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

[bmayuc]

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?

How about image/reputation/stability/brand.

Those are things that every enterprise holds near and dear.

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[The Funster]

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?

So you're saying that the ACC would have been better served by waiting to add a replacement for MD, right?

 

[businesslawyer]

How about image/reputation/stability/brand.

Those are things that every enterprise holds near and dear.

Sent from my DROID RAZR using Tapatalk 2

Damages to the ACC's image and brand absolutely count, if you can show what they are.

I don't think damages for lack of stability count, because you can't force anyone to stay in a contractual relationship forever in the first place. It's just not a proper business purpose.

 

[businesslawyer]

So you're saying that the ACC would have been better served by waiting to add a replacement for MD, right?

I don't think I'm saying that. The Court's inquiry should be what were the ACC's damages assuming that the ACC used its best efforts to limit them.

The problem here is that the ACC easily found a replacement school with better athletics. We can all make up vague and inchoate damage claims, but that's different than convincing the court they exist.

And it would be different, for example, than the Big East claiming it was damaged by LV's departure when the best replacement is ECU.

 

[The Funster]

I don't think I'm saying that. The Court's inquiry should be what were the ACC's damages assuming that the ACC used its best efforts to limit them.

The problem here is that the ACC easily found a replacement school with better athletics. We can all make up vague and inchoate damage claims, but that's different than convincing the court they exist.

And it would be different, for example, than the Big East claiming it was damaged by LV's departure when the best replacement is ECU.

Let's assume the ACC didn't invite anybody before this went to court (if it even gets that far). Is it possible that the ACC would have had a better damage argument if they could have said, "Maryland was a charter member and we've been unable to determine what replacement school could possibly match it's status." I'm not trying to pin you down, I'm just trying to get some insight as to how a judge may view the respective arguments.

 

[businesslawyer]

Let's assume the ACC didn't invite anybody before this went to court (if it even gets that far). Is it possible that the ACC would have had a better damage argument if they could have said, "Maryland was a charter member and we've been unable to determine what replacement school could possibly match it's status." I'm not trying to pin you down, I'm just trying to get some insight as to how a judge may view the respective arguments.

Well, maybe. But it wouldn't have taken a rocket scientist representing Maryland to point out that UConn and Louisville were publicly interested.

 

[brasssbonanzaa]

Well, maybe. But it wouldn't have taken a rocket scientist representing Maryland to point out that UConn and Louisville were publicly interested.

This, plus I have to think MD would subpoena the living crap out of every document in the ACC office where I'm sure it says somewhere that UL, UConn and whoever else were/are on their list of replacement targets.

 

[The Funster]

I guess the crux of the argument would be if ville or UConn replace the alleged value of Maryland as a member institutuion.

 

[gioff23]

Fla state doesn't leave unless its for the sec. The big 12 is not immune & is not that safe either.

IMO, you are 1/2 right. I have long believed the B12 is vulnerable. My view is they are one call from Larry Scott away from losing OU (and OSU).

However, the SEC wants NOTHING to do with FSU, period. They would be interested in OK or TX and VT and a NC school, but not FSU, UM, or Clemson. Their members are very strong opponents of giving any credibility to in-state rivals not part of the conference today. UFand USCe would flip - in fact, they make the Flipper blanche the way they would brag about keeping out their in-state rivals.

 

[ctchamps]

I don't think I'm saying that. The Court's inquiry should be what were the ACC's damages assuming that the ACC used its best efforts to limit them.

The problem here is that the ACC easily found a replacement school with better athletics. We can all make up vague and inchoate damage claims, but that's different than convincing the court they exist.

And it would be different, for example, than the Big East claiming it was damaged by LV's departure when the best replacement is ECU.

You got to be kidding me. The BE will have to show damages to a judge in North Carolina.

 

[IthacaMatt]

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.

You make a reasonable argument. I don't think the fee is going to be reduced, though.

 

[IthacaMatt]

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?

That argument is shallow and knee-jerk. The Big East replaced departing teams quickly, too, but do you think the overall product was diminished? I think that part is pretty apparent. The potential damage to the ACC is on full view when you just look at the Big East. The measure of whether the damages are reasonable is a factor that has to be looked at from both sides, not just from the ACC's point of view. How do you measure something that, by definition, is difficult to measure? The harm to the ACC can be approximated, at least in part, by the benefit to the departing member, and also on the impact on future TV negotiating posture, and the financial risks of conference instability.

 

[IthacaMatt]

How about image/reputation/stability/brand.

Those are things that every enterprise holds near and dear.

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Absolutely. "Good will." The ACC's brand was really harmed by the constant chirping about members leaving, and then one of them being successfully poached.

 

[IthacaMatt]

I am with b-lawyer on this. A majority can't impose excessive fees or penalties on other shareholders just because they are the majority. And similar to an invalid non-compete, the affected party is under no obligation to immediately challenge the offending bylaw or contract. In fact, most corporate contracts, including incorporation documents, have an explicit "no waiver" section whereby each party does not waive its rights simply by failing to exercise them.

Virginia has an uphill fight. They need to make the argument that "the ACC made me vote this way". Not a great case to make.

Looking at your shareholders argument, what do you think the management of corporations do all the time with these excessive compensation packages? That money comes out of the shareholders' pocket, so to speak. It could be paid as a dividend, instead of a multi-million dollar bonus to the CEO.

