“ . . . we are moved by the identity of the persons who act, rather than the label of their hats.”
— American Needle, Inc. vs. National Football League
Sometimes we get into the nitty gritty over here. That’s because deep down we’re geeks, and more often than not, lawyers. I understand that sometimes it’s difficult to distinguish between the two, but that partially explains why we find Major League Soccer so interesting.
Major League Soccer’s single entity structure has been the subject of heated debate, especially at the beginning of the year when the collective bargaining agreement between MLS and the Major League Soccer Players Union expired. Clive wrote a great piece outlining the single entity issue a few months ago. With the Supreme Court’s recent decision in American Needle, Inc. vs. National Football League, revisiting the single entity issue is worth another look.
Sports leagues and fans have been eagerly awaiting the American Needle decision for a host of reasons, one of which was to see how the Supreme Court would address the NFL’s single entity argument, which I’ll briefly touch on below. In a unanimous 9-0 decision, the Court ruled in favor of American Needle, holding that the NFL is not a single entity at least as applied to intellectual property licensing.
Although some may think that there are clear, hardened implications for MLS, the reality is that American Needle’s application to MLS is complex. But before delving into the ruling’s application to MLS, it is important to understand the Supreme Court’s decision.
American Needle is About the NFL and Intellectual Property Licensing
The narrow issue addressed by the Supreme Court was whether the NFL’s exclusive licensing agreement with National Football League Properties (NFLP) to develop, license and market intellectual property independently owned by the league’s 32 teams should be subject to antitrust scrutiny.
The NFL argued that it was a single entity, at least with respect to the challenged conduct, and therefore, its collusive conduct cannot be construed as anticompetitive because the teams, the NFL, and NFLP were incapable of conspiring under current antitrust law since a single entity cannot conspire with itself.
The single entity argument for sports leagues provides the basis for engaging in collusive behavior among competitors that would otherwise be illegal. One of the keys to successfully making the single entity case is showing that there is a unity of economic interest among parties to an agreement, which can pave the way to permissible joint action. But when separate economic actors pursing separate economic interests engage in concerted action, there is a disunity of interest that effectively deprives the market of independent centers of decision-making.
The Supreme Court unanimously shot down the NFL’s argument, ruling that the NFL does not have a unity of interest that would remove it from the jurisdiction of our antitrust laws. Writing the Court’s opinion, Justice Stevens explained:
The NFL teams do not possess either the unitary decision making quality or the single aggregation of economic power characteristic of independent action. Each of them is a substantial, independently owned, independently managed business, whose “general corporate actions are guided or determined” by “separate corporate consciousnesses,” and whose “objectives are” not “common.” They compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel. Directly relevant here, the teams are potentially competing suppliers in the market for intellectual property. When teams license such property, they are not pursuing the “common interests of the whole” league, but, instead, the interests of each “corporation itself.” (citations omitted)
Justice Stevens continues:
While teams have common interests such as promoting the NFL brand, they are still separate, profit maximizing entities, and their interests in licensing team trademarks are not necessarily aligned. Nor does it matter that the teams may find the alleged cooperation necessary to compete against other forms of entertainment. Although decisions made by NFLP are not as easily classified as concerted activity, the NFLP’s decisions about licensing the teams’ separately owned intellectual property are concerted activity and thus covered by §1 for the same reason that decisions made directly by the 32 teams are covered by §1. In making the relevant licensing decisions, NFLP is “an instrumentality” of the teams. (citations omitted)
Ah, legalese. So what does that mean in English? Two notable points stand out.
First, professional sports leagues calling themselves single entities are not single entities just because they call themselves that by name. How leagues behave (meaning how ownership and control are allocated) determine whether there is an economic unity of interest, which determines whether certain collusive behavior is beyond the purview of our antitrust laws.
The NFL’s characteristics that were determinative in the Supreme Court’s ruling included the fact that: (1) licensing decisions are made by the 32 potential competitors, each owning its share of the jointly managed assets; and (2) the teams are “separately controlled potential competitors with economic interests that are distinct from NFLP’s financial well-being.”
Who controls the relevant assets is determinative. In this case, individual, competing NFL teams with distinct economic interests own and control their respective assets, which is problematic for parties simultaneously claiming to be a single entity.
Second, the Supreme Court’s ruling applies specifically to the NFL’s behavior as applied to intellectual property, and is not a blanket or definitive ruling that necessarily applies to other types of concerted action between NFL teams. In fact, the Court recognized permissible reasons for league members to engage in concerted action, notably reasoning that:
The fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions. While that same interest appliesto the teams in the NFL, it does not justify treating them as a single entity for §1 purposes when it comes to the marketing of the teams’ individually owned intellectual property. Other features of the NFL may also save agreements amongst the teams. We have recognized, for example, “that the interest in maintaining a competitive balance” among “athletic teams is legitimate and important.” It is, however, unquestionably an interest that may well justify a variety of collective decisions made by the teams. (citations omitted)
This leaves the door open for certain types of undefined concerted action between competitors in a sporting league, but certainly not to concerted action where assets are individually owned and controlled by teams.
MLS is Not the NFL
For MLS, one definitive rule to pay attention to from American Needle is that professional sports leagues in the United States that are structured like the NFL will be subject to antitrust scrutiny for similar behavior in intellectual property licensing. The saving grace for MLS, however, is that it is not structured like the NFL.
Major League Soccer clearly spent a lot of time analyzing other leagues to figure out what areas of operation it needed to own and control to give it the best shot of being legally construed as a single entity based on behavior, rather than name.
Consider the factors that led the Supreme Court to say that the NFL is not a single entity (even though it is applied to intellectual property) and compare them to MLS. In the NFL, individual teams own and control players, negotiate player movement independent of the league, and own the rights to their respective intellectual property. In MLS, player contracts are negotiated with the league. Players are signed to MLS, rather than to individual teams. Salaries are paid by the league. For the most part, player movement is ultimately determined by MLS. National sponsors are partners with the league, not with the teams. For MLS to be treated like the NFL in American Needle, it would have to behave similarly to the NFL. Clearly, it doesn’t.
So if you’re one of those who wonder why MLS is configured the way it is, and why, for example, teams don’t negotiate player contracts, now you know why. Individial teams’ autonomy to negotiate and control player contracts, for instance, would create greater disunity of interest, which would make MLS more likey to lose a single entity argument. You can argue that this decision is unfair to the players or doesn’t make economic sense, but MLS either disagrees with you or simply believes that single entity is what it needs to preserve the league’s viability. Whether MLS needs single entity to succeed is a separate issue.
American Needle Shouldn’t Make MLS Lose Sleep
Broadly assuming that single entity systems are in danger as a result of American Needle is a mistake. What you can assume is that single entity is a more problematic argument for leagues structured like the NFL. As explained above, MLS is not.
However, the more MLS decides to start behaving like the NFL (e.g. allocating control to individual teams), the more likely they will be subject to a successful challenge regarding its behavior. But as it stands, the unique structural and behavioral elements of MLS means that American Needle probably won’t make MLS lose any sleep. If anything, expect MLS to hold firm on its control over most of its quirky structural elements as a means of ensuring that it can successfully defend itself against future single entity challenges.
