Reality: There Are No Barriers To Missouri in SEC

Trust me, Missouri fans, your fan campaign to push the Missouri Tigers in to the SEC has been a complete and total success. Now you've got to keep up the SEC fight for just a couple of more weeks. I told you earlier this week I'd give you an update based on what I'm hearing so here it is: You're still the front-runner to be the SEC's 14th. Even more so than you were a week ago. Indeed, your board of curator meeting on Tuesday just happens to be the day before the SEC athletic directors will be meeting on Wednesday. Coincidence? Maybe. But I doubt it.

Let's dive in and consider the situation that Missouri faces so you guys have better information to combat those who would argue that Missouri's fate is hemmed in by the buyout that would be owed under the Big 12 bylaws, by lawsuit threats, or by other nonexistent issues. Missouri factions that don't want to leave are saying the cost would be $40 million and that a lawsuit would ensue that could cost even more. Please. That's not the case. The actual cost to Missouri for jumping to the SEC would be in the neighborhood of $12 million. And if the school really fought it could end up being nothing at all.

Let's discuss these details so you're armed with actual facts as opposed to propaganda from those who don't want the Tigers to leave.

The Big 12 bylaws are complicated and weak.

OKTC broke down the bylaws for a proposed Texas A&M move to the SEc over a month ago, but now we're going to do the same for Missouri. Here is the relevant portion of the Big 12 bylaws when it comes to a member leaving:

3.1 Membership.

Each Member Institution shall remain a member of the Conference until July 1, 2006 (the “Current Term”) and during any Additional Term (as defined below). Unless a Member Institution gives written notice that it will withdraw from the Conference at the end of the Current Term or the then-current Additional Term to all other Member Institutions and the Conference (a “Notice”) not less than two (2) years before the end of the Current Term or the then-current Additional Term, as the case may be, each Member Institution shall remain a member of the Conference for an additional five-year period after the end of the Current Term or the then-current Additional Term, as the case may be (each, an “Additional Term”) unless such member is a Breaching Member. Each Member Institution agrees that in the event such Member desires to withdraw from the Conference, that it will in good faith give Notice not less than two (2) years before the end of the Current Term or any Additional Term, as the case may be. No Member Institution shall be entitled to distribution of the then-current revenues from the Conference after the effective date of its withdrawal, resignation, or the cessation of its participation in the Conference (the “Effective Date”).
 

3.2 Effect of Giving Notice.

If a Member Institution gives proper Notice pursuant to Section 3.1 (a “Withdrawing Member”), then the Members agree that such withdrawal would cause financial hardship to the remaining Member Institutions of the Conference, and that the financial consequences cannot be measured or estimated with certainty at this time. Therefore, in recognition of the obligations and responsibilities of each Member Institution to all other Member Institutions of the Conference, each Member Institution agrees that the amount of revenue that would have been otherwise distributable to a Withdrawing Member pursuant to Section 2 herein for the final two (2) years of the Current Term or the then current Additional Term, as the case may be, shall be reduced by fifty percent (50%), with the remainder to be distributed to the other Member Institutions who are not Withdrawing Members or Breaching Members (as defined below) as additional Conference revenues in accordance with Section 2 herein. The Member Institutions agree that such reduction in the amount of revenues distributed to a Withdrawing Member is reasonable and shall be in the form of liquidated damages and not be construed as a penalty.
 

3.3 Effect of Withdrawal From Conference Other Than by Giving Proper Notice.

If, other than by giving a proper Notice pursuant to Section 3.1, a Member Institution (a “Breaching Member”) withdraws, resigns, or otherwise ceases to participate as a full Member Institution in full compliance with these Rules, or gives notice or otherwise states its intent to so withdraw, resign, or cease to participate in the future (a “Breach”), then the Member Institutions agree that such Breach would cause financial hardship to the remaining Member Institutions of the Conference, and that the financial consequences cannot be measured or estimated with certainty at this time. Therefore, in recognition of the obligations and responsibilities of each Member Institution to all other Member Institutions of the Conference, each Member Institution agrees that after such Breach, the amount of Conference revenue that would otherwise have been distributed or distributable to the Breaching Member during the two (2) years prior to the end of the Current Term or the then-current Additional Term, as the case may be, shall be reduced by an amount that equals the sum of the aggregate of such revenues times the following percentages (such sum being the “Aggregate Reduction”); if Notice is received less than two years but on or before eighteen months prior to the Effective Date, 70%; if Notice is received less than eighteen months but on or before twelve months prior to the Effective Date, 80%; if Notice is received less than twelve months but on or before six months prior to the Effective Date, 90%; or if Notice is received less than six months prior to the Effective Date, 100%.
 