 

[IthacaMatt]

I am with b-lawyer on this. A majority can't impose excessive fees or penalties on other shareholders just because they are the majority. And similar to an invalid non-compete, the affected party is under no obligation to immediately challenge the offending bylaw or contract. In fact, most corporate contracts, including incorporation documents, have an explicit "no waiver" section whereby each party does not waive its rights simply by failing to exercise them.

Virginia has an uphill fight. They need to make the argument that "the ACC made me vote this way". Not a great case to make.

Doesn't the ACC have a right to ask of its members to commit to the common cause? And isn't putting in place a strong disincentive to leaving a rational thing to do? Look at the Big East - after the first raid, they said "let's put in place an exit fee and a waiting period, to prevent others from leaving, too." You want to know that others are committed to membership. Look at the Big 10. Do you think their grant of TV rights is oppressive and unenforceable?

 

[TuxedoYoda]

IMO, you are 1/2 right. I have long believed the B12 is vulnerable. My view is they are one call from Larry Scott away from losing OU (and OSU).

I'm sure OU & OSU can't wait to go the next 13 years without a penny in TV revenue. You certainly have this all figured out.

 

[IthacaMatt]

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.

IF I own shares of AT&T, I have no say over compensation to executives, stock options diluting my shares, or the failure to pay a dividend.

If you don't think the ACC was badly harmed by Maryland's defection, and the constant media harping on Florida State, Clemson or whomever else, leaving, then just look at the Big East. They turned down an $11M/year/team contract offer, and now would be lucky to get half of that, if the entire conference doesn't break up in the next couple months.

 

[IthacaMatt]

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.

Fair points. This will be interesting, to say the least. I think that, unlike the Big East v. WVU case, the ACC will try to see this through on the full $50M. Otherwise, they face a Big East like situation.

 

[IthacaMatt]

I don't think I'm saying that. The Court's inquiry should be what were the ACC's damages assuming that the ACC used its best efforts to limit them.

The problem here is that the ACC easily found a replacement school with better athletics. We can all make up vague and inchoate damage claims, but that's different than convincing the court they exist.

And it would be different, for example, than the Big East claiming it was damaged by LV's departure when the best replacement is ECU.

Well, how different is it? First, the Big East got TCU as a replacement for WVU, which many people crowed about as an upgrade. Then the addition of Boise State, another "upgrade" - if you measure only in terms of recent on-the-field success. But that is ephemeral. The Big East lost brand value when charter members left. That hurt the television product, even if the "replacement teams" had good records. Would you make the same argument that the Big East is in just as good of shape and would have a hard time proving damages?

 

[Oxford Bob]

Fair points. This will be interesting, to say the least. I think that, unlike the Big East v. WVU case, the ACC will try to see this through on the full $50M. Otherwise, they face a Big East like situation.

Absolutely correct. If the ACC gets the $50M or close to it , then it helps them defend their turf and keeps some schools from leaving. If they get close to what BE got with WVU, it could lead to a jailbreak.

 

[caw]

Fair points. This will be interesting, to say the least. I think that, unlike the Big East v. WVU case, the ACC will try to see this through on the full $50M. Otherwise, they face a Big East like situation.

It most definitely will be interesting. I have to think it goes down a bit, but JMO.

What is the most a team has paid to get out of a conference? WVU at 15? I wonder how much looking at what other conferences exit fees will weigh on determining if the ACC one is punitive in nature. I think the ACC's is 30 million more than the next closest?

 

[HuskyHawk]

Doesn't the ACC have a right to ask of its members to commit to the common cause? And isn't putting in place a strong disincentive to leaving a rational thing to do? Look at the Big East - after the first raid, they said "let's put in place an exit fee and a waiting period, to prevent others from leaving, too." You want to know that others are committed to membership. Look at the Big 10. Do you think their grant of TV rights is oppressive and unenforceable?

I belive that the $50M came up for a vote at the meeting, and had not been previously proposed. Let's say you are part of a homeowners association, and they have a normal meeting where there is a suprise vote, with no warning, to say that each homeowner must put up $200k to build a community center and pool. The requirement is effective immediately, there is no delay in implementation to allow you to manuever. Your options: move out of your house immediately or pay. Enforce it? Might that be unconscionable? Might it also be a punitive amount with no basis in fact? Liquidated damages are reduced all the time.

I think Maryland has tons of arguaments here. They will definitely pay something. I also think that they will definitely pay less than $50M. I think one of the best arguments that this is unconsionable is that it took effect immediately, so that none of the schools had any option but to accept it. Maryland could not realistically withdraw from the ACC at that moment, which was the only choice given them.

 

[whaler11]

I'm sure OU & OSU can't wait to go the next 13 years without a penny in TV revenue. You certainly have this all figured out.

How about we just assume you say 'Grant of Rights' in every thread and you can find a more productive way to spend your time.

 

[gioff23]

I'm sure OU & OSU can't wait to go the next 13 years without a penny in TV revenue. You certainly have this all figured out.

So, you can't enforce a 3 year exit or an exit fee, but you can enforce a GoR. Good luck with that ....

BTW, am I the only one laughing that there is still a SN. Does anyone really read that?

 

[TuxedoYoda]

So, you can't enforce a 3 year exit or an exit fee, but you can enforce a GoR. Good luck with that ....

BTW, am I the only one laughing that there is still a SN. Does anyone really read that?

A GOR is not an exit fee. It isn't "enforced." The conference legally owns the TV rights for a school.