Antitrust Law And The NFL

Disclosure: I represent and have represented clients involved in antitrust matters, both as plaintiffs and defendants.

The National Football League and the NFL Players Association failed to reach agreement on a new collective bargaining agreement last week. This failure has led to a number of actions. First, prior to the expiration of the then existing collective bargaining agreement, the NFLPA decertified as a union. Second, the NFL has locked out the players (meaning that they are refusing to hire or continue the employment of the players.) Third, NFL stars Peyton Manning, Tom Brady and Drew Brees, among others, have filed an antitrust suit (PDF) against the NFL. Lester Munson provides a good (though NFLPA friendly) recap. To understand how all of this happened, it is important to revisit how they got here. On the flip, I'll review some of the issues, and give my view of where this might go.

The NFLPA was first formed and recognized in 1968 and accepted by the NLRB in 1970. The great John Mackey was its first major figure. By and large, collective bargaining has not been particularly successful for the NFLPA. There are many reasons for this but I would point to 2 principal reasons - (1) lack of unity among the players; and (2) the unequal financial strength of the players as compared to the owners. In fact, the major successes the NFLPA has had have largely come through litigation.

The first major legal victory was the 1976 case Mackey v. NFL, where the players were succesful in declaring the so-called "Rozelle Rule" a violation of Section 1 of the Sherman Act.

In 1982, the NFLPA went on strike over the percentage of the gross revenue the NFL garnered. The strike wiped out a portion of the season, but was largely a bust for the unions.

In 1987, the NFLPA went on strike again, and fared even more poorly, as the owners were even better prepared and financed, including having replacement players on standby. By contrast, the NFLPA did not even establish a strike fund and 89 players, in addition to the standby replacement players, crossed the picket line. That experience, perhaps more than any, brought to the NFLPA the realization that their best course of action was to seek redress through the courtroom, not the bargaining table.

The NFLPA decertified as a union soon after (in order to avoid the antitrust exemptions of the labor laws) and certain players, most prominently, New York Jet Freeman McNeil, filed an antitrust suit against the NFL's free agency rules. This suit succeeded. Coupled with the threat of a class action suit (all time great Reggie White was the lead name plaintiff) brought the NFL to the bargaining table and free agency was accepted in exchange for a salary cap. On a telling note, one of the plaintiffs was Dave Duerson, who recently committed suicide leaving a note that his brain be studied for the medical effects of concussions. (A further personal note- I played high school football with Andre Waters, the former Philadelphia Eagle who also committed suicide after suffering numerous concussions.)

The Freeman McNeil case was presided over by Minnesota federal judge Judge David Doty, who approved a global settlement. Judge Doty's involvement in the NFL-NFLPA relationship has been critical since that time. Indeed, a recent decision (PDF) by Judge Doty regarding the NFL's structuring of television contracts to provide it with a significant ($2 billion dollars) strike fund may be the most important event to trigger the latest actions. Judge Doty ruled that the NFL's actions with regard to its TV contracts were structured to advantage it in a labor battle with the NFLPA and that since the NFL was acting subject to a settlement agreement that resolved a successful antitrust claim against the NFL, it could not look solely to its own objectives but had to maximize revenues for the players as well as for itself. In short, the NFL could not use the TV contracts as a mechanism to build a huge strike fund. The NFL has appealed Judge Doty's ruling to the Eighth Circuit. That decision could very well decide this battle.

In the meantime, we lawyers get to study the legal issues that might be decided by the most recent antitrust suit filed by the players after decertifiying their union. The essence of the case is that the system that the NFL and the NFLPA agreed to through collective bargaining is an illegal group boycott and refusal to deal in violation Section 1 of the Sherman Act. Without the labor agreement exemption, it is an illegal restraint of trade. The immediate violative action, according to the complaint, is the lockout, whose purpose, according to the complaint, is to coerce the players into agreeing to a new collective bargaining agreement that will permit this restraint of trade.

One of the interesting wrinkles here is that in the 1993 settlement, the players included a clause that the owners waived the right to claim that a decertification of the union could be challenged as ineffective for eliminating the labor agreement exemption defense to a claim of an antitrust violation. In short, yelling "sham" about the decertification is not an argument the NFL can use here.

