Will a Grant of Rights Protect the Big 12 From Future Raids?

Currently the Big 12 Conference sits at the center of conference realignment discussion. The conference is widely seen as the weakest link within the Power Five (P5) due to its smaller size, and recent history of instability. Proponents of the Big 12 will point to its “Grant of Rights” (GOR) agreement as a reason why other members of the P5 will be unable to invite a Big 12 member into their conference.

The Big 12 GOR is most commonly described as a contractual agreement between the ten schools that makeup the Big 12. The GOR uses the existing TV rights of each member as a hostage to prevent any member from leaving for a new conference. The agreement is usually perceived as being a rock solid contractual agreement that is impossible to get out of.

Contrary to popular opinion, that last sentence is untrue. The Big 12 Grant of Rights is a little over four pages long. (1) It is an incredibly short contract for an agreement involving millions of dollars. The Grant of Rights further does itself no favors by having text that is filled with ambiguity. But the absolute killer for the GOR as a contract is the omission of a termination procedure as well as a damages clause.

So why was such an important contract key to the Big 12’s survival written so poorly? It wasn’t written poorly, it was intended to be written that way. Had the Big 12 Grant of Rights been between rival Fortune 500 companies, the lawyers of each side would instantly tear the agreement to shreds.

But these are no Fortune 500 companies. These are academic institutions that avoid dragged out legal battles with each other (especially ones involving athletics) at all costs. The GOR is designed to be open-ended and prone to multiple interpretations. It is in this way that the agreement gains its strength. Rather than acting as a roadblock, the agreement acts as a long, windy, and uncertain pathway that attempts to discourage schools from leaving by making an exit longer and/or more complicated.

The Big 12 relies on the threat of a dragged out legal battle to discourage membership from leaving. That is good news for the Big 12 considering what we saw during the 2010-2014 wave of conference realignment.

School officials approached 2010-2014 with an emphasis on professionalism. Legal disputes over exit fees were resolved quickly with limited or very few legal filings being necessary. Rhetoric between schools was kept behind closed doors, and especially was not glamorized in front of the media. Due to the mistakes made, and subsequent lessons learned from the 2003-2005 wave of conference realignment, school administrators approached the 2010-2014 wave in a much less confrontational manner. This was dissimilar to the events of 2003.

In 2003 the Atlantic Coast Conference (ACC) attempted a three-team raid on the Big East with Boston College, Miami, Syracuse, and Virginia Tech as targets. Securing Miami/Virginia Tech in 2003, then Boston College in 2004, this marked completely new territory in the history of conference realignment. This was the first time a power conference had laid a crippling blow on a fellow power conference. More shockingly, this happened when the two conference were perceived to be of equal value. The decision of why and how the ACC pulled this off left everyone scratching their heads.

School administrators with no prior precedent to lean on, had to learn as events happened, the proper ways to approach a modern conference realignment raid. This inexperience within administrative circles resulted in a major legal battle laced with intense rhetoric. It led to the souring of relationships between schools and was seen as an embarrassment among school administrators. A Connecticut (UCONN) led lawsuit included the ultimate insult of suing conference and school administrators personally. (2)

The Big 12 GOR attempts to capitalize on the unwillingness of schools to get involved in major conference realignment legal disputes thanks to the ruckus of 2003. But in doing so the Big 12 missed another key lesson that was learned in 2003.

In 2003 UCONN was in the middle of a multi-year transition from FCS to FBS, with eventual Big East football membership. UCONN also had a rising basketball program that just four years ago won the National Championship in its first and only Final Four appearance to date. The athletic department was in the middle of a massive financial infusion to bring the program up to FBS standards. Highlighted by a new $91.2 million football stadium, the Huskies were spending an astonishing amount. (3) This was an unseen amount by an FBS newcomer during this era. UCONN was preparing to enter the world of big time athletics, and naturally the 2003 ACC/Big East raids meant they had the most to lose.

