June 10, 2010 6:49 PM

NFL Labor War Gets Litigious: Dewey and Covington Face Off in TV Dispute

Posted by Brian Baxter

While Covington & Burling might still be smarting from its loss before the Supreme Court in the American Needle case, the firm, longtime outside counsel to the National Football League, now has another big legal battle on its hands. A complaint filed by the NFL Players Association is challenging the league's billion-dollar television contracts.

On Wednesday, the NFLPA released a statement announcing it had filed a complaint before NFL special master Stephen Burbank in Philadelphia challenging the structure of the NFL's television contracts with CBS, FOX, NBC, ESPN, and DirecTV. The complaint comes as both the players union and the league dig in their heels on a new labor contract to distribute revenue.

The NFLPA is accusing the league and the owners of its 32 teams of acting in bad faith by structuring the contracts so that they would receive $4 billion in television revenue while not paying player salaries during the 2011 season (the players could be locked out that year if negotiations continue to stall on a new collective bargaining agreement).

"We've concluded that the recent set of television extensions the league has done, have basically traded revenues now during the agreement in exchange for lockout loans and insurance," says Dewey & LeBoeuf global litigation chair Jeffrey Kessler, longtime outside counsel to the NFLPA. "We think we can show they gave up revenues to get that benefit, because these networks are not making charitable contributions to the NFL."

Kessler (pictured right) says the union's strongest proof so far in support of its claims are the digital rights extended by the league to the networks in 2009-2010. DirecTV sold its NFL Sunday Ticket over the Internet and mobile phones. "Those are significant revenue sources," Kessler says. "In exchange for that the NFL got nothing in 2009 and 2010. We think the reason for it is they got something after the agreement."

The NFLPA essentially views the league's television agreements as a form of lockout insurance through which proceeds from the networks are used to subsidize stadium costs and other operating expenses. In the event of a lockout, Kessler says the union wants the league to put its television money into escrow, rather than splitting it among its 32 franchises to fund the lockout.

The timing of the complaint is no surprise, considering that negotiations on a new labor accord have slowed--"There's not that much progress to report," Kessler adds--and the unanimous Supreme Court decision in the American Needle case that undercut part of the league's aggressive lockout strategy.

Covington litigation chair Gregg Levy, who argued the American Needle case for the NFL and has served as the league's longtime outside counsel, is taking up its defense on the television contract complaint. Levy referred our questions to the NFL, which was quick to criticize the union's complaint as nothing more than its own ploy in labor negotiations.

"The television contracts that the union attacked today were agreed to during the worst economy in our lifetimes," said NFL spokesman Greg Aiello in a statement. "Far from failing to maximize revenue, the contracts grew league revenue to fund higher player salaries and benefits. The union's meritless charges, including many inaccuracies, will be addressed in the proper forum, but they are simply a distraction and do nothing to get us any closer to a new [collective bargaining agreement]."

The league and its lawyers have been expecting such a challenge. NFL general counsel Jeffrey Pash, a former Covington partner, said during the Super Bowl in Miami last February that the league's television contracts are hardly unique.

"The networks aren't going to hand over large amounts of money to us, and if they don't get a product [in return] tell us to go ahead and keep that money," he said. "We will have to give it back to them and take reductions about what we get from them for future years. It is no different than borrowing on a home equity line. You still have to pay it back."

Kessler expects a full evidentiary proceeding and says the union will seek to depose all of the negotiating parties--at the networks and the league--behind the television contracts. The networks should be neutral and cooperate with both sides in the dispute, Kessler says, noting that their contracts remain intact and it's only a matter of where their money goes.

The union already served an extensive document request on the league, according to Kessler, and plans to meet with Burbank next week to set an expedited schedule for the dispute. An evidentiary hearing is set for September. (Click here for a Q&A with Kessler conducted by sibling publication The National Law Journal.)

Kessler says Dewey is now taking the lead on the matter for the NFLPA. The union named former Patton Boggs government investigations and white-collar practice chair DeMaurice Smith as its new executive director last year. Smith, who also used to work at Latham & Watkins, has brought in several former colleagues from both firms to work at the NFLPA.

Sources tell The Am Law Daily that Kessler and his former mentor James Quinn, litigation cochair at Weil, Gotshal & Manges, have been representing the union in labor negotiations along with NFLPA general counsel Richard Berthelsen and Smith. Except for Smith, all are veteran NFL labor negotiators. On the league side, negotiations are being handled by Pash, Levy and Proskauer Rose labor and employment partner L. Robert Batterman, another sports labor veteran.

 

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