On the issue of whether the NFL's actions constitute a violation of Section 1 of the Sherman Act (it should be noted that the NFL has an antirust exemption for its dealings with the broadcast networks, but I do not believe that exemption is relevant here), the relevant law provides a strong basis for believing it is. Concerted refusals to deal (or group boycotts) have been held to be per se violations of the Sherman Antitrust Act. Indeed, it seems to me there is a good argument that it is a per se violation (though a rule of reason seems the more likely standard to be applied.) In Nynex Corporation v. Discon, Inc., 525 U.S. 128 (1998), the Supreme Court of the United States stated that:

[P]recedent limits the per se rule in the boycott context to cases involving horizontal agreements among direct competitors. [. . .] A group of competitors threatened to withhold business from third parties unless those third parties would help them injure their directly competing rivals . . . This Court subsequently pointed out specifically that Klor's was a case involving not simply a "vertical" agreement between supplier and customer, but a case that also involved a "horizontal" agreement among competitors. See Business Electronics, 485 U.S., at 734, 108 S.Ct. 1515. [Emphasis emphasis supplied..]

This seems a horizontal agreement to me. In any event, the rule of reason has not been helpful as a standard for the NFL in past. Because of that, they have tried to escape the strictures of Section 1 of the Sherman Act by arguing the NFL is a single entity. This argument failed in the merchandising context in American Needle, Inc. v. NFL (PDF):

This case raises that antecedent question about the business of the 32 teams in the National Football League (NFL) and a corporate entity that they formed to manage their intellectual property.We conclude that the NFL’s licensing activities constitute concerted action that is not categorically beyond the coverage of §1. The legality of that concerted action must bejudged under the Rule of Reason.

[. . .] The NFL teams do not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action. Each of the teams is a substantial, independently owned, and independently managed business. “[T]heir general corporate actions are guided or determined” by “separate corporate consciousnesses,” and “[t]heir objectives are” not “common.” Copperweld, 467 U. S., at 771; see also North American Soccer League v. NFL, 670 F. 2d 1249, 1252 (CA2 1982) (discussing ways that “the financial performance of each team, while related to that of the others, does not . . . necessarily rise and fall with that of the others”). The teams compete with one another, not only on the playing field, but to attract fans, for gate receipts and for contracts with managerial and playing personnel. See Brown v. Pro Football, Inc., 518 U. S. 231, 249 (1996); Sullivan v. NFL, 34 F. 3d 1091, 1098 (CA1 1994); Mid-South Grizzlies v. NFL, 720 F. 2d 772, 787 (CA3 1983); cf. NCAA, 468 U. S., at 99.

Even more so than in the merchandising area, the competition for players is an area where the teams are competitors. It seems hard to imagine that the NFL will be considered a "single entity" with regard to players. (For a contrasting approach, consider Major League Soccer, where the players are actually employed by the league, not the teams and then are distributed to individual teams.)

It seems to me that the NFL's hopes now lie with a favorable ruling in the 8th Circuit on the issue of the "lockout insurance" money. Without that, I think their position collapses. Time will tell.

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    I love Jerry Jones getting high and mighty... (5.00 / 0) (#6)
    by Dadler on Wed Mar 16, 2011 at 06:01:58 PM EST
    ...about how this is business, yap yap yap.  Take a look at the Arkoma (sic?) natural gas deal Jerry was handed thirty years ago, the one that got him rich in the first place, and you'll find out all you need to know about how his kind of "business" works.

    Put some Vicks on your upper lip (5.00 / 0) (#10)
    by Dadler on Wed Mar 16, 2011 at 06:24:08 PM EST
    And get in there.

    Can't be worse than how he (none / 0) (#9)
    by MKS on Wed Mar 16, 2011 at 06:16:22 PM EST
    fired Tom Landry.

    As the narrator (none / 0) (#11)
    by jondee on Wed Mar 16, 2011 at 06:36:39 PM EST
    in the opening sequence of Blood Simple says: "Down here in Texas, you're on yer own"..

    no kidding! (none / 0) (#14)
    by cpinva on Wed Mar 16, 2011 at 09:07:13 PM EST
    i'm a lifelong (so far) redskins fan, but i had the utmost respect for coach landry, the "original" cowboy. i was appalled at the way he was treated, and have despised jerry jones ever since.

