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Sports Law Part III: The Effect of Antitrust & Labor Law on Professional Sports

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Sports Law Part III: The Effect of Antitrust & Labor Law on Professional Sports

Professional sports involve a unique interplay between antitrust and labor law. On the one hand, pro leagues have a cartel structure where independent team owners coordinate policies with regard relocation, broadcasting deals and salary controls, their way of doing business raises antitrust questions and poses challenges for courts to determine whether these policies violate antitrust law. In addition, because labor agreements are made by all of these owners through the umbrella of the league, the labor agreements combine aspects of labor law, but also involve the applicability of antitrust exemptions involving their labor agreements. This presentation will focus on the basic antitrust standards, the scope of Major League Baseball’s antitrust exemption, the scope of the “rule of reason” test and the scope of the so-called non-statutory labor exemption to antitrust. If there is time, we will review some key provisions of the current labor agreements between Major League Baseball and its players and the NFL and its players.

Transcript

 Hello and welcome everybody. This is Antitrust and Labor law and the effect of those topics on professional sports. My name is Mark Conrad, I teach at the Gabelli School of Business at Fordham University, and this is next in a series of courses on various aspects of sports law. And this particular course will involve an curious interplay between two very distinct areas of law, antitrust and labor, and the profound effect that both of them have in the world of professional sports. So without further ado, let's move to the next slide. Some of you already may be familiar with this, but my background, but for those of you who are not, I teach and write about sports law and business, full time, I teach at Fordham Gabelli School of Business, where I also direct its sports business initiative. In addition, I serve as an adjunct professor at Columbia University's graduate program in sport management, and also as an adjunct professor at St. John's University's school of law also in New York. I have taught the subject of sports law, the subject of sports business, and also areas involving issues of ethics and diversity overall for the last quarter century. In addition, I also teach media law and some of the media law issues do play out in sports, although not so much in this particular lecture. So let's move on to the next slide and talk about our learning goals. And this is really a primer on antitrust and professional sports. This is not to be taken for a detailed class in antitrust law or a detailed lecture on various aspects of that subject because antitrust law is broad, it's a complex, it is very theoretical, it's economics based. So we're not going to get into that much of it in a space of one hour, but we certainly are going to get in terms of the issues of applicability and where and how antitrust plays a role in the professional sports structure. We'll discuss in conjunction with that, what tests the courts do utilize in these cases, because of the unique governance structure of professional sports, then more for the second half of the class, there'll be an introduction to labor law and sports and the intersection of labor and antitrust, focusing on something called the non statutory labor exemption. We will finally wrap up with a summary of two of the major collective bargaining agreements in professional sports, that's the current one for major league baseball and the current NFL agreement two in both of them of course, with their respective players associations. And the one thing that I will point out now, this is nowhere near a free market, you know, sometimes people wanna spout off in saying, well, you know, this is a free market and free agents get all this money, well, in reality, it is a very structured and regulated market based on the unique aspects of professional sports and the advantages of this structure to the players' associations. Hence they wouldn't have agreed to them if there was not some kind of advantage for them. So let's move on and start getting to the meat of the matter, and that's antitrust laws. And this is a little bit of an introduction for those of you who've never taken an antitrust law class in law school or practice in the area. Antitrust laws are laws that restrict anti-competitive practices in what are known as relevant markets. And I will discuss a little bit about relevant markets in a bit. So essentially we're talking about competition law. And the irony is that in most of the world, antitrust laws are called competition laws. So those of you familiar with European laws and the European economic union, there is a strong anti competition law there, and certainly that has had an effect on certain sports organizations in the EU countries. Now that's not something we will discuss here today because it's a somewhat different topic, but nevertheless, some of the standards that have been utilized there do come from the United States because the United States does have some of the oldest competition laws or antitrust laws, depending how you call it, from now on we of course are going to refer to these laws as antitrust laws. So that's the idea behind it. So antitrust laws that basically prohibit agreements that restraint trade, they also prohibit what are called monopolistic practices. And that's something I'll go through very quickly because it's not that relevant to sports as we will see. Antitrust laws do not apply to labor agreements. So the labor process and the labor management negotiations are generally not subject to antitrust enforcement. And that is because of public policy reasons, and professional sports pose unique antitrust issues because of the structure of the traditional leagues in the United States. The relevant statutes for antitrust are the Sherman antitrust act of 1890, a very old law and a somewhat newer law, the Clayton act, which deals with the creation of what is called the labor exemption to antitrust. So ultimately, and here's a little bit of background, we have a complicated interplay of economic conduct and labor rights when you deal with antitrust and labor. Even though labor and antitrust laws have very different histories, they do interact in the area of sports law. Now while antitrust focuses on markets and competition, labor laws really deal with employment, who is an employee and in the college space, that's becoming more and more of an issue, and they deal with the rights of employees and the rights of employees to unionize, the rights of union representatives and management to collectively bargain, and also the rights of either side to engage in what are known as concerted activities, also known as strikes and lockouts and those of you who are