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Sports Law
University of North Carolina School of Law
George, B. Glenn

Sports Law
 
 
 
I.             Antitrust
 
A.            Sherman Act: passed in 1890 to prevent monopolization and promotes competition
                1.             Generally:
a.             Fed antitrust laws prohibit agreements and collective action that unreasonably restrain trade under Sherman Act and monopolization, as well as attempted monopolization.
b.             Purpose is to preserve a competitive marketplace and protect consumer welfare.
c.             Ds biz activities or alledgedly anti-competitive conduct must have requisite nexus to interstate commerce.  
d.             The Sherman Act doesn’t require a competitive bidding process, it only prohibits unreasonable restraints on competition ‑ accordingly it makes sense that the litmus test is whether the pro‑competitive effects outweigh the anti‑competitive effects.
e.             Dangers of AT ‑ focused market power is undesirable, because:
                                i. producers can decrease supply, which will drive up prices
                                ii. the higher prices hurt consumers, while the producers get richer
 
2.             The Law ‑ Sherman Act § 1: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade . . . is declared to be illegal.” This was later amended in Standard Oil (1911) to apply only to unreasonable restraints of trade (created the ROR test).
a.             The Act’s purpose was to protect “the production, transportation and sales of necessities of life. The Act did not make ALL restraints on trade illegal ‑ intrastate ones were acceptable. Over time, the definition of commerce has changed.
b.             Elements: (note: section 1 is a restraint on trade)
1.       K “combination” or “conspiracy” = agmt bw two or more persons or entities (e.g., is a league a single entity or a combination by separate owners?)
2.       Agmt “unreasonably” restrains trade (i.e., do the anti-competitive effects outweigh the pro-competitive effects?)
3.       affects interstate commerce
 
c.             Defining “unreasonable” restraint of trade:
1.       “per se rule” (e.g., price-fixing, group boycotts) – activity is illegal regardless of purpose or actual effect
                                                                                                         i.      the conduct is so void of justice, that it is illegal on its face, such as when the action is a “naked restraint” with no other purpose than to stifle competition.
                                                                                                        ii.      Such practices include: price fixing to eliminate competition; territorial exclusion / division of markets; tie‑in arrangements (such as pre‑season requirements); and group boycotts.
                                                                                                      iii.      Most of these have been switched to RoR.
2.       “rule of reason”
                                                                                                         i.      competition adversely impacted in a relevant market
                                                                                                        ii.      Current ROR:‑ “an agreement is unlawful if the anticompetitive injury it causes outweighs the procompetitive benefits it generates
                                                                                                      iii.      anti-competitive effects outweigh pro-competitive effects
   3.   “quick look” rule of reason
a.             Courts are more likely to use this standard, because of the symbiotic nature of teams within leagues (college drafts, restrictions on free agent movement, etc. are examples).
b.             Many of the per se illegal findings listed above were modified somewhat under a ROR analysis
(1)           price fixing ‑ overturned the premise that price fixing is per se illegal ‑ must be subject to a ROR analysis.
(2)           group boycott ‑ made this practice subject to a ROR analysis.
(3)           division of markets ‑ territorial restrictions may improve competition among rivals, so this practice should be subject to a ROR analysis.
c.             circumstances and nature of restraint do not require detailed factual analysis
d.             anticompetitive effect clear without sophisticated analysis (“an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effects on customers and markets”)
d.       Defenses to rule of reason analysis
                                                                                                   i.      Defining “relevant market” more broadly, thus eliminating significant impact on competition
                                                                                                  ii.      Significant pro-competitive effects outweigh anti-competitive impact [and no less restrictive alternative available]  
3. Sherman Act § 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 . . . shall be deemed guilty of a felony . . . .”
a.       Sherman Act, Section 2: Monopolization:
                                                                                       i.      Elements: Prohibits a single entity from monopolizing or attempting to monopolize using unacceptable means (e.g., predatory or exclusionary tactics
4. Exemptions:
 
a.       Statutory Labor Exemption – labor organizations (unions) do not constitute combinations or conspiracies within the meaning of the antitrust laws (Clayton Act, Section 6)
 
b.       Non-Statutory Labor Exemption – antitrust laws will not apply to league/employer activity:
 
                                                               i.      During and after collective bargaining
                                                              ii.      Related to the bargaining process
                                                            iii.      Concerned a mandatory subject of bargaining
                                                            iv.      Involved the parties to the collective bargaining relationship
 
c.        Baseball Exemption
                                                               i.      Supreme Court held baseball not subject to antitrust laws (Flood v. Kuhn)
                                                              ii.      Curt Flood Act of 1998 provides that antitrust laws do apply to players in Major League Baseball
 
