Dr. Steven Schwartz is a Senior Vice President at NERA Economic Counseling where he specializes in antitrust, intellectual property, valuation, and damage estimation matters. He has directed and performed numerous antitrust analyses in connection with merger investigations and private antitrust litigation. Dr. Schwartz has published papers concerning mergers, the persistence of monopoly profits, arbitrator bias, and the relationship between transfer prices and patent infringement royalty damages in economics journals and intellectual property journals.
In this excerpt from his longer emerging issue analysis article, It's Time for a Hail Mary Pass: the NFL and the Antitrust Laws, 2011 Emerging Issues 5727, Dr. Schwartz considers in depth the NFL owners' choice to lock out the players and other decisions that might implicate the antitrust laws.
To put it mildly, the NFL has fared poorly when it has been challenged on...[antitrust]...issues by its players. Should the current case ever make it to trial, there is no reason to think that the NFL will have any more success. Let's consider the behaviors at issue, in turn.
The Lockout
Stripped to its bare essentials, the lockout is an agreement by all of the member teams that make up the NFL to:
a. refuse to permit players to use team facilities for workouts, medical treatment, or any other purpose related to the player's employment and contractual rights/obligations;
b. refuse to hold practices or off-season workouts under the supervision and direction of coaches when such workouts have been an integral part of players' off-season activities;
c. refuse to negotiate with free-agents, whether they are established players whose contracts have expired or undrafted rookie players, out of college; and,
d. refuse to negotiate with drafted players.
The players assert that this collective decision represents a group boycott-a collective decision by a set of arguably independent entities working together in a joint venture to refuse to engage in the normal set of commercial and contractual behaviors that are a part of the NFL's normal operations. On its face, it is difficult to see how the League defends against this on antitrust grounds. Group boycotts are per se illegal; could the NFL argue that the lockout is not a group boycott? It is hard to see how.
But, even if the NFL makes that argument and somehow convinces a judge or jury that the lockout does not reach the level of a group boycott, could it prevail in a rule of reason analysis? Again, it is hard to see how, based on the available facts. Is there a pro-competitive benefit associated with the lockout? None is apparent. The decision-the collective decision-by the NFL teams not to engage in the business of football, including not letting players fulfill their contracts, not bidding on free agents and not negotiating with draft choices seems, on its face, as stark an example as one can imagine of a conspiracy that results in reduced competition between the NFL and its competitors and between NFL teams. While the devil is always in the details, it is easy to understand why the NFL has placed its eggs squarely in the labor exemption basket.
The Draft with the Entering Player Pool
The player draft is a classic example of a scheme to restrain competition that would otherwise occur. Teams have the opportunity to choose players with whom they will negotiate and once a player is chosen, he may not negotiate with any other NFL team. The opportunity to seek the best offers from competing teams and to choose where to work and live are lost to players chosen in the draft. Further, the entering Player Pool, which sets an artificial limit on the amounts that rookies can be paid can be construed as a price fixing agreement and, the players allege, will be enforced through a group boycott.
Again, the players argue that both of these practices are per se illegal under the antitrust laws. It is not hard to understand why they would make that claim, especially with regards to the Entering Player Pool. The draft has already been found to violate the antitrust laws as an unreasonable restraint of trade, except when agreed to as apart of arms length negotiation between the Owners and a Players' Union. Can the NFL get a different result this time? There don't seem to be any new facts that will change the analysis or the outcome.
Salary Cap and Restrictions on Free Agency
At issue here are a couple of related issues. The players claim that "the NFL defendants have a fall back plan to impose a new set of anticompetitive restrictions on players-such as a price-fixed cap on player salaries, limitations on the free agency of players whose contracts have expired..." (Complaint in Brady at para. 71.) The primary focus of the players claim has to do with the so-called "franchise player" and
"transition player" designations that were established in the now-expired collective bargaining agreement. These designations were applied to specific players-at each team's discretion-under the terms of old CBA and these restrictions effectively limited the ability of those players to move to a different team and fixed their salary based on various benchmarks established in the CBA. The NFL has taken the position publicly that designations made prior to the expiration of the CBA survive the expiration of the CBA. Thus, the NFL suggests that players such as Payton Manning, who has been designated by the Indianapolis Colts as their franchise player, are not free to exercise their rights as free agents, even though the CBA has expired.
As with the practices I have already discussed, it is difficult to see how the NFL prevails on a claim that these restrictions are competitively reasonable, should the League win the argument that they are not per se illegal. There are not any readily apparent offsetting competitive or efficiency benefits from the imposition of these designations. The designating team benefits directly by precluding its player from seeking employment elsewhere, but that is not the sort of benefit that is likely to tip the scales in favor of these restrictions.
It is hard to handicap trials, and antitrust trials are no different. While there is a natural tendency to try and predict outcomes and give odds, there is a reason why Las Vegas does not take bets on the outcome of court cases (to borrow an oft-used axiom). That said, if this antitrust case goes to trial, the NFL faces a hard road.
With that in mind, is there a path for the NFL that gets them to a happy outcome? The answer is "yes" and that path is plowed by labor law, specifically, the non-statutory labor exemption for otherwise anticompetitive behavior. Much of Judge Nelson's decision went to the labor law issues raised by the NFL in its opposition to the players' motion for a Preliminary Injunction. And, a major focus of the NFL's briefs in connection with its request to the 8th Circuit for a Stay of Judge Nelson's Injunction against the lockout dealt with labor law issues. It has become clear that the key to resolving this dispute is who wins the battle over the labor law issues. Judge Nelson's wording was strong, almost strident in rejecting every element of the NFL's argument that the Court did not have jurisdiction even to hear the players' case until the National Labor Relations Board made a decision regarding the League's claim that the union decertification was a sham. While pundits and handicappers want to predict the 8th Circuit decision based on body language and questions asked by the panel of appellate judges, there is no way to predict that ruling, except to note one judge's warning that neither side may be happy with the outcome.
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