The NFL and anti-trust law

[Tilted]

The Supreme Court heard oral arguments this morning in the case of American Needle v NFL. At issue: whether the NFL and its teams are a 'single entity' or 'separate entities' for the purpose of applying anti-trust law - more precisely, in what regards or endeavors is it to be treated as a single entity rather than separate entities.

The case very briefly - in 2000 the NFL decided to take bids for an exclusive license to sell NFL hats. Reebok had the winning bid and got an exclusive 10 year license. American Needle, which had previously had a license (not an exclusive one) to sell such things, sued alleging anti-trust violations - essentially, that the NFL teams had conspired to restrain commercial activity by acting in concert to sell licensing rights.

American Needle was unsuccessful in the original court, and then again on appeal to the Circuit Court, but eventually got the Supreme Court to grant cert and hear the issue. That led to the oral arguments this morning, and will eventually lead to a ruling which could have only narrow impact or could have far reaching consequences. It could establish basic rules about how sports leagues can or can't do business, and what kinds of activities expose them to potential anti-trust liability. Some have suggested that the importance of the ruling in this case may extend beyond sports leagues to other kinds of businesses. That's possible I suppose, but I tend to think the business impact outside the sports world will be fairly small. It is, of course, all up to the Justices as to how broad they want the scope of their ruling to be.


Merits brief for petitioner American Needle, Inc.

Merits brief for respondents NFL

Merits brief for respondent Reebok International LTD

 

[Larry Gude]

Is there a question in our future?

 

[4Father]

The Supreme Court heard oral arguments this morning in the case of American Needle v NFL. At issue: whether the NFL and its teams are a 'single entity' or 'separate entities' for the purpose of applying anti-trust law - more precisely, in what regards or endeavors is it to be treated as a single entity rather than separate entities.

The case very briefly - in 2000 the NFL decided to take bids for an exclusive license to sell NFL hats. Reebok had the winning bid and got an exclusive 10 year license. American Needle, which had previously had a license (not an exclusive one) to sell such things, sued alleging anti-trust violations - essentially, that the NFL teams had conspired to restrain commercial activity by acting in concert to sell licensing rights.

American Needle was unsuccessful in the original court, and then again on appeal to the Circuit Court, but eventually got the Supreme Court to grant cert and hear the issue. That led to the oral arguments this morning, and will eventually lead to a ruling which could have only narrow impact or could have far reaching consequences. It could establish basic rules about how sports leagues can or can't do business, and what kinds of activities expose them to potential anti-trust liability. Some have suggested that the importance of the ruling in this case may extend beyond sports leagues to other kinds of businesses. That's possible I suppose, but I tend to think the business impact outside the sports world will be fairly small. It is, of course, all up to the Justices as to how broad they want the scope of their ruling to be.


Merits brief for petitioner American Needle, Inc.

Merits brief for respondents NFL

Merits brief for respondent Reebok International LTD

In case you didn't see it Drew Brees wrote an opinion piece on this that was published by WAPO.

As the starting quarterback for the New Orleans Saints, I am used to competing on the football field, not in a courtroom, and I rarely offer a public opinion on complex legal debates. But in a few days, the Supreme Court will hear oral arguments in American Needle v. NFL, a case that could have a profound impact not only on my sport but on all of American professional athletics. So even as the playoffs are beginning, I feel compelled to venture beyond the gridiron to share my thoughts on what is at stake.

The case involves a multimillion-dollar deal struck in 2000 between the National Football League and Reebok that grants Reebok the exclusive rights to make hats, sweatshirts and other gear with NFL team logos. What does that deal have to do with the ability of my teammates and me to perform our jobs and entertain football fans around the country? Potentially, quite a bit: The gains we fought for and won as players over the years could be lost, while the competition that runs through all aspects of the sport could be undermined.

American Needle is a small manufacturer of hats located in Buffalo Grove, Ill. As a result of the NFL's deal with Reebok, American Needle was excluded from the NFL-branded hat market, so it sued the league and Reebok. American Needle argued that the licensing deal violated antitrust laws because it restricted competition between businesses. The nation's antitrust laws constitute a fundamental part of our economic system and have protected consumers for more than 100 years, providing us with lower prices and fostering innovation.