 
B.            Anti‑Trust and Baseball
 
1.             Federal Baseball Club of Baltimore v. National League (1922) [112] ‑ in 1915, the Federal League sued MLB to have the reserve clause declared illegal and all standard player contracts null and void. Kennesaw Mountain Landis heard the case, and waited eight months to hand down a decision ‑ by that time, the Federal League settled with the NL and dissolved (for a $600,000 payment), but the Baltimore Terrapins were not a party to the suit, so they sued on their own.
a.             DCT (Stafford) ‑ holds that baseball IS interstate commerce, and therefore, MLB is involved in an illegal monopoly. Trebled verdict of $80,000.
b.             CTA (DC) ‑ Overturns DCT, saying that baseball is not trade or commerce, but a sport ‑ since baseball is local in beginning and at the end, it cannot be “transferred in interstate commerce”.
c.             SCT (Holmes) ‑ Upholds CTA ‑ “The business is giving exhibitions of baseball, which are purely state affairs . . . the transport is a mere incident, not the essential thing.” He NEVER SAYS that baseball is EXEMPT from AT, he just says that it isn’t interstate (much like a law firm sending an attorney to NJ from PA to argue a case isn’t interstate) and it isn’t commerce (“personal effort, not related to production, is not commerce”).
d.             Proper Verdict? ‑ Justice Taft’s family owned a baseball team, and there were contemporaneous notes that showed that he should have recused himself and that without him, the vote may have been at least 4‑4 instead of 9‑0.
e.             Even if there was a conspiracy or attempt to monopolize you aren’t under AT act, so you cant state a claim; we don’t get to those Q cause AT doesn’t cover it.
 
2.             Toolson v. NY Yankees, Inc. (1953) [114] ‑ T played for Newark (AAA) and was assigned to Binghamton (AA) ‑ he refused to report. He was vertically locked into the Yankees’ farm system, so he couldn’t play elsewhere. He files an AT challenge to the minor league reserve system (if the Yankees hadn’t been so damn good those years, he may have had a shot in the majors).
a.             DCT and CTA ‑ over his Gardella arguments, the courts grant summary judgment for the Yankees, leaving change up to Congress.
b.             SCT ‑ affirms the summary judgment 7‑2, “on the authority of Federal Baseball, so far as that decision determines that Congress had no intention of including the business [?] of baseball within the scope of the federal antitrust laws.” This is the first mention of an actual “exemption” for baseball. This is an OVERREACHING view of Federal Baseball, because that opinion doesn’t mention whether the Sherman Act addresses baseball.
(1)           There was never any declaration from Congress that baseball was exempt from the Sherman Act, which is the converse of the court’s argument that if Congress wants baseball to be treated differently than in Federal Baseball, they should have legislated accordingly.
(2)           This is crap and doesn’t square with a proper understanding or application of stare decisis. What if Plessy v. Ferguson had been decided in the same manner?
(3)           Justices Reed and Burton dissent, saying that Federal Baseball does not exempt baseball per se, so this holding is wrong.
                                c.             Supreme Ct reaffirmed Federal Baseball, confirming that Baseball is an exemption.
 
3.             Flood v. Kuhn (

                                                                                                                       i.      Nothing on record shows that salary limits well be effective in creating entry level positions
b.       Cost Reduction
                                                                                                                                       i.      While increasing output, creating operating efficiencies, making new products available, enhancing product or service quality and widening customer choice have been accepted as justifications for otherwise competitive agreements, mere profitability or cost savings have not qualified defense under anti trust laws
c.        Maintaining Competitiveness
                                                                                                                                       i.      Could not prove that salary restrictions enhance competition
                                                                                                                                      ii.      Only showed that rule did not exacerbate competitive imbalance
 
 
                3.             Banks v. NCAA: Product Market
a. Effect: anti‑trust laws are making small intrusions into student athletic markets. Employers have safe harbor with unions and many say that college sports should be unionized. Clearly, the sweep of antitrust should be much broader vis‑à‑vis amateur athletics [business function].
b. Banks was a fullback at Notre Dame who tried to go pro. He retained an agent, but a knee injury prevented him from performing well at the scouting combine, and he was neither drafted nor signed as a free agent. He tried to return to ND. Under NCAA rules [statutory 126], Banks is ineligible because he retained an agent, so Banks sues for an AT violation. Held: His case was dismissed under Rule 12(b)(6), because he failed to allege an anti‑competitive impact in his complaint (malpractice?). It is appropriate for the NCAA to have rules that govern eligibility because they are the appropriate body to administer this (under NCAA v. CFA, most of the NCAA’s regulatory controls are a justifiable means of fostering competition among teams and are therefore pro‑competitive because they foster competition and generate interest in college athletics ‑ i.e., rules of this nature are not subject to AT scrutiny). Eligibility under benign rule makes this not AT
(1)           Dissent: Sees NCAA colleges as “purchasers of labor” and the players as suppliers, which are contrary to the stated goals of the NCAA.
(2)           Effect: This case leaves a big question about whether there is a claim to be made here. Buck noted that there was a difference between this dismissal (failure to state a claim on which relief may be granted) and a summary judgment decision (no claim exists, based on all the evidence averred). Since Banks, this issue has yet to be addressed.
(3)           Today: In baseball and hockey, collegiate athletes can be drafted and still decide to whether / when to play professionally. This has recently been extended to basketball players [case 316].
                4.             Problem 3-9
D.            Antitrust Limits on Professional Sports Leagues
1.             Introduction ‑ There are three parties who may sue over a league practice ‑ third parties dealing with the league, owners who sue over a league or commissioner ruling, and a new competitor who is barred from entering the market.
 
2.             Franchise Ownership and Movement
                Franchise Movement
                1.             Introduction ‑ unlike the player‑owner relationship, there is no labor exemption issue here. The main issue here is the conceptualization of the league ‑ is it a single entity (San Francisco Seals, Levin), a collection of competitors (Raiders), or a hybrid thereof? This distinction is important because it will determine the proper section of the Sherman Act to apply (§ 1 applies to the collection approach only, § 2 applies to either). Sherman Act