The question forms the core of an antitrust case that will be heard by the United States Supreme Court next week. How the court rules could shake some pillars of sports law by reshaping the definition of a sports league, which would in turn affect professional leagues, teams and players, as well as the constellations of companies that do business with them.
The roots of the case, American Needle v. National Football League, date to 2000, when the N.F.L. chose Reebok to become the exclusive provider of its licensed apparel. The league determined that the 10-year, $250 million deal would generate more money than the agreements it had with American Needle and others.
American Needle sued the N.F.L., arguing that the Reebok deal violated antitrust statutes because the league conspired to stifle competition and inflate prices.
Although experts consider it unlikely that the court will issue a broad ruling for the N.F.L., defining the league as a single entity rather than 32 competing ones has the potential to adversely affect fans through higher prices for merchandise, concessions, parking at stadiums and even in fees to join fantasy football leagues. Salaries could be unilaterally capped and strikes or lockouts could increase. Companies that have done business with the league could be shut out.
Conversely, if the court rules in favor of American Needle, the N.F.L. may be forced to annul its exclusive contracts, opening the door for more competition and potentially lower prices.
American Needle is not the first company to challenge the N.F.L.’s single-entity argument, which has often been rejected by courts. But a trial court in Chicago and the Seventh Circuit Court of Appeals surprised some experts when they agreed with the N.F.L. in the American Needle case that it could act as a single entity when forging licensing deals.
The league argued that although its 32 teams compete against one another on the field, they are economic partners of necessity off it. The teams are so intertwined, the league said, they share more than 80 percent of their revenue. (The players union says the figure is 40 percent.)
“For nearly 50 years, the N.F.L. has promoted its entertainment product through collective, integrated licensing of the names, markets, colors and logos of its member clubs, all of which derive their economic value from their association with N.F.L. Football,” the league said in a filing to the court.
American Needle appealed to the Supreme Court, which will hear arguments Jan. 13 and is expected to rule by late June.
According to Mark Conrad, a professor of legal and ethical studies at Fordham, the court took on the case partly to prevent court shopping, whereby plaintiffs take advantage of inconsistent lower court rulings by filing suits where they feel they have the best chance of winning.
In what legal experts called a calculated move, the N.F.L. backed American Needle’s application to the Supreme Court, reasoning that if the court sides with the league, other companies will have less recourse to sue on antitrust grounds.
A victory by the N.F.L., lawyers say, could allow it to sign even broader commercial deals with everything from banks to beermakers. A victory could also help the N.B.A. and the N.H.L., which have filed briefs in support of the N.F.L. Major League Baseball, unlike the other leagues, has a longstanding antitrust exemption.
“The biggest story coming out of that case is not the immediate implication for the parties and whether American Needle can get a headwear contract, but the downstream repercussions that would treat the league as anything but a single entity,” said Ben Mulcahy, a partner with the law firm Sheppard Mullin Richter & Hampton.
Those repercussions could include a significant shift in the leverage sports leagues have over players unions, a concern now that the N.F.L. and its union have begun to renegotiate their collective bargaining agreement. The other three major sports leagues will discuss their deals in the next 18 months.
A broad ruling for the N.F.L., however unlikely, could give the league latitude to implement a salary structure of its choosing without fear of antitrust scrutiny and penalties for collusion. That prospect has led the players unions of all four major sports, none of which were a party to the American Needle suit, to submit a joint brief disputing the N.F.L.’s logic.
In that filing, the N.F.L.’s players union even disputes the exclusivity of the N.F.L.’s deal with Reebok, noting that the Dallas Cowboys have opted out of the agreement, paid the league a fee and decided to strike their own deal for licensed apparel.
Other teams have challenged the league’s attempts to present itself as a single entity, including the Raiders, who won the right to move from Oakland to Los Angeles in the 1980s.
Michael Weiner, the executive director of baseball’s players union, said that conferring antitrust immunity upon sports leagues would restrict legal options that unions have for exerting leverage, leading to more work stoppages.
“If athletes were to be in a dispute, their only alternative to fight against what they perceive to be an unreasonable demand would be to strike or withstand a lockout,” he said.
Jeff Pash, the general counsel for the N.F.L., disagreed.
“The American Needle case arose out of an issue that could not possibly have less to do with labor,” he said. “We think it would be good to get a ruling on this that would apply nationwide in all courts to the extent to which the clubs are required to compete in their own lines of business with one another.”
Since the 1960s, sports leagues have used a specific exemption from antitrust laws to negotiate exclusive national television contracts. If the Supreme Court grants the N.F.L. even broader immunity, the league could push for more control over the digital rights to its games, whether they appear online, are embedded in video games or are part of fantasy sports leagues, lawyers say.
The N.F.L. insists that it is not out to gouge consumers or throw its weight around in negotiations with companies and the players union. Rather, it says it wants to prevent what it calls frivolous lawsuits from companies objecting to exclusive licensed agreements.
Still, fans may ultimately feel an impact. According to American Needle, prices for licensed hats jumped immediately after the N.F.L. signed its deal with Reebok, which is now owned by Adidas. If the court rules in the league’s favor, the N.F.L. might consider exclusive deals with stadium vendors and parking operators, deals that for now are done by individual teams. This could drive up the price of attending games.
“It’s not just headwear,” said Robert Kronenberger, the president of American Needle, whose sales fell 25 percent after the Reebok deal was completed. “It could be beyond that: television, concessions, food, beer. It’s not just about me.”
Legal experts said that the N.F.L. would not necessarily strong-arm consumers, because Congress could respond with laws addressing any court decision. (A subcommittee of the House Judiciary Committee is planning a hearing Jan. 20 to discuss possible ramifications of the case.) Higher prices could also hurt sales and public relations.
“If the N.F.L. wins partial or full exemption, that doesn’t mean we’ll
suddenly see player salaries at some floor or that an N.F.L. logo sweatshirt
will be $200,” said Gabriel Feldman, the director of the Sports Law Program
at Tulane. “Even without Congress stepping in, the N.F.L. won’t do it
because people would just go buy a baseball sweatshirt instead.”