Media and entertainment giant Warner Bros. Discovery (WBD) is being sued by investors, who have accused the broadcaster of mischaracterising the financial effect that losing domestic NBA basketball rights would have.
WBD has been accused of lying to investors about the impact that losing NBA rights – formerly held by WBD’s TNT network – would have on business.
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This relates to WBD having to accept a goodwill impairment charge of $9.1 billion in August, a month after the NBA rejected an offer from WBD that would have seen it match the deal the NBA ended up eventually agreeing with Amazon.
WBD claimed to have exercised the matching clause in its existing NBA contract to compete with Amazon’s $1.8 billion offer, but the league confirmed it had rejected the last-minute bid as it did not match the terms of the retail giant’s proposal.
Following that news, WBD’s stock fell by close to 9% through after-hours trading.
The lawsuit, specifically, alleges that WBD failed to clarify that the loss of NBA rights would have a serious impact on WBD’s business valuation (as shown through the impairment charge) and that WBD financial filings failed to disclose that if the rights were lost, there was a risk of substantial impairment charges. Stated defendants include WBD’s chief executive David Zaslav and chief financial officer Gunnar Wiedenfels.
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By GlobalDataTNT has been a broadcast partner of the NBA since 1988 but failed to reach an agreement for a deal extension with the basketball league in an exclusive negotiating window earlier this year. This was followed by the NBA agreeing a trio of deals in late July for the next cycle – 2025-26 through 2035-36. – with Disney, NBCUniversal, and Amazon Prime Video. These 11-year deals are worth around $76 billion in total.
Eventually, following WBD suing the NBA, a settlement between the two parties was then unveiled earlier this month.
Investors now have to prove that statements the defendants made around underplaying the impact that losing NBA rights would have, were misleading, or that the defendants were acting in reckless disregard of information known to them at the time.
The lawsuit points to comments made by Zaslav in February when he said conversations with the NBA around a renewal were “constructive and productive,” with Wiedenfels adding: “It’s very easy to lose control over sports rights investments … That’s not what we do. We’re going — we know exactly what value we assign and we stay disciplined during our discussions.”
It goes on to say that the impression given by WBD was that its ability to secure broadcasting rights would “not have a material adverse effect on our business, financial condition, or results of operations.”
Following the loss of the NBA rights, Wiedenfels then said – during WBD’s second quarter earnings call in August – that the loss of these rights acted as a “triggering event” for the $9.1 billion goodwill impairment charge.
The lawsuit alleges that any initial warning made by WBD to its investors “was a generic, catch-all provision that was not tailored to WBD’S actual known risks regarding its sports rights negotiations with the NBA.”
In terms of the new WBD-NBA deal, the settlement will give the major media company rights over a significant amount of NBA content domestically and abroad, and the league will avoid a prolonged legal battle in court with its long-time partner.
TNT Sports and its portfolio of brands – including the Bleacher Report and House of Highlights digital – will receive a global license to create, produce, and distribute new and existing NBA content across its platforms.
The agreement includes expanded global content and highlight rights for TNT Sports, Bleacher Report, and House of Highlights, with the ability to produce and distribute NBA content across the WBD portfolio, along with “promotion, sales and creative commitments across both NBA and WBD platforms.”
Separately, WBD has struck a deal with Disney to license its popular Inside the NBA show to the ESPN and ABC networks starting next season.
Additionally, WBD has been granted live NBA game rights in the Nordics (Denmark, Finland, Norway, and Sweden), along with Poland and Latin America (excluding Brazil and Mexico) for the next 11 years.
