Category Archives: Antitrust

Collective Bargaining, Lockouts and Strikes: The Unintended Consequences of Paying College Athletes

Yesterday, my friend Lisa Horne over at FOX Sports published a really interesting piece on how paying college athletes could lead to them being classified as employees and capable of collective bargaining. Horne interviewed me for the piece several weeks ago, and I’ve been eagerly awaiting its publication.

As Horne says in her article, “If the rules-makers can’t stop a kid from trading pants for tattoos, how can they expect to prevent an 18-year-old — with maybe $100 in his checking account — from listening to a union rep’s lure of riches?” She makes an excellent point. If student-athletes were classified as employees, there’s no reason to believe they wouldn’t form a players association and collectively bargain for everything from safer working conditions to their share of the revenue pie.

And they would have every right to do so as employees. But can you imagine the impact of a strike or lockout in college football? It would make the NFL lockout look like child’s play. As I said in Horne’s article, every Saturday an average of 5 million fans pack Division I stadiums. Compare that to just 1.1 million on any given Sunday in NFL stadiums. Add in the economic impact to each city on gameday, which for top programs is in the tens of millions of dollars, and the numbers are staggering.

Increasing scholarships to cover cost of attendance is not going to trigger a reclassification of student-athletes as employees. However, any pay over that very well could. Here’s how it might go. Let’s say college athletes are being paid some amount, any amount, over cost of attendance. One or more players decide schools, conferences and/or the NCAA are violating antitrust laws. Essentially, antitrust laws disallow business practices that discourage competition or restrict an employee’s ability to make a living. So, for example, players could sue over the requirement that they sit out one year when transferring. Similar issues in professional sports have been considered by courts such as the franchise tag in the NFL and the reserve clause in Major League Baseball.

Restraints such as not allowing a player to reach free agency for a specified number of years are only allowed in professional sports because they’ve been collectively bargained. The product of collective bargaining between an employer and unionized employees is protected by the non-statutory labor exemption.

So, back to our scenario. One or more players sues a conference or the NCAA for a restraint like the rule regarding transfers. If players were classified as employees (which could be determined in a suit like this), it’s highly likely the court would find this to be a violation of antitrust laws. Much like we’ve seen in the history of each professional sport, the players would form a players association and collectively bargain these issues with the NCAA, assuming the NCAA was still the governing body for collegiate athletics. If not the NCAA, it would be whatever governing body we have for collegiate athletics.

What would collegiate athletics look like then? Maybe there would be a salary cap for each athletic department or even each football program. Players would likely get a share of licensing revenue. Health insurance and maybe even post-career benefits might be covered by schools or the governing body. Since schools would be receiving less revenue than they currently receive, they’d likely have to cut sports that don’t turn a profit in order to make the finances work, which generally means any sport outside of football and men’s basketball. And remember, Title IX still applies. Women have to have similar opportunities. This is true even if you take football out of the NCAA. As long as football is still associated with the school, Title IX (a federal law) applies.

Another area where you begin to see the system doesn’t work is when you talk about having a draft or trading players. Those things wouldn’t fit in collegiate athletics. It might be contrary to what you think, but I would imagine most players have an opinion about where they want to go to school. One that’s much stronger than say a prospect in the MLB draft who wants to play for his hometown team. Brett Hundley at UCLA is said to have chosen UCLA for its pre-med program. Because many of these athletes are taking advantage of the academic opportunities afforded to them, it doesn’t make sense to have a draft or allow trades. What if they ended up at a school that didn’t have their major?

None of this is to say that a system couldn’t be created that worked. However, it’s not as easy as simply deciding tomorrow that college athletes should be paid. There are a number of ramifications to that decision, from figuring out how to comply with Title IX, to finding the money in the majority of athletic departments who aren’t self-sustaining, to the myriad of issues that arise if college-athletes are reclassified as employees.

Does American Needle Apply to Collegiate Licensing?

Last year one of the biggest legal decisions in sports was made in American Needle, Inc. v. National Football League. (You can read about the decision in these two pieces I wrote for Forbes: Why NFL’s Supreme Court Loss Isn’t Much of a Loss(5.24.10) and American Needle vs. NFL: Looking Forward (5.26.10))

Earlier this month, cease and desist letters were sent to Collegiate Licensing Company, the nation’s top collegiate marketing and licensing company, and 27 FBS schools demanding that they stop their so-called collective effort to limit the production of merchandise with collegiate logos.

