Is DirecTV's NFL Sunday Ticket Doomed?

On July 13, 2015, a local bar in San Francisco filed a class-action lawsuit against the National Football League and DirecTV. It’s captioned Ninth Inning, Inc. d/b/a The Mucky Duck, et al. v. National Football League, Inc. et al., Docket No. 2:15-cv-05261, and it was filed in the United States District Court for the Central District of California. Ordinarily, a lawsuit against the NFL wouldn’t be worth discussing since most are filed and subsequently dismissed before you can blink, however in this case, the ramifications could be far-reaching. Let’s strip away the legalese and talk about the lawsuit and its potential implications.

Factual Allegations

The Mucky Duck is a local bar in San Francisco, California. Along with thousands of other bars and restaurants across the country, the Mucky Duck uses DirecTV’s "NFL Sunday Ticket" to show out-of-market games carried on Fox and CBS. Unfortunately for these businesses, NFL Sunday Ticket is the only way to show these games, as DirecTV has an exclusive deal with the NFL to broadcast the games. According to the Mucky Duck, DirecTV’s monopoly allows them to artificially inflate the prices in violation of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1–2, which was passed by the U.S. Congress to prevent businesses from acting in an anti-competitive manner.

The Mucky Duck’s argument, in short, is that but for the NFL’s agreement with DirecTV, other providers such as Dish Network would compete with DirecTV on price and service if they had access to the Sunday Ticket distribution. In fact, in 2002, Comcast, Time Warner, and Cox Cable attempted to obtain rights to broadcast Sunday Ticket on a non-exclusive basis on the grounds that it would reduce subscriber costs and enhance competition for viewership, but were told by the NFL that they would not accept their bids. Essentially, the Mucky Duck believes that the exclusive agreement eliminates competition by preventing other providers from distributing Sunday afternoon out-of-market NFL games.

The lawsuit provides some proof of these allegations. For example, while an individual is charged a flat fee for the service, a bar or restaurant with a fire code occupancy between 51-100 individuals will pay $2,314.00 for Sunday Ticket in 2015. As the occupancy increases, so does the cost, rising to more than $120,000.00 per year for the largest establishments, such as the casinos in Las Vegas. According to the Mucky Duck, these prices are as much as 43% higher than what they should be due to the exclusive deal.

Finally, the Mucky Duck points out in its lawsuit that of the four major professional sports in the country, only the NFL has an exclusive out-of-market broadcasting arrangement. In contrast, Major League Baseball ("MLB"), the National Basketball Association ("NBA"), and the National Hockey League ("NHL") all distribute live out-of-market games through multiple providers, which results in DirecTV charging less for access to MLB Extra Innings, NBA League Pass, and NHL Center Ice, despite more games per week over longer seasons. As the NFL is the most popular professional sports league in the United States, DirecTV’s monopoly allows them to charge whatever price they want with the knowledge that the Mucky Duck and every other bar and restaurant must pay a ransom to effectively run their businesses.

Legal Issues

As a preliminary matter, the lawsuit was filed as a class-action. Once the District Court approves the class-action, which is called a certification under Federal Rule of Civil Procedure 23, every other bar and restaurant in the United States that has had Sunday Ticket in the past four years will automatically be joined to the lawsuit and subject to any decision or settlement. To quote the lawsuit, the class encompasses "[a]ll DirecTV commercial subscribers that purchased the NFL Sunday Ticket from DirecTV, or its subsidiaries, at any time beginning four years prior to the filing of this complaint and until the effects of the anticompetitive conduct described herein end."

If the case is dismissed or there is a judgment against the class-action, all of these businesses’ identical claims against the NFL and DirecTV are barred from future litigation, but if there is a judgment in their favor or a settlement, they will all share in the proceeds. While a common criticism of class-actions is that the parties get a few bucks and the lawyers make millions, and there’s certainly truth to that, class-actions also provide leverage in settlements, public awareness, and possibly judgments that preclude the offending party from acting in such a way again. In essence, they provide closure to all the parties involved.

