Antitrust Law 101

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-03-15-2011
AvengerRam

Antitrust Law 101

If you are following the NFL/NFLPA dispute, you've probably heard a lot of references to antitrust law. As many of you know, I am an attorney. While antitrust is not my practice area (I specialize in employment law), I know enough to give a basic primer.

In essence, the NFLPA is arguing that the league should be prohibited from acting collectively (in collusion) to control such issues as salary, contract status (i.e. free agency) and other terms and conditions of employment.

The question of whether they are right comes down to whether the NFL is viewed as a single entity or a group of independent entities. A single entity can enact whatever rules it wishes. A group of independent entities may be restricted by antitrust law from doing the same (as such collusion interferes with free trade).

The NFL (or any sports league) has aspects of both. No team can operate entirely independently (who would they play?), so the success of the sport depends on the existence of a league. On the other hand, the individual teams are owned separately and compete against each other for revenue, at least to some extent.

In recognition of the unique nature of sports leagues, the law has traditionally exempted the NFL from standard antitrust analyses, and allowed them to operate as, essentially, a collection of independently owned sub-entities.

The NFLPA is now challenging this exemption. In honesty, they don't really want the NFL to be fully subject to antitrust laws, as it would destroy the league and result in less revenue available to divide among all parties.

So, like most issues, this is a game of chicken. The NFLPA is seeking a ruling on April 6 that the antitrust argument is viable (a final decision is not made at that stage). Such a ruling (which would be accopanied by an injunction that would end the lockout), would force the NFL to settle the matter rather than risk an adverse final ruling on the antitrust issue.

Hope that helps!
-03-15-2011
RAMarkable

Re: Antitrust Law 101

Thanks for your efforts in explaining these concepts. One question I hope you can answer is does the NFL enjoy the same kind of antitrust exemption as Major League Baseball does?

Seems to me that the one MLB has was formulated by Congress itself and is exempt from most everything. However, I could be (and most likely am) wrong on this.

Have you heard anything about different types of exemptions? And, if so, what impact may this have on any court decisions?

WHAT SAY YE?
-03-15-2011
MauiRam

Re: Antitrust Law 101

Quote:

Originally Posted by AvengerRam

The NFLPA is now challenging this exemption. In honesty, they don't really want the NFL to be fully subject to antitrust laws, as it would destroy the league and result in less revenue available to divide among all parties.

How would being fully subject to antitrust laws destroy the league? Just curious .. I'm sure that there are at least a few of us Clannies who don't have much knowledge of antitrust laws ..
-03-15-2011
AvengerRam

Re: Antitrust Law 101

Quote:

Originally Posted by RAMarkable

Thanks for your efforts in explaining these concepts. One question I hope you can answer is does the NFL enjoy the same kind of antitrust exemption as Major League Baseball does?

Seems to me that the one MLB has was formulated by Congress itself and is exempt from most everything. However, I could be (and most likely am) wrong on this.

Have you heard anything about different types of exemptions? And, if so, what impact may this have on any court decisions?

WHAT SAY YE?

MLB and the NFL have different exemptions (some created judicially, some by the legislature) and, as you stated, the MLB's are broader.

The scope of these exemptions are defined on a case-by-case basis. How this case will play out is anyone's guess. My only prediction is that there will likely never be a final judgment (as opposed to a preliminary ruling for the purposes of an injunction) as both parties have too much to risk by putting their fates fully in the hands of a court.
-03-15-2011
AvengerRam

Re: Antitrust Law 101

Quote:

Originally Posted by MauiRam

How would being fully subject to antitrust laws destroy the league? Just curious .. I'm sure that there are at least a few of us Clannies who don't have much knowledge of antitrust laws ..