sports fans, you've certainly heard about lockouts. In terms of statutory law, the labor basic labor stand laws are the national labor relations act, which from 1935 and the 1947 amendments do create the structure of collective bargaining, the structure of what are called unfair labor practices in the collective bargaining sphere. But there's another law as well that can be important, not as much in pro sports, but in the college space is the fair labor standards act and that is what was you've euphemistically known as the minimum wage law. Maximum hours, minimum wages, overtime rules, that also is an important labor law, although not so much when we're dealing with professional athletes on major leagues getting millions of dollars a year. It may have some applicability to the minor leagues, if we have time, we may get into that. And then there is an old law called the Norris LaGuardia act that really deals with the limitation of injunctions against labor activities, which is something that used to be done a lot by the courts beforehand, and this law basically limits that drastically. So it's not super big, but there's in sports, but there was actually some cases regarding the 2011 NFL lockout that talked about the Norris LaGuardia act and injunctive powers in that law. So let's move on to our next slide and really get into some more background on antitrust law and sports. So section one of the Sherman act, which is the central tenet of antitrust law sounds very very simple, it says every contract combination in the form of trust, a restrain of trade or commerce or foreign nations is hereby declared to be illegal. What it generally means is agreements of two or more that engage in certain anti-competitive activities, are declared to be illegal. Well, let's wait on that and think about that, because there are many agreements that are made that indeed involved two or more, and indeed may restrain certain trade in a given market. Are they always illegal? And the answer is no because the courts have not interpreted section one that literally, and in fact over the years, they've developed standards and different levels of tests to determine if there is a section one violation. So establishing the violation, moving to the next slide, and then we'll talk about some of the tests and some of the application of professional sports leagues to all of this. Section one deals with concerted activity, meaning it's two or more. If one company decides, you know, a company you work for, whether it's a law firm in house or anything else, to unilaterally cut your salary, there is nothing anti-competitive about that per se, because and for section one purposes, because it's only one entity. But if five of the largest entities get together and agree to cut salaries for their employees, that poses a different problem because they've agreed to it in a situation of two or more and arguably restraint the rights of labor, or let's look at it in terms of pricing or in terms of territories. So here's an example, let us say the big five automakers, the automakers and dealers and sellers in this country that dominate the auto industry, get together in a room and they agree to the following, one, Ford Motor company will sell Ford cars exclusively in the Northeast United States and no one else will. Honda will sell exclusively in the Pacific Northwest and California, no one else. General Motors, the Southeast, Chrysler the Midwest, Nissan, the Rocky Mountain States, you get the idea. That would be flagrantly illegal, and then to top it off, they all agree to raise prices 25% on all their cars. Also flagrantly illegal. That would be a major section one violation and would be presumptively illegal. However, there are many types of agreements that are made that are two or more in matter individuals or groups that do restrain trade that may not be presumptively illegal because they may not be on such a grand scale, and there may be some very good reasons for them. So let us say, Coca-Cola has an exclusive agreement with X, Y, Z bottling company in New York, that only that company makes bottles and cans for Coca-Cola products. Now in truth, I think they control it themselves, but for our example, let's take it for what it is. Now other bottling companies will say, hey, why can't we do that? And Coca-Cola will say, nope, it's only this bottling company and this can company, that's it. Now presumptively that does restrain trade and restrains choice and competition, but Coca-Cola may have some really good reasons for this agreement, quality control, consistency and it may even be cheaper. And a court most likely would say that passes muster, that would not necessarily and probably not be a section one violation. So now let's move on to sports because that's what you're here for, and look at pro sports leagues. Pro sports leagues are composed of 30 to 32 ownership groups of the various big four sports leagues. And they engage in concerted activity with great frequency. They get together in a room several times a year, the owners of the representatives, and they agree and talk about situations like league-wide broadcasting agreements, league-wide merchandising in one company, restrictions on relocation if a team wants to move, which are found in all the constitutions of the major sports leagues and rules regarding expansion, also found in the constitutions of all the major sports leagues. So in other words, you can't just enter that business. If I wanna start a baseball team, I cannot have my team play the Yankees 'cause they won't allow it unless I'm part of major league baseball. If I start a online information company, I can compete with whoever I want to and they can compete with me. But in pro sports, you see there's an internal closed system, a closed shop, if you will, and that's something I talked about in another of the earlier lectures in this topic. And many times they get together and act this way. So many of you who are fans and would not be one, be caught dead wearing the jersey of another team and it's a big rivalry, whether it's Yankees or Red Sox, for example, or I don't know, Dallas and the New York giants or what have you, those owners certainly compete with each other on the playing field, but they cooperate with each other in many many ways. And the question does become, is this illegal under section one? And moving on to the next slide, the basics of a section one violation had to have a common scheme designed to achieve an unlawful objective, well, there's certainly a common scheme in the decisions that leagues do. But if you look at the pro-competitive effects of a lot of these and I'll give you one other example is the draft. The player draft is inherently anti-competitive to the players, because those of you, when you graduated law school, you may have had multiple offers from employers, you can pick and choose, but the drafted athlete doesn't, the drafted athlete is drafted by one team and plays for that team unless he or she