End of the Dark Ages? Lawsuits Put Sports TV Blackout Rules to the Test

by Manatt, Phelps & Phillips, LLP

Could the New York Yankees sell the broadcasting rights to their games to cable companies and subscribers in Mississippi?  Could a Los Angeles Kings fan living on the East Coast pay to watch a crucial, late-season game live on his iPad without having to simultaneously purchase a package of hundreds of other games in which he has no interest?  As many sports fans are well aware, the answer, as of today, is no.  But if plaintiffs in an antitrust class action in New York federal district court have their way, that could be about to change.

In two consolidated cases, Garber v. Office of the Commissioner of Major League Baseball[1]  and Laumann v. National Hockey League,[2] plaintiffs have challenged the arcane and often maddening rules of local sports television broadcasting policies on antitrust grounds.  The lawsuits allege that major professional sports leagues, their member teams, cable and satellite broadcasters such as Comcast and DirecTV, and the regional sports networks (RSNs) that broadcast games have conspired to reduce competition and raise prices on sports broadcasts through policies that restrict what games consumers can watch.  In December, the plaintiffs scored an important victory when U.S. District Judge Shira Scheindlin of the Southern District of New York denied defendants' motions to dismiss the cases, finding that the lawsuits plausibly allege that defendants' policies harm competition by dividing the country into local television markets and imposing mandatory blackouts on out-of-market games.

Contemporary sports fans have long been frustrated by the current arrangement, under which franchises contract with RSNs in their designated home market to broadcast games while the games of all out-of-market teams - aside from national broadcasts - are blacked out on local cable systems.  Fans who wish to watch such out-of-market games can only do so by purchasing, for more than $100 a year in subscription fees, a TV or internet package that includes all out-of-market games across the league.  Subscribers are not able to choose the out-of-market games they wish to purchase, however; instead, subscribers are required to purchase access to thousands of out-of-market games involving all teams, even if they only care about watching the games of one or a few teams.  The lawsuits threaten to bring that system to a halt.  The plaintiffs in Garber and Laumann include subscribers to these all-or-nothing, out-of-market packages offered by the NHL and MLB, both on TV and through the internet.  They allege that league policies restricting the broadcast of out-of-market games except through these expensive packages (and forbidding internet streaming of in-market games altogether) violate Sections 1 and 2 of the Sherman Act. 

In denying defendants' motion to dismiss, the court first found that plaintiffs had adequately alleged the existence of agreements among the defendants under Section 1.  The court stated that, under American Needle v. NFL,[3] league decisions involving rights that initially belong to individual clubs are subject to antitrust scrutiny as agreements.  The court found further that the RSNs plausibly participate in vertical agreements to geographically divide the market for baseball and hockey programming, and that broadcasters Comcast and DirecTV are implicated because they own and control a number of RSNs. 

With respect to the Section 1 claim that those agreements harm competition, the defendants argued that cooperation over the production and distribution of games among a league and its teams is "core activity" protected from antitrust scrutiny.  But the court disagreed, citing the Supreme Court's NCAA v. Board of Regents of the Univ. of Oklahoma[4] decision that agreements limiting the telecasting of professional sports games are not immune from antitrust scrutiny.  The court went on to hold that "in-market" agreements defining the territory in which each individual team may televise its games are akin to the types of horizontal agreements allocating markets between competitors that have been held to injure competition.  The court also agreed with plaintiffs that "out-of-market" agreements permitting the NHL and MLB to sell exclusive, all-or-nothing subscription packages likewise have an anticompetitive effect by forcing consumers to forgo the purchase of these games from individual clubs, resulting in increased prices and limited consumer choice.

Finally, with respect to plaintiffs' Section 2 monopolization claims, the court concluded that the plaintiffs had adequately alleged that the NHL and MLB had wielded their uncontested monopoly power to harm competition.  However, the court dismissed the conspiracy to monopolize claims against the RSNs and broadcasters.

The S.D.N.Y.'s opinion comes at something of a paradoxical time in the sports broadcasting industry.  On one hand, local TV rights deals, particularly in Major League Baseball, have become astronomically lucrative in recent years, with none bigger than the Los Angeles Dodgers' rumored $6 billion, 25-year agreement with Fox Sports.  As Forbes.com observed recently, "the value of sports on television is only increasing, as much of the viewing public moves to watching programs on delay - limiting the effectiveness of advertising."[5]  At the same time, in this age of rapid technological innovation and increasingly splintered fan loyalties, the decades-old blackout rules at issue in the cases strike fans as archaic and oppressive.  To these fans, the inability to watch the team or game of one's choice without subscribing to a season-long, league-wide package is a preposterous blight on the modern sports fan experience.  Moreover, the internet age not only allows fans to communicate more rapidly and directly about the perceived evils of blackout rules through social media but has pushed consumers to evade those rules - whether through consumer products such as the Slingbox or through illegal internet streaming websites.  Yet, despite this widespread discontent and increased scrutiny,[6] so long as teams and leagues continue to rake in huge sums of money from local TV deals, they have little incentive to abandon the current model.

Though there is still a long way to go, the Garber and Laumann cases represent a legitimate opportunity to break the impasse.  In ruling that the cases can go forward, Judge Scheindlin has given hope to fans and observers that, even if the lawsuits ultimately settle, the leagues may finally be compelled to seriously reexamine the way they broadcast games to consumers.  If they do, or if the cases succeed, then we might not be far from the day when fans are able to choose the games they wish to watch á la carte and teams can sell their broadcasts directly to out-of-market fans.   

[1] No. 1:12-cv-03074 (SAS).

[2] No. 1:12-cv-01817 (SAS).

[3] 130 S. Ct. 2201, 2212-14 (2010).

[4] 468 U.S. 85, 99 (1984).

[5] Kurt Badenhausen, "Why ESPN Is Worth $40 Billion as the World's Most Valuable Media Property," Forbes.com, Nov. 9, 2012 (http://www.forbes.com/sites/kurtbadenhausen/2012/11/09/why-espn-is-the-worlds-most-valuable-media-property-and-worth-40-billion/); see also Michael Heistand, "MLB, Fox and Turner finally make TV deals official," USA Today, Oct. 2, 2012 ("As consumers steadily move toward watching TV on an on-demand basis . . . live sports becomes relatively immune to being watched on a taped basis.").

[6] For instance, the FCC announced in January 2012 that it would review the NFL's policy of blacking out local, in-market broadcasts when the home team fails to sell out its stadium.  The NFL modified the rule in July.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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