A Needle, a Gridiron, and the Supremes
For all the battles grabbing headlines on the court, the ice, and the field, one taking place in a courtroom might have the most lasting impact.
And for a refreshing change, it’s not a criminal court. In fact, it’s the highest court in the land, the Supreme Court.
Arguments were held Wednesday in the case of American Needle v. NFL. The ramifications of the case extend well beyond the merchandise licensing that is at the core of the suit, beyond the NFL itself. In fact, it’s no stretch to say the case’s impact will be felt far outside of the sports world.
The suit could impact not only the sports merchandise you buy, but the tickets you purchase, the games on TV, the players you watch, the stadiums teams play in, the branded video games you crave… even your credit card statements, health care bills, and fast food fix.
At issue is the NFL’s exclusive headwear deal with Reebok, part of a sweeping league-wide contract signed between the two parties in 2001. Prior to that, American Needle had been a licensed supplier of caps for NFL teams.
The manufacturer filed suit in 2004, arguing that the exclusive deal was a violation of antitrust regulations. The NFL consists of 32 independent businesses, American Needle claimed, and any agreement between the organizations that stifled competition was a clear antitrust violation and hurt consumers. The example cited frequently in court documents was a cap that went for $19.99 when American Needle made it, but a few years later went for $30 with a Reebok tag on it.
The NFL countered that the 32 teams operate as one single unit, since no one team can truly exist on its own. The single-unit concept is what allows the league to operate properly and compete with other forms of entertainment, said NFL attorneys.
The suit was tossed in lower courts and appealed all the way up to the Supreme Court, and that’s when things got interesting – and dangerous. While American Needle wanted the lower court ruling overturned, the league wants the ruling to be expanded.
See, the NFL believes that it is a single unit in more ways than just peddling headwear. It schedules as a unit, strikes television deals as a unit, agrees to rules of competition as a unit, and negotiates agreements with its primary employees (players) as a unit. As a result, even though it is made up of 32 teams, it’s a single entity, and it shouldn’t be subject to those pesky antitrust regulations.
Outwardly, the NFL has said that such a ruling will provide a convenient shield from frivolous lawsuits, which it considers the American Needle filing to be.
Sensing that the NFL might be on to something here, other sports properties have gotten involved as well. The NBA, NHL, NASCAR – even the NCAA – have filed amicus briefs on the NFL’s behalf. Hey, if the NFL can get a free pass like this, every other league has a great argument for the same treatment. (Major League Baseball, which has had its own antitrust exemption for nearly a century, has steered clear of the case, so as to not disturb its own competitive advantage.)
But freedom from antitrust statutes has wide-ranging impact in the game. Nothing is to say that a league with an antitrust exemption can’t decide to impose a league-wide coaching salary structure. The league would retain total control over franchise locations, even if the team is owned by Al Davis. Since the league engages in revenue sharing, teams could vote to establish a minimum ticket price to maximize revenue. No matter what the issue, from the draft to merchandise to media to franchise sales, leagues with antitrust protection can act with a selfish disregard for everyone, including fans.
Justice Sotomayor easily saw through to the NFL’s transparent goal: “You are seeking through this ruling what you haven’t gotten from Congress: an absolute bar to an antitrust claim.”
Recognizing the danger, most player associations have lined up to file briefs supporting American Needle. Not to be naive, the players don’t care so much if a Reebok hat costs $30 or if skyrocketing ticket prices shut out all but the wealthiest fans. No, they’re worried what a league with an antitrust exemption afforded by the Supreme Court might do to hurt them. While owners might struggle to directly cut player salaries, rules could be enacted that limit player movement or require cumbersome compensation for free agents – both of which would serve to curtail competition for players and indirectly stifle salary growth.
Arguments of Wednesday were at times interesting, amusing, and ill-conceived. American Needle’s arguments were focused on merchandise, the unfortunate focus of its case, one that it is likely doomed to ultimately lose. To the notion that teams are competing independently in the sale of merchandise, Justice Breyer countered that it was unlikely fans are trying to decide between buying a Patriots or a Saints shirt.
Speaking to the merchandise issue, the NFL made a rather silly claim. It argued that league deals, like the Reebok contract, are primarily designed to allow the league to better market the game. A strong unilateral relationship with Reebok strengthens football’s attraction versus other forms of entertainment, spurring television viewership and ticket sales.
In other words, if you believe its attorney, the NFL signed with Reebok not for better or more expensive hats, but because it would increase ticket sales.
Justice Scalia shot this laughable notion down in open court. “The purpose is to make money,” he said. “I don’t think they care whether… [it] promotes the game.”
The NFL delegation was at least smart enough to stay away from labor issues, which would have raised the ire of every union short down to the United Brotherhood of Lemonade Stand Workers. While the NFL Players Association expressed its concern over what a Teflon-coated NFL could do to its players, the league countered that the case has nothing to do with “union issues”.
Of course, that’s true. The case has nothing to do with union issues. What the league will do if it wins has lots to do with the union, however.
Quietly, there has been consternation that the case could have sweeping impact well beyond sports. Any other industry in which independent businesses share a strong common link has its eyes on this case. Health care networks, credit card banks, even fast food chains all share an interest in the outcome. A ruling for American Needle could leave these businesses open to antitrust lawsuits, while a broad victory for the NFL could leave consumers out in the cold. As one media outlet said, with such wide-ranging implications, the suit could have an “unpredictable and unsettling” impact.
So how is it likely to play out? Early indications are that the case is likely to be sent back to the lower court, and the NFL and friends are unlikely to earn their Teflon antitrust shield. It’s likely that American Needle will ultimately lose in the lower court, however.
And what should we, the sports fans, think from the comfort of our couch? If the Supremes shoot down the NFL’s argument, it would be a victory for fans. Sports are based on competition, two teams battling for victory. If one team always had the advantage, the outcome would be a given, and no one would watch. For a game to be attractive to fans, both teams have to have a shot at winning.
In a way, the same holds true off the field. If the league could behave however it liked, with no threat of penalty or retribution, it would likely die. Decisions would alienate fans, players, vendors, and broadcasters, until the league’s only audience would be itself. Any league’s ongoing success is based on an adversarial system, in which all stakeholders provide a series of checks and balances against each other. Though it occasionally results in strikes and other unfortunate circumstances, it also keeps everyone honest – or at least as honest as they can be expected to be.