wants to sit out a season depending on the rules of the particular league. So there isn't that choice, but on the other hand, there are some very very good reasons why professional league should engage in this agreement to restrict players, to be picked by a single team, when they're starting out, when they're gonna be rookies, because it makes a better competitive balance, a better product, not teams that will as dominate and win year after year, because of course the less successful teams have a higher draft pick. So there's a reason. So the test that's used in the case of sports is called the rule of reason, and that differs from the per se test that we gave in our example with the big five auto manufacturers, that's per se illegal, blatant price fixing, blatant limitation of territories, you know, that goes back to the standard oil era where that was done in the late 19th century and that's why the antitrust laws were passed, because they were trusts or dominant organizations or agreements with two or more to dominate sugar oil, et cetera. So that's the idea and the per se standard rules is ruled only in really blatant examples and not used in sports. So we're going to look at this balancing test called rule of reason. And in the next slide, the rule of reason basically is a comparison of the anti-competitive effect and the pro-competitive justifications, and the test will be one was in an agreement between two or more, okay. It adversely affects competition in a relevant market, which I'm gonna talk about in a second, three, the anti-competitive effect exceeds the pro-competitive effect. In other words, yes, there may be some pro-competitive advantages, but it's just too broad, it's just not enough to overturn the anti-competitive aspects of this. And the last is there's no less restrictive alternative, where the same benefits could be achieved. So this is a balancing test that courts would utilize, and as many a balancing test, you know, you are dependent on the court to make that determination and court A can say one thing and court B can say another, but let's focus on relevant market just before I get wrapped up in other things and I want to get through that in this particular lecture. Relevant market is really an economic term and by the way, when you do have antitrust issues, it's really strong to have a background in economics. I ask my students often, how many of you have taken economics when you're an undergraduate? And these are law students and unfortunately I get very relatively few hands and I have to go through a whole, you know, mini course and basic antitrust law. Economics is a really important thing and certainly for antitrust it is, so if you're gonna practice in this area, know your economics. So anyhow, relevant market, the relevant market is going to be what is deemed the market for this item, and that may not be that easy, and here's an example that courts would have to look at. Let us say that the relevant market for pickle ball is South Florida and a certain and pickle ball dominates is the most popular sport, but some would say, and let's say that restrictions on being in a sports league or possibly a team in that area, but if you look at it in a relevant market for pickle ball, that's one thing, but what about a relevant market for old sports and entertainment and pickle ball is just a little bit of that. And retirees or others do other things with their time. That's going to be an interesting question or on a sports issue, that's more relevant, major league soccer and this was the subject of a court case. MLS is the highest league in the United States, it's the elite league in the US, but unlike the NFL, unlike major league baseball and unlike to an strong extent, the national hockey league, it doesn't dominate the sport worldwide. So if you are a player, a soccer player, and you're really quite good, you could play in the premier leagues and get more money than an MLS team. But if you're a football player, an American football player, where else do you play by the NFL? The NFL is the relevant market for football. If you're a baseball player, major league baseball is the key. There is no other competitor anywhere, US or otherwise to major league baseball. So the relevant market could be looked at by sport, it also could be looked at by region as well. What's the relevant market in this given region for the sport, and courts often have to look at that and it gets very complicated. So I just wanted to give you an idea behind the theory of relevant market, because in one particular case, it was an issue when in the Raiders case, which the team moved wanted to move to Los Angeles from Oakland, relevant market was a very important part of the court's decision. So moving on the next slide, I think this is pretty obvious from what we've been saying thus far, this is a long and expensive process, Antitrust litigation is not for the faint hearted. It can be enormously costly, time consuming to the point that the Alston case, the case that was the case challenging the NCAA rules that went to the Supreme court was eight years in the making from the first time it was filed in the federal district court, eight years of litigation to make it to the Supreme court ruling. So it's long, also there's a heavy use of expert testimony that will deal with things like relevant market, deal with issues like economic theory. In fact, for the NCAA case, a Nobel prize winning economist was the expert witness for the NCAA. Didn't do that well, I mean the result wasn't what he wanted, but nevertheless, he was a known, you know, University of Chicago school economist. So you get that because some of it's very economics driven, but anyhow, to avoid this, there are some exceptions or exemptions from antitrust enforcement and if this activity is in that exemption boy, a boy, I would almost say, you know, God bless you because it's a real advantage. It avoids all this kind of litigation and basically is a get out of jail card to be really anti-competitive. So there are some, and some of the exemptions are statutory and some of them are traditionally created. The statutory exemptions involve the labor exemption under the Clayton act and the sports broadcasting act, which deals with network broadcast agreements with sports leagues. So in other words, a network-wide or a league-wide agreement with CBS, NBC, Fox, ESPN is exempt from the antitrust law, maybe not ESPN I take that back, but the over Thea Networks, let me just clarify that because it's a 1961 statute, so it's, but it does create an exemption. We won't really talk about that today. There's a single entity exemption for section one, because section one deals with two or more, so as I said earlier, if one entity makes these policies, it's exempt from a section one issue. Judicially created exemptions, they're two, and they're both very important. One is the baseball exemption, which some of you have heard of, and the other is something called the non