Exit fee = liquidated damages.
GOR is not according to article.
I wonder.
Good article I found on this issue.
When the ACC and other conferences increase their exit fees, the general thinking is that it further discourages members from leaving the conference. But, because of how courts analyze the legality of these exit fee provisions, increasing the amount of the fee can actually increase the chances of the exit fee provision being deemed unenforceable. So, instead of discouraging schools from leaving, it can actually embolden them to do so.
In legal terms, conference exit fees are known as liquidated damages. Liquidated damages provisions are commonly added to contracts. They set the amount a party to the contract must pay in the event it breaches the contract. Liquidated damages provisions are useful because they theoretically save the parties the time and expense of litigating the amount of damages caused by the breach.
But, the amount of liquidated damages specified in a contract cannot be randomly selected. Courts will generally only enforce liquidated damages provisions if (1) the anticipated damages in the event of a breach are difficult to ascertain at the time of contracting, and (2) the amount of liquidated damages is a reasonable estimate of the actual damages that would likely be caused by a breach. If a liquidated damages provision does not meet this test it is deemed a penalty and is unenforceable.
Assuming that the ACC’s liquidated damages provision fulfills the first element of the test, it is questionable whether it would meet the second element. The requirement to pay three times the conference’s operating budget does not appear to be related in any way to the actual amount of damages the ACC would suffer if a member withdraws. It just seems like an easy way to ensure that the exit fee continues to grow without having to continually vote on it. This makes it look like a penalty.
And the actual number that results from this provision, $52 million, is not a reasonable estimate of the ACC’s actual damages. For example, Maryland’s departure will not result in the ACC’s tv deal being reduced by $52 million. A good argument can be made that the ACC actually suffered no damage when Maryland left. Maryland’s departure allowed the conference to add Louisville. And the general consensus is that the ACC is now stronger athletically as a result (at least in the two sports that matter for tv revenue purposes, football and men’s basketball).
This is consistent with recent realignment history. Over the past two years the Big 12 lost Nebraska, Colorado, Texas A&M, and Missouri. Yet, after adding TCU and West Virginia, the Big 12 signed the most lucrative tv deal in the conference’s history this year. (The one exception to the no damage upon withdrawal argument would be the Big East. The defections in that conference have definitely hurt the value of its tv rights).
When a liquidated damages provision is determined to be invalid, the party attempting to enforce the provision is allowed to instead seek its actual damages from the breaching party. But, as discussed above, conferences often suffer minimal damage when a member withdraws, either because the member added little value to the conference or because the conference quickly replaces it with a new member of equal value (at least in tv executives’ eyes).
As a result, exit fees often leave conferences in a tough position. They have to be high enough to discourage a member from leaving the conference. But, if they are too high they could be declared an invalid penalty. And, if the exit fees are invalid, the conference would then have to prove its actual damages, which are usually much less than the amount of the exit fee. As a result, exit fee disputes have always settled without a court deciding the validity of the liquidated damages provision.
While grant of rights agreements do have potential issues (sovereign immunity issues being the biggest), they are not subject to a subjective test like liquidated damages provisions. Specifically, a State University would be able to sue claiming the school prevented by GOR are invalid.