The NFL originally won the case because the lower courts decided that, when it comes to marketing hats and gear, the 32 teams in the league act like one big company, a "single entity," and such an entity can't illegally conspire with itself to restrain trade. The NFL-Reebok deal is worth a lot of money, and fans pay for it: If you want to show support for your team by buying an official hat, it now costs $10 more than before the exclusive arrangement.

Amazingly, after the NFL won the case, it asked the Supreme Court to dramatically expand the ruling and determine that the teams act as a single entity not only for marketing hats and gear, but for pretty much everything the league does. It was an odd request -- as if I asked an official to review an 80-yard pass of mine that had already been ruled a touchdown. The notion that the teams function as a single entity is absurd; the 32 organizations composing the NFL and the business people who run them compete with unrelenting intensity for players, coaches and, most of all, the loyalty of fans.

I know of this competition because, along with hundreds of other professional football players, I live it every week of the season. I also know about it because in 2006, after five years with the San Diego Chargers, I became a free agent and witnessed firsthand the robust competition among teams for players. Thanks to free agency, I had the opportunity to sign a six-year contract with the New Orleans Saints, and for the past 3 1/2 years, my wife, Brittany, and I have been honored to live in and contribute to the amazingly resilient and welcoming community of New Orleans. We've been privileged to journey with our neighbors on the long road to recovery from the devastation of Hurricane Katrina.

I could choose to sign a contract with the Saints because of a crucial player-led antitrust lawsuit in 1993 that secured players' rights to sell our services as free agents. Until that case, team owners had acted together to control players and keep salaries low, while the popularity of the game and teams' revenues grew exponentially. Today, if the Supreme Court agrees with the NFL's argument that the teams act as a single entity rather than as 32 separate, vigorously competitive and extremely profitable entities, the absence of antitrust scrutiny would enable the owners to exert total control over this multibillion-dollar business.

What might the owners do? They could agree to end or severely restrict free agency, continue to enter into exclusive agreements that will further raise prices on merchandise, lock coaches into salary scales that don't reward them when they're promoted and set higher ticket prices (including preventing teams from competing through ticket discounts). These and other concerns prompted the NFL Players Association -- along with the players associations of Major League Baseball, the National Basketball Association and the National Hockey League -- to file an amicus brief with the Supreme Court last fall, arguing against the notion of the NFL as a single entity.

At the moment, the NFL Players Association and team owners are negotiating over a new collective bargaining agreement, and the threat of a lockout looms over the 2011 season. Historically, players have made significant gains, such as free agency, by challenging the NFL on antitrust grounds. If the Supreme Court rules that the league's 32 organizations constitute a single entity that is exempt from antitrust laws, players will lose this important leverage.

In this postseason, my fellow players and I are encouraged and humbled to see that professional football is thriving in our country, even during the most dire recession in decades. Fans continue to express their passion for their teams by spending their limited resources to show their support. Every week during the season, players compete fiercely on the gridiron, and throughout the year, team owners compete to sign the best players and attract fans' loyalty and dollars.

I hope that the justices of the Supreme Court recognize and ensure the continuance of the intense competition inherent in this game, and in the business behind the game. As readers of The Washington Post know well, NFL teams such as the Dallas Cowboys and the Washington Redskins are by no means a single entity -- just ask Dan Snyder or Jerry Jones.

Drew Brees, the starting quarterback for the New Orleans Saints, serves on the executive committee of the NFL Players Association.

 

[Tilted]

In case you didn't see it Drew Brees wrote an opinion piece on this that was published by WAPO.

I hadn’t seen that, 4Father, thank you.

Drew Brees has always struck me as an intelligent guy, and nothing in that piece changes that impression. This is a rather complicated – or maybe I should say chameleon-like – question. The relationship between NFL teams (and those of other sports leagues) doesn’t really fit into the traditional molds for business relationships, and can’t rightfully be examined in the same, straightforward way that most ‘acting in concert’ situations can (or at least, it shouldn’t be). However, the language one might use to describe the situation sounds all too familiar, and it confounds the issues, tending to lull us into a default position from which we think of it the same way we would most traditional ‘competitive’ situations.

