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Monday, May 05, 2008
Applying Antitrust Labor Exemptions to Professional Golf and Tennis

Daniel Kaplan of SportsBusiness Journal (subscription only) has an interesting piece in this week's edition in which he reveals that The ATP World Tour is losing millions of dollars because of steep legal expenses tied to an antitrust lawsuit brought by one of its tournaments against the men’s circuit (5/5/08, Mounting Legal Expenses Add to ATP's Losses). According to sources, last year the ATP lost $5 million, and it is projected to lose $6.4 million this year. The ATP event in Hamburg, Germany, filed an antitrust suit against the ATP for trying to downgrade the event in the tour’s tier structure next year as part of the calendar remake. The Monte Carlo event also sued the ATP over the same issue, but that lawsuit was settled.

I've always thought that rules and regulations established by the ATP, PGA and LPGA should be exempt from the antitrust laws under the same rationale for exempting rules established by professional sports unions and rules established by the unions and leagues via the collective bargaining process. Although they are not certified as labor unions under the National Labor Relations Act, all three associations essentially act as labor unions and serve as the voice and representative of the players as a collective group.

When labor unions enact rules and regulations in their own self-interest, those rules and regulations may have an anti-competitive affect on third parties. Hence, the rationale for what's known as the statutory labor exemption. The source of the statutory exemption is found in the Clayton Act and the Norris-LaGuardia Act, and it "removes from the coverage of the antitrust laws certain legitimate, albeit anticompetitive, union activities because they are favored by federal labor policy." Powell v. NFL, 678 F.Supp. 777, 782 (D. Minn. 1988). For example, courts have exempted claims by agents against unions alleging that agent regulations adopted by the unions constitute an illegal restraint on trade. See Collins v. Nat’l Basketball Players Ass’n, 850 F. Supp. 1468, 1474 (D. Colo. 1991), aff’d 976 F.2d 740 (10th Cir. 1992). The U.S. Supreme Court, in H.A. Artists & Associates v. Actors’ Equity Ass’n, 451 U.S. 704 (1981), held that labor unions acting in their own self-interest and not in combination with nonlabor groups are statutorily exempt from the antitrust laws. If the ATP or PGA adopted regulations governing agents with various certification requirements, should the simple fact that they are not certified as labor unions subject them to antitrust scrutiny?

The non-statutory exemption insulates from the antitrust laws league rules and regulations that constitute mandatory subjects of collective bargaining (i.e. "wages, hours and working conditions") and that primarily affect only the parties to the collective bargaining relationship. All three associations -- ATP, PGA and LPGA -- have player representatives that serve on their boards of directors. The board votes on all sorts of subjects that affect the players and which are akin to "working conditions" -- for example, issues concerning format of play, where they are going to play their tournaments, how they are going to be ranked, etc., etc. The ATP's board of directors is made up of three player representatives and three tournament representatives. When the player and tournament representatives adopt rules and regulations that govern their particular sport and primarily affect only them -- which is essentially analogous to collective bargaining between unions and leagues -- why should those rules and regulations be subject to antitrust scrutiny?


Wish I read this post before taking my sport law final last week.

Anonymous Anonymous -- 5/05/2008 9:43 PM  

Is the tournament's status on the tour really a "working condition"?

I know a little bit of the background antitrust law, but not a ton - are there things that have been challenged in the other sports agreements that mirror this? The cases I know of involving the other sports usually relate to age of entry, wages, or ability to choose employer, which seem more like traditional union activites.

Blogger Chris -- 5/05/2008 10:59 PM  

I think Chris raises the right point. This case is not just about working conditions, it is about the ATP trying to control who gets to compete in the market for the services of professional tennis players. They downgrade Hamburg in a manner that would prevent Hamburg from ever competing for top-level players. They also prohibit Hamburg from holding their event in their traditional week. I don't see why this type of behavior should be exempt from antitrust scrutiny.

Anonymous Anonymous -- 5/06/2008 9:17 AM  

Chris and Anon,

Whether an alleged restraint concerns an issue that pertains to a mandatory subject (wages or working conditions) is not relevant to the application of the statutory labor exemption. For example, as I mentioned in the post, agent regulations adopted by unions are exempt from antitrust even though they impact third parties (agents). The policy here is that all union activity (whether it pertains to a working condition or not) should be exempt because the union is acting in the best interest of its members, which is naturally going to affect third parties.

