Article by Lee Goldman
This Article addresses whether section 1 of the Sherman Act should be applied to joint actions by members of professional sports leagues. This issue has immediate impact on numerous sports cases and its resolution may affect areas well beyond the sports arena.
Sports leagues have a large impact on the American economy. Member clubs are sold for millions of dollars. Television contracts have reached the billion dollar level for football alone. Player salaries average several hundred thousand dollars per player.
Sports league operations are of vital interest not only to member clubs and players, but also to fans and all levels of government. Attendance at sporting events numbers in the tens of millions per sport per year. Some fifty state and local governments have spent more than six billion dollars in the past two decades on stadiums for professional baseball and football alone. State and local officials regularly negotiate with teams to ensure the teams' continued contributions to the local community. Municipalities have even sought to exercise their eminent domain powers to take over teams, rather than suffer the loss to the community that would result from the team's abandonment of the city. Congress has enacted exemptions and held extensive hearings on proposed legislation, evidencing its recognition of sports leagues' potential effect on the public interest.
With the tremendous amounts of money involved and the numerous interests affected, it is not surprising that substantial antitrust litigation has occurred. Players have challenged draft rules, free agency, and other mobility restraints, claiming the restraints restricted their freedom and reduced their salaries. Actual and potential owners lured by expected profits, and municipalities seeking the exposure and revenues generated by professional sports teams, have challenged franchise expansion and location decisions. Boycotted players and third parties have challenged the enforcement of league rules that have resulted in their exclusion.
Each section 1 challenge to league restraints poses the same threshold issue: whether the league member teams are capable of unlawful agreement. Although teams are separate legal entities, they are all part of a greater entity, the league, and must cooperate on many issues to produce the league product. Accordingly, leagues and commentators have posited that it is the league, not the individual member clubs, that is the relevant ‘firm’ for antitrust purposes. They conclude that no section 1 violation can occur when the league member teams make decisions regulating internal league affairs because there is no plurality of firms sufficient to support a finding of contract, combination, or conspiracy under section 1.
Most courts that have reviewed challenges to intraleague agreements have not directly confronted the so-called single entity defense, but have assumed, without actually deciding, that sports leagues were plural entities. Two relatively recent court of appeals decisions have specifically rejected the defense.
Despite the virtually uniform unwillingness of the courts to adopt the single entity defense, the validity of the defense apparently remains an open issue. The courts of appeals in Los Angeles Memorial, Coliseum Commission v. National Football League and North American Soccer League v. National Football League relied, in part, on the intra-enterprise conspiracy doctrine to support a finding of agreement. The intra-enterprise conspiracy doctrine, however, was overruled by the Supreme Court in Copperweld Corp. v. Independence Tube Corp. Several commentators have since argued that the validity of the single entity defense must be reconsidered in light of Copperweld. The three major commentators to focus exclusively on the single entity issue have each urged that the defense be recognized in virtually all cases.
This Article contains a critical analysis of the arguments advanced by each of the major proponents of the single entity defense. It finds their analyses fundamentally flawed. The commentators give insufficient weight to the independent status of league member clubs and adopt an erroneous view of consumer welfare. Their attempts to distinguish sports league conduct from other cooperative ventures are strained. Most important, the standards they use for determining single entity status contravene not only existing sports case law, but jeopardize the very existence of sports labor unions and threaten to overturn precedents involving areas as diverse as vertical restraints, hospital staff privileges, and joint ventures.
This Article finds that Copperweld does not support a complete single entity defense for sports leagues, but does provide some general guidelines to determine single entity status. In particular, this Article advocates that co-venturers should not be treated as a single entity unless either (1) a single entity has the right to exercise day-to-day control over all participants in the venture or (2) the jointly created entity produces a new product and the co-venturers are acting on behalf of the joint entity without implicating any independent economic interest of a co-venturer. Applying these standards to sports leagues compels the conclusion that most intraleague decisions are properly subject to section 1 review.
About the Author
Lee Goldman. Associate Professor of Law, University of Detroit. B. A. Queens College 1976; J.D. Stanford University 1979.
Citation
63 Tul. L. Rev. 751 (1989)