chapter 10 Antitrust Law

Chapter Objectives After reading this chapter, you will know the following: The federal antitrust laws and how they apply to sport The types of player restraints that have been reviewed under the antitrust laws The types of exemptions from the antitrust laws that apply to professional sport The history of team movement and the ways that antitrust laws affect the movement of teams within professional sports The specific ways that antitrust laws have been used to regulate college athletics

Purposes of Antitrust Law Promote competition and efficiency in the marketplace Protect consumers from the growing monopoly power of big business Maintain a high level of competition among producers so that consumers are able to get products at affordable and reasonable prices

Federal Antitrust Laws Sherman Act Clayton Act Sports Broadcasting Act Curt Flood Act

Sherman Antitrust Act Section 1: “Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several states or foreign nations is declared to be illegal” (15 U.S.C. § 1, 2008). To prove a violation 1. Must show that there is an agreement between two separate parties 2. Must show that the parties’ conduct taken under the agreement unreasonably restrains trade because they are anticompetitive 3. Activity must affect interstate commerce (i.e., commerce that takes place between two or more states)

Violations of Section 1 1. Per Se Rule: Conduct that is inherently anticompetitive, such as price fixing and group boycotts, and so automatically violates the Sherman Antitrust Act 2. Rule of Reason: Rule used by courts in antitrust cases that applies when the conduct is not inherently anticompetitive; under this rule, a court focuses on whether the challenged conduct unreasonably restrains trade A balancing test of pro-competitive and anti- competitive effects of the action

Sherman Antitrust Act Section 2: “Every person who shall monopolize, or attempt to monopolize or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a felony” (15 U.S.C. § 2, 2008). Monopoly: An organization that possesses exclusive control over the means of selling and producing a product.

Clayton Antitrust Act Provides that when a plaintiff proves that there has been a breach of the Sherman Act, the damages that the plaintiff can recover are tripled. In 1984, when Los Angeles Raiders owner Al Davis won his antitrust lawsuit against the NFL, the tripled damages amounted to more than $35 million.

League Structure A crucial question for antitrust analysis is whether a sports league is one entity or an entity composed of different, separate owners. –If it is a single entity, then its decisions do not constitute section 1 violations (since it applies to two or more entities) –If a group of owners or employers, then section 1 applies –Courts had to deal with this question with frequency in the 1980s and 1990s

Player Restraints Assuming leagues are not single entities, then the following labor issues have antitrust implications: 1. Player drafts 2. Restrictions on free agency 3. Salary caps

Player Drafts Each of the major sports leagues uses an annual draft to select and allocate players to its member teams. Each league also sets out specific requirements related to the age of those who can be drafted, their completion or progress in high school or university, and their eligibility to be drafted by a member team. Past courts have called aspects of the draft into question.

Free Agency The period of time when a professional athlete is not under contract to any particular team and so is able to freely negotiate with any team

Restrictions on Free Agency Baseball’s reserve clause –A clause used to be in every professional baseball player’s contract stating that if the player did not automatically sign a new contract with the team for the next season, all of the provisions of his present contract would be automatically renewed. –The player remained the property of his team. NFL’s Rozelle rule –NFL rule required a team signing a veteran free agent to provide compensation to the team that was losing the player. –Struck down as an antitrust violation in Mackey v. NFL. Collective bargaining agreements between the leagues and their players’ associations

Salary Caps Set a limit on the amount of money a team can spend on player salaries Set either as per-player limits or as a total limit that a team can pay for its players

Antitrust Exemptions Findings by a court or provisions of statutes that exempt a party from review under a particular regulation or statute. Exemptions allow the party to avoid a lawsuit as a result of its actions that otherwise could be found to have violated the regulation or statute. Baseball’s antitrust exemption –Judicial exemption granted to Major League Baseball in 1922 that immunizes the league from being sued for violations of the antitrust laws. –Baseball did not act in interstate commerce. –Exemption upheld in Flood v. Kuhn (1972). Nonstatutory labor exemption –Judicial exemption that provides that when employers and employees have bargained in good faith, one party cannot be sued by the other party claiming violations of the antitrust laws –Remains in effect even after collective bargaining agreement ends

