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Wednesday, August 06, 2008
 
Unanimous Jury Upholds ATP's Tournament Restructuring Plan

Yesterday, it was reported that jurors unanimously decided "the ATP did not enter into any contract or conspiracy that might have harmed competition, and that there is no market that it monopolized or attempted to monopolize," when it reorganized its tournament structure whereby top-ranked ATP players would be required to play in each of eight top-tier tournaments, known as the Master Series 1000, and four of 11 tournaments in the second-tier Master Series 500. Earlier this week, Sports Business Journal's Daniel Kaplan reported on the testimony of ATP's expert economic witness, Jonathan Walker, who testified on the stand last Friday that what the ATP stands accused of are the normal functions of a governing body and that the ATP is allowed to make rules regarding where players compete. Walker further said:
“We are talking about rules that are necessary for the ATP Tour to exist. So before we even get to the stage of measuring market shares, we know that we are concerned with conduct that's fundamentally necessary for the product to exist. The end goal of antitrust is what's the impact on consumers, not, say, what is the result on a particular tournament.”
I posted on this case numerous times (questioning the harm to the consumer and advocating for an antitrust exemption) and, needless to say, I think the jury and Walker are right. But my question is whether this case should have even gotten to a jury. While the outcome of this case is obviously a beneficial result for the ATP, as well as the other professional sport governing bodies, third parties should not be permitted to challenge decisions of sport governing bodies that relate to rules that are necessary for their existence. The cost of these lawsuits threatens their existence and it is a waste of judicial resources. But most importantly, the players, through their elected representatives, have input and a vote, which serves as a sufficient check on the authority of these governing bodies to enact rules that serve the interest of the players and the sport as a whole.

In this case, the ATP was essentially required to prove that its new scheduling format was adopted in good faith. There needs to be a legal standard that allows judges to dismiss antitrust challenges to rules that relate to the governing body's core functions and purposes. Examples of such rules include rules regarding tournament/event format, scheduling and location, playoff structure, player rankings and playing conditions. When a third party challenges such a rule, it should be deemed to have been adopted in good faith unless the third party presents "clear and convincing evidence" to a judge that the rule was not made in good faith.

In antitrust law, there is the doctrine of "per se illegal" restraints on trade (like price fixing), in which agreements are deemed to be unreasonable as a matter of law. Recognizing that sports is unique and that restraints on competition are necessary in order for the sport to exist, courts have consistently rejected this doctrine, subjecting the rule to a reasonableness test that weighs the anticompetitive and procompetitive effects. The ATP-Hamburg case demonstrates that perhaps certain rules should not be subject to a rule of reason analysis. My suggestion essentially allows judges to decide that a particular restraint in sports is "per se legal" and therefore reasonable as a matter of law.





11 Comments:

Rick—
Very interesting post. I have a quick question and response. Are you arguing that the internal rules of the ATP should be per se legal under a non-statutory exemption type theory? In other words, the rules should be exempt from antitrust scrutiny because they are the product of an agreement between representatives of the players and the tournaments? Or, are you arguing that they should be per se legal because they are “necessary for their existence”? Assuming it is the latter argument (if it is the former, I also disagree, but I believe that subject has been covered on this blog), how does one make the determination that a rule is “necessary for their existence?”

Many people have argued that the internal rules of a sports league (such as the NFL) should be per se legal under the ancillary restraints doctrine because the rules are necessary for the existence of the league and its teams (and/or because the league is a single entity).

I understand the argument in the context of the NFL—the teams need to agree on a schedule, uniform rules, roster sizes, etc. Many early leagues failed because teams literally could not field teams or opponents failed to show up for scheduled games. But, why do individual tennis tournaments need to agree with each other on these rules? Tournaments have to have their own internal rules (eg, schedule for the individual tournament), but why does a tournament in Florida have to reach an agreement with a tournament in California? Why don’t we want those tournaments competing for players by offering higher prize money, better promotion, etc? Why wouldn’t we want a non-ATP sanctioned tournament to pop up and attract the best players by offering more money than an ATP Masters event?

