The NBA has filed a motion to dismiss Warner Bros. Discovery’s lawsuit on Friday in response to the league’s decision to reject its matching rights proposal during the latest round of media rights negotiations and lock in deals with Amazon, Disney and NBCUniversal.

WBD and Turner Broadcasting have alleged that the league breached its agreement with the network and “deliberately refused to honor TBS’ rights, forcing TBS and WBD to seek judicial intervention.” Warner accuses the league of structuring Amazon’s $1.8 billion per year package of games differently for “the sole purpose of attempting to thwart TBS’s matching rights.”

“The NBA has asserted that because Amazon proposed to distribute NBA games on its Prime Video platform, TBS could not match by telecasting the games on TNT and Max … but the NBA is wrong,” Warner’s complaint states. “TBS properly matched the Amazon Offer by agreeing to telecast the games on both TNT and Max.”

In its motion, the league argued that TBS’ matching rights are limited to third party offers related to NBA game distribution rights that the network “currently enjoys” and that it does not cover rights to distribute live NBA games on a “disaggregated, standalone basis via an SVOD service streamed over the Internet.” Instead, TBS’ rights are limited to distributing games as part of a linear cable television network with the rest of its programming.

“Rather than agree to exercise game rights ‘only’ via the ‘specified form’ of distribution in Amazon’s offer—i.e., Internet streaming—TBS purported to give itself the right to distribute games over cable television (and, if it prefers, exclusively over cable television),” the league’s lawyers argued. “If TBS wanted linear TV distribution rights, it could have matched a separate more expensive 3rd-party offer from NBC, but TBS elected not to do so, attempting instead to save billions by combining Amazon’s lower price with the linear television rights granted to NBC.”

While Warner’s complaint notes that individual NBA games are currently streamed on Max, the league argues that the source of those rights comes from an entirely separate agreement between NBA Media Ventures and Bleacher Report which does not contain matching rights.

The league added that the complaint should be dismissed because TBS “plainly failed” to match each term of Amazon’s offer and made “substantiative revisions” to eight of 27 sections of the tech giant’s offer, changed 11 defined terms that are collectively used roughly 100 separate times, struck nearly 300 words, and added over 270 new words, substantially altering the parties’ rights and obligations in the process.

“Controlling New York law forecloses TBS’s attempt to rewrite the terms of Amazon’s offer and then “accept” those rewritten terms,” the NBA said. “Far from accepting each term of Amazon’s offer, TBS’s revisions constituted a counteroffer that the NBA was free to reject.”

The NBA’s filing hones in on four specific items that WBD failed to match.

First, the tech giant’s agreement included three years’ worth of rights payments up front, totaling approximately $5.4 billion to be held in escrow. An individual familiar with WBD’s decision-making previously told TheWrap that the company had secured a letter of credit that would help cover that payment.

“TBS eliminated this protection by giving itself the option to instead provide the NBA with syndicated letters of credit that the NBA can access only if TBS’s payments are late,” the NBA wrote. “That is not even close to the same thing.”

It also eliminated a requirement to deposit rights fees into an escrow account and gave itself the choice of replacing the escrow requirement with letters of credit and would only permit the league to draw down on the letters of credit that would require them to collect from multiple banks if rights fees were not paid on time.

“TBS certainly did not have the right to fundamentally alter the entire structure of these provisions by giving itself the option to substitute syndicated letters of credit in place of the escrow arrangement and by requiring the NBA to wait
until payments “are not timely paid” to access the letters of credit,” it added. “That is a counteroffer, not a match.”

The NBA states that it has the right to terminate its media rights agreements if the licensee parent’s credit rating from either S&P or Moody’s falls below investment investment grade, and that TBS revised the provision in its matching proposal giving the league the termination right if both Moody’s and S&P downgrade WBD’s credit rating. It also struck language that “unilaterally reduced the amount it would be required to pay the NBA in the event of an early termination due to a credit-rating downgrade.”

“To match, TBS was required to accept the offer’s terms as written,” the league said.

A spokesperson for Warner Bros. Discovery did not immediately return TheWrap’s request for comment on the filing.

WBD has previously argued that the ability to telecast NBA games “drives significant viewership and ratings” on TNT – which impacts the price the company can charge to advertisers and downstream distributors that license the network.

It also provides a “halo effect” that is used to promote other content and drive attention and viewership to other TBS and WBD channels, networks and properties, which makes the company “more likely to successfully negotiate rights to telecast other sports leagues’ events and to obtain more favorable terms with TBS’s own  downstream distributors.”

The media giant recently took a $9.1 billion write-down that was triggered in part due to continued softness in the U.S. linear advertising market, and uncertainty related to affiliate and sports rights renewals, including the NBA. 

Without the NBA, WBD could take a $1.55 billion affiliate revenue hit, including $1.3 billion for TBS and $250 million for the company’s other networks, Bank of America analyst Jessica Reif Ehrlich estimated in a research note. The firm also estimated that WBD could lose another $700 million in advertising revenue, bringing the overall revenue impact to $2.25 billion, and anticipates a $700 million EBITDA loss over time. 

Outside of the NBA, Warner has the rights to NASCAR, the NHL, MLB and March Madness college basketball, and it recently acquired the U.S. rights to the French Open tennis tournament starting in 2025. WBD also struck a licensing agreement with ESPN for the College Football Playoff.

WBD shares, which surged over 7% during Friday’s trading session, are down 67% since the April 2022 merger of WarnerMedia and Discovery.

Pamela Chelin contributed to this report

More to come…