How Google And YouTube TV Are Impacted By The NFL’s Antitrust Verdict

Summary:

• A class action antitrust suit brought against the NFL for the NFL Sunday Ticket package resulted in a nearly $5 billion judgment against the league that, if upheld, could have massive repercussions.
• At the heart of the case is the arrangement between the NFL and DirecTV over its “Sunday Ticket” Package, which has since shifted over to Google’s YouTube TV.
• The plaintiffs claimed the league broke antitrust laws by selling this package at an inflated price and turning down bids that would have led to cheaper subscriptions and easier access.
• The league believes previous laws in effect given it specific exemptions to antitrust rules, and while the jury sided with the plaintiffs, the judge still may decide to intervene.
• For Google/YouTube TV, they’re stuck in the middle as the deal should remain valid, but if freed (or forced) to make changes to the pricing, it could potentially lose the package.

A few years back when Google/YouTube TV (NASDAQ:NASDAQ:GOOG) won the rights to the “NFL Sunday Ticket” Package it was seen as a major win. After all, this was a powerful bundle that seemed perfectly suited to the company’s business plan and structure – although now investors are wondering if it could turn into a headache.

This week a class action suit brought against the NFL resulted in a nearly $5 billion (yes billion) judgment against the league that if upheld could have massive repercussions. So, what does it really mean to shareholders and what happens next?

First as always, some background.

For the longest time DirecTV held rights to “NFL Sunday Ticket,” which was the complete package of NFL games airing on Sundays. The exclusivity factor was two fold – the only way you could get it was to have DirecTV, which meant you were forced into having a satellite subscription. So not only did you have to use DirecTV as your TV provider, you had to get their equipment which based on your location was not always an option.

Oh, and it cost around $300 on top of your monthly fee and installation.

It was not the easiest package to get, and from the mid-90s until a few years ago it was really your only option to see all the games.

This would eventually lead to a lawsuit that encompassed over 2 million home subscribers and 48,000 businesses that paid for the package between 2011 and 2022 (when the package shifted to YouTube TV). The gist was these plaintiffs claimed the league broke antitrust laws by selling this package at a highly inflated price… and turning down bids that would have led to cheaper subscriptions (more on that later). They also took it a step further and brought the satellite component into the argument as well – claiming that further restricted the already restrictive package.

The jury sided against the league and came back with a massive amount of damages that they felt would send a message. That message according to their attorney during trial was very (pardon the pun) direct.

“It’s about telling the 32 team owners who collectively own all the big TV rights, the most popular content in the history of TV – that’s what they have. It’s about telling them that even you cannot ignore the antitrust laws. Even you cannot collude to overcharge consumers. Even you can’t hide the truth and think you’re going to get away with it.” – Bill Carmody

Now on the surface you really can’t spin how a roughly $5 billion judgment isn’t a big deal… split between the various teams that’s still roughly $450 million per team. But those 2+ million petitioners shouldn’t be making any plans for that money just yet – we’re a long way from those checks being cut and Google investors don’t necessarily have to be spooked about how it may impact them (at least for now).

Realistically the NFL will appeal this, first to the Ninth Circuit, and if that doesn’t work they would likely elevate it to the Supreme Court. However, it may not even get that far – the judge in the case, Philip Gutierrez, will soon be hearing post-trial motions and its very possible he’ll use his power to take the teeth out of the victory.

Gutierrez had made it clear during the trial he didn’t see this as a viable case, telling the plaintiff’s attorney they “really had nothing” and there was a “disconnect” between their arguments and what they had presented thus far. He also wasn’t buying into some of the connections the plaintiff’s team tried to make to support their argument.

Realistically, Gutierrez is within his rights to reverse course as the defense could claim that no reasonable jury could have reached the verdict given the evidence presented or that the jury misapplied the law… given Gutierrez’s comments at trial that is real possibility. You may also remember Gutierrez dismissed the original suit in 2019 before allowing it to move forward as a class-action so he’s always been very clear about his doubts.

That said, judges do (generally) try to respect the voice of the jurors so he may be reluctant to say “thank you for your service, but your wrong and I’ll take it from here.” We’ll see on July 31 when court re-convenes.

For now, though, the league is staring down a $4.7 billion judgment, and given we don’t know for certain how or if the judge will step in, it does beg serious questions that shareholders, specifically tied to Google, may have to take into account down the road.

This package was a massive win for the company and that naturally came at a massive cost. You’ll also recall, Amazon (AMZN) and Apple (AAPL) were both at one time tied to the negotiations for the “Sunday Ticket” package with Apple being heavily favored for a while.

Remember that “cheaper bundle” accusation I mentioned earlier, here’s how it came into play. Apple reportedly wanted to do for the NFL what it did for Major League Soccer (MLS) and create a digital hub where fans had unfettered access at a reasonable price… but once it became clear that Apple would be subject to the arcane laws around pricing that would be grandfathered into any deal, they dropped out.

The plaintiffs here seized on that because the reason why those restrictions are in place is to not step on the deals the NFL made with the broadcast networks for their packages. The NFL and its broadcast partners felt compelled to take steps to ensure the “Sunday Ticket” license holder had less control over the price charged. The fear was that if the license holder made it cheaper the value of the other deals would go down – because instead of watching on their networks, fans would watch on “Sunday Ticket.”

Now on paper you can see why the plaintiffs believe they had a case as that can be construed as collusion. However, the NFL countered that with the Sports Broadcasting Act (SBA) ruling that exempts pro sports (football, basketball, hockey and baseball – the big 4) from antitrust scrutiny when it comes to negotiating those network deals for free/over-the-air games. While the SBA does not cover “Sunday Ticket” specifically, the league believes the package is part of a broader TV arrangement that covers off on those same type of games.

For Google/YouTube TV, the companies are really stuck in the middle. On one hand the verdict should not impact their contract as it’s believed the league can continue to offer this type of “pool” package as long as they don’t engage in price fixing with the distributor. Yet should that happen and fans could buy a one-team package (as you can with other sports) then it upends things. At that point all the other deal’s values are potentially impacted.

So basically, YouTube TV is perceived to have a concrete contract so long as the rules remain the same… but if they’re freed up to adjust the rules and offer more variety to please more customers and possibly pull in extra revenue, it could open the door to more litigation which could cost them the package.

Rock meet hard place.

And if the judgment is allowed to withstand then it could pave the way for more litigation to force those changes to “Sunday Ticket” making things even more dicey for Google/YouTube TV.

Investors at this point have no real option here but to just wait and watch how this unfolds because we really are in uncharted territory. This battle has brewing for a while – long before the technology was even there to make it into a real issue. Yet now here we are where at the center of things is a brand who’s content literally made up 90% of the list of most-watched shows on TV last year.

The stakes are high and so are the number of parties with a vested financial interest.

Grab your popcorn because these proceedings are likely going into overtime.

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