North Carolina’s Court of Appeals is hearing arguments Thursday into whether the University of Maryland will pay a $52 million exit fee for leaving the Atlantic Coast Conference. A ruling could take several months, and any decision could be appealed to the state Supreme Court.
The ACC sued Maryland in North Carolina, where the conference is headquartered, after the school said in November it is leaving for the Big Ten Conference. The university responded by suing the ACC in Maryland in January, calling the amount an illegal penalty. A Maryland judge has put the school’s lawsuit on hold until North Carolina courts issue a final judgment.
Coming court decisions will set the size of a likely financial settlement as well as help develop ground rules on financial penalties tied to shifting sports allegiances, said Paul Haagen, a Duke University law professor and co-director of the school’s sports law center.
“Exit fees are here. They’re here to stay and they’re here basically to prevent schools from capitalizing on their own short-term self-interest at the expense of the other schools in the conference,” he said.
The $52 million fee is the highest penalty ever assessed on a school for leaving an athletic conference and would be nearly equal to the school’s yearly athletic budget, Maryland’s attorney general’s office said in May. The school’s athletic department last year cut seven sports teams as it struggled with multimillion-dollar annual losses.
Maryland’s ACC departure is scheduled for July.
Maryland’s attorneys argue in court filings that North Carolina courts have no jurisdiction because the school is an arm of the state, and states enjoy sovereign immunity that protects them from lawsuits. The ACC’s lawyers dispute that argument, contending sovereign immunity doesn’t exist across state lines or in contract claims.
These are preliminary issues before courts have to decide the bigger issue whether the exit fee’s size is justifiable, Haagen said.
The ACC’s exit fee was around $12 million to $14 million before September 2011. That’s when the league announced it would add Pittsburgh and Syracuse from the Big East, which led the league to raise the cost to $20 million. The fee was raised again last September with the addition of Notre Dame in all sports except football. The revised fee is equal to three times the conference’s $17 million annual operating budget.
Maryland argues the increased exit payment provision adopted about two months before it announced it is leaving over the votes of Maryland President Wallace Loh and Florida State University is invalid.
If a settlement isn’t reached, the dispute could have a lasting influence by setting a guidepost on how athletic conferences can enforce unity, Duke University’s Haagen said. Courts will have to decide whether the ACC exit provision was set by estimating the damages to other schools when conference members depart, or is an illegal penalty clause, he said. For example, while a home construction contract with a builder can make the builder responsible for hotel bills if the job isn’t done by an expected date, it can’t seek to simply punish the builder with an extreme penalty, Haagen said.
“Here the amounts are very high. Is it really what the ACC and other institutions will lose as a result of losing Maryland in terms of scheduling, planning, damage to the brand?” Haagen said. “Or, is this an attempt to hold them in or punish them for leaving that has nothing to do with the actual harm suffered?