Home Run or Strikeout? the Unsettled Relationship Between the Sports Broadcasting Act and Cable Programming

• Publication year: 2016
• Author: By Steven M. Perry

HOME RUN OR STRIKEOUT? THE UNSETTLED RELATIONSHIP BETWEEN THE SPORTS BROADCASTING ACT AND CABLE PROGRAMMING

By Steven M. Perry¹

I. INTRODUCTION

The Sports Broadcasting Act ("SBA") exempts from the antitrust laws "any joint agreement . . . by which any league of clubs participating in professional football, baseball, basketball, or hockey contests sells or otherwise transfers all or any part of the rights of such league's member clubs in the sponsored telecasting of the games of football, baseball, basketball, or hockey, as the case may be, engaged in or conducted by such clubs."²

In the 55 years since the SBA was enacted, only a handful of courts have addressed the question of whether the antitrust exemptions contained in the SBA apply to basic cable programming. This article reaches two conclusions with respect to that question. First, and contrary to what various commentators have assumed, no court has ever held that league-wide agreements that license sports programming on basic cable channels are, or are not, exempt from the antitrust laws under the SBA. Second, the application of current principles of statutory interpresentation demonstrates that the SBA's exemptions do, in fact, apply to basic cable programming.

To be specific, and as discussed in more detail in section II of this article, various commentators have stated that in November 1992, the district court in Chicago Professional Sports Ltd. Partnership v. National Basketball Association³ held that cable programming fell outside the SBA because it did not constitute "sponsored telecasting." Those commentators have, however, overlooked the district court's clarification one month later, when it explained that it had made no such holding:

"[W]e have not yet ruled on the question of whether the [challenged agreement] is exempt under the SBA. We have merely denied the NBA's motion for summary judgment that it is."⁴
Three years later, the same court confirmed that it had not yet decided the SBA issue.⁵

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Commentators also (incorrectly) cite a Third Circuit decision for the proposition that basic cable programming does not satisfy the "sponsored telecasting" requirement set out in the SBA. In Shaw v. Dallas Cowboys Football Club Ltd.,⁶ the court addressed the SBA's application to a commercial-free package of NFL games offered by satellite provider DirecTV. Although the court's opinion included broad language, the court neither faced nor decided any issue involving sports programming on basic cable channels, where sponsors and their advertisements take up substantial air time, because the issue before the Court involved only commercial-free pay television. Indeed, the district court responsible for implementing the Third Circuit's mandate on remand explicitly stated that the appellate court's decision "did not address whether broadcasting the games on the Internet or cable television was an exempt activity under the SBA, but only found that satellite broadcasts of NFL games were not exempted." ⁷

In sum, the question of whether the SBA exempts league agreements with basic cable programmers from antitrust scrutiny remains unsettled. In golfing parlance, the green is open. This article suggests that if a court today were to apply basic principles of statutory interpretation to the relevant language in the SBA, it would find that the SBA does exempt league-wide agreements involving basic cable programming from the antitrust laws. But before we undertake that analysis, some background is in order.

II. A STATUTE IS BORN

A. The Judicial Decision That Prompted Congress to Enact the SBA

The SBA was enacted in large part in response to a district court ruling that the NFL's sale of a games package to the CBS television network violated section 1 of the Sherman Act.⁸ The court's decision in 1961 cannot be understood without a discussion of the prior proceedings in the same case that had occurred eight years earlier, in 1953.

In the early 1950's, some of the twelve NFL teams had individual agreements with the soon-to-be-defunct DuMont Network, which televised a single "Game of the Week" and certain other games.⁹ Because the NFL was concerned about a potential adverse effect of televised games on stadium admissions, it adopted a set of by-laws in 1951 that imposed restrictions on "[a]ny contract entered into by any club for telecasting or broadcasting its games. . . ."¹⁰ The Department ofJustice sued to block the enforcement of several of the restrictions.¹¹

The district court, after a lengthy trial, held that some of the NFL by-laws unreasonably restricted competition in violation of the Sherman Act. In particular, the court struck down a by-law that prohibited the "telecasting" of games into a team's home territory on a day when that team was playing an away game that was being televised in its home territory.¹² As an example, if Green Bay was playing at Washington, a game that same day between the Bears and the Giants could not be telecast into the Green Bay TV market.