    Ditto about Landry (none / 0) (#19)
    by Makarov on Thu Mar 17, 2011 at 03:18:39 AM EST
    and I'm an Eagles fan.

    On a side note, this Eagles fan remembers the '87 strike game against the Cowboys very well. Dallas had all or most of their starting lineup, and the game was out of hand from the 1st play. It was part of the intense rivalry that developed with Buddy Ryan.


    Great post. Thanks. (none / 0) (#1)
    by jbindc on Wed Mar 16, 2011 at 02:48:52 PM EST

    Simple solution to the problem (none / 0) (#2)
    by Farmboy on Wed Mar 16, 2011 at 03:33:19 PM EST
    Let the owners suit up and play a regulation game against a team comprised of players - one player from each team. Winning determines who should benefit the most from football: players or owners.

    What do you think the implications are, (none / 0) (#3)
    by Anne on Wed Mar 16, 2011 at 03:39:48 PM EST
    if any, of Judge Doty not being the one assigned to hear the arguments on the injunction, set for - I think - April 6th?  Or the chances that it could still wind up in front of him, which I gather it could.

    I think it's interesting that the first two judges assigned to the case recused themselves, and it's now set to be before Judge Susan Nelson.

    [And - any thoughts on the Adrian Peterson comments, which seem to be causing a bit of a kerfuffle?]

    Of Course the NFL is a Single Entity (none / 0) (#4)
    by ScottW714 on Wed Mar 16, 2011 at 04:39:31 PM EST
    What company doesn't have employees in competition and if the company is a service company, like the NFL, each division is competing for the same dollars and the top producers.

    The arguement seems silly to a lay person like myself, including merchandising.  You may buy a Browns jersey, but a portion of that goes to the NFL which is essentially the all owners.

    I would, and I think any business person would view the NFL as a corporation with 32 divisions who each have voting rights.  One division can't decided they are moving to Montreal, as one would expect with separate legal entities, without the others OK-ing it.  Ditto for any important change, including rules, length of season, and even where the games are played.  All rules are collectively voted on, no one team can make their own rules of any significance.

    About the only thing each team can do is minor conduct infractions, marketing, hiring and firing (but still held to NFL rules as to when and why)and what they do with their profits.

    Everything else, including merchandise pricing is done by the NLF, a jersey is the same price no matter what team, which to me indicates they don't operate separately. Same with salary caps, minimum wages, and almost everything except hometown pricing (tickets and beers).

    Either they are a single entity or there is a ton of collusion going on amongst 32 individual businesses.

    I know, precedent and all...

    i'd argue that the nfl (none / 0) (#13)
    by cpinva on Wed Mar 16, 2011 at 09:03:31 PM EST
    is a sports version of mcdonalds: mcd's itself is a single entity, but each franchised store is a business unto itself. the franchise agreement stipulates many aspects of every single store, from the actual floor plan, to how inventory is maintained. they also provide national advertising campaigns that each franchisee contributes to the cost of.

    all that said, mcdonalds the franchisor, and all the individual stores are not (and never have been) considered a single entity. each prepares its own separate financial statements, and files its own separate tax return. no consolidated financials or consolidated 1120, and none of them would qualify to make that election.

    if i buy shares of stock in "mcdonalds", that gives me no equity interest in the individual stores, except those that are company owned.

    each nfl team files its own separate financials and 1120, not consolidated ones with the nfl. again, none would qualify to make those elections.

    the same holds true (pretty much) for any franchised operation.


    I was Thing That Except, (none / 0) (#18)
    by ScottW714 on Thu Mar 17, 2011 at 02:37:17 AM EST
    McDonalds is not owned by the store franchisees.  They don't split the profits with franchisees, it's actually the opposit, the franchisees pay a sum of money tobe part of McDonalds.

    Unless the NFL want to claim is has 32 shareholders.  Which would certainty make them one entity.  But they really are in every important sense, namely voting and distribution of profits.

