Contracts Hang In Balance As NFL Case Kicks Off

A fan gazes at Super Bowl XLIII merchandise in a Tampa, Fla. store window. i i

A fan gazes at Super Bowl XLIII merchandise in a Tampa, Fla., store window in advance of the 2009 game. Currently, Reebok has an exclusive contract to sell all of the NFL's merchandise, but that could change soon. Chris McGrath/Getty Images hide caption

itoggle caption Chris McGrath/Getty Images
A fan gazes at Super Bowl XLIII merchandise in a Tampa, Fla. store window.

A fan gazes at Super Bowl XLIII merchandise in a Tampa, Fla., store window in advance of the 2009 game. Currently, Reebok has an exclusive contract to sell all of the NFL's merchandise, but that could change soon.

Chris McGrath/Getty Images

The U.S. Supreme Court will turn to the world of professional football Wednesday and hear a case that deals with the NFL's exclusive licensing deal for selling billions of dollars' worth of hats, jerseys, sweatshirts and other apparel.

The court's eventual ruling will either leave intact — or jeopardize — most of the professional and even collegiate deals that are in place now, not only in football but also in basketball, hockey and other sports.

Reebok's Windfall

It used to be that lots of different companies had NFL licenses to sell items with NFL team logos. But since 2000, it's been all Reebok, all the time. That's the year the NFL decided it wanted to award its merchandising license for all 32 teams to just one company — Reebok.

Among those frozen out was American Needle Inc., a family-owned company based in Illinois that specializes in head wear. The company went to court, claiming that the 32 teams, operating though the NFL, had conspired to give Reebok a monopoly in violation of the federal antitrust laws. The NFL countered that the league is a single entity that operates as one business, not 32 competing businesses.

A federal appeals court agreed with the NFL, and American Needle appealed to the Supreme Court.

NFL: Single Business Or Umbrella Organization?

On Wednesday, American Needle lawyers will tell the justices that the Reebok exclusive license deal is a classic antitrust violation.

American Needle's Dan Parenti works on the computer at his office. i i

American Needle's Dan Parenti works at his office last year. A hat can be a small thing, but a Supreme Court battle over who gets to make official NFL headgear could end up having a very large effect not only on the future of professional sports but also the landscape of business in the United States. Nam Y. Huh/AP hide caption

itoggle caption Nam Y. Huh/AP
American Needle's Dan Parenti works on the computer at his office.

American Needle's Dan Parenti works at his office last year. A hat can be a small thing, but a Supreme Court battle over who gets to make official NFL headgear could end up having a very large effect not only on the future of professional sports but also the landscape of business in the United States.

Nam Y. Huh/AP

"By doing that, they eliminated all the price competition that existed among the existing licensees," says Jeff Carey, American Needle's general counsel, "with the result that they caused the prices to rise, and they collected more royalties."

He says that immediately after the Reebok deal eliminated competitors, the price of a high-end fitted cap jumped to $30 from $19.

Reebok and the NFL counter that there can be many explanations for such a jump in price, including a better-quality product. And the league argues that a single licensee, among other things, is better able to fill orders quickly at the time of playoff and championship games.

But the crux of the case centers on whether the NFL is a single business or an umbrella organization for 32 competing businesses.

Team Support Vs. League Support

Nobody from the NFL would speak on the record, but lawyers for other big sports leagues were less reticent. Jeff Mishkin filed a brief on behalf of the NBA. Football, he notes, can only be produced through the cooperation of the teams. And when it comes to merchandising agreements, the competition is not between the teams but between the NFL and other sports and entertainment.

"NFL football competes against NBA basketball, Major League Baseball, the National Hockey League — lots of other entertainment products," says Mishkin.

So the price competition for a hat, he argues, is not between the teams but between a football hat and a hat for basketball, hockey, baseball or even a rock group. If the price of a football hat gets too high, he maintains, the consumer will buy a hat for another sport.

Carey finds that theory laughable. People who want a Washington Redskins hat aren't going to be satisfied with a Washington Nationals hat, he says. A hat is not an NFL hat; it's a team hat.

At a recent Atlanta Falcons game, a sampling of tailgaters showed a lot of team loyalty and no talk about the league. Ivan Mann said the price of jerseys and hats is "a little high." But he said, "It's a worthwhile investment — we're supporting the team."

Roy Irby was also all about the Falcons, noting that he was wearing a Michael Turner jersey because he is a Michael Turner and Falcons fan.

None of the gamegoers NPR interviewed knew about Reebok's exclusive deal with the NFL, but everyone in the sports business knows. While few experts expect a broad ruling in favor of the NFL, if the league is declared a single entity, that could allow it to set higher prices for tickets, concessions, parking at games and even fees to join fantasy football leagues.

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