By Robin Crauthers, McCarter & English LLP
Athletes are fierce competitors. Those who pursue collegiate and professional careers push their bodies through vigorous training and dedicated nutrition in pursuit of being the best competitor in their sport. In contrast, those fierce competitors also argue that sports are anticompetitive, not because the athletes are not competing but because of the rules that govern participation suppress competition. NCAA cases involving name, image, and likeness garner much of the press and antitrust lawyers’ attention but there are other notable cases in professional and collegiate sports that illustrate how plaintiffs are leveraging the antitrust laws to attempt to improve their competitive positions and how defendants are fighting back. This article discusses a few of those matters.
The Relevant Antitrust Laws
The common antitrust allegations in these matters are violations of Section 1 and Section 2 of the Sherman Act. Section 1 of the Sherman Act prohibits agreements or conspiracies that unreasonably restrain trade. Section 2 of the Sherman act prohibits illegal monopolization. The suits allege that the rules of each sport’s governing bodies violate the Sherman Act by restricting participants’ freedom to move teams, receive compensation from third parties, bargain jointly, and choose suppliers, which in turn harms competition. Players argue that these rules and the related agreements that sports participants must sign to play, unreasonably restrain trade and maintain the governing bodies’ monopolies.
Sherman Act Section 1 violations can be per se illegal if the agreement or collusion is between horizontal competitors (companies that compete directly with each other in the same market). Courts have found market allocation, price fixing, and bid rigging to be per se illegal, for example. Per se violations do not require a market analysis or a finding of harm—the agreement itself is the violation. Most agreements, however, are analyzed under the rule of reason standard which permits the defense to proffer procompetitive rationale for the conduct.
The Cases
NASCAR
Stock car racing teams allege NASCAR violated the antitrust laws through exclusionary and anticompetitive practices that included establishing rules which restricted racing teams to NASCAR’s single-source supplier for car parts. NASCAR also required all teams to sign its charter which required teams to sign non-compete agreements, to not participate in any non-NASCAR races, even if they were not stock car races, and to waive anticompetitive challenges to the charter itself.
The plaintiffs, which included Michael Jordan’s 2311 Racing, tried to band with other racing teams to negotiate the charter terms but NASCAR disengaged with joint negotiations and pursued individual discussions. In return, the plaintiffs refused to sign the charter and sued. NASCAR has defended the charter arguing that it is a product of negotiations and achieves what the teams sought—more money. NASCAR also argued that the plaintiffs tried to use the antitrust laws as a negotiating tool.
The plaintiffs sought a preliminary injunction while the lawsuit was pending. A court agreed to permit the plaintiffs to continue to race, as if they had signed the charter to finish the season. The Fourth Circuit vacated the injunction finding no support that the plaintiffs would succeed on the merits. The stock car plaintiffs filed a motion for a temporary restraining order but failed to persuade the district court that the injunction and temporary restraining order was necessary.
NASCAR filed counter claims alleging that the plaintiffs violated Section 1 of the Sherman Act by jointly negotiating with other teams to “pressure NASCAR to accept their collusive terms” during the charter negotiations. In responding to the plaintiff’s motion to dismiss on NASCAR’s counter claim, the court was not persuaded that the plaintiff’s joint bargaining was per se illegal. Instead, the court found that the rule of reason analysis applies, meaning the plaintiffs would be afforded an opportunity to present pro-competitive rationales for the joint negotiations.
As the case moves through the court, each parties’ procompetitive justifications for their alleged anticompetitive behavior will play a key role in the outcome. NASCAR has not fleshed out their position but their reasoning for the rules could include protecting the NASCAR brand, promoting safety for the drivers and race attendees, and ensuring a fair and even racing field. The plaintiff’s procompetitive reasoning for the joint bargaining could include promoting a fair and even racing field and efficiency in negotiating an agreement that will equally apply to all race teams.
Tennis
In tennis, both professional and college athletes are pursuing antitrust claims against their respective governing bodies.
First, professional tennis players have sued the organizers of major tennis tournaments, the International Tennis Federation, WTA Tours, International Tennis Integrity Agency, and ATP Tours for violating the antitrust laws by forming a cartel, acquiring monopsony power (which occurs when a buyer in a market has a monopoly), and abusing that power to harm players and fans. The players allege a scheme that includes price fixing player compensation, restrictive non-competes, and agreements among the tournament offerors to not compete between each other for players. The monopsony allegations are in essence a monopoly broth. The plaintiffs point to several of the defendants’ conduct that, when taken together could lead to an antitrust violation, but individually likely would not.
The defendants have filed several motions to dismiss. They argue that the player association does not have antitrust standing because it has not suffered harm. They also argue that each of the tournament organizers have forum selection or arbitration clauses that require the matter be moved to different courts. The International Tennis Federation also argues that the complaint is a group pleading lacking sufficient facts to make a viable claim. In short, the motions provide little insight into the defendants’ counterarguments or procompetitive justifications.
For the Sherman Act Section 1 claim, plaintiffs allege that the defendants price fixing and earning restriction agreement is a per se violation, meaning that if the jury finds there was an agreement, the defendants cannot argue there are procompetitive justifications for the agreement between the tournaments. It is not clear, however, that the court would be persuaded that the alleged agreement is per se illegal. Although the plaintiffs allege a horizontal agreement, not all horizontal agreements are per se illegal. The default rule is that the rule of reason standard should apply which would afford the defendants the ability to advance procompetitive justifications. The exception to the rule of reason is for those agreements that are so pernicious that they lack any redeeming virtue. The defendants will likely argue that there were no agreements but, even if there were, they are not per se illegal.
As for the Sherman Act Section 2 claims, the defendants will likely advance procompetitive justifications such as brand protection and the quality of play for the enjoyment of the fans. As the litigation progresses, antitrust practitioners will be watching whether the monopoly broth allegations are supported by evidence and persuasive to the court.
The second tennis matter is a class action case brought by college tennis players who allege that the NCAA’s rules that prevent or constrain the players’ ability to accept prize money from non-NCAA tournaments violate Section 1 and Section 2 of the Sherman Act.
The NCAA has been plagued by antitrust litigations such as the name, image and likeness class actions, some of which have reached a settlement. In those cases, the NCAA has advanced the desire to protect amateurism as a procompetitive rationale for its rules, but courts have been unpersuaded. The tennis players’ case, however, relates directly to being reimbursed for playing. Prize money might be the difference between fostering a fair collegiate sports field versus stacking a team with professional members to win games. The NCAA might finally get traction by arguing that college athletes who play in paid games are professionals and not amateurs, which creates an uneven and unfair college sports environment.
The court has certified the class and the case is proceeding. It will be interesting to follow whether the NCAA is successful ultimately.
Conclusion
Sports leagues, clubs, and other governing bodies need to be aware of the antitrust laws when implementing rules. Organizations can insulate themselves from antitrust risk by ensuring that the rules do not restrict competition unnecessarily and by not colluding or agreeing with a direct competitor to restrain competition. Careful consideration of the rationale for implementing a rule helps to ensure that the rule is procompetitive and that the organization’s ordinary course documents show that rationale, if litigation occurs.
Robin Crauthers is a partner with McCarter & English LLP, based in Washington, D.C. A former trial attorney with the DOJ, her practice focuses on antitrust matters, including litigation, government investigations, and merger control. rcrauthers@mccarter.com
