Sporting News: Realignment far from over, FSU source: If MD reduces exit fee, like "free agency"

[nelsonmuntz]

But Nelson was talking about other schools, not Maryland. Maryland at least has a plausible argument to make since they voted against the fee. But Virginia, or anyone that's not Maryland or FSU, voted for the fee. They have a tougher argument to make. This isn't a consumer protection issue. These are sophisticated entities entering into a business deal. I don't know how Virginia can make a believeable argument that they wanted to bind themseelves and others to a $50 million exit fee and then turn around and say it really should not be enforced because I no longer like it and feel it should be illegal.

I'd also add, the idea that $50 million is "punitive" becomes less believeable the more money these schools make on athletics. It wasn't that long ago the Big 10 was distributing $10 million per school. In a few years that figure could be $40 million. In light of that info and the crazy money being paid for TV rights, it no longer seems that punitive to ask a school to pay $50 million.

I think punitive is an uphill battle too. If UVa leaves for the Big 10, the exit fee will be less than 2x their annual distribution from the Big 10, and the ACC will definitely have a case that UVa has created $50MM in present value of future damages to the league in leaving. UVa may be able to cut $5 or $10MM off. That's it.

The schools would be better off coordinating a simultaneous mass exodus of NC State, FSU, VTech, Clemson, GTech, Miami, UNC and UVa, all coordinating to vote to eliminate exit fees, then announcing their departure. That is a strategy guaranteed to get them sued, but would give them the upper hand on the contract side of the argument. There would be some case and statutory exposure in this situation, to put it mildly.

 

[IthacaMatt]

None of us know what they said to the ACC after the vote. I would be very surprised if they didn't put the ACC on notice that they didn't think the league had the power to impose that fee on them without their consent.

If the league had the power to impose ANY fee, then objecting to an increase, especially in these times when conferences need to know the other schools are acting in concert with them, is a rational thing to do and not punitive; it's about self-preservation. How many millions of dollars a year does MD get from the ACC? Around $18M or so? So we're talking about an exit fee equal to 2 1/2 times their annual revenue from the conference. It's not like there is a lack of consideration here. And as others said in this thread, if they were so offended by the exit fee, they could have withdrawn from the conference. But they didn't do that, they continued to take the conference's television money, and therefore agreed to be bound by the rules of the conference.

 

[Vuce]

Fee or not, this will not hold the ACC together in its current form. There is a LOT of smoke out there. I don't know if it will happen in the next week, month or year but other schools are leaving. This is all just paperwork. As we have seen from the Big East defections, if a school wants to leave they will leave, the money will not prevent them from doing so. What is the issue here? Whether they will pay the whole thing? OK, they will, and they are still gone and another will follow. Or it will be reduced, and another will follow. The end result is the same.

 

[CL82]

How a school actually voted, whether to increase the money or not, will not be an argument in court.

Really? There's no estoppel argument that could be made against a school that voted in favor of the damage clause?

 

[IthacaMatt]

This is close to how I am looking at it. This voluntary association put forth a unprecedented penalty for leaving the association, that was targeted at only certain members. There was not even any time period to impose it. UMD could argue that such a penalty is even more unreasonable if a reasonable time period to withdraw from the ACC was not available.

The other issue neither of you raise is antitrust. The $50M effectively acts as a perpetual restraint on the market for universities. Combined with the GORs these provisions amount to collusive behavior. It's similar to non compete clauses in employment contracts and no hire agreements between competitors.

Sent from my Nexus 7 using Tapatalk 2

1. "Unprecedented penalty" - that's pretty conclusory on your part. Others in the thread have shown that the dollars in question relate pretty fairly to the size of the payouts received from the conferences.

2. "Targeted toward certain members". I don't think I read ANYWHERE that Maryland was expected to leave. That hit most people out of the blue, despite their vote against the fee. The fee applies equally to every member, so I don't see how that argument holds any weight.

3. "Antitrust" - the Big 10's forfeiture of media rights for 25 years (or whatever it is) is much harsher than a dollar exit fee, because it ties up a college's future revenues. A voluntary association isn't collusive; they don't control a market in a meaningful antitrust sense. The market is college football, and there are many other alternatives out there apart from the ACC.

 

[tzznandrew]

I believe that.