I understand your argument for judicial efficiency and the desire to shorten (or eliminate) these antitrust trials, but I don’t agree with your premise that tennis tournaments (or any other circuit of events, as opposed to a league) need the ATP’s rules to exist (In fact, some might argue that tennis tournaments are failing because of the ATP). I’m also not convinced that it would be easy or quick to litigate the issue of “necessity,” even accepting your premise.

I think the better framework for analyzing these types of cases is by using the “traditional” rule of reason and examining the competitive effects of the restraints. If, as you argue, there are no real anticompetitive effect in this case (because there is no impact on the consumer), then the case can be disposed of quickly under this traditional framework because the plaintiff has failed to meet its initial burden.

Also, assuming for the sake of argument that we do use the ancillary restraints/necessity test, I think your use of a good faith standard is problematic. First, what does it mean in this context (anticompetitive intent? Lack of bad faith? Reasonable? Honest?). Second, I think it cuts against your judicial efficiency argument by allowing plaintiffs to litigate the issue (though this depends in part on your answer to my first question). Third, if there is no anticompetitive effect, why should good or bad faith matter for purposes of antitrust law?

I don’t necessarily disagree with the result in the Hamburg case, but I’m just not sure that the test you and others have suggested is the right way to analyze the issue.

Gabe Feldman

Anonymous Gabe Feldman -- 8/06/2008 12:29 PM  


Gabe,

Hope all is well. You're funny --I like how you start out by saying "very interesting post," but then proceed to rip it apart :) You raise lots of really good questions, but I have to say that I'm also confused by some of them. This subject is obviously more appropriate for a law review article, but I'll try to briefly address some of what I'm thinking.

Regarding your first paragraph, in this particular post I'm not making the case for an exemption (which, as you note, I have argued in a different post but an exemption is also substantively different than a per se theory). In a non-statutory exemption type theory, rules regarding working conditions wouldn't be subject to any scrutiny whatsoever -- if the player reps. and the tournaments agreed to it, end of story. But under the "per se legal" theory I suggested in this post, if the challenger can bring forth clear and convincing evidence that the rule was not adopted in good faith (which I will address), it would then be subject to a rule of reason analysis by a jury.

The more I study the application of antitrust law to sports, the more I become confused by its application to sports and the more I become skeptical whether a rule of reason analysis even works. I'm not the first to ever say this, but sending these questions to a jury (especially involving a sports-related issue) is a complete crapshoot. You're asking a jury to try and figure out complex antitrust questions that involve (1) defining product and geographic markets, and (2) determining whether there are anticompetitive effects within those markets, assuming we can even explain and/or decide what anticompetitive means from an antitrust standpoint in the context of sports. Having said that, to me the issue is not so much the difficulty in figuring these things out as it is whether certain rules should even be scrutinized. So I'm open to alternative ways to deal with it, and I'm just throwing out some ideas.

You say that you don't necessarily disagree with the result in the Hamburg case, yet you advocate that the ATP should have to spend millions of dollars to get that result. So to me there is a disconnect within the law that permits this to happen. I felt the same way as you when this case was filed, and you and I can say that the Hamburg result is probably the right result without even hearing the factual issues presented in the case. So I'm in favor of trying to articulate a standard that lets a judge make the same conclusion.

And I disagree with you that a case can be disposed of quickly under a rule of reason analysis if the plaintiff is not able to show anticompetitive effects. If you're right, why wasn't that done in the Hamburg case? The reason is because the plaintiff can always meet its initial burden of showing an anticompetitive effect because restraints on competition are necessary in sports -- hence, the reason why courts have rejected the "per se illegal" theory in sports.

I don't agree with your assertion that a judge can't decide whether a particular rule "relates to the governing body's core function and purpose" (which is my proposed standard in italics in the post and I think it's probably a clearer standard than "necessary for their existence"). This is a classic legal question, it's not a factual issue, and judges determine legal issues all the time -- why do you think judges can't and/or shouldn't decide this particular legal question?

