Upon Further Review: A Penalty on Maryland Sports, or Reasonable Compensation?

Debates over University of Maryland’s controversial decision to leave the Atlantic Coast Conference for the Big Ten were inflamed once news spread that UMD is now contractually obligated to pay a $52 million “exit fee” to the ACC.  But is it?

Unwillingly to wait for UMD to pay the exit fee, or perhaps sensing that UMD had no intention of doing so, the ACC acted quickly, filing suit against UMD in a North Carolina state court “to ensure the enforcement of this obligation.”  However, the obligation may not be enforceable.

A contract may provide for liquidated damages so long as the amount of damages is a reasonable measure of compensation.  Liquidated damages clauses that provide for unreasonably large sums are frequently interpreted as unenforceable “penalties.”  UMD’s President Wallace Loh believes that the North Carolina court will construe the $52 million exit fee as a penalty, and declare the clause unenforceable.

In today’s climate of college athletics, conferences are constantly acquiring and losing members.  It seems hard to fathom how the ACC would be damaged to the extent of $52 million by the loss of UMD.  Perhaps the best thing going for the ACC in its suit against UMD is the venue.  North Carolina is the heart of ACC country.  Maryland may have trouble overcoming its opponent’s home field advantage.