About five years ago I was talking with a new hire about I don't remember what and something that led to an Animal House reference came up. He said he started watching it on video once but turned it off after a couple of minutes because it looked lame. He then told me that there was no way it could have been a better movie than Old School.

The youth of today have me very concerned.

If you've seen "Old School" first, it copies so many of the bits of "Animal House" that I could see it taking away some of the freshness of the original.

That said, anyone with half a brain would realize that "Animal House" came out first, and therefore is the more original and funny movie.

 

[IthacaMatt]

Really? There's no estoppel argument that could be made against a school that voted in favor of the damage clause?

Only if they withdrew immediately following the vote, and then refused to accept any more money after the vote from the conference. Otherwise how can they argue any kind of estoppel just because they were on the losing side of a vote? Show me anywhere in corporations law where the shareholder on the wrong side of a vote doesn't have to abide by the result.

 

[businesslawyer]

Only if they withdrew immediately following the vote, and then refused to accept any more money after the vote from the conference. Otherwise how can they argue any kind of estoppel just because they were on the losing side of a vote? Show me anywhere in corporations law where the shareholder on the wrong side of a vote doesn't have to abide by the result.

Matt: you think that if you own 10 shares of ATT, they can pass a by law saying if you sell the stock you owe them $1 gadzillion. And yes, I know it's not that simple, but neither is the theory you are pushing. As a matter of general contract law, liquidated damages clauses are not enforced if courts find them to be punitive. And this may be viewed as a liquidated damages clause and, if it is, the question is not how much is a school helped by being in the conference but how much is the conference harmed by the school leaving.

You really think the ACC will have an easy time showing that it suffered $50M of damages when it replaced maryland with Louisville within a week? I'm not sure they can show any damages beyond the costs of a few board meetings by conference call.

 

[uc1974]

IM, you're letting your personal feelings shape your argument. The $50 mil. will not be upheld in any form because it is punitive. $10-$20 million may not be but $50 mil. is and does not represent the "harm" caused to the ACC. That "harm" is far less than $50 mil. and is probably less than $10 mil.. Neither the ACC nor UMD will let this get to court, you know this and I know this. There will be a settlement of far less than $50 mil. and probably less than $20 mil. In fact, it may be only $10 mil.. It is interesting that the ACC now finds itself in a BE position and those who previously would have sided with BC now side with the conference involved. ACC may try to drag this out a little but that might only postpone the inevitable. The wolves smell blood and the ACC will lose more schools, sooner or later.

 

[caw]

If the league had the power to impose ANY fee, then objecting to an increase, especially in these times when conferences need to know the other schools are acting in concert with them, is a rational thing to do and not punitive; it's about self-preservation. How many millions of dollars a year does MD get from the ACC? Around $18M or so? So we're talking about an exit fee equal to 2 1/2 times their annual revenue from the conference. It's not like there is a lack of consideration here. And as others said in this thread, if they were so offended by the exit fee, they could have withdrawn from the conference. But they didn't do that, they continued to take the conference's television money, and therefore agreed to be bound by the rules of the conference.

First, the court will decide if $50 million is punitive or not. The ACC will argue it isn't. Considering Marylands athletic budget is set at $57 million, Maryland has an argument it is.

Secondly, Maryland left about 2 months after the vote. The ACC will surely argue as you have. Maryland will likely counter that they were not given enough time to exit while doing their due diligence as a public university which is beholden to the state of Maryland and said state's taxpayers. They moved as quickly as possible, with their no vote standing for their disagreement with the increase.

 

[tzznandrew]

I get where Matt is coming from. We all hoped that WVU wouldn't get out so quickly because they signed on the the 27 month thing. And yet they were in the B12.

Maryland isn't paying $50M. FSU won't have to pay $50M. I don't know about anyone else, but it will kill the ACC if they litigate it and the court finds that it is punitive. If that happens, everyone can leave...

 

[caw]

IM, you're letting your personal feelings shape your argument. The $50 mil. will not be upheld in any form because it is punitive. $10-$20 million may not be but $50 mil. is and does not represent the "harm" caused to the ACC. That "harm" is far less than $50 mil. and is probably less than $10 mil.. Neither the ACC nor UMD will let this get to court, you know this and I know this. There will be a settlement of far less than $50 mil. and probably less than $20 mil. In fact, it may be only $10 mil.. It is interesting that the ACC now finds itself in a BE position and those who previously would have sided with BC now side with the conference involved. ACC may try to drag this out a little but that might only postpone the inevitable. The wolves smell blood and the ACC will lose more schools, sooner or later.