In reality, it’s not so much that NFL teams compete with each other, as it is that their product is their competition with each other. In many ways they are just subsidiaries of the same larger company, even though their legal business structures are not as such. They have to be allowed to act in concert in ways that control and define the nature of their competition with each other, because that is their product. Without coordination and agreement, they have no product. So, they get together and agree that they will abide by certain rules with regard to how many players they can have on the roster, where and when they will play games, how many games they will play, who they will hire to officiate those games, what the in-game rules will be – any many, many other things. They agree amongst themselves to restrain production (e.g. the number of games that a team will play), because the quality and value of their product depends on it. If the teams were free to play whomever they wanted, whenever they wanted, and under whatever rules they wanted, they wouldn't meaningfully have a league. It isn’t that they conspire with regard to the production of their individual products, it’s that their products are a product of their conspiring. Individually they have no product, it is something they produce together – and their ‘acting in concert’ is an intrinsic part of the quality and value of their product, rather than an artificial manipulation there of.

Their competition - as in, business competition - is not amongst themselves but with other entertainment options – other sports leagues, Hollywood, other television content providers, amusement parks, etc.

When you start to extend that to merchandise sales, the notion gets a little cloudier – but relevant nonetheless. The value of a Redskins hat is not intrinsic to the existence of the Washington Redskins – it is intrinsic to the competition between the Redskins and the rest of the NFL teams. If there were no other teams to compete with – just 50 or so guys that dressed up in uniforms and stood on the field on Sunday afternoons – no one would care about the Washington Redskins. If it weren’t for the rivalry with the Cowboys (and others), no one would be a Redskins fan or want to buy a yellow hat with a red R on it. Further, the NFL Redskins brand is a derivation of the NFL brand, and a creation of the NFL AND the Redskins, not just a creation of the latter. In reality, they are still selling the competition between themselves – though more symbolically now, and not as directly. Here too, their real competition is with other potential objects of fan-dom (e.g. the NBA, NASCAR, or even ‘Chevrolet’). Giants fans aren’t generally deciding between a Giants hat and an Eagles hat for Christmas, but they may be deciding between a Giants hat and a Yankees hat. But then again, a yet to be Giants fan may be deciding between them and the Jets. Point being, this isn’t a straightforward issue. As organized competition is intrinsic to the business – to the value of the product – how much should the law prevent them from organizing that competition?

Following from what Brees said – Jerry Jones and Dan Snyder aren’t so much business competitors as they are partners in the business of competing with each other. This isn’t Coke and Pepsi, this is, well, the Cowboys and Redskins.

 

[4Father]

I hadn’t seen that, 4Father, thank you.

Drew Brees has always struck me as an intelligent guy...

Great post, but you have convinced me that I don't know what to think!

 

[Tilted]

Great post, but you have convinced me that I don't know what to think!

Join the club. Currently, it includes myself and many others, to include some Supreme Court Justices - at least, that's the sense I get.

 

[Larry Gude]

Great post, but you have convinced me that I don't know what to think!

It depends on if you are a 'few kings' or a 'many kings' kinda person.

I'd imagine the NFL isn't doing 1 set of books with 32 franchises or divisions. The teams operate as independent business's, totally, and the league is simply their trade and promotional wing, ie, the league works for the teams, not the other way around. I don't think that is arguable, at all.

I'd rather see 32, or more, hat makers, and the teams make their own deals, support local companies. Are the teams gonna let the league sell all their tickets? Hot dogs? Negotiate all the local radio contracts? All player contracts?

This is why this is going to be interesting; it's a messed up situation of monopolistic and free market practices.

 

[4Father]

It depends on if you are a 'few kings' or a 'many kings' kinda person.

I'd imagine the NFL isn't doing 1 set of books with 32 franchises or divisions. The teams operate as independent business's, totally, and the league is simply their trade and promotional wing, ie, the league works for the teams, not the other way around. I don't think that is arguable, at all.