If there were no exemptions, it would be difficult, if not impossible, for the NFL to maintain the competitive balance of the league. For example, instead of a draft, teams could sign rookies as if they were free agents. The league would also be unable to enforce a salary cap, so a team like Dallas could spend as much as they wished and sign 10 of the top 15 rookies in a single year. Finally, with no ability to negotiate as a unit on such revenue generating things like TV deals, the rich would get richer, and the poor would get poorer.

In the end, you'd have a few great teams, and a bunch of others fighting to stay in business.
-03-15-2011
fliptalianstallion

Re: Antitrust Law 101

Quote:

Originally Posted by AvengerRam

If there were no exemptions, it would be difficult, if not impossible, for the NFL to maintain the competitive balance of the league. For example, instead of a draft, teams could sign rookies as if they were free agents. The league would also be unable to enforce a salary cap, so a team like Dallas could spend as much as they wished and sign 10 of the top 15 rookies in a single year. Finally, with no ability to negotiate as a unit on such revenue generating things like TV deals, the rich would get richer, and the poor would get poorer.

In the end, you'd have a few great teams, and a bunch of others fighting to stay in business.

I can see football losing its popularity faster than the NHL if that were to occur. Wonder if some of the NFLPA members get what long-term consequences are coming for them if they allow stuff like this to happen.
-03-19-2011
berg8309

Re: Antitrust Law 101

Quote:

Originally Posted by AvengerRam

If there were no exemptions, it would be difficult, if not impossible, for the NFL to maintain the competitive balance of the league. For example, instead of a draft, teams could sign rookies as if they were free agents. The league would also be unable to enforce a salary cap, so a team like Dallas could spend as much as they wished and sign 10 of the top 15 rookies in a single year. Finally, with no ability to negotiate as a unit on such revenue generating things like TV deals, the rich would get richer, and the poor would get poorer.

In the end, you'd have a few great teams, and a bunch of others fighting to stay in business.

Courts have in the passed recognized this "any given sunday" effect as necessary for a sport to stay in business. That the more teams that are competitive, the better the overall health of the league. The NFL has engaged in competitive balance longer than the other sports I feel, and that may explain why they rose to the top so fast. How hard must it be to be a long-time Pirates or Royals fan in MLB? And you know they are still going to continue to be bad for a while.

Truth be told, in an anti-trust lawsuit, this is exactly what the NFL is going to argue, in terms of how these things are actually pro-competitive and not anti-competitive. In fact, I wouldn't be surprised to see the Rams Superbowl season mentioned in there, along with a note that no other sport really has a comparable story.

I think it is a bit risky for the players to sue over it, it is very far from a slam dunk case, especially if the judge on the case thinks his team wouldn't be able to compete with the giants/pats/bears/jets/cowboys for players. A bit of a messed up way to the result, but judges making decisions based upon what will help their team isn't unheard of. In addition, if the lawsuit doesn't settle out, I think the results will be devastating to one side or the other. If I were the players, I would hope it is against them, because a world without salary caps or drafts is a world where the NFL is about 2/3 its size, and therefore 1/3 of the guys cheering are about to be out of work.
-03-19-2011
Fettmaster

Re: Antitrust Law 101

Quote:

Originally Posted by fliptalianstallion

I can see football losing its popularity faster than the NHL if that were to occur. Wonder if some of the NFLPA members get what long-term consequences are coming for them if they allow stuff like this to happen.

Nonsense. Football is by far the most popular sport all across the country and the NFL is the paramount of that popularity. Even people who know nothing about the sport have a favorite NFL team. This year's Super Bowl was the most watched thing, ever.

Hockey, and the NHL have never, and most likely will never, experience that same level of widespread eminence. If we were to lose the season, it would be incredibly damaging yes, but do you seriously think people will stay away? Do you honestly think we will be watching the NFL on Versus? Won't happen.
-03-19-2011
berg8309

Re: Antitrust Law 101

Quote:

Originally Posted by Fettmaster

Nonsense. Football is by far the most popular sport all across the country and the NFL is the paramount of that popularity. Even people who know nothing about the sport have a favorite NFL team. This year's Super Bowl was the most watched thing, ever.

