By Stephen F. Ross
The sports league commissioner is a unique office: its holder is selected by owners of clubs participating in a competition; these owners, who otherwise reserve to themselves all rights to govern the competition, nonetheless delegate to the commissioner broad powers to take action in the “best interests” of the sport.[1] This power was specifically and immediately envisioned to give baseball’s first commissioner, the legendary K. M. Landis, the power to decisively restore integrity to the national pastime after the Black Sox scandal. However, the commissioner’s power has evolved over time to include a wide variety of activities that interfere with the sports’ best interests. Most recently, MLB Commissioner Selig took bold action in refusing to approve a long-term local television rights contract between the Los Angeles Dodgers and a regional sports network, the terms of which threatened the long-term viability of the once-proud and still venerable franchise.
This essay suggests that a league commissioner’s broad power properly includes activities that constitute systematic mismanagement of a club. Courts are likely to uphold the commissioners’ power to declare that systematic mismanagement constitutes conduct contrary to the best interests of the sport, and properly so. Indeed, if courts do not uphold such a broad power, or if owners sought to limit the commissioners’ powers, this would be a particularly strong justification for justifying judicial or legislative reconsideration of the current governance of major professional sports.
Why Do Sports Leagues Need Commissioners?
Conventional wisdom states that the owners’ decision to create the unique office of the Commissioner of Baseball saved the national pastime from oblivion. It is worth pausing to carefully consider why this was so: if baseball faced an existential threat from gambling, why couldn’t the owners bring themselves to take swift and decisive action against any player, coach, or executive involved in gambling in any way?
As the U.S. Supreme Court recently recognized in an antitrust case,[2] the answer lies in the fundamental conflict of interest involved in North American sports league governance. Speaking of the NFL (although the same analysis applies to the other leagues), the Court observed: “each team’s decision reflects not only an interest in [the league’s] profits but also an interest in the team’s individual profits.”[3] That is to say, the most likely explanation of the failure of the other 15 owners to respond decisively to the Black Sox scandal was their fear that similar punishment could affect their own clubs. As is economically rational, these owners put their clubs’ interest ahead of the best interests of baseball, which is why an independent commissioner was needed.
Why Do Sports Clubs Need Private Owners?
The answer is the same one most of us would give to why the American economy is based on capitalism. Without the opportunity to obtain a return on the investment of capital, business entities will be under-funded and will lack appropriate incentives to innovate. (Ask left-wing intellectuals hanging around Harvard Yard about the benefits of new capital and innovation since the purchase of the Boston Red Sox by successful entrepreneurs.)
At the same time, leagues (and courts) have recognized that the manner in which an owner operates a club can have a significant effect on the league as a whole. For this reason, sports leagues all have rules requiring ownership changes to be subject to league approval, and courts will sustain league decisions in this regard absent proof that an owner was rejected for a demonstrably anticompetitive reason.[4]
However, just as the 1920-era owners were conflicted between their desire to bar those associated with gambling and their desire to protect their own assets, owners today are conflicted between their desire to work with fellow owners of high competence and integrity and their desire to sell their own team to whomever they choose. (Would any league, other than one controlled by owners, have really approved the completely unqualified widow of L.A. Rams’ owner Carroll Rosenbloom to shepherd that key franchise after his untimely death?)
What should the scope of the Commissioner’s power be with regard to systematic mismanagement?
The foregoing suggests that sports leagues need capitalist investors to make prudent and sometimes risk-taking innovative investments, and to be appropriately rewarded through the appreciation in the value of their franchise. The benefits of capitalism do not accrue to the league or its fans if owners can use “their” property solely for short-term benefit. For this reason, when a club owner is systematically mismanaging a franchise, either out of personal pique, a preference for incompetent family or friends in executive positions, or out of a strategic effort to loot the franchise of its long-term value to meet shorter-term priorities, these acts should be considered conduct detrimental to the best interests of the sport, and the Commissioner should have the authority to intervene.
Commissioner intervention to prevent systematic mismanagement reflects a natural evolution of the powers of that office
Courts have historically recognized the broad power of the Commissioner to determine what is in the best interests of the game, and to make clear that the Commissioner had the power to act with regard to conduct that was neither specifically illegal, nor raising serious questions about the integrity of the game.[5]
Although not as clear-cut as the recent Dodgers case, elements of mismanagement played a major role in Commissioner Bowie Kuhn’s intervention into the cash sale of three star players by the Oakland A’s.[6] Although Kuhn provided several reasons for concluding that the sale was detrimental to the best interests of baseball, among them was the concern that A’s owner Charlie Finley would pocket the cash rather than re-invest in his club.
In the most recent case, Commissioner Selig determined that a long-term sale of local broadcast rights on terms that provided front-loaded payments, principally to enable owner Frank McCourt to settle acrimonious divorce litigation, on top of repeated withdrawals of funds from the club (in excess of $100 million) to maintain an exorbitant personal life style, was likewise conduct detrimental to the best interests of baseball. Because all sports depend for long-term success on fans’ trust and loyalty, it doesn’t do to suggest that unhappy Dodger fans should simply switch their patronage to the Angels, another sports team, or buy lots of books for summer reading.
Ross is the Lewis H. Vovakis Distinguished Faculty Scholar, Professor of Law, and Director of the Penn State Institute for Sports Law, Policy, and Research. Prior to joining the Penn State Law faculty, Ross held a variety of positions outside of the teaching profession. He spent several years in Washington, D.C., as an attorney for the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, clerked for Judge Ruth Bader Ginsburg of the U.S. Court of Appeals for the District of Columbia, and served as minority counsel for the Committee on the Judiciary of the U.S. Senate. Ross is the author of the Principles of Antitrust Law (2003) and scholarly works on U.S. and Canadian antitrust and competition policies, domestic and international sports antitrust issues, statutory interpretation, and comparative Canadian law. He is also a senior fellow of the American Antitrust Institute and serves as pro bono counsel to the AAI and the Consumer Federation of America on antitrust and sports litigation. He can be reached at sfr10@dsl.psu.edu
[1] See, e.g., Rose v. Giamatti, 721 F.Supp. 906, 917 (S.D. Ohio 1989) (Commissioner’s investigation of manager’s wrongdoing sufficiently independent from manager’s club that club’s citizenship was disregarded in finding diversity jurisdiction in federal court).
[2] American Needle, Inc. v. National Football League, 130 S.Ct. 2201 (2010).
[3] Id. at 2215.
[4] Compare Levin v. NBA, 385 F.Supp. 149 (S.D.N.Y. 1974) (rejection of proposed Celtics’ owner not illegal) with North American Soccer League v. NFL, 670 F.2d 1249 (2d Cir. 1982) (barring owners from also owning soccer teams harmed inter-sport competition).
[5] Milwaukee American Ass’n v. Landis, 49 F.2d 298, 302 (N.D. Ill. 1931) (upholding Commissioner Landis’ intervention into St. Louis Browns’ effort to exploit a loophole in farm system rules to allow the browns to hold onto a minor league player).
[6] See Finley v. Kuhn, 569 F.2d 527 (7th Cir. 1978).