I'm also not convinced that there are material differences between a bunch of teams that form an entity, and a bunch of tournaments that form and entity, in producing a particular sport. If anything, I'm more compelled to defer to rules of an entity that also has the player rep. component (like the ATP) than an entity that doesn't (like the NFL). But I'll answer your questions with the same questions: Why do NFL team owners have to reach an agreement among each other as to the location of their games, or how many games are in a season, or what the playoff structure will consist of? Why should they get to decide how many teams there will be, that there are only 16 games all year, and where those games are going to be played? I don't have a problem with it from an antitrust standpoint, but you haven't convinced me why the NFL should be treated differently from the ATP in this regard. Just as the football consumer wants to see as many top players as possible playing against each other in a certain number of games, the tennis consumer wants to see as many top tennis players as possible competing against each other in a limited number of tournaments (perhaps limited because there are only so many games/tournaments the top players in any sport can play in within any given year). So while you point out the factual distinctions between the ATP and the NFL from a scheduling, roster size, etc. standpoint, I remain unconvinced that there is any significant difference between the ATP and the NFL in an antitrust context as it relates to these issues.

Finally, I understand your concern about good faith, and what that means. Good faith is not a standard I just made it up, it's a standard that's used in other areas of the law, such as contract law. But when I read opinions involving restraint on trade allegations in a sports context (whether in the U.S. or Europe), I often get the sense that what we are really talking about is a concept of good faith, yet we try to articulate it using antitrust terminology. That's just my opinion, and I'll look forward to discussing it with you some time.

Blogger Rick Karcher -- 8/06/2008 3:23 PM  


What I don´t understand (maybe I didn´t get the full story), is that it looks like the ATP has the right to change the dates of Hamburg tournament... when they are not the organizers! Is this right?

What if Hamburg decides to organize the tournament in other dates, and the top players decide to play in Hamburg instead of going to Madrid, even if they risk sanctions from ATP?

I understand that there is no anti-trust law, because other organizations, different than ATP have the right to organize their competition... but even to the point of forcing the dates of tournament organisers???

Anonymous Daniel -- 8/06/2008 5:11 PM  


Rick--

Very interesting response. A few brief points. I'll save the rest for the next sports law conference.

In your second paragraph, you wrote that “third parties should not be permitted to challenge decisions of sport governing bodies that relate to rules that are necessary for their existence.” That standard is the modern formulation of the ancillary restraints test as used in BMI, etc., and is what I assumed (apparently incorrectly) was the test you were suggesting. I’m not sure I understand how the “core function and purpose test” would work or what standard a judge is supposed to use in making that determination. Assuming it is a akin to a “necessary for their existence” test, my argument is simply that the test will still require judges to consider complex (or at least a large quantity of) evidence from both sides.

As for your questions regarding the difference between the ATP and the NFL-- The difference from an antitrust perspective gets to the heart of the ancillary restraints doctrine. The argument (that I also don’t necessarily agree with) is that a restraint is ancillary and thus legal if it is reasonably necessary for the existence of the league. NFL teams literally cannot play a game if the teams do not agree on certain rules, including the rules of the game itself (number of timeouts, length of the game, etc.) and the location of the game. The cooperation of the NFL teams is thus seen as ancillary to the existence of the league and reasonable/legal under the antitrust laws. Again, I don’t think that’s the correct test—I still think the procompetitive benefits need to be balanced against the anticompetitive effects. In most of those cases, the balancing would be easy—the procompetitive benefits would be significant (the existence of the league) and the anticompetitive effects would likely be minimal (though it obviously depends on the restraint). But, in the context of the NFL, I at least see why one can argue that some rules are necessary.

I don’t see that argument in the context of the ATP or other circuits. Tennis tournaments need to set their own schedules and rules so they players can play each other, but they don’t need to make agreements with other tournaments to exist. I therefore don’t see the argument for applying the ancillary restraints/reasonably necessary doctrine. Perhaps you are suggesting a different test, but that’s the difference I see between the ATP and the NFL from an antitrust perspective.

Finally, I have made a good faith effort to understand the point you are making in your last paragraph, but I’m not sure I get it. Good faith is an incredibly amorphous and vague concept and I’m not sure why you would want to import it into antitrust law. That’s why I asked for clarification of the term as you used it. I am curious as to what you are sensing in those antitrust cases and I look forward to continuing this discussion at a sports law conference near you….

