A shareholder has filed a lawsuit against Warner Bros. Discovery, the former home of the NBA, for violating securities law by misleading investors about the impact of losing its long-term rights deal with the league.
Richard Collura filed the lawsuit in federal court in New York seeking class action status on behalf of shareholders who purchased WBD stock between February 23 and August 7 of 2024, which is when the media giant took a massive $9.1 billion writedown in Its network segment related to the loss of the NBA on TNT, she said.
As linear TV declined, Paramount also took a major writedown in the same quarter.
Under its current 2014 deal with the NBA, TNT has paid an average annual fee of $1.2 billion. In 2024, the NBA is in advanced discussions with its various partners regarding a new round of media rights deals that could last approximately a decade. WBD was unable to reach a new agreement with the NBA before its exclusive negotiating period expired in April 2024, which allowed the NBA to negotiate with other companies over the content of its sports rights, including, among others, NBC, which offered to pay Average annual fee. worth $2.5 billion, and Amazon, which has offered to pay an average annual fee of $1.8 billion.
The lawsuit alleges that the defendants, who also include WBD CEO David Zaslav and CFO Gunnar Wiedenfels, “made materially false and misleading statements regarding the company's business, operations, and future prospects” during the specified period and “failed to disclose that WBD's sports rights negotiations with… The NBA is causing, or is likely to cause, the company to significantly reevaluate its business and goodwill.
Essentially, it says the WBD defendants routinely “overstated WBD's overall business and financial prospects” — such as Zaslav's statement on the first-quarter call that WBD is “now on solid footing with a clear path for growth” and that the company is confident ” Ability to drive sustainable operational momentum and enhance shareholder value.
WBD's stock price fell 69 cents, or about 6%, to close at $7.02 per share. It has risen again since then, closing Tuesday at $10.11. Bigger picture, shares have fallen sharply since Discovery acquired WarnerMedia.
“As a result of Defendants’ wrongful acts and omissions, and the sharp decline in the market value of the Company’s securities, Plaintiff and other Class Members suffered significant losses and damages.”
There were warnings about commercial and sporting rights in the company's 10,000 filings and others, but the lawsuit dismissed them as “generic” form that did not acknowledge actual risks.
WBD also sued the NBA for awarding its package to Amazon and said in that suit that losing the rights deal would be devastating. (The NBA and WBD later reached a settlement that included putting NBA games on Max in some international markets and a related agreement with ESPN, which also has a bundle, to keep Inside the NBA on the air.)
“During the Class Period, Defendants engaged in a plan, scheme, conspiracy and course of conduct whereby they knowingly or negligently engaged in acts, transactions, practices and courses of action that constituted a fraud and deception upon Plaintiff and other Class Members; made untrue statements of material facts and omitted to state the facts Materialism… [to] “Artificially inflates and maintains the market price of WBD securities,” the lawsuit states.
