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Friday, July 31, 2009
Debating the Potential Effects of American Needle

Following on the heels of Lester Munson’s recent report on the American Needle case for – which Howard discussed last week – National Columnist Mike Freeman has written an article similarly forecasting that a Supreme Court victory for the NFL in American Needle would be a doomsday scenario for sports fans (see Sports Law Blog’s significant previous coverage of the case for more background on the litigation). Freeman asserts that if the NFL wins the case, the Supreme Court’s decision “would basically amount to a nuclear winter for sports and fans,” giving sports leagues “unlimited power” and leaving them “free of almost any legal worries.” Like Munson, Freeman believes the NFL and other leagues would use this newfound power to eliminate free agency, lower salaries paid to players and coaches, and dramatically increase prices for tickets and merchandise.

I believe that both Munson and Freeman overstate the practical significance that an NFL victory in American Needle would have on most sports fans. As an initial matter, a Supreme Court victory for the NFL will not give sports leagues complete antitrust immunity. Instead, it would simply render leagues immune from liability under Section One of the Sherman Act, a provision which prevents independent actors from colluding together in restraint of trade. The NFL, NBA, and NHL would still face exposure under other antitrust regulations, such as Section 2 of the Sherman Act, which would continue to prevent the leagues from improperly using their respective monopoly powers. Similarly, the leagues would also still be required to comply with Section 7 of the Clayton Act should they ever attempt to merge with a rival start-up league.

That having been said, I recognize that avoiding liability under Section One of the Sherman Act would be a significant victory for the NFL and other sports leagues, as most antitrust suits against the leagues allege liability under Section One. However, I do not believe that giving leagues immunity from Section One would cause them to implement the damaging policies that Munson and Freeman describe. Indeed, one need look no further than the example of Major League Baseball – which has itself been operating largely free from the constraints of Section One of the Sherman Act for nearly 80 years – to see that the NFL, NBA, and NHL are unlikely to dramatically alter their business practices should the Supreme Court declare them to be single-entities.

Despite its legendary antitrust exemption – originating from the 1922 Supreme Court decision in Federal Baseball Club v. National League – MLB has not used its antitrust immunity to implement the types of damaging business practices that Munson and Freeman fear will result from the American Needle case. MLB has generally run its business in the same manner as the other sports leagues. As but one example, MLB does not use its exemption to charge fans significantly higher ticket prices than the other sports leagues. As J.C. Bradbury, a professor of economics at Kennesaw State, discusses in his recent book The Baseball Economist: The Real Game Exposed, MLB’s average ticket prices are the lowest among the four major sports. While one may convincingly argue that MLB must charge lower prices because each of a team’s 162 games in a baseball season have less individual significance than an single game in the shorter NFL, NBA, or NHL seasons, Bradbury also presents data adjusting the average ticket price to account for the significantly longer MLB season, and finds that MLB’s adjusted average price is still the second lowest of the four major leagues, trailing only the NFL.

This should not come as a surprise, as none of the major sports leagues operate in a vacuum. Each league competes against the other major sports leagues, as well as other forms of entertainment (such as movies, concerts, theater, etc.), for consumers’ entertainment dollars. It would simply be bad business to arbitrarily raise the price of tickets should the leagues receive newfound antitrust immunity. Moreover, as Howard has noted, the leagues are also unlikely to abuse Section One immunity for the simple reason that Congress would be able to step in and take the leagues’ immunity away. Along these lines, Professor Mitchell Nathanson argued in his 2005 article The Irrelevance of Baseball’s Antitrust Exemption: A Historical Review, 58 Rutgers L. Rev. 1, that MLB has ironically been forced to largely abide by the Sherman Act, for fear that Congress would otherwise revoke its exemption from antitrust law.

While I believe that the effects of an NFL victory in American Needle on consumers have thus been overstated by Munson and Freeman, I do agree that a victory for the leagues could be damaging to labor relations with the players. I have previously argued that sports leagues should not be granted Section One immunity for purposes of labor disputes, both because the leagues do not meet the Supreme Court's single-entity standard in the labor market, but more significantly because antitrust immunity would disrupt the careful balance that has been drawn between antitrust and labor law through the so-called non-statutory labor exemption. Accordingly, I believe that immunizing leagues from Section One liability in labor disputes would lead to a deterioration in labor relations. Indeed, in a recent article, Reevaluating the Curt Flood Act of 1998, I argued that MLB labor relations noticeably improved after Congress exposed owners to the threat of an antitrust lawsuit by the players.

Interestingly, however, player-owner labor relations is an area in which many scholars have argued that league antitrust liability has little import, in light of the 1996 Supreme Court opinion in Brown v. Pro Football Inc., which generally requires that players decertify their union in order to file an antitrust suit against ownership. These scholars believe that the chances of union decertification are slim, and therefore that the threat of a potential antitrust suit has little bearing on labor relations between players and owners. If these scholars are correct, then an NFL victory in American Needle would be expected to have little effect on labor relations in the leagues. However, the players unions appear to believe that American Needle presents significant risks to their memberships. Munson’s article shows that the unions appear to be preparing to file amicus briefs in the case, while Freeman quotes an unnamed source in the NFL players union as stating that single-entity status for the leagues “could change everything.” Accordingly, I believe that should the Supreme Court rule in favor of the NFL, it should not extend the leagues’ Section One immunity to labor disputes.

All in all, though, with the exception of the potential effects of the decision on labor relations, I believe that the practical impact of the American Needle decision on sports fans is being overstated by Munson and Freeman. While an NFL victory would have substantial effects on the field of sports law, I do not believe it would significantly harm most consumers.


For more on my personal views of the single-entity issue and the American Needle case, please see my law review articles There’s No ‘I’ in ‘League’: Professional Sports Leagues and the Single Entity Defense, 105 Mich. L. Rev. 183 (2006), and A Proper Analysis of the National Football League Under Section One of the Sherman Act, 9 Tex. Rev. Ent. & Sports L. 281 (2008).


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