Anonymous Gabe Feldman -- 8/06/2008 5:58 PM  


Gabe,

I can't let you go that easy -- you started the game and it's my ball now. :) I'm confused about your position. You seem to be advocating that ALL rules, including timeouts and length of the game, should be subject to a rule of reason (and if that's your position, I don't understand why that should be the case). But on the other hand, you seem to be advocating that some rules should not be subject to antitrust scrutiny when the NFL does it.

Secondly, it's still not clear to me, from an antitrust standpoint, why tennis should be treated different from football in this regard.

As far as the core purposes and functions standard, in sports antitrust cases, it's never clear (1) how the market should be defined, (2) who the consumer is, or (3) what constitutes harm to that consumer once we figure out who it is. I think it becomes even more difficult to make these determinations when it involves a rule that is "necessary for the sport to exist" (and from an antitrust standpoint I'm guessing that you and I can both agree that we are not concerned about somebody alleging that the number of timeouts and how many minutes are in a game constitutes an illegal restraint on trade). I'm referring to rules off the field that are necessary and appropriate for the operation of the sport. I'm assuming that you would agree that it makes sense for the sport that there should be some sort of a consolidated scheduling format and a player ranking system, as opposed to top players just being scattered all over the globe playing in an unlimited number of tournaments against weak competition. To me, this falls within the "core functions and purposes of a sport governing body". Perhaps it's not completely clear to you what a sport governing body's function and purpose is And that's a fair question. If that's not in fact clear to you (or a judge), then it certainly would not be clear what constitutes a rule that relates to it. Maybe my proposed standard doesn't work, but I'm willing to test it. Send me some hypothetical rules and I'll tell you if I think they meet the standard or not.

Addressing the good faith issue (if the rule satisfies the core purposes standard), the basic question in the ATP-Hamburg antitrust case, as in most antitrust cases, is "why did you enact this rule?" Do you have a justification for it that is good for the sport, or did you do it because of some ulterior motive? Maybe that's what I mean by good faith, I don't know. European courts often discuss the standard for restraint on trade in terms of good faith.

Blogger Rick Karcher -- 8/06/2008 10:39 PM  


Rick—

Last one for me (maybe).

A few things--- First, I agree that the rule of reason test can be difficult to apply, particularly in sports cases where the antitrust laws don’t quite seem to “fit.” I also agree that we should try to identify a better, more efficient, more predictable test for judging the legality of restraints under the Sherman Act. While I do think your approach is interesting, I just don’t think it works.

Second, let me clear up your confusion. I am not advocating that NFL rules should be exempt from antitrust scrutiny (putting aside labor exemption issues). I was merely pointing out that scholars have argued for many years that the ancillary restraints doctrine should apply to NFL rules, so that any rule that is reasonably necessary to the existence of the NFL is legal under the Sherman Act. I don’t think that is the correct approach, but I do see how one could argue that certain rules are necessary for the league to exist. I just don’t think that it’s the “necessity” that makes the rule legal under the Sherman Act. Rather, it’s the fact that the agreement is net procompetitive (after balancing pro- and anticompetitive effects) that makes it legal. All agreements would still be subject to the antitrust laws, but cases challenging agreements (including rules of the game and schedules, etc.) that obviously have no anticompetitive impact can be disposed of quickly.

Third, I think I’m just repeating myself here, but in light of the point I just made, let me try again to explain the difference between agreements among tournaments and agreements among NFL teams. The Jets literally have to agree with the Patriots to play on a certain day at a certain time. The game cannot exist if they don’t reach this agreement. That is not the case for tennis tournaments. Are the tournaments better off if they agree not to compete for players by scheduling tournaments on different weeks? Perhaps. But, no, I don’t agree that coordinated scheduling of the tournaments is necessary for them to exist. They can certainly compete with each other (through higher prize money, etc) for the best players. So, if one is a proponent of the ancillary restraints doctrine (which, in these types of cases, I am not), one could argue that the NFL scheduling rules (for example) are legal because they are necessary for the sport to exist. One cannot make the same argument for ATP scheduling rules. Again, I’m not advocating use of that rule for the ATP or the NFL , I’m just noting the significance of the differences between the NFL and the ATP under that rule.