And for purposes of applying the policy behind the non-statutory exemption, working conditions refers to issues that affect the work environment. While the case precedent in this area generally involves wage-related issues, I think that issues pertaining to the NUMBER of events that players are required to play in, as well as WHERE players are required to travel and play, should be construed as working conditions.
Players collectively have the right to decide under what conditions they are willing to play.

The issue you are really addressing with regards to the Hamburg suit is whether the alleged restraint affects a third party (Hamburg). I would argue that, even if the alleged restraint does affect Hamburg, it PRIMARILY affects the players, which is in line with the policy behind the non-statutory exemption. The argument would be that the top players have no incentive not to play in Hamburg if it is in fact a good economic decision for them to do so. To put it differently, the players have no incentive to implement a an anti-competitive restraint on the market for their services.

Blogger Rick Karcher -- 5/06/2008 10:06 AM  

Rick -- Keep in mind, this isn't just the players. The ATP is made up of players and tournaments. That's why the non-statutory exemption does not apply in this case.

The bottom line is that the ATP is saying, these events can compete for player services, and these can not. Is that a violation of US anti-trust rules? I don't know, but I don't see why it should be shielded from scrutiny.

Also, the Hamburg case is more than just an anti-trust case (there are also allegatoons of conversion and breach of fiduciary duty among other claims -- all of which survive motion for summary judgment), so the exemption wouldn't have prevented litigation in this case.

Anonymous Anonymous -- 5/06/2008 10:46 AM  

While I'd like to see antitrust out of sports altogether (indeed, I'd like to see antitrust out of every industry), I'm not sure how you can exempt the "touring" sports like tennis and golf without opening up a can of worms. The real problem is that touring professionals are "independent contractors" under the Internal Revenue Code, and the FTC and DOJ believe contractors can't engage in any behavior that resembles employee collective bargaining. For example, the FTC and DOJ have prosecuted doctors who join together to negotiate compensation and "working conditions" with hospitals. The government's position is that only employees, and not contractors, may engage in such behavior.

Blogger Skip -- 5/06/2008 11:03 AM  

That's a significant difference though isn't it, Skip? Team sports athletes are employees of their respective franchises, while golf/tennis players are independent contractors.

Interesting position, btw, the repeal of all anti-trust/anti-competition laws.

Anonymous Anonymous -- 5/06/2008 11:18 AM  


I am keeping in mind that the ATP is made up of both the players and the tournaments, and I even said that in my original post. The tournaments would be analogous to the teams that make up the league in professional sports. Thus, for the same reason the non-statutory exemption applies to matters negotiated between the players and the teams in collective bargaining, would be the same reason that matters negotiated between the players and the tournaments should be exempt. The main (and possibly only) difference being formal certification as a union under the NLRA.

Blogger Rick Karcher -- 5/06/2008 11:46 AM  

"That's a significant difference though isn't it, Skip? Team sports athletes are employees of their respective franchises, while golf/tennis players are independent contractors."

The significance is really in the salary and event structures. Team sports players received a guaranteed salary in exchange for appearing in a fixed number of games, while golf and tennis players receive performance-based compensation in exchange for appearing at a number of events of their choosing.

It's funny, if you think about it, that antitrust would condemn the folks *without* the guaranteed salaries and contracts. But that's exactly what happens in industries like health care. If Tiger Woods and the other top golfers tried to negotiate "working conditions" with the PGA Tour as a group, they'd be condemned under FTC precedent. But if the top NBA players do the exact same thing under the pretense of a union, it's exempt action.

Blogger Skip -- 5/06/2008 12:50 PM  

I think Skip and I are both just questioning the inconsistency in treatment between tennis/golf and the other sports. Is the employee vs. independent contractor distinction just form over substance as it pertains to the application of the antitrust labor exemptions?

If the PGA and ATP enacted agent regulations today, they would be subject to antitrust. But the prof. sports unions are exempt for doing the same thing under the statutory exemption. What's the rationale for the inconsistent treatment?

