Without Good Faith: Explaining The Critical Ruling Against The NFL

In briefest terms, a federal judge's ruling found that the NFL's curious broadcast contracts for the 2011 season amount to a "war chest" the league improperly obtained specifically for a lockout. But what does this mean for fans, players and owners, and what happens next? Let's try to make a very complicated situation as simple as possible.

What did the judge say?
It has nothing to do with football, and everything to do with contract legalese. U.S. District Judge David Doty ruled that the NFL was not acting with the interests of the players in mind when it renegotiated its current TV contracts, but rather with an eye toward a lockout. That's impermissible, so those TV contracts — and the billions of dollars that come with them — won't keep the owners rolling in dough if there's a prolonged lockout. An important byproduct of the ruling: proof that the league has been planning for this work stoppage for years.

What's the controversy over the contracts?
There is language in the league's deals with the networks and DirecTV that ensures two things: A) money from rights deals will keep flowing to the league, even if there is no football played, and B) much of that money will not have to be repaid quickly, or at all, if there is a lockout.

How much are we talking about here, and why does it matter?
Somewhere in the neighborhood of $4 billion, which would represent the largest piece of the league's assets in the event of a lockout. The owners were counting on this, because if there's no football, their own revenue streams largely dry up, and they have their own debts and obligations to keep up with.

How exactly did the league stockpile that much cash?
In both 2009 and 2010, the league renegotiated its TV contracts to include language specifically addressing a work stoppage. For example, "of the total amount payable [from DirecTV] in the event of a canceled season, 42% of that fee is nonrefundable and the remainder would be credited to the following season." If there's a lockout, the NFL gets to keep 42 percent of its fees from DirecTV, whether there's football or not. This language did not exist prior to the restructuring of contracts.

Isn't that just good business sense?
That's what the NFL argued. Earlier this month, special master Stephen Burbank (essentially an independent arbiter appointed by the terms of the last CBA) ruled that the league acted "in good faith" and "consistent with sound business judgment" when it renegotiated the contracts. The NFL's argument, which Burbank agreed with, was that it acted out of self interest as a single organization.

What about the players?
That's the crux of Doty's ruling yesterday. He ruled that Burbank misinterpreted the "sound business judgment" clause, because the league is bound by the CBA and legal precedents to also have the interests of the NFLPA in mind. In deciding that the league was not acting in good faith when renegotiating the TV deals, those contracts are unenforceable.

How can someone judge "sound business judgment?"
By pointing out that the league left money on the table. In order to get themselves guaranteed money during a lockout, the NFL took less money than it could have had in the years before and after 2011. One example: DirecTV would have paid more in 2009 and 2010 to have the lockout language removed from the contract; the league declined. Another example: In the event of a lockout, the league is willing to extend its existing contracts another year. Since new contracts are typically more lucrative, the league was willing to pass up an entire year of increased revenue to get its 2011 money.

What happens now?
Nothing, yet. There will be another hearing, yet to be scheduled, to decide what to do with the TV contract money. The NFLPA has been arguing it should be placed in escrow until a labor deal is reached. And even before that's decided, the league may appeal the judge's ruling.

What does this mean?
For the players, leverage. The one thing the NFL has always had over them is its stash of money. The owners could hold out much longer than the players in any work stoppage, the league reasoned, and pry more favorable terms out of a workforce eager to get back on the payroll. Now the two sides are on a slightly more even footing. If the league can't get that TV money, it's more likely to come to the bargaining table to work things out sooner. Without taking sides, Doty's ruling lessens the chance of a prolonged lockout.