Quite a few of you have asked me about the situation, so I’ve asked my friend Beth Hutchens (Twitter: @HutchensLaw) of Hutchens Law Offices, who specializes in Intellectual Property law, to help me explain.

The real question here is whether the decision from the American Needle case applies in this situation. So, Ms. Hutchens will start with an explanation of that case and move to the situation at hand. I’ll let her take it away:

About 10 years ago, the National Football League Players’ Association (“NFLPA”) decided that they wanted Reebok (and only Reebok) to make hats with the teams’ logos on them.  American Needle, Inc., a competitor of Reebok, had been making these types of hats for the National Football League (“NFL”) for some time and, as a result of the NFLPA’s deal with Reebok, lost its contract to make said hats.  American Needle, Inc. did not have much of a sense of humor about this and sued the NFL under antitrust principles.  Long story short, American Needle Inc. argued that the NFL violated antitrust law because all 32 NFL teams worked together to freeze it out of the NFL-licensed-brand-hat-making business when they gave that exclusive right to Reebok for ten years.  The NFL asked for broad antitrust protection and argued that it was a single entity comprised of 32 different teams united under a common umbrella, hence the license wasn’t anticompetitive.   American Needle Inc. disagreed and argued that since each team retained ownership and control of its trademarks they were independent entities acting in concert.  Hilarity ensued all the way to the United States Supreme Court.

The Needle Court had to decide if the NFL was a single entity as opposed to a collection of separate entities  because §1 of the Sherman Act (the antitrust law at issue here) forbids conspiracies to restrain trade.  One cannot conspire with oneself, such as a parent and a subsidiary (the NFL’s argument), but two separate entities can, such as two competitors (American Needle, Inc.’s argument).  The relevant question, then, is if the 32 teams agreeing to grant an exclusive license for use of their independently owned marks “join[ed] together independent centers of decision making”.  This is why the NFL argued that the teams were under a single umbrella and most definitely were not separate entities.  The Supreme Court didn’t buy it and said:

Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned.

Justice Stevens, writing for a unanimous Court, noted that even though there may be some cases where it is necessary for cooperation among (football) teams, in terms of their licensing agreements, they are not a single entity.  But the Court didn’t resolve the issue as to whether the agreement among the NFL teams actually did violate competition laws, which is important in our CLC analysis.  The Court kicked Needle back to the 7th Circuit to analyze American Needle Inc.’s claims under   the “rule of reason” and determine whether the NFL’s licensing practices actually do harm competition.  Under this rule, the actions of the NFL teams would be illegal only if they unreasonably restrain trade.    The 7th Circuit has not decided the case yet.

Dechert plainly thinks Needle should apply to collegiate athletics.  Its letter alleges that CLC is “promoting, organizing, and implementing a concerted effort…to restrict the number of licensees” and accuses CLC licensors of “acting in concert to suppress competition in markets for licensed goods (similar to American Needle, Inc.’s position).  CLC disagrees, calling the accusations “outrageous and unfounded” and “absolutely unsustainable”.  CLC’s position is that the restriction represents “good, sound business practices”.  We have no precedent to tell us which is the better argument, or if we can even analyze college sports licensing under Needle.   

 A glaring difference between the facts of Needle and the current issue is that, arguably, Needle only addressed a particular licensing scheme to one entity in one type of professional sport.  The CLC license merely restricts the number (which is presumably greater than one) and involves all college athletics, not just football.  Another important difference is that collegiate sports, by definition, are not professional.  Unlike professional athletes, college athletes are not compensated.  Yes, they receive scholarships and other sorts of aid that has some monetary value, but, technically, they are not paid to play the game.  It stands to reason, then, that even though college athletics is a huge revenue generator, the teams’ existence is incident to, not independent of, the affiliated university, thus any separate entity argument could fail. 

