NCAA’s Termination of Westwood One Contract Upheld in Ruling
As the NCAA awaits a historic U.S. Supreme Court ruling in the Alston case, it scored a victory in one against Westwood One Radio Networks. On May 26, the Court of Appeals of Indiana affirmed the denial of an injunction that would have prevented the NCAA from voiding its radio contract. The ruling centered on potential damage to Westwood One’s revenue streams and goodwill, including in its dealings with the NFL, as a result of losing the NCAA contract.
The case stems from Westwood One failing to pay the NCAA after the pandemic-related cancellation of the 2020 men’s basketball tournament. In 2011, when Westwood One and the NCAA signed their deal, the radio network gained the exclusive right to produce and distribute audio broadcasts of NCAA championship events. In exchange, Westwood One agreed to pay the NCAA an annual rights fee in two installments. Failure to pay constituted a material breach. Westwood One didn’t make an installment after the 2020 tournament was canceled, leaving an unpaid balance of more than $2 million. For its part, Westwood One claims it made payments to the NCAA of $4 million in rights fees for March Madness and other events “that never occurred.” The contract’s total value is redacted in court records.
The sports world is propped up by billions in media money, and the cash in those contracts generally isn’t paid until the games are delivered. Over the past 18 months, leagues large and small have had to renegotiate those deals to account for games canceled or postponed due to COVID-19. In many cases, payments were still made in full or pro-rated to account for lost broadcast windows; for others, the unwinding became a more protracted legal battle.
Industry insiders have said a major motivating factor in finding common ground was the fact that most media deals are long-term partnerships. The TV agreements for March Madness, for example, run through 2032, giving both the NCAA and Turner/CBS an incentive to keep that relationship strong. The Westwood One contract, by contract, was set to expire in 2024, possibly providing less incentive for either side to compromise.
The NCAA-Westwood One contract contains a force majeure clause to address potential disruptions to broadcasts for reasons beyond the NCAA’s or Westwood One’s control. Similar to force majeure clauses in other deals, the clause excused performance in the event of “an act of God, inevitable accident, war, terrorist act, national emergency, government action or decree, strike or other labor dispute, fire, riot or civil commotion [and] extreme and unusual inclement weather” or if Westwood One was preempted by “a news event of overwhelming public importance.” The clause also stipulated procedural steps, such as notice requirements, opportunities to cure and duties to mitigate.
The NCAA stresses the clause makes clear Westwood One wasn’t entitled to reduce right fees and payments as a result of a force majeure event. Westwood One firmly disagrees. It reads the contract to say that the limiting language only applies when games are postponed, not canceled without rescheduling.
The NCAA terminated the contract last September. The move led both sides to sue each other for breach, with Westwood One claiming losses “expected to be in the tens of millions of dollars.” Westwood One sought a preliminary injunction that would prevent the NCAA from voiding the contract. Superior Court Judge Heather Welch denied Westwood One’s petition. In an opinion by Chief Judge Cale Bradford, the Court of Appeals affirmed Judge Welch’s holding.
Westwood One faced difficult odds. As the judges noted, a preliminary injunction represents an “extraordinary equitable remedy” that should only be granted “in rare instances.” Convincing a court requires, among other things, a finding that irreparable harm would occur in the absence of an injunction. Courts are usually inclined to deny injunctions. The plaintiff can still win their trial later and, usually, secure monetary damages at that time.
Westwood One came up short. Among its arguments was that it would be virtually impossible to calculate real world financial losses. The network pleaded that its broadcasting rights are inextricably connected to advertising, licensing and numerous other elements of their revenue steam. Connected losses, then, can’t be calculated with sufficient accuracy.
The NCAA successfully rebutted this argument by showing that Westwood One closely tracks its financial dealings. The network also quantified its losses and projected revenue from the 2020 tournament’s cancellation, a practice which suggests it is capable of similar analyses with regard to lost advertising and licensing.
As another argument, Westwood One maintained its reputation would be tarnished without an injunction. “The March Madness tournament,” Westwood One explains in a court filing, “is a marquee event in the sporting world…. The loss of the rights as an exclusive audio provider will negatively affect Westwood One’s ability to develop customers overall and will negatively affect its goodwill with existing and potential customers.”
Indiana courts have defined goodwill as “the probability that old customers of the firm will resort to the old place of business where it is well-established [and] well-known.” Westwood One, the judges say, worries about the reaction of the NFL, which has made Westwood One the exclusive home to the league’s playoff games and the Pro Bowl. The NFL might think less of the network if it loses the NCAA.
The judges weren’t persuaded that possible reaction by the NFL carried legal significance. “We agree with the NCAA,” Judge Bradford observed, “that Westwood One has failed to establish that any future damages due to loss of goodwill could not be quantified to a reasonable degree of certainty.” He reasoned that Westwood One has the ability to adequately determine goodwill damages with respect to both the Tournament and “similar losses should it lose a client such as the NFL.”
Westwood One could appeal to the Indiana Supreme Court but would face challenging odds. The case will likely continue until a settlement or trial.
The vast majority of the NCAA’s roughly $1 billion in annual revenue comes from media, and the vast majority of that comes from its men’s basketball TV deal with Turner and CBS. That said, there are a handful of other contracts, including the deal with Westwood One and a wide-ranging TV deal with ESPN that covers more than 20 different NCAA championships, including the women’s basketball tournament and the College World Series.
The canceled 2020 men’s basketball tournament (and the other spring championships, like lacrosse, baseball and softball) cost the NCAA hundreds of millions of dollars. Audited financial statements from the group show that it was paid $867.5 million in TV and marketing fees in 2019 and then just $165.2 million in the same category in 2020, an 81% drop. From the CBS/Turner deal specifically, payment fell from $804 million in 2019 to $113.1 million in 2020.
The financial losses were partially offset by a $270 million insurance payment the NCAA received from the canceled event. It also borrowed $125 million from PNC Bank in May 2020.
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