Commentary

Antitrust case could be Armageddon

Originally Published: July 17, 2009
By Lester Munson | ESPN.com

Fast forward to a high-definition picture of sports late in 2010. Here is the news of the day, scrawling across the bottom of your TV screen or mobile Web device:

• LeBron James, who had been expecting a free-agency bonanza when his contract with the Cleveland Cavaliers expired after the 2009-2010 season, opens the 2010-11 season with … the Cavs, the only team with the right to sign him. Cleveland retains the NBA MVP by slotting his salary into the new league-wide scale.

• Minnesota Vikings defensive coordinator Leslie Frazier, the hottest commodity for every opening in the NFL over the past six months, signs on to be the new head coach of the Dallas Cowboys … at a league-determined salary that will pay him far less than he'd have made if the Denver Broncos had chosen him over Josh McDaniels in 2009.

• The Ricketts family, new owner of the Chicago Cubs, scraps plans for its own cable channel because Major League Baseball has barred all such broadcasts, as well as webcasts, by individual teams.

• A young Detroit Red Wings fan who has saved his pennies for months shells out $300 to buy a replica sweater that would have cost him $80 in 2009.

[+] EnlargeSupreme Court
AP Photo/J. Scott ApplewhiteThe deciders of the future of sports? These nine Supreme Court Justices (minus David Souter, front right, and plus Sonia Sotomayor, who has yet to be confirmed) could dramatically change the landscape.

• Lockouts and strikes loom large in all four major team sports as an era of relative peace on the sports labor front ends and owners begin to exercise their new power over player unions.

Unlikely?

Discouraging?

It could happen.

All of those scenarios, in fact, could become realities if the NFL triumphs in a case now under consideration in the U.S. Supreme Court. Experts agree that the case known as American Needle vs. NFL could easily be the most significant legal turning point in the history of American sports. If the high court rules in favor of the NFL, the development will be more important to the sports industry than Curt Flood's battle against the reserve clause in the 1970s; than baseball's collusion cases in the mid-'80s; than the NFL players union's epic fight for free agency in a series of antitrust cases that stretched over a decade; and even than the enactment of the Sports Broadcasting Act in 1961, which is the legislation that is the foundation of the NFL's television riches.

"There is nothing of more concern to me," says one veteran union official, asking for anonymity because of the pending case and the significance of the issues. "Our leverage is in the antitrust courts, and a bad decision in this case could tilt the playing field beyond recognition."

Another union leader, recognizing the significance of a win for the NFL, says wistfully, "We can only hope that the justices somehow decide that their decision to take the case for review was improvident and then decide not to make any decision."

The news in late June that the Supreme Court had agreed to review the case flashed through the offices of the four player unions, the other three leagues, television networks and corporate sponsors.

The reaction of the unions was swift. Leaders and lawyers for all four unions are now in weekly conferences trying to formulate a coordinated strategy for intervening in the Supreme Court's deliberation. Although the players unions have worked together previously for other common causes, it has rarely happened with this level of urgency.

Legal scholars and experts agree that the case is of enormous significance. Gary Roberts, the dean of the Indiana University School of Law and the author of the leading textbook on sports law, tells ESPN.com that the case "could easily turn out to be the most significant sports law decision ever."

And even as a longtime NFL official who also asked not to be named tries to minimize the importance of the case, he admits that it is the first time the league has approached "so important an issue at so high a level."

The case began innocuously enough in Chicago in December of 2004 when American Needle, Inc. (ANI), filed an antitrust case against the NFL, claiming that the league was using its monopoly powers illegally to deprive the company of its share of the market for caps and hats bearing logos of NFL teams. ANI had made knit caps and baseball hats bearing NFL logos for decades until the NFL ended the relationship in 2000.

Four and a half years ago, the case was nothing unusual. These sorts of legal actions happen all the time, as the NFL is a popular target for antitrust cases large and small. The league's law firm, Covington & Burling in Washington, D.C., has defended similar suits for nearly 60 years -- recently, the unsuccessful attempt by Ohio State running back Maurice Clarett to alter the NFL's draft age requirements. Notable losses for the league came in the antitrust cases filed in Minneapolis by Freeman McNeil and Reggie White in the late '80s and early '90s that established free agency and other important benefits for NFL players.

[+] EnlargeAmerican Needle
AP Photo/Nam Y. HuhWill American Needle be the mouse that roared too loudly? The NFL is trying to make that the case.

For a time, the American Needle case seemed on its way to a rapid conclusion. The NFL won as quickly and as conclusively as anyone can win an antitrust lawsuit in the trial court and in an appeals court.

But American Needle didn't give up. It filed a request for review to the U.S. Supreme Court, one of 7,500 or so such requests filed annually. The court takes only 70 or 75 cases for decision each year, and American Needle's quest seemed quixotic at best.

Then, in a stunning development, the NFL told the Supreme Court it endorsed American Needle's request for a hearing and a decision. The league's attorneys announced, in a remarkable understatement, that they "are taking the unusual step of supporting" American Needle's effort to have the case reviewed at the highest level.

