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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