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Smith on Sports

BY Bill Smith

Today the US Supreme Court agreed to hear the case of American Needle vs. NFL. Am Needle is a former licensee of the NFL that makes hats with team and league logos. The suit argues that when the NFL granted a 10 year exclusive to Reebok International in 2001, it violated anti-trust laws. Most sports fans probably wonder why this deserves mention here. This case may change the way that all teams and all leagues do business from now on.

This case gets to the essence of how the law will treat the NFL and all other leagues. The question is simple—is the NFL a collection of different (and therefor independent) businesses or is it a single entity? The Court has decided to answer that question in the session that begins in October of 2009. The answer will likely come in the first half of 2010.

The league claims it is a single entity because no team can survive and play without the others and the rules and standards that the NFL provides. Am Needle claims that each franchise is an independent business and the exclusive license with Reebok violates anti-trust laws by prohibiting other companies from doing business with various teams. Am Needle has lost at the US District and federal appeals levels. Like nearly everything about the law, the single nature of the NFL is not a black and white issue but is a shade of gray.

In almost everything it does, the NFL acts like a single entity. It has a master contract with a single union—the NFLPA. It also has negotiated TV contracts as a league. But in other cases, it acts like 32 different companies.

Each team negotiates its contracts with players, its own radio contracts, stadium vendor deals, and team sponsorships. It is that last category that leads Am Needle to have some hope. If Pepsi can be the exclusive cola of the Dallas Cowboys and XYZ can be the official wigget supplier of the team, why does the NFL have the authority to license the Dallas Star on hats to Reebok? The cost of a pre-fit NFL logo cap before the Reebok deal was $19.99 and now it is $30.

Both the NBA and NHL have joined in support of the NFL in this action. Interestingly, Major League Baseball has not. It holds a special exemption from anti-trust laws granted to it by the Congress. The NFL has also encouraged the Supreme Court to take up the issue because it along with the NBA and NHL have lost regional cases on related issues in the past. The NFL hopes that the Supreme Court ruling will give it the national precedent it needs to prevail in other issues.

The court of appeals decision on this issue referred to a previous case of Chicago Professional Sports v. NBA in which the issue was broadcast rights. In that case the court said that the league had to be seen differently in different areas of business. The single entity applied to the promotion of the league and its broadcast rights. The Court decision said an organization such as the NBA may be best understood as one firm when selling broadcast rights to a network in competition with a thousand other producers of entertainment, but is best understood as a joint venture when curtailing competition for players who have few other market opportunities.

However, the courts have decided that the NCAA has no jurisdiction over college football TV contracts saying that the association is not allowed to collectively negotiate media contracts because that would violate anti-trust laws.

The previous cases have revolved around the need for a league to coordinate the promotion of the sport. But this case is not about promoting the sport, it is about the manufacture and sale of merchandise. Expect the court to uphold the decision of the Appeals court.

If something would happen that Am Needle wins, the rights of EA Sports to the exclusive use of player names and faces for the NFL, NBA, and MLB video games would also be at risk along with possibly MLB’s exemption.

That’s what I think. Tell me what you think.