Rams Relocation Litigation Grows More Problematic for NFL

·6 min read

The Los Angeles Rams aren’t returning to St. Louis. But the franchise, which played in the “Gateway to the West” from 1995 to 2015, is a central figure in a lawsuit set for trial in January. If it happens, the trial could require NFL commissioner Roger Goodell and owners to testify as witnesses.

Four years ago, the city and county government of St. Louis, along with the public entity that owns the Dome at America’s Center, sued the league and its 32 franchises, seeking what could amount to more than $1 billion in damages. The three plaintiffs (“St. Louis”) argue that Rams owner Stan Kroenke and his fellow owners committed breach of contract, fraud, tortious interference and unjust enrichment in the relocation. As the case nears a trial, the NFL could be forced to divulge sensitive and confidential materials.

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The St. Louis parties contend they are third-party beneficiaries of the league’s relocation policy. The policy is detailed in the league’s constitution and bylaws, as well as in accompanying materials. Those documents govern the legal relationship between franchises, owners and the league, including on matters related to franchise sales and relocations. A third-party beneficiary isn’t a party to a contract but nonetheless has a protected and enforceable legal interest in the contract being performed.

Like constitutions in other pro leagues, the NFL’s contains specific requirements for a franchise to relocate. Article 4.3 instructs that a principal owner can’t relocate his or her franchise unless at least three-fourths of the other teams’ principal owners approve. That high threshold reflects the league’s interest in geographic stability. A franchise remaining in place helps to cultivate a loyal fan base. It also provides predictability to broadcast partners, apparel manufacturers and other companies with whom the NFL conducts business.

Article 4.3 came under fire in the early 1980s, when Al Davis relocated the Raiders from Oakland to Los Angeles. Davis’ fellow owners rejected the move by a vote of 22 to 0, with five abstentions. The vote paved the way to a multi-year antitrust litigation, with Davis arguing the NFL and owners had unlawfully conspired to block the movement of a franchise to a market that was substantially larger, featured more potential fans and promised greater revenue opportunities. Davis ultimately prevailed. He convinced the U.S. Court of Appeals for the Ninth Circuit that Article 4.3 lacked meaningful benchmarks and objective metrics.

The NFL responded by adopting a relocation policy. The policy clarifies the circumstances when 4.3 ought to be invoked. Among other things, the policy makes clear that owners lack an inherent “entitlement” to relocate, even for greater revenue opportunities. To that end, the policy requires that owners engage in good faith efforts to remain in their current market and operate in a manner designed to maximize fan support. Owners seeking to move must also provide a “statement of reasons,” with details on previous and ongoing negotiations to stay. Further, in voting on a proposed relocation, owners must evaluate several factors, including television contracts and geographic considerations.

St. Louis asserts that Kroenke and the NFL brazenly violated their own rules. The plaintiffs maintain that (1) Kroenke failed to engage in good faith efforts to stay; (2) the NFL intentionally declined to hold the Rams accountable; and (3) St. Louis officials were misled into spending time and money on developing a new stadium complex plan when, contrary to their assurances, Kroenke and league officials had already decided to leave. This process, St. Louis charges, constituted a “sham” intended to “disguise the avarice and anticompetitive nature of the entire proceeding.”

St. Louis contends it has suffered massive economic harm, including through loss of an NFL franchise. St. Louis demands restitution of profits and the imposition of punitive damages. In the complaint, St. Louis describes how the move allegedly “enriched the NFL improperly,” most notably by the $550 million relocation fee the Rams paid. St. Louis charges that “this increase in value was at the expense of plaintiffs” and that “additional profits and gain will be proved in an amount to be determined at trial.”

The NFL and Kroenke fully reject the allegations. They dismiss the claims as factually untrue and distorted readings of legal agreements. The defendants also argue that the dispute shouldn’t be heard in court. As the NFL and Kroenke see it, the quarrel pertains to multiple contracts, including a stadium lease, that contain mandatory arbitration clauses and to which Kroenke is a party. St. Louis, however, notes that the league’s relocation policy itself lacks such a clause. To date, St. Louis has convinced judges that the dispute should remain in court.

Last week, the Missouri Supreme Court declined to stop the trial judge, Christopher McGraugh of the St. Louis Circuit Court, from compelling Kroenke and other defendants to turn over financial records related to the relocation. Those records will likely shed light on (among other things) how proposed relocations are evaluated behind closed doors and how much NFL teams are worth. Per Sportico team valuations, the Rams have a total value of $4.68 billion, making them the third-highest-valued NFL franchise, behind the Dallas Cowboys ($6.92 million) and New England Patriots ($5.35 billion). Kroenke and his wife, Ann Walton Kroenke, are also the principal owners of the Denver Nuggets, Colorado Avalanche, Arsenal F.C. and several other sports and entertainment businesses.

For Kroenke and the NFL, continued litigation risks public disclosure of sensitive materials. The NFLPA, for example, would be interested in knowing more about the wealth of Kroenke and other owners with whom they negotiate division of revenues. Politicians, including those critical of NFL practices, would also find the information useful. In addition, disclosure of emails, texts and other materials could cast a negative light on important figures in the NFL. The same risk would be true of sworn testimony, including during a trial when witnesses face cross-examination.

The jury trial is set for Jan. 10 in St. Louis’ Carnahan Courthouse. The selection of jurors would be key for the NFL, especially since prospective jurors would consist of residents from a community that only a handful of years ago witnessed Kroenke, with league blessing and a 30-2 owners’ vote, transplant their team.

It is, however, still unclear if the trial will in fact happen. The dispute is fundamentally over money, something NFL owners have—in plentiful sums. If the league is worried about potential disclosures and testimony, it would have a greater incentive to negotiate a settlement before a trial occurs. On the other hand, the league doesn’t want to establish a precedent whereby it pays local governments. Meanwhile, St. Louis might see value in a settlement, particularly if it could lead to more favorable relations with a league that might expand again in the coming years.

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