The court held that the NFL had presented "no factual justification for [the] suppression of competing telecasts" in a team's territory if the team was playing an away game, rather than a home game, on that day.¹³ The court rejected as "speculation" the NFL's argument that attendance at future home games would decline merely because fans had watched a telecast involving other teams a few weeks earlier.¹⁴

However, the court upheld as reasonable a bylaw that precluded the broadcasting of "outside games" into the home territories of other teams on days when the other team was playing at home.¹⁵ The court observed that:

"Professional teams in a league . . . must not compete too well with each other, in a business way. . . . If all the teams should compete as hard as they can in a business way, the stronger teams would be likely to drive the weaker ones into financial failure. If this should happen not only would the weaker teams fail, but eventually the whole league, both the weaker and the stronger teams, would fail, because without a league no team can operate profitably.¹⁶

The court further concluded that weaker teams "benefit greatly" from a restriction on the telecasting of "outside games" into their home territories on days when they are playing at home, because "its immediate effect is to protect the weak teams and its ultimate effect is to preserve the League itself." ¹⁷ The court held that:

"The purposes of the Sherman Act certainly will not be served by prohibiting the defendant clubs, particularly the weaker clubs, from protecting their home gate receipts from the disastrous financial effects of invading telecasts of outside games. The member clubs of the National Football League, like those of any professional athletic league, can exist only as long as the league exists. The League is truly a unique business enterprise, which is entitled to protect its very existency by agreeing to reasonable restrictions on its member clubs. The first type of restriction imposed by [the by-laws] is a reasonable one and a legal restraint of trade."¹⁸

The court entered a final judgment in 1953 that included a broad prohibition on any agreement that had "the purpose or effect of restricting the areas in which broadcasts or telecasts of games . . . may be made."¹⁹ The final judgment did allow restrictions on the telecasts of games in the home territory of a team that was playing at home that day.²⁰

The NFL, apparently satisfied with the 1953 decision, chose not to appeal it. Indeed, an official NFL publication described the 1953 decision as "laying the groundwork for pro football's emergence as the game of the American mid-century." ²¹

At the time of the 1953 trial, each NFL team's practice was to enter into an individual agreement with a sponsor, station or network involving radio and/or television rights. In 1960, however, the American Football League ("AFL") began operations and signed a five-year, league-wide television contract with ABC. In response, the NFL decided to enter into a two-year agreement with CBS that covered all NFL teams.²² The NFL asked the district court, which had retained jurisdiction over the final judgment, to approve the newly signed CBS agreement. The court chose instead to enjoin the NFL from performing the agreement, holding that the member clubs had "by agreement . . . eliminated competition among themselves in the sale of television rights," in violation of a provision in the final judgment that barred restrictions on the areas in which telecasts could be made.²³

Three months after the court's order enjoining the NFL's sale of games to CBS, Congress enacted, and President Kennedy signed, the SBA.²⁴

B. The Process That Led To The SBA's Enactment

The SBA originated in the Antitrust Subcommittee of the House Judiciary Committee. Rep. Emanuel Cellar, the Chair of both the Judiciary Committee and the Antitrust Subcommittee, explained to the House that "[t]he purpose of this bill is to enable the member teams of a professional sports league to pool their separate rights in the sponsored telecasting of their games and to sell the resulting package of pooled rights to a television network or other purchaser without thereby violating the antitrust laws."²⁵ Rep. Cellar also noted that the AFL had operated under a pooled contract during the 1960 season and was free to continue to do so, leaving the NFL at a disadvantage.²⁶

Rep. Cellar further explained that under the district court's recent ruling, "the members of a professional sports league cannot lawfully act in concert to assure member clubs with weak teams or limited home territory television markets an adequate amount of television income and of television coverage for games played away from home. Yet, should these weaker teams be allowed to founder, there is danger that the structure of the entire league would become impaired and its continued existence imperiled."²⁷ Rep. Cellar stated that as a consequence, the Judiciary Committee "believes...