TAKEAWAYS
- Clemson University is challenging in court the Atlantic Coast Conference’s (ACC) financial exit fee and the scope of Clemson’s grant of its media rights to the ACC, each of which pose significant financial obstacles to Clemson leaving the conference.
- The ACC filed a countersuit against Clemson seeking to enforce those same obligations, evidencing an intent to aggressively litigate these issues.
- A ruling by the court on either the exit fee or grant of rights issues would likely have profound ramifications for the schools in the ACC that resonates throughout college athletics and beyond.
On March 19, 2024, Clemson University (Clemson) filed suit against its athletics conference, the Atlantic Coast Conference (ACC), in Pickens County, South Carolina. Clemson’s lawsuit challenges two contractual obligations critical to the ACC’s stability as a premier collegiate athletics conference: (i) the ACC’s approximately $140 million fee to withdraw as a member of the conference, and (ii) the scope of member schools’ contractual granting of their media rights to the ACC as irrevocable through 2036, even if that school leaves the ACC. The following day, the ACC filed a countersuit in North Carolina asking the court to find exactly the opposite and grant other relief.
A definitive court ruling on either of these issues would likely have enormous ramifications for the 14 (and soon to be 17) schools that are full members of the ACC.
A ruling in Clemson’s favor could mean that the ACC’s $140 million monetary exit fee is unenforceable. It could also mean that the ACC would not own Clemson’s media rights through 2036, estimated to be worth several hundred million dollars, if Clemson left the conference. The result would be that Clemson—or any other member school—could leave the ACC without incurring potentially prohibitive financial costs. Such a ruling could also have broader implications throughout college athletics—and beyond. Contractual conveyances of intellectual property in the form of media rights and conference “exit fees” are not unique to the ACC.
A ruling in the ACC’s favor could be just as consequential. It would essentially bind the school to the conference for years to come unless that school was willing and able to pay hundreds of millions of dollars (when the value of the school’s assigned media rights is included) to leave.
The Lawsuit’s Factual Background
Clemson’s lawsuit comes several months after the ACC filed suit against Florida State University (FSU) seeking, among other things, to enforce the grant of media rights signed by Florida State and other schools. FSU filed its own lawsuit in Florida state court the next day alleging, inter alia, that the grant of rights is invalid. That litigation remains in its early stages. Clemson’s complaint also comes amidst an extended period of significant name, image and likeness (NIL), labor, and NCAA governance developments (covered by Pillsbury here, here and here) that have caused significant upheaval and uncertainty in collegiate athletics.
At the same time, the Southeastern Conference (SEC) and the Big Ten Conference (“Big 10”) have entered into media rights deals that pay members more than the ACC and Big 12 Conference on an annual basis. Moreover, under the recent agreement between the College Football Playoff and ESPN, SEC and Big 10 schools will earn approximately $7 million more each year than their ACC counterparts.
The ACC has taken steps to increase revenue for existing members. In May of 2023, it adopted a “success incentive initiative,” pursuant to which schools can earn additional revenue through post-season success. On September 1, 2023, the ACC added three new schools, triggering additional annual payments from ESPN, the ACC’s media rights partner. This generated a pool of more than $70 million in additional annual revenue, much of which will be distributed to existing ACC schools.
Notwithstanding these efforts, Clemson alleges that it receives “significantly lower” media revenue payments resulting in a “dramatic gap” that will cause Clemson to “fall behind its peer institutions.”
Clemson’s Claims
Clemson is asking the court to make a judicial determination on three separate issues.
First, Clemson is asking the court to declare that § 1.4.5 of the ACC’s Constitution, which imposes an exit fee (characterized as “liquidated damages”) on any member of the league that seeks to withdraw, as invalid and unenforceable. The dollar figure of that fee is “an amount equal to three times the total operating budget” of the ACC. Clemson alleges that figure is roughly $140 million. Clemson argues that the fee is unenforceable because it is a “financial penalty” that is “unconscionable” and “against public policy.”