    I can't even do a recount of the game without the NFL express consent ( according to the disclaimer) even for my team who doesn't have that right to grant me.  Coaches and player are required to do interviews and press conferences, not by their own team, but by the NFL.  I could one, there is nothing of significance that isn't dictated my the NFL, including fines and suspensions, drug testing, and off duty conduct.

    They determine schedules, make all rules, and when the Super Bowl was here, they take over the stadium, giving every owner a box(at huge cost to the owner of said stadium).  They even decide at what point a roof should be closed or what color jerseys a team has to wear.


    One Example 30 Years Ago (none / 0) (#17)
    by ScottW714 on Thu Mar 17, 2011 at 01:55:41 AM EST
    As a fan you realize that the Al Davis' NFL days have one thing in common with the current NFL, the logo.

    Saints were practically gone after Karina until the someone blew the whistle.  But it was backed by owners, same with every recent move.  The Oilers didn't bow to Bud Adams demand for a new stadium, he left and now nearly every team in the league is playing at a stadium less than five years old, mist with retractable roofs, and filled with frufur food served by waitstaff. Most financed by the public, Dallas being the exception.

    My point, had they been separate entities, there would be no reason to vote for the something that can only hurt you on the field.  But since the equally share in NFL revenues, there is a huge incentive to increase the fan base, merchandising, which profits every owner.


    Actually, (none / 0) (#21)
    by Makarov on Thu Mar 17, 2011 at 03:31:19 AM EST
    Jersey's aren't all the same prices. When the Redskins benched Donovan McNabb and Al Haynesworth late last season, they cut the price through the Redskins' online store by 50%.

    Something that costs X at NFL.com may not be the same at an individual team's store.

    Not all revenue is subject to sharing either, by the way. While much of the merchandising and all of the TV revenue is shared, based on an allocation of home game ticket sales, teams do have individual marketing arrangements. In the Philadelphia area, you'll find an Eagles breakfast cereal, Eagles Sundae ice cream from Turkey Hill, and other local merchandising deals.

    Revenue from PSL's (personal seat licenses) is also separate, and isn't shared with the players either based on the 2006 CBA. It's money for the individual owners off the top.


    If It Has the NFL Logo On It, It's Sharded (none / 0) (#22)
    by ScottW714 on Thu Mar 17, 2011 at 09:25:17 AM EST
    And if breakfast cereal is the where we are going to prove they are not one unit, that's going way, way, out there to find the exception.  And I bet no NFL logo is on the box.

    PSL, beer, parking, food, that's all stadium owner revenue, which in most cases is the city.  Owner's generally don't make much from tickets sales unless, like Jerry Jones, they use their own funds to build it.  Here in Houston the city gets most of the stadium revenue, and it's used to pay off the bonds that built it.


    Audited financials (none / 0) (#5)
    by MKS on Wed Mar 16, 2011 at 06:01:10 PM EST
    I had heard somewhere that the players were still trying to get the owners to provide them with audited finanacials so that they could verify team income.

    That the players are having trouble with such rudimentary issues tells me they are getting screwed.

    Why did the players decertify (none / 0) (#12)
    by oculus on Wed Mar 16, 2011 at 06:40:58 PM EST
    their union?  Here's what NFL.com says:  FAQ re decertification

    If they didn't decertify (none / 0) (#20)
    by Makarov on Thu Mar 17, 2011 at 03:21:44 AM EST
    while the CBA was still in force, they would have had to wait 6 months to do so. Since they expected the owners would lock them out (which they did), they had to decertify in order to sue.

    If Doty moves fast enough, he'll save football for 2011. He could move fast enough to save pre-draft free agency, but I don't expect it. The 2011 draft is ~ April 28th.


    NCAA (none / 0) (#15)
    by ek hornbeck on Wed Mar 16, 2011 at 10:37:29 PM EST

    Shameless! Are Obama's picks (5.00 / 1) (#16)
    by oculus on Thu Mar 17, 2011 at 12:37:16 AM EST
    boring?  I saw a headline to that effect.

    Yes, yes I am. (5.00 / 1) (#23)
    by ek hornbeck on Thu Mar 17, 2011 at 10:35:54 AM EST
    I wanted Armando to see them since I know he's a big fan and this is as close to on topic as I could get.

    I don't play pools, I root.