Ruling in TV revenues hearing may hold key to NFL labor dispute

MINNEAPOLIS -- Football fans seeking a resolution to the labor impasse between the NFL's owners and players have spent the past seven days eyeballing Washington in hopes that the federally mediated talks will lead to a new collective bargaining agreement.

They are looking in the wrong place.

Nothing of substance is happening in the nation's capital, as mediator George Cohen admitted Thursday after the sides announced they would suspend discussions for a few days. Still, so many people have been preoccupied with Washington that they may have missed what was happening a time zone to the west, in Minneapolis, where a much more important dialogue was taking place.

Thursday, in a wood-paneled room on the 14th floor of the U.S. District Courthouse, union representatives reargued their case for blocking the owners' access to $4 billion in television revenues if there's no football in 2011. The union calls it lockout insurance and contends a Special Master erred earlier this month when he ruled the owners were entitled to the monies even if they shut their doors for the entire season.

It's disappointing Thursday's three-hour hearing hasn't gotten more play because it carries more impact than any discussions taking place in Washington. No one knows this better than Judge David Doty, who declined to issue a ruling from the bench because he didn't want to tilt the scales in favor of one side, which is what he believes his ruling will do in the short run. Consider:

The owners have argued that the TV extensions are important because they'll enable teams to manage their debt service during a work stoppage. If Doty were to rule against the league, some owners might have a hard time meeting their financial obligations during a lengthy lockout -- particularly in cities such as New York, Dallas, Indianapolis, Philadelphia and Houston, where there are relatively new stadiums.

Meanwhile, the players would be in a tough spot if Doty ruled against them because, contrary to popular perception, this is not a battle of billionaires versus millionaires. On average only a handful of players on each team make $1 million or more each year. The league knows this -- just as clubs know which of their players are strung out financially and have taken advances on future salaries. With a $4 billion war chest, teams could find it easier to hold out and squeeze players.

"The judge said he understood that he was being asked to put his thumb on the scale of the labor negotiations, because of the perception ... that this would be a disadvantage to the players if the league had access to the money," said Gregg Levy, the NFL's lead litigator Thursday. "That was their argument."

In fact, Jeffrey Kessler, the union's lead attorney, repeatedly drove home his contention that the owners violated terms of the Stipulation & Settlement Agreement -- which serves as the foundation of the current CBA -- by failing to "protect the economic interest of the players" while negotiating the new TV deals. He also hammered the point that the league sought to "inflict economic harm on the players" by securing lockout insurance from the networks.

"Their conduct was intentional in the extreme," Kessler argued. "It was carefully planned and executed by the people at the very top."

In his brief that was filed with the court, Kessler painted a picture of a league that willfully sacrificed TV monies in 2009 and 2010 so those dollars could be tacked onto the back ends of the deals and used as lockout insurance in 2011. For instance, DirecTV's previous contract with the league contained no lockout provision. However Chase Carey, former CEO of the company, testified in the Special Master's hearing Feb. 1 that he was told by league management it would be a "deal-breaker" and "clearly a deal we would never do" if the satellite company failed to include lockout provisions in its proposals.

Also in a memo obtained from a league broadcast committee meeting, Cowboys owner Jerry Jones is quoted as saying the owners "need to realistically assume (we are) locking out in 2011" to get a deal that works for the owners.

Kessler further outlined his case in his brief to the court, which Doty unsealed (with redactions) Thursday afternoon. Among Kessler's arguments, taken verbatim:

• Over the summer of 2008, they stated a "key consideration" for the TV Contract negotiations was the "NFL strategic concerns" regarding a "CBA" and a "rationale" for an early DIRECTV extension was "lock(ing) in rights fee with favorable work stoppage provisions as the "solution" for "guaranteed payments in NFL work stoppage."

• In October 2008, they stated that "Key Considerations Related to NFL Labor Situation" included the "NFL's ability to use media revenues to fund work stoppage."

• In February 2009, an NFL memorandum to the owners on Defendants' broadcast, finance and labor committees state, in preparation for an usual joint meeting of these three Committees: "The specific goals under consideration relating to the timing for key decisions include" -- "Securing revenue streams that will provide the necessary financial flexibility to remain committed to the right long-term labor agreement."

• On March 5, 2009, the presentation at the joint meeting of those committees stated that a key factor for Defendants' negotiation decision making was their "Cash Needs During Lockout" and indicated, in their Decision Tree, that the only reason for going forward with the new TV Contracts "Now" was because "Deal Completion Advance(s) CBA Negotiating Dynamics."

The league contends that lockout provisions have always been a part of TV contracts, although that wasn't the case with DirecTV and, according to Kessler, the previous ESPN deal would have subjected the league to millions, if not billions, of dollars in liabilities if there were no football for an entire season. Also, in previous deals the league was required to repay moneys in the same work-stoppage year it received them. Now, the league is permitted to make restitution (with interest) at any point over the life of the agreement.

"Or repay in the form of rights for games," Levy said.

Clearly there is a lot at stake in the Doty ruling. The current CBA expires on March 3, and if Doty, who can rule at any time, issues his judgment before then it could give a tremendous advantage to one side -- even with an appeal from the losing side likely.

So watch the going-nowhere talks in Washington if you will. But the real drama is playing out in a wood-paneled courtroom on the 14th floor of a downtown Minneapolis courthouse. That's where Judge Doty presides.