How ESPN Is Complicating Texas A&M to SEC Deal
OKTC has learned that one of the major points of discussion at today's SEC president's meeting was the potential contractual fallout of A&M's addition to the SEC. In particular the conflicting positions of ESPN in regards to its Big 12 television deal and its existing SEC television deal. That is, ESPN has conflicting good faith obligations to both conferences. Why are these obligations conflicting? Because OKTC has heard from multiple sources that the television deal between the Big 12 and ESPN is void as soon as the membership falls below ten.
So if Texas A&M bolts for the SEC then the Big 12's TV deal with ESPN doesn't exist anymore in its present form. (FYI, Fox is presently paying $90 million a year to the Big 12 while ESPN is paying $65 million a year. But, and this a key distinction, Fox has no conflict here since it doesn't carry SEC games.)
Okay, wrap your minds around that. That's a major revelation and would explain why the Big 12 is working so hard to find a new member and still trying to persuade A&M to stay.
Now add this complexity that has the SEC worried -- the addition of A&M to the SEC would require ESPN to pay more money for television rights fees under the SEC's existing contract with ESPN. So what you've got is a situation where you could argue ESPN is inducing A&M to bolt the Big 12 in favor of the SEC. The big problem here? That's a major contractual conflict for ESPN, since part of the reason A&M would be leaving would be the inducement of more money from the SEC, money that would be coming from ESPN.
Yep, ESPN's television deals have so monopolized college athletics that it's a major road bump in any conference realignment.
So the SEC is now worried that it could end up in a large lawsuit featuring the Big 12, the SEC, and ESPN over A&M's departure. (Keep in mind that Fox also has a major interest here. Will Fox continue its commitment to the Big 12 with only nine members? No idea. It was Fox's new agreement in conjunction with ESPN stepping up to the plate with the same television payouts when Nebraska and Colorado left that kept the Big 12 -- now ten -- together.)
OKTC hasn't read the entirety of the Big 12's agreements with ESPN, but every contract has a boilerplate "good faith" provision that obligates a party to act in the best interests of its partners. Would it be in good faith for ESPN to be negotiating with the SEC about increased payouts to a current Big 12 member that would lead to a breach of the Big 12 contract when that member leaps? Of course not.
So ESPN is in an awful position, it may well have to pledge that its going to keep its payments to the Big 12 members the same regardless of membership numbers in order to avoid a breach of contract lawsuit for inducing a member to leave the conference and kill the existing Fox and ESPN deals.
Ouch.
How is all of this going to play out?
Let's review the SEC's official statement today which was just released minutes ago as I was writing about the ESPN contractual complication:
“The SEC Presidents and Chancellors met today and reaffirmed our satisfaction with the present 12 institutional alignment. We recognize, however, that future conditions may make it advantageous to expand the number of institutions in the league. We discussed criteria and process associated with expansion. No action was taken with respect to any institution including Texas A&M.”
This statement is a clear attempt by the SEC to avoid arguments that it induced A&M to leave. That is, legally the SEC needs A&M to leave the Big 12 before it can bring A&M into the conference. And in the meantime, ESPN needs to figure out a way to not violate its fiduciary duties to the Big 12 by inducing A&M to leave for the SEC. At the same time ESPN needs to formulate an idea of what the addition of a team to the SEC would do for future payouts under its existing contracts with the SEC.
Is your head spinning yet?
It's about to spin some more. Keep in mind that ESPN also instigated this whole mess with the Longhorn Network. (In fairness to ESPN here, if ESPN hadn't won the bidding rights Fox might well have instead. The problem would still be here once the Longhorn Network was formed). Some at Texas A&M want to argue that ESPN's agreement to start a network with Texas violated the fiduciary duty to the Big 12 members -- namely ending the Big 12's ability to form an existing network by contracting with Texas alone -- rendering the Big 12 contract with A&M breached. So A&M would have the right to do what it pleases under this interpretation of the deal. No lawsuit would be viable because there would be no ESPN contract to sue A&M under. Except, you guessed it, there are two network contracts, one with Fox and the other with ESPN. Fox has not undertaken any actions that would breach the existing contracts so it could still have a cause of action against A&M regardless.
As these legal issues work themselves out the SEC is doing its best to avoid being sued. Today's meeting was designed to discuss all the particulars of expansion without actually conveying an offer to A&M. Remember that since Friday I've been telling y'all something important that has been missed by most media -- A&M approached the SEC first. That's important because it eliminates many of the arguments against the SEC inducing A&M to leave. The SEC needs A&M to leave the Big 12 before it can become a member of the SEC.
So where are we headed now?
Texas A&M meets on Monday. Expect for A&M to give its president the authority to negotiate with other conferences at that meeting. Come Tuesday A&M is scheduled to appear before a committee in the Texas house. The SEC athletic directors meet in Orlando on Wednesday of this week. All of these meetings will go a long way towards helping to resolve the current legal complexities that are holding up this deal.
But ESPN still has to resolve its conflicts. So how does ESPN rectify what is a clear conflict of interest?
ESPN needs to notify the Big 12 of its intention to keep its payments to the conference the same regardless of membership numbers. ESPN may well need to provide this notice in writing to the Big 12. Then ESPN can negotiate with the SEC about what the addition of A&M might mean for the television rights fees owed to that conference. The SEC needs this information about increased rights fees before its presidents can vote on admitting anyone else.
Then A&M can officially explore conference alternatives without ESPN having to worry about breaching its contractual obligations to the Big 12.
Did I confuse you too much? I hope not. If I did, blame ESPN not me, it's the one with the incredibly complicated legal obligations that are currently forestalling SEC expansion.
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Read OKTC's prior coverage of SEC conference expansion here:
SEC expansion candidates and discussion of why league won't expand in existing markets.
Why ESPN Is Dead Wrong: FSU and Clemson have no shot at the SEC.