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Sports Law
SUNY Buffalo Law School
Drew, Helen A. "Nellie"

PROFESSIONAL SPORTS LAW

Antitrust Law- the body of law designed to protect trade and commerce from restraints, monopolies, price-fixing, and price discrimination. The principle antitrust federal laws are the Sherman Act and the Clayton Act.

PROFESSIONAL SPORTS ISSUES

Sports League Operations- Generally

– Many aspects of club operations, however, are conducted jointly with other teams in the league. The player draft and player restraints are examples of joint agreements between member teams that serve the league as a whole.
– Most leagues operate in some respects as single entities, pooling expenses of league travel, scouting costs, or other items where gains may be realized from perceived economies of scale.
– The league constitution and by-laws must be read together with any collective bargaining agreements and uniform player contracts.
– Club members supporting the “losing” position in a league vote or other matter sometimes seek judicial intervention to remedy the situation. Courts traditionally refuse to intervene in league matters, leaving the member clubs to their own devices. Exceptions include league arrangements judicially perceived as lacking in fundamental fairness, or contrary to public policy. Courts also readily review claims that the league policy or action is a violation of the antitrust laws, a breach of contract, or is a contrary to league-governing documents and rules. The usual complaint lodged by a rival league alleges that the defendant league unfairly dominates in identifiable market. The Sherman Act prohibits actions that result in a “monopoly”.

Baseball Antitrust Exemption- Prologue

The Curt Flood Act of 1998

– This act is the only Congressional legislation relating to the historical baseball antitrust exemption recognized by the Supreme Court in 1922. Both the MLB Players Association and MLB encouraged Congress to seek removal of the exemption as it relates to major league labor matters. Removal of the exemption in the context enables major league baseball players to enjoy the rights under antitrust laws as do other professional athletes.
– The Curt Flood Act provides for extension of the antitrust laws to the narrow area of activity “directly relating to or affecting employment of major league baseball players to play baseball at the major league level. The Act further provides that it does not extend the reach of the antitrust laws to baseball matters not relating to major league employment. The activities include minor league employment, and both major and minor league non-labor activities.

The Historical Baseball Antitrust Exemption

– The historical antitrust exemption emanates from the opinion in Federal Baseball Club v. National League. In that case, the Supreme Court rules that baseball was not subject to the reach of the antitrust laws, but was merely the business of “giving exhibitions of baseball, which are purely state affairs…” and was “not a subject of commerce”. Baseball maintained it judicially recognized exemption from the antitrust laws despite challenges during the ‘50s, ‘60s, and ‘70s. During this time, the Supreme Court refused to extend the exemption to other sports like basketball, boxing, and football. In Flood, the Court reaffirmed the exemption, although it noted that baseball is a business and is engaged in interstate commerce. The Court emphasized that baseball since 1922 has been allowed to develop and expand unhindered by federal legislative action. It further stated that the established exemption is entitled to state decisis.