Speaking of money issues, and in furtherance of the single-entity argument, at least some of the revenues generated by college sports go toward the academic institution and not a professional payroll. This may have major implications in applying antitrust principles to colleges because, at least in theory, one could argue that collegiate sports teams are in fact, under the umbrella of the university system.  So one could say that, at least on some level, competing college teams cannot possibly be viewed as having separate interests where the goal is to improve the academic institution.   Will these issues be enough for a court to refuse to apply Needle to Dechert’s claims?  They might, but I honestly don’t know.   These are important issues that require a very lengthy and drawn out analysis that I can’t expand on today.  So, just for the sake of argument, let’s pretend that Needle does apply and Dechert can actually challenge the CLC’s activities under antitrust principles.

So what exactly is Dechert talking about?  The letter makes mention of a “Sideline + 1” initiative.  This initiative is apparently an endeavor to limit the number of manufacturers allowed to make collegiate branded apparel sold at certain types of retail outlets.  Dechert believes this limitation is an “anti-competitive restraint of trade”.  Dechert alleges that “[b]y severely reducing the number of licensees and eliminating competition from the excluded suppliers, the restraint will allow CLC and the universities to garner increased royalty revenues…both through higher royalty rates and through higher prices… which will rise as competition will fall”.  I remain unconvinced that limiting the number of licensees immediately triggers antitrust concerns, especially where trademarks are involved.  As IMG College spokesman Andrew Giangola points out “More sophisticated strategic brand management benefits schools, best-in-class licensees, and consumers.  We are confident each school can and should continue to make its own decision about how to best manage its brands.”  

Mr. Giangola makes a good point.   Each university should be able to “choose best-in-class licensees and to work with experts that can help evaluate the myriad of licensing alternatives that the school may wish to consider.”  This necessarily includes deciding who will be permitted to affix a school’s logo on merchandise.  Even if that “who” is a very small subset of manufacturers.  Further, CLC assists its members in managing, developing, and protecting their brands, and specifically provides that licensing assures only quality products are associated with member institutions.  There is a colorable argument that the licensing initiative Dechert is complaining about is actually a way to maintain brand integrity by only giving licenses to companies with a long history of providing top-notch products. Just because that list is limited to only a few companies does not mean the initiative is anticompetitive, especially where trademarks are concerned.  Here’s why. 

A trademark owner has a vested interest in saying who can and cannot use the brand of their merchandise.  This is because one of the first things a responsible trademark owner must do is see to it that their brand maintains its level of quality.  A way to accomplish and maintain this quality is to be highly selective about when, how, and if a company will be permitted to use the mark on its products.   The idea is that if a licensee puts a known mark on shoddy products, the consuming public will incorrectly attribute the poor quality to the brand, not the licensed product, and the brand’s value will be diminished.   CLC members have an interest in making sure that their logos are only affixed to high quality products and choosing to do business with only certain companies is a way to ensure that. 

As it appears on their website, CLC’s current licensing information provides that there are more than 2500 companies licensed to produce a variety of assorted sundries, including apparel.  I do not have a clue as to what number the alleged “Sideline plus 1” initiative proposes to limit that number to, but reports are  that  CLC members are being asked to restrict their licensing to either Adidas, Nike or Under Armour.  A drastic reduction, to be sure.  Is this a way to control the quality of the product bearing the team’s logo thereby maintaining the brand image or a dastardly ploy to squeeze smaller companies who cannot afford royalties out of the marketplace to charge astronomical prices?  Or both?   Make your own assumptions, but I do have a question mark above my head about the stakeholders’ motives as it appears that the end result of their endeavors would be to, at least in theory, require CLC members to contract with entities they otherwise would not negotiate with.  

Here’s the rub.  Needle was an argument about all of the NFL teams agreeing to allow one and only one manufacturer make their hats and the USSC wouldn’t decide if even that violated the rule of reason.  Even if we can say without a doubt Needle should apply to collegiate sports, the question here is whether granting a fewer number licenses to select manufacturers for a certain subset of merchandise amounts to an unreasonable restraint on trade.  I won’t speak for the 7th Circuit or the Supreme Court, but I am uneasy about the marked increase in antitrust allegations and am hesitant to slap an anticompetitive label on an agreement willy-nilly.  This one must be decided with caution. 

