Are you ready for some football? How antitrust laws can be used to break up DirecTV's exclusive right to telecast NFL's Sunday ticket package.

• Author: Bublick, Ariel Y.

1. INTRODUCTION II. ANTITRUST BACKGROUND A. Antitrust and Section One of the Sherman Act B. Rule of Reason Analysis C. The Single Entity Defense and its Application to the NFL III. FOOTBALL ON TELEVISION A. The Origins of the NFL on Broadcast Television B. The Sports Broadcasting Act of 1961 C. Football on Television Today D. DirecTV's Sunday Ticket Package IV. ANALYSIS: WHY SUNDAY TICKET SHOULD BE FOUND TO VIOLATE ANTITRUST LAWS A. Sunday Ticket Is Not Exempt Under the Sports Broadcasting Act B. The NFL as a Single Entity for the Sale of Television Rights C. Rule of Reason D. The Current Sunday Ticket Structure Hurts Consumers and Dissolution of the Exclusive Arrangement Can Help V. CONCLUSION I. INTRODUCTION

   Vince Lombardi, one of the National Football League's ("NFL") most famous and well-respected coaches, once said that "football is a game for mad men." (1) For those that ascribe to Lombardi's theory, Sunday is a day for both enjoyment and analysis. Sunday is the day when most of the NFL's games are telecast on broadcast television. Football fans love rooting for their teams, cheering against division rivals, and viewing other games to see league-wide developments as they occur in real time. To provide fans with the opportunity to watch all games being played, instead of just the ones being locally broadcast, the NFL has granted to DirecTV the exclusive right to offer a package known as the Sunday Ticket. Sunday Ticket allows subscribers to view any NFL game occurring at that time. Although ingenious on the surface, underneath lies potential antitrust violations by NFL franchise owners. Sunday Ticket is only available to DirecTV subscribers at a high premium. The NFL is granted several antitrust privileges by Congress, as discussed below, but Sunday Ticket should not fall within these exemptions.

   Part II of this Note offers a background on antitrust law and how the subject relates to the NFL. Part III provides a history of the NFL, its beginnings on television, and its current arrangements with broadcast and cable television, as well as with DirecTV. Finally, Part IV discusses the antitrust implications of Sunday Ticket and how the package's exclusive arrangement with the NFL is hurting consumers.

2. ANTITRUST BACKGROUND

   1. Antitrust and Section One of the Sherman Act

      Antitrust laws were created to ensure a marketplace that fosters and encourages competition. (2) The Sherman Antitrust Act (3) forms the basis for most antitrust litigation pursued by the United States government. The Sherman Act's main purpose is to "preserv[e] free and unfettered competition...." (4) Of the many sections of the Sherman Act, Section One has plagued the NFL the most. (5)

      Section One of the Sherman Antitrust Act ("Section One") states, "[e]very contract, combination ..., or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." (6) This language was first analyzed in Standard Oil Co. v. United States. (7) Because the scope of Section One was so broad by its plain meaning, the Court was hesitant to accept the Government's argument that "the language of the statute embraces every contract, combination, etc., in restraint of trade, and hence its text leaves no room for the exercise of judgment, but simply imposes the plain duty of applying its prohibitions to every case within Its internal language." (8) Since nearly every contract is a restraint of trade by its very existence, the Court formulated a new standard: an agreement is in violation of Section One if the "contracts or acts ... were unreasonably restrictive of competitive conditions...." (9) Section One's main purpose is to "prevent competitors from combining their economic power in ways that unduly impair competition or harm consumers, be it in terms of increased prices, diminished quality, limited choices, or impaired technological progress." (10)

   2. Rule of Reason Analysis

      Horizontal restraints--"an agreement among competitors on the way in which they will compete with one another"--which results in any price fixing or output limitation are generally considered, as a matter of law, illegal per se. (11) A horizontal restraint per se ruling is used when "surrounding circumstances make the likelihood of anticompetitive conduct so great as to render unjustified further examination of the challenged conduct." (12) Courts will not conduct any type of economic analysis on these types of restraints and will, except for a few rare exceptions, (13) immediately rule them illegal. (14)