Modern Scrutiny of the Exemption

– The nature, scope, and appropriateness of the baseball antitrust exemption continues as a significant sports law debate, after the passage of the Curt Flood Act.
i. Flood v. Kuhn (majority view)
– Flood was traded to the Phillies but not consulted about it. The Reserve System (means the player is bound to that club for a certain number of years) was in place for Flood. Flood sued under antitrust laws, claiming that the Reserve System was an agreement to restrain trade, leaving him with no options. The Supreme Court held that all of baseball is exempt from antitrust laws and if that is to change, it is up to Congress to do it. Court said the precedent says that the reserve system is exempt from antitrust laws and for 30 years the sports has relied on that exemption. This case does make it clear that baseball is interstate commerce but that isn’t enough to make it liable to the federal antitrust laws because the reserve system is exempt.
ii. Piazza v. Major League Baseball (minority view)
– Piazza and other investors applied to MLB to buy and relocate the San Francisco Giants to Tampa. Some members of the league didn’t like Piazza so the deal was not approved. Piazza sued the MLB alleging antitrust law violations. MLB said the claim should be dismissed because it was exempt from antitrust liability. The court said that the baseball exemption applies only to the reserve clause, not to the business of baseball. Since the reserve system was not at issue in this case, the court said that MLB is not exempt so its motion to dismiss was denied.
iii. Curt Flood Act of 1998- the League and the Player’s Union drafted this act and it was adopted by Congress. They made sure that things that didn’t fit in with what they want are not exempt.
– This Act says that baseball players can now sue under antitrust laws. It only applies to MLB players. It applies to an agreement or an act directly relating to or affecting employment (so no longer exempt). The things that are exempt are people or acts at the minor league level, amateur or first year player draft, or the reserve clause as applied to minor league players, agreements or relationships between major league baseball teams and minor league teams. (So basically the minor leagues are exempt- they can not sue)- the reason for this is because the MLB puts so much money into minor league development and if players could sue the minor league would loose to much money; therefore, the minor league players get locked into 6 year contracts with one team and it is OK. Also franchise issues/owning a club issues are not subject to antitrust laws so they are exempt. The Act does not trump the Nonstatutory Labor Exemption; it doesn’t make the N.S. Labor Exemption apply anymore.
iv. Notes and Comments
– The longstanding contractual relationship between the minor league and MLB is unique to professional baseball. Without the antitrust exemption, the farm system of “organized baseball” is subject to attack under the Sherman Act and Clayton Act. The baseball antitrust exemption enabled investment in the minor league system by major league clubs, minor leagues and clubs, and minor league communities to develop unhindered by challenges under the antitrust laws and costs of litigation.
– Several courts have previously enunciated limits to the reach of the baseball antitrust exemption. A radio broadcaster brought suit against the owner of the Houston Astros and another broadcaster alleging that cancellation of a broadcast contract was a violation of the antitrust laws.

League Decision Making- Generally

– Regardless of the form (business corporation, non-profit organization, etc.), league operations require centralized decision making. A typical league decision making structure includes a “board of directors” type committee of owners, joined by a league president or commissioner with varying powers. Professional sports leagues functions as private associations. Courts are reluctant to scrutinize actions or private associations, except where the league activities are deemed to lack fundamental fairness, or are considered arbitrary and capricious.

League Decision Making- Membership

– Professional sports leagues traditionally restrict membership by and through formal and informal rules requiring approval of franchise sales and further prohibiting certain classes of ownership. League approval processes are designed to assure that (1) member club operations are adequately capitalized; (2) pro forma budgets are reasonably projected; (3) the new ownership and club are otherwise economically secure; and (4) owners are of sound moral character and otherwise compatible with league members. Approval is requires for the sale of clubs by members of the league, and for sale of expansion franchises by the league.

Morsani v. MLB

– P accused the MLB of tortuous interference two separate attempts by P to bring a baseball team to Tampa fell through. Basically the MLB didn’t like P and didn’t want him in the league. Under tortuous interference, the P must prove: (1) the existence of a business relationship under which the P has legal rights, (2) an intentional and unjustified interference with that relationship by the D and (3) damage to the P as a result of the breach of the business relationship. Here, the D interfered in the P’s contact through an affirmative act. The court does not like the D’s conduct. The League could have just voted to keep P out; they didn’t have to actively interfere with the contract.

New Orleans Pelicans Baseball Club v. National Association of Professional Baseball Leagues

– P wanted to buy the AA Charlotte Knights and move them to New Orleans as a AAA team. They got the approval of the league at first but then the president said a condition of the move would be that it could move as long as no team of a higher level wants to move into that area. Then a AAA team (Denver) decides it wants to move to New Orleans. P says Denver didn’t give notice before the necessary deadline so the rules were violated. The standard is whether D’s actions must have been intentional, arbitrary, and capricious. The court says the D league can’t just violate its own rules.

