Chapter 10 Antitrust Law

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)

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

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 a group of owners or employers, then Section 1 applies

Single-Entity Structure: Defense

-A defense to an antitrust claim -A party using this defense must demonstrate 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

Clayton Antitrust Act

-An amendment passed by Congress providing further clarification and substance to the Sherman Antitrust Act on topics such as price discrimination, price fixing and unfair business practices 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 -Example: In 1984, when Los Angeles Raiders owner Al Davis won antitrust lawsuit against the NFL, the damages were triples from $11.4 million to more than $35 million

Player Restraints

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

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 of the provisions of his present contract would be automatically renewed -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 (CBA) are contracts between leagues and their players associations

O'Bannon v. NCAA

-District Court (7 F.Supp, 3d 955, N.D. Ca. 2014) Ruled NCAA's long-held practice of barring payments to student-athletes violated antitrust laws Allow universities to establish trust funds up to $5,000 for student-athletes to access after graduation, giving players a share of the revenue generated by the NCAA's television deals (Bonesteel, 2015; Struass & Tracy, 2014). -Appeal Court (14-16601, 9th Cir., 2015) Upheld district court ruling but reversed lower court decision that schools must establish a trust fund. NCAA's rules more restrictive than necessary to maintain its tradition of amateurism. Rule of Reason requires the NCAA to permit schools to provide up to the cost of attendance (New, 2015).

Player Drafts

-Each of the major sport 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 college, and their eligibility to be drafted by a member team -Past courts have called aspects of the draft into question

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 of statute

Baseball's Antitrust Exemptions

-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)

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

American Needle v. NFL

-National Football League Properties (NFLP) granted nonexclusive licenses to various vendors, which allowed them to make and sell apparel with particular team or NFL logos -American Needle lost its license when the NFLP gave Reebok a 1-year exclusive license for trademarked headwear with NFL team logos American Needle brought antitrust action against NFL NFL defended based on claim that it was a single entity District court and the Seventh Circuit found in favor of the NFL

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

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 -Rule of reason 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 procompetitive and anticompetitive effects of the action

Individual Performance Sports

-Performance 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

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 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

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

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)

Salary Cap

-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

Federal Antitrust Laws

-Sherman Antitrust Act of 1890 -Clayton Antitrust Act of 1914 -Sports Broadcasting Act of 1961 -Curt Flood Act of 1998

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

College Sports: NCAA

-Stated mission Preserve the amateur nature of intercollegiate athletics as part of the educational process in university 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

American Needle v. NFL

-The Supreme Court reversed 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 ligitation

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