DirecTV Subscribers Move to Sack NFL for Its “Sunday Ticket” Programming
In its August 13, 2019 opinion, the Court of Appeals for the Ninth Circuit ruled in favor of a group of NFL “Sunday Ticket” DirecTV subscribers who had challenged that the exclusive agreement between the NFL and DirecTV is probably anticompetitive and a violation of the Sherman Antitrust Act.[1] Relying on three court decisions decided between 1953 and 1984, Circuit Court Judge Ikuta reversed a district court’s dismissal, holding that subscribers had adequately stated a cause of action for a violation of Sections 1 and 2 of the Sherman Act and that it survived a motion to dismiss.[2] At the heart of this problematic opinion for the NFL is its agreement between its 32 individual teams, each of which is a separate “independently owned, and independently managed business,” which gives the NFL the authority to pool their telecasting rights, rather than teams exercising those rights individually.[3]
The problem is that NFL fans who do not subscribe to “Sunday Ticket” have access to, at most, two to three local games each Sunday afternoon, in any given geographic area.[4] This means, for example, that fans residing in the Los Angeles area would be able to only watch their local team play on CBS or Fox. But if they are not fans of any of the local Los Angeles teams or if their favorite team is not an opponent of any of the local Los Angeles teams, then there is no option to watch their favorite team play for free that afternoon. Plaintiffs further allege that absent the anti-competitive agreement, NFL games would be available through other distributors because each team could make its own arrangements for telecasts of its games, and could contract with competing distribution channels or media, including other cable, satellite, or Internet carriers, or competing networks.[5] As a result, a greater number of telecasts of NFL games would be created, and those telecasts would be more accessible to more viewers at lower prices.[6]
This problem first arose in 1951, when there was growing concern in the NFL that too much competition between the teams in the market for broadcast rights might drive some teams out of business.[7] The NFL addressed its concern by amending its bylaws.[8] Pursuant to Article X of the bylaws, the NFL required teams to agree to minimize competition by refraining from telecasting its games into another team’s local market whenever that local team was either playing at home or broadcasting its away game in its local territory.[9] Therefore, fans who want to watch other out-of-market games are prevented from purchasing games individually, but are required to buy the entire package of NFL games through DirecTV’s “Sunday Ticket.”[10] Additionally, in order to subscribe to “Sunday Ticket,” consumers must also purchase a basic television package from DirecTV.[11] In 2015, the cost of a basic “Sunday Ticket” package was $251.94 annually for residential subscribers. [12] For commercial subscribers, the price varied depending on the capacity of the establishment, ranging from $2,314 to $120,000 per year.[13]
In an opinion for the court, Circuit Court Judge Ikuta first pointed to the United States v. Nat’l Football League (NFL I) case from 1953, in which the Justice Department brought suit in district court to enjoin enforcement of Article X, alleging that it violated Section 1 of the Sherman Act.[14] The court held that the NFL could not restrict teams from broadcasting their games into another team’s local market when that team was playing away games.[15] Such a restriction would be an impermissible restraint of trade that violated the Sherman Act.[16] This finding was later affirmed in 1961, by the same court and judge, in United States v. Nat’l Football League (NFL II), in which the NFL filed a petition seeking to implement a new television contract between the NFL and CBS.[17]
Rather than appeal the latest 1961 injunction, the NFL sought congressional relief.[18] In response to the NFL’s lobbying efforts, Congress passed the Sports Broadcasting Act (SBA), which effectively overruled NFL II.[19] Thus, the SBA provided a tailored exemption to the Sherman Act so that “professional team sports” could sell their rights to “sponsored telecasts.”[20] The term “sponsored telecasting” refers to networks that provide free, over-the-air games.[21] Those networks include NBC, ABC, CBS, and Fox.[22]Their broadcasts are “free” to viewers.[23] Over the next 25 years, NFL teams pooled their telecasting rights to their games and sold them as a single package through free, over-the-air television.[24]
However, the relief that the SBA provided to the NFL was short-lived, as television technology advanced from over-the-air to cable and satellite programming. The unforeseen problem for the NFL was that its new national cable and satellite broadcasting deals with ESPN and DirecTV, in 1987 and 1994 respectively, became subject to antitrust scrutiny. Such scrutiny would not haunt the NFL’s telecasting until this challenge.
Another problem for the NFL was Supreme Court precedent, which Judge Ikuta ultimately relied on in her opinion. Judge Ikuta cited the 1984 case, National Collegiate Athletic Association v. Board of Regents of University of Oklahoma, which, mildly put, created a terrible precedent for the NFL.[25] Judge Ikuta noted several parallels between the NCAA agreements and the NFL’s agreement with DirecTV. First, the agreement among college football teams and the NCAA violated Section 1 of the Sherman Act because it “limits the total amount of televised intercollegiate football and the number of games that any one team may televise.”[26] Similarly, plaintiffs assert that the NFL-DirecTV agreements limit the “amount of televised [professional] football” that one team may televise because they restrict the number of telecasts made to a single telecast for each game.[27]
Second, the agreements in NCAA provided that “[n]o member [college] is permitted to make any sale of television rights except in accordance with the basic plan.”[28] Similarly, under the terms of the NFL-DirecTV agreements, no individual NFL team is permitted to sell its telecasting rights independently.[29] Independent telecasts are forbidden under the terms of the agreements because they would cause the teams to compete with each other and with DirecTV.[30]
Third, in NCAA, the Court concluded that the agreement among the member colleges was a horizontal agreement among competitors because “the policies of the NCAA with respect to television rights are ultimately controlled by the vote of member institutions.”[31] Similarly, the NFL members voted to approve the contract between DirecTV and the NFL.[32] Therefore, that agreement that the teams vested in the NFL to pool its telecast rights is also a “horizontal restraint—an agreement among competitors” that “places an artificial limit on the quantity of televised football that is available [for sale] to broadcasters and consumers.”[33]
Finally, the court in NCAA held that the agreements constituted a naked restriction on output and defined the relevant output to be “the quantity of television rights available for sale,” meaning that “the total amount of televised intercollegiate football as opposed to whether each game was broadcast in some market at some time.[34] Similarly, the interlocking agreement between the NFL and DirecTV restrain the production and sale of telecasts in a manner that constitutes “a naked restriction” on the number of telecasts available for broadcasters and consumers.[35]
Despite the gloomy legal forecast for the NFL, in February 2020, the League filed a Petition for Writ of Certiorari in the U.S. Supreme Court.[36] The NFL, which is represented by attorneys from the law firms Covington & Burling LLP and Wilkinson Walsh & Eskovitz LLP, raised a number of compelling arguments. One of its central claims is that the Ninth Circuit failed to analyze its agreements under the “rule of reason” analysis.[37] A court appropriately applying a “rule of reason” analysis, they argue, would weigh the procompetitive features of a restrictive business practice against its anticompetitive effects.[38] The NFL certainly believes that its agreements are a coordination among the members of an integrated joint venture, which undeniably have procompetitive effects.[39] It claims that the teams’ agreement to pool their broadcasting rights and give the NFL the authority to license them has served its fans well, generating dramatic increases in fan interest and viewership along with growing revenues.[40] It also claims that the agreement produced competitive balance in disparate television markets.[41]
While this debate has been ongoing for many years, especially in the world of licensing and national broadcast television, it will be interesting to see whether the Supreme Court will grant the NFL’s certiorari petition and hear its arguments or perhaps force the NFL to once again lobby congress for legislation similar to the SBA, which this time provides an antitrust exemption for cable and satellite subscription services. Only time will tell.
Footnotes