See here is where Maryland's vote may come into play. Didn't they vote for the increase to $20 million. I assume they would be held to that at a minimum.

 

[uc1974]

And WVU voted for 27 months and look what happened to that. I know one is bondage and one is money but I do not think that voting for something or not will be a valid argument here. You're not going to be able to go for 50, have that nixed and then say I want 20 because.. If 50 is out the board is clear. I would be loath to consider that type of argument valid. We'll see.

 

[caw]

And WVU voted for 27 months and look what happened to that. I know one is bondage and one is money but I do not think that voting for something or not will be a valid argument here. You're not going to be able to go for 50, have that nixed and then say I want 20 because.. If 50 is out the board is clear. I would be loath to consider that type of argument valid. We'll see.

True.

 

[MattMang23]

See here is where Maryland's vote may come into play. Didn't they vote for the increase to $20 million. I assume they would be held to that at a minimum.

No. They voted against the increase. They and FSU were the only two.

 

[caw]

No. They voted against the increase. They and FSU were the only two.

The $20 million not the $50.

 

[MattMang23]

The $20 million not the $50.

Oh sorry. Yes I think they voted for the increase to $20M.

 

[Fishy]

You are all very bad lawyers.

We are five pages into this thread and no one has used the phrase 'ipso facto'.

All good lawyers use that phrase. You are not good lawyers.

 

[businesslawyer]

You are all very bad lawyers.

We are five pages into this thread and no one has used the phrase 'ipso facto'.

All good lawyers use that phrase. You are not good lawyers.

Wow fishy. You just took what I thought was the worst week ever and made it worse. Res ipso loquitor my friend..

 

[brasssbonanzaa]

I get where Matt is coming from. We all hoped that WVU wouldn't get out so quickly because they signed on the the 27 month thing. And yet they were in the B12.

Maryland isn't paying $50M. FSU won't have to pay $50M. I don't know about anyone else, but it will kill the ACC if they litigate it and the court finds that it is punitive. If that happens, everyone can leave...

The ACC doesn't want this going to court. That will free up everyone and their brother involved in recent and previous ACC expansion to be deposed into hell by Maryland lawyers, with the wonderful factoid that Maryland already knows what happened in the past. I'm not sure Swofford or other ACC school officials/presidents want to be deposed. This reeks of a settlement under $50 million.

 

[IthacaMatt]

IM, you're letting your personal feelings shape your argument. The $50 mil. will not be upheld in any form because it is punitive. $10-$20 million may not be but $50 mil. is and does not represent the "harm" caused to the ACC. That "harm" is far less than $50 mil. and is probably less than $10 mil.. Neither the ACC nor UMD will let this get to court, you know this and I know this. There will be a settlement of far less than $50 mil. and probably less than $20 mil. In fact, it may be only $10 mil.. It is interesting that the ACC now finds itself in a BE position and those who previously would have sided with BC now side with the conference involved. ACC may try to drag this out a little but that might only postpone the inevitable. The wolves smell blood and the ACC will lose more schools, sooner or later.

We'll see. I think there are a few issues in the ACC's favor, just talking as a lawyer here. The vote was taken and was passed. Therefore it becomes binding on the members. The members options are what - withdrawal and protest. Neither was done. And they continued to accept the benefits of membership.

Now, turning to whether or not $50M is a reasonable approximation of damages - it's less than 2 years' payout from the Big 10; hardly crippling. The university probably has a billion dollar endowment. You can make the argument that it's a state institution so it's against the interest of the taxpayers to have to pay anything for leaving a conference.

Well, that's precisely the same situation as West Virginia, right? And when they went to court, were they able to successfully pay LESS than the amount in the Big East contract (as they tried to argue, before a West Virginia court, no less)? No, of course not. The exit fee (and length of notice) was upheld, and so they had to pay MORE than the stated exit fee to incur their early exit.

So, as you were saying?