The league's action was a legal bombshell. Instead of standing on its lower-court wins over American Needle, the league told the Supreme Court that it wants the justices to consider an issue far beyond the caps-and-hats contract. It wants the court to grant the NFL total immunity from all forms of antitrust scrutiny, an immunity that would then apply to the NBA, the NHL and MLB, as well.

"It's a strategy of high risk and high reward," says Randal Picker, a professor at the University of Chicago Law School who focuses on antitrust issues in the high court. "The NFL is making a bold bet on a big issue."

The court's first response was to ask the Obama administration for its thoughts on the issue. Sensing the historic possibilities of the case and the magnitude of the ramifications, Elena Kagan, the solicitor general appointed by President Barack Obama, urged caution, telling the justices, "This case would be a particularly unsuitable vehicle to consider the broad rule that the NFL seeks."

But that wasn't enough to keep the Supreme Court from accepting it.

The legal doctrine at the center of the case is known as "single entity." If the NFL manages to persuade the Supreme Court that the league is a single entity competing with other providers of entertainment rather than a group of 32 separate businesses competing with each other, the landscape of the sports industry will be transformed, according to law professors and experts contacted by ESPN.com.

If it is a single unit and not 32 separate, competing teams, any violation of American antitrust law would be impossible to establish. A violation of the Sherman Act begins with a "combination, contract or conspiracy" that restrains competition and hurts consumers. If the NFL is a single unit, it cannot be in combination, contract or conspiracy. It would be immune to the antitrust cases that have allowed player unions to establish and to protect free agency and other benefits.

There is nothing of more concern to me. Our leverage is in the antitrust courts, and a bad decision in this case could tilt the playing field beyond recognition.

--A veteran union official

Under the rule of single entity suggested by the NFL, the league could be vulnerable to antitrust scrutiny only if it were to join with other leagues or other providers of entertainment in setting prices, a highly unlikely development.

The NFL has been trying for decades to sell the idea that it is a single entity and so should be immune to antitrust attacks, with uniformly bad results. At least seven times in federal courts throughout the U.S., judges have been quick to recognize that NFL teams compete with each other for free-agent players, for coaches, for executives, for sponsors, for naming rights money and for fans.

"If the court adopts the NFL's single-entity concept, it would change everything," says Marc Edelman, a law professor at Rutgers who wrote the leading law review article on the issue.

A third antitrust law professor, James Speta of Northwestern, agrees that the NFL's action is a "bold strategy" that is based on the court's trend, under the leadership of John Roberts, the chief justice of the United States, toward rulings that are pro-business.

In other words, as the Supreme Court prepares to hear the single-entity argument at the highest level, the NFL might finally be presenting the idea in the right place at the right time.

"I am sure that the league and the lawyers have gone through a justice-by-justice analysis and have concluded that they have a chance to solve many problems in a single decision," Picker says.

Although handicapping a decision in the high court can be perilous, Supreme Court scholars agree that Roberts, Samuel Alito, Clarence Thomas and Antonin Scalia are likely supporters of the NFL's position. Stephen Breyer could easily join the pro-business justices based on his opinion in an NFL case in 1996 in which he hammered the union.

According to most experts, Obama's choice for the court, Sonia Sotomayor, is likely to side with the players, a conclusion based on her ruling for the MLB players during the work stoppage of 1995. Sotomayor is expected to be confirmed by the time the Supreme Court reviews the case.

[+] EnlargeSonia Sotomayor
AP Photo/Ron EdmondsIt's tough to predict, but the best guess is that soon-to-be Supreme Court Justice Sonia Sotomayor might not look favorably on the NFL's case.

If the NFL is successful, then players, maverick owners, networks, paraphernalia manufacturers, fans and others will find themselves conducting business with what would be one of the most powerful cartels ever.

With their new powers and freedom from antitrust concerns, all four leagues would enter a new reality. Owners could attack free agency, using their new bargaining power to restrict player movement from team to team and impose a salary schedule, which is how the Cavaliers' James conceivably could find his options severely limited after the upcoming NBA season. That could apply to any prospective free agent across the spectrum of pro sports, including stars such as the Boston Red Sox's Josh Beckett (whose contract expires after this season), the Minnesota Twins' Joe Mauer (who is scheduled for free agency in 2011) and the Houston Astros' Lance Berkman (2011) in MLB, as well as the Arizona Cardinals' Larry Fitzgerald and the San Diego Chargers' Shawne Merriman (both of whom could be on the market after this season) in the NFL.

Leagues could easily establish a similar salary schedule for coaches and managers, who are considered a part of management and cannot legally form a union. Thus, the Vikings' Frazier, who has already interviewed for a number of NFL head-coaching openings but has yet to land one of the top jobs, could see his earning power restricted if and when he does.

And leagues could further centralize control over other team operations such as paraphernalia sales, TV programming and web initiatives.

