2. Chapter Objectives
After reading this chapter, you will know the
following:
• The federal antitrust laws and how they apply to
sport
• The types of player restraints that have been
reviewed under the antitrust laws
• The types of exemptions from the antitrust laws
that apply to professional sport
• The history of team movement and the ways that
antitrust laws affect the movement of teams within
professional sports
• The specific ways that antitrust laws have been
used to regulate college athletics
3. Purposes of Antitrust Law
• Promote competition and efficiency in the
marketplace
• Protect consumers from the growing
monopoly power of big business
• Maintain a high level of competition among
producers so that consumers are able to get
products at affordable and reasonable
prices
5. Sherman Antitrust Act
• Section 1: “Every contract, combination in the form of trust or
otherwise, or conspiracy in restraint of trade or commerce
among the several states or foreign nations is declared to be
illegal” (15 U.S.C. § 1, 2008).
• To prove a violation
1. Must show that there is an agreement between two separate parties
2. Must show that the parties’ conduct taken under the agreement
unreasonably restrains trade because they are anticompetitive
3. Activity must affect interstate commerce (i.e., commerce that takes
place between two or more states)
6. Violations of Section 1
1. Per Se Rule: Conduct that is inherently
anticompetitive, such as price fixing and
group boycotts, and so automatically
violates the Sherman Antitrust Act
2. Rule of Reason:
• Rule used by courts in antitrust cases that applies
when the conduct is not inherently anticompetitive;
under this rule, a court focuses on whether the
challenged conduct unreasonably restrains trade
• A balancing test of pro-competitive and anti-
competitive effects of the action
7. Sherman Antitrust Act
• Section 2: “Every person who shall monopolize,
or attempt to monopolize or combine or
conspire with any other person or persons, to
monopolize any part of the trade or commerce
among the several states, or with foreign
nations, shall be deemed guilty of a felony” (15
U.S.C. § 2, 2008).
• Monopoly: An organization that possesses
exclusive control over the means of selling and
producing a product.
8. Clayton Antitrust Act
• Provides that when a plaintiff proves that
there has been a breach of the Sherman
Act, the damages that the plaintiff can
recover are tripled.
• In 1984, when Los Angeles Raiders owner
Al Davis won his antitrust lawsuit against
the NFL, the tripled damages amounted to
more than $35 million.
9. League Structure
• A crucial question for antitrust analysis is
whether a sports league is one entity or an
entity composed of different, separate
owners.
– If it is a single entity, then its decisions do not
constitute section 1 violations (since it applies to two
or more entities)
– If a group of owners or employers, then section 1
applies
– Courts had to deal with this question with frequency
in the 1980s and 1990s
10. Player Restraints
• Assuming leagues are not single entities,
then the following labor issues have
antitrust implications:
1. Player drafts
2. Restrictions on free agency
3. Salary caps
11. Player Drafts
• Each of the major sports leagues uses an annual
draft to select and allocate players to its member
teams.
• Each league also sets out specific requirements
related to the age of those who can be drafted, their
completion or progress in high school or
university, and their eligibility to be drafted by a
member team.
• Past courts have called aspects of the draft into
question.
12. Free Agency
The period of time when a professional athlete
is not under contract to any particular team
and so is able to freely negotiate with any
team
13. Restrictions on Free Agency
• Baseball’s reserve clause
– A clause used to be in every professional baseball player’s
contract stating that if the player did not automatically sign a
new contract with the team for the next season, all of the
provisions of his present contract would be automatically
renewed.
– The player remained the property of his team.
• NFL’s Rozelle rule
– NFL rule required a team signing a veteran free agent to
provide compensation to the team that was losing the player.
– Struck down as an antitrust violation in Mackey v. NFL.
• Collective bargaining agreements between the
leagues and their players’ associations
14. Salary Caps
• Set a limit on the amount of money a team
can spend on player salaries
• Set either as per-player limits or as a total
limit that a team can pay for its players
15. Antitrust Exemptions
• Findings by a court or provisions of statutes that exempt a
party from review under a particular regulation or statute.
Exemptions allow the party to avoid a lawsuit as a result of its
actions that otherwise could be found to have violated the
regulation or statute.
• Baseball’s antitrust exemption
– Judicial exemption granted to Major League Baseball in 1922 that immunizes
the league from being sued for violations of the antitrust laws.