Piazza v. MLB

– This case is like the tortuous interference case but it was brought as an antitrust violation. In the first part of the case (p. 258) the court made the antitrust issue narrow in scope- said it applied only to the baseball reserve clause. There are two claims under the Sherman Act that a P can bring: (1) that two or more people conspired or made an agreement to restrain trade (the defense the league will use is that it is a single entity), and (2) claim that it is a monopoly- that they are so big they are restraining trade in the market. The P will claim that the D is doing something that is making it too hard for other companies to compete. <<<<GO BACK AFTER FIGURING IT OUT>>>>>

Levin v. NBA

– The approval is necessary by ¾ vote of the league in order to purchase an NBA team. The league did not vote P in to but the Celtics. P claims it is because of a friendship he has with the owner of the Supersonics, who most of the other owners do not like, and P claims that this is a violation of the antitrust laws. The Court says that the law is well established that it is competition, and not the individual competitors, that antitru

y, it sued the NFL claiming the league’s relocation rule created an atmosphere in which the teams were unwilling to relocate and that resulted in a one buyer market which forced the city to give the Rams more favorable lease terms than it would in a competitive market. P said that because the NFL rule said that ¾ of the clubs had to agree to a team relocation, it is not a free market and that violates §1 of the Sherman Act. P is claiming the rule had an anti-competitive effect on them getting a team because if it were not for that rule, many more teams would want to move to that city.
Court points out how the Rams and the city had their own deal that they would not negotiate with anyone but each other. The city didn’t prove that the alleged conspiracy to suppress movement of teams actually caused the lack of interest and competing bids to move to that city. P’s didn’t prove that the NFL relocation rule is the sole reason that many more teams didn’t want to move.
The problem in this case is causation- proving the anti-competitive effects of the NFL rule and the fee involved were the cause of all the other clubs lack of interest in relocating.

Notes and Comments

– In the St. Louis case the NFL argued it was a single entity because its 30 member clubs operate as an integrated business producing a joint product. Any single member of the NFL cannot produce a single game. Thus, the clubs do not compete to produce games, but produce them together.
– In Sullivan v. NFL the court recognized that the NFL had submitted evidence of record at trial to support the “equal involvement defense” doctrine. The defense is an absolute bar to an antitrust suit where the plaintiff bears “substantially equal responsibility for an anticompetitive restriction by creating, approving, maintaining, continually and actively supporting, relying upon, or otherwise utilizing” the restriction to the plaintiff’s benefit.

League Decision Making- Merchandising/ Broadcasting

NFL League Properties v. Dallas Cowboys

The NFL teams assign their rights to the teams’ logo to NFL Properties, which licenses out the rights to sponsors. The owner of the Cowboys knows he can get more money (because the team is so good) so he uses their stadium to make their own contracts with competing sponsors.
Under the breach of contract claim the court says that even though the Stadium didn’t grant the logo rights, simply entering into contracts with direct competitors makes it impossible for NFL Properties to honor its contract obligations. Says that the Cowboys used NFL marks in a way that is likely to confuse the public regarding NFL sponsorship of products.

Chicago Partnership v. NBA

The Sports Broadcasting Act (also built into the Curt Flood Act) – this pools all of the teams broadcasting rights into one entity. Problems are created because the really popular teams know they can make more money for themselves instead of splitting all profits between all the teams.
The Bulls want to sell their games to a cable station. The NBA had given back 15-20 games to the Bulls but the NBA wanted to collect a tax on any games the Bulls sell to the cable station. The NBA says it should get the tax money because it didn’t have to give those games back to the Bulls, it could have sold them itself. Bulls say that this rule that they can’t sell games without paying the NBA a fee is a restraint on trade. NBA says that it is a single entity competing against other pro sports, amateur sports, and all other entertainment (plays, dance, Disneyland, Las Vegas).
Court says that if the Bulls could do this, it would diminish the value of the NBA contract with TBS and it will also harm other teams because fans will watch the Bulls game rather than actually go to their hometown game. Also, the Bulls will be playing other teams so why should the Bulls get all the profit from viewers of the games?
Court says that the NBA is a single entity for purposes of broadcasting. The court also compares the NBA to the NCAA- NBA has many team owners, NCAA is made up of many sports, the NBA doesn’t have an existence outside of basketball but the NCAA does.
Court concludes that the NBA is a single entity and the fee is reasonable unless proven that it is so high it reduces the number of games televised; high price alone doesn’t violate the antitrust laws.

League v. League- Monopoly (Sherman Act §2 Claims)