Is the Rams/NFL settlement with the Lou a good deal?
Some local citizens rejoiced this week when learning that St. Louis had finally brought the most powerful sports league in the World and its richest owner “to their knees” by agreeing to pay $790 Million to make amends for its departure from our town.
Others in the Lou were less excited, claiming that this sum was mere chicken feed to Stan Kroenke whose Rams’ team is now purportedly worth $5 Billion – especially when you consider his other massive real estate and sports holdings (the Colorado Avalanche, Denver Nuggets, and Arsenal Football Club) as well as the assets of his spouse, a Walmart heir purportedly worth herself over $9 Billion). Indeed, Jerry Jones – the obnoxious owner of the World’s most valuable sports franchise, the Dallas Cowboys, and Stan’s biggest supporter – once boasted that the $150 Million that St.Louis was prepared to pay to help finance a new stadium wouldn’t even pay for Stan’s lobby at his new $6 Billion stadium in LA (a facility Stan paid for and financed himself without government money after insisting that St. Louis build him, in effect, a new stadium at no cost to him as a condition to staying).
Many in this town view Stan as despicable: an ingrate and a traitor (who was shamefully named after the City’s most beloved sports figure, Stan Musial, and who obtained his interest in the Rams only because of his lifelong association with Missouri). And then there’s that lying thing – repeatedly assuring the public through his top henchman that he had no intention to have the Rams leave St.Louis for LA and that the land he bought there for what is now SoFi Stadium was not even suitable for football. And who can forget his gloating and cruel dissing of St. Louis as he departed for California and the instant additional wealth created by moving to the nations’ second largest market? To these folks, any settlement short of at least $1 Billion dollars (a number pulled out of thin air) and public removal of Kroenke’s balls was a sell-out.
Still other local NFL addicts have complained that the deal didn’t include a promise of another NFL team – as apparently Cleveland secured when their beloved Browns bolted for Baltimore.
But the folks who rail against the settlement do not understand the law and the reality of the situation. This was not an easy legal case. However disgraceful this version of Stan the Man and however dastardly his deeds, there needs to be a viable legal claim to get a remedy. And there has to be damage causally related to such conduct. The mere fact that the City was harmed by the Rams’ departure does not get you there. Nor does the fact that the case was brought in Missouri and the trial was to be held in St.Louis (although that naturally played a huge role in the risk to Kroenke and the NFL and their decision to settle). But even if a St. Louis jury were to have slammed Stan and the League to the tune of billions, the case would have had to withstand legal scrutiny – not only at the Missouri Court of Appeals and Missouri Supreme Court, but possibly even the U.S. Supreme Court. And the legal theories here were hardly slam dunks.
The City’s primary claim was based on the NFL’s Relocation Policy that sets forth various criteria which a Team must satisfy in the eyes of the other owners to move a franchise to another city. No one other than the Team Owners was a part of this agreement, including the City of St.Louis. You typically can’t bring a claim for breach of contract under the law, however blatant the breach is, unless you are a party to the agreement. If, for example, a country club establishes rules for members – such as that tennis players must wear all-whites – a guest visiting would have no “standing” to complain that the club didn’t follow their own pretentious rules. So how is this different?
The law does provide in rare circumstances that a third party who was intended to benefit from a contract can assert a claim, but not one who benefits only incidentally. Did the greedy, self-serving NFL owners really intend to benefit the City of St.Louis and other municipalities with their Relocation Policy? I’m virtually sure they did not.
The NFL established this policy in the wake of a lawsuit brought by former renegade Raiders’ owner Al Davis based on the opposite of the Rams’ situation. Davis wanted to move his team from Oakland to LA and the other owners unanimously opposed that because they already had a team in LA (ironically the Rams) and were concerned it would be bad for them economically to have two teams there (my times have changed) and would lose the loyal financial support of folks in the Bay Area. Davis sued under antitrust law – a particularly effective legal weapon against all sports leagues other than baseball (the only League with an antitrust exemption) because it provides for treble damages (three times actual damages) and attorney fees, and because most of what the pro leagues do is, frankly, anti-competitive. The Raiders won that lawsuit allowing the team to move to LA and recovering damages from the other owners of $34 Million. They even won the Super Bowl that year in LA causing a rather awkward moment for Commissioner Rozelle who had to hand the trophy to the man he despised and who had sued him.
