Originally Published: May 25, 2010
Flirting with trouble: NFL's power play 
The league took a chance in the American Needle case. How smart was the gamble?

By Gregg Easterbrook
ESPN.com

It's not often that a big corporation asks the Supreme Court to hear a case, then loses 9-0 -- which is what happened to the National Football League on Monday. American Needle, a sports-cap company, sued the NFL over its apparel-marketing exclusive with Reebok. The NFL won in trial and appellate courts, then asked the Supreme Court to review the case, hoping to obtain a clear-cut exemption from antitrust law; instead, the NFL position was rejected unanimously. A decade ago, the Dolphins held a 30-7 fourth-quarter lead over the Jets yet managed to lose. This decision can appear the legal equivalent, although like many Supreme Court decisions, the ruling may say less than initially meets the eye.

Whatever this decision ultimately means, the circumstances of the case ought to unsettle football lovers. In my Tuesday Morning Quarterback persona, I've been warning for years that there is no law of nature that says professional football must remain the nation's most popular and most lucrative sport. Each time the NFL behaves in a haughty manner, it flirts with turning off the public. In this instance, the league not only was trying to place its foot on a small family-run apparel manufacturer -- based in President Barack Obama's home state of Illinois, no less -- but also was hoping to parlay its stomping of a little guy into a wide-ranging antitrust immunity. The NFL was asking the Supreme Court to award it something Congress had declined to grant the league. That's hubris.

In many aspects of its relationship with the public in recent years, the NFL has displayed behavior falling somewhere on the spectrum between haughty and arrogant, especially when the league's very wealthy owners demand public subsidies or, as here, special exemptions. Lyle Denniston, a leading Supreme Court observer, put it this way: "The more professional sports in America acts like hard-nosed Big Business, and the less it seems like an idyllic revival of Olympian competition, the more it risks trouble with the federal antitrust laws." The more it risks trouble, period -- with public opinion, with Congress.

Two years ago, NFL Network staged a deliberate confrontation with cable carriers, complete with heavy-handed lobbying. The strategy seemed to boil down to "We are the NFL, we get whatever we want, people must do what we tell them." NFL Network lost. Now the NFL has staged a similar deliberate confrontation at the Supreme Court level, and again lost. That the NFL is losing these confrontations is a healthy development, showing the league cannot simply bully others. But the losses need to serve as a wake-up call: The National Football League needs to cut back on public arrogance and begin behaving more humbly. There's no law of nature that says the NFL must remain so popular.

Here are some points about the decision:

What happens now? As with many Supreme Court rulings, the matter is not resolved; instead, it's been returned to lower courts. The court did not rule that the NFL has no antitrust protection; rather, the league can't necessarily claim such protection as regards intellectual property. (Logos on sports caps are intellectual property.) Probably under this decision, antitrust protections that concern the game itself will continue to receive sympathy from courts. And it remains possible that American Needle, having won at the Supreme Court level, will lose again at the lower court level.

What is the core dispute? If the NFL is one business with 32 operating divisions, that "single entity" could sign an exclusive deal with Reebok without engaging in restraint of trade. But if the NFL is 32 separate companies, those 32 separate companies are colluding to fix prices on sports caps. The Supreme Court found that as regards intellectual property, the NFL is 32 separate businesses. The ruling does not resolve whether the NFL is a single entity for purposes of television contracts, the common draft and collective bargaining with the NFL Players Association.

In this 1996 case involving television contracts, my brother Frank, a federal appellate judge, found that the NBA is "closer to a single firm than to a group of independent firms," although the ruling allowed that pro sports leagues might not be single entities under all circumstances. I don't pretend to know the fine points of the law; but on commonsense grounds, Frank's conclusion sounds right to me. The Chicago Bulls want to defeat the Milwaukee Bucks, but they don't want to put the Bucks out of business -- in fact, the Bulls hope the Bucks are profitable. Yours truly has written that pro sports cannot be interesting to fans unless franchises are financially secure and provide one another with quality competition. The Dallas Cowboys want to win more games than the Philadelphia Eagles, but it would be a calamity for the Cowboys if the Eagles lost money and stopped playing. This suggests that in commonsense terms, a sports league is "closer" to a single entity than a group of companies.

On the other hand, the people running the individual teams call themselves "owners" and sometimes try to harm one another's business interests. This law review article sums up the view that pro sports leagues are groups of companies, not single entities.

What's up with antitrust and pro sports? Major League Baseball has a broad antitrust exemption via an act of Congress. The NFL has some limited antitrust protection -- congressional decisions in 1961 and 1966 allowing the league to bargain with television networks collectively, and allowing the old NFL and American Football League to merge. The NFL had hoped this Supreme Court case would broaden its antitrust exemptions to resemble the one enjoyed by baseball; the NBA hoped the same, joining the NFL in asking the Supremes to step in. But Congress has on several occasions specifically rejected granting football, basketball and ice hockey the special deal enjoyed by baseball. (Whether baseball should have a special deal is a subject for another day.) The language of the Supreme Court's decision on Monday shows it has no interest in granting football a sweetheart deal that Congress would not grant.

Did the NFL get bad legal advice? When you lose 9-0, your lawyer isn't exactly giving high-fives. The league's loss was also the first time in eight years that a big corporate defendant has failed to prevail in a high-court antitrust case. Antitrust cases traditionally are hard for plaintiffs to win, so the fact that the plaintiff won here means the NFL position was far weaker than the NFL believed.

The league's counsel was the super-swank Washington firm of Covington & Burling, led by the tastefully named Gregg Levy, who was among Roger Goodell's competition for the NFL commissioner job. Should Covington & Burling have warned the league not to press its luck? Maybe, but lawyers do as clients tell them. That the NFL was insistent on pressing this case is the danger sign about the league's hubris. From the standpoint of Covington & Burling, had the firm urged the league not to proceed, it would have deprived itself of millions of dollars in legal fees. A rich client who wants litigation that ought to be avoided can be a lawyer's dream. And now there will be years more of subsidiary litigation -- great news for Covington & Burling!

Is the Supreme Court decision a huge win for the NFLPA? That's what the players' union is claiming. But remember, both union and league are still in the public-bluster stage over a new labor agreement; bargaining is not yet serious. The Supreme Court ruling has no direct relevance to the league-union talks. Yet because the NFL's reputation just went down several notches, the players' hand is strengthened. The NFL gambled by asking the Supreme Court for a major favor at the same time it was beginning to negotiate the next labor deal, and the NFL lost this gamble big-time. Regardless, the NFLPA and the NFL still have a common interest in an amicable conclusion to their talks.

How does the Supreme Court case impact the NFL politically? The league sashayed into Washington demanding a special favor from the Supreme Court but couldn't get even one vote from any of the conservative justices. The message to Washington is clear: The NFL is not, as it pretends to be, invincible. Thus the NFL's standing in Congress just went way down.