I'd rather see 32, or more, hat makers, and the teams make their own deals, support local companies. Are the teams gonna let the league sell all their tickets? Hot dogs? Negotiate all the local radio contracts? All player contracts?

This is why this is going to be interesting; it's a messed up situation of monopolistic and free market practices.

Good point about the books. That points my thinking into a new direction which is that none of the teams have common ownership. I can't think of a perfect analog, a trade assocation?? In which case the members could not conspire to fix prices etc. On the other hand if you accept the title of "franchise" as meaning the same thing it means in the world of retail business then what the NFL has done is something that is done everyday. The franchisor makes many choices for the franchisees including suppliers and even prices. The only difference I could think of is that in the case of the NFL the franchisees run the franchisor. Which is a pretty neat end around the monopoly laws. Either way I have made no forward progress in my thinking about this case.

I agree with you about the way I would like it to turn out, I would like the league to lose because of the Snyder effect - that is if it negatively effects Dan Snyder I am all for it.

Didn't Jerry Jones get in in hot water by the league a while back for signing a uniform deal with Reebok while some other apparel company had a league wide deal? I'm going to see what I can find out about that case.

 

[4Father]

Didn't Jerry Jones get in in hot water by the league a while back for signing a uniform deal with Reebok while some other apparel company had a league wide deal? I'm going to see what I can find out about that case.

It was 1995 and it was Nike and Pepsi. Here are a couple of articles.

NFL Properties filed a $350 lawsuit against Jones and Jones countered with a $750 million suit. In the end the league backed down because they didn't want the antitrust issue to play out in court.

From the NYT article a quote that to me sounds like evidence of collusion:

"The effect of the recent ambush marketing deals signed by Jerry Jones," said Roger Headrick, chairman of NFL Properties, "has been to undermine existing NFL Properties sponsorships and contracts that were made on behalf of all 30 clubs and to inhibit NFL Properties' future arrangements. Our sponsors and licensees keep asking us whether we are representing all 30 N.F.L. clubs, or just 29 in competition with the Cowboys."

 

[Tilted]

It depends on if you are a 'few kings' or a 'many kings' kinda person.

I'd imagine the NFL isn't doing 1 set of books with 32 franchises or divisions. The teams operate as independent business's, totally, and the league is simply their trade and promotional wing, ie, the league works for the teams, not the other way around. I don't think that is arguable, at all.

I'd rather see 32, or more, hat makers, and the teams make their own deals, support local companies. Are the teams gonna let the league sell all their tickets? Hot dogs? Negotiate all the local radio contracts? All player contracts?

This is why this is going to be interesting; it's a messed up situation of monopolistic and free market practices.

I agree it's interesting, and there really is no clear 'right' answer. While there are a lot of technical legal considerations that derive from more than a century of Sherman Anti-trust jurisprudence, I'll just consider it from a practical, common sense perspective.

Surely the league has to be allowed to act in concert (i.e. without the potential liability that would otherwise attach) with regard to a lot of things. They have to be allowed to collectively make rules about the game, about uniform specs, about hiring officials, about which stadiums to use, and even about TV contracts. They can't be subject to a lawsuit from every sports facility in the nation (for restraining trade) because they act in concert to agree to have the Patriots-Giants game, which will be played on the 8th, played at Gillette Stadium as opposed to somewhere else. They have to be able to agree to that or they can't even have a game (even if the nature of the agreement is just to decide 'Patriots home stadium' instead of 'Giants home stadium').

However, what if the teams all decided to be auto makers, and they still functioned as individual businesses, but they got together to make rules and set prices for all of their auto products? I'd think they would have to be seen as acting in concert in such a situation, and thus opened up to potential liability.

