There's no "I" in "league": professional sports leagues and the single entity defense.

• Author: Grow, Nathaniel

TABLE OF CONTENTS INTRODUCTION I. PROFESSIONAL SPORTS LEAGUES ARE SINGLE ENTITIES IN MATTERS INVOLVING LEAGUE-WIDE, NONLABOR POLICIES A. Current Judicial Framework for Single Entity Analysis B. Professional Sports Leagues Are Single Entities in Nonlabor Disputes 1. A Unity of Interest Exists among All Franchises in a Professional Sports League 2. The Economic Realities of Professional Sports Leagues Dictate That Leagues Should Be Considered Single Entities C. The Sullivan Court Misapplied Copperweld 1. Sullivan Incorrectly Focused on Organizational Form, Rather Than Economic Reality 2. Sullivan Mistakenly Relied on Pre-Copperweld Precedent II. PROFESSIONAL SPORTS LEAGUES ARE NOT SINGLE ENTITIES FOR PURPOSES OF LABOR DISPUTES A. The Current Judicial Framework for Balancing Antitrust and Labor Law B. Sports Leagues Are Not Single Entities in Labor Disputes 1. A Unity of Interest Does Not Exist in the Labor Market 2. The Economic Realities of Professional Sports Leagues Make Single Entity Status for Labor Disputes Improper CONCLUSION INTRODUCTION

In 1925, baseball great Ty Cobb said, "The great trouble with baseball today is that most of its players are in the game for the money that's in it--not for the love of it, the excitement of it, [or] the thrill of it." (1)

Eighty-one years later, many fans would label Cobb a visionary for having foreseen the major role that money would play not only in Major League Baseball, but in all of professional sports. With high salaries, ticket prices, and profits, professional sports are no longer just a game, but a big business worth billions of dollars. (2) Accordingly, as the financial interests of professional sports have become primary, leagues have been forced to deal with many of our nation's business regulations.

Like many other sectors of the national economy, professional sports have faced antitrust scrutiny--but arguably no other sector has faced a more haphazard application. (3) While every professional league has received some degree of antitrust inquiry, (4) courts have treated antitrust challenges to the five major professional sports differently. (5) The Supreme Court gave Major League Baseball, the first professional sport to face an antitrust inquiry, an antitrust exemption in 1922. (6) The Court's treatment of baseball has proven to be an anomaly, however, as the Court has subsequently been unwilling to extend similar protection to other sports. (7)

Lacking an exemption, the other major professional sports leagues have faced repeated antitrust challenges. For instance, in recent years leagues have faced challenges to restrictions on television broadcasts (8) and the unilateral implementation of league-wide labor polices. (9)

Perhaps the most popular defense strategy employed by professional sports leagues has been the "single entity defense." (10) Section 1 of the Sherman Act prohibits "[e]very contract, combination ... or conspiracy[] in restraint of trade." (11) Because a "combination ... or conspiracy" requires multiple parties, courts have held that a single entity cannot be held liable under section 1. (12) Thus, single entities can only be liable under section 2 of the Sherman Act, which prohibits monopolization of an industry by a single legal entity. (13) This distinction between section 1 and section 2 is significant; leagues benefit from avoiding section 1 liability because section 2 claims are relatively rare (14) and comparatively easy to defend. (15)

Initially, sports leagues were successful in their use of the single entity defense. In San Francisco Seals v. National Hockey League, (16) the U.S. District Court for the Central District of California held that the NHL was a single entity. (17) The court held that league franchises were not economic competitors and therefore were "all members of a single unit." (18) Subsequent courts quickly rejected the San Francisco Seals court's logic, however, and ruled that leagues were not single entities. (19) In these decisions, courts either quickly dismissed the single entity defense (20) or implicitly rejected it by applying section 1 of the Sherman Act. (21)

