Big league Perestroika? The implications of Fraser v. Major League Soccer.

• Author: Mathias, Edward

INTRODUCTION

The filing of an antitrust suit by Major League Soccer ("MLS") players against MLS(1) was viewed as a rite of passage for the new league.(2) After all, every established major professional sports league has been sued for alleged violations of the antitrust laws for practices relating to league rules concerning everything from franchise relocation to the wages of practice squad players.(3) The importance of Fraser v. MLS for the future of professional sports leagues, however, transcends the continuing legality of the MLS regulations challenged in the suit. Fraser is momentous because it is the first antitrust challenge to a "single entity league," a league that is organized as a single corporation rather than as a group of individually owned teams.(4)

MLS's single entity structure was designed to insulate the league from one form of antitrust liability under the Sherman Act.(5) The league is structured as a single corporation, which wholly owns all of the teams that compete in the league. "The Sherman Act contains a `basic distinction between concerted and independent action.'"(6) Most antitrust challenges to the established leagues have been brought under section 1 of the Sherman Act ("section 1"), which only applies to concerted action between two economic actors: "It does not reach conduct that is `wholly unilateral.'"(7) The actions of a single corporation are only regulated by section 2 of the Sherman Act ("section 2"), which prohibits monopolization or attempted monopolization of trade.(8) It is MLS's legal position that, as a single corporation, it cannot "combine, contract, or conspire" with itself, and therefore its internal league practices are not actionable under section 1. Should the court(s) accept MLS's argument, single entity leagues will have a significant advantage in their labor relations relative to other leagues.(9) This advantage will encourage newly forming leagues to follow MLS's example and organize as single entities. Perhaps even more significantly, an MLS legal victory may induce more established leagues to reorganize themselves as single entities.

Aside from facilitating the formation of new professional sports leagues, there are no compelling policy reasons for treating MLS as a single entity. Although it may be easy to sympathize with the players' desire to earn what might seem to be their true market value, the players as individual economic entities have little market value. It is only in the context of a competitive league, provided by MLS investors risking millions of dollars in losses, that the players' skills become valuable. Furthermore, although MLS labor restraints may hold down salaries of players already in the league, a profitable league is likely to expand and thus provide employment opportunities for more players.

Despite the lack of policy concerns, the players' suit is significant because it will force the courts to consider how economic co-adventurers who retain some minimally disparate economic interests should be treated under the antitrust laws. The courts' response to this question may have a considerable effect on both traditionally organized leagues and non-sports joint ventures that require cooperation among economic competitors.

This Comment explores the implications of a victory for MLS in its current litigation with its players. Part I examines the reasons a professional sports league should be concerned with antitrust law, and the history of the single entity question as it relates to the more "traditional" league model.(10) Part II compares the various single entity models in existence and analyzes the potential arguments of the Fraser litigants. It concludes, on the strength of its legal arguments, that MLS should be considered a single entity for section 1 purposes, thus rendering intraleague rules immune from section 1 scrutiny. Part III discusses the viability of a claim under section 2 of the Sherman Act against a single entity league, which may limit the extent to which MLS and other single entity leagues are shielded from antitrust scrutiny. Part IV explores the possibility of established, traditionally organized leagues restructuring themselves as single entities and suggests one possible plan to accomplish such a reorganization.

1. ANTITRUST LAW, PROFESSIONAL SPORTS LEAGUES, AND THE SINGLE ENTITY QUESTION

   1. Antitrust Law

      Antitrust law regulates the conduct of economic actors. Defendants who violate the Sherman Act are liable for treble damages.(11) Therefore, Sherman Act violators may incur enormous liability for their anticompetitive behavior. Section 1 of the Sherman Act prohibits "[e]very contract, combination ... or conspiracy, in the restraint of trade or commerce...."(12) The actions of a single economic entity are not subject to section 1 scrutiny because section 1 requires an agreement between at least two independent economic actors, commonly called "concerted action," to satisfy the statute's "contract, combination ... or conspiracy" requirement.(13) Concerted action is assessed under section I under two "complementary categories of antitrust analysis."(14) Those restraints of trade that have no competitive benefits are declared illegal per se.(15) Such restraints include price fixing, group boycotts, and horizontal market division. More commonly, restraints are assessed under the rule of reason. Restraints subject to the rule of reason violate section 1 only if the anticompetitive effects of a particular agreement outweigh its procompetitive effects. The competitive effects of these agreements "can only be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed."(16)

      Section 2 of the Sherman Act applies to single firm conduct as well as concerted action. A firm violates section 2 only when it holds monopoly power in a particular market and engages in behavior that constitutes an abuse of that monopoly power. The requirement that a section 2 defendant possess monopoly power makes a section 2 claim much more difficult to pursue than an action under section 1, which has no such requirement.

   2. Why Are Professional Sports Leagues Concerned with Antitrust Law?

      The Supreme Court noted in National Collegiate Athletic Ass'n v. Board of Regents that sports leagues and teams require a high level of cooperation among competitors for their product to even exist.(17) Uniform rules of play, restrictions on scheduling, and myriad other regulations are necessary for college and professional teams to compete on a reasonably level playing field. When sports teams within a league agree to certain restrictions, however, they necessarily exclude other potential competitors, suppliers, and distributors of their product.(18) In other words, the restrictions are agreements in restraint of trade, and, at least facially, violate section 1 of the Sherman Act.(19)

      Just as agreements regarding the number of players who may participate on the field of play are necessary to guarantee a level of competitive balance on the field, leagues have attempted to ensure competitive balance by implementing a variety of restrictions that also interfere with players' ability to market their services. The player draft, free agency restrictions, salary caps, and revenue sharing agreements all restrict, to varying degrees, the wages players may earn. The league practices at issue in Fraser are in many ways typical of the type of restraints challenged by players under antitrust law. The standard MLS player contract gives the league the unilateral right to renew the contract, rather than allowing the player to sell his services to the highest bidder.(20) MLS maintains a salary cap that sets the maximum amount any team may spend on player salaries. This cap is somewhat redundant, however, as a single league official is responsible for negotiating all player contracts and thus has complete control over each team's total salary.(21) MLS also complies with the transfer fee system created by Federacion Internationale de Football Associacion ("FIFA"), soccer's world governing body, which requires other leagues to pay MLS for the rights to a player, even after the player's contract has expired.(22)

      Players' unions regard the threat of an antitrust suit as a significant bargaining tool in negotiations with the leagues.(23) However, a recent Supreme Court decision has limited the ability of players represented by unions to sue their respective leagues for antitrust violations. In Brown v. Pro Football, Inc., the Court held that agreements between a multi-employer bargaining unit and a labor union are exempt from antitrust challenge until the "agreement among employers [is] sufficiently distant in time and in circumstances from the collective bargaining process."(24) It is unclear exactly how long employees must wait after renouncing the collective bargaining process before courts will decide that an agreement meets Brown's "distant in time and circumstance" standard. Nevertheless, an antitrust suit does remain an option for players lacking the bargaining leverage to achieve acceptable hours, wages, and working conditions through the collective bargaining process.

   3. The Traditional Professional Sports League Model

      Four sports leagues have traditionally dominated the national market for team sports: the National Football League ("NFL"), Major League Baseball ("MLB"), the National Basketball Association ("NBA"), and the National Hockey League ("NHL").(25) Each of these leagues exists as the product of a contractual agreement among its independently-owned member clubs, which compete against one another in their respective sports.(26)

      The member clubs, or franchises, vary widely in how they are organized. A franchise may be organized as a partnership, a privately held corporation, or a publicly traded corporation, among other forms. The leagues themselves are actually unincorporated, nonprofit...