Contents
1. Mackey v. National Football League
2. Powell v. National Football League
3. National Collegiate Athletic Association v. Board of Regents of the University of
Oklahoma
4. Law v. National Collegiate Athletic Association
5. Fraser v. Major League Soccer
1
John Mackey, et al., Appellees v. National Football League, et al., Appellants
No. 76-1184
UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT
543 F.2d 606; 1976 U.S. App. LEXIS 6643; 1976-2 Trade Cas. (CCH) P61,119
June 17, 1976, Submitted
October 18, 1976, Decided
SUBSEQUENT HISTORY: Rehearing Denied November 23, 1976.
PRIOR HISTORY:Appeal from the United States District Court for the District of
Minnesota.
JUDGES: Gibson, Chief Judge, Lay and Webster, Circuit Judges.
OPINIONBY: LAY
This is an appeal by the National Football League (NFL), twenty-six of its member
clubs, and its Commissioner, Alvin Ray "Pete" Rozelle, from a district court judgment
holding the "Rozelle Rule" n1 to be violative of § 1 of the Sherman Act, and enjoining
its enforcement.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - n1 The Rozelle Rule essentially provides that when a player's contractual obligation to a
team expires and he signs with a different club, the signing club must provide
compensation to the player's former team. If the two clubs are unable to conclude
mutually satisfactory arrangements, the Commissioner may award compensation in the
form of one or more players and/or draft choices as he deems fair and equitable.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - This action was initiated by a group of present and former NFL players, appellees
herein, pursuant to §§ 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, and § 1 of
the Sherman Act, 15 U.S.C. § 1. Their complaint alleged that the defendants'
enforcement of the Rozelle Rule constituted an illegal combination and conspiracy in
restraint of trade denying professional football players the right to freely contract for
their services. Plaintiffs sought injunctive relief and treble damages....
The district court held that the defendants' enforcement of the Rozelle Rule constituted
a concerted refusal to deal and a group boycott, and was therefore a per se violation of
the Sherman Act. Alternatively, finding that the evidence offered in support of the
clubs' contention that the Rozelle Rule is necessary to the successful operation of the
2
NFL insufficient to justify the restrictive effects of the Rule, the court concluded that
the Rozelle Rule was invalid under the Rule of Reason standard. Finally, the court
rejected the clubs' argument that the Rozelle Rule was immune from attack under the
Sherman Act because it had been the subject of a collective bargaining agreement
between the club owners and the National Football League Players Association
(NFLPA).
The defendants raise two basic issues on this appeal: (1) whether the so-called labor
exemption to the antitrust laws immunizes the NFL's enforcement of the Rozelle Rule
from antitrust liability; and (2) if not, whether the Rozelle Rule and the manner in
which it has been enforced violate the antitrust laws. Ancillary to these contentions,
appellants attack a number of the district court's findings of fact and raise several
subsidiary issues.
*
*
*
History.
The concept of a labor exemption from the antitrust laws finds its basic source in §§ 6
and 20 of the Clayton Act, 15 U.S.C. § 17 and 29 U.S.C. § 52, and the NorrisLaGuardia Act, 29 U.S.C. §§ 104, 105 and 113. Those provisions declare that labor
unions are not combinations or conspiracies in restraint of trade, and specifically
exempt certain union activities such as secondary picketing and group boycotts from the
coverage of the antitrust laws.... The statutory exemption was created to insulate
legitimate collective activity by employees, which is inherently anticompetitive but is
favored by federal labor policy, from the proscriptions of the antitrust laws....
The statutory exemption extends to legitimate labor activities unilaterally undertaken by
a union in furtherance of its own interests.... It does not extend to concerted action or
agreements between unions and non-labor groups. The Supreme Court has held,
however, that in order to properly accommodate the congressional policy favoring free
competition in business markets with the congressional policy favoring collective
bargaining under the National Labor Relations Act, 29 U.S.C. § 151 et seq., certain
union-employer agreements must be accorded a limited nonstatutory exemption from
antitrust sanctions....
The players assert that only employee groups are entitled to the labor exemption and
that it cannot be asserted by the defendants, an employer group. We must disagree.
Since the basis of the nonstatutory exemption is the national policy favoring collective
bargaining, and since the exemption extends to agreements, the benefits of the
exemption logically extend to both parties to the agreement. Accordingly, under
appropriate circumstances, we find that a non-labor group may avail itself of the labor
exemption..... The clubs and the Commissioner claim the benefit of the nonstatutory
labor exemption here, arguing that the Rozelle Rule was the subject of an agreement
with the players union and that the proper accommodation of federal labor and antitrust
policies requires that the agreement be deemed immune from antitrust liability. The
3
plaintiffs assert that the Rozelle Rule was the product of unilateral action by the clubs
and that the defendants cannot assert a colorable claim of exemption.
To determine the applicability of the nonstatutory exemption we must first decide
whether there has been any agreement between the parties concerning the Rozelle Rule.
The Collective Bargaining Agreements.
The district court found that neither the 1968 nor the 1970 collective bargaining
agreement embodied an agreement on the Rozelle Rule, and that the union has never
otherwise agreed to the Rule....
The 1968 Agreement.
At the outset of the negotiations preceding the 1968 agreement, the players did not seek
elimination of the Rozelle Rule but felt that it should be modified. During the course of
the negotiations, however, the players apparently presented no concrete proposals in
that regard and there was little discussion concerning the Rozelle Rule. At trial, Daniel
Shulman, a bargaining representative of the players, attributed their failure to pursue
any modifications to the fact that the negotiations had bogged down on other issues and
the union was not strong enough to persist....
The 1970 Agreement.
At the start of the negotiations leading up to the 1970 agreement, it appears that the
players again decided not to make an issue of the Rozelle Rule. The only reference to
the Rule in the union's formal proposals presented at the outset of the negotiations was
the following:
The NFLPA is disturbed over reports from players who, after playing out
their options, are unable to deal with other clubs because of the Rozelle
Rule. A method should be found whereby a free agent is assured the
opportunity to discuss contract with all NFL teams.
There was little discussion of the Rozelle Rule during the 1970 negotiations.
Although the 1970 agreement failed to make any express reference to the Rozelle Rule,
it did contain a "zipper clause":
This Agreement represents a complete and final understanding on all bargainable
subjects of negotiation among the parties during the term of this Agreement * * *....
Since the beginning of the 1974 negotiations, the players have consistently sought the
elimination of the Rozelle Rule. The NFLPA and the clubs have engaged in substantial
bargaining over that issue but have not reached an accord. Nor have they concluded a
collective bargaining agreement to replace the 1970 agreement which expired in 1974....
Governing Principles.
4
Under the general principles surrounding the labor exemption, the availability of the
nonstatutory exemption for a particular agreement turns upon whether the relevant
federal labor policy is deserving of pre-eminence over federal antitrust policy under the
circumstances of the particular case....
Although the cases giving rise to the nonstatutory exemption are factually dissimilar
from the present case, certain principles can be deduced from those decisions
governing the proper accommodation of the competing labor and antitrust interests
involved here...
We find the proper accommodation to be: First, the labor policy favoring collective
bargaining may potentially be given pre-eminence over the antitrust laws where the
restraint on trade primarily affects only the parties to the collective bargaining
relationship.... Second, federal labor policy is implicated sufficiently to prevail only
where the agreement sought to be exempted concerns a mandatory subject of collective
bargaining.... Finally, the policy favoring collective bargaining is furthered to the
degree necessary to override the antitrust laws only where the agreement sought to be
exempted is the product of bona fide arm's-length bargaining....
Application.
Applying these principles to the facts presented here, we think it clear that the alleged
restraint on trade effected by the Rozelle Rule affects only the parties to the agreements
sought to be exempted. Accordingly, we must inquire as to the other two principles:
whether the Rozelle Rule is a mandatory subject of collective bargaining, and whether
the agreements thereon were the product of bona fide arm's-length negotiation.... Under
§ 8(d) of the National Labor Relations Act, 29 U.S.C. § 158(d), mandatory subjects of
bargaining pertain to "wages, hours, and other terms and conditions of employment. . .
." See NLRB v. Borg-Warner Corp., 356 U.S. 342, 2 L. Ed. 2d 823, 78 S. Ct. 718
(1958). Whether an agreement concerns a mandatory subject depends not on its form
but on its practical effect. See Federation of Musicians v. Carroll, 391 U.S. 99, 20 L.
Ed. 2d 460, 88 S. Ct. 1562 (1968). Thus, in Meat Cutters v. Jewel Tea, the Court held
that an agreement limiting retail marketing hours concerned a mandatory subject
because it affected the particular hours of the day which the employees would be
required to work. In Teamsters Union v. Oliver, 358 U.S. 283, 3 L. Ed. 2d 312, 79 S. Ct.
297 (1959), an agreement fixing minimum equipment rental rates paid to truck ownerdrivers was held to concern a mandatory bargaining subject because it directly affected
the driver wage scale.
In this case the district court held that, in view of the illegality of the Rozelle Rule
under the Sherman Act, it was "a nonmandatory, illegal subject of bargaining." We
disagree. The labor exemption presupposes a violation of the antitrust laws. To hold that
a subject relating to wages, hours and working conditions becomes nonmandatory by
virtue of its illegality under the antitrust laws obviates the labor exemption. We
conclude that whether the agreements here in question relate to a mandatory subject of
collective bargaining should be determined solely under federal labor law. Cf. Meat
5
Cutters v. Jewel Tea, supra.
On its face, the Rozelle Rule does not deal with "wages, hours and other terms or
conditions of employment" but with inter-team compensation when a player's
contractual obligation to one team expires and he is signed by another. Viewed as such,
it would not constitute a mandatory subject of collective bargaining. The district court
found, however, that the Rule operates to restrict a player's ability to move from one
team to another and depresses player salaries. There is substantial evidence in the
record to support these findings. Accordingly, we hold that the Rozelle Rule constitutes
a mandatory bargaining subject within the meaning of the National Labor Relations
Act.
Bona Fide Bargaining.
The district court found that the parties' collective bargaining history reflected nothing
which could be legitimately characterized as bargaining over the Rozelle Rule; that, in
part due to its recent formation and inadequate finances, the NFLPA, at least prior to
1974, stood in a relatively weak bargaining position vis-a-vis the clubs; and that "the
Rozelle Rule was unilaterally imposed by the NFL and member club defendants upon
the players in 1963 and has been imposed on the players from 1963 through the present
date."
On the basis of our independent review of the record, including the parties' bargaining
history as set forth above, we find substantial evidence to support the finding that there
was no bona fide arm's-length bargaining over the Rozelle Rule preceding the execution
of the 1968 and 1970 agreements. The Rule imposes significant restrictions on players,
and its form has remained unchanged since it was unilaterally promulgated by the clubs
in 1963. The provisions of the collective bargaining agreements which operated to
continue the Rozelle Rule do not in and of themselves inure to the benefit of the players
or their union. Defendants contend that the players derive indirect benefit from the
Rozelle Rule, claiming that the union's agreement to the Rozelle Rule was a quid pro
quo for increased pension benefits and the right of players to individually negotiate their
salaries. The district court found, however, that there was no such quid pro quo, and we
cannot say, on the basis of our review of the record, that this finding is clearly
erroneous....
*
*
*
Per Se Violation.
