November 02, 2009 Proposed Agreement Circulated by MSG Varsity Network, LLC
KEEPING YOU INFORMED…
You may have received a copy of the proposed agreement (the “Agreement”) that has been circulated by MSG Varsity Network LLC (the “Network”) with regard to its recently launched cable television channel on Cablevision devoted to high school sports, events and activities. We have reviewed the Agreement and direct your attention to several issues which must be addressed if you decide to pursue participation in this venture.
1. Participation Period. The term of the Agreement must be either limited to a period of one year or must contain a provision allowing for cancellation without cause on thirty days’ notice. New York courts have held that a contract entered into by a school district with a term greater than the one-year term of its board of education violates the public policy that one board may not bind a successor board in areas relating to governmental matters unless a longer term is expressly provided for by statute. However, in Ramapo Carting Corp. v. Reisman, the Court held that, when there is a provision in a contract permitting a successor board to terminate a multi-year contract at will, the contracting board will not be illegally binding the successor board and the multi-year contract will not be void as against public policy.
2. Participating Schools Obligations. These provisions obligate the district to produce and deliver no less than on average ten “assets” per week. This obviously imposes quite a burden on the district (In addition, “assets” are not defined in the Agreement). In addition to the logistical burdens imposed by this provision, we note the following legal concerns:
a. The district is obligated to promote and publicize the Network’s programming services, which creates a problem since the Commissioner of Education has prohibited schools from publicizing and/or advertising private commercial enterprises. “Boards of Education or their agents shall not enter into written or oral contracts, agreements or arrangements for which the consideration, in whole or part, consists of a promise to permit commercial promotional activity on school premises, provided that nothing in this Part shall be construed as prohibiting commercial sponsorship of school activities.” Therefore, we recommend that these provisions be deleted from the Agreement, including those which require the district to “present to Network opportunities that will promote the awareness for the Network services and programming” and “use reasonable efforts to promote and publicize Network, its programming services and/or its programs in School’s newsletter, website(s) and other communications, and at events conducted by School (including, by displaying Network-provided signage and distributing and/or making available Network-provided literature at such events).”
b. The New York State Constitution prohibits public schools from giving or loaning any “money or property to or in aid of any individual, or private corporation or association, or private undertaking…”. Over four decades, the Commissioner has had occasion to apply this prohibition to various factual situations arising in school buildings. Generally, these cases involve whether an entity should be permitted to use school facilities in furtherance of a commercial activity and whether that activity served a “school purpose.” We suggest that new verbiage be added to the Agreement clarifying that delivering assets to the Network, televising school events and activities by the Network, etc., will serve a school purpose, such as keeping the public informed of such school events, promoting school spirit and student athletics, and teaching students about video and TV production.
3. Consideration to be provided by Network. The proposed Agreement provides for a $1,000 annual stipend payable to the Varsity Advisor, a grant of up to $2,000 to the district and the temporary use of a video camera to be used solely in connection with the production of School content for use by MSG/Cablevision. The stipend raises potential “joint-employer” issues with regard to the Varsity Advisor. The stipend should be eliminated and $1,000 added to the amount of the grant to the School in lieu of the stipend. The grant should be (a) for a specific sum (rather than use the “up to” concept noted above); (b) paid to the School in September, rather than in two installments; and (c) non-refundable.
Finally, the rights the district is being asked to relinquish to the Network (see below) and the obligations required of the district in terms of supplying assets to the Network (described above) may outweigh the proposed school purpose benefits and compensation. You may wish to request that the Network commit greater resources to the district under the Agreement, although this is purely a business decision.
4. Standard Terms and Conditions
a. Grant of Rights. This section gives the Network the exclusive right to exhibit, reproduce and publicly perform or display all sporting events and video content worldwide “in perpetuity” (with the exception of the district’s own website). We suggest that this be amended to provide for joint copyright and ownership of all school produced content, and that the Network be given a limited license to use the assets for school purposes only during the term of the Agreement. This license should be further restricted as follows: the Network cannot alter the school produced content in an inappropriate way and the Network must obtain parental or guardian consent for all students whose individual names or likenesses are used, in accordance with law. Finally, this section of the Agreement also gives the Network the exclusive right to authorize third parties to exhibit any sporting events. Again, this seems to be a lot to give up in exchange for the proposed consideration to be received, as outlined above, and should either be eliminated or a separate “use” fee for third parties should be negotiated.
b. Indemnification. This section should be expanded to cover indemnification for any costs incurred in connection with any willful act, omission or negligence of the indemnifying party in connection with the performance of the Agreement. To further protect the district from risk, we also suggest that the Network be required to maintain insurance policies insuring both it and the district, as additional insured, against any claim brought against the Network in connection with the performance of its responsibilities pursuant to the Agreement.
c. Representations and Warranties. We recommend omitting or substantially revising this section of the Agreement.
d. Miscellaneous. This section contains a 30 day termination clause that can only be exercised by the Network. As discussed above, if this Agreement is for a multi-year term then this provision must be changed so that the district also has the option to terminate without cause on 30 days’ notice.
e. Rights of First Negotiation and Right to Match. This provision provides that during the 90 day period immediately after the expiration of the Agreement, the district must negotiate exclusively with the Network regarding the exhibition rights to any future sporting events and video content, and after the 90 days expire, gives the Network the right to match any offer the district receives. We suggest that this provision be struck from the Agreement.
If you wish to pursue a transaction with MSG/Cablevision, it should only be completed subject to the foregoing revisions and in conformity with applicable law. We will be happy to revise the proposed Agreement for your use after discussion with MSG/Cablevision’s counsel. Please do not hesitate to contact us if you have any questions or require any additional information.
THIS MEMORANDUM IS MEANT TO ASSIST IN GENERAL UNDERSTANDING OF THE PROPOSED AGREEMENT UNDER CURRENT LAW. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.
© Lamb & Barnosky, LLP, 2009
1. See Morin v. Foster, 45 N.Y.2d 287 (1978); Harrison Central School Dist v. Nyquist, 59 A.D.2d 434 (3d Dep’t 1977).
2. 192 A.D.2d 922 (3d Dep’t 1993).
3. 8 NYCRR §23.2
4. Article VIII, §1 of the New York Constitution