Sports Management
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SpMgt577_Ch10_Notes.pptx
Antitrust Law
Chapter 10
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 can obtain quality products at 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, 2013).
To prove a violation, one must show the following:
Existence of agreement between two separate parties
Action taken under the agreement is anticompetitive because it unreasonably restrains trade
Action taken under the agreement involves interstate commerce (i.e., commerce affecting more than one state)
Violations of Section 1
Per se rule prohibits inherently anticompetitive conduct that automatically violates the Sherman Antitrust Act, such as price fixing and group boycotts.
Courts use the rule of reason in antitrust cases when the conduct is not inherently anticompetitive.
Under this rule, a court focuses on whether the challenged conduct unreasonably restrains trade.
Courts apply a balancing test of procompetitive and anticompetitive 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, 2013).
Monopoly:
an organization that has 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 damages were tripled from $11.4 million to more than $35 million.
League Structure
A crucial question for antitrust analysis is whether a sport 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 it is a group of owners or employers, then section 1 applies.
Player Restraints
Assuming leagues are not single entities, then the following labor issues have antitrust implications:
Player drafts
Restrictions on free agency
Salary caps
Player Drafts
Each of the major sport leagues uses an annual draft to select and allocate players to its member teams.
Each league sets out specific requirements related to the age of those who can be drafted, their completion or progress in high school or college, 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
Used to be in every professional baseball player’s contract
Stated that if the player did not automatically sign a new contract with the team for the next season, all the provisions of his present contract would be automatically renewed
NFL’s Rozelle rule
NFL rule that 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 (CBAs) are contracts between 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
Exemptions include 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
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)
Antitrust Exemptions: Nonstatutory Labor Exemption
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
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 are still protected by the antitrust exemption.
Ownership
Management
Relocation
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, 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)
Franchise Relocation
Professional sport 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 were sued.
Federal appeals court found the NFL franchise relocation restrictions violated the antitrust laws.
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 the following:
It is not made up of separate business entities.
It is one business entity.
With only one business entity, there is no combination or conspiracy in restraint of trade as required to violate the antitrust laws.
American Needle v. NFL
National Football League Properties (NFLP) granted nonexclusive licenses to various vendors, which allowed them to make and sell apparel with team or NFL logos.
American Needle lost its license when the NFLP gave Reebok a one-year exclusive license for trademarked headwear with NFL team logos.
American Needle brought antitrust action against the NFL.
The NFL defended itself based on claim that it was a single entity.
The district court and the Seventh Circuit found in favor of the NFL.
American Needle v. NFL (continued)
The Supreme Court reversed the finding:
NFL teams compete on and off the field for fans, ticket sales, staff, and players; therefore, each team is an independently owned and managed separate business.
When the teams license their individual trademarks to NFLP, this concerted action could be subject to antitrust scrutiny.
The court remanded the case back to the Seventh Circuit, which then remanded it to the trial court.
To date, there has been no final resolution of the litigation.
Individual Performance 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 on 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: NCAA
Stated mission
Preserve the amateur nature of intercollegiate athletics as a part of the educational process in universities
Ensure that its member schools compete on a level playing field
Has created extensive rules restricting the nature of participation in intercollegiate athletics
Limits on recruiting
Academic eligibility requirements
Financial aid standards
Agent regulations
Amateurism rules
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 sport league or sign with an agent do not violate antitrust laws (Banks v. NCAA, 1992).
O’Bannon v. NCAA
In 2015, the Ninth Circuit upheld a district court decision that found that the NCAA violated antitrust law by limiting student compensation.
Marked the first time a federal circuit court applied rule of reason analysis to NCAA regulation of student compensation
Alston v. NCAA
In 2021, the Supreme Court held that the NCAA and its member schools and conferences violated the Sherman Act by agreeing to limit the amount that schools could compensate athletes for education-related costs.