We review next the district court's holding that the Rozelle Rule is per se violative of
the Sherman Act.
The express language of the Sherman Act is broad enough to render illegal nearly every
type of agreement between businessmen. The Supreme Court has held, however, that
only those agreements which "unreasonably" restrain trade come within the proscription
6
of the Act....
As the courts gained experience with antitrust problems arising under the Sherman Act,
they identified certain types of agreements as being so consistently unreasonable that
they may be deemed to be illegal per se, without inquiry into their purported
justifications. As the Supreme Court stated in Northern Pac. R. Co. v. United States,
supra, 356 U.S. at 5:
There are certain agreements or practices which because of their
pernicious effect on competition and lack of any redeeming virtue are
conclusively presumed to be unreasonable and therefore illegal without
elaborate [**35] inquiry as to the precise harm they have caused or the
business excuse for their use....
Among the practices which have been deemed to be so pernicious as to be illegal per se
are group boycotts and concerted refusals to deal.... The term "concerted refusal to
deal" has been defined as "an agreement by two or more persons not to do business with
other individuals, or to do business with them only on specified terms..." The term
[**36] "group boycott" generally connotes "a refusal to deal or an inducement of
others not to deal or to have business relations with tradesmen." Kalinowski, supra, 11
U.C.L.A. L.Rev. at 580....
The district court found that the Rozelle Rule operates to significantly deter clubs from
negotiating with and signing free agents. By virtue of the Rozelle Rule, a club will sign
a free agent only where it is able to reach an agreement with the player's former team as
to compensation, or where it is willing to risk the awarding of unknown compensation
by the Commissioner. The court concluded that the Rozelle Rule, as enforced, thus
constituted a group boycott and a concerted refusal to deal, and was a per se violation of
the Sherman Act.
There is substantial evidence in the record to support the district court's findings as to
the effects of the Rozelle Rule. We think, however, that this case presents unusual
circumstances rendering it inappropriate to declare the Rozelle Rule illegal per se
without undertaking an inquiry into the purported justifications for the Rule.
First, the line of cases which has given rise to per se illegality for the type of
agreements involved here generally concerned agreements between business
competitors in the traditional sense.... Here, however, as the owners and Commissioner
urge, the NFL assumes some of the characteristics of a joint venture in that each
member club has a stake in the success of the other teams. No one club is interested in
driving another team out of business, since if the League fails, no one team can
survive.... Although businessmen cannot wholly evade the antitrust laws by
characterizing their operation as a joint venture, we conclude that the unique nature of
the business of professional football renders it inappropriate to mechanically apply per
se illegality rules here, fashioned in a different context. This is particularly true where,
7
as here, the alleged restraint does not completely eliminate competition for players'
services. Compare Kapp v. National Football League, supra with Smith v. Pro-Football
*
*
*
Rule of Reason.
The focus of an inquiry under the Rule of Reason is whether the restraint imposed is
justified by legitimate business purposes, and is no more restrictive than necessary....
In defining the restraint on competition for players' services, the district court found that
the Rozelle Rule significantly deters clubs from negotiating with and signing free agents;
that it acts as a substantial deterrent to players playing out their options and becoming
free agents; that it significantly decreases players' bargaining power in contract
negotiations; that players are thus denied the right to sell their services in a free and open
market; that as a result, the salaries paid by each club are lower than if competitive
bidding were allowed to prevail; and that absent the Rozelle Rule, there would be
increased movement in interstate commerce of players from one club to another.
We find substantial evidence in the record to support these findings. Witnesses for both
sides testified that there would be increased player movement absent the Rozelle Rule.
Two economists testified that elimination of the Rozelle Rule would lead to a substantial
increase in player salaries. Carroll Rosenbloom, owner of the Los Angeles Rams,
indicated that the Rams would have signed quite a few of the star players from other
teams who had played out their options, absent the Rozelle Rule. Charles De Keado, an
agent who represented Dick Gordon after he played out his option with the Chicago
Bears, testified that the New Orleans Saints were interested in signing Gordon but did not
do so because the Bears were demanding unreasonable compensation and the Saints were
unwilling to risk an unknown award of compensation by the Commissioner. Jim
McFarland, an end who played out his option with the St. Louis Cardinals, testified that
he had endeavored to join the Kansas City Chiefs but was unable to do so because of the
compensation asked by the Cardinals. Hank Stram, then coach and general manager of
the Chiefs, stated that he probably would have given McFarland an opportunity to make
his squad had he not been required to give St. Louis anything in return....
With the exception of the district court's finding that implementation of the Rozelle Rule
constitutes a per se violation of § 1 of the Sherman Act and except as it is otherwise
modified herein, the judgment of the district court is AFFIRMED. The cause is remanded
to the district court for further proceedings consistent with this opinion.
8
Marvin Powell; et al., Appellees v. National Football League; et al., Appellants
No. 89-5091
UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT
930 F.2d 1293; 1989 U.S. App. LEXIS 20824
November 1, 1989
PRIOR HISTORY: [**1]
As Corrected. Rehearing and Rehearing En Banc Denied January 17, 1990, Reported at:
1990 U.S. App. LEXIS 601.
Appeal from the United States District Court for the district of Minnesota. Honorable
David S. Doty, Judge.
JUDGES: John R. Gibson, Circuit Judge, Heaney, Senior Circuit Judge, and Wollman,
Circuit Judge. John R. Gibson; Circuit Judge, concurring in the denial of the rehearing
en banc, joined by Wollman, circuit Judge. Gerald W. Heaney, Senior Circuit Judge,
dissenting. Lay, Chief judge, with whom McMillian, Circuit Judge, joins, dissenting.
OPINIONBY: GIBSON
The National Football League appeals from a district court order which denied the
League's motion for partial summary judgment, ruling that the nonstatutory labor
exemption to the antitrust laws expires when, as here, the parties have reached
"impasse" in negotiations following the conclusion of a collective bargaining
agreement.... This antitrust action was brought by Marvin Powell, eight other
professional football players, and the players' collective bargaining representative, the
National Football League Players Association (hereinafter the "Players"). Although this
action also includes claims that both the League's college draft and its continued
adherence to its uniform Player Contract constitute unlawful player restraints, the only
League practice at issue in this interlocutory appeal is that provision of the Players'
collective bargaining agreement establishing a "Right of First Refusal/Compensation"
system. These employment terms restrict the ability of players to sign with other teams,
a right commonly termed "free agency." On appeal, the League contends that the
challenged practices are the product of bona fide, arm's-length collective bargaining and
therefore are governed by federal labor law to the exclusion of challenge under the
Sherman Act, 15 U.S.C. §§ 1-7 (1982). The Players, on the other hand, argue that the
labor exemption to the antitrust laws expires when parties reach "impasse" in
negotiations, and that the First Refusal/Compensation system therefore may be
challenged as an unlawful restraint of trade. As we conclude that this action is at present
governed by federal labor law, and not antitrust law, we reverse....
9
In 1977, the League and the Players entered into a collective bargaining agreement
containing a new system governing veteran free agent players. The First
Refusal/Compensation system provided that a team could retain a veteran free agent by
exercising a right of first refusal and by matching a competing club's offer. If the old
team decided not to match the offer, the old team would receive compensation from the
new team in the form of additional draft choices. This system was substantially
modified and incorporated into a successor agreement executed in 1982, which was
reached at the end of a 57-day strike.
After the 1982 Agreement expired in August, 1987, the League maintained the status
quo on all mandatory subjects of bargaining covered by the Agreement, including the
First Refusal/Compensation system. In September, 1987, after intermittent negotiations
on a successor collective bargaining agreement proved unsuccessful, the Players
initiated a strike over veteran free agency and other issues. The strike ended in midOctober, 1987, without producing a new agreement. The Players commenced this
antitrust action immediately thereafter, attacking the League's continued adherence to
the expired 1982 Agreement.
In late November, 1987, the Players moved for a preliminary injunction to bar the
League's twenty-eight constituent football clubs, as members of a multi-employer
bargaining unit, from continuing to abide by the terms of the 1982 Agreement on
veteran free agent salaries and movement among clubs. The Players also moved for
partial summary judgment on the issue of whether the League's continued imposition of
the First Refusal/Compensation system was protected by the labor exemption to the
antitrust laws, or instead violated sections 1 and 2 of the Sherman Antitrust Act, 15
U.S.C. §§ 1, 2.
On January 29, 1988, the district court held that, after expiration of a bargaining
agreement, the labor exemption from the antitrust laws terminates with respect to a
mandatory subject of bargaining when employers and a union reach a bargaining
impasse as to the contested issue. Powell v. National Football League, 678 F. Supp.
777, 788 (D. Minn. 1988) ("Powell I"). The court further stated, however, that it would
not determine whether a negotiating impasse then existed between the parties until the
National Labor Relations Board had passed upon a pending charge by the League
asserting that the Players were not bargaining in good faith. On February 1, 1988, one
day after the district court filed its opinion setting forth the impasse standard, the
Players advised the League that, in their view, the parties had indeed reached impasse
on the free agency issue.
On April 28, 1988, the Office of the General Counsel of the National Labor Relations
Board issued two Advice Memoranda declining to issue a complaint against the Players
for either bad faith bargaining or failure to meet, and finding that the parties had been at
impasse since October 11, 1987. This prosecutorial judgment was based on staff
analysis, not on an adversarial hearing on the record. The League nevertheless withdrew
its unfair labor practice charge against the Players.
10
The Players then renewed their motion for a preliminary injunction, contending that the
district court should adopt the decision of the General Counsel of the National Labor
Relations Board that impasse existed. The district court granted the Players' motion for
summary judgment on June 17, 1988, holding that the parties had reached an impasse
on the free agency issue as of that date. This ruling opened the doors for a trial on
whether the League, in adhering to the First Refusal/Compensation system, had violated
the Sherman Act's Rule of Reason. The court declined to issue a temporary injunction,
however, reasoning that it lacked jurisdiction to grant injunctive relief in a labor dispute
governed by the Norris-LaGuardia Act, 29 U.S.C. §§ 105-15 (1982). Powell v. National
Football League, 690 F. Supp. 812, 814-15 (D. Minn. 1988) ("Powell II").
This court granted the League permission to appeal the district court's grant of summary
judgment under 28 U.S.C. § 1292(b). The League argues that federal labor laws control
exclusively where the challenged "restraint" relates to a mandatory subject of collective
bargaining, the restraint has been developed and implemented through the lawful
observance of the collective bargaining process, the employees are represented by a
union vested with collective bargaining authority, and the restraint affects only a labor
market involving the parties to the collective bargaining agreement. According to the
League, such circumstances exist in this case and recourse to antitrust sanctions by a
bargaining party such as the Players is incompatible with the purpose and operation of
the federal labor laws.
I.
This is not the first time that this court has considered whether a labor exemption
shields the League from antitrust liability for the restraints it imposes on its players. In
Mackey v. National Football League, 543 F.2d 606 (8th Cir. 1976), cert. dismissed, 434
U.S. 801, 54 L. Ed. 2d 59, 98 S. Ct. 28 (1977), the League appealed from a district
court ruling that the "Rozelle Rule," a restraint on competition for player services,
violated section 1 of the Sherman Act. We first analyzed the statutory labor exemption
to the application of the antitrust laws, observing that while the exemption applies to
legitimate labor activities unilaterally undertaken by a union in furtherance of its own
interest, it does not extend to concerted action or agreements between unions and
nonlabor groups such as employers. n3 Id. at 611. We further held, however, that
employer groups such as the League may invoke the nonstatutory labor exemption to
their benefit where there has been an agreement between management and labor with
regard to the challenged restraint
.... The Players contend that the League in essence asks this court to overrule Mackey.