To attempt to forestall or mitigate future similar antitrust lawsuits, the League established the Relocation Policy to attempt to give some facially reasonable and fair criteria that must be met in order to move a franchise. It wasn’t because they really cared about the fans in the City that was losing their team. The NFL and its owners have routinely said nothing when fellow owners have sought to move a team with long-established fan bases to greener pastures (Cleveland to LA, Baltimore to Indy, St.Louis to Phoenix, Cleveland to Baltimore and Houston to Nashville).
So, why would successful billionaire owners agree to hamstring their ability to move their business (and, just as importantly, reduce their leverage to extort cities to give them huge tax breaks and build them new stadiums) by putting a Relocation Policy in place? Because, I submit, they never really intended to follow it (except where it served their interest to do so). And they certainly had no intention to enable third parties to make a claim if they didn’t. Rather, the policy was merely designed to give the appearance that they had reasonable criteria in place to provide cover from any future lawsuits where they might want to prevent a move from taking place. Presumably that might occur in the highly unusual case where the proposed move would be bad financially for other owners (such as moving a team too close to another owner’s market or from a big market like Chicago to a small one like Salt Lake because a wealthy resident of Salt Lake happened to offer the owner billions to do so).
But this legal maneuver came back to haunt the NFL. Thank you Al Davis and over-zealous NFL lawyers! St.Louis’ lawyers smartly seized upon language in this Policy (such as references to the degree of local support as a factor and the team’s good faith obligation to try to obtain suitable facilities in their home territories first) that might suggest that the purpose of the rule was also to protect the cities where they operate and their loyal fan bases. Indeed, that might make logical sense IF the NFL really cared about their fans more than making money (insert loudest laugh you can muster). But I seriously doubt that was their actual intention. Nevertheless, the Missouri trial court held that there was enough language in the Relocation Policy to make a plausible claim that the St. Louis was an intended third party beneficiary of it and, therefore, rejected the Rams and League’s effort to dismiss the case on this theory.
That shouldn’t be interpreted, however, as the end of the matter. The trial judge or one of the many appellate courts where the case would go in the event of a substantial verdict could have easily overturned that preliminary decision, and if that occurred, the City would have received nothing. Indeed, the City of Oakland recently brought a similar “third party beneficiary” claim in their case against the NFL for the Raiders leaving for Las Vegas that was struck down by a federal court (that issue is now on appeal).
The other primary claim was based on fraudulent misrepresentation. There is substantial evidence of this from the Rams and it would be fairly easy to prove in my estimation. In many representation cases there is doubt about what was represented and its meaning – a lot of “he said-she said.” But in this case Rams’ execs were publicly on tape espousing distortions, if not outright lies, about their intentions for the team and the property it purchased in LA at the very time there is evidence showing that is exactly what they were intending to do. Fraud is also a very powerful claim because, if proven, it comes with the prospect for punitive damages. Unlike actual damages that must be based on evidence that supports the specific loss incurred because of such conduct, punitive damages lets the jury decide (and pretty randomly) the amount of money a defendant should pay for its egregious behavior as punishment or to deter future similar bad conduct. And part of the jury’s decision about how much to award is based on the wealth of the defendants – based on the proposition that it may take more money to punish and deter a rich person than a poor one. Thus, the fact the Judge decided that the City had put forth a viable claim for fraud would have enabled the City to present evidence to the jury of the NFL’s and Owners’ massive wealth. (The NFL’s media package alone through 2030 is worth a mind-boggling $111 Billion!)
That said, there still has to be some causal connection between the fraud that was perpetrated and the damage that ensued from it to sustain a claim for actual damages. And there also has to be some linkage between the amount of punitive damages awarded and the actual damages (you generally can’t have billions of punitive damages based on a small amount of actual damages). There is little doubt that the City lost hundreds of millions by the Rams leaving but most of that is in terms of stadium-related costs (bond obligations and maintenance expenses) that were incurred years before the misrepresentations. There are also losses from future taxes on tickets, property, hotel revenues and the like. But in fairness these losses were caused by the team leaving St.Louis, not the representations that were made. And an Arbitrator had previously determined that Rams had the right to break the lease and leave. Specifically, the lease foolishly allowed the Rams to leave in 2015 if the Stadium was not “first-tier”- i.e. among the top 25% (i.e top 8) of all stadiums in the NFL – based on certain criteria. Unfortunately for St. Louis the stadium did not meet this criteria in my mind (having been a PSL holder and a frequent fan at games) on the very day it was signed, much less twenty years later after most teams had built brand new stadiums in the interim!
