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Antitrust law looms over sports contracts analysis

Antitrust law looms over sports contracts analysis

With the Super Bowl just concluded and the All-Star Game marking the halfway point of the 2010-11 NBA season, the impending expiration of the NFL and NBA collective bargaining agreements -- on March 4 and July 1, respectively -- is fast approaching, and the contentious negotiation of new agreements in each sport promises to work its way into more headlines as the year continues.

While much of the coverage will likely focus on the finer points of the parties' substantive disagreements, it is the legal bases of the parties' bargaining positions that will shape the ultimate outcome in each league.

And as scholars and practitioners of antitrust law know, one of the most important subtexts of collective bargaining in American professional sports is the prospect of litigation against the leagues under the Sherman Antitrust Act.

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The application of the Sherman Act to professional sports has generated controversy and litigation for decades. With increasingly lucrative broadcasting agreements and the growing profitability of professional sports, the four major sports leagues have faced ever-heightening scrutiny regarding whether their business practices are monopolistic or otherwise anti-competitive.

Section 1 of the Sherman Act makes illegal "every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade." Because professional sports leagues are unincorporated associations of independently owned organizations, courts have held that they are capable of contracting, combining or conspiring to restrain trade through concerted action.

Yet, because all teams in a given league share certain common interests and business objectives -- such as preservation of competitive balance among teams, maximization of broadcast revenue and general promotion of the league -- some degree of cooperation and agreement among teams is necessary and unavoidable.

Accordingly, professional sports leagues do engage in some conduct that is arguably fundamentally anti-competitive. Such practices include execution of joint broadcast deals, restrictions on player salaries, and rules regarding player free agency and draft rights. Though aimed at preserving the integrity and quality of the product the leagues offer, such practices limit the ability of players and teams to compete within the marketplace -- which the Sherman Act is designed to remedy.

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To address this tension, Congress and the courts have carved out exceptions and exemptions to the Sherman Act that seek to protect professional sports leagues from endless and expensive antitrust litigation while still regulating the conduct of the leagues consistent with the free market principles undergirding the Sherman Act. Courts' application of such exemptions has created the legal framework for the relationships between players' unions and their leagues.

The most well-known antitrust exemption applicable to professional sports is the baseball exemption. Unlike all of the other major professional sports leagues, Major League Baseball has long enjoyed total immunity from antitrust law. In the landmark 1922 decision Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, the U.S. Supreme Court held that professional baseball did not constitute interstate trade or commerce and, therefore, was not subject to the Sherman Act. Subsequently, in Toolson v. New York Yankees (1953) and Flood v. Kuhn (1972), the court acknowledged that Major League Baseball did in fact engage in interstate commerce, but nevertheless upheld the antitrust exemption -- for baseball only.

Notwithstanding the baseball anomaly, the Supreme Court has not granted a total antitrust exemption to any other professional sports league. As a consequence, the NFL and NBA have had to avail themselves of the more limited exemptions that apply to all professional sports.

There are avenues for NFL and NBA players to sue the league for violations of the Sherman Act: In the event that a players' union votes to decertify and forgo the protection of labor law, it becomes a "trade association" that is not permitted to negotiate terms on a collective basis but can seek antitrust remedies.

For example, in the event of a lockout, non-unionized players could sue the league for engaging in a group boycott -- a concerted refusal among the league's member teams to deal with the players.

While the possibility of decertification has always been a powerful bargaining chip for the players, the actual implementation of such a strategy is typically viewed as a last resort. To date, the only professional sports union to have made good on a threat to decertify and seek antitrust remedies is the NFL players' union in 1989.

If negotiations continue to stall and lockouts and litigation become real possibilities for the NFL and NBA, the potential antitrust implications of the leagues' and unions' various demands will come into clearer focus.

Whether resolved through cooperation or litigation, the negotiations will be the next chapter in the long narrative of antitrust law's intersection with sports. Stay tuned.

First Published: February 14, 2011, 5:00 a.m.

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