Guest Post: Legal Analysis on ACC Stability

Do Cal fans need to fear that the ACC will fall apart as quickly as the Pac-12 fell apart?

Note to Readers: Twist N Hook is famous for many things. His accomplishments, in order of importance, include being the internet’s greatest troll, helping to organize Cal football’s greatest tailgate, co-founding a Cal blog that would become a different Cal blog that would become THIS Cal blog, and also being a lawyer on, as I understand it, weekends and evenings. He is here today to explain, as only a lawyer can, why Cal will be in the ACC for longer than you might expect:

TwistNHook:

Recently, the Pac-12 collapsed.  Yada yada yada and Cal Berkeley ends up in the ACC.  You don’t want to re-live the yada yada yada part, just trust me on this.  Throughout this whole process, however, there is an unceasing series of Xeets saying things like “Florida State, Clemson, and UNC are just about to leave the ACC!  You can trust me!” 

Nick:
And the angry threats from FSU fans have gone through the roof after the college football playoff committee left FSU out of the 4 team playoff following a 13-0, ACC championship season. I don’t think FSU’s anger is particularly focused at the moment, but they want to burn it all down, which would presumably include the ACC.

TwistNHook:

What is the likelihood of this happening, however?  Is it just usual X idiocy or is there something more to this.  To better understand this, I went straight to the source, the ACC contract documents.  We have to determine exactly how these ACC teams relate to each other contractually and, most importantly, what happens if they try to leave to go to the Big10 or SEC etc.  The bottom line is the ACC ain’t going nowhere anytime soon!  

That is the purpose of this post.  I started by googling as hard as possible to find the relevant documents.  I was able to find two documents that I am working off of.  

DOCUMENTS

The first document is the Atlantic Coast Conference Grant Of Rights Agreement (Agreement).  This was signed on April 19, 2013.  The second is the Amendment To Atlantic Coast Conference Grant Of Rights Agreement (Amendment).  This was signed on June 24, 2016

The Agreement is here: LINK TO DOCUMENT

Note that the one I was able to find (after repeated googling) is only signed by UNC.  I am of the belief that it is the final final, but was unable to find a completely executed one.

The Amendment is here: LINK TO DOCUMENT

PLAYERS

All of the world is a play and let’s see the players in our play here.  Let’s start with the overall construct of this agreement and then we can dig in a bit deeper.  There are 3 entities here:

1. ESPN, which creates an audiovisual representation of sporting events.  They present these shows on linear TV and sell ads against the shows.  They like college football, because many people watch the audiovisual representations of the football games.  As more people watch, the higher rates ESPN can charge and the more profit ESPN can make.

2. ACC Conference (Conference), which is the umbrella organization for all ACC schools.  The Conference acts as a middle man for the schools here.  It negotiates with ESPN and receives money from ESPN.  It then gives this money to the schools.  It promises sporting events to ESPN contractually that ESPN can, thus, broadcast.  It is better for ESPN to negotiate with one entity with the rights of all 12-16 schools instead of 12-16 separate negotiations.  

3. ACC Member Institutions (Schools).  The Contracts refer to the schools as Member Institutions, but its easier just to use the concept of Schools.  School have the sporting events that ESPN wants and have to promise the Conference that they will let ESPN broadcast their games in exchange for the money.

Prior to and after the signing of the Agreement, this three-structure set up is established in three Multi-Media Agreements with ESPN, Inc and ESPN Enterprises, Inc.  They are dated July 8, 2010, May 9, 2012, and June 24, 2014.  I was unable to obtain copies of these documents specifically.  However, the general structure is described in the documents we do have and I described it above.  

AMENDMENT

Let’s turn to the two documents we do have.  The latter Amendment is, by far, the easier to describe so I will take it first.  It merely extends the Agreement to June 30, 2036.  It just redefines the word “Term” in the Agreement to include an extension to that new date.  This was signed in 2016, right after Clemson lost to Alabama in its first appearance in the Natty.  Otherwise, it makes no changes to the Agreement itself.  The initial Agreement goes to 2027, so this is a 10 year extension done over a decade prior to the ending of the initial Agreement.  