 

[IthacaMatt]

The ACC doesn't want this going to court. That will free up everyone and their brother involved in recent and previous ACC expansion to be deposed into hell by Maryland lawyers, with the wonderful factoid that Maryland already knows what happened in the past. I'm not sure Swofford or other ACC school officials/presidents want to be deposed. This reeks of a settlement under $50 million.

The same thing was said about West Virginia and the Big East (especially with the very public role that ESPN played in the killing of the Big East). That didn't hold water in the WVU case, either. I don't see that Swofford has anything to be afraid of in terms of testimony in court.

 

[IthacaMatt]

No. They voted against the increase. They and FSU were the only two.

So what? The resolution passed. As long as they remain members, they are bound by the rules of membership. And if they want to terminate their membership, there are rules and procedures to be followed. This isn't that hard, folks. There is plenty of precedent on the books to support the ACC's position.

Just look at the Big East - they are the worst run conference by far, and even they didn't lose to they type of argument you are now making.

 

[WestHartHusk]

We'll see. I think there are a few issues in the ACC's favor, just talking as a lawyer here. The vote was taken and was passed. Therefore it becomes binding on the members. The members options are what - withdrawal and protest. Neither was done. And they continued to accept the benefits of membership.

Now, turning to whether or not $50M is a reasonable approximation of damages - it's less than 2 years' payout from the Big 10; hardly crippling. The university probably has a billion dollar endowment. You can make the argument that it's a state institution so it's against the interest of the taxpayers to have to pay anything for leaving a conference.

Well, that's precisely the same situation as West Virginia, right? And when they went to court, were they able to successfully pay LESS than the amount in the Big East contract (as they tried to argue, before a West Virginia court, no less)? No, of course not. The exit fee (and length of notice) was upheld, and so they had to pay MORE than the stated exit fee to incur their early exit.

So, as you were saying?

Matt, I think you have this totally backwards. First, it doesn't matter that the damages were voted on and passed. If it did no court would ever invalidate any liquidated damages clause because it is, by definition, a part of a negotiated contract. So the next question is: at the time of signing, or at the time of breach, are the damages reasonable? The damages don't relate to the breaching party (Maryland) but to the non-breaching party (ACC). Taking the question at the time of breach it is pretty clear the damages are not reasonable. There are/were a number of reasonable alternatives (e.g. UConn / L'Ville) available as replacements, the TV contract wasn't impacted and there are no scheduling impacts.

The harder question is were the damages reasonable at the time of signing. By all accounts this was a last ditch effort to hold the conference together so that reaks of punitive damages, despite calling it a liquidated damages clause. Moreover, the environment at the time showed a number of schools expressing interest in the league (too many to list). The question the ACC will have to answer is what changed in September of 2012 to warrant increasing the damages clause by $30M? The inclusion of ND? Shouldn't that help to mitigate the damages?

I also question the fact that many people see this as a litmus test. One could argue that regardless of what fee Maryland negotiates the next departing party will have caused irreparable harm to the league and the $50M will become effective (e.g. who is an appropriate replacement for FSU?). It will be interesting to see how this plays out, but I can't see Maryland paying much more than the original fee, so lets say $22-$25M.

 

[businesslawyer]

We'll see. I think there are a few issues in the ACC's favor, just talking as a lawyer here. The vote was taken and was passed. Therefore it becomes binding on the members. The members options are what - withdrawal and protest. Neither was done. And they continued to accept the benefits of membership.

Now, turning to whether or not $50M is a reasonable approximation of damages - it's less than 2 years' payout from the Big 10; hardly crippling. The university probably has a billion dollar endowment. You can make the argument that it's a state institution so it's against the interest of the taxpayers to have to pay anything for leaving a conference.

Well, that's precisely the same situation as West Virginia, right? And when they went to court, were they able to successfully pay LESS than the amount in the Big East contract (as they tried to argue, before a West Virginia court, no less)? No, of course not. The exit fee (and length of notice) was upheld, and so they had to pay MORE than the stated exit fee to incur their early exit.

So, as you were saying?

The reasonableness has to be measured against the damage to the ACC, not the benefits to the departing school. Good luck convincing anyone that the ACC was damaged by replacing MD with LV in a weeks time. Other than the cost of the conference calls and the Krispy Kremes that Swofford gave out to the staff before the 7:00 call, exactly what were the ACC's quantifiable damages?