Blogger Rick Karcher -- 5/06/2008 1:05 PM  

Keep in mind, the NFL, for example, isn't immune from anti-trust scrutiny. In fact, they lost an anti-trust case against the USFL (albeit with $1 in damages), and they have been defendants in many other cases. If there is a public policy against cartel action, I don;t know why Tennis and golf (or sports at all) should e exempt. Why should the ATP cartel be able to prohibit others from competing in the market of professional tennis?

Anonymous Anonymous -- 5/06/2008 3:32 PM  

First, I don't see how someone can call the ATP a cartel. ATP can hardly regulate and control output with respect to the relevant market place (a market which I think should be defined as the entertainment industry in general and certainly not something as specific as just men’s professional tennis). Even within the men’s professional tennis industry the ATP doesn't have the market power necessary to rise to the level of a cartel or to the level of an anti-trust monopolist. There’s the ITF, Davis Cup, Grand Slams, etc. A cartel? That doesn't even pass the giggle test.

The anti-trust laws are there to protect consumers. ATP is making these moves based on consumer research and consumer feedback. There will still be 9 events in the top tier, just one will now be in China as opposed to Germany. Thus no reduction in “output.” Any guess as to which (between China and Germany) is the exploding market for tennis where consumers are clamoring for tennis???

Also, this "downgrade" would not prevent Hamburg from competing for players, they would just be at a different tier and will still be able to "compete" for players. There are lots of ways to "compete" for players, being in one tier over another is just one factor.

Anonymous Anonymous -- 5/06/2008 5:41 PM  


The application of antitrust to sports is extremely complex, and the non-statutory labor exemption makes it even more complex -- this particular topic we are debating could be the subject of a very lengthy law review article. But I can tell from your last comment that I am obviously not explaining myself very well in this blog discussion (and probably because it's difficult to do on a blog).

The non-statutory labor exemption was not at issue in the USFL case because the alleged restraints on trade did not involve labor matters that had been negotiated between the union and the league. The alleged illegal restraints on trade in that case involved conduct on the part of league members to preclude the USFL from (1) getting a network television contract, (2) gaining access to a suitable stadium facility, (3) hiring game officials, etc. An analogous situation to the USFL case would be if somebody wanted to form a new tour to compete directly with the ATP Tour, in which case the policy behind the non-statutory labor exemption would most likely NOT apply.

The one thing you are not acknowledging is that the ATP was formed to protect the interests of the players. Why should Hamburg, or any third party, be able to make the players do something that they feel is not in their collective best interest? The Hamburg case involves a rule that was agreed to by BOTH the players and the tournaments, and the alleged restraint arguably involves what would otherwise traditionally be considered labor matters and for which courts do not, and should not, intervene (i.e. player rankings, timing and location of main events, which players can play in which events, etc.).

If Maurice Clarett and other amateur players are legally precluded from competing and selling their services in the NFL (an obvious "per se" illegal restraint on trade that primarily affects third parties), surely Hamburg should be precluded from bringing suit as well.

Blogger Rick Karcher -- 5/06/2008 6:18 PM  

The USFL case is exactly analogous! In this case the ATP is prohibiting non-favored tournaments from competing for players. This, in effect, prevents these non-favored tournaments from competing for television deals, fans and corporate sponsorship. How is that related to workplace rules?

The fact that the players agree to anti-competitive rules doesn't mean it is shielded from anti-trust scrutiny. Nor should it. Keep in mind, if the ATP is permitted to restrict output, the partoes who are damaged (in addition to the players) are consumers and broadcasters. There is only one place to go to see top tennis, and that is the ATP.

As to why the players would agree to these rules, it's hard to say --one reason may be that the tournaments have agreed to share their cartel-generated profits with the players through guaranteed prize money increases. Or there could be a more nefarious reason. But either way, it doesn't matter. The ATP can't implement anti-competitive rules and regulations just because the players agree to it.

Anonymous Anonymous -- 5/07/2008 8:20 AM  


They're not preventing Hamburg from forming a Davis Cup, Grand Slam, etc., to compete directly with the ATP (as in USFL). Hamburg is free to organize its own tour with other tournament representatives and compete with the ATP.