Nick:

If you want to start writing articles speculating about Cal’s conference placement beginning in the 2037 football season, have at it. If I’m still blogging 14 years from now, my life will have taken a dark, dark turn.

TwistNHook:

AGREEMENT

Let’s turn now to the Agreement itself.  I will try to go through this at both the top level and granular levels.  I realize that some people may want to see the 10,000 foot view, while others may want to get deep into this.  

The top level is as follows:

1. ACC consists of Boston College, Clemson, Duke, FSU, Georgia Tech, Da U (Ed. Note: Miami), UNC, NC State, Virginia, Virginia Tech and Wake Forest.

2. It is adding Pitt, Syracuse, ND (referred to as University of Notre Dame du Lac), and Louisville.

3. In adding these 4 teams, they want to create a Grant Of Rights Agreement wherein the Schools all grant *any* rights to the broadcast of the sporting events to the Conference to sell to ESPN.

4. The “any rights” is defined in such a way that basically the Schools have no more relationship with the broadcasts at all and lose their rights to the broadcasts if they leave the Conference.  This is where the rubber hits the road.  The fact that the language is so broad is why this is referred to as “ironclad.”  This functionally makes a team like FSU significantly less valuable to the SEC, because FSU does not own its own football broadcasts.  

That is really just the general gist of it.  Of course, if there are 12 Schools and 1 Conference here, then 13 teams of lawyers much better than me have pored over this document to make it perfect.  

Let’s start to go over it in further depth.  It is only 4 pages long with 8 paragraphs.  However, each page is single spaced and filled with incredibly dense legal jargon.  So, even though it is brief, it is remarkably complicated.  

PARAGRAPH 1

It starts with some overall recitals, which explain what I have described above.  Paragraph 1 is titled “Grant Of Rights” and this is where almost all of the action is.  It states that each of the Schools “irrevocably and exclusively grants to the Conference...all rights...necessary for the Conference to perform the contractual obligations of the Conference expressly set forth in the ESPN Agreement...”  

What this means is that the Schools have to give the Conference control of all broadcasts that they sold to ESPN.  The Schools do not own them.  The Schools cannot revoke this.  

The Agreement goes on to state that the Schools have to irrevocably grant their rights to the Conference “regardless of whether such Member Institution remains a member of the Conference during the entirety of the Term.”  This is HUGE!  Even if a team like FSU leaves the conference, they do not take their rights with them.  The main value that these schools have to ESPN/Fox is that they have TV content that ESPN can sell ads again.  

However, under this agreement if FSU goes to the SEC, it does not have the ability to give the SEC its broadcast rights.  The SEC could make money on merch and/or ticket sales and/or other means, but the vast majority of value comes from TV deals.  This renders FSU functionally valueless to the SEC unless they can get their rights back.  

The Agreement goes on to note that the Schools must “perform all contractual obligations of a Member Institution during the Term that are expressly set forth in the ESPN Agreement.”  My understanding is that the ESPN Agreement is between the Conference and ESPN.  However, this requires all ACC schools to follow the Conference’s contract.  

DEFINITION OF RIGHTS

Next, the Agreement goes on to further define the grant of rights and it includes:

1. The right to produce and distribute all events of the Schools

2. The right to allow ESPN to access School facilities

3. The right of the Conference to own “a copyright of the audiovisual work of the ESPN Games...” which is defined as “The Works.”  

4. The assignment of “the entire right, title, and interest” in the Works.  

This is a very important part of the Agreement and I want to take a moment to focus on this here.  Let’s take it from the POV of FSU.  They signed their rights to the Conference that include the right for ESPN to access their school facilities.  They signed their rights to the Conference that include the right to produce and distribute the games.  They signed their rights to the Conference to have any copyright ownership in the broadcast of their games.  The way that the Agreement defines works gives the Conference the ability to sue a copyright infringer per 17 USC 411(c).  

