The Solution to the NFL Network Problem

Like many sports fans, I'm a little upset at the prospect of missing this week's big Cowboys-Packers NFL contest, and also missing the Patriots-Giants game a few weeks down the road. The reason for this prospect is the NFL's decision to allocate these games to its fledgling NFL Network in an effort to boost channel subscribers. More to the point, apparently the NFL and the cable television giants cannot agree on a proper fee for featuring the NFL Network as part of the schedule of channels for "standard" cable service, much like is ESPN. Had these particular games been available to the "free" television networks, undoubtedly both would be nationally televised.

The commentators I've heard have described this problem as a stalemate between two business giants (the NFL and Cable TV) over the last dollar, with each side waiting for the other to yield. This characterization is true, but falls so far short of the whole picture as to be misleading. What's missing from the picture is the law's role in creating this mess.

As usual, the law is guilty as charged.

1. Start from the premise that clubs own the right to broadcast their games. By this I mean individual clubs, and not the collection of clubs gathered together to form a league, own their games. So the legal right to televise Thursday night's game is owned by the Cowboys and the Packers, the teams that will engage in the contest. This legal right is an intellectual property right, an intangible asset, and is based on a very questionable reading of the law. Federal copyright law precludes the "re-broadcast" of the particular versions of games broadcast over the air. But as to the initial broadcast of the games themselves, under federal law when Tom Brady completes a pass to Randy Moss for a touchdown, it's just news. Anyone who's aware of the news can broadcast the news, even simultaneously with another "permitted" broadcast, without violating copyright law.

2. What prohibits alternative, competing, bootleg broadcasts of live NFL games? Just the following historic judicial decision. In 1938 a local radio station decided to broadcast Pirates' games from vantage points outside the fences at Forbes Field. The Pirates had sold radio broadcast rights to NBC. When the Pirates sued to enjoin the local competitor, a lone federal judge stated that "it is perfectly clear" that broadcast rights belong to the Pirates. No citation to legal authority was provided to support this wild claim. The judge just said it was perfectly clear and that's that: the Pirates, and every team in history thereafter, has enjoyed a "property right" to broadcast its games. The court grounded this property right in a theory of unfair competition: that if other broadcasters could compete with NBC, then the Pirates would not be able to profit from their investments in the team and the event. Now it may be true (although very contestable) that the Pirates "need" to have this property right in order to field a competitive team, but generally speaking the legal protections for intellectual property are devised by statute and are pretty carefully circumscribed. Why? There is a large public interest in having ideas and information disseminated. Yet here, in the absence of a statute, a judge in Pennsylvania created a property interest out of whole cloth. Go Pirates!

3. In any event, teams have this property right, but have chosen, under league agreements with the NFL, to allow these rights to be sold as a group by the league: hence the mega-monstrous national television packages the NFL enjoys. But, here's the rub: there is a strong case to be made that this arrangement wherein the teams pool their rights for collective sale to the networks (and thereby to the public) is a violation of federal law, not copyright law, but antitrust law. So while enjoying the law's (judge-invented) property right, the teams are using those rights in arguable violation of the (Congressionally mandated) antitrust law. Gave them an inch, they took the mile. Is there any reason to believe it's an antitrust violation? In 1953 the United States itself sued the NFL on this very point, and won. The judge in that case issued a series of injunctions against the NFL that basically told the NFL to stop violating federal law. Yes, the NFL broke the law. (If Roger Goodell had been commissioner, he would have suspended himself for one year or until he could convince himself that he had learned his lesson.)

4. In the wake of the judge's ruling, did the NFL mend its ways? No, it did what