What about the logo-ed apparel business? That's kinda tricky. Let's use the uncommon to reveal something hidden in the common. What about a hat that had a Patriots logo AND a Giants logo on it? Surely, the Patriots and Giants have to be allowed to act in concert to dictate terms for its production and the price they'd receive for it (or a license for it)? If not, how would it get made? The Giants don't have the right to sell the right to use the Patriots logo, and vice versa. So, what about a Super Bowl 42 hat that has both teams' logos on it? For that matter, let's say it has a Super Bowl XLII logo on it, the right to that being owned by the NFL - all of the teams collectively. Surely, they have to be able to act in concert regarding that hat. Well, let's take it one step further - apparel that contains logos from individual teams often has some sort of NFL logo accompanying it, right? That's kinda what it means for it to be an NFL licensed product, no? So, just as the football games (the product) can't exist without the teams acting in concert, the hat (another product) can't exist without the teams acting in concert. Their product is a product of their acting in concert, without which there can be no such product.

Now, with the auto manufacturing hypothetical - would they be selling a team logo, or the collective NFL logo, or would they be selling a car that might just happen to be marketed by those logos? Well, that's a bit different. That product actually can exist - and have real meaning and value - even without the logos. When it comes to the hats, that isn't really true. With the hats, the nature of the product is bound up in the collectivity of the teams.

At the end of the day, the Supreme Court is likely to write something that isn't definitive either way - that allows the teams to avoid liability when acting in concert for some kinds of things (like selling hats), but opens them up to potential liability if they were to act in concert for other kinds of things (like manufacturing cars). The issue is the guidance they will provide for lower courts to use in distinguishing such things - and how much 'cost of adjudicating' that exposes the NFL to whenever someone wants to make anti-trust claims against it.

 

[Larry Gude]

Good point about the books. That points my thinking into a new direction which is that none of the teams have common ownership. I can't think of a perfect analog, a trade assocation?? In which case the members could not conspire to fix prices etc. On the other hand if you accept the title of "franchise" as meaning the same thing it means in the world of retail business then what the NFL has done is something that is done everyday. The franchisor makes many choices for the franchisees including suppliers and even prices. The only difference I could think of is that in the case of the NFL the franchisees run the franchisor. Which is a pretty neat end around the monopoly laws. Either way I have made no forward progress in my thinking about this case.

I agree with you about the way I would like it to turn out, I would like the league to lose because of the Snyder effect - that is if it negatively effects Dan Snyder I am all for it.

Didn't Jerry Jones get in in hot water by the league a while back for signing a uniform deal with Reebok while some other apparel company had a league wide deal? I'm going to see what I can find out about that case.

JJ made a separate deal with Pepsi when the league was with Coke. Or vice versa.

Thing is, aren't all other 'franchises' subject to all the Sherman anti trust laws? Doesn't the NFL live in some nether world?

 

[Tilted]

The Court issued a unanimous ruling in this case this morning. It reversed the lower court's decision and remanded the case for further proceedings. American Needle can challenge the NFL's joint licensing actions under the Sherman Antitrust Act. Justice Stevens wrote the opinion, which I have not read yet.

 

[Larry Gude]

The Court issued a unanimous ruling in this case this morning. It reversed the lower court's decision and remanded the case for further proceedings. American Needle can challenge the NFL's joint licensing actions under the Sherman Antitrust Act. Justice Stevens wrote the opinion, which I have not read yet.

 

[Merlin99]

The Court issued a unanimous ruling in this case this morning. It reversed the lower court's decision and remanded the case for further proceedings. American Needle can challenge the NFL's joint licensing actions under the Sherman Antitrust Act. Justice Stevens wrote the opinion, which I have not read yet.

Wonder if this means baseballs antitrust exemption is going to get tossed as well?

 

[donbarzini]

From skimming the decision it looks like the NFL stepped on their collective johnsons when they allowed the teams to make their own individual merchandising deals for memorabilia. I don't know if MLB does this as well. If they do........holy shiznit.

 

[twinoaks207]

possible anti-trust challenge for a player lockout

(the how I got here in this thread explanation first)

There was an appeal on Facebook from one of my favorite players, advocating "Let us Play Day" (today) and asking fans to go to a website to support a petition against a lockout. Realising that I really didn't know a whole lot about the "lockout" issue, I took to the Internet to do some research and came across this article : NFL vs. NFLPA And A Potential 2011 NFL Lockout - SB Nation Bay Area. If you read down a bit, it discusses the players' option to decertify as a union...