This means that if FSU were to go to the Big10, Fox could not produce and distribute the broadcasts of the games.  ESPN has that sole right.  The ACC could sue Fox/FSU for attempting to broadcast the games.  FSU could be sued for broadcasting their own games, because they do not own the copyright.

RELEVANCE OF COURT TO BE USED

A suit like this could occur in federal court.  This is an important and under-looked aspect here for a few reasons. Firstly, litigating intellectual property issues in federal court is a complicated and niche field of law.  Not that many attorneys are going to have this skillset.  This can be contrasted with the ongoing Pac-12 litigation.  The Pac-12 litigation is occurring in Washington State state court and is basically a business dispute.  There are many civil litigators in Washington State etc. who could handle that.

Another reason why this is important is because the federal court is significantly less provincial.  This can be contrasted directly with the Pac-12 litigation.  WSU filed it in a rural county on the eastern edge of Washington state, bordering Idaho.  Whitman County has a population of less than 50,000 people.  The Judge appointed there just happened to be a former president of the Washington State football fan club.  The Judge appointed there just happened to rule in favor of Washington State.  Hmmmmm, what a surprise!  

If the Pac-12 had consulted with me, I would have said to move immediately to federal court or at least to the county where the Pac-12 headquarters is located.  This is Contra Costa County in the San Francisco East Bay, which has a population of over 1,100,000.  It is a much different story if you have a Judge who is not a former member of the Washington State fan club.  If the matter is set in the federal district where the ACC headquarters is in Charlotte, NC, it would be in the Western District of North Carolina.  The Judge there is unlikely to be the former president of the Florida State fan club.

By fighting this out in federal court over intellectual property issues instead of some provincial courthouse next to an ACC school, that favors the Conference.  This may be a bit nuanced, but I do believe that it makes the contract even *more* ironclad.  

Note that Par 1 goes on to carve out an exception for any rights where the School has agreed not to give them to the Conference.  Although not explicitly stated, this probably relates to ND football.  

Lastly, Par 1 notes that the School must require any affiliated entity with their rights to provide those rights to the Conference under this deal.  So, if the rights have previously been given out to somebody else, they have to be collected and provided to the Conference.  

PARAGRAPH 2

Paragraph 2 explicitly lists out all rights that are assigned in the Works.  They include:

1. All rights under the US and/or foreign copyright laws

2. All reproduction, performance, display, distribution, and other intellectual property rights

3. The right to modify distort or alter the Works and future Works

4. All so-called moral rights

This is basically everything and anything any way related to the broadcast of the games.  The Schools own nothing else relating to the broadcast of the games.

PARAGRAPH 3

Paragraph 3 states that every school has to execute and deliver all documents reasonably requested by the Conference to effectuate the intent of this Agreement.  If the Conference requests FSU sign paperwork, FSU has to sign the paperwork.  This makes the contract even *more* ironclad

PARAGRAPH 4

Paragraph 4 relates to Cal actually.  It discusses how to add new Schools.  They have to abide by this contract.  I’m sure Jim Knowlton hit that DocuSign button as fast as possible here.

Nick:

Although if history is any indication, we can’t be too sure about that!

TwistNHook:

PARAGRAPH 5

Paragraph 5 states that the term is through June 30, 2027, but that is modified as discussed above

PARAGRAPH 6

Paragraph 6 is a long dense paragraph with lots of legal jargon entitled “Acknowledgments, Representations, Warranties, and Covenants.”  Two parts caught my eye here.  One is to reiterate that the grant of rights is irrevocable and effective until the end of the Term “regardless of whether the Member Institution withdraws from the Conference during the Term or otherwise ceases to participate as a member of the Conference in accordance with the Conference’s Constitution and Bylaws.”

The other aspect is that this section states that any and all of the Schools will not enter into an agreement that is inconsistent with this Agreement and it will not take any action or permit any action to be taken by others or fail to take any action that would affect the validity and enforcement of the Agreement.  Basically, even talking about leaving this Agreement could be a breach of this Agreement.  IRONCLAD!

BUYOUT PROVISIONS

The remainder of this Agreement is not meaningful.  However, there is something completely and totally missing here.  There is no discussion at all about how a School leaves this contract.  That is really what people reading want to know and I put it way at the end.  Oy!