The Players argue that although in the case before us the Players' collective bargaining
agreement has expired, the Mackey court conditioned its application of the labor
exemption upon the existence of an agreement between the union and management and
specifically referred to the existence of an agreement in two of its three requirements
for invoking the labor exemption. See Mackey, 543 F.2d at 614. We cannot accept this
interpretation. Our discussion in Mackey was couched in terms of "agreements" because
in that case we were presented with unlawful restraints which, although initiated years
11
before football players had been represented by a union, had been incorporated by two
bargaining agreements. Against those facts, we held that the mere incorporation of
unlawful restraints into a collective bargaining agreement without bona fide bargaining
was not sufficient to place them beyond the reach of the Sherman Act.
The district court accordingly found that the present case was distinguishable from
Mackey because the player restraints challenged here were the result of collective
bargaining.... Furthermore, Mackey itself expressly reserved the question now before
us, stating that "we need not decide whether the effect of an agreement extends beyond
its normal expiration date for purposes of the labor exemption." While we agree with
the district court that Mackey is not controlling, we feel that the analytic framework
which it adopts with respect to the nonstatutory labor exemption must be employed in
this case.
II.
The district court adopted "impasse" as the point at which the nonstatutory labor
exemption expires, holding that "once the parties reach impasse concerning player
restraint provisions those provisions will lose their immunity and further imposition of
those conditions may result in antitrust liability." The court reasoned that its impasse
standard "respects the labor law obligation to bargain in good faith over mandatory
bargaining subjects following expiration of a collective bargaining agreement," and that
it "promotes the collective bargaining relationship and enhances prospects that the
parties will reach compromise on the issue." Powell I, 678 F. Supp. at 789. The League
attacks the district court's standard as providing a union, such as the Players, with undue
motivation to generate impasse in order to pursue an antitrust suit for treble damages....
The Supreme Court characterized impasse as a recurring feature in the bargaining
process and one which is not sufficiently destructive of group bargaining to justify
unilateral withdrawal. The Court agreed with the National Labor Relations Board that
"permitting withdrawal at impasse would as a practical matter undermine the utility of
multi-employer bargaining."
The Players contend that we should accept the district court's impasse test as "inherently
balanced." For support, the Players cite the language of Bridgeman v. National
Basketball Association, 675 F. Supp. 960 (D.N.J. 1987), which involved a challenge by
professional basketball players to [**18] the National Basketball Association's college
player draft, salary cap, and right of first refusal:
Impasse is certainly a plausible point at which to end the labor
exemption, for by its very definition it implies a deadlock in
negotiations, which could in some cases imply that the employees'
consent to the restraints of the prior agreement has ended. The moment
of impasse in negotiations is significant, for an employer may, after
bargaining with the union to impasse, make "unilateral changes that are
reasonably comprehended within his pre-impasse proposals."
12
.... Bridgeman held that the labor exemption survives "only as long as the employer
continues to impose that restriction unchanged, and reasonably believes that the practice
or a close variant of it will be incorporated in the next collective bargaining agreement."
The Players argue that Bridgeman rejected the impasse test, at least in part, on a belief
that the labor exemption could expire prior to the impasse:
Because an impasse occurs only when the entire negotiating process has
come to a standstill, the prospects for incorporating a particular practice
into a collective bargaining agreement may also disappear before a full
impasse in the negotiations is actually reached.
The Bridgeman standard was rejected by the district court as not giving proper regard
to the labor law policy promoting the collective bargaining process, in that this standard
would encourage employees to exhibit steadfast, uncompromising adherence to stated
terms.... Instead, the district court suggested that its impasse standard strikes an
appropriate balance between labor policy and antitrust policy:
By allowing a labor exemption to survive only until impasse, the law
will not insulate a practice from antitrust scrutiny, but will only delay
enforcement of the substantive law until continued negotiations over the
challenged provision become pointless.
The League concedes that agreements among competing employers to impose salary or
other restraints in labor markets may be subject to the Sherman Act when they are
imposed outside of the collective bargaining process and without regard to the labor
laws. See Mackey, 543 F.2d at 617-18 (citing cases where courts have applied the
Sherman Act to restraints on competition for players' services imposed by club owners).
It argues, however, that the restraints involved in cases supporting this rule were not
developed in the collective bargaining process and the employment relationships in
those cases were not controlled by the labor laws. The League further recognizes that
the antitrust laws may apply to collectively bargained restraints when such agreements
directly restrict business competition in product markets. It further contends that
product market effects are an essential predicate for applying the antitrust laws, and that
the employment terms challenged in this case do not impose any such product market
restraints. In short, the League argues that in this lawsuit the Players challenge
management practices wholly governed by the federal labor laws, and that the Players'
sole remedy against such practices lies in the economic pressure that the Players may
exert against the League under the labor laws.
Our evaluation of the district court's impasse standard cannot proceed without a firm
appreciation of the remedies available under the federal labor laws to the parties
involved in labor negotiations or disputes. After the expiration of a collective
bargaining agreement, a comprehensive array of labor law principles govern union and
employer conduct. For both sides, there is a continuing obligation to bargain.... Before
13
the parties reach impasse in negotiations, employers are obligated to "maintain the
status quo as to wages and working conditions." Producers Dairy Delivery Co. v.
Western Conference of Teamsters Trust Fund, 654 F.2d 625, 627 (9th Cir. 1981)
(quoting Peerless Roofing Co. v. NLRB, 641 F.2d 734, 736 (9th Cir. 1981)). Such
conduct is often conducive to further collective bargaining and to stable, peaceful labor
relations.... After impasse, an employer's continued adherence to the status quo is
authorized. At the same time, once an impasse in bargaining is established, employers
become entitled to implement new or different employment terms that are reasonably
contemplated within the scope of [*1301] their pre-impasse proposals. If employers
exceed their labor law rights in implementing employment terms at impasse, the full
range of labor law rights and remedies is available to unions
....Our reading of the authorities leads us to conclude that the League and the Players
have not yet reached the point in negotiations where it would be appropriate to permit
an action under the Sherman Act. The district court's impasse standard treats a lawful
stage of the collective bargaining process as misconduct by defendants, and in this way
conflicts with federal labor laws that establish the collective bargaining process, under
the supervision of the National Labor Relations Board, as the method for resolution of
labor disputes. In particular, the federal labor laws provide the opposing parties to a
labor dispute with offsetting tools, both economic and legal, through which they may
seek resolution of their dispute. A union may choose to strike the employer..., employer
may in turn opt to lock out its employees..... Further, either side may petition the
National Labor Relations Board and seek, for example, a cease-and-desist order
prohibiting conduct constituting an unfair labor practice. To now allow the Players to
pursue an action for treble damages under the Sherman Act would, we conclude,
improperly upset the careful balance established by Congress through the labor law.
Both relevant case law and the more persuasive commentators establish that labor law
provides a comprehensive array of remedies to management and union, even after
impasse. After a collective bargaining agreement has expired, an employer is under an
obligation to bargain with the union before it may permissibly make any unilateral
change in terms and conditions of employment which constitute mandatory subjects of
collective bargaining.... After impasse, an employer may make unilateral changes that
are reasonably comprehended within its pre-impasse proposals. We are influenced by
those commentators who suggest that, given the array of remedies available to
management and unions after impasse, a dispute such as the one before us "ought to be
resolved free of intervention by the courts...”
The First Refusal/Compensation system, a mandatory subject of collective bargaining,
was twice set forth in collective bargaining agreements negotiated in good faith and at
arm's-length. Following the expiration of the 1982 Agreement, the challenged restraints
were imposed by the League only after they had been forwarded in negotiations and
subsequently rejected by the Players. The Players do not contend that these proposals
were put forward by the League in bad faith. We therefore hold that the present lawsuit
cannot be maintained under the Sherman Act. Importantly, this does not entail that once
a union and management enter into collective bargaining, management is forever
exempt from the antitrust laws, and we do not hold that restraints on player services can
never offend the Sherman Act. We believe, however, that the nonstatutory labor
14
exemption protects agreements conceived in an ongoing collective bargaining
relationship from challenges under the antitrust laws. "National labor policy should
sometimes override antitrust policy," Continental Maritime of San Francisco v. Pacific
Coast Metal Trades Dist. Council, 817 F.2d 1391, 1393 (9th Cir. 1987) (citing Connell
Constr., 421 U.S. at 622), and we believe that this case presents just such an occasion.
Upon the facts currently presented by this case, we are not compelled to look into the
future and pick a termination point for the labor exemption. The parties are now faced
with several choices. They may bargain further, which we would strongly urge that they
do. They may resort to economic force. And finally, if appropriate issues arise, they
may present claims to the National Labor Relations Board. We are satisfied that as long
as there is a possibility that proceedings may be commenced before the Board, or until
final resolution of Board proceedings and appeals therefrom, the labor relationship
continues and the labor exemption applies. Since the matter before us concerns an
interlocutory appeal, we need not decide issues left unresolved by this opinion
III.
In sum, we hold that the antitrust laws are inapplicable under the circumstances of this
case as the nonstatutory labor exemption extends beyond impasse. We reverse the order
of the district court and remand the case with instructions to enter judgment in
defendants' favor on Counts I, II, and VIII of plaintiffs' amended complaint.
15
NATIONAL COLLEGIATE ATHLETIC ASSOCIATION v. BOARD OF REGENTS
OF THE UNIVERSITY OF OKLAHOMA ET AL.
No. 83-271
SUPREME COURT OF THE UNITED STATES
468 U.S. 85; 104 S. Ct. 2948; 82 L. Ed. 2d 70; 1984 U.S. LEXIS 130; 52 U.S.L.W.
4928; 1984-2 Trade Cas. (CCH) P66,139
March 20, 1984, Argued
June 27, 1984, Decided
*
*
*
JUDGES: STEVENS, J., delivered the opinion of the Court, in which BURGER, C. J.,
and BRENNAN, MARSHALL, BLACKMUN, POWELL, and O'CONNOR, JJ., joined.
WHITE, J., filed a dissenting opinion, in which REHNQUIST, J., joined, post, p. 120.
OPINIONBY: STEVENS
The University of Oklahoma and the University of Georgia contend that the National
Collegiate Athletic Association has unreasonably restrained trade in the televising of
college football games. After an extended trial, the District Court found that the NCAA
had violated § 1 of the Sherman Act and granted injunctive relief. The Court of Appeals
agreed that the statute had been violated but modified the remedy in some respects. We
granted certiorari, 464 U.S. 913 (1983), and now affirm.
I
The NCAA
Since its inception in 1905, the NCAA has played an important role in the regulation of
amateur collegiate sports. It has adopted and promulgated playing rules, standards of
amateurism, standards for academic eligibility, regulations concerning recruitment of
athletes, and rules governing the size of athletic squads and coaching staffs. In some
sports, such as baseball, swimming, basketball, wrestling, and track, it has sponsored and
conducted national tournaments. It has not done so in the sport of football, however. With
the exception of football, the NCAA has not undertaken any regulation of the televising
of athletic events. n2
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - n2 Presumably, however, it sells the television rights to events that the NCAA itself
conducts.