      On the other hand, courts will use a "Rule of Reason" analysis for other forms of trade restraints. (15) Originally developed in Standard Oil v. United States, the Rule of Reason is used in cases where the restraint is not unreasonable per se. (16) Courts will balance the competitive (and anticompetitive) effects of the restraint to determine whether the agreement violates antitrust law. (17) The court will examine the anticompetitive effects versus the procompetitive justifications, including "the degree of collusion associated with the restraint as well as the restraint's rationales, history, and impact on the relevant market." (18) During the Rule of Reason analysis, both the plaintiff and the defendant carry the burden of proof at different times. (19) Initially, the plaintiff carries the burden of proving the defendant s actions have an anticompetitive effect on competition. (20) If successful, the defendant then bears the burden of demonstrating the procompetitive justifications of its conduct. (21) If the defendant can do so, then the plaintiff must show a less restrictive alternative than what the defendant is currently doing while still achieving the defendant's goal. (22) Only at that point will the court finally do a balancing test, measuring both the anticompetitive and procompetitive effects. (23)

   3. The Single Entity Defense and its Application to the NFL

      In 1984, Copperweld Corp. v. Independence Tube Corp. established the single entity defense. (24) The Court ruled:

      [T]he coordinated activity of a parent and its wholly owned subsidiary must be viewed as that of a single enterprise for purposes of [section] 1 of the Sherman Act. A parent and its wholly-owned subsidiary have a complete unity of interest. Their objectives are common, not disparate; their general corporate actions are guided or determined not by two separate corporate consciousnesses, but one. (25) The Court compared the relationship between a parent and subsidiary to "horses drawing a vehicle under the control of a single driver." (26) In other words, it does not make sense to allege that a parent and its subsidiary are engaged in collusion or some other form of conspiracy since their economic interests are so united. Since that ruling, the NFL has made several efforts to be recognized as a single entity for the purpose of Section One claims.

      The NFL is an unincorporated 501(c)(6) association (a tax-exempt, nonprofit association) of separately-owned and operated franchises ("teams"). (27) Each franchise is of a varying type (most are corporations, partnerships, or sole proprietorships), (28) and they all engage in competitions of football games against each other. (29) The NFL would not exist if not for its thirty-two teams. While there have been other forms of football competition over the years, the NFL, without a doubt, is the most popular football league in the country and in the world. (30)

      The NFL has gone to court several times arguing that it is a single entity. However, the Court has only limited the single entity defense to parent and subsidiary relationships, and has yet to fully extend the defense to professional sports leagues.31 In 1978, Oakland Raiders owner Al Davis wanted to move his team to Los Angeles. (32) However, Davis ran into trouble with Rule 4.3 of Article W of the NFL Constitution, which required that any change of city by an NFL franchise to the home territory of another franchise had to be approved unanimously by all NFL franchise owners. (33) Since Los Angeles was then considered the home territory of the Los Angeles Rams, Davis had to get unanimous approval. (34)

      In 1980, when the franchise relocation of the Raiders was put up for a vote, twenty-two teams voted against the move; Davis then sued the NFL alleging that Rule 4.3 is a violation of Section One. (35) The NFL used the single entity defense, but the Ninth Circuit was fearful that granting single-entity status to the NFL would immunize them from any Section One claims. (36) The Ninth Circuit noted that the NFL, because of its "unique structure," is almost always precluded from being per se illegal and that any of its actions should be subject to the Rule of Reason. (37) Davis argued that Rule 4.3 is anticompetitive because it effectively allows a franchise to operate as a monopoly in its home territory and it forecloses the opportunity for another team to enter. (38) The NFL argued that Rule 4.3 was implemented to allow a franchise to prosper and aid the NFL in its "geographical scope." (39) The Ninth Circuit found that there were no procompetitive benefits to Rule 4.3, and that the market, not franchise owners, should determine whether a territory can handle more than one franchise. (40) The court found that the "NFL clubs do compete with one another off the field as well as on," and therefore the NFL is not entitled to single-entity status. (41)

      Over the years, several other cases emerged confirming that the NFL cannot be considered a single entity for Section One immunity purposes. (42) However, recently the NFL thought it finally achieved the single-entity status it had coveted for many years. Until 2001, the NFL allowed its teams to sell nonexclusive licensing rights to multiple apparel companies. (43) The process began to take a turn for the worse when the NFL realized that there was too much supply relative to the demand; the proliferation of...