Just when the issue seemed settled, however, the Supreme Court's decision in Copperweld Corp. v. Independence Tube Corp. (22) gave new life to the single entity defense. The Court held that collusion was impossible between a company and its wholly owned subsidiary, (23) reasoning that while collusion is generally bad, concerted activity between a parent company and its subsidiary does not deprive the market of independent sources of decisionmaking. (24) Copperweld advanced a "unity of interest" test, holding that parties are a single entity when their objectives are common and their "actions are guided or determined not by two separate corporate consciousnesses, but one." (25) While on its face the decision would only appear to apply to companies and their wholly owned subsidiaries, lower courts have interpreted Copperweld broadly. For instance, the Eighth Circuit has applied Copperweld to an electric cooperative, holding that the cooperative was a single entity. (26) despite the. fact that it consisted of three separately owned corporations. Meanwhile, the Supreme Court has remained silent as to how far the logic of Copperweld should extend. (27)

Copperweld bolsters the leagues' single entity argument. Professional sports leagues are unique in that combination is essential to creating the ultimate product, even though each franchise in a league is independently owned. (28) One, two, or even a handful of teams cannot produce the ultimate league product: championship athletic competition. (29) Leagues argue that while teams may compete on the field, they have a unity of economic interest off the field with all teams depending on the financial success of the entire league. (30) Thus, the question is whether to view a professional sports league as a collection of McDonald's franchises (a number of independently owned, interconnected entities with a common interest) or as collusion among McDonald's, Wendy's, and Burger King. (31)

In the twenty-two years since Copperweld, attempts by sports leagues to advance the single entity defense have received a mixed response from the circuit courts. The Seventh Circuit, in Chicago Professional Sports Ltd. Partnership v. National Basketball Ass'n, (32) ruled that, at least in certain circumstances, the NBA should be considered a single entity. (33) The court held that in order to determine whether a unity of interest exists, courts should analyze a sports league on a case-by-case basis, one facet at a time. (34) The Seventh Circuit rule is the minority, however; despite Copperweld, the other circuits examining the question have continued to rule that sports leagues are not single entities. (35) The First (36) and Eighth (37) Circuits have both ruled against sports leagues on the single entity question. Additionally, because the Second, (38) Ninth, (39) and D.C. (40) Circuits have not re-examined the issue since Copperweld, their early, nonsingle entity precedent has never been reversed. This single entity question remains a live concern, as professional sports leagues continue to face antitrust challenges. (41)

In applying Copperweld to professional sports leagues, the circuit courts have failed to distinguish between suits involving nonlabor disputes and those involving suits by players against team owners. This distinction is critical and renders the Seventh Circuit's case-by-case approach unnecessary. Most nonlabor disputes, such as ownership restrictions, involve matters in which a unity of interest is present among the teams in the league. These teams share a common interest in the management and economic growth of the league. (42) The same unity of interest does not exist among all teams in labor disputes. Further, the history of abusive labor practices by professional sports leagues underscores the players' need for antitrust remedies. (43) Therefore, efforts by Congress and the courts to balance antitrust and labor law should govern disputes between players and owners. Such a classification scheme will provide professional sports leagues the protection of the single entity defense, while remaining flexible enough to disallow the defense in the future should defendants fail to show that a unity of interest exists.

This Note argues that outside of labor disputes, sports leagues should be presumed to be single entities. Part I argues that professional sports leagues are single entities in disputes regarding league-wide, nonlabor policy. In particular, the focus of the Supreme Court's jurisprudence on economic reality rather than organizational form necessitates a finding that professional sports leagues are single entities in nonlabor disputes. Part II argues that professional sports leagues are not single entities for purposes of labor disputes; sports leagues, on the whole, do not involve a unity of interest for labor matters. More importantly, existing precedent outside of the professional sports context that balances labor and antitrust law should apply to professional sports. The Note concludes that the Seventh Circuit's case-by-case approach is unnecessary and should be rejected in favor of a more general classification scheme in which professional sports leagues are presumed to be single entities, with an exception for labor disputes.

1. PROFESSIONAL SPORTS LEAGUES ARE SINGLE ENTITIES IN MATTERS INVOLVING LEAGUE-WIDE, NONLABOR POLICIES

   Although the Supreme Court has never decided whether its Copperweld decision implicates professional sports, sports leagues should be presumptively classified as single entities in nonlabor matters. Section I.A reviews the current framework for single entity analysis. Section I.B contends that under this framework, a unity of interest exists between teams in professional sports leagues. Section I.C argues that the court in Sullivan v. National Football...