After such Breach, none of the revenues that otherwise would be distributable to a Breaching Member shall be paid to the Breaching Member until the aggregate amount so withheld (the “Withheld Amounts”) equals the Aggregate Reduction; thereafter, all revenues that would otherwise have been distributable to the Breaching Member shall be so distributed. If the Withheld Amounts are less than the Aggregate Reduction, then the Member Institutions acknowledge and agree that the Conference shall assess such Breaching Member an amount that equals the difference of the Aggregate Reduction less the Withheld Amounts, and the Breaching Member agrees that on or prior to the Effective Date it shall repay to the Conference such amount from revenue that previously had been distributed to such Breaching Member. The Withheld Amounts and any such repayment of the difference of the Aggregate Reduction less the Withheld Amounts shall be distributed to the other Member Institutions who are not Withdrawing Members or Breaching Members as additional Conference revenues in accordance with Section 2 herein. The Member Institutions agree that such reduction in the distribution of revenues to a Breaching Member is reasonable.

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1. The relevant portions of the Big 12 bylaws that will now be discussed are in bold. Let's start with the liquidated damages provision for leaving early.

The worst case scenario for Missouri is damages in the neighborhood of $26.1 million. How do I arrive at this number? This year the Big 12 distributed $145 million to its member institutions. That's around $14.5 million per school. So the way I'm reading this contract  the most the Big 12 could withhold from a member institution is around $14.5 million a year. (This number will grow over the next several years, but not excessively).

That's because Missouri would fall into this portion of the Big 12 bylaws: "if Notice is received less than twelve months but on or before six months prior to the Effective Date, 90%." The rough total that would be owed if the full buyout was to be paid? $26.1 million.

This, by the way, is the same provision of the bylaws that Texas A&M's depature is governed by. So the Aggies have decided that this amount of money is no barrier to departure. So long as Missouri notifies the Big 12 of its departure prior to December 1, 2011, it will fall under the same provision of the bylaws as Texas A&M. That's important because A&M and Missouri would be treated the same.  

2. But Missouri and A&M will probably pay much less than $26.1 million. Why? The precedent already set by Nebraska and Colorado.

Recall that Nebraska and Colorado left the Big 12 last season. Reports were that the two schools would face substantial buyouts. Indeed the Big 12 initially demanded $19.4 million from Nebraska and over $14 million from Colorado.  But then Nebraska paid a settlement of $9.25 million and Colorado paid a settlement of $6.86 million.

What happened?

The Big 12 bylaws came into play.

Look back at the liquidated damages provision of the bylaw for the true ticking time bomb: "each Member Institution agrees that the amount of revenue that would have been otherwise distributable to a Withdrawing Member pursuant to Section 2 herein for the final two (2) years of the Current Term or the then current Additional Term, as the case may be, shall be reduced by fifty percent (50%)."

Okay, that means the payment amount is actually going to come from 2015 and 2016, the final two years of the "Additional Term."

Only, you guessed it, A&M and Missouri would be gone by then so neither school will receive a dime of revenue from the Big 12 in 2015 or 2016.

So if you apply the above language, 90% x 0 = 0.

Uh oh.

Now, I don't think the legal argument would win -- most judges would probably apply the intended liquidated damages clause holding that the purpose of a liquidated damages clause is actually to have a liquidated damages clause -- but it's definitely yet another flaw in a tremendously flawed Big 12. And could a judge be unwilling to give the benefit of the doubt to a huge entity like the Big 12 that made this drafting mistake? Of course. 

This is a flaw that's so gigantic the Big 12 might not want to sue under the contract for fear of losing and providing notice to all members that the exit fee for the next couple of years is $0.

