The NBA has moved to dismiss the lawsuit brought forth against the league by Warner Bros. Discovery (WBD) pertaining to a breach of contract surrounding the process of closing its new 11-year media rights agreements. Warner Bros. Discovery, which owns entities that have broadcast league games since 1984, along with the Turner Broadcasting System (TBS) subsidiary argued that the NBA violated a clause in its contract stating that it would be unable to “enter into an agreement or agreements with any third party or parties” without giving TBS a chance to accept it.
The company matched the offer put forth by Amazon; however, the NBA declined the action and alleged that Warner Bros. Discovery rewrote the nature of the matching rights agreement and sought to save billions of dollars. Within the letter sent from the league explaining the rationale, it emphasizes that the Amazon deal has broadcast rights only taking place over Internet distribution, something that the company was said to have “deleted and replaced.” The NBA cites a section of the agreement with Warner Bros. Discovery and the Turner Broadcasting System to back its rationale.
“In the event that an Incumbent Matches a Third Party Offer that provides for the exercise of Game Rights via any specific form of combined audio and video distribution, such Incumbent shall have the right and obligation to exercise such Game Rights only via the specified form of combined audio and video distribution (e.g., if the specified form of combined audio and video distribution is Internet distribution, a Matching Incumbent may not exercise such Game Rights via television distribution) through a distributor reasonably acceptable to NBA.”
Other aspects of the letter contain an outline of several other substantive terms within the Amazon agreement, including the company’s offer to provide financial security through establishing a rights fee escrow account. This security requires the licensee to deposit and maintain three seasons of rights fee payments provided to the NBA on a payment and schedule, consistently staying ahead of the next three fees. Moreover, if Amazon does not maintain a credit rating above investment grade, there is “a termination right in favor of, and a related termination payment to, the NBA.” In an attempt to exercise matching rights, TBS eliminated this arrangement and replaced it with letters of credit with different stipulations.
In its memorandum of law filed with the New York Supreme Court, the NBA avers that the claims brought forth by WBD and TBS “fail at the outset” because the matching rights exhibit did not provide the company a right to match the offer from Amazon. The league argues that TBS does not currently possess rights within the Amazon offer, primarily the ability “to distribute live NBA games on a disaggregated, standalone basis via an SVOD service streamed over the Internet.”
By changing details that had been agreed upon with Amazon, the NBA contends that Warner Bros. Discovery and the Turner Broadcasting System are contractually unable to match. Amazon is reportedly paying the league $1.9 billion per year that will grant it rights to distribute 66 NBA regular-season games on Prime Video each year, a Black Friday game, Emirates NBA Cup quarterfinal and semifinal matchups, the NBA Play-In Tournament and six NBA Conference Finals series.
“TBS chose not to match NBCU’s offer, which would have enabled TBS to continue distributing games via its TNT linear cable network,” the court filing reads. “Instead, TBS purported to match the less expensive Amazon offer but only after revising it to include traditional television distribution rights and making numerous other substantive changes.”
Within the documentation, the NBA outlines the ability of Warner Bros. Discovery to stream NBA games on Max is not covered under its existing nine-year media rights agreement. Instead, the functionality is under the purview of a different agreement between NBA Media Ventures and WBD subsidiary Bleacher Report. Since the Amazon offer is an exclusive streaming deal for live NBA games over the Internet, the league asserted that the Plaintiffs are unable to match the offer and thus should have its claims dismissed.
Furthermore, the league claims that WBD made “substantive revisions” in eight of the 27 sections within the Amazon offer, including revising 22 subsections, changed 11 defined terms, eliminated about 300 words and added more than 270 new words. Later in the lawsuit, the league states that Warner Bros. Discovery cannot sue for rights belonging to the TBS subsidiary since it was not the parent company of TNT at the time the deal was agreed upon.
“Even if TBS had a right to match Amazon’s offer, it did not validly exercise that right,” the filing states. “Far from accepting each term of Amazon’s streaming offer, TBS fundamentally changed the offer’s distribution terms to enable TBS to distribute games on either (or both) the TNT cable television network or the Max streaming service.”
Warner Bros. Discovery recently wrote down the value of its cable television networks through a non-cash goodwill impairment charge of $9.1 billion while continuing to hold approximately $37.3 billion in long-term debt. For the most recent fiscal quarter, the company reported a 6% year-over-year decline in revenue to $9.71 billion, along with an adjusted EBITDA down 16% to $1.8 billion. The media conglomerate is required to respond to the motion set forth by the NBA on or before Sept. 20. From there, the league would need to reply to add further support to its motion before Oct. 2.