The response from UCONN wasn’t surprising. The school took the lead role in suing to recover not just the required exit fee or ramifications regarding TV, but lost ticket value, diminished recruiting value, and even “scarred relationships with donors.” UCONN was seeking damages “in the hundreds of millions of dollars.” (4) Connecticut Attorney General Richard Blumenthal acted as spokesman for the conference during the turmoil and is often attributed to most of the rhetoric and media pandering during this dispute.

UCONN had bet the future of their athletic program on Big East football only to watch the league fall apart before playing their first conference game. They had everything to lose and thus did everything in their power that they thought could rectify the situation. UCONN was overtaken by the false belief that they could somehow fix the issue by forcing the departing schools to remain in the Big East.

It’s a similar philosophy to the Big 12 GOR. It’s an assumption that schools like Iowa State can somehow force Oklahoma to remain in the league. It’s a flat out terrible philosophy because:

1) The best-case scenario is that you force the school to stay in the conference, but in doing so create an unfavorable environment. Relationships have been strained beyond repair. Members are still active but uncommitted to a strong viable agenda. Decisions can’t be made, trust has been destroyed, and the hostility has a reverberating effect causing membership to be even more inclined to cut ties with the conference.

2) If a university has already decided it wants to leave, it will leave regardless of what happens next. The benefits of leaving for a new P5 greatly outweigh the consequences of mounting a massive legal battle against the Big 12. You can’t force a school to stay in a conference it doesn’t want to be a member of. If a University is willing to initiate the process of walking out, it has already decided the path it will take and will act according. The University will follow the philosophy of “a contract is only as strong as my lawyer” fighting tooth and nail until their old conference eventually gives in.

For both of these reasons, sooner or later the Big 12 will realize that they are better served if they simply cut ties rather than trying to retain the school.

The GOR won’t be able to hold the conference together. If the Big 12 stays intact over the coming years it will do so because the other P5 schools were either unwilling to invite a Big 12 member outright, or the P5 conference in question did not offer terms that the prospective Big 12 member found acceptable. This could be for example, Oklahoma refusing to join the SEC without Oklahoma State, or Texas refusing to join the Pac-12 without the Longhorn Network.

If the Big 12 stays intact, it won’t be because of the Grant of Rights. But that doesn’t mean the Grant of Rights immediately becomes useless.

There are two types of exit fees.

The first I refer to as a “fixed” exit fee. If “School A” wants to leave “Conference X” they owe $30 million dollars because the bylaws of “Conference X” state that a school must pay $30 million if they want to leave. The Big East used a fixed exit fee plus a requirement that a school could not leave for 27 months. Even though the 27-month requirement wasn’t a monetary sum, it’s still a “fixed” exit fee because it provides the exact penalty the departing member must pay.

The tactic proved to be quite effective. The Big East was legally entitled to just $15 million from Notre Dame, Pittsburgh, Syracuse, and West Virginia combined. Instead the conference ended up with $37.5 million from the four. The Big East was entitled to $20 million from Rutgers and Louisville combined. The conference received $22.5 million from the pair. The Big East also collected the full $5 million exit fee from TCU, despite that school never playing a game in the conference. (5) In just one instance, (Boise State) the conference did not obtain the full amount they were seeking. The Broncos paid the Big East $2.3 million of the $5 million exit fee. (6) However in this case it wasn’t perfectly clear whether the Big East was entitle to a full $5 million.

Meanwhile the ACC and Big 12 used exit fees that were “non-fixed.” In a non-fixed alignment if “School B” wants to leave “Conference Y” the bylaws states “School B” must pay an exit fee worth two times their conference payout. If “Conference Y” distributed $15 million to “School B” that year, “School B” must pay double that amount which would be $30 million.

Unlike the Big East, the ACC and Big 12 failed miserably in getting schools to pay their full exit fee. The Big 12 bylaws stated Colorado, Missouri, Nebraska, and Texas A&M owed the conference $90 million collectively. The Big 12 received only $40.93 million in exit fees. (7) (8) For the ACC their bylaws stated Maryland owed $52.26 million. The ACC received only $31.3 million. (9)

The effectiveness of each style of exit fee is quite clear. The Big East using a fixed style exit collected 100% of the funds they were seeking, plus a 50% bonus for waiving the 27-month requirement for a total of 150%. The ACC and Big 12 using non-fixed exit fees collected a combined 51% of the money they were seeking. The ACC collected 60% while the Big 12 collected just 45%.

