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The NBA filed a comprehensive memo Friday night that urged New York Judge Joel M. Cohen to dismiss the breach of contract lawsuit brought by Warner Bros. Discovery and TBS. The main argument is that the plaintiffs didn’t match Amazon’s offer but instead proposed a new offer.
To advance that claim, the NBA cited a laundry list of instances where TBS changed the terms of Amazon’s offer. One of the most significant changes is how the TBS offer defines a “triggering event,” which refers to a condition where the NBA could terminate the agreement within 10 days of such an occurrence.
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Amazon’s offer defines a triggering event as one that includes its long-term unsecured credit being not rated by both Moody’s and S&P for at least 90 days. Another triggering event is if either Moody’s or S&P no long offers an “acceptable rating.”
TBS proposed an alteration to the latter definition to say “both Moody’s and S&P” have below an acceptable rating, instead of either one. This definition is obviously more favorable to TBS; the NBA sees it as evidence that TBS didn’t actually match Amazon’s offer. TBS did not immediately respond to Sportico‘s request for comment.
“We maintain our position that the NBA’s actions are unjustified, and we strongly believe we have fulfilled our contractual right to match the third-party offer,” a TNT Sports spokesperson said in a statement given Friday. “Not only is it our contractual right, but it is in the best interest of the fans who want to continue to enjoy our industry-leading NBA content with the choice and flexibility we offer them through our widely distributed platforms including TNT and Max. We will file our opposition in the coming weeks.”
The contract language tweak is particularly relevant because Warner Bros. Discovery was just put on watch by S&P Global for a possible credit rating downgrade over the weakness of its linear TV business. The ratings agency affirmed its BBB credit rating but revised its outlook from stable to negative.
“The negative outlook reflects our expectations that WBD’s leverage will remain elevated in 2024 at 4.4x and decline to 3.8x in 2025, which is above our 3.5x threshold for the rating,” S&P said this month.
The NBA’s strong ratings on its leaguewide credit facility and low interest rates are secured by its cash flows from long-term national media deals—$76.9 billion over 11 years under the pacts with ESPN, NBC and Amazon—which represent the biggest source of revenue for the league. If one of those counterparties is no longer deemed to be investment grade, the ratings agencies would likely consider NBA debt as a riskier proposition, triggering higher borrowing costs based on language in the NBA’s credit facility. The league does not want to wait for another credit agency to weigh in before it explores its media options, which is why the original Amazon contract called for a change by S&P or Moody’s.
TBS also revised the penalty in the contract if the NBA needs to terminate the deal. The Amazon pact calls for the online retail giant to pay its license fee for the current year and the “immediately following year.” The NBA would likely need time to secure a new partner, which is behind the clause for the additional season payment. TBS eliminated the following year clause in its contract “match.”
The league says TBS revised eight of 27 sections, altered 11 defined terms, crossed out about 300 words and brought in more than 270 new words. For example, while Amazon defines an authorized service as a “SVOD service” (subscription video on demand, such as Amazon Prime or Netflix) that has been approved by the NBA, TBS’s definition of “authorized Service” removes “SVOD” and instead says “service” approved by the NBA. The NBA views this modification as a significant alteration given that it impacts delivery of content.
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