Broadcasting Exemption Sports Broadcasting Act –Enables clubs to put their separate rights together into one package so that the league can sell the package to one purchaser, such as a TV network, in an effort to protect their home game ticket sales and to allow clubs to share television revenues. –Allows professional hockey, football, baseball, and basketball to pool and sell their rights in sponsored telecasts of games without the fear of being sued for creating an agreement in restraint of trade. NCAA is not a party.

Curt Flood Act Modifies baseball’s antitrust exemption. Allows baseball players to sue MLB if they believe that some condition of their employment may violate the antitrust laws. –Other aspects of the business of baseball itself (ownership, management, relocation) are still protected by the antitrust exemption.

Franchise Relocation Professional sports leagues restrict franchise relocations to other cities. Approval by 75% of owners is required. Teams have sued the leagues claiming that these rules violate the antitrust laws. Los Angeles Memorial Coliseum Commission v. NFL, 1984 –NFL owners voted against move of the Oakland Raiders to Los Angeles. –Raiders’ owner Al Davis and the Los Angeles Coliseum sued. –Federal appeals court found the NFL franchise relocation restrictions violated the antitrust laws. –Team was awarded $11.5 million and Coliseum was awarded $4.6 million, both amounts then tripled under the Clayton Act. This case ruled that the NFL is not a single entity.

Single-Entity Structure: Defense A defense to an antitrust claim; a party using this defense must demonstrate that instead of being an organization made up of separate business entities, it is one business entity itself and so it cannot be a combination or conspiracy in restraint of trade as required to violate the antitrust laws.

Fraser v. MLS, 2000 Major League Soccer attempted to be set up as a single entity. League office owned all player contracts, controlled all player salaries under a salary cap, and mandated transfer fees for player transactions among teams. Players sued, claiming that the restrictive player restraints embodied in the salary cap and transfer system violated the antitrust laws. MLS admitted that it had created this structure in an attempt to keep salaries and other costs down so that the league could develop a strong base of financial viability in its early years of operation. (continued)

Fraser v. MLS, 2000 (continued) The federal appeals court agreed with MLS, finding that it was a single corporate entity, and therefore it could not violate section 1 of the Sherman Act. The crux of the ruling was based on the conclusion that the players could not show that MLS was the relevant market for soccer.

Individual Performer Sports Professional boxing, tennis, golf, bowling, and automobile racing have all been found to be businesses engaged in interstate commerce. There is a focus of antitrust scrutiny of these sports. Eligibility restraints have not been found to violate the antitrust laws if the restrictions promote the quality of the competition, ensure uniformity of the rules, and assist in the orderly scheduling of tournaments and other events.

College Sports: Goals of the NCAA Preserve the amateur nature of intercollegiate athletics as a part of the educational process in university and to ensure that its member schools compete on a level playing field. NCAA has created extensive rules restricting the nature of participation in intercollegiate athletics (e.g., limits on recruiting, academic eligibility requirements, financial aid standards, agent regulations, amateurism rules, and a myriad of other topics).

Antitrust Review of the NCAA Rules that affect commercial activity have been found to violate the antitrust laws. –NCAA football television plan that set limits on number of games that could be televised was found to violate antitrust laws (NCAA v. Board of Regents, 1984). –Rule restricting coaches salaries was found to violate antitrust laws (Law v. NCAA, 1998). Rules that are not commercial in nature have been found to not violate the antitrust laws. –NCAA argues that eligibility rules and academic standards are needed to preserve amateurism of NCAA athletics. –NCAA no-draft, no-agent rules barring athletes who are drafted by a professional sports league or sign with an agent do not violate antitrust laws (Banks v. NCAA, 1992).