16
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - ....Some years ago, five major conferences together with major football-playing
independent institutions organized the College Football Association (CFA). The original
purpose of the CFA was to promote the interests of major football-playing schools within
the NCAA structure. The Universities of Oklahoma and Georgia, respondents in this
Court, are members of the CFA.
History of the NCAA Television Plan
In 1938, the University of Pennsylvania televised one of its home games. n3 From 1940
through the 1950 season all of Pennsylvania's home games were televised. App. 303.
That was the beginning of the relationship between television and college football.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - n3 According to the NCAA football television committee's 1981 briefing book: "As far as
is known, there were [then] six television sets in Philadelphia; and all were tuned to the
game.".
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - On January 11, 1951, a three-person "Television Committee," appointed during the
preceding year, delivered a report to the NCAA's annual convention in Dallas. Based on
preliminary surveys, the committee had concluded that "television does have an adverse
effect on college football attendance.... As a result, the NCAA decided to retain the
National Opinion Research Center (NORC) to study the impact of television on live
attendance, and to declare a moratorium on the televising of football games. A television
committee was appointed to implement the decision and to develop an NCAA television
plan for 1951.
The committee's 1951 plan provided that only one game a week could be telecast in each
area, with a total blackout on 3 of the 10 Saturdays during the season. A team could
appear on television only twice during a season. The plan also provided that the NORC
would conduct a systematic study of the effects of the program on attendance. The plan
received the virtually unanimous support of the NCAA membership; only the University
of Pennsylvania challenged it. Pennsylvania announced that it would televise all its home
games. The council of the NCAA thereafter declared Pennsylvania a member in bad
standing and the four institutions scheduled to play at Pennsylvania in 1951 refused to do
so. Pennsylvania then reconsidered its decision and abided by the NCAA plan.
During each of the succeeding five seasons, studies were made which tended to indicate
that television had an adverse effect on attendance at college football games. During
those years the NCAA continued to exercise complete control over the number of games
that could be televised..
17
From 1952 through 1977 the NCAA television committee followed essentially the same
procedure for developing its television plans.... ABC had held the exclusive rights to
network telecasts of NCAA football games since 1965.
The Current Plan
The plan adopted in 1981 for the 1982-1985 seasons is at issue in this case. This plan,
like each of its predecessors, recites that it is intended to reduce, insofar as possible, the
adverse effects of live television upon football game attendance. It provides that "all
forms of television of the football games of NCAA member institutions during the Plan
control periods shall be in accordance with this Plan." App. 35. The plan recites that the
television committee has awarded rights to negotiate and contract for the telecasting of
college football games of members of the NCAA to two "carrying networks..."
In separate agreements with each of the carrying networks, ABC and the Columbia
Broadcasting System (CBS), the NCAA granted each the right to telecast the 14 live
"exposures" described in the plan, in accordance with the "ground rules" set forth
therein. Each of the networks agreed to pay a specified "minimum aggregate
compensation to the participating NCAA member institutions" during the 4-year period
in an amount that totaled $ 131,750,000. In essence the agreement authorized each
network to negotiate directly with member schools for the right to televise their games....
The plan also contains "appearance requirements" and "appearance limitations" which
pertain to each of the 2-year periods that the plan is in effect. The basic requirement
imposed on each of the two networks is that it must schedule appearances for at least 82
different member institutions during each 2-year period. Under the appearance limitations
no member institution is eligible to appear on television more than a total of six times and
more than four times nationally, with the appearances to be divided equally between the
two carrying networks....
Thus, although the current plan is more elaborate than any of its predecessors, it retains
the essential features of each of them. It limits the total amount of televised
intercollegiate football and the number of games that any one team may televise. No
member is permitted to make any sale of television rights except in accordance with the
basic plan.
Background of this Controversy
Beginning in 1979 CFA members began to advocate that colleges with major football
programs should have a greater voice in the formulation of football television policy than
they had in the NCAA. CFA therefore investigated the possibility of negotiating a
television agreement of its own, developed an independent plan, and obtained a contract
offer from the National Broadcasting Co. (NBC). This contract, which it signed in August
1981, would have allowed a more liberal number of appearances for each institution, and
would have increased the overall revenues realized by CFA members.
In response the NCAA publicly announced that it would take disciplinary action against
18
any CFA member that complied with the CFA-NBC contract. The NCAA made it clear
that sanctions would not be limited to the football programs of CFA members, but would
apply to other sports as well. On September 8, 1981, respondents commenced this action
in the United States District Court for the Western District of Oklahoma and obtained a
preliminary injunction preventing the NCAA from initiating disciplinary proceedings or
otherwise interfering with CFA's efforts to perform its agreement with NBC.
Notwithstanding the entry of the injunction, most CFA members were unwilling to
commit themselves to the new contractual arrangement with NBC in the face of the
threatened sanctions and therefore the agreement was never consummated.
Decision of the District Court
After a full trial, the District Court held that the controls exercised by the NCAA over the
televising of college football games violated the Sherman Act. The District Court defined
the relevant market as "live college football television" because it found that alternative
programming has a significantly different and lesser audience appeal. The District Court
then concluded that the NCAA [*96] controls over college football are those of a
"classic cartel" with an
"almost absolute control over the supply of college football which is made available to
the networks, to television advertisers, and ultimately to the viewing public. Like all other
cartels, NCAA members have sought and achieved a price for their product which is, in
most instances, artificially high. The NCAA cartel imposes production limits on its
members, and maintains mechanisms for punishing cartel members who seek to stray
from these production quotas. The cartel has established a uniform price for the products
of each of the member producers, with no regard for the differing quality of these
products or the consumer demand for these various products."
The District Court found that competition in the relevant market had been restrained in
three ways: (1) NCAA fixed the price for particular telecasts; (2) its exclusive network
contracts were tantamount to a group boycott of all other potential broadcasters and its
threat of sanctions against its own members constituted a threatened boycott of potential
competitors; and (3) its plan placed an artificial limit on the production of televised
college football.
In the District Court the NCAA offered two principal justifications for its television
policies: that they protected the gate attendance of its members and that they tended to
preserve a competitive balance among the football programs of the various schools. The
District Court rejected the first justification because the evidence did not support the
claim that college football television adversely affected gate attendance. With respect to
the "competitive balance" argument, the District Court found that the evidence failed to
show that the NCAA regulations on matters such as recruitment and the standards for
preserving amateurism were not sufficient to maintain an appropriate balance.
19
Decision of the Court of Appeals
The Court of Appeals held that the NCAA television plan constituted illegal per se price
fixing. It rejected each of the three arguments advanced by NCAA to establish the
procompetitive character of its plan. First, the court rejected the argument that the
television plan promoted live attendance, noting that since the plan involved a
concomitant reduction in viewership the plan did not result in a net increase in output and
hence was not procompetitive.... Second, the Court of Appeals rejected as illegitimate the
NCAA's purpose of promoting athletically balanced competition. It held that such a
consideration amounted to an argument that "competition will destroy the market" -- a
position inconsistent with the policy of the Sherman Act. Moreover, assuming arguendo
that the justification was legitimate, the court agreed with the District Court's finding
"that any contribution the plan made to athletic balance could be achieved by less
restrictive means." Third, the Court of Appeals refused to view the NCAA plan as
competitively justified by the need to compete effectively with other types of television
programming, since it entirely eliminated competition between producers of football and
hence was illegal per se. Finally, the Court of Appeals concluded that even if the
television plan were not per se illegal, its anticompetitive limitation on price and output
was not offset by any procompetitive justification sufficient to save the plan even when
the totality of the circumstances was examined.... II
There can be no doubt that the challenged practices of the NCAA constitute a "restraint
of trade" in the sense that they limit members' freedom to negotiate and enter into their
own television contracts. In that sense, however, every contract is a restraint of trade, and
as we have repeatedly recognized, the Sherman Act was intended to prohibit only
unreasonable restraints of trade.
It is also undeniable that these practices share characteristics of restraints we have
previously held unreasonable. The NCAA is an association of schools which compete
against each other to attract television revenues, not to mention fans and athletes. As the
District Court found, the policies of the NCAA with respect to television rights are
ultimately controlled by the vote of member institutions. By participating in an
association which prevents member institutions from competing against each other on the
basis of price or kind of television rights that can be offered to broadcasters, the NCAA
member institutions have created a horizontal restraint -- an agreement among
competitors on the way in which they will compete with one another. A restraint of this
type has often been held to be unreasonable as a matter of law. Because it places a ceiling
on the number of games member institutions may televise, the horizontal agreement
places an artificial limit on the quantity of televised football that is available to
broadcasters and consumers. By restraining the quantity of television rights available for
sale, the challenged practices create a limitation on output; our cases have held that such
limitations are unreasonable restraints of trade. Moreover, the District Court found that
the minimum aggregate price in fact operates to preclude any price negotiation between
broadcasters and institutions, thereby constituting horizontal price fixing, perhaps the
paradigm of an unreasonable restraint of trade.
20
Horizontal price fixing and output limitation are ordinarily condemned as a matter of law
under an "illegal per se" approach because the probability that these practices are
anticompetitive is so high; a per se rule is applied when "the practice facially appears to
be one that would always or almost always tend to restrict competition and decrease
output." Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 19-20
(1979). In such circumstances a restraint is presumed unreasonable without inquiry into
the particular market context in which it is found. Nevertheless, we have decided that it
would be inappropriate to apply a per se rule to this case. This decision is not based on a
lack of judicial experience with this type of arrangement, on the fact that the NCAA is
organized as a nonprofit entity, or on our respect for the NCAA's historic role in the
preservation and encouragement of intercollegiate amateur athletics. Rather, what is
critical is that this case involves an industry in which horizontal restraints on competition
are essential if the product is to be available at all....
As Judge Bork has noted: "[Some] activities can only be carried out jointly. Perhaps the
leading example is league sports. When a league of professional lacrosse teams is
formed, it would be pointless to declare their cooperation illegal on the ground that there
are no other professional lacrosse teams." R. Bork, The Antitrust Paradox 278 (1978).
What the NCAA and its member institutions market in this case is competition itself -contests between competing institutions. Of course, this would be completely ineffective
if there were no rules on which the competitors agreed to create and define the
competition to be marketed. A myriad of rules affecting such matters as the size of the
field, the number of players on a team, and the extent to which physical violence is to be
encouraged or proscribed, all must be agreed upon, and all restrain the manner in which
institutions compete. Moreover, the NCAA seeks to market a particular brand of football
-- college football. The identification of this "product" with an academic tradition
differentiates college football from and makes it more popular than professional sports to
which it might otherwise be comparable, such as, for example, minor league baseball. In
order to preserve the character and quality of the "product," athletes must not be paid,
must be required to attend class, and the like. And the integrity of the "product" cannot be
preserved except by mutual agreement; if an institution adopted such restrictions
unilaterally, its effectiveness as a competitor on the playing field might soon be
destroyed. Thus, the NCAA plays a vital role in enabling college football to preserve its
character, and as a result enables a product to be marketed which might otherwise be
unavailable. In performing this role, its actions widen consumer choice -- not only the
choices available to sports fans but also those available to athletes -- and hence can be
viewed as procompetitive....
