant of rights is impenetrable.  That being said, the Confidential also disagrees with the notion that a grant of rights is merely an exit fee with lipstick.  Depending on the legalese, a grant of rights should be a property transfer, made voluntarily and for consideration, by a school.  It should be much much stronger than an exit fee.  As such, the ACC needs to address its current perceived weakness relative to the Big XII by pursuing, successfully, a grant of rights of some length.

The response is always that a grant of rights is not wanted by the membership.  Who does not want it?  If UNC, Duke, and Virginia do not want the grant of rights, then that tells you everything you need to know about the viability of the ACC.  Maryland did not like the exit fee and now it is in litigation with the ACC.  If these three schools are not bound to each other, and willing to reduce that to paper, then the ACC is doomed.

If those three agreed, one would have to think that Syracuse, Wake Forest, BC, and North Carolina State would be on board immediately.  For the most part, these schools are at risk for being left out when the chairs reshuffle.  Pitt could dabble with the Big XII, but the Big 10 is not an option, so Pitt should also be in favor.  While Virginia Tech–like North Carolina State–is rumored to be attractive to the SEC, it is unclear that the SEC is actually interested in these schools are their first choice.  If UNC and UVa went the Big 10 route, then perhaps a marriage would make sense.  But as long as UVa and UNC are solidly ACC, it is difficult to believe that a separation would be desired by Va Tech and NC State.

So that leaves Georgia Tech, Miami, Clemson, and FSU.  All four duplicate SEC markets (Georgia, South Carolina, Florida).  The Big 10 is not at all likely for Clemson alone.  Georgia Tech, FSU and Miami are possible, but have many reasons that they do not fit the Big 10.  At least not in the same way that North Carolina and Virginia do–proximity and academics.  Plus, Georgia Tech is a clear also-ran in its market.

The Big XII complicates things.  All four schools could make more money in the Big XII.  Probably.  It is unclear why Clemson and Georgia Tech would make $26+M per year for the Big XII.  Again, both are secondary schools in their markets.  And it is not like South Carolina is a big market.  Miami and Florida State are a different story.  Together, they would give the Big XII a strong Eastern flank and presence throughout Florida.  It would likely be worth it for the Big XII to take these two (or perhaps all four).  So these are the four truly “problem” schools.  At the same time, if the ACC had a legitimate plan to increase overall revenue, it is unclear that the monetary difference would be worth the move.  Certainly not in the same sense as Maryland’s move to the Big 10 (a relative no-brainer for a mismanaged athletic department that needs money badly and had the one thing the Big 10 needs–a new market).  But joining the Big XII would mean a grant of rights.  So, while it is unlikely that the SEC would come calling for Florida State or Clemson, a grant of rights with the Big XII would take them out of consideration.  Of course, a grant of rights with the ACC does the same thing.  So, yeah, the hesitance is there.

So this is the point where the ACC and ESPN need to sit down and talk seriously.  Without a grant of rights, the ACC is at a real risk of dissolving or turning into something unrecognizable.  If that happens, the good ACC markets will be divided between the Big 10, Big XII, and SEC.  If 10 teams leave the ACC, but only two go to the SEC (i.e. 6 to the Big XII and 2 to the Big 10), that means that 80% of those schools will shift over to conferences with a significant Fox relationship.  If Fox throws more money at these conferences, ESPN will be marginalized further with the lucrative college sports market (and ad revenue generated).  If ESPN is cool with that, so be it.  But if ESPN is not, then they need to step up to the plate and agree to something to make the ACC stronger.   And, by stronger, the ACC needs something tangible to convince everyone in the ACC to be willing to sign a grant of rights.

The length does not matter.  A five-year grant of rights would be enough to at least quiet the realignment talk a little.  It is shorter than the Big XII’s current grant of rights, meaning that schools with an eye on other conferences will still have an edge.  But it would allow for a bit of a “cease fire” and chance for the ACC to rebrand itself with its new additions.

If anyone does not want a grant of rights for even a relative short period, then it is clear that the ACC is not long for this world.  It is what it is.