Hockey, and the NHL have never, and most likely will never, experience that same level of widespread eminence. If we were to lose the season, it would be incredibly damaging yes, but do you seriously think people will stay away? Do you honestly think we will be watching the NFL on Versus? Won't happen.

It actually isn't non-sense. The NFL may not lose it's popularity in markets such as, say New York, Boston, Chicago etc. where they can hand out millions upon millions to make sure they are the only markets that top prospects go to. But what about Cleveland? Indianapolis? St. Louis? Kansas City? Those market just don't have the kind of media empire, population size, or overall appeal to attract or pay the top prospects in a bidding war.

What would happen is the top prospects start getting pigeon-holed into a few top teams, the middle to small markets suffer, and the sport starts to lose it's competitive balance. Once competitive balance is lost, the fans of teams that have no chance at all to ever win anything will simply stop watching. The Royals and the Pirates in MLB had loyal fan bases, but a long history of losing in a league where they have almost no hope of competing has decimated fan interest. Sure, there are a lot of Royals and Pirates fans left, but not enough to give the team enough money to actively compete for free agents or even re-sign their own players.

If you think that doesn't happen in the NFL, look at the Lions, their loyal fan base has started to wane even with new talent. They struggle to sell-out games. People don't pay to see games where the outcome is decided, it's boring. The NFL has thrived on the idea that any team can win any game. The draft and salary cap are there to ensure that big market teams don't dominate simply because their geographic location gives them the capital they need to outbid everyone. They ensure that every team has a legitimate chance at obtaining star quality players, re-signing those players, and generally try to make every game competitive. A few bad teams are there every year, true, but without the cap and draft you would have a permanent stable of cellar dwellers who have no hope of ever getting out of it. With the draft, you have hope.

Make no mistake, the NFL would lose a lot of popularity if it became a league where only the teams in rich markets had the best players. The NFL is popular because it has competitive balance, not the other way around. Take away the competitive balance, and you'd see a lot less popular of an NFL.
-03-19-2011
Fettmaster

Re: Antitrust Law 101

Quote:

Originally Posted by berg8309

It actually isn't non-sense. The NFL may not lose it's popularity in markets such as, say New York, Boston, Chicago etc. where they can hand out millions upon millions to make sure they are the only markets that top prospects go to. But what about Cleveland? Indianapolis? St. Louis? Kansas City? Those market just don't have the kind of media empire, population size, or overall appeal to attract or pay the top prospects in a bidding war.

What would happen is the top prospects start getting pigeon-holed into a few top teams, the middle to small markets suffer, and the sport starts to lose it's competitive balance. Once competitive balance is lost, the fans of teams that have no chance at all to ever win anything will simply stop watching. The Royals and the Pirates in MLB had loyal fan bases, but a long history of losing in a league where they have almost no hope of competing has decimated fan interest. Sure, there are a lot of Royals and Pirates fans left, but not enough to give the team enough money to actively compete for free agents or even re-sign their own players.

If you think that doesn't happen in the NFL, look at the Lions, their loyal fan base has started to wane even with new talent. They struggle to sell-out games. People don't pay to see games where the outcome is decided, it's boring. The NFL has thrived on the idea that any team can win any game. The draft and salary cap are there to ensure that big market teams don't dominate simply because their geographic location gives them the capital they need to outbid everyone. They ensure that every team has a legitimate chance at obtaining star quality players, re-signing those players, and generally try to make every game competitive. A few bad teams are there every year, true, but without the cap and draft you would have a permanent stable of cellar dwellers who have no hope of ever getting out of it. With the draft, you have hope.

Make no mistake, the NFL would lose a lot of popularity if it became a league where only the teams in rich markets had the best players. The NFL is popular because it has competitive balance, not the other way around. Take away the competitive balance, and you'd see a lot less popular of an NFL.

The salary cap isn't going anywhere.