There is no discussion at all about a breach and/or how to enforce a breach.  Usually, when drafting contracts, lawyers put in extensive meditations on how a party could be in breach, how a party could exit the contract, and what happens if a party tries to leave inappropriately.  

This is vaguely in there when the Agreement discusses the fact that the Conference can sue persons or entities regarding inappropriate usage of the relevant copyrights.  Nothing is explicitly stated.  This functionally means that there is no explicit way to leave this contract.  There is no easy way for a school like FSU to get its right back to give to the SEC or Big10.  

So, how functionally would a team like FSU leave?  There is only one way out:  pay a ton of money.  The penalty consists of two parts.  Part 1 is 3x the operating budget of the Conference and this is specifically set in the Bylaws:

The language quoted there is from the Virginia Tech version of the Bylaws found here.

It is not clear to me what this 3x number really is.  This article indicates that the exit fee is 3x the annual revenue (which is not exactly what the VaTech Bylaws state).  Due to poor grammar, it is not clear whether the $120,000,000 listed below is the 3x # or the number to be multiplied by 3.  Either way, it is a LOT of money!

To bolt the ACC, any school would need to pay an exit fee of three times its annual revenue (approximately $120 million) and would need to navigate the grant in media rights to the ACC to be able to broadcast future games. If not, all TV revenue a school generates from a new conference would have to be paid back to the ACC.

This article also indicates that a school like FSU would have to buy back its rights until 2036 to escape the Agreement.  The notice of withdrawal must be made by prior to August 15 and is for the year *after* that August 15.  So, if FSU sent notice today, it would be for August 15, 2024 and could not leave until the 2025 fall football season.  According to that article, the ACC media rights were worth approx $40,000,000 per school.  Unless a School waits until 2033 to notice its withdrawal, there is another 9 digit payment that any School would have to make in addition to its other 9 digit penalty.

No school has this amount of money.  Texas and Oklahoma had to pay a stiff 9 digit penalty to leave the Big 12, but that did not include 13 or so years of media rights paybacks.  It was a negotiated agreement for less of a payment.  FSU could negotiate an agreement for less of a payment with the ACC but the ACC has so much leverage here that there is probably no number that they could reach.  

MODIFICATIONS TO AGREEMENT

Paragraph 8 has some vague language that *could* be the only way to discuss how to get out of the Agreement.  It states that a modification of amendment requires signature of the Conference and “each of the Member Institutions that are then members of the Conference.”

This means that if FSU cannot actively leave the conference, then their only other option is to convince the ACC and all other Schools to prepare an amendment to get rid of this Agreement altogether.  0.00% of that happening.

Lastly, the ACC Manual that we have seems to include some contradictory language about modifying this agreement.  If you look at section 1.6 at the end of page 21, it states that a 2/3rds majority can amend a media agreement.  This is different than what the Agreement itself says and I am not sure which is superior.  Assuming the Manual is, it is not clear to me how many people have voting rights in the ACC.  It is somewhere between 14-18 depending on whether ND, Cal, Stanford, and SMU have full voting rights.  So, somewhere between 9-12 teams would have to vote to amend this.  Given that the vast majority of the ACC teams do not have a landing spot were the league to dissolve, I do not see this happening.

In conclusion, the ACC ain’t going anywhere anytime soon.  This contract keeps all the teams tied together for a long time now.  You may see random Xeets stating that this team or that team may leave.  You may see School higher ups rattling their sabers.  But that is all it is.  The Schools (including Cal) have zero leverage and they know it.  

Nick:

Thanks Twist! While I have no doubt that FSU will continue to try to signal how unhappy they are while exploring increasingly unlikely paths out of their ironclad contract, I think we’re all going to have to get used to East Coast life with NC State, Syracuse, and Louisville. Frankly, Florida State should calm down - the addition of Cal to their schedule is exactly the strength of schedule boost they needed to avoid getting left out of the playoffs next year. YOU’RE WELCOME!!!