American Needle vs. NFL: Professional Sports on a Precipice

[StlSluggers]

Prepare yourself for a tl;dr. I tried to pare it down to the essentials, because, trust me you want to read this.

In short, the NFL is trying to be granted "single entity" status, which would make them immune to anti-trust legislation. However, this decision would apply to every sporting organization, not just the NFL, and it would have an absolutely profound impact on the business of these games as we know them now.

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.

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.
...
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.

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.
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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.

[great gretzky]

That is interesting. I always wondered how seriously the idea of "franchise" in sports leagues. Like no one would seriously argue McDonald's isn't a "single entity" made up of several stores (each with its own specific payroll, sometimes unique items etc.) I know it doesn't break down that simplistically when it comes to sports and the NFL in general, but like I said, I wonder. I mean the league populates its on-field talent through a league-mandated event: the draft and free agency rules. One would think that it would be single-entity, since resources are pooled and shared. Otherwise, if it was "every team for itself" it would just be straight free agency, wouldn't it?

[Art Vandelay]

Interesting. That would certainly change things, though I don't see anything that leads me to believe that this attempt at being granted "single entity" status (if the case is even heard) has any better chance that the previous ones. Has something changed that wasn't outlined in that article?

[StlSluggers]

Interesting. That would certainly change things, though I don't see anything that leads me to believe that this attempt at being granted "single entity" status (if the case is even heard) has any better chance that the previous ones. Has something changed that wasn't outlined in that article?

I chopped out the author's speculation, but he pointed out that the Court has leaned decidedly in the favor of businesses lately. He believes the NFL did a judge-by-judge analysis and determined that the Court, which has indeed agreed to hear this case, would rule in their favor.

[Art Vandelay]

Another very interesting aspect of this is the impact it would have on free agency. A single entity couldn't collude with itself, so what we consider collusion now would be a thing of the past.

[JTWood]

Another very interesting aspect of this is the impact it would have on free agency. A single entity couldn't collude with itself, so what we consider collusion now would be a thing of the past.

I think that is absolutely one of the biggest potential outcomes to this litigation.

The author offered up this potential scenario at the top of the article:

• 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.

Albert's a free agent after 2010. Think about what he's going to command that might be at risk here.

You know, just the fact that the NFL is trying to do this only jades me against them. Personally, I'm now for every player in every sport getting as much as he can as soon as possible in his career, because these leagues obviously would take it away at the first opportunity.

[Ursa]

If the only leverage the players have is strikes, that's what they will use. If I was the leader of the MLBPA or NFLPA, I'd be asking my members for increased contributions right now in anticipation of strike action in a year or so.

[Giambis]

I don't know much about the case, but practically, from this write-up, this probably isn't going to go anywhere, at least not in American Needle. The Court will almost certainly not reach the NFL's "single entity" issue in its decision. The NFL raised it for the first time in its briefs, it hasn't been argued or briefed at the lower courts, and resolution of this issue wouldn't be necessary to resolve the dispute before the Supreme Court. The Supreme Court doesn't think too highly of advisory opinions.

But it could still easily come up in another case, and if so, that will be very interesting to watch.