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SBD/Issue 175/Law & Politics
U.S. Supreme Court Overturns Ruling In American Needle Case
Published May 24, 2010
The U.S. Supreme Court unanimously overturned a lower court ruling against cap manufacturer American Needle this morning, rejecting the NFL’s contention that the league and its teams are a single entity and clearing the way for the company to proceed with an antitrust suit in federal court. American Needle Inc., a sporting goods manufacturer based in Buffalo Grove, Ill., sued the NFL in '04, charging that the teams conspired in violation of antitrust laws when they signed an exclusive 10-year contract with Reebok in '01. For all the debate about the impact the case could have on varied aspects of the sports business -- licensing, labor, franchise sales and media rights among them -- the court made its decision based on a narrow question: Whether the league and its teams were capable of conspiring in violation of antitrust laws, or whether they should be exempt from such scrutiny because they operate as a single enterprise. The court found that the fact that the teams joined together to issue licenses does not make them a single entity, as the NFL argued when it asked that the case be dismissed. “The NFL teams do not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action,” wrote Justice John Paul Stevens. “Each of them is a substantial, independently owned, independently managed business.” The Supreme Court sent the matter back to the lower court, which now will review it to determine whether the league’s contract with Reebok broke the law. “The fact that the teams share an interest in making the entire league successful and profitable, and that they must cooperate to produce games, provides a perfectly sensible justification for making a host of collective decisions,” Stevens wrote. “Because some of these restraints on competition are necessary to produce the NFL’s product … teams' cooperation is likely to be permissible” (Bill King, SportsBusiness Journal).
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WHAT DOES THIS MEAN? ESPN’s John Clayton said the decision is "huge," because even though it is a “licensing agreement on caps, this impacts the labor negotiations in the National Football League.” Clayton: “Let's say for example the NFL won this case. They would be one entity. They could then come to its employees – the players, even the coaches – and start implementing salaries. What the thought on this is now going to be that this could start to kick-start some negotiations to try to prevent a lockout because the hammer was there if the NFL won this case. They still have significant leverage in negotiations, but with this loss to American Needle, this now gives a little bit of a chance that they could start to seriously think about getting some kind of a deal done before 2011" ("SportsCenter," ESPN, 5/24).