Does your opinion change if the tennis players got certified as a union and collectively bargained this particular issue with the tournament representatives, resulting in the same rule being established? (The players can feasibly only play in so many events and in so many geographic locations. So despite your attempt to characterize it as a broadcasting and corporate sponsorship issue, it would most likely constitute a mandatory subject under the NLRA as a working condition as well as possibly a compensation issue.)

If the answer is yes, then explain to me why, because it really just becomes merely a label of an independent contractor vs. employee relationship (which may have legal relevance in other areas, e.g. vicarious liability, workers comp., etc.). But solely from an antitrust labor exemption analysis, it may just be form over substance, and the policy behind the non-statutory labor exemption (and the statutory exemption as well) becomes an issue worth discussing.

Blogger Rick Karcher -- 5/07/2008 9:24 AM  

I agree completely with Professor Karcher. Also, I think there is a misunderstanding going on here... Hamburg would not be prevented from competing for players, we're only talking about them going from one tier (1000s) to another tier (500). They would still be a tournament on the ATP circuit and would still attract top level ATP players to their event. Will they have as strong a field as a 1000? Probably not. But they also won't be required to pay the prize money of a 1000 (which will be substantially higher). The money they save in that regard can be used to "compete" for players. So, just to clear up a factual issue, saying they won't be able to "compete" for players is not correct.

Anonymous Anonymous -- 5/07/2008 9:37 AM  

Well, the independent contractor/employee distinction is an important one from a technical legal perspective, but that is not my point. My point is that getting approval of the players, does not shield the ATP from enacting anti-competitive rules. Under the new ATP rules, Hamburg can not compete for top players. It;s as simple as that. And if I wanted to stage a new tennis tournament in Miami to compete with the Sony Ericsson Open, ATP players would be prohibited from competing in it. Those are the rules established by the ATP. Hamburg is not free to stage its own tour and its own tournament. The players are prohibited from playing, and there are non-compete provisions in the ATP bylaws for former tournaments. That's anti-competitive. And the fact that the players agreed to it, doesn't mean it should be shielded from the antitrust laws.

The way you're describing "workplace conditions" would encompass everything. So, sports league could institute any rules, no matter how anticompetitive, and it would be shielded from antitrust scrutiny. Let's cut the Masters Series events down to four. With the rules that the top players have to play those events, and can't play competing events, it will reduce demand and drive up broadcast fees, sponsor fees and ticket prices. And guess what, since it relates to the number of tournaments a player plays, it's a "workplace condition" and therefore immune from antitrust challenge! Fortunately, the law doesn't work like that.

Anonymous Anonymous -- 5/07/2008 9:46 AM  

Has everyone forgot something here? How would this apply in the EU, not the USA (since Hamburg IS still in Germany last I checked! :-) ).

How could/would U.S. anti-trust law apply to what amounts to a multi-national corporation (ATP) (de facto union??) in Germany--or, for that matter, in China, Australia, France, Qatar, South Africa, India, Japan, and all the other countries where tournaments are held each year?

Anonymous Anonymous -- 5/10/2008 3:41 AM  

I don't see how competing for players is a relevant anti-trust market. ATP players are the product here and that product gets distributed via ATP tournaments. The actual consumers then are fans, sponsors and broadcasters. Thus, the tournaments are analogous to mere distributors and its clear under anti-trust case law that a producer is free to choose how its product gets distributed. Any effect on the distribution chain is a vertical restraint and the anti-trust law is inapplicable. Sounds to me like this is a classic “jilted distributor” case.

ATP should be free to determine how its product gets distributed to the actual consumers (fans, sponsors, broadcasters), otherwise it has zero ability to compete in the relevant marketplace which should be defined as the global sports and entertainment industry. If one of its distributors (Hamburg) is dragging down the product because it has poor infrastructure, inconsistent weather, poor attendance and is in a down market for tennis, why in the world should ATP be prevented from finding a more viable distributor (Shanghai for example) that presents ATP’s product in a much better light to a consumer base that has a demand for tennis?? ATP will never be able to compete if it’s not allowed to improve its product and to move the product into growing and immerging markets.

Anonymous Anonymous -- 5/19/2008 10:37 AM  

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