So what exactly were the damages caused by the Rams’ misrepresentations years after the stadium was already built? People who bought tickets or merchandise after the false representations conceivably would have damages if they could prove they relied upon these statements in attending the game or buying merchandise. But that’s pretty small stuff and not what this case was about – indeed, they brought a separate class action suit (as did PSL holders) that was settled. The only damages sustained by the City and associated with the misrepresentations appears to be costs expended very late in the game attempting to satisfy the Rams’ professed false interest in remaining in St. Louis – things like paying for architectural services and renderings for a possible new stadium and other relatively minor costs in the scheme of things.
The bottom line, in my professional opinion, is this case was a troublesome one from a legal perspective for the City. To those who understandably want a pound of flesh and think that Stan and the League really didn’t pay or suffer much because of this outcome, I tend to disagree. Yes, it would have been more emotionally satisfying to many to require Stan to be in St.Louis in mid January- at the very time that the League’s Super Bowl was going on in his new Stadium, and also to see Roger Goodell and Jerry Jones and other owners forced to testify in public and be cross-examined. And yes, it would have been pretty sweet for many- and more painful to Stan and the League – if the jury had hit them for damages in the billions. But there was no guarantee that a jury pledged to be impartial would do so. I also believe that the recoverable actual damages were likely capped well below $1 Billion and that punitive damages, especially if disproportionate to actual damages, would be harder to sustain on appeal.
So I choose to look at the settlement this way. The relatively small City of St.Louis stood up to some of the richest and most powerful people in the World. The City forced them to defend, spend millions on legal fees, be deposed, turn over extensive documents and private financial information and even fight among themselves over indemnification. The NFL and its owners got the chance to experience the disappointment of losing motion after motion (dismissal, mandatory arbitration, change of venue, effort to avoid having to turn over financial records) and at least worry about the prospect of a jury trial in St. Louis. And they didn’t get to impose their will or get their way as they are used to doing with their greater resources and arsenal of high-end lawyers. Most importantly, they ultimately paid $790,000,000 for a case they repeatedly said was completely baseless and worth nothing.
To put the Rams/NFL settlement amount into some perspective let’s look at a few numbers of interest. The City/County (and its citizens derivatively) paid approximately $280 Million to build the initial stadium for the Rams – approximately $475 Million in today’s dollars, but still far less than the settlement amount. The money the Rams paid to the NFL as a relocation fee when the Rams moved to LA was $550 Million (the lawsuit sought to have this money paid to the City instead under the creative but questionable theory of “unjust enrichment”). And the amount that Stan paid for the Rams was $750 Million.
As an aside, the settlement amount represents over 70% of the $1.1 Billlion annual budget of the City of St. Louis (although naturally by the time the lawyers get their 35% and the County takes its share this amount will be substantially less). Some may point out that the City could have used a lot more money for its school system and to address poverty, housing needs and crime (especially if this money is mismanaged by politicians – I sure hope not), but a party’s desire or need for money is not a factor in deciding what a case is worth or the amount they should settle for. It’s all about the likelihood of success and the risk to the parties.
Just as money is never enough to replace the loss of a loved one due to negligence it is not enough to many in this City to replace the loss of a beloved sports team (and though it has happened to many other cities, no other City has lost an NFL team twice without a replacement). At the end of the day all money can do is attempt to compensate for some of the pain, frustration and anger that many feel and help ensure that those responsible endure some pain of their own. Many wanted Stan to pay a significant price for his statements, actions and behavior. While he obviously will never have to worry where his next meal is coming from, my guess is that a man who loves money more than friendships, loyalty or character, and who apparently can never get enough of it (as evidenced by his move to LA), suffered more than you might think by having to part with this substantial chunk of change. And he will still go to his grave as a pariah to many in his home state.
To those who wanted to get the League’s commitment to give St. Louis another team, that was never a realistic goal. There is nothing in the Relocation Policy or any legal theory that would allow that and the League was never going to agree to it. And even if they did, could we even trust a League that has shown itself time and time again to be a shameless and consummate liar? Can anyone say “concussions?”
So, at least in my view, this $790 Million settlement during Thanksgiving week was one for which citizens in the Lou should be thankful.
