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American Needle’s silver lining could help NFL in antitrust case

ProBowl2008

If the NFL and the players’ union can’t get a deal done by Friday, an avalanche of litigation will be launched. The union will decertify, the league will challenge the validity of the decertification, and the union will sue to prevent the league from locking out non-union employees. If successful, the league will invite an antitrust lawsuit by applying rules regarding the draft, free agency, and other devices regarding player acquisition and movement.

Last year, the American Needle case attracted plenty of attention, even though it confused plenty of football fans. Sued by a small apparel manufacturer after the NFL entered into an exclusive contract with Reebok, the league argued that its 32 teams ultimately amount to one business. If it’s one business, the league can’t be sued for antitrust violations.

That’s why the NFLPA made such a big deal about the American Needle case. If the Supreme Court had found that the NFL is one business for antitrust purposes, the union would have lost the ability to decertify and file an antitrust lawsuit.

In the end, a typically divided Supreme Court agreed unanimously that the NFL isn’t a single entity for antitrust purposes. But that doesn’t mean the league automatically would lose an antitrust case filed by the players. Instead, it means only that the league couldn’t cut the litigation off quickly and cheaply by pointing to the outcome of the American Needle case and saying, “Sorry, we’re a single entity.”

At the tail end of the written ruling in American Needle resides language that would give the league a reasonable shot at winning an antitrust lawsuit on the merits. “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,” the Supreme Court wrote. “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’ . . . . While that same interest applies to the teams in the NFL, it does not justify treating them as a single entity . . . when it comes to the marketing of the teams’ individually owned intellectual property. It is, however, unquestionably an interest that may well justify a variety of collective decisions made by the teams.”

In English, this means that the league may be able to successfully beat back an antitrust challenge by pointing to the competitive importance of having a draft, reasonable limits (via the franchise tag and restricted free agency) on player movement, and a cap on total salary coupled with a minimum spending threshold. When the league last faced antitrust allegations from the players, the league was using a watered-down approach to free agency that exposed only a limited number of players whose contracts had expired to free agency (it was called “Plan B” free agency, with all other free agents bearing a price tag of two first-round draft picks).

Thus, even if an antitrust case plays out to the end, the NFL could win. And the players would find themselves stuck with the rules implemented by the league. Their only alternative to accepting those rules would be to reconstitute the union and strike.

It’s yet another reason for the parties to find a way to carve up a nearly eleven-figure pie. There is plenty of uncertainty, and it probably would cost nine figures to get it all resolved.