A lawsuit filed by Warner Bros. Discovery investors in the Southern District of New York alleges that the company misled shareholders about its ability to retain NBA broadcast rights via the matching provision in its old deal. Now, WBD and its CEO David Zaslav have filed a memorandum in support of dismissing the case, claiming that investors should have known the risks the company faced in employing its matching clause.
According to a report by Michael McCann in Sportico, WBD is citing the extensive media coverage surrounding its media rights negotiations with the NBA as evidence that investors should have been keenly aware there was a risk its networks would not retain broadcast rights for NBA games, despite Zaslav publicly acknowledging the matching clause in WBD’s contract.
Last year, the NBA reached media rights agreements with Comcast-owned NBCUniversal and Amazon, leaving incumbent partner WBD as the odd-man out. In response, WBD attempted to exercise its matching rights against Amazon’s package. The NBA then claimed that WBD could not match Amazon’s package because the terms of its purported “match” fundamentally altered terms of the deal.
WBD then sued the NBA in a move that most experts believed at the time was designed to force a settlement, rather than suing as an earnest attempt to retain NBA rights. The sides would then settle a short four months later, with WBD retaining some ancillary NBA content like highlight rights for its digital platforms, and some rights in international markets.
The plaintiffs in the case are claiming fraud based on suggestions by WBD executives that the company would be able to retain NBA rights no matter what due to the back-end rights present in their contract. In the memorandum urging a dismissal, WBD claims “the speculation about whether WBD could effectively exercise those rights was also widely discussed in the media,” suggesting that investors should have known the limitations of the clause, or at the very least known there was a possibility the company would lose NBA rights in spite of its existence.
“WBD was engaged in tough negotiations with the NBA and hoped it would secure the NBA rights, but, ultimately, the NBA chose competing offers,” the filing read.
No doubt, WBD’s negotiations with the NBA actively impacted its stock price as investors worried losing the league would adversely impact the company’s ability to maintain its current level of carriage fees and support a lucrative advertising business. However, to WBD’s point, these negotiations were widely covered in the media, and many industry observers were quick to point out the potential shortfalls in WBD’s matching clause.
It’s certainly ironic that WBD is citing those very reports as a defense in an ongoing lawsuit considering, at the time, the company would’ve likely dismissed any suggestion its matching rights could be circumvented. That irony is, frankly, a key pillar in the plaintiff’s argument.
Whether that will hold up in a court of law seems less likely, though this will be one to monitor should it advance further in the legal process.