III
Because it restrains price and output, the NCAA's television plan has a significant
potential for anticompetitive effects. The findings of the District Court indicate that
this potential has been realized. The District Court found that if member institutions were
free to sell television rights, many more games would be shown on television, and that
21
the NCAA's output restriction has the effect of raising the price the networks pay for
television rights. Moreover, the court found that by fixing a price for television rights to
all games, the NCAA creates a price structure that is unresponsive to viewer demand and
unrelated to the prices that would prevail in a competitive market. And, of course, since
as a practical matter all member institutions need NCAA approval, members have no real
choice but to adhere to the NCAA's television controls. The anticompetitive
consequences of this arrangement are apparent. Individual competitors lose their freedom
to compete. Price is higher and output lower than they would otherwise be, and both are
unresponsive to consumer preference. n33....
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - ....n33"....A clear example of the failure of the rights fees paid to respond to market forces
occurred in the fall of 1981. On one weekend of that year, Oklahoma was scheduled to
play a football game with the University of Southern California. Both Oklahoma and
USC have long had outstanding football programs, and indeed, both teams were ranked
among the top five teams in the country by the wire service polls. ABC chose to televise
the game along with several others on a regional basis. A game between two schools
which are not well-known for their football programs, Citadel and Appalachian State,
was carried on four of ABC's local affiliated stations. The USC-Oklahoma contest was
carried on over 200 stations. Yet, incredibly, all four of these teams received exactly the
same amount of money for the right to televise their games." 546 F.Supp., at 1291....
- - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - [In the remainder of this section, Justice Stevens established the fact that the NCAA does
indeed dominate the market.]
IV
[In this section, Justice Stevens refutes the NCAA’s claim that the restrictiveness of their
television plan is a necessary for the survival of their product.]
- - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - V
Throughout the history of its regulation of intercollegiate football telecasts, the NCAA
has indicated its concern with protecting live attendance. This concern, it should be
noted, is not with protecting live attendance at games which are shown on television; that
type of interest is not at issue in this case. Rather, the concern is that fan interest in a
televised game may adversely affect ticket sales for games that will not appear on
television.
Although the NORC studies in the 1950's provided some support for the thesis that live
attendance would suffer if unlimited television were permitted, the District Court found
that there was no evidence to support that theory in today's market. Moreover, as the
District Court found, the television plan has evolved in a manner inconsistent with its
original design to protect gate attendance. Under the current plan, games are shown on
television during all hours that college football games are played. The plan simply does
22
not protect live attendance by ensuring that games will not be shown on television at the
same time as live events....
There is, however, a more fundamental reason for rejecting this defense. The NCAA's
argument that its television plan is necessary to protect live attendance is not based on a
desire to maintain the integrity of college football as a distinct and attractive product, but
rather on a fear that the product will not prove sufficiently attractive to draw live
attendance when faced with competition from televised games. At bottom the NCAA's
position is that ticket sales for most college games are unable to compete in a free market.
The television plan protects ticket sales by limiting output -- just as any monopolist
increases revenues by reducing output. By seeking to insulate live ticket sales from the
full spectrum of competition because of its assumption that the product itself is
insufficiently attractive to consumers, petitioner forwards a justification that is
inconsistent with the basic policy of the Sherman Act. "[The] Rule of Reason does not
support a defense based on the assumption that competition itself is unreasonable."
Professional Engineers, 435 U.S., at 696.
VI
Petitioner argues that the interest in maintaining a competitive balance among amateur
athletic teams is legitimate and important and that it justifies the regulations challenged in
this case. We agree with the first part of the argument but not the second.
Our decision not to apply a per se rule to this case rests in large part on our recognition
that a certain degree of cooperation is necessary if the type of competition that petitioner
and its member institutions seek to market is to be preserved. It is reasonable to assume
that most of the regulatory controls of the NCAA are justifiable means of fostering
competition among amateur athletic teams and therefore procompetitive because they
enhance public interest in intercollegiate athletics. The specific restraints on football
telecasts that are challenged in this case do not, however, fit into the same mold as do
rules defining the conditions of the contest, the eligibility of participants, or the manner in
which members of a joint enterprise shall share the responsibilities and the benefits of the
total venture.
The NCAA does not claim that its television plan has equalized or is intended to equalize
competition within any one league. The plan is nationwide in scope and there is no
single league or tournament in which all college football teams compete. There is no
evidence of any intent to equalize the strength of teams in Division I-A with those in
Division II or Division III, and not even a colorable basis for giving colleges that have no
football program at all a voice in the management of the revenues generated by the
football programs at other schools. The interest in maintaining a competitive balance that
is asserted by the NCAA as a justification for regulating all television of intercollegiate
football is not related to any neutral standard or to any readily identifiable group of
competitors.
23
The television plan is not even arguably tailored to serve such an interest. It does not
regulate the amount of money that any college may spend on its football program, nor the
way in which the colleges may use the revenues that are generated by their football
programs, whether derived from the sale of television rights, the sale of tickets, or the
sale of concessions or program advertising. The plan simply imposes a restriction on one
source of revenue that is more important to some colleges than to others. There is no
evidence that this restriction produces any greater measure of equality throughout the
NCAA than would a restriction on alumni donations, tuition rates, or any other revenueproducing activity. At the same time, as the District Court found, the NCAA imposes a
variety of other restrictions designed to preserve amateurism which are much better
tailored to the goal of competitive balance than is the television plan, and which are
"clearly sufficient" to preserve competitive balance to the extent it is within the NCAA's
power to do so. And much more than speculation supported the District Court's findings
on this score. No other NCAA sport employs a similar plan, and in particular the court
found that in the most closely analogous sport, college basketball, competitive balance
has been maintained without resort to a restrictive television plan....
Perhaps the most important reason for rejecting the argument that the interest in
competitive balance is served by the television plan is the District Court's unambiguous
and well-supported finding that many more games would be televised in a free market
than under the NCAA plan. The hypothesis that legitimates the maintenance of
competitive balance as a procompetitive justification under the Rule of Reason is that
equal competition will maximize consumer demand for the product. The finding that
consumption will materially increase if the controls are removed is a compelling
demonstration that they do not in fact serve any such legitimate purpose.
VII
The NCAA plays a critical role in the maintenance of a revered tradition of amateurism
in college sports. There can be no question but that it needs ample latitude to play that
role, or that the preservation of the student-athlete in higher education adds richness and
diversity to intercollegiate athletics and is entirely consistent with the goals of the
Sherman Act. But consistent with the Sherman Act, the role of the NCAA must be to
preserve a tradition that might otherwise die; rules that restrict output are hardly
consistent with this role. Today we hold only that the record supports the District Court's
conclusion that by curtailing output and blunting the ability of member institutions to
respond to consumer preference, the NCAA has restricted rather than enhanced the place
of intercollegiate athletics in the Nation's life. Accordingly, the judgment of the Court of
Appeals is
Affirmed.
DISSENTBY: WHITE
DISSENT: JUSTICE WHITE, with whom JUSTICE REHNQUIST joins, dissenting.
24
NORMAN LAW, ANDREW GREER, PETER HERRMANN, MICHAEL JARVIS,
JR., and CHARLES M. RIEB, individually and on behalf of others similarly situated,
Plaintiffs-Appellees, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION,
Defendant-Appellant, and WILLIAM HALL, Amicus Curiae.
No. 96-3034
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
134 F.3d 1010; 1998 U.S. App. LEXIS 940; 1998-1 Trade Cas. (CCH) P72,047; 1998
Colo. J. C.A.R. 609
January 23, 1998, Filed
SUBSEQUENT HISTORY: [**1] Certiorari Denied October 5, 1998, Reported at:
1998 U.S. LEXIS 4921.
PRIOR HISTORY: Appeal from the United States District Court for the District of
Kansas. (D.C. No. 94-2053-KHV). KATHRYN H. VRATIL.
DISPOSITION: AFFIRMED.
JUDGES: Before EBEL, LOGAN, and KELLY, Circuit Judges.
OPINIONBY: EBEL
OPINION:
Defendant-Appellant the National Collegiate Athletic Association ("NCAA")
promulgated a rule limiting annual compensation of certain Division I entry-level
coaches to $ 16,000. Basketball coaches affected by the rule filed a class action
challenging the restriction under Section 1 of the Sherman Antitrust Act. The district
court granted summary judgment on the issue of liability to the coaches and issued a
permanent injunction restraining the NCAA from promulgating this or any other rules
embodying similar compensation restrictions. The NCAA now appeals....
I. Background
....During the 1980s, the NCAA became concerned over the steadily rising costs of
maintaining competitive athletic programs, especially in light of the requirements
imposed by Title IX of the 1972 Education Amendments Act to increase support for
women's athletic programs. The NCAA observed that some college presidents had to
close academic departments, fire tenured faculty, and reduce the number of sports
offered to students due to economic constraints. At the same time, many institutions felt
25
pressure to "keep up with the Joneses" by increasing spending on recruiting talented
players and coaches and on other aspects of their sports programs in order to remain
competitive with rival schools. In addition, a report commissioned by the NCAA
known as the "Raiborn Report" found that in 1985 42% of NCAA Division I schools
reported deficits in their overall athletic program budgets, with the deficit averaging $
824,000 per school. The Raiborn Report noted that athletic expenses at all Division I
institutions rose more than 100% over the eight-year period from 1978 to 1985. Finally,
the Report stated that 51% of Division I schools responding to NCAA inquiries on the
subject suffered a net loss in their basketball programs alone that averaged $ 145,000
per school.
Part of the problem identified by the NCAA involved the costs associated with parttime assistant coaches. The NCAA allowed Division I basketball teams to employ three
full-time coaches, including one head coach and two assistant coaches, and two parttime coaches. The part-time positions could be filled by part-time assistants, graduate
assistants, or volunteer coaches. The NCAA imposed salary restrictions on all of the
part-time positions. A volunteer coach could not receive any compensation from a
member institution's athletic department. A graduate assistant coach was required to be
enrolled in a graduate studies program of a member institution and could only receive
compensation equal to the value of the cost of the educational experience The NCAA
limited compensation to part-time assistants to the value of full grant-in-aid
compensation based on the value of out-of-state graduate studies.
Despite the salary caps, many of these part-time coaches earned $ 60,000 or $ 70,000
per year. Athletic departments circumvented the compensation limits by employing
these part-time coaches in lucrative summer jobs at profitable sports camps run by the
school or by hiring them for part-time jobs in the physical education department in
addition to the coaching position. Further, many of these positions were filled with
seasoned and experienced coaches, not the type of student assistant envisioned by the
rule.
In January of 1989, the NCAA established a Cost Reduction Committee (the
"Committee") to consider means and strategies for reducing the costs of intercollegiate
athletics "without disturbing the competitive balance" among NCAA member
institutions. The Committee included financial aid personnel, inter-collegiate athletic
[**6] administrators, college presidents, university faculty members, and a university
chancellor. In his initial letter to Committee members, the Chairman of the Committee
thanked participants for joining "this gigantic attempt to save intercollegiate athletics
from itself." It was felt that only a collaborative effort could reduce costs effectively
while maintaining a level playing field because individual schools could not afford to
make unilateral spending cuts in sports programs for fear that doing so would unduly
hamstring that school's ability to compete against other institutions that spent more
money on athletics. In January of 1990, the Chairman told NCAA members that the
goal of the Committee was to "cut costs and save money." It became the consensus of
the Committee that reducing the total number of coaching positions would reduce the
cost of intercollegiate athletic programs.