Remember this.  At the end of the day, antitrust laws are only meant to punish businesses that intentionally dominate the market through misconduct.  Intent is the pivotal question, not success, and intent is really really REALLY hard to prove.  Plus, Justice Stevens pointed out that “joint licensing activities…may be necessary to make the product of NFL Football available to the public.”  So a decision that is intended to maintain a competitive balance or maintain brand quality among the teams would probably be OK, at least as far as the Needle Court is concerned, and I’d be surprised if college athletics in general, or even CLC’s initiative, would be held to a different or stricter standard.  The Supreme Court also noted that NFL teams “share an interest in making the entire league successful and profitable,” and in pursuing that they may need to make “a host of collective decisions” that would be beyond antitrust challenge.  Arguably, colleges and universities share that same interest at least on some level, perhaps even more so.  So even though a group-granted exclusive license to a single manufacturer may be subject to antitrust scrutiny, such a license is not necessarily a violation of the Sherman Act.   

 Alas, this rant is pure conjecture and even if Needle does apply to college athletics, it doesn’t mean the initiative is toast.  Besides, we actually won’t know for some time if even the NFL licensing agreement violates the rule of reason, so the CLC issue is a looooong way off.  I think we can file this one in the “Hmmm, we’ll see” file.  For the record, though, my Magic 8 Ball says the NFL licensing scheme will violate antitrust laws “without a doubt.”    But then, my Magic 8 Ball is also 0-4 in the prediction department, so there that is for you.

This article offers the personal observations of Beth Hutchens, and does not represent the views of her law firm or its clients.  This article does not represent the views of Kristi Dosh, her law firm or its clients. Any information contained herein does not constitute legal advice. Consult your own attorney for legal advice on these matters.

Antitrust Suit Will Not Bring Playoffs to College Football

I’ve posted a similar piece on this topic before, but I want to renew the debate now that Bill Hancock has agreed to meet with the Department of Justice.

If you’ve read my work, you probably know I like to play devil’s advocate on this topic. I believe an antitrust suit brought against the BCS has a slim chance of being successful and, more importantly, that even if it were successful, it would not result in a national championship playoff.

As you may have heard, BCS head Bill Hancock has agreed to a voluntary meeting with the Department of Justice. What does this mean? I saw one media member (whose work I greatly admire) say that it was the beginning of the end for the BCS. I couldn’t disagree more. I think it means nothing. I think it’s all for show.

The Department of Justice is getting involved because of political pressure. Now they need to make a show of investigating these perceived injustices. Does it mean they’ll bring a case? No. Does it mean they’d win a case if they brought one? No.

I can hear you already, “But, Kristi, the current system isn’t fair.” Therefore, it must violate antitrust law, right? Wrong. To understand, I need you to take off your fan hat and put on your CEO hat. College football is a business, like any other sport. It is run in a way that makes the most money for the people at the top. I have no idea why many fans think the sport’s power brokers – the top conference commissioners, TV partners, bowl officials – would voluntarily change to a system that would provide them with fewer benefits. They care about control and money, and they have both under the current system.

And here’s the key argument: The current system is better than the old system.

Would a playoff be better? Many think so, but that’s now how antitrust law works. The number-one issue I find with the analysis of many is the mistaken belief the court will compare the current system to a playoff system. Antitrust law will require the court to compare the current system to the old system.

The court will employ a “rule of reason” test. The court will look at why the current system was put into place, what the landscape was like before and after the current system was adopted, the effect of the current system, the history of college football post-season, and the reasons for adopting the system as-is.

Antitrust law is also applied less stringently in situations like this where the challenged conduct is necessary in order to produce the outcome. In other words, the a collaboration between conferences (here, in the form of the BCS) is necessary in order to produce a national championship game. Prior to the BCS, there were merely bowl games with traditional conference alignments and no matchup between the number one and two teams. Is it necessary to choose the number one and two teams the way they do? No, but that’s not really the issue at hand.

The issue is whether the collaboration that makes up the BCS is necessary and whether that collaboration has improved competition compared to past practices. I think it’s clear the BCS is an improvement over the old bowl system, particularly because of the access afforded non-AQ teams. Overall, the entire picture has improved: the number one and two teams as determined by an agreed upon formula meet each other to crown a champion, ratings and popularity are up, and access is improved for many.

