NFL Franchise Moves and Controversies Create a Lucrative Playing Field for Big Law
ALM Media
Updated
Logo of the National Football League (NFL). November 8, 2006. Photo: Flickr user hyku via Wikimedia Commons.
With less than two weeks until the 2017 NFL season kicks off, jilted St. Louis is heading to court to make the Rams and NFL bleed dollars for walking out, and there are antitrust rumblings from riled Raiders fans in Oakland, California.
Meanwhile, the league's top running back is suspended for assaulting his former girlfriend and the players union and Commissioner Roger Goodell are at each other's throats and whispers of a looming work stoppage are growing louder.
The start of the 2017 National Football League season may seem like a hot mess to fans especially those in San Diego, St. Louis and Oakland but it looks like another banner year for the attorneys who keep it all legal.
By any measure, 2016 was a boom year for Big Law and the NFL. The biggest driver was the flurry of franchise flipping that saw the Rams return to Los Angeles and the Chargers forsake San Diego, with both slated to play in the $2.6 billion stadium that Rams owner Stan Kroenke is building in Inglewood.
The Raiders are scheduled to head to Las Vegas in 2020. The amount of legal work involved in bringing the Silver and Black to Sin City was extraordinary, in part because the gambling that is that city's lifeblood has historically been anathema to the NFL, which forbids its game officials from setting foot in the city during the season. No fewer than 10 Big Law firms were integral to the effort that is set to shift the capital of Raider Nation.
This week's news that Goodell is near a five-year extension of his contract spotlights the growing divide between players and owners. Many players see him as arbitrary and secretive in his role as self-appointed judge and jury of players' transgressions, and as having presided over disciplinary disasters that included missteps in the cases of Ray Rice, Bountygate, Spygate and Deflategate.
The owners are happy in large part because there's been labor peace after a bitter 2010 lockout and they've made money, gobs of it. When Goodell took over, in 2006, the average value of an NFL franchise was just under $900 million. During the 2016 season it reached 2.34 billion, according to Forbes valuations.
Significantly richer broadcast deals helped and so did maneuvers like the $1.6 billion in relocation fees that the league squeezed out of the teams that were heading for the exit door from their old cities. The Rams and Chargers are each set to pay $465 million, and the Raiders will be expected to pay $368 million to the NFL, due in 10 years.
Those are hefty exit fees. How can a team hope to make up all that money?
The 32 NFL teams could not agree to raise ticket prices under U.S. antitrust law, said Eric Hochstadt, a partner at Weil, Gotshal & Manges. Hochstadt and Jim Quinn are two of the nation's top antitrust lawyers and have been retained by a coalition of Oakland fan groups determined to keep their Raiders.
Quinn, who in January moved to Berg & Androphy with of counsel status after more than 40 years at Weil, was the lead trial lawyer in the 1992 Freeman McNeil case that brought true free agency to the NFL.
So instead the cartel has found a new way to achieve that same illegal end; they all agree that an NFL team can move in return for huge relocation fees. That is the quid pro quo, he said.
How is the team going to do it? By raising ticket prices. This is not going to injure Mark Davis or Stanley Kroenke. They'll make up that money, and this new revenue stream for the NFL teams, which is not shared with the players, will come straight out of consumers' pockets.
The most immediate challenge to the NFL's franchise flipping is the lawsuit brought by the city of St. Louis against the Rams, Rams owner Kroenke, the NFL and all of the other teams, in April. It charges breach of contract, unjust enrichment and separate counts of fraudulent misrepresentation against the Rams and owner Kroenke.
At a basic level it's about holding the NFL responsible for what are perceived as promises to a fan base and to a city, said attorney Garrett Broshuis of Korein Tillery, an adjunct professor at Saint Louis University School of Law. There's some appeal to it, but is it actionable by law?
It won't be an easy case. Breach of contract will require that the city prove it's a third-party beneficiary, and for unjust enrichment, that the NFL benefited at the city's expense for unjust enrichment. For fraud it will have to prove that the statements were false and that the defendants knew the city leaders relied on their statements.