26
The Committee proposed an array of recommendations to amend the NCAA's bylaws,
including proposed Bylaw 11.6.4 that would limit Division I basketball coaching staffs
to four members--one head coach, two assistant coaches, and one entry-level coach
called a "restricted-earnings coach". The restricted-earnings coach category was
created to replace the positions of part-time assistant, graduate assistant, and volunteer
coach. The Committee believed that doing so would resolve the inequity that existed
between those schools with graduate programs that could hire graduate assistant
coaches and those who could not while reducing the overall amount spent on coaching
salaries.
A second proposed rule, Bylaw 11.02.3, restricted compensation of restricted-earnings
coaches in all Division I sports other than football to a total of $ 12,000 for the
academic year and $ 4,000 for the summer months (the "REC Rule" for restrictedearnings coaches). The Committee determined that the $ 16,000 per year total figure
approximated the cost of out-of-state tuition for graduate schools at public institutions
and the average graduate school tuition at private institutions, and was thus roughly
equivalent to the salaries previously paid to part-time graduate assistant coaches. The
REC Rule did allow restricted-earnings coaches to receive additional compensation for
performing duties for another department of the institution provided that (1) such
compensation is commensurate with that received by others performing the same or
similar assignments, (2) the ratio of compensation received for coaching duties and any
other duties is directly proportional to the amount of time devoted to the two areas of
assignment, and (3) the individual is qualified for and actually performs the duties
outside the athletic department for which the individual is compensated. The REC Rule
did not prevent member institutions from using savings gained by reducing the number
and salary of basketball coaches to increase expenditures on other aspects of their
athletic programs.
.... In this case, plaintiffs-appellees were restricted-earnings men's basketball coaches at
NCAA Division I institutions in the academic year 1992-93. They challenged the REC
Rule's limitation on compensation under section 1 of the Sherman Antitrust Act, 15
U.S.C. § 1 (1990), as an unlawful "contract, combination . . . or conspiracy, in restraint
of trade." They did not challenge other rules promulgated by the NCAA, including the
restriction on the number of coaches....
*
*
*
III. Rule of Reason Analysis
[In this section, Justice Ebel cites the reasoning employed in NCAA v. Board of Regents
in order to justify using the rule of reason standard instead of the per se standard.]
A. Anticompetitive Effect
We first review whether the coaches in this case demonstrated anticompetitive effect so
conclusively that summary judgment on the issue was appropriate.....
27
The NCAA argues that the district court erred by failing to define the relevant market and
by failing to find that the NCAA possesses power in that market. The NCAA urges that
the relevant market in this case is the entire market for men's basketball coaching
services, and it presented evidence demonstrating that positions as restricted-earnings
basketball coaches make up, at most, 8% of that market. Thus, the NCAA argues it has at
least created a genuine issue of material fact about whether it possesses market power and
that summary judgment was therefore inappropriate.
The NCAA misapprehends the purpose in antitrust law of market definition, which is not
an end unto itself but rather exists to illuminate a practice's effect on competition. In
Board of Regents, the Court rejected a nearly identical argument from the NCAA that a
plan to sell television rights could not be condemned under the antitrust laws absent proof
that the NCAA had power in the market for television programming. See 468 U.S. at 109.
"As a matter of law, the absence of proof of market power does not justify a naked
restriction on price or output. To the contrary, when there is an agreement not to compete
in terms of price or output, 'no elaborate industry analysis is required to demonstrate the
anticompetitive character of such an agreement.'" Id. (quoting National Soc'y of Prof'l
Engineers, 435 U.S. at 692). No "proof of market power" is required where the very
purpose and effect of a horizontal agreement is to fix prices so as to make them
unresponsive to a competitive marketplace. See 468 U.S. at 110. Thus, where a practice
has obvious anticompetitive effects--as does price-fixing--there is no need to prove that
the defendant possesses market power. Rather, the court is justified in proceeding directly
to the question of whether the procompetitive justifications advanced for the restraint
outweigh the anticompetitive effects under a "quick look" rule of reason. See Chicago
Prof'l Sports, 961 F.2d at 674.
We find it appropriate to adopt such a quick look rule of reason in this case. Under a
quick look rule of reason analysis, anticompetitive effect is established, even without a
determination of the relevant market, where the plaintiff shows that a horizontal
agreement to fix prices exists, that the agreement is effective, and that the price set by
such an agreement is more favorable to the defendant than otherwise would have resulted
from the operation of market forces....
B. Procompetitive Rationales
Under a rule of reason analysis, an agreement to restrain trade may still survive scrutiny
under section 1 if the procompetitive benefits of the restraint justify the anticompetitive
effects....
In Board of Regents the Supreme Court recognized that certain horizontal restraints, such
as the conditions of the contest and the eligibility of participants, are justifiable under the
antitrust laws because they are necessary to create the product of competitive college
sports. Thus, the only legitimate rationales that we will recognize in support of the REC
Rule are those necessary to produce competitive intercollegiate sports. The NCAA
advanced three justifications for the salary limits: retaining entry-level coaching
28
positions; reducing costs; and maintaining competitive equity. We address each of them
in turn.
1. Retention of Entry-Level Positions
The NCAA argues that the plan serves the procompetitive goal of retaining an entry-level
coaching position. The NCAA asserts that the plan will allow younger, less experienced
coaches entry into Division I coaching positions. While opening up coaching positions
for younger people may have social value apart from its affect on competition, we may
not consider such values unless they impact upon competition....
The NCAA also contends that limiting one of the four available coaching positions on a
Division I basketball team to an entry level position will create more balanced
competition by barring some teams from hiring four experienced coaches instead of
three. However, the REC Rule contained no restrictions other than salary designed to
insure that the position would be filled by entry-level applicants; it could be filled with
experienced applicants. In addition, under the REC Rule, schools can still pay restrictedearnings coaches more than $ 16,000 per year by hiring them for physical education or
other teaching positions. In fact, the evidence in the record tends to demonstrate that at
least some schools designated persons with many years of experience as the restrictedearnings coach. The NCAA did not present any evidence showing that restricted-earnings
positions have been filled by entry-level applicants or that the rules will be effective over
time in accomplishing this goal. Nothing in the record suggests that the salary limits for
restricted-earnings coaches will be effective at creating entry-level positions. Thus, the
NCAA failed to present a triable issue of fact as to whether preserving entry-level
positions served a legitimate procompetitive end of balancing competition.
2. Cost Reduction
The NCAA next advances the justification that the plan will cut costs. However, costcutting by itself is not a valid procompetitive justification. If it were, any group of
competing buyers could agree on maximum prices. Lower prices cannot justify a cartel's
control of prices charged by suppliers, because the cartel ultimately robs the suppliers of
the normal fruits of their enterprises.... We are dubious that the goal of cost reductions
can serve as a legally sufficient justification for a buyers' agreement to fix prices even if
such cost reductions are necessary to save inefficient or unsuccessful competitors from
failure. Nevertheless, we need not consider whether cost reductions may have been
required to "save" intercollegiate athletics and whether such an objective served as a
legitimate procompetitive end because the NCAA presents no evidence that limits on
restricted-earning coaches' salaries would be successful in reducing deficits, let alone that
such reductions were necessary to save college basketball. Moreover, the REC Rule does
not equalize the overall amount of money Division I schools are permitted to spend on
their basketball programs. There is no reason to think that the money saved by a school
on the salary of a restricted-earnings coach will not be put into another aspect of the
school's basketball program, such as equipment or even another coach's salary, thereby
increasing inequity in that area. Accord Board of Regents, 468 U.S. at 118-19 (rejecting
NCAA's argument that television rights plan would increase competitive equity among
29
NCAA teams where the plan did not "regulate the amount of money that any college may
spend on its football program").
3. Maintaining Competitiveness
We note that the NCAA must be able to ensure some competitive equity between
member institutions in order to produce a marketable product: a "team must try to
establish itself as a winner, but it must not win so often and so convincingly that the
outcome will never be in doubt, or else there will be no marketable 'competition.'"
Michael Jay Kaplan, Annotation, Application of Federal Antitrust Laws to Professional
Sports, 18 A.L.R. Fed. 489 § 2(a) (1974). The NCAA asserts that the REC Rule will help
to maintain competitive equity by preventing wealthier schools from placing a more
experienced, higher-priced coach in the position of restricted-earnings coach....
While the REC Rule will equalize the salaries paid to entry-level coaches in Division I
schools, it is not clear that the REC Rule will equalize the experience level of such
coaches. Nowhere does the NCAA prove that the salary restrictions enhance
competition, level an uneven playing field, or reduce coaching inequities. Rather, the
NCAA only presented evidence that the cost reductions would be achieved in such a way
so as to maintain without "significantly altering," "adversely affecting," or "disturbing"
the existing competitive balance. The undisputed record reveals that the REC Rule is
nothing more than a cost-cutting measure and shows that the only consideration the
NCAA gave to competitive balance was simply to structure the rule so as not to
exacerbate competitive imbalance. Thus, on its face, the REC Rule is not directed
towards competitive balance nor is the nexus between the rule and a compelling need to
maintain competitive balance sufficiently clear on this record to withstand a motion for
summary judgment
4. Wait and See
In the alternative, the NCAA argues that even if evidence of the procompetitive benefits
of the REC Rule are not forthcoming at the moment, we should follow the advice of the
court in Hennessey and adopt a "wait and see" approach to give the rule time to succeed.
[Note: In Hennessey, “assistant football and basketball coaches challenged a NCAA
bylaw limiting the number of assistant coaches member institutions could employ at any
one time... The Fifth Circuit upheld the rule, concluding that the plaintiff failed to show
that the rule was an unreasonable restraint of trade after weighing the anticompetitive
effects with the procompetitive benefits of the restriction.”]
However, we believe that the court in Hennessey erred as a matter of law to the extent
that the court tried to free the NCAA as the defendant from its burden of showing that the
procompetitive justifications for a restraint on trade outweigh its anticompetitive effects.
The Supreme Court in Board of Regents made it clear that the NCAA still shoulders that
burden, see 468 U.S. at 104, and we hold that the NCAA failed to provide sufficient
evidence to carry its burden in this case.
30
IV. Conclusion
For the reasons discussed above, we AFFIRM the district court's order granting a
permanent injunction barring the NCAA from reenacting compensation limits such as
those contained in the REC Rule based on its order granting summary judgment to the
plaintiffs on the issue of antitrust liability.
Note:
SUBSEQUENT HISTORY, from Law v. NCAA, 108 F. Supp. 2d 1193 (10th Cir. 2000):
In April 1998, the remaining liability and damage issues were tried to a jury. At trial, plaintiffs'
damage expert eliminated damage claims for coaches in basketball and football if their actual
academic-year salaries were below specified limits ($ 7,900.00 for basketball and $ 3,950.00 for
football). Although plaintiffs' expert testified that any coach who worked as a restricted earnings
coach between 1992 and 1997 was "touched" or "nicked" by the NCAA's antitrust conspiracy, he
conceded that the effect of the rule likely diminished as the actual salaries decreased. In other
words, the rule had a greater depressive effect on the salary of a coach who earned $ 12,000.00
than on the salary of a coach who earned $ 1,000.00. The jury returned a verdict in favor of
plaintiffs for $ 22.3 million which, with trebling, resulted in an aggregate award of $ 66.9 million.