If the league locks out the players, one option available to the players would be to decertify themselves as a union and sue in court under antitrust laws. A month or two ago the NFLPA received permission from the players to take this action if necessary.

So, I thought, surely the peeps at somd are discussing this, searched the site, and voila, here I am in this thread.

My questions:

Do you think this would work? Would the courts rule favorably if it came to that? Do you think the owners would back down if this happened in light of the events discussed in this thread?

Discuss please?

 

[Beta84]

(the how I got here in this thread explanation first)

There was an appeal on Facebook from one of my favorite players, advocating "Let us Play Day" (today) and asking fans to go to a website to support a petition against a lockout. Realising that I really didn't know a whole lot about the "lockout" issue, I took to the Internet to do some research and came across this article : NFL vs. NFLPA And A Potential 2011 NFL Lockout - SB Nation Bay Area. If you read down a bit, it discusses the players' option to decertify as a union...



So, I thought, surely the peeps at somd are discussing this, searched the site, and voila, here I am in this thread.

My questions:

Do you think this would work? Would the courts rule favorably if it came to that? Do you think the owners would back down if this happened in light of the events discussed in this thread?

Discuss please?

This season the players all voted and as far as I heard they unanimously voted to allow the Players Association to decertify if needed. They did this one other time that I heard of...I think it was back in 1993 when they won the right to be free agents. So yes, I think it is a viable option for them that has a good possibility of working.

There are a few issues at hand. They want to cut out 2 preseason games and make them 2 regular season games instead, which means the starters will be playing more (injury concerns) and the fringe roster players will be on the roster for a shorter period of time (less money for them). With these 2 extra games, the owners are proposing to keep salaries identical, meaning every owner gets an extra home game and the money involved and its all profit.

One other issue is rookie salaries. They are trying to get rid of the ridiculous rookie salaries, such as the 70-80+mil contract for the 1st pick in the draft who could be the next Jamarcus Russell and be complete crap. They're trying to put a cap on the salaries, like how the NBA handles it. Then once they reach a certain length of time in the league they are able to renegotiate for a big payday.

IMO the players are right about the 18 game season -- the NFL is being hypocritical. They talk about player safety but want them out there for 2 more games. Injuries always tend to stack up toward the end of the season and this would make it worse. For no extra money, that's ridiculous.

As for the rookie salaries, I think the owners are right. The players seem to think that the owners should just have better scouts, but no scout is perfect and you're bound to make bad decisions. That pool of money reduced from the rookie contracts would go to PROVEN veterans and I think that's a good thing. Otherwise a kid can have a good year in college, make bank on draft day, then just play as poorly as possible, get cut, and retire with millions. Not a bad idea.

It'll end up being reduced rookie salaries, 18 game schedule, more money for the players. It's inevitable so they just need to get it done.

 

[Tilted]

(the how I got here in this thread explanation first)

There was an appeal on Facebook from one of my favorite players, advocating "Let us Play Day" (today) and asking fans to go to a website to support a petition against a lockout. Realising that I really didn't know a whole lot about the "lockout" issue, I took to the Internet to do some research and came across this article : NFL vs. NFLPA And A Potential 2011 NFL Lockout - SB Nation Bay Area. If you read down a bit, it discusses the players' option to decertify as a union...



So, I thought, surely the peeps at somd are discussing this, searched the site, and voila, here I am in this thread.

My questions:

Do you think this would work? Would the courts rule favorably if it came to that? Do you think the owners would back down if this happened in light of the events discussed in this thread?

Discuss please?

It's an interesting question, but I don't know enough about the situation to meaningfully speak to it.

The first curiosity the notion sparks in me is: What would the disadvantages be for the players in de-certifying, and how would that affect a player's union going forward? The second curiosity is: Would they lose a lot of the employment terms and conditions that the owner's had previously agreed to, and which underlie all of the existing individual contracts? It seems that could be a little messy, but I may be missing a lot.

 

[Tilted]

Reason.tv: The NFL 2011 Lockout Labor Mess - Hit & Run : Reason Magazine

 

[Tilted]

NFL Loses Major Leverage Issue Over Players