The non-fixed exit fees performed poorly because they did not have a clear-cut amount the departing schools owed. For example The Big 12 told Colorado (CU) and Nebraska (NU) that they owed $30 million dollars. CU and NU said they owed zero dollars. As a result the Big 12 withheld any future revenue CU/NU were entitled to, whereas CU/NU refused to pay the Big 12 anything out of their-own pocket.

Both sides naturally used the legal means at their disposal. The departing members attempted to obtain their withheld payouts, whereas the conference attempted to obtain the exit fee that was owed to them. Naturally this resulted in a stalemate that could only be solved in court. The two sides agreed to drop their case against the other rather than taking their dispute to court. The departing members dropped their claims to the withheld revenue, whereas the conference agreed not to pursue the exit fee payout.

This was the reoccurring theme for the three conference realignment waves of Colorado/Nebraska, Missouri/Texas A&M, and Maryland. The cost of the exit fee was not decided by the strength of the exit fee contracts, but the ability of each school to withhold payments. At this point, if a Big 12 member wants to leave, they will pay the same amount regardless of the Big 12 exit fee contract being incredibly weak, or incredibly strong. It will ultimately come down to how much revenue the Big 12 can withhold from the departing school. That will be the exit fee, every single time.

The Big 12 could try to use the GOR as leverage to force schools into a higher payout similar to the Big East (BE) 27-month rule. However unlike the BE exit fee, the Big 12 Grant of Rights has never been tested in court before. We have no existing precedent that can show exactly how strong or weak the GOR is when used as leverage. The BE 27-month rule was a fixed exit fee, it had text that was very clear cut, and very specific, and hard to argue against. The same cannot be said for the Big 12 GOR. It is in this area where the Big 12 Grant of Rights lacking termination and damages clauses comes back to kick the conference in the butt.

The Big 12 can certainly try to use the Big 12 GOR to gain a massive payout from Oklahoma if they want to join the Pac-12. The Big 12 can follow the philosophy of:

“We have clearly lost this school, but lets make them pay a heavy price for leaving.”

That was the philosophy the ACC used against Maryland. The result was a major lawsuit, heightened rhetoric, and media coverage that started heading in the direction of UCONN 2003. Neither side budged and after seeing public rhetoric escalated the two opted to settle. The ACC tried to take a hard line stance against Maryland and filed a lawsuit seeking $52.26 million. Maryland responded with a $157 million counter lawsuit. (10) The Terrapins also referenced embarrassing internal conference information in court documents that were now publicly available. (11) This eventually resulted in the ACC throwing in the towel and letting Maryland leave for just $31.3 million

If a university wants to leave its conference, it will do so regardless of consequences. For a conference to attempt to bring the hammer down on a school is a dangerous game to play. Under the threat of having the maximum penalty levied against them, the departing school is essentially cornered with their backs to the wall. At this point the departing school has only one feasible option, to fight back. With nothing else to lose they would be stupid not to. During conference realignment we saw the departing schools effectively daring their current conferences to insert every legal card they can play. This happened twice with the Big 12 and once with the ACC. In all three cases the conference folded and decided it was better to let schools walk away.

I am not completely writing off the possibility of the GOR leveraging a school for a higher exit fee.* But until the Big 12 GOR proves it can hold up when tested during legal proceedings, I am not going to hop on board that line of thought. The GOR (or the Big 12 negotiating tactics for that matter) haven’t convinced me yet that the GOR can be used in this fashion.

*The Big 12 still uses non-fixed exit fees. (12)

The Grant of Rights won’t be able to force a school to stay in the conference. It can try, but that would only produce a costly legal battle that neither side wants. The GOR is essentially the nuclear option. It can be used as an asset to provoke a major legal battle that no one wants. But because no one wants to see that happen, the end result is a weapon that is unlikely to be used to its fullest extent.

Links
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© sportspolitico™ February 16, 2015

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