Exit fees and the Atlantic Coast Conference vs. the University of Maryland.

The lawsuit between the Atlantic Coast Conference (ACC) and the University of Maryland could have significance in future cases challenging collegiate conference grants of media rights. Maryland is suing the ACC over the conference's $50M "exit fee," which Maryland would be required to pay if it leaves for the Big Ten Conference. Maryland's defection to the Big Ten is a foregone conclusion, because the Big Ten has already included Maryland in its 2014 football schedule.

The ACC is seeking dismissal of the lawsuit, because it alleges that Maryland has not been damaged. The disposition of this case could be significant to the media rights issue, because both require any defecting schools to pay or forfeit an enormous amount of money to their conference. If the ACC's exit fee is an illegal restraint of trade, it makes it much more likely that grants of media rights are also restraints of trade.

Collegiate conference realignment and a horizontal restraint of trade.

In a previous post, I defined a horizontal restraint of trade as "concerted anticompetitive conduct by competitors in the distribution chain in order to eliminate, lessen, prevent or foreclose competition from another competitor or competitors." The definition is apt in the context of collegiate conference realignment. Recently, member institutions have been granting their media rights to the conferences with which they are affiliated, which may be such a horizontal restraint.

A grant of media rights is when a conference member agrees that all of its television revenue will go to the conference with which it is currently affiliated for X number of years. This holds true even if that school is no longer a member of the conference when the period expires. Effectively, the grant makes it cost-prohibitive for a school to change conferences during the grant period, because the school would forfeit all of its television revenue to its former conference for the remainder of the grant.

Grants were originally implemented to stabilize conference membership. They have done so. At its simplest, an antitrust violation occurs if the anticompetitive effects of conduct outweigh any plausible procompetitive justification. Some conduct is so anticompetitive that there is no need to weigh the conduct against the procompetitive justification. So, the procompetitive justification of stabilizing conference membership would be weighed against the anticompetitive effects.

A grant of rights is anticompetitive conduct, because it prevents a school from freely changing its conference affiliation to make the most money. The conduct is by competitors, because the conferences are in competition with each other, and the schools are in competition with each other. Finally, the goal of the conduct is to lessen competition among competitors. Thus, a horizontal restraint is effected.

Whether a grant of rights is ultimately enforceable depends on how any procompetitive justification would be weighed against any anticompetitive effects, assuming the grant is not per se illegal. If the procompetitive justification of conference stability outweighs the anticompetitive effects of a grant of rights, the grant would be enforceable. If not, the grant would be unenforceable. It is also likely that the conference in question would argue for some kind of collective bargaining exemption, as is done with the statutory and nonstatutory labor exemptions.

We may never see this in court, because a school would need to challenge the grant of rights in the first place. It would be a risky proposition, given the consequences of losing in court. If we see such a challenge at all, it would be near the expiration of the grant period, because less money would be at risk.