Florida State is suing to leave ACC. Here’s how it could help Clemson, too

Last month, Florida State filed a historic lawsuit against the ACC, directly challenging its grant of rights and the steep exit fees required of any school hoping to leave the conference for another amid realignment in the sport.

While the Dec. 22 lawsuit doesn’t exactly deliver on its claim the ACC is violating antitrust law by limiting FSU’s options, it does raise an interesting argument about whether the conference’s massive withdrawal fee, ballparked at $572 million, is enforceable.

And if a court agrees with Florida State on that second claim, it could open the floodgates for other ACC schools — including Clemson, which has one of the league’s most prominent and valuable football brands — to leave the ACC for another conference at a more realistic price.

That’s according to Ashwini Jayaratnam, a New York-based lawyer who specializes in commercial and business litigation and covered the brewing grant of rights drama between Florida State and the ACC in a recent legal analysis piece.

Jayaratnam’s article, “Florida State’s Way Out of ACC? Exit Penalties Could Be Ruled Unenforceable,” is centered around the legitimacy of the conference’s multi-part exit fee — and the possibility of a court determining a large portion of that fee is “disproportionate to the harm actually suffered” by a school such as FSU leaving.

“If they win on that ground, it will be a win not just for FSU,” Jayaratnam told The State in an interview. “It will be a win for every member of the ACC. It’s the same forfeiture provision for all of them. So suddenly, all these members like Clemson could withdraw for far less a price.”

Clemson has made no public actions to indicate it’s on the verge of suing the ACC. The Tigers have been the polar opposite of Florida State when it comes to realignment, preferring to handle their business privately and rarely commenting on the subject. (As such, a spokesperson told The State that Clemson athletics had no comment on FSU’s lawsuit).

But athletic director Graham Neff has made it clear: Faced with a growing revenue gap between the ACC and other conferences — which, among other concerns, could directly affect Clemson’s nationally prominent football team —he’s committed to doing what’s best for the school.

“Couldn’t be more confident and more proud of how Clemson is viewed nationally,” Neff said in November, adding that university leaders will “continue to do what’s best for Clemson and be incredibly well read on all things landscape, network, contacts at all levels.”

“And we have consultants and support that we look to do that with. It’s my job to continue to position us and be connected and be nimble and strategic as it relates to the changing landscape.”

Clemson, naturally, remains one of the top ACC schools in realignment chatter heading into 2024. So in the wake of Florida State’s lawsuit, The State spoke with Jayaratnam, a partner at the law firm DarrowEverett LLP, to get a better idea how the suit could help or hurt the Tigers.

Explaining the grant of rights

Filed three weeks after Florida State’s undefeated football team was left out of the four-team College Football Playoff — the straw that broke the Seminoles’ back — FSU’s 38-page lawsuit lays out seven “counts,” or individual charges, against the ACC.

Florida State’s primary two arguments, according to Jayaratnam, are that the ACC’s grant of rights constitutes an antitrust violation and an “unreasonable restraint of trade,” and that its exit fees are unenforceable because they lack a “reasonable relationship” to the actual monetary damages the conference would incur if FSU were to depart.

Jayaratnam isn’t sold on the first argument.

Back in 2013, FSU, Clemson and the rest of the ACC’s member schools all signed a “grant of rights” intended to keep the conference intact.

The document lays out how member schools “irrevocably and exclusively” grant the ACC their media rights (most importantly, the right to produce/distribute football games) for the entirety of the contract’s term “regardless of whether such Member Institution remains a member of the Conference during the entirety of the Term.”

As Jayaratnam wrote: “This meant that were a member to withdraw from the ACC, it would be forfeiting revenue associated with its media rights for the remainder of years before the Grant of Rights terminated.”

In 2016, FSU, Clemson and the rest of the ACC’s member schools signed a 20-year extension of that grant of rights, which now runs another 12 years through 2036.

ACC schools signed that grant of rights extension as the conference inked a 20-year television deal with ESPN, which, at the time, was considered a strong one. As other conferences renegotiated their own TV deals on shorter contracts, though, a revenue gap emerged.

Sports Business Journal lists the ACC’s 20-year deal with ESPN as being valued at $4.8 billion in total, with an average annual value of $240 million. That’s big money … until you compare to the more recent deals struck by the SEC and Big Ten, two of its rival conferences.

Per SBJ, the Big Ten in 2023 began a seven-year, $8.05 billion deal with Fox, NBC and CBS through 2030 with an average annual value of $1.15 billion, and the SEC in 2024 will start a 10-year, $7.1 billion deal with ESPN through 2034 at an average annual value of $710 million.

The majority of that television revenue gets distributed among member schools, and some projections have ACC schools falling up to $40 million behind SEC and Big Ten schools in terms of conference payouts (read: more spending money) each year.

That’s why the SEC (Texas and Oklahoma) and the Big Ten (Southern Cal, UCLA, Oregon and Washington) have landed marquee additions to their conferences

It’s also why FSU, Clemson and other sports-minded ACC schools are worried about how the growing revenue gap between them and other top programs could affect things like athletics budgets and coaching salaries — and, ultimately, the ability to compete for national championships.

