How many of you own the hat of your favorite NFL team? Have you ever taken the time to look at the tag inside it? If you bought that hat after the year 2000, I can guarantee you that that tag says Reebok. I know this because since the start of the last decade (Hello, 2010), Reebok has had an exclusive deal with every NFL team to produce the hats bearing the team logos. Prior to that, not only did each team strike their own deal with hat makers, but might have a number of deals with different hat makers (and the makers of all sorts of other team gear) to make hats at any one time. Before 2000, there were a ton of relatively small (relative to Reebok, at least) companies which made money selling hats, jackets, pants, etc. with the logos of NFL teams on them, and paying the individual teams a fee for the privilege. My guess is that you never heard of most of these companies.
American Needle was one of those companies that lost a lot of business when the NFL made that exclusive deal with Reebok. And though that name may never be famous among sports fans, it has become quite well-known among lawyers and academics who specialize in both sports law, and another, less sexy area of the law, called antitrust. This is because American Needle didn't take the loss of its business lying down. It made a Federal case out of it; and that case has worked its way all the way up to the Supreme Court of the United States. On January 13, the case of American Needle vs. National Football League was argued in front of the seven wise men and two wise women in the black robes in Washington, D.C., and the decision could have major consequences for the way all sports leagues are run. Don't believe me? Then why did Drew Brees take the time in the middle of the season to pen an op-ed in the Washington Post about it?
To give you a sense of what this lawsuit is all about, I want to remind you of your high-school American History class. Do you remember how Teddy Roosevelt was called the "Trust-Buster?" Well, the law that he was using to bust those trusts, the Sherman Antitrust Act of 1890, is the same law that American Needle is using to sue the NFL. The Sherman Act, in relevant part, says that it is illegal to join in any "contract, combination or conspiracy in restraint of trade." What does that mean, exactly? Well, imagine that a town has two gas stations. If the owners of those two gas stations got together and agreed never to charge less than $6.00 a gallon for gas, they'd be breaking the law. Competition is the lifeblood of capitalism, and we don't want it getting circumvented by back-room deals. If the owners of the gas stations got caught, not only could the goverment go after them, but so could any private citizen who was injured by the conspiracy, say a local taxi driver who was forced to buy gas at the exorbitant prices.
In this case, American Needle is claiming that the when the NFL teams made an exclusive deal with Reebok, they ran afoul of the Sherman Act. Unlike the previous example, they didn't conspire with each other to fix prices, but instead to limit output. It would be like the gas stations agreeing not to sell more than half as much gas as people needed for their cars. People would start bidding against each other to get the limited gas, and the price of gas would go up. In economic terms, limiting output is the same as fixing prices, and is just as illegal. In the NFL's case, the output isn't gasoline, but rather the right to print team logo hats. Instead of thirty two licenses to sell team hats, there's only one. American Needle is suing the NFL, and wants to be compensated for the damage this restriction on output caused their business.
So, how does the NFL avoid paying a multi-million dollar judgment? Consider the gas stations one more time. This time, assume that instead of each station being owned by a different person, they are both owned by one person, who employs two managers, one for each station. Now, if those two managers got together and agreed never to charge less than $6.00 a gallon? Perfectly legal. This is because of an exception known as the "single entity rule," which says, somewhat self-evidently, that one person or one company cannot conspire with itself. If it were illegal for two employees of a store to come together and decide how much that store is going to charge, business couldn't function. The NFL is claiming that it isn't thirty two separate competitors, but one single entity, legally incapable of violating the Sherman Act.
There's a certain amount of sense to this position. The NFL, and all sports leagues, have to agree on certain things. For example, they have to agree on how many games they are all going to play in a season, and where and when those games are going to be played. If that were illegal, the Cowboys would have to hang around Jerry Jones's Ego Trip, I mean, Cowboy Stadium in Arlington and hope that another professional football team would wander by so they could play some game that may or may not resemble football, since the two teams couldn't agree in advance on a rulebook.
But, when it comes to the business side of things, every court that has ever ruled on the issue, has rejected the single entity defense. Every court, that is, until the court that heard American Needle vs. NFL. That court, The Seventh Circuit Court of Appeals, located in Chicago, held that for the purposes of marketing and licensing, the NFL is a single entity, and not subject to the Sherman Act. So American Needle has appealed the case all the way to the Supreme Court, and now it's in the hands of Chief Justice Roberts and his eight Associates.
There are four things the court can do. First, they could decide that there aren't enough facts in the record to make a decision, and "remand" the case back to the U.S. District Court for another trial. If, instead, they decide to decide they can simply affirm the Circuit Court's ruling. For you, this means that hats will probably cost you a little bit more to buy a logo hat, but other than that, have very little effect. Similarly, the Supreme Court could reverse the Circuit Court, and make the American Needles of this world happy, save you a few bucks on your officially licensed gear.
The last option is the most potentially explosive. The Supreme Court could decide that the Circuit Court didn't go far enough, and hold that not only is the NFL a single entity for marketing purposes, but for all purposes. This is what has Drew Brees frantically writing op-eds. If the NFL owners can legally collude, without any worry about being sued for antitrust violations, there is nothing that can legally prevent them from unilaterally setting whatever salary cap they want, or eliminating free agency, or even setting specific salaries for specific players. Once the current collective bargaining agreement with the NFL Player's Association expires, the owners would have free reign.
If the owners took advantage of this new loophole to stick it to the players and line their own pockets (and they would stick it to the players and line their own pockets), the only response the players would have would be to strike. And there's no reason to limit the Supreme Court's ruling to the NFL; all the leagues would likely get single entity treatment. Imagine every major professional sport going on strike at once. Not a pretty picture.
So, depending on how the Supreme Court rules, American Needle might not just be the name of a tiny clothing manufacturer in Oak Grove, Illinois. It may be the name of a case that changes professional sports in this country for ever.