St. Louis' best argument is the money they spent, Broshuis said.
The suit claims the city has lost $100 million in net proceeds. Some of that is fairly straightforward to track or project, like the $17 million spent on a new stadium project that was shelved when the team decided to move and another $10 million in ticket and property taxes. St. Louis' damage claim could climb as high as $1 billion, if the city can back it with proof of other elements of damages. But they might be far harder to prove. For instance, claims related to the valuation of the team, which doubled to $3 billion, as Forbes reported, upon the move to Los Angeles, would appear to be less concrete. St. Louis is arguing that the Rams' added value came at its expense, and is asking for a share of that equity appreciation.
The city also claimed it is entitled to at least a share of the $550 million relocation fee.
The NFL has decided to dispatch its biggest legal gun, Covington & Burling, based in Washington, D.C., to represent 31 of the 32 teams. Covington's legal firepower includes Gregg Levy and John Hall, the lead attorneys on the case. Levy was a finalist in the selection process to choose a successor as NFL commissioner to Paul Tagliabue. Tagliabue, who is also on the team, was at Covington prior to his being named NFL commissioner in 1989, and returned as senior counsel in when he retired from the league.
Levy was part of the legal team that in 1998 successfully defended the NFL in a $130 million antitrust lawsuit brought by the St. Louis Convention and Visitors Commission, which claimed the NFL's anti-competitive policies caused St. Louis to overpay for the Rams in their 1995 move from Anaheim, California. Hall is a familiar face in Missouri politics having served as campaign manager and aide to former U.S. Sens. John Danforth and Christopher Bond.
There are some unusual aspects to the case.
Typically in the NFL, suits involving franchise shifts are brought by owners like the late Al Davis, looking for the freedom to move to a different town. This one is saying that owner never really had the freedom and abused it in any event. And every past lawsuit of the size and scope brought against the NFL has involved an antitrust charge, and this one doesn't. Why not?
Neither of the city's two lead attorneys, Robert Blitz and James R. Dowd, were talking. But one theory is that the city wants to avoid litigating the case in federal court. While the case would still be in Missouri, a federal judge with a lifetime appointment and never have to answer to voters would preside. Also, by keeping it in state court, the jury pool would be more likely to include some frustrated Rams fans.
In the Chargers matter, attorney Mark Fabiani, the right-hand man of Chargers owner Dean Spanos, is calling a lot of the shots for his team.
As an attorney he is known as the Master of Disaster, having represented President Bill Clinton through his impeachment, cyclist Lance Armstrong during the doping scandal and Fox News host Bill O'Reilly during the recent sex scandal at the network.
There are plenty of fans in San Diego who say his handling of the team's exit from San Diego was another disaster, and may be amused by the fact that team is looking at a possible three years at the StubHub Center in Carson, California a venue that holds just 30,000. That capacity accommodates a crowd that can be less than one drawn to some big high school football games in Texas.
A former tax lawyer attorney, Miami Dolphins owner Stephen Ross, was the lone no in the owners' 31-1 vote approving the Raiders' move to Las Vegas. Ross said he thought more could have been done to keep the team in Oakland, which submitted a revised stadium finance plan that the league rejected.
That stadium plan was led by Hall of Fame cornerback Ronnie Lott, who was backed by the Fortress Investment Group. It included a fully-financed new stadium. in the East Bay. That financing however, counted on revenues from tickets sales to pay for a portion of the stadium costs, a method the NFL disfavored.
Had that bid been accepted, it might have given the league its first black owner, which many league observers say is long overdue. After all, 70 percent of NFL players are black. But Lott's group's bid came in very late in the game, when there was a lot of momentum toward the Las Vegas move and a lot of money on the table for the owners.
And that's where we came in on this story, right?
Contact the reporter at tcunningham@alm.com. On Twitter: @toddcnnnghm.