In addition, Utah Attorney General Mark Shurtleff, who says he’ll be bringing a suit in the next two months, must show consumer harm. In other words, he must show that college football fans re somehow monetarily harmed by the current system. That’s going to be tough. As I said before, the court will look to how the consumer is affected under the current system compared to the old system – not compared to how they would benefit under a playoff system.  Most commentary discusses how non-AQ schools are harmed, but that won’t be the focus of a lawsuit. Antitrust law first and foremost seeks to protect the consumer.

Speaking of the schools involved, there are some wrinkles even if a court were to focus on the ways in which they are harmed. Some judicial circuits have their own tests and case law that would affect the outcome differently depending on where a suit was filed.

For example, the Ninth Circuit has a “but for” test which bars the plaintiff (let’s pretend it was a non-AQ school here) from recovery if the conspiracy would not have occured, but for the plaintiff’s participation. The non-AQ schools, through their conferences, agreed to the BCS system and willingly continue to participte in it, which would be a problem under this test. The test goes on to look at the degree of participation of the plaintiff versus any defendant, but that analysis is too long to go into here.

Another point I want to address is a comment from Utah’s Attorney General that illustrates another mistaken belief by some. Shurtleff says his suit will, “ask the judge to order some way to fix it. It’s not my call on how to fix it, but I think clearly (it would be) to go to a playoff and eliminate the BCS.” The only problem is that’s not how antitrust cases work.

A judge cannot order college football to institute a playoff. A judge can award treble (or triple) damages and can even issue an injunction, forcing a new system to be adopted, but a judge cannot dictate what that system will be. Although a judge could say in dicta (sort of like a side note in a ruling that doesn’t carry any actual legal weight) what sort of system would be allowable under antitrust law, the judge cannot order what system will be put in place.

Even without the judge ordering a playoff, many assume this would be the outcome if the current system was found to be in violation of antitrust law. However, the powers that be could just as easily allow a return to the old bowl tie-in system. Yes, I know they would make more money with a playoff, but it’s not always about money. In this case, it would be about control. The guys at the top are not going to give up control of post-season college football just because a few extra bucks could be made with a playoff system.

Andy Staples does a great job of describing how a return to the old system might work out in this piece for Sports Illustrated. One important thing to note in his piece is the effect on not only the non-AQs, but also the ACC and Big East. This illustrates how high risk an antitrust suit could be for many schools, not to mention the extreme expense of litigating a suit of this nature. He also goes into how the have-nots could gain superior voting power in he BCS under a return to this system, but that includes a lot of what-ifs and is beyond the scope of what I want to cover here.

Please note that I have barely skimmed the surface here in terms of antitrust arguments that could be made. Not only are there vast intricacies of the law, but some judicial circuits have their own tests that have been adopted and their own unique case law that might affect the outcome of the case. It would take an entire law review article to analyze an antitrust suit of this magnitude from every angle.

Despite all I have said here, I think one can make a case on the other side as well. I just see that side well-represented in the media, so I wanted to give this angle some attention and try and give the casual fan a glimpse into why it’s not an open and shut case for those opposing the BCS.

For more on this, check out Skip Oliva’s piece The Antitrust Playoffs Have Begun.

This article offers the personal observations of Kristi Dosh, and does not represent the views of her law firm or its clients.  Any information contained herein does not constitute legal advice. Consult your own attorney for legal advice on these matters.

Why an Antitrust Suit is Unlikely to Bring Playoffs to College Football

Twice last week on Twitter I asked if you were tired of hearing about antitrust suits because I was considering writing a piece about why one brought against the BCS wouldn’t result in a playoff for college football. Despite hearing the word “antitrust” for months in conjuntion with the NFL, the unanimous response was that you wanted to hear more if it concerned what a suit would mean to college football as we know it.

If you’ve read my work, you probably know I like to play devil’s advocate on this topic. I believe an antitrust suit brought against the BCS has a slim chance of being successful and, more importantly, that even if it were successful, it would not result in a national championship playoff.

I can hear you already, “But, Kristi, the current system isn’t fair.” Therefore, it must violate antitrust law, right? Wrong. To understand, I need you to take off your fan hat and put on your CEO hat. College football is a business, like any other sport. It is run in a way that makes the most money for the people at the top. I have no idea why many fans think the sport’s power brokers – the top conference commissioners, TV partners, bowl officials – would voluntarily change to a system that would provide them with fewer benefits. They care about control and money, and they have both under the current system.

And here’s the key argument: Read the rest of this entry