Nebraska chancellor Harvey Perlman said lat year he believed he had a strong argument against giving up any money.

'I'm also cognizant of the risks associated with litigation," Perlman said last year. "What I think is the law may not turn out to be the law. I'm disappointed, as an academic, that my curiosity about the legal claims won't be resolved. But when you look at everything, I think it made sense in this setting to get this behind us and avoid the risks of litigation.'"

Certainly the Big 12 believes this is a litigation risk as well, it's why the league ultimately settled with Nebraska for $9.25 million and with Colorado for $6.86 million.

That settlement represented 47.6% of the payout that both schools would have owed under the bylaws. If A&M and Missouri did the same with its projected $26.1 million that would come to $12.4 million.

That, my friends, is no penalty at all.   

3. The Big 12 lawsuit risk is dead

The SEC admitted Texas A&M without receiving waivers from the remaining Big 12 schools that are still holding out. 

That's an important detail because it confirms what I told you guys a few weeks back: Baylor had no legitimate grounds to file a lawsuit against the SEC. Effectively, the SEC called Baylor's bluff by admitting A&M.

Any potential lawsuit is even more undercut now for two reasons: a. the Big 12 is going to raid another conference to add a member. The conference, therefore, has unclean hands in any lawsuit. How can any member of the Big 12 argue against taking a team from another conference when it is doing the same? and b. Interim commissioner Chuck Neinas made a blockbuster comment that hasn't received much attention. Asked whether the Big 12 would survive without Missouri Neinas said:

“Yes, I think it could be viable because there’s a lot of strength in the conference."

So if the conference is still viable without Missouri, how could there be any damages other than those included in the Big 12 bylaws if a member leaves?

Put simply, Ken Starr's threat of a lawsuit is dead.

4. Missouri's revenue opportunities in the SEC are massive.

That's because an SEC Network in partnership with ESPN is coming.

Texas A&M and Missouri are a big part of the SEC's plans for that network. So are Virginia Tech and N.C. State. But that's in the future. For now, Missouri and Texas are important footprints and markets for the network.

5. So what needs to happen for Missouri to join the SEC?

Just follow Texas A&M's roadmap.

Give your leaders the authority to explore conference options, then divorce from the Big 12, then accept the SEC's offer.

It's as simple as one, two, three. Do that Mizzou, and welcome to the SEC for the 2012 season.  

SEC presidents are thrilled with your academics, you'll fit in well athletically, and the SEC Network is about to make it rain down money.

If Missouri wants to join the SEC, it's barriers to entry are minimal. OKTC told y'all nearly a month ago that Missouri was the SEC's 14th. Now I'm telling you this, it's close to fruition if the Mizzou fans keep up the push to go South.

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If you're interested in FSU, Clemson, Oklahoma, Oklahoma State, Texas Tech, Texas, Georgia Tech, North Carolina, Duke, N.C. State, Maryland, Virginia, Virginia Tech, et al. basically we've talked about how conference realignment impacts all these schools in the below articles. Just scroll through and you'll be entertained and informed. I promise.

Read all of OKTC's conference realignment stories here.

SEC expansion candidates and discussion of why league won't expand in existing markets.  

Why ESPN Is Dead Wrong: FSU and Clemson have no shot at the SEC.

How ESPN is Complicating Texas A&M to SEC

North Carolina and Duke, the SEC's expansion homerun

ESPN's contract issues complicate all realignment

The ACC and Big East battle for conference survival.

Is Arkansas in play for the Big 12? 

Big 12 Bylaws Are Complicated, Weak

Why a 13 Team SEC Schedule Is a Mess

Missouri in play as SEC's 14th

Why Baylor's claims against the SEC have no merit

Big 12 television contracts likely to protect league

Texas A&M and Oklahoma messed with Texas and won

Texas is scared of the SEC 

Syracuse and Pitt to the ACC: what's next?

West Virginia to the SEC makes no sense, won't happen 

The future of the SEC: a 16 team conference with a Final Four 

The Big 12 is more unstable than Ron and Sammi 

Will Missouri fans fight for the SEC?

SEC's Goal in Expanding to 14: A Network 

SEC Network Will Be Partnership With ESPN