Posted by acaffrey in ACC only, Conference Realignment, Opinion and tagged , , , , ,
07 Dec 2012
3 Comments

Exit Fees and Liquidated Damages

Many people are confident that the ACC will be able to enforce its exit fee against Maryland.  Many people are confident that the ACC will not be able to enforce its exit fee against Maryland.  Regardless of which side is correct, it is important to understand the issue.

Most helpful to a non-lawyer is this recent article from the businessofcollegesports.com.  The article provides a great layman’s understanding of something called liquidated damages:

In legal terms, conference exit fees are known as liquidated damages.  Liquidated damages provisions are commonly added to contracts.  They set the amount a party to the contract must pay in the event it breaches the contract.  Liquidated damages provisions are useful because they theoretically save the parties the time and expense of litigating the amount of damages caused by the breach.

But, the amount of liquidated damages specified in a contract cannot be randomly selected.  Courts will generally only enforce liquidated damages provisions if (1) the anticipated damages in the event of a breach are difficult to ascertain at the time of contracting, and (2) the amount of liquidated damages is a reasonable estimate of the actual damages that would likely be caused by a breach.  If a liquidated damages provision does not meet this test it is deemed a penalty and is unenforceable.

The ACC’s current exit fee is not $50,000,000.  Instead, as the article notes, the ACC’s exit fee is “three times the conference’s total operating budget at the time of withdrawal.”  As for Maryland, this means the amount is roughly $52M.

Where the Confidential differs is the analysis of whether the exit fees satisfy (1) and (2).  The author does not seem to question (1).  Indeed, how exactly does one quantify the damages where a founding member of a conference leaves?  With all the conference realignment discussion, people talk about TV revenue.  But what about the unquantifiable damage to a conference when it is perceived to be unstable?  When there are daily rumors regarding this or that member leaving?  When there are discussions about whether the conference will cease to exist.  When schools like Wake Forest have, really, no other option at all in the conference realignment scenario.  Where it is questionable whether Pitt, BC, Syracuse, and other schools are certain to have a landing spot.  Does ESPN want to renegotiate now, when it might have to renegotiate in two weeks if two schools leave?  Do kids want to play for a school that may go from “ACC,” as it is currently thought of,” to its current weakened position in comparison to other conferences?  If UVA and Georgia Tech leave the ACC, what does that do for Florida State’s academic reputation?  How can you quantify these things?

You cannot.  Which is where exit fees come from.  Instead of trying to figure that all out, you agree on a number ahead of time.

As for (2), the article states “that [t]he requirement to pay three times the conference’s operating budget does not appear to be related in any way to the actual amount of damages the ACC would suffer if a member withdraws.”  Liquidated damages clauses often just state a sum certain.  The ACC provision is actually tethered to something that relates to the size and wealth of the ACC at the time a member departs.  If the ACC grows and becomes even more successful, it has more to lose.  If the ACC contracts, it has less to lose and the liquidated damages (exit fees) decrease.  Moreover, the schools have a say in the conference’s operating budget.  If the schools want the conference to scale back operations, they can do so.

Perhaps the ACC could have tied its exit fees to TV revenue.  But this excludes the damage to the ACC’s name.  Is there any question that swapping Louisville for Maryland is a loss with respect to academics, cohesion, and the appearance of the ACC?  The ACC has been damaged beyond anything that can be measured in TV revenue.  The ACC is perceived to be on life support, forcing Presidents to make statements regarding rumors, etc.  Maybe a more reasonable number would be 1 or 2 or 1.5 times the operating budget, but the operating budget is a conservative measure to calculate damages.

Moreover, people analyzing this situation speak in terms of “black and white.”  Lawyers, at least good ones, know that life (and the law) are not black and white.  As the litigation moves forward, the parties will likely have a sense as to where the judge is leaning on legal issues.  Will the judge allow the jury to resolve the question of whether the exit fee is reasonable?  Will the judge decide it as a matter of law? On an issue like this, the judge is likely to defer a definitive ruling and give the parties a chance to settle based on an expectation of what these rulings would be.  In the meantime, nobody should presume that a certain result is inevitable.  It is doubtful that there will even be a result.  Someone will blink.

 

Posted by acaffrey in ACC only, Conference Realignment, Opinion, Predictions and tagged , , , , ,

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