The U.S. Supreme Court has whacked the National Football League and most of the nation's big sports leagues, denying them a long-sought exemption from federal antitrust laws.
The justices ruled unanimously on Monday that the NFL's merchandising agreements, and by inference, similar agreements in other leagues, are not automatically exempt from the nation's anti-monopoly laws.
This case amounted to a Hail Mary pass by the NFL, an attempt at a legal game ender, with other sports leagues cheering on the football league. But the NFL was sacked by the Supreme Court and its 90-year-old senior justice, John Paul Stevens.
In his opinion for the court, Stevens outlined the facts. It used to be that the NFL licensed lots of companies to manufacture and sell caps, shirts, sweatshirts — all the stuff with team logos. But in 2000, like other sports leagues, the NFL decided to award its merchandising license for all 32 of its teams to just one manufacturer, Reebok.
'In My Blood'
Among those frozen out was American Needle, a family-owned Illinois company founded in 1918 by the grandfather of the two brothers who run it today, Bob and Ron Kronenberger. The company was a millinery manufacturer in 1946 when it first approached the owners of the Chicago Cubs with the idea of selling fan caps like the ones worn on the field by the players. The team owners doubted anyone would want to buy the hats, but the caps sold out in one day and a second lot sold out even faster. Soon, the company began supplying hats to major teams across the country, including, eventually, NFL teams.
"This business is in my blood," says Bob Kronenberger. "And we were very, very good at it" and very competitive.
So when the NFL closed the door to American Needle, the company went to court. The cap company claimed that the 32 teams of the NFL had conspired to give Reebok an illegal monopoly. What's more, American Needle said the monopoly resulted in higher consumer prices, with the cost of a high-end fitted cap jumping from $19 to $30.
The NFL countered that the league is a single business, not an umbrella for 32 separate businesses, and that as a single business it is exempt from such antitrust suits. A federal appeals court agreed. But then an odd thing happened.
Support From Other Leagues
When American Needle appealed to the Supreme Court, the NFL took a calculated gamble — that Hail Mary pass. Even though it had won in the lower courts, the NFL supported the request that the Supreme Court hear the case, hoping, apparently, that a Supreme Court win would enable the league to set prices not just for jerseys and caps, but for everything from game tickets to concessions to football video games and fees for playing fantasy football.
The other sports leagues quickly jumped in to support the NFL. Among those filing briefs were the National Basketball Association, the National Hockey League, even NASCAR and the National Collegiate Athletic Association.
On Monday, they all went splat. The Supreme Court unanimously rejected the leagues' single-entity theory. Writing for the court, Justice Stevens suggested the NFL operated more like a "cartel" than a single firm seeking to maximize profits. The justices then sent the case back to the lower courts for a determination as to whether in this particular case, the NFL conspired to stifle competition or was simply operating in the most efficient manner for its business. If the case is not settled out of court, it will very likely be decided by a jury.
NBA Commissioner David Stern says the loss in the Supreme Court will cost the leagues money, but not much else.
"It's more costly," he concedes. "It's more likely to go to a jury, but at the end of the day, we expect to prevail."
Players Unions Relieved
Perhaps, but a lot of sports-law experts say the leagues risk serious losses if these kinds of cases go to juries.
"What they really wanted, they didn't get," says Vermont Law School professor Michael McCann. He says the leagues had hoped that with a broad win in the Supreme Court, they could protect their contractual agreements from court challenges.
Without that kind of a win, he says, other types of contracts may now be challenged, including broadcasting contracts, video game licensing contracts and decisions by leagues to prevent owners from relocating without permission.
Breathing a sigh of relief Monday were the players unions in all major sports. They feared an automatic antitrust exemption for the leagues would empower the owners to impose salary caps and end free agency. Now, the status quo will prevail, with such questions resolved in collective-bargaining agreements.
The Supreme Court, however, did leave some wiggle room for the NFL and other leagues, noting, for example, that leagues have a "legitimate and important" interest in "maintaining a competitive balance among athletic teams."
That would seem to be something of an endorsement of the idea that leagues may ensure some parity among teams in terms of revenue streams.
That didn't seem to be much solace for the NFL on Monday. There were no officials claiming victory in the case.
But in suburban Chicago, the brothers Kronenberger were very happy indeed.
Said Bob Kronenberger: "The nice thing about the ruling today is that it just goes to show that once in a while you can go all the way with your principles, and prevail."