The Court awarded plaintiffs an additional $ 5.026 million as a net present value adjustment.
Before the Court awarded attorneys' fees, the NCAA agreed to pay $ 54,500,000.00 to settle the
lawsuits.
31
IAIN FRASER, et al. Plaintiffs v. MAJOR LEAGUE SOCCER, L.L.C.; KRAFT
SOCCER, L.P.; ANSCHUTZ SOCCER, INC.; ANSCHUTZ CHICAGO SOCCER,
INC.; SOUTH FLORIDA SOCCER, L.L.C., TEAM COLUMBUS SOCCER, L.L.C.;
TEAM KANSAS CITY SOCCER, L.L.C.; LOS ANGELES SOCCER PARTNERS,
L.P.; EMPIRE SOCCER CLUB, L.P.; WASHINGTON SOCCER, L.P.; and UNITED
STATES SOCCER FEDERATION, INC., Defendants
CIVIL ACTION NO. 97-10342-GAO
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS
97 F. Supp. 2d 130; 2000 U.S. Dist. LEXIS 5434; 2000-1 Trade Cas. (CCH) P72,883
April 19, 2000, Decided
JUDGES: George A. O'Toole Jr., DISTRICT JUDGE.
The individual plaintiffs are the representatives of the certified class of professional
soccer players who are or who have been employed by the defendant Major League
Soccer, L.L.C. ("MLS"). MLS is a limited liability company ("LLC") organized under
Delaware law. See generally Del. Code Ann. tit. 6, §§ 18-101, et. seq. (1996). The
[**3] defendant United States Soccer Federation, Inc. ("USSF") is the national
governing body for professional and amateur soccer in the United States. All the other
defendants are investors in MLS, each a capital-contributing member of MLS that has
contracted with MLS to operate one or more of MLS's teamsThe plaintiffs assert a
number of antitrust claims. In Count I, they allege that MLS and several of its investors
who operate MLS teams (hereafter "operator-investors" or "operators") have unlawfully
combined to restrain trade or commerce in violation to § 1 of the Sherman Anti-Trust
Act, 15 U.S.C. § 1, by contracting for player services centrally through MLS,
effectively eliminating the competition for those services that would take place if each
MLS team were free to bid for and sign players directly. In Count II, the plaintiffs
assert as a second § 1 claim that all the defendants have conspired to impose
anticompetitive "transfer fees" on player relocation that have the effect of restricting the
ability of soccer players to move from one team to another, thus dampening
competition for players' services worldwide. Count III alleges that all defendants have
jointly exercised monopoly power in violation of § 2 of the Sherman Act, 15 U.S.C. §
2. In Count IV, the plaintiffs allege that the transaction which brought MLS into
existence violated § 7 of the Clayton Act, 15 U.S.C. § 18. Finally, the plaintiffs assert in
Count V a California state law claim that certain contracts concerning players'
promotional rights were unlawful contracts of adhesion. The plaintiffs seek declaratory
and injunctive relief as well as damages.
The plaintiffs have moved for summary judgment as to the defendants' so-called "single
entity" defense.... The gist of their argument is that although MLS appears to be a
single business entity, so that its method of hiring players centrally can be characterized
as the act of a single economic actor for antitrust purposes, the organizational form is
really just a sham that should be considered ineffective to insulate from condemnation
32
what are in substance illegal horizontal restraints on the hiring of players resulting from
the unlawful concerted behavior of the several MLS team operators. The MLS
defendants have filed a cross-motion for summary judgment in their favor dismissing
Count I, arguing that MLS, as a single entity, cannot commit a § 1 violation. The MLS
defendants have also moved for summary judgment on Count IV, the plaintiffs' Clayton
Act claim.
I. RELEVANT FACTS
The following material facts are not subject to genuine dispute. At the time MLS was
formed, no "Division I" or "premiere" professional outdoor soccer league operated in
the United States. The last premiere soccer league to operate in this country had been
the North American Soccer League ("NASL"), which led a turbulent existence from
1968 until the mid-1980s, when it collapsed. In 1988, Federation Internationale de
Football Association ("FIFA") awarded to the United States the right to host the 1994
World Cup, soccer's illustrious international competition. In consideration for that
award, the organizers of the event promised to resurrect premiere professional soccer
in the United States.
In the early 1990s, Alan Rothenberg, the President of USSF and of World Cup USA
1994, with assistance from others began developing plans for a Division I professional
outdoor soccer league in the United States. Rothenberg and others at the USSF
consulted extensively with potential investors in an effort to understand what type of
league structure and business plan they might find attractive. He also consulted antitrust
counsel in the hope of avoiding the antitrust problems which other sports leagues such
as the National Football League ("NFL") had encountered. Eventually the planners
settled on the concept of organizing a limited liability company to run the league, and in
1995 MLS was formed.
The structure and mode of operation of MLS is governed by its Limited Liability
Company Agreement ("MLS Agreement" or "Agreement"). The MLS Agreement
establishes a Management Committee consisting of representatives of each of the
investors. The Management Committee has authority to manage the business and affairs
of MLS. Several of the investors have signed Operating Agreements with MLS which,
subject to certain conditions and obligations, give them the right to operate specific
MLS teams. n2 There are also passive investors in MLS who do not operate teams.
None of the passive investors is a defendant here.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - n2 The league itself is authorized by the MLS Agreement to operate teams directly and
currently operates two teams (the Dallas Burn and the Tampa Bay Mutiny).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - Operator-investors do not hire players for their respective teams directly. Rather,
33
players are hired by MLS as employees of the league itself and then are assigned to the
various teams. Each player's employment contract is between the player and MLS, not
between the player and the operator of the team to which the player is assigned. MLS
centrally establishes and administers rules for the acquisition, assignment, and drafting
of players, and all player assignments are subject to guidelines set by the Management
Committee. Among other things, the guidelines limit the aggregate salaries that the
league may pay its players.
Under applicable player assignment policies, MLS centrally allocates the top or
"marquee" players among the teams, aiming to prevent talent imbalances and assure a
degree of comparability of team strength in order to promote competitive soccer
matches. These assignments are effective unless disapproved by a two-thirds vote of a
subcommittee of the Management Committee. Most of the rest of the players -- the non"marquee" players -- are selected for teams by the individual operator-investors through
player drafts and the like. The league allows player trades between teams, but MLS's
central league office must approve (and routinely does approve) such trades. Team
operators are not permitted to trade players in exchange for cash compensation.
MLS distributes profits (and losses) to its investors in a manner consistent with its
charter as a limited liability company, not unlike the distribution of dividends to
shareholders in a corporation. Revenues generated by league operations belong directly
to MLS. MLS owns and controls all trademarks, copyrights, and other intellectual
property rights that relate in any way either to the league or to any of its teams. MLS
owns all tickets to MLS games and receives the revenues from ticket sales. There are
central league regulations regarding ticket policies, even including limits on the number
of complimentary tickets any team may give away. Team operators do retain the ability
to negotiate some purely local matters, including local sponsorship agreements with
respect to a limited array of products and services and local broadcast agreements, but
they do so as agents of MLS.
Under the Operating Agreement, each team operator receives from MLS a management
fee. As of the time this action was filed, the management fee consisted of (a) 100% of
the first $ 1.24 million, and 30% of the excess over $ 1.24 million, of local television
broadcast and sponsorship revenues, the latter percentage subject to some specified
annual increase; (b) 50% of ticket revenues from home games, increasing to 55% in
year six of the league's operation; and (c) 50% of stadium revenues from concessions
and other sources.
Expenses are allocated in a way similar to the allocation of revenues. MLS is
responsible for most expenses associated with league operations. For example, MLS
pays all player acquisition costs, player salaries, and player benefits. It also pays the
salaries of all league personnel (including referees), game-related travel expenses for
each team, workers' compensation insurance, fees and expenses of foreign teams
playing in exhibition games promoted by MLS within the U.S., league-wide marketing
expenses, and 50% of each individual team's stadium rental expense.
34
The team operators are responsible for the other half of their stadium rents, costs of
approved local marketing, licensing, and promotion, and general team administration,
including salaries of the team's management and coaching staff.
Passive investors do not pay any team operating expenses or receive any management
fee. They share in the general distribution of profits (and losses) resulting from league
operations.
Team operators cannot transfer their MLS interests or operational rights without the
consent of the Management Committee. That consent may be withheld without cause,
but the league is required to repurchase the team operator's interest at its fair market
value if approval is withheld. Team operators derive whatever rights they may have
exclusively from MLS, and the league may terminate these rights if a team operator
violates these provisions or fails to act in the best interest of the league.
II. THE MLS MOTION FOR SUMMARY JUDGMENT
I first consider the defendants' motion for summary judgment. Summary judgment may
be entered "if the pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law."
Fed. [*134] R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L.
Ed. 2d 265, 106 S. Ct. 2548 (1986). A fact is material if its resolution would "affect the
outcome of the suit under the governing law," and a dispute is genuine "if the evidence
is such that a reasonable jury could return a verdict for the non-moving party."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505
(1986). That an antitrust claim may be factually and legally complex does not
necessarily preclude the entry of summary judgment; there is no heightened standard
for summary judgment in complex cases....
Most of the material facts necessary to decide the defendants' motion are undisputed.
One possibly material fact that is disputed is the definition of the relevant market for
purposes of the § 1 analysis. In evaluating the defendants' motion, I assume that the
relevant market is the market for Division I professional outdoor soccer in the United
States, which is the plaintiffs' position. In addition, the plaintiffs are entitled to all
reasonable inferences from the undisputed facts.
III. THE OPERATION OF MLS
Section 1 of the Sherman Act forbids contracts, combinations, and conspiracies in
restraint of trade or commerce. See 15 U.S.C. § 1. Agreements between separate
economic actors that have the effect of substantially and unreasonably reducing
competition in a particular market violate § 1. The plaintiffs argue that MLS player
policies constitute an unlawful agreement among the various team operators to limit or
eliminate competition in the market for players' services.
35
Though the language of § 1 is sweeping, there are some limits to its reach. One critical
limitation for the purposes of this case is that the statute does not prohibit single
economic entities from acting unilaterally in ways that may, in some manner, decrease
competition.... Because it is directed against contracts, combinations or conspiracies, §
1 only prohibits collective activity by plural economic actors which unreasonably
restrains competition. See Copperweld Corp. v. Independence Tube Corp., 467 U.S.
752, 769, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (1984) ("In any conspiracy, two or more
entities that previously pursued their own interests separately are combining to act as
one for their common benefit."); Mount Pleasant, 838 F.2d at 274 ("A conspiracy
requires a plurality of actors. . . ."). The MLS defendants contend that MLS is a "single
entity" and that even if its policies and practices have the effect of substantially
reducing competition for players' salaries, they do not -- cannot as a matter of law -violate § 1.