statutory labor exemption. And at the exemptions apply, there is no cause of action. Before we get to them I just wanna say a word about section two of the Sherman act, which prohibits monopolistic practices. It doesn't prohibit monopolies per se, but monopolistic practices, and it doesn't has not really applied much to sports because that kind of intent or level has not been shown in professional sports, so, hence I just mentioned it quickly just as a matter of record and then we'll move on. So let's move on to the most notable antitrust exemption in the public eye that continues to engender debate to the present day, and that is baseball's antitrust exemption. This exemption is a vestige of another time. And the case that created the exemption was a so-called federal baseball case, a federal league case, which was a rival league that in some ways was crushed by major league baseball, and you see the dates there and basically was ultimately bought out the team's owners were bought out except for one, one team rejected the settlement and went to the Supreme court, claiming that the activities of major league baseball violated the antitrust laws. Federal baseball in 1922, 100 years ago, you know, pop up in the champagne I guess, the court basically concluded, I just would add, in addition, one byproduct of mergers and the addition, the termination of the federal league was that salaries dropped and that becomes something we'll get to in a bit, but ultimately it was, this was something that was challenged by the team, and the Supreme court in a ruling basically said that because baseball was not engaged in interstate commerce, the Sherman act did not apply, because in the world of 1922 teams played basically home games, road games, and the gate receipt was kept by the home team, the transportation was merely incidental to the playing of baseball at a given location, there was no broadcasting, no marketing, no nothing that we think about today in a modern sports league, and the court said that baseball was exempt for antitrust law. Now this could have easily been changed by Congress, because in the next 30, 40 years, things changed, and not only did the economics of baseball change, but the interpretation of the commerce power changed as you may recall from constitutional law, that the courts had a broader definition of interstate commerce, you know, after the NLRB versus Jones & Laughlin case, and other cases like that, that overruled cases from an earlier era, but nevertheless, the courts were reluctant to overturn federal baseball as a precedent. And they, the court had its chance, Toolson versus New York Yankees in 1953 and then Flood V Kuhn in 1972. And both times the courts basically said, it's a precedent, we would decide it differently today clearly, but we don't want to be the ones to overturn the precedent because it would change the way baseball does business and potentially risk harm to the economic structure of the sport. And that was an argument that was really underrated by many, but the council for major league baseball made that argument and obviously it convinced the majority of the Supreme court in 1972, and I'm gonna focus more on the Flood V Kuhn case, which was not so much a case about teams, but a case about labor and the idea of rights of players and Curt Flood was a great player that challenged his restriction on being a free agent at the time, and unfortunately for him lost the case, and there've been a number of documentaries about it, which you could see on various median books about him and the case, but basically said that, yeah, even though professional baseball is an interstate commerce, and even though it's illogical and unrealistic, the precedent has been established and only baseball and not any other sport. Why? Because Congress could have changed it and didn't, and a result, a change would result in confusion. So ultimately that created and perpetuated the labor side of antitrust issues, which we'll actually talk about particularly with baseball because the baseball player's contract until the mid 1970s, had a provision in it that was uniquely interpreted. And since the antitrust laws did not apply, it could have gone on for a long time and well certainly did, but it could have, it was antitrust proof to a great extent, and basically what it said, if a player could not agree to a new contract with the team, the team retained the right to the player as an option, and if after the one year option went by, the player could still retain the player for another option and another option and another option. So it was interpreted as a perpetual series of one year options, translated two points, one, players couldn't pick choose the team they would play for unless they were released, and two, it drew their salaries down, because how do you determine a free market if the Yankees control their star players? Just imagine what Mickey mantle would be worth today as a free agent in his prime. $30 million a year, who knows, not $100 a year, even with, you know, which would be say a million dollars a year today with purchasing power issues. So you see they were underpaid and clearly the way it was interpreted, because it was done by all the teams together in his major league would be a section one violation, and there was no labor union representing the players at the time. So ultimately Curt Flood lost a case as a kind of makeup if you will, in future years in 1998, there was a Curt Flood act, which partially ends the antitrust exemption for labor issues in major league baseball. It's kind of irrelevant because baseball players are unionized, but it does not apply to the minor leagues. Minor leagues are still subject to, or still have the benefit of the antitrust exemption. And also baseball has the benefit of the antitrust exemption with other decisions as well. There was a relocation case in the ninth circuit a few years ago where the court basically said, you know, could not challenge restrictions on moving a team because of the antitrust exemption. So it's still very much in play as of the date of this lecture. So as we say in the next slide, sort of sums everything up, but we said, what are still exempt from antitrust laws in baseball are quite a bit, as you see in front of you. So baseball does get that exemption, and it's definitely an advantage that baseball has had compared to other sports. It doesn't mean other sports don't have anti-competitive policies, but they had to go through the antitrust analysis of rule of reason that baseball didn't have to do. And in fact, moving to the next slide, I just cite a couple of cases where the Supreme court did not extend federal baseball, Radovich was an NFL case and international boxing had to do with boxing exhibitions. It specifically applied, said the antitrust law that is section one of the Sherman act did apply to other sports and that indeed is the law today. So moving along, can it be nullified or limited? Now there is litigation going