Warner Bros. Discovery Made a Major NBA Move

As the NBA’s media rights deal took shape earlier this summer, it became apparent that Warner Bros. Discovery (WBD) was likely to be excluded from the lucrative agreement.

The biggest issue emerged in the form of a clause known as the “poison pill,” which Amazon included in its deal with the league.

Bill Simmons first reported on this clause, which stipulated that Amazon would place its first three years’ worth of payments to the NBA into escrow. Given that WBD indicated its intention to match Amazon’s $1.8 billion portion of the deal—but not NBC’s $2.5 billion bid—many believed the poison pill clause would essentially disqualify WBD from the running.

Despite this, WBD still attempted to match Amazon’s portion of the package after reportedly securing a credit line to manage the poison pill. However, there appears to be more to the story.

With WBD now suing the NBA for rejecting its matching attempt, the league has responded with a motion to dismiss. According to The Athletic’s Mike Vorkunov, the NBA argues that WBD, referred to as “TBS” in legal documents, failed to properly match the value offered by Amazon and tried to significantly alter the poison pill clause.

“Amazon agreed to maintain three years of rights fees in an escrow account for the NBA’s benefit,” the league’s response states, confirming the clause. “When a rights payment becomes due under the agreement, [the contract] ensures that the NBA will automatically receive the full payment from the escrow account on the due date, with Amazon required to replenish the account within five business days of each withdrawal.”

The league’s response further elaborates, saying, “In its purported match, TBS turned this entire structure on its head, eliminating the requirement to deposit rights fees into an escrow account and giving itself, not the NBA, the choice of replacing the escrow requirement with letters of credit. Further, instead of allowing the NBA to receive payment automatically from the escrow account as rights fees become due, TBS’s revisions would only allow the NBA to draw down on the letters of credit—if rights fees ‘are not timely paid.’”

Interpreting the league’s stance, it seems WBD was willing to commit to the first three years of the poison pill term but not beyond that, as Amazon had proposed.

While I’m not a lawyer, it seems WBD could argue that the intent behind the clause was to prevent it from matching Amazon’s offer. On the other hand, the NBA will likely contend that the intent is irrelevant as long as Amazon’s deal offers more value to the league.

Ultimately, this disagreement seems to be heading toward a settlement. Meanwhile, the NBA is moving forward with its media rights deal involving Disney, Comcast, and Amazon, and WBD faces the reality of a future without NBA games on its channels.

Source: The Athletic