At this point, the only substantive action that has been taken was the Mucky Duck’s filing of the Complaint, which stated the factual allegations above, the legal claims below, and asked for (1) a declaratory judgment (a statement from the District Court that the NFL and DirecTV’s exclusive contract is illegal), (2) an injunction (an order from the District Court that the NFL and DirecTV stop their allegedly illegal monopoly), and (3) damages. The next step will be the NFL and DirecTV filing a response to the Complaint, called an Answer, which admits or denies the Mucky Duck’s allegations and asserts any defenses or counter-claims against the Mucky Duck. In the alternative, they can file what’s called a Motion to Dismiss, which is the far more likely response, and which argues the District Court should dismiss the case out-of-hand. This response is due September 25, 2015.

As to the actual claims of the lawsuit, Section 1 of the Sherman Antitrust Act states that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." For Section 1 to apply, there must be multiple parties forming a contract or conspiring together. The NFL (as NFL Enterprises, LLC, which holds the broadcasting rights of the thirty-two teams) and DirecTV are two entities and thus sufficient to form a contract or conspiracy. Although there has been some previous litigation over whether or not the thirty-two teams form a single-entity for these purposes, the matter is now considered settled, and, with the formation of NFL Enterprises, LLC this past year, frankly irrelevant. Concerted activity between multiple parties is "inherently fraught" with anti-competitive behavior as it "deprives the marketplace of independent centers of decision-making that competition assumes and demands." See American Needle, Inc. v. National Football League, 560 U.S. 183 (2010).

In contrast, Section 2 states that "[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation . . . ." So while Section 1 requires a contract or conspiracy between two parties, Section 2 only requires one party. However, Section 2 is interpreted as narrower as it requires actual monopolization or a threat of monopolization, whereas Section 1 merely requires the restraint of trade.

As a result, sports leagues are subject to the anti-trust laws and cannot unreasonably restrain trade through price-fixing and output-limiting tactics, or monopolize an industry. See National Collegiate Athletic Ass’n v. Board of Regents, 468 U.S. 85 (1984). The NFL is going to have to show that opening up the exclusivity contract to DirecTV will not "materially increase" consumption of football, which is obviously a difficult argument to make, since more bars and restaurants will be able to afford to show games if they don’t have to pay DirecTV’s fees. The NFL will need to show there is a legitimate purpose for the exclusivity, which the Mucky Duck believes they cannot do, as the exclusivity contracts are "not necessary to the exhibition of football and are not integral to the sport itself."

Potential Ramifications

It looks like it’s going to be difficult for the NFL to brush this lawsuit under the rug. Frankly, there are a lot of facts that indicate there is no compelling reason for the NFL to have an exclusive contract with DirecTV other than to make a lot more money and to control the market. For instance, no other league has a similar exclusive deal, and wider distribution would decrease costs to bars and restaurants. Unlike MLB, which is alone among professional sports in having a formal monopoly and an exemption from federal anti-trust laws given to it by Congress, the NFL’s legal exclusivity is limited by the above cases and USFL v. NFL, 842 F.2d 1335 (2d Cir. 1988), even if they have a monopoly in a practical sense. At the end of the day, if the NFL were to allow multiple providers to show out-of-market games, prices would go down and viewership would go up. That’s a hard argument to make that exclusivity doesn’t restrain trade or create a monopoly.

Once the class-action is certified by the District Court, and if the NFL and DirecTV cannot get the case thrown out on a Motion to Dismiss, we’re likely to see a settlement between the parties. If not, and this case goes to trial, it’s very possible DirecTV will lose their exclusive rights to Sunday Ticket. If you own a bar or restaurant, that's good news.

Ninth Inning, Inc. d/b/a The Mucky Duck, et al. v. National Football League, Inc. et al.

DISCLAIMER: This article does not constitute legal advice, and is merely a general guide to understanding the law. I'm a recent graduate of Washington & Lee University School of Law, and currently work as an associate at Marks & Klein, LLP, a New Jersey law firm. Although my area of focus is commercial litigation, I have experience in the topics discussed above through my education and work history.