Finally, the basic question in U.S. antitrust law is not, as you suggest, “why did you enact this rule?” The basic question in antitrust law focuses on the effect, not the purpose or intent, of the restraint. A restraint is illegal if it has a net anticompetitive effect, not if the parties have an anticompetitive intent (or “ulterior motive”). Justice Brandeis made that clear in Chicago Board of Trade in 1918 and the role of intent has not changed since. Intent may help courts identify or predict economic effects, so it is therefore relevant to the analysis, but, as Justice Brandeis explained, “this is not because intention will save an otherwise objectionable regulation or the reverse.” I therefore don’t see why (putting aside the difficulty of proving intent) good faith should be a determinative factor in determining antitrust legality.

All of that said, I am curious to see how your standard develops as you start to flesh it out…

Anonymous Gabe Feldman -- 8/07/2008 12:49 PM  


Gabe,

I tend to agree with you when you said that you are repeating yourself. Your argument that the ATP and NFL should be treated differently from an antitrust perspective is premised on an assumption: "The Jets literally have to agree with the Patriots to play on a certain day at a certain time. The game cannot exist if they don’t reach this agreement." Your assumption is simply not true because the game most certainly can exist without such an agreement. The top football players COULD play in a tournament-type arrangement in which tournament organizers around the globe compete for the top players and just divide the players up the way they see fit. But that's simply not the "business model" that the football organizers have chosen for the football product. And the business model for tennis is not to have it in the form of a team sport but as an individual sport, but tennis most certainly could take the form of a team sport as well.

Now from an antitrust standpoint, even though they have distinct business models, one can make the apples to apples comparison in an antitrust context. Why can the NFL decide that playing in China makes more business sense than playing in Hamburg, but the ATP cannot? Why can the NFL decide that only 16 games per year is best for the football product (and where), but the ATP cannot decide that only 8 tournaments per year (and where) is best for tennis? I understand that football is played as a team sport, and tennis is played as an individual sport. But this doesn't mean that one sport deserves greater exposure to antitrust liability than the other with respect to rules they deem to be necessary for the sport.

In your position that the NFL and ATP are different in the context of ancillary restraints, you are apparently willing to defer to the judgment of the NFL that its decisions regarding scheduling are "necessary" for the sport, but you are not willing to defer to the judgment of the ATP that its decisions are necessary for its sport. You seem to be more willing to accept that the NFL's decision to only schedule 16 games is necessary, but you question the ATP's need to schedule 8 tournaments. I am willing to defer to the judgment of both.

Blogger Rick Karcher -- 8/08/2008 9:10 AM  


Rick--

Well, at least we agree on something on this subject. I guess that’s a start…

I actually think you answered your own question. The alternative hypothetical football system you suggested is a different product than the product created by the NFL I agree that cooperation between the football tournament owners—just like the ATP tournament owners—is not necessary for your alternative football product to exist. But, that is not the product the NFL created. The NFL has individually owned teams (putting aside single entity questions) that have to agree on a schedule (and, perhaps, a series of other agreements) in order for the on-the-field competition between the teams to exist.
The ATP could have created a different product where players are divided into teams and play each other (on a team basis) according to a set schedule (in fact, that product does exist—World Team Tennis). Cooperation between those teams would be necessary for that product to exist, just as it is necessary for the NFL product to exist.

All of that said, I think—beyond the most basic scheduling and in-game rules for the NFL, e.g.—it is incredibly difficult to determine if a rule is “necessary” for a product to exist. That is precisely why I don’t think (with limited exception not relevant here) that the ancillary restraints doctrine is a good test for the antitrust legality of agreements made in the NFL, ATP, or any other sports organization. So, to clarify, I don’t think courts should defer to the judgments of the NFL or the ATP, I simply think courts should permit rules and agreements made by any of the leagues that are net procompetitive. Is the Board of Trade balancing test an easy way to determine the net effect of these restraints? In many cases (but certainly not all)—no. So, I certainly appreciate the point of your original post. I’m just not convinced that the test you propose (in part, for the reasons I discuss in the comments above) is a good alternative.

In the end, I imagine we will have to agree to disagree. Then again (insert groan here), I suppose that disagreement is necessary for blogging/debate to exist…

Anonymous Gabe Feldman -- 8/08/2008 1:51 PM  


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