– Baseball did not act in interstate commerce.
– Exemption upheld in Flood v. Kuhn (1972).
• Nonstatutory labor exemption
– Judicial exemption that provides that when employers and employees have
bargained in good faith, one party cannot be sued by the other party claiming
violations of the antitrust laws
– Remains in effect even after collective bargaining agreement ends
16. Broadcasting Exemption
• Sports Broadcasting Act
– Enables clubs to put their separate rights together
into one package so that the league can sell the
package to one purchaser, such as a TV network, in
an effort to protect their home game ticket sales and
to allow clubs to share television revenues.
– Allows professional hockey, football, baseball, and
basketball to pool and sell their rights in sponsored
telecasts of games without the fear of being sued for
creating an agreement in restraint of trade. NCAA is
not a party.
17. Curt Flood Act
• Modifies baseball’s antitrust exemption.
• Allows baseball players to sue MLB if they
believe that some condition of their
employment may violate the antitrust laws.
– Other aspects of the business of baseball itself
(ownership, management, relocation) are still
protected by the antitrust exemption.
18. Franchise Relocation
• Professional sports leagues restrict franchise relocations to
other cities. Approval by 75% of owners is required.
• Teams have sued the leagues claiming that these rules violate
the antitrust laws.
• Los Angeles Memorial Coliseum Commission v. NFL, 1984
– NFL owners voted against move of the Oakland Raiders to Los
Angeles.
– Raiders’ owner Al Davis and the Los Angeles Coliseum sued.
– Federal appeals court found the NFL franchise relocation restrictions
violated the antitrust laws.
– Team was awarded $11.5 million and Coliseum was awarded $4.6
million, both amounts then tripled under the Clayton Act.
• This case ruled that the NFL is not a single entity.
19. Single-Entity Structure: Defense
A defense to an antitrust claim; a party using this
defense must demonstrate that instead of being an
organization made up of separate business entities,
it is one business entity itself and so it cannot be a
combination or conspiracy in restraint of trade as
required to violate the antitrust laws.
20. Fraser v. MLS, 2000
• Major League Soccer attempted to be set up as a single
entity. League office owned all player contracts, controlled
all player salaries under a salary cap, and mandated
transfer fees for player transactions among teams.
• Players sued, claiming that the restrictive player restraints
embodied in the salary cap and transfer system violated
the antitrust laws.
• MLS admitted that it had created this structure in an
attempt to keep salaries and other costs down so that the
league could develop a strong base of financial viability in
its early years of operation.
(continued)
21. Fraser v. MLS, 2000 (continued)
• The federal appeals court agreed with MLS, finding
that it was a single corporate entity, and therefore it
could not violate section 1 of the Sherman Act.
• The crux of the ruling was based on the conclusion
that the players could not show that MLS was the
relevant market for soccer.
22. Individual Performer Sports
• Professional boxing, tennis, golf, bowling, and
automobile racing have all been found to be
businesses engaged in interstate commerce.
• There is a focus of antitrust scrutiny of these
sports.
• Eligibility restraints have not been found to violate
the antitrust laws if the restrictions promote the
quality of the competition, ensure uniformity of the
rules, and assist in the orderly scheduling of
tournaments and other events.
23. College Sports: Goals of the NCAA
• Preserve the amateur nature of intercollegiate athletics
as a part of the educational process in university and to
ensure that its member schools compete on a level
playing field.
• NCAA has created extensive rules restricting the nature
of participation in intercollegiate athletics (e.g., limits on
recruiting, academic eligibility requirements, financial
aid standards, agent regulations, amateurism rules, and
a myriad of other topics).
24. Antitrust Review of the NCAA
• Rules that affect commercial activity have been found to
violate the antitrust laws.
– NCAA football television plan that set limits on number of games that
could be televised was found to violate antitrust laws (NCAA v. Board
of Regents, 1984).
– Rule restricting coaches salaries was found to violate antitrust laws
(Law v. NCAA, 1998).
• Rules that are not commercial in nature have been found to
not violate the antitrust laws.
– NCAA argues that eligibility rules and academic standards are needed
to preserve amateurism of NCAA athletics.
– NCAA no-draft, no-agent rules barring athletes who are drafted by a
professional sports league or sign with an agent do not violate antitrust
laws (Banks v. NCAA, 1992).