on a couple of one case that I'm citing here, it was filed in the end of 2021, that challenges minor league baseball and challenges the structure of minor league baseball and the sense and says that the court should finally eliminate the antitrust exemption. The time is at hand to cast it to the dust bin of history. Now whether that'll happen or not, stay tuned because I think in the next year or so, you're going to see challenges and you may see an appeal even, and maybe the Supreme court will ultimately look at this case again, a 50 years after Curt Flood and 100 years after federal baseball at that this exemption. And part of litigation has to do with the contraction of minor league baseball in 2019, there are also other cases involving breach of contract, which is not really for our discussion today, but there's one that I think will be entertained in the third circuit, which will be very interesting to see. So let's now move on to some particular antitrust issues and move to the next slide, and let's talk before we get back to labor team relocations, because lately you have not seen a lot of litigation regarding team relocations because basically the leagues have allowed relocations to occur. So there's not been a real issue, but in the past, that was a little bit different. And the courts have employed that rule of reason balancing test in these relocation issues. So background. For a team to relocate in the NFL, NHL, NBA, specifically for antitrust purposes, there has to be a vote by the other owners, usually it's some form of maxi majority, the team cannot just leave by its will, it has to have permission by the others and there's a logic behind that because the economics of the league are intertwined, what effect this would have on the other teams, things like travel, things like merchandise sales, things about bad publicity from the old teams, you know, old city, that sort of thing. The Raiders had a illustrative history of relocations and challenges. And the Raiders started in Oakland as an NFL team and want to go move to Los Angeles in the 1980s, and the NFL owners said no, because the Rams at that time were in Los Angeles then and now, by the way, and the case was litigated for a long time, went to the ninth circuit, and ultimately the ninth circuit concluded that the relocation was illegal, I'm just section one because the voting requirements were too strict, it required a near you unanimous vote to move a team to another market and I felt that was over broad, but then the case went to a jury and a jury awarded damages to the Raiders and the Memorial Coliseum. What happened was that the Memorial Coliseum, which is still up, was vacant because the Rams moved to another facility and they wanted a tenant. The Raiders were not happy playing in Oakland and said, hey, let's go to Los Angeles, a bigger market and we have the stadium, we wanna sign a lease with them. So you had two aggrieved parties by the NFL's action, the team, but also the Coliseum. And it became a real long story, but it did, the court did note that relocation rules could be done, but they cannot be overly restrictive to be unfairly anti-competitive, again weighing the pro-competitive choices and the anti-competitive choices. The Raiders case also had a very detailed discussion on what's the relevant market for football, which I don't have time to get into now, but if you're really into that relevant market theory, you know, please read it the citation is right there, it's Raiders one, it's known as. So, on a more modern level it behooves me to mention this, the tour system, now we're talking mainly about professional league sports, but in tennis and in golf, there are tours that are generally controlled at least to some extent by the professionals themselves, golfers and tennis players. And the PGA tour has been a longstanding group of professional golfers, mainly in the United States that control events and to get a tour card you can play in these events, be part of the rules. Now there is something new that's been formed from a Middle Eastern conglomerate or funding source called LIV that wants to compete and start another kind of exhibition tour, and it's offering golfers lots and lots of money to join them and the PGA tour suspended, or will suspend any golfer that wishes to do that. And I'm not going to get into whether this is good or bad or talk about the issues of the Saudi funding or this it's not for me to say, but I think this is a case that is ripe for an antitrust challenge or an EU competitive rules challenge, just watch for it, by the time you hear this, maybe there's going to be litigation, but again, is there the power of one organization to ban players from participating in the activities of another, you know, arguably again, an agreement that could restrain trade under section one, because given how the tour is structured, there are multiple parties in it and it would be along those lines, but it also could be other violations as well. So stay tuned, that's very recent. So let's move on and sort of get into the labor antitrust tension. And there is a tension, why? Because antitrust law promotes competition and condemns this kind of cooperation among competitors. Labor law on the contrary encourages cooperation among competitors and employment, meaning employees, but sometimes multi-party employers do. There are other industries where unions negotiate with a group of employers. So the agreement that they make arguably affects the rights of workers, affects the rights of employers, and it could be anti-competitive aspects of that. But to avoid that labor law creates exemptions to antitrust law. And there are two, the first one is called a statutory exemption, that is not that big in sports, but it's kind of the grounding for the real issue in sports. And that is found in Norris LaGuardia act and section six and 20 of the Clayton act, and basically says that labor issues, the labor of a human being is not subject to antitrust laws and organized labor organizations representing them are also exempt from antitrust. So you can get a few thousand workers, they form a union, the union represents their needs, their goals, their wills, that is not a problem, ad the statutory exemption is pretty clear and not been an issue in pro sports. Then there is something called the nons statutory labor exemption, and oh, has this been an issue. Now the law, the statutory law really dealt with unions, the process of unionization there and the NLRA and the LMRA, as you see in the slide, you know, establishes collective bargaining, establishes certain standards, the second one, by the way, it's the 1947 amendments to the first one. So officially it's the LMRA, used to be called the Taft hardly amendments. But anyway, the problem is that the statutory exemption didn't apply to the actual nitty gritty of collective bargaining. That was unclear like, how far do you go? Yes, you have the unions, but when you bargain and the collective