Both the NCAA and the BCS would welcome a decision in favor of the NFL. For the NCAA, the single-entity concept could bring to an end a string of embarrassing and expensive losses in antitrust lawsuits. And the BCS would enjoy new protection against antitrust attacks that have the potential to break up its bowl system.

Although the MLB Players Association has used collective bargaining in its fight to establish significant rights for players under the leadership of Marvin Miller and Donald Fehr, both the football and basketball unions have succeeded for their players primarily by decertifying their unions and then pursuing antitrust lawsuits against leagues and team owners. Even the gains the football and basketball players have made in bargaining have come with the threat of antitrust litigation on the horizon.

If the NFL succeeds in its single-entity gambit in the Supreme Court, the words "decertification" and "class action" will disappear from the vocabulary of sports. Unions will be left to the uncertainties of bargaining a contract with strikes as their only significant leverage. Instead of resolving bargaining impasses with court cases, the deadlocks will be resolved in strikes and lockouts -- the baseball way.

"It is highly significant that the NFL players have never really succeeded in collective bargaining. Their successes have come in antitrust actions," Edelman says. "Even with their successes in antitrust, they still have no guaranteed contracts; and they have yet to obtain other basic benefits like a neutral arbitrator for player grievances."

If the court adopts the NFL's single-entity concept, it would change everything.

--Law professor Marc Edelman

Any doubt about the significance of a ruling for the NFL in the American Needle case is resolved with a look at the all-star team of attorneys the unions are assembling.

Fehr and the MLBPA have hired Virginia Seitz, who graduated Phi Beta Kappa and summa cum laude at Duke, won a Rhodes Scholarship and then finished first in her class at the University at Buffalo Law School. She was a law clerk to former Supreme Court Justice William J. Brennan and works exclusively on cases in the nation's highest court.

Paul Kelly and the NHL Players' Association have hired Laurence Gold, a graduate of Princeton University and Harvard Law School who served as general counsel of the AFL-CIO and has argued dozens of cases in the high court.

And Jeff Carey, the attorney for American Needle who filed the lawsuit and handled the case through the U.S. Court of Appeals, has also brought in a heavy hitter, Glen Nager, an honors graduate of the University of Texas and Stanford University Law School who served as a law clerk to Supreme Court Justice Sandra Day O'Connor. Nager argued and won an 8-0 decision in a recent antitrust case. (Justice Samuel Alito did not participate.)

The NBA and NFL unions have not yet retained attorneys to appear in the Supreme Court.

These elite lawyers and others to come from the basketball and football players unions will ask the justices to consider their arguments as friends of the court. Experts agree that they will present powerful cases against the revolutionary change in the law sought by the NFL.

[+] EnlargeAmerican Needle
AP Photo/Nam Y. HuhDan Parenti, American Needle's creative director, among some of the company's products.

Leading the battle for the NFL will be Gregg Levy, another litigation superstar who defeated the union and its attorney, Kenneth Starr, in the 1996 Supreme Court decision in Brown vs. Pro Football, Inc., a case involving a salary scale for taxi squad (now called practice squad) players. Levy also won a powerful opinion from Sotomayor in the Clarett case while Sotomayor was a judge on the Court of Appeals for the 2nd Circuit (New York).

The NBA and the NHL will join the NFL and Levy with friend-of-the-court briefs.

American Needle's experience offers some evidence of what can happen when the NFL is successful in defending itself against antitrust suits. In court papers, attorneys for American Needle explain that the manufacturer was one of several competing companies licensed to make hats and caps bearing NFL logos. When the league agreed to grant caps-and-hats exclusivity to Reebok in 2000, the prices jumped from $19.99 to $30. Prices of replica jerseys increased by 60 percent, according to Carey, the ANI attorney.

After hearings in 2006, the Senate Judiciary Committee confirmed that it is "well documented" that fans and consumers suffered "losses from potentially anticompetitive agreements among professional sports clubs" such as the exclusive contract with Reebok.

So the Supreme Court will hear powerful arguments and evidence that contradict the single-entity concept. But experts agree -- and the unions fear -- that the NFL and the other leagues have a chance for success.

"The court is clearly pro-business and is cutting back on the use of antitrust laws," Edelman says. "They are relying on economic theories instead of theories of legal regulation. Instead of a violation, they see an efficiency."

Speta adds, "For a long time, there were no antitrust cases decided in the Supreme Court, and now there are cases with the decisions moving in the direction of business."

The NFL, clearly reading that trend, made a calculated commercial decision to agree to American Needle's request for a Supreme Court hearing, and coupled it with a demand to increase the stakes by asking the court to go well beyond the hats-and-caps market into a consideration of a single-entity rule for all leagues in all matters.

Can the NFL and the other leagues succeed? A decision will come in the spring or early summer of 2010. If the NFL can find five votes for its single-entity concept, it will transform the industry.

Leagues will enjoy unfettered monopoly powers.

Salaries for players and coaches will drop.

Free agency will wither away.

Sponsors will pay more.

Fans will pay more for tickets, television and Internet broadcasts and for paraphernalia.

And owners' profits will soar.

Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.