MLS is a limited liability company organized under Delaware law. An LLC is a form of
statutory business organization that combines some of the advantages of a partnership
with some of the advantages of a corporation. Under Delaware law, an LLC is a
separate legal entity distinct from its members.... As in a corporation, investors
(shareholders in a corporation, members in an LLC) have limited liability, own
undivided interests in the company's property, are bound by the terms of their
Agreement (like the corporate Articles), and share in the overall profits and losses
ratably according to their investment or as otherwise provided by the organizing
Agreement. The Federal Trade Commission has treated LLCs like corporations.... In
the present context, there is little reason to treat an LLC such as MLS differently from a
corporation.
MLS's operations should therefore be analyzed as the operations of a single corporation
would be, with its operator-investors treated essentially as officers and shareholders.
There can be no § 1 claim based on concerted action among a corporation and its
officers, nor among officers themselves, so long as the officers are not acting to
promote an interest, from which they would directly benefit, that is independent from
the corporation's success. See Copperweld, 467 U.S. at 770 n.15 (dictum); Greenville
Publ'g Co. v. Daily Reflector, Inc., 496 F.2d 391, 399-400 (4th Cir. 1974) (defendant, a
newspaper publishing corporation, was accused of trying to destroy plaintiff's
newspaper through predatory pricing; defendant and its president held capable of
conspiring under § 1 because president had a stake in a third newspaper which would
directly benefit from plaintiff's newspaper's elimination). If an LLC should be
considered like a corporation for these purposes, as I conclude it should, then there can
be no § 1 violation by reason of concerted action between the LLC as an entity and its
members, or between the individual members themselves, unless the members are
acting not in the interest of the entity, but rather in their own separate self-interest....
The plaintiffs argue that even if MLS is deemed a single entity, the divergent selfinterests of the operator-investors provides sufficient cause to invoke the independent
personal stake exception. The plaintiffs base this argument largely on their assertion
that the operator-investors do not truly share in MLS's profits and losses. Instead of
owning undivided interests in the league that are not attached to the operation of any
36
given team, they pay certain operating expenses individually and receive management
fees from MLS that are calculated in large part according to their local team-generated
revenues. Also, they are able to harvest the value of the particular teams they operate by
selling their operational rights or, if the Management Committee vetoes the sale, by
requiring the league to pay them the fair market value of their investment.
The management fee arrangement exists in addition to, not in place of, the overall profit
and loss sharing specified in the Agreement. Indeed, the fact that there are passive
investors in MLS is strong evidence that the payment of management fees and
assignment of local expenses do not account for all economic risks and benefits
associated with the league's operation.
Furthermore, successful local operation of a team benefits the entire league. The
league's net revenues, not just the local operator's management fees, increase when
more local revenues are generated. A similar effect is foreseeable in the market for
operator-investor shares. Admittedly, unlike undifferentiated shares of stock, the market
value of a team operator's investment will not simply reflect an aliquot share of the
whole enterprise, but will also reflect in certain respects the success of the local
operation. Nonetheless, unlike competition in most markets, where the value of an
enterprise would usually be enhanced if its competitors grew weaker, the value of the
right to operate an MLS team would be diminished, not enhanced, by the weaknesses of
other teams, their operators, and the league as a whole. Management fees and
operational rights notwithstanding, every operator-investor has a strong incentive to
make the league -- and the other operator-investors -- as robust as possible. Each
operator-investor's personal stake is not independent of the success of MLS as a whole
enterprise.
The plaintiffs point to other ways in which the operator-investors compete on and off
the field. That teams (and, by extension, their operators) compete playing soccer, and
that operators directly hire certain staff, such as coaches, to make teams more capable
of on-field heroics, does nothing to assist the plaintiffs. Exciting on-field competition
between teams is what makes MLS games worth watching....... On balance, the
business organization of MLS is quite centralized. The league owns the teams
themselves; disgruntled operators may not simply "take their ball and go home" by
withdrawing the teams they operate and forming or joining a rival league. MLS also
owns all intellectual property related to the teams. It contracts for local-level services
through its operators, who act on its behalf as agents. n9 Operators risk losing their
rights to operate their teams if they breach the governing Agreement. The Management
Committee exercises supervisory authority over most of the league's activities. It may
reject, without cause, any operator's individual attempt to assign the rights to operate a
team.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - n9 The plaintiffs argue that the operators, since they sit on MLS's Management
Committee, are not MLS agents in this regard. That argument fails. Shareholders--even
37
ones in positions of control--are not disqualified from serving as an agent of the
corporation, see, e.g., Ed Peters Jewelry Co. v. C & J Jewelry Co., 124 F.3d 252, 275
(1st Cir. 1997).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - It is true that MLS is run by a Management Committee that can be controlled by the
operator-investors, who constitute the majority of the members of the Committee. It is
not remarkable that principal investors can collectively control the governing board of
an LLC (or of a corporation). That fact hardly proves that the investors are pursuing
economic interests separate from the interests of the firm. The notion that the members
of the Management Committee of a single firm violate the antitrust laws when they vote
together to maximize the price or minimize the cost of the firm's product is easily
rejected.
As a factual matter, therefore, there is insufficient basis in the record for concluding
that operators have divergent economic interests within MLS's structure. Even if one
draws the most favorable inference on the plaintiffs' behalf, there is no reasonable basis
for imposing § 1 liability.
MLS's player policies, in particular, do not call for application of the independent
personal stake exception. The operator-investors benefit from those policies because
centralized contracting for player services results in lower salaries. However, that
benefit is, in the MLS structure, a derivative one. No operator has an individual player
payroll to worry about; the league pays the salaries. Moreover, the MLS investor gets
the lower-cost benefit in exchange for having surrendered the degree of autonomy that
team owners in "plural entity" leagues typically enjoy. The reason an individual team
owner in one of those other leagues is willing to bid up players' salaries to get the
particular players it wants is because by paying high salaries to get desirable players,
the owner can achieve other substantial benefits, such as increased sales of tickets and
promotional goods, media revenues, and the like. The MLS operator-investors have
largely yielded that opportunity to the central league office. Plainly, there are trade-offs
in the different approaches. The MLS members have calculated that the surrender of
autonomy, together with the attendant benefit of lower and more controlled player
payrolls and greater parity in talent among teams, will help MLS to succeed where
others, notably NASL, failed. That is a calculation made on behalf of the entity, and it
does not serve only the ulterior interests of the individual investors standing on their
own. It is not an occasion for application of the independent personal stake exception to
the general single-entity rule described in Copperweld.
The plaintiffs also argue that the structure of MLS is a sham designed to allow what is
actually an illegal combination of plural actors to masquerade as the business conduct
of a single entity. The plaintiffs do not argue that the structure of MLS as established by
the its organizing Agreement is legally defective so that it should not be recognized as a
lawful entity under Delaware law. Rather, they say that even if MLS is a legitimate
LLC -- a legitimate single entity for state law purposes -- a court should disregard that
38
legal form in evaluating under antitrust principles whether the operator -- investors are
engaged in a horizontal restraint in the market for players' services....
*
*
*
MLS is what it is. As a single entity, it cannot conspire or combine with its investors in
violation of § 1, and its investors do not combine or conspire with each other in pursuing
the economic interests of the entity. MLS's policy of contracting centrally for player
services is unilateral activity of a single firm. Since § 1 does not apply to unilateral
activity -- even unilateral activity that tends to restrain trade n11 -- the claim set forth in
Count I cannot succeed as a matter of law.
IV. THE FORMATION OF MLS
In addition to the claim that the player policies of MLS are an unlawful horizontal
restraint of trade, the plaintiffs also claim that the very formation of MLS in the first
place violated § 7 of the Clayton Act, which prohibits acquisitions or mergers the effect
of which "may be substantially to lessen competition, or to tend to create a monopoly" in
any line of commerce or activity affecting commerce, 15 U.S.C. § 18, as well as § 1 of
the Sherman Act. The two theories are related.
A. The Clayton Act Claim
1. Antitrust Injury
Only those who have sustained injuries which the antitrust laws were designed to prevent
may sue under § 7 of the Clayton Act... The defendants' first response to the § 7 claim is
that the plaintiffs cannot establish an antitrust injury resulting from the formation of
MLS. In making this argument, the defendants rely primarily on Alberta Gas Chemicals
Ltd. v. E.I. DuPont de Nemours and Co., 826 F.2d 1235, 1242-43 (3d Cir. 1987).
Alberta Gas emphasizes the lesson that the antitrust laws provide remedies only for injury
to competition itself, and not simply injury to competitors. A competitor adversely
affected by a transaction that does not actually reduce the level of competition in the
relevant market has no remedy under the antitrust laws. If the transaction defeats a
competitor's expectations about how the market will evolve, but does not reduce the
overall level of competition in the market in some manner injurious to the disappointed
competitor, the dashed hopes are not a sufficient basis for an antitrust lawsuit....
The principle is not entirely apt here. The plaintiffs are not simply suing on dashed hopes
of a windfall... The new Division I soccer league the World Cup promoters promised to
create could have been structured in the same way other sports leagues had been
structured: a number of independently owned teams collaborating in certain aspects but
competing with one another for player services. Clearly, compared to this traditional form
of sports league, MLS's structure reduces competition for player services. The claim does
assert an injury to competition cognizable under the antitrust laws.
39
2. Existing Market
Unfortunately for the plaintiffs, the claim is not otherwise viable. There can be no § 7
liability because the formation of MLS did not involve the acquisition or merger of
existing business enterprises, but rather the formation of an entirely new entity which
itself represented the creation of an entirely new market. The relevant test under § 7 looks
to whether competition in existing markets has been reduced.... Where there is no existing
market, there can be no reduction in the level of competition. There are no negative
numbers in this math; there is nothing lower than zero. Competition that does not exist
cannot be decreased. The creation of MLS did not reduce competition in an existing
market because when the company was formed there was no active market for Division I
professional soccer in the United States...
The defendants are entitled to judgment in their favor on the Clayton Act claim.
B. The Sherman Act Claim
In addition to the Clayton Act theory, the plaintiffs urge that the formation of MLS, by
which multiple operator-investors combined to create the single entity, also violated the
Sherman Act's prohibition of contracts, combinations or conspiracies in restraint of trade.
It is generally held that a coming together that does not violate § 7 of the Clayton Act
does not violate § 1 of the Sherman Act either.... A merger of market participants that
does not lessen competition and thus does not offend § 7 ordinarily would not constitute a
combination in restraint of trade in violation of § 1. Though the statutory provisions
present slightly different modes of analysis, when those modes are applied to the same
constellation of facts, the answer will ordinarily be the same.
Here, the pertinent facts are that the founding investors of MLS created both a new
company and simultaneously a new market, in effect increasing the number of
competitors from zero to one. As explained above, that did not represent a lessening of
actual or potential competition in an existing market. Similarly, it did not represent a
"sudden joining of . . . independent sources of economic power previously pursuing
separate interests," see Copperweld, 467 U.S. at 770, which is what is forbidden by § 1.
V. CONCLUSION AND ORDER
For all the reasons set forth above, the defendants' motion for summary judgment in their
favor under Counts I and IV of the Amended Complaint is GRANTED. It follows that the
plaintiffs' motion for summary judgment on the defendants' "single entity" defense is
DENIED. IT IS SO ORDERED.
April 19, 2000 George A. O'Toole Jr. DISTRICT JUDGE
40