Second, Clemson asks the court to rule on the scope of Clemson’s conveyance of intellectual property to the ACC. In 2013, ACC schools executed the “Atlantic Coast Conference Grant of Rights Agreement,” pursuant to which those schools “irrevocably and exclusively” granted to the ACC media broadcast rights for a defined term. In 2016, ACC schools executed the “Amendment to Atlantic Coast Conference Grant of Rights Agreement” (collectively, the “Grant of Rights”) that extended the term of conveyance of each school’s media rights through June 30, 2036.
The Grant of Rights provides, in relevant part:
- Grant of Rights. Each of the Member Institutions hereby (a) irrevocably and exclusively grants to the Conference during the Term ... all rights ... necessary for the Conference to perform the contractual obligations of the Conference expressly set forth in the ESPN Agreement, regardless of whether such Member Institution remains a member of the Conference during the entirety of the Term and (b) agrees to satisfy and perform all contractual obligations of a Member Institution during the Term that-are expressly set forth in the ESPN Agreement.
The ACC has repeatedly taken the position publicly that, through this language, its schools irrevocably conveyed their broadcast rights to the ACC through 2036, even if they leave the conference. Clemson challenges this interpretation of the Grant of Rights, alleging the conveyance is narrower in scope. In particular, Clemson argues that the “necessary for the Conference to perform” clause is limited by what is “set forth in the ESPN Agreement,” and that agreement limits the grant of full media rights while Clemson is a member of the ACC. Thus, according to Clemson, the purpose of the language “regardless of whether such Member Institution remains a member of Conference” is merely to allow ESPN to broadcast games that happened in the past—when Clemson was a member of the ACC. While Clemson does not allege that the Grant of Rights is unenforceable, if Clemson prevails, the result would be the same. Clemson could leave the ACC and take its intellectual property with it (the right to broadcast and distribute athletics media).
Third, Clemson asks the court to declare that Clemson does not owe the ACC any fiduciary duties.
The ACC’s Response
The ACC responded swiftly. Hours after Clemson filed its complaint, the ACC released a short statement proclaiming that its “legal counsel will vigorously enforce the agreement and bylaws in the best interests of the ACC’s current and incoming members.”
The next day, the ACC filed a six-count complaint against Clemson in North Carolina state court seeking the following relief:
- A declaration that the Grant of Rights is a valid and enforceable agreement, pursuant to which Clemson “irrevocably and exclusively granted its rights to the ACC for the duration of the term, regardless of whether it remains a Member Institution”;
- A declaration that Clemson is estopped from challenging the validity of the Grant of Rights;
- A declaration that Clemson is barred from challenging the validity of the Grant of Rights because it has waived such rights;
- A declaration that the ACC’s exit fee is a “valid and enforceable obligation”;
- A declaration that Clemson owes the ACC fiduciary duties under state law and the ACC Constitution and Bylaws; and
- A finding that the ACC can recover damages.
One point of emphasis in the ACC’s countersuit is Clemson’s involvement in, agreement to, and endorsement of, among other things, the Grant of Rights. It opens by quoting Clemson’s president, the then-chair of the ACC’s Council of Presidents, in connection with the announcement of the 2016 amendment to the Grant of Rights:
The ACC is a great conference, and this increases the national exposure, brings in additional revenue and offers greater opportunity for student athletes … For us and the Florida States and others, it stabilizes the conference long term.
What Comes Next?
Those monitoring these developing events should not anticipate resolution soon. The parties will likely first need to work through where claims will be heard—North Carolina or South Carolina—prompted by the ACC’s countersuit.
While it is possible the parties settle this matter out of court, the ACC may be motivated to litigate these issues to final resolution.
The ACC and Clemson each have 30 days from the date each respective lawsuit was filed to answer the allegations therein.
Pillsbury will monitor the litigation as it develops.
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