bargaining is not successful. And then an employer decides to engage in unilaterally imposing conditions. Does antitrust apply or not? That's where the nons statutory exemption comes in, and it's a limited, implied repeal, and because of that, the scope of it has not always been clear. It was recognized in the 1965 cases, you see amalgamated meat cutters, which has nothing to do with sports, but it really applied to sports, and it applied to sports in a peculiar way, because it's supposed to help labor, you don't want the employer to start saying, oh, you know what, these kind of deals we're making or negotiation could be anti-competitive, let's run to court in super antitrust law. It was supposed to basically protect labor. And however, it has not always worked that way in sports and in sports because of the athlete short careers, because of turnovers players unions in the past, did not have as much leverage, and NBA players certainly have, as you can see, but the NFL players have not done as well. And I would also argue in recent years, the baseball players have not done quite as well as they did in the past, and the NHL players have not quite done quite as well, either doing better, but the NBA has been much more of a gold standard, but the NFL has had a very hard time and at least as players getting all that it's wanted in many ways, and that was the problem because the problem had to do with free agency and we're moving on to the scope of it. And the courts didn't really know what to do, because much like baseball, the NFL also had restrictive, if not impossible, free agency rules, and the union was not successful over many years in changing them in negotiations, they tried and tried and tried, they tried strikes, they tried, you know, shorter term job actions and what they couldn't, they just didn't have the clout to do it, and it would remain and this rule was just, you know, an albatros around their neck and in Mackey was one of the first cases, the court actually said, because there really was no, we got no faith negotiation in this area in the past, the court can apply antitrust law, because there was no history of collective bargaining, that rule stayed throughout the early union years. And since it was not quote, collectively bargained, one could sue for antitrust law. I would suggest that Mackey's really not that relevant today, it's not been overruled, but it's not as relevant due to future cases. The question then came, how do you interpret the exemption? How far does it go? And that's why basically even today moving onto the next slide, the scope of the exemption is broader, and the Marvin Powell case, Marvin Powell was a Jets player, he litigated several cases, this is one of them, the most significant one in the eighth circuit, claimed again, you know, after a, you know, attempted strike the players had in the 1980s, that was unsuccessful, they couldn't really shake the limited free agency rules, there was a different rule in place, but it wasn't much better, but it was in place in 1982, which is the right of first refusal rule. And the players did not have luck changing the restrictions. So their lawyers came up with the idea let's sue for antitrust, because a nons statutory exemption really doesn't apply here. They ultimately were out of luck. I mean, I just wanna summarize what's very complex and usually like three, because of law school, sports law by many professors. Basically, ultimately once you get on the bargaining table and you're successful or not successful in what you want, don't go to court and sue for antitrust, you're part of the labor system, work better the next time around, try another strategy, don't expect the courts to bail you out and say, oh, the, you know, limited free agency rules are anti-competitive and therefore we're gonna give you antitrust damages. It doesn't work, and in a sense that even applies when the parties do not negotiate anymore, they walk away and that's called an impasse, that's a labor term, they just said, I've had enough of this, it's a waste of my time, we bargained in good faith and then management imposes a standard. Even then the labor exemption applies, even then don't go to court and sue for antitrust, there was a Supreme court on this case as well, that that pretty much said that. Once you get to the union type system, don't go use antitrust law to bail you out, and note that it was the players that wanted to use antitrust, not the management here. So finally, finally, the only solution the players utilized was to disband the union or disclaim the union. So it's a basically disbanding it as a negotiating agent and go it alone and say, NFL sign this individual contracts with us without a union. The NFL realized and the owners realized that was not a good idea, you know, because an antitrust lawsuit was launched and it was settled, as part of the settlement, the union was back in the fold and a new collective bargaining in 1993, very much what is carried to this present day in its basic system was implemented. So the funny thing is that the, or 1993 collective bargaining agreement was really part of a settlement of an antitrust case of then non-union players suing to get back in the fold and since then, you've not seen this issue, but you've seen it exhaustively from about 1987 to 1993, there are a number of cases, I just, you know, focused on the one Powell ruling from the eight circuit, but there was another case called McNeil versus NFL, which was the case in question here. So if anybody wants a citation, you could look it up or just email me, I should have put it in the slides. Okay so let's move on to some more general labor issues in sports. Alright, so we mentioned the national labor relations act, moving on to the next slide and that it creates a system of unionization. It talks about how you unionize and you notice, by the way, very few of these laws are sports directly sports oriented laws. Again, a US sports law is an amalgam of existing law that applies to sports, and this is a law like if you know, I'm a clerk or I'm a, you know, working for whatever Amazon want to unionize as a worker, that's the law you look to. So whether it's pro sports or not, it's the same thing. And it says what the parties are obligated to do and talks about unfair labor practices. Now let's talk about rights and then we'll move on to the right concerted actions. So employees have the rights to join and assist unions, engage like the bargaining and engage in the so-called concerted activity, both sides have to bargain good faith about a lot of things. Let's make wages hours and other terms of employment, a lot of things are there. And in fact, even in the sports area, like some of the rules regarding our changes of the rules of a game are terms of employment. So in the latest collective bargaining agreement, designated hitter is now in the national league, yeah that's a term of employment all right, that changes the rules and that's something that you