Singled out: application and defense of antitrust law and single entity status to non-team sports.

• Author: Bolen, Timothy S.

1. INTRODUCTION

   Each day the competition of professional athletes on the field of play captivates millions of people in the United States. (1) Behind the scenes, however, an entirely different type of competition is being waged in federal courtrooms. (2) Federal antitrust laws create a constant struggle to balance the interests of teams, individual players, leagues, and fans. (3) Thus, it is with good reason that no other area of the law has so greatly impacted the development of professional sports. (4)

   The Sherman Antitrust Act ("Sherman Act") and The Clayton Antitrust Act ("Clayton Act") regulate the contractual interactions of businesses so as to limit collusion and monopoly formation, and together provide the basis on which nearly all antitrust actions are brought against professional sports teams and leagues. (5) Both laws, passed near the turn of the twentieth century, far preceded the lucrative world of modern professional sports. (6) In order to effectively apply such legislation to the evolving world of professional sports, judges and lawyers have developed tests and defenses--such as the single entity defense--to help navigate the myriad of factual inquiries antitrust litigation requires. (7)

   The Supreme Court initially recognized the single entity defense as a viable means of defending antitrust actions in a case far removed from professional sports. (8) Various circuits rejected initial attempts to apply it to professional sports. (9) Recently, however, the concept has received favorable treatment from several courts. (10) Although professional sports are often league-centric entities, this Note explores the application of the single entity defense to an altogether different type of sports league: that which operates without teams. (11) These non-team sports (e.g. golf, tennis, auto racing) conduct business quite similarly to team sports, yet the very nature of their enterprise makes them uniquely situated to take advantage of the single entity defense. (12)

   This Note argues that attorneys representing non-team sports should always seek to advance the single entity defense and provides suggestions for the most effective way to do so. (13) Part I provides a detailed history of the applicability of antitrust law to professional sports and the common defenses asserted by sports leagues. (14) Part II examines the disparate treatment the same sports have received by different circuits. (15) Parts III-A and III-B analyze the elements needed to advocate the single entity defense and analyze the single entity defense's gradually increasing acceptance. (16) Part III-C offers practical advice for advocating the single entity defense and urges increased acceptance of the defense as it applies to non-team sports. (17)

2. HISTORY

   1. Antitrust Underpinnings

      The Sherman Act provides the basis on which nearly all antitrust actions are levied against professional sports leagues. (18) The Sherman Act provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or within foreign nations, is declared to be illegal." (19) The expansive language of [section] 1 is limited somewhat by the Clayton Act, which exempts unions and other labor organizations from the Sherman Act for the purpose of collective bargaining. (20)

   2. Application to Professional Sports

      The earliest application of federal antitrust law to professional sports came in 1922 when the Federal Baseball Club of Baltimore alleged that the National League of Professional Baseball Clubs (a predecessor to Major League Baseball) illegally limited the competition of the league to which it belonged. (21) The Supreme Court ruled that professional baseball was not involved in interstate commerce and affirmed a decision for the defendants. (22) Although in a modern context it is clear that professional baseball has extensive interstate activity, the courts have only minimally limited this decision. (23) Following Federal Baseball, other sports have been subject to antitrust lawsuits. (24) Antitrust laws do not give these sports such a broad exemption as baseball, but do still enjoy some limited protections, especially in collective bargaining. (25)

      Antitrust actions involving professional sports typically take two forms: intraleague actions and extra-league actions. (26) Intraleague actions commonly involve a players' association suing a team or league claiming the latter has somehow conspired to restrain mobility or wages. (27) Extraleague actions typically involve a dominant sports league facing a challenge from either a rival league or a league outsider. (28) A plaintiff will allege a sports league has conspired with others to preclude the plaintiff's access to the market, and thus it is this action in which the single entity defense is most often used. (29)

   3. Common Antitrust Defenses

      Sports leagues have relied upon several defenses to justify what might otherwise be antitrust violations. (30) The statutory and nonstatutory labor exemptions are the most prevalent defenses in intraleague disputes. (31) When disputes involve extra-league plaintiffs, sports leagues typically seek to advance the rule of reason and, more recently, the single entity defense. (32)

   4. The Single Entity Defense

      The Supreme Court first recognized the single entity defense as a viable means to avoid antitrust liability in Copperweld Corp. v. Independence Tube Corp. (33) The Court acknowledged that in some circumstances, subsidiary divisions of the same company cannot be guilty of antitrust violations because a company cannot collude with itself to monopolize a market. (34) Thus, the parent and its subsidiary is a single entity incapable of conspiring in violation of antitrust laws. (35) In the context of professional sports, the single entity defense has required a showing of cooperation to increase economic efficiency, a convergent economic interest, and several other indicia of unity of interests unique to professional sports. (36)

      In order for a sports league to show it cooperates to increase economic efficiency, it will need to prove that league management and the league's constituents operate collectively to increase the economic success of the league. (37) This task has proven to be difficult in the team sports context because most teams retain independent ownership and profit interests. (38) Most courts have denied the National Football League ("NFL"), National Basketball Association ("NBA"), and Major League Soccer ("MLS") single entity status. (390 Former Chief Justice Rehnquist expressed dissatisfaction with this treatment of sport league's status, and instead suggested the NFL should be granted single entity status. (40)

      In addition to increasing economic efficiency, a sports league must also prove that it and its constituents share convergent economic interests. (41) This element does not require every team to have complete unity of interest, but rather that the economic success of each entity is linked. (42) This characteristic of a single entity is difficult for sports leagues to prove because, although the league' s constituents' common goal is profit maximization, individual ownership allows them to achieve this goal in a variety of ways. (43)

      The unique structure of sports leagues has led some commentators to suggest additional requirements to help define "unity of interest" in the context of professional sports. (44) Professor of law Marc Edelman, suggests that the most successful sports leagues operate in a "mixed-mode" property allocation system. (45) In this model, Edelman suggests a unity of interest should be identifiable in five key revenue streams: individual gate receipts, corporate proceeds, broadcast revenue, licensing/merchandising fees, and internet/new media. (46) Edelman concludes the premier American sports leagues lack unity of interest in these categories and thus advocates that the courts deny these leagues single entity status. (47)

      One final element of all antitrust actions is the concept of market size; specifically, a plaintiff must allege that it has suffered harm in a particularized market. (48) Often, defendants will seek to escape antitrust liability by asserting that the plaintiff has failed to establish the relevant market or, in the alternative, that the stated market is either overly broad or erroneously construed. (49) Market size and definition take on particular importance to the single entity defense because defendants increasingly assert that although they may not be a single entity in all respects, they are such in the given market at issue in the litigation. (50)

3. FACTS

   Due to the difficulties in determining single entity status, courts have reached inconsistent results concerning the same sport. (51) Although the purpose of this Note is to advocate the use of this defense as it applies to non-team sports, its application to team sports is important in order to understand what a defendant must prove to successfully advance the defense. (52)

   1. Professional Football: The National Football League

      For many years since Copperweld, several circuits rejected the NFL's attempt to utilize the single entity defense. Key among these decisions were North American Soccer League v. National Football League (53) and Los Angeles Memorial Coliseum Commission v. National Football League (Raiders II). (54) In North American Soccer, the Second Circuit explained that to grant single entity status would effectively immunize the NFL from [section] 1 of the Sherman Act and thus from any sort of rule of reason analysis. (55) The court concluded this immunity would allow the NFL to adopt anti-competitive policies immune from analysis which could benefit a team or group of teams more than the league. (56) The Ninth Circuit echoed many of the Second Circuit's concerns when it too denied the NFL single entity status. (57) The court reasoned that the teams'...