The NFL as a single entity

If you’re more of a football fan and less of a Supreme Court observer, you might have missed a fairly innocent legal case making its way through the courts about who gets to make the ball caps that bear NFL team logos sold around the country. American Needle used to, but the NFL decided, given its ownership interest in Reebok, that Reebok should make all of them. American Needle sued, alleging that the NFL was violating antitrust laws by excluding it from its licensing plan. American Needle lost in district court and on appeal. The U.S. Circuit Court of Appeals for the Seventh Circuit decided last year that at least as it applies to this case and its licensing business, the NFL was a single entity incapable of conspiring with itself to the disadvantage of a third party. This decision, while certainly reflective of the present state of the licensing business in the league, could have a far-reaching impact on the NFL and all other sports if it’s sustained by the U.S. Supreme Court.

A collection of 32 competitors and the hunt for antitrust immunity

APThroughout the years, sports leagues such as Roger Goodell's NFL have been viewed by the courts as a collection of competitors that work together.

Historically, sports leagues have been deemed by the courts as a collection of competitors -- the individual franchises -- that cooperate. This legal viewpoint almost always puts sports leagues on the wrong side of antitrust laws when they do the normal things a league would do, such as draft players, put limitations on free agency, trade players, set roster size and salary caps. So in order to function, American sports leagues have needed to find antitrust exemptions for the things franchises do in conjunction with each other.

Baseball has a judge-made exception from the Supreme Court since 1922 that has never been overturned. The NFL relies on three primary antitrust exceptions to allow it to do the things it does. It relies on the Statutory Labor Exception to immunize antitrust violations related to player relations. It uses an act of Congress called the Sports Broadcasting Act to allow teams to pool television revenue and sell broadcast rights together. If all else fails, the league will attempt to argue that what it is trying to do will have a pro-competitive effect and its activity should be immunized by a judge-made doctrine called the Rule of Reason approach. Maurice Clarett and Mike Williams both hate another doctrine called the Non-Statutory Labor Exception, but its application is much more limited practically.

Because the NFL is subject to antitrust laws, the NFL Players Association has a far more significant role in the business of football than just being a labor union. It is a symbiotic partner of the league, and since it supplies a big chunk of the league’s antitrust immunity, it has become very powerful. The NFLPA decertified and won its biggest victories against NFL owners not at the bargaining table but in court in the 1990s suing in antitrust.

American Needle case a potential game changer

But if the Supreme Court affirms the Seventh Circuit’s decision in American Needle and applies it broadly across the various businesses the league is in -- selling merchandise, broadcast rights and putting on games are just a few -- it might be the most important sports law decision in decades. A broad holding saying the 32 NFL teams are really a single entity, competing not with each other but against the other sports, would give the league blanket immunity from antitrust lawsuits and greatly diminish the power of the NFLPA. There is some thought that the current Supreme Court already has four clear votes out of its nine members to uphold the Circuit Court’s decision in American Needle. Justices Roberts, Alito, Scalia and Thomas probably line up in favor, meaning that only one more justice would have to sign on to give the NFL a huge win.

In the past, I’ve been quick to point out that deeming the NFL a single entity in all its businesses might have enormous pitfalls and could even hurt franchise values. Can you imagine Al Davis or Jerry Jones taking their control of their franchises being limited by the league lying down? Clearly, the Supreme Court would get the fact that the NFL is a single entity in some areas but not others. Teams certainly compete for players and coaches and facilities.

APRush Limbaugh certainly has generated a lot of buzz around the league recently.

Rush Limbaugh made me change my opinion

Yet the controversy being generated by conversation over Rush Limbaugh’s pursuit of the Rams, which might have been dead on arrival, gives me pause to rethink that initial opinion. Perhaps the NFL is really just a single entity -- maybe not one single business but more like a co-op apartment with diverse members seeking a common outcome, and the competition on the field may only be incidental to a larger cooperation among teams. If the league wasn’t a single entity, why should or would the Giants or the Packers or the 49ers care about who the owner of the Rams is or what his political and social views might be?

I’m not opining on the merits of Limbaugh’s candidacy. I already did that last week. I’m just noting that Limbaugh’s pursuit of the Rams and the firestorm that has ensued has made the NFL’s arguments in the American Needle case -- that it is really one entity, putting it beyond the reach of antitrust investigation for its internal activities -- more credible. Otherwise, nobody would care if someone controversial and unpopular bought a business, least of all owners of the competition. I believe now there is a distinct possibility that the Supreme Court may decide this case with a decision broad enough to change sports for a long time to come.

Already, a who’s who of sports lawyers and leagues have filed “friend of the court” briefs, and while no date has been set for oral arguments, the Court will decide this case during its current term that ends in May 2010.

Comments

Add a Comment