That’s a fair argument, Jayaratnam said, but it doesn’t completely match up with FSU’s claim that the ACC’s grant of rights is an antitrust violation. Federal and state laws surrounding antitrust are intended to protect the public from harm to competition — not to protect an individual person or company’s ability to compete in a space or get out of a poor contract.

“If they win, as I wrote in the article, I don’t think it’ll be on antitrust,” she said. “This is not really a competitive harm to consumers. It’s more like a bad deal for FSU or a deal that became bad. That’s not an antitrust violation or restriction of trade.”

A winning argument

So, what’s the possible winning argument?

Jayaratnam sees more merit in Florida State’s claim that the ACC’s exit fees — projected by the university at $572 million for 2023 — are legally unenforceable.

Here’s how the exit fee, as denoted by the grant of rights extension, would go down for a school attempting to leave the conference, per FSU’s estimations: $429 million in forfeited media rights through 2036 ($33 million times 13 years), $13 million for “unreimbursed broadcast fees” ($1 million times 13 years) and a set ACC withdrawal penalty of $130 million.

FSU, in its lawsuit, essentially alleges this $572 million price tag is more of a scare tactic or attempt to dissuade schools from leaving the ACC, as opposed to a fair calculation of how much monetary damage a school leaving would actually cause the conference.

“The ACC has never undertaken any analysis to determine whether its penalty apparatus in any way approximates the consequences to the ACC of a single member withdrawal,” according to the lawsuit.

This $572 million in fees is a form of liquidated damages, which, as detailed by Cornell Law School, are damages used when “actual damages, though real, are difficult or impossible to prove.” Liquidated damages are a routine addition to contracts between parties and “provide a clear monetary value to compensate the injured party while saving time and resources” on further litigation to determine actual damages, per Cornell.

Jayaratnam sees a lot of validity in that argument.

“Florida, like most states, permits this as long as it has a reasonable relationship to damages,” she said. “Here, they’re saying there’s no way these damages are worth $570 million, which is probably correct, right? And that it’s intended purely here to deter withdrawal — that it’s a penalty.”

She also finds it interesting that the ACC — in a countering lawsuit filed a day before FSU’s lawsuit — did not defend the $572 million exit fee or attempt to explain the decision-making process behind factoring in a school’s media rights for the entire length of the deal into it.

The conference’s primary argument in its filing is that since FSU voluntarily signed the 2013 grant of rights and 2016 grant of rights extension, it’s unable to challenge the document’s validity. That’s not a strong argument, though, according to Jayaratnam, because in every case where a damages amount is being challenged, the parties are acting under the contract.

In other words, the act of signing a deal doesn’t prevent you from challenging it.

And although the ACC could lay out its defense of the exit fee in a future filing, the idea that it’s more of a daunting penalty to prevent schools from leaving instead of a number that bears a “reasonable relationship” to actual damages has some legs, Jayaratnam said.

“It could be that a court says, ‘There’s no way it’s $570 million to leave. That’s forfeiture,’ ” Jayaratnam said. “But the court could say, ‘But it is $130 million,’ which I think (Florida State) would be willing to pay.”

What it means for Clemson

A lot would need to go right for Florida State for such a ruling, right down to where the lawsuit is heard. (It’s unclear whether it’ll be in North Carolina state court, where the ACC filed its suit Dec. 21, or Florida state court, where FSU filed its suit Dec. 22.)

There’s also a scenario in which a court rules in favor of the ACC on all grounds, striking a huge blow to realignment efforts, or Florida State and the ACC reach a private settlement and negotiate on a new exit fee, leaving the grant of rights intact for other ACC schools.

Jayaratnam’s analysis piece, though, presents an intriguing alternative for Clemson and its fans and supporters clamoring for a new conference. In a situation where a state court rules all or some of the ACC’s exit fee — namely, the $472 million or so in forfeited media rights — as unenforceable, that would be beneficial to not only the Seminoles but their ACC colleagues.

Even if a court were to find FSU’s claim that the ACC’s violating antitrust law invalid, a ruling in favor of FSU on its unenforceable damages argument would constitute a “win” for the Seminoles. With that ruling in hand, they’d be able to initiate an exit from the conference at a large but far more manageable price (perhaps solely the set $130 million exit fee).

“FSU has two theories,” Jayaratnam said. “I think one theory will win.”

And if FSU’s challenge of the grant of rights is successful, there wouldn’t be a need for other schools looking to leave the ACC to file their own lawsuit, Jayaratnam said. They could initiate their own exit based on the court’s public ruling in the Florida State case.

“They’re all trying for the same thing,” she said. “If it’s ruled unenforceable as to Florida State, it’s a staircase. Then, all of the schools can benefit. They don’t need to go second.”

That would be an intriguing outcome for Clemson, which, according to Neff, is committed to being “great members” of the ACC while privately exploring all of its realignment options, including a potential move to another conference such as the SEC or Big Ten.

Leaving the ACC would be a massive undertaking in itself. As would securing an invitation from one of those two leagues (a recent Yahoo Sports report indicated the SEC’s a “less likely option” for FSU and Clemson since the conference already has schools and established television in their respective states).

But Jayaratnam still sees a successful FSU lawsuit as a good place to start.

“If it’s unenforceable as to Florida State, it applies to Clemson, too,” she said. “Clemson does not have to bring a lawsuit. So, I guess they’re lucky that one school went first.”