negotiate. So drug testing, by the way, looking at the next slide is a mandatory subject of collective bargaining. Note that because in the Olympic system, in the college system, there's no choice in drug testing, drug testing is pretty much, you sign an agreement, you get tested. It's basically random drug testing at a huge block of time. In the professional sports unions, there are rules on drug testing that are negotiated that may not be, and are not as strict in many ways regarding what is covered, the scheduling, the punishment, it's negotiated. You know, players unions are not going to accept the Olympic system, they don't have to, because it's a mandatory subject of bargaining that the union will be very very interested in doing. So it could be broad. Now let's talk about strikes and lockouts. We know what they are, we've heard of them. The strike clearly is the action by the union to strike and strikes can occur usually after the end of the agreement, it's a union vote, a union doesn't have to strike, but a union can. Now in most industries, the timing of a strike may not be super important, although in some, it may be given cyclical aspects to it, but in sports, it could be very important, and owners learned this and the leagues learned this the hard way. In 1994, the major league baseball players engaged in a strike because there was no collective bargaining agreement because it expired at the end of the prior season, but the players decided to strike in August. Why would you think that is? Now I don't hear your voices, but here's the answer that would be in your heads. Well, the players have been paid for two thirds of the season and the last third is the third leading into the playoffs and world series where the teams in baseball can make most of their money. And that time, that year there were no playoffs in world series. It was not there because of the strike and the leverage by the players was brilliant, because they got most of their salary, 'cause they get their salary every two weeks I gather, but the owners really were not getting their payday until the big games in the post season, and that has not happened again. So what usually happens now is the lockout, and that is the owner's strategy of saying we have no collective bargaining agreement, we're locking you out. And you know, when lockouts occur, they occur at the beginning or in spring training or in training camp or in the case of the last lockout with baseball like this the day after the world series, right, I think with December 1st, it was, they lock out the players. That gives the owners leveraging strategy, 'cause they're not paying the players, they're not paying the players during that first month of the season when attendance is not that great, they're not paying anything, they're keeping the money and they could be prepared and have been prepared for season long lockouts, which you saw in the national hockey league or half of season lockouts in NHL and NBA, and just get in a time for the, you know, 40 game season or so, but keep the playoffs and championship series. And yet the players are hurting, it definitely has helped I think suffice it to say in the last few lockouts that ownership has had the leverage because of that, because these athletes were just not being paid, one and number two, what are they doing all day? Because their practice facilities were closed, they may be practicing in other places, but chances are they were home, and maybe in some cases, detentions were there family wise, you know, with spouses, girlfriends, boyfriends, et cetera, kids, not a good sign plus the money was not coming in. So you see the advantage and strategic aspect of a lockout, certainly if you are on the ownership side. So clearly that's a big big distinction, alright. So anyway, the big issues have been no surprise salary control and free agency. Those have been generally the big issues that have governed professional sport at, you know, for the last half century and how and free agency by the way, even today is limited. You know, there is no open, free market as I said in sports, basically it is still limited to certain players of certain tenure. So let's talk about how baseball players won free agency after the loss in the Curt Flood case, and the union, I think engaged in a strategy that they had some luck and the outsmarted the owners. They said, okay, you have this option, this reserve option reserve clause we mentioned. How long does it last? It's one year, but does it go year after year? Let's try it out because by that time, 1975, there was arbitration in sports because there were collective bargaining agreements and one of the points was that you could have a grievance arbitration with a neutral arbitrator or panel of three and two players decided to not to renew their contracts and play their option year and see what happens. And during that 1975 season, the owners of those teams got a little bit worried because they were offering more and more money, 100,000 a year, 120,000 a year, would you do it, et cetera and the players stuck to it, Messersmith and McNally stuck to it and decided the union decided to go to arbitration. And at the time the backstory was that indeed there were three arbitrators, there was one that was the neutral arbitrator and the other two represented were picked by each side. And the arbitrator for the owners told the owners, can you make a deal with them? You may lose this. Owners didn't think they would lose, well, guess what? Next thing they lost because the arbitrator who was an NYU economics professor, he was a labor economist basically said A, he had the jurisdiction to hear the case because it wasn't a quote "Case on the reserve clause" it was in the contract interpretation case in so many words, and he simply said, I define this during the basically using the literal meaning or plain meaning of the word standard and contract definition as one year, it's one year moving to the next slide. I don't care about reserve or not reserve system and cetera, it's one year. After one year, the players a free agent, and that's what opened the door to modern free agency. And when that happened, the owners didn't know much what to do. And they came back to the union and said, let's negotiate a new collective bargaining agreement that created the system we have today, which is after six seasons, a baseball player as a free agent, it makes the free agent for limited groups of veterans and what it does and what it did do brilliantly was make a lead players, free agents, jack up their salaries on an open market, but also because of the arbitration rules, it helped other players too. So the salaries in major league baseball from about 1976 to like 1985 skyrocketed. It was the perfect system. If you have every player or free agent after one year, you have too many people on the flooding the market, the salaries wouldn't go up, but if you limit that they could and they did. Now there has not been necessarily the case as much in recent years, but that's for another day, but you see the idea. Okay, well skip, no LaGuardia talked about that, and some of these will I, a couple of these slides, I'm just moving on, so let's move to the slide that has single entity status. I wanna speak about that we have a few minutes left. If a or sports organization is a single entity, it's not subject to section one because there's no agreement of two or more. That idea led to the creation of what were called single entity leaks. And there's still a few one left that's of some importance, but a number of them were created that way because and the 1990s especially it was thought with all this antitrust potential and these leagues were too new to really handle union negotiations, they wanted to impose serious salary caps 'cause of their economic basis, so let's make a system where the league owns the teams and the owners are really investors, they invest in the league. The league is an LLC, you have it shares in the LL management shares in the LLC or the league is a corporation, I have 20% of the stock in the corporation, but the structure was totally unitary to avoid antitrust litigation, because the traditional leagues, as we know, by 30 to 32 owners are not single entities and that was determined by a Supreme court case called American Needle versus NFL, and the NFL tried to say regarding their exclusive merchandising agreements, they said, you know what? We cooperate so much together that we really are a single entity. And of course the problem with that argument was, and it came up in the Supreme court arguments that would you say that the New York Jets are really the same part of single entities in New England Patriots? Just ask Jets and Patriot fans that, not quite there is still a distinct issue between the teams, distinct local operations between the teams, staffing of the teams, you know, it was a pretty much a, I think an eight to one decision and the NFL was not a single entity, ergo, none of the other traditional leagues were as well. So that answered that question. Moving on and talk about major league soccer, which is some league I haven't mentioned and I waited to it to the point was that major league soccer is a quasi single entity, because the league owns all the teams and the player contracts, the clubs are not independent, there's a management committee consisting of investors and you see it in front of you I don't have to go through all of that, but each team has what's called an owner investor and a shareholder and I use the term in quotes because technically it's not a corporation, it's an LL, it's a limited liability arrangement. So it runs its differently. And the players are MLS employees than team employees. And it's in a good summary I have the link for that if you wish to take a look in more detail, but it's differently organized, it also has greater connections with USA soccer and FIFA, which is another issue too. But nevertheless, it is more of a single entity than the traditional leagues and for a long time, it could be antitrust proof because of that. Now there's a union and they have a collective bargaining agreement as well, and the league has been doing very very well, but it created that way, the WNBA also originally was a single entity, but it decided to go to a traditional route. Because though downside of single entity leagues economically is if you don't own a team, you don't really get the ability to sell that team or get the value of that team, and with team valuations going up, being quote, "a shareholder" in a league may not be as economically advantageous. So the argument goes, and given the kind of sales we've been seeing amongst, you know, professional teams, you know, you're seeing that there's a real advantage in the old system in that regard. I'm looking at the clock and unfortunately time is fleeting, so we don't really have to get to much on the, won't of time for the sample collective bargaining agreements, but I'll just go to them quickly at them in front of you, that the system in baseball has eased a bit, but it's still, it's the one league with no salary cap, that's one thing that I'd point out. You have some of the issues here, essentially these minimum salary goes up, the expanded the playoff system, universal designated hitter, it's all there, and some other technical changes. Now, one thing baseball has to control salaries, is something called competitive balance tax, and the thresholds have gone up, but particularly they created a new threshold known as the Mets tax or Steve Cohen tax because he's the richest baseball owner now, and they want him to be more taxed, and by the way, the tax rates are here, as you can see, and for multiple violators, it's a pretty high rate of the amount over the threshold. So it's think about paying the IRS, you know, these penalties, and it does definitely create some, you know, some group or some thought for trying to control your payroll, at least with certain teams, and that's how it's done. The rest you can take a look, there is some revenue sharing in baseball now, I just may mentioned the NFL, NFL PA agreement, which is a much more complicated agreement, it's about 400 pages if you wish to look at it at your leisure, and it's a 10 year agreement, which is long, and it I'm just moving on, also increases salaries, expands rosters you see what it does, and the key issue is how the revenue is divvied for salary cap purposes. And it's a little bit higher, but because the NFL has a fairly strict salary cap, the money really is dependent on like the revenues that the league comes in, that's where the players will see. So there's a new television broadcasting agreement with more money, the players are going to get that because each team cap will go up. But the camp system is enormously complicated, and unfortunately we don't really have time to get into that maybe subject of another lecture, but you do have some of the slides that will talk about the free agency rules, which are generally not as frequent and also quite restricted for players and how players can keep certain players, the teams can keep certain players, franchise and transition players, as you can see, and nevertheless, guaranteed issues, so, you know, maybe for another time, I could make an addendum to this or the like, but you do at least have some of the summaries in front of you in these slides. So you can take a look at them at your leisure, particularly the salary cap issue. So I'm just now at the last slide, and I want to thank you for joining, I hope you found this informative, and again, any questions you can email me at my email address, or please, you know, follow me on Twitter, love to have more followers on Twitter. So without further ado, I bid you farewell and thanks again for listening on Quimbee. Bye-bye.

Presenter(s)

Mark Conrad
Associate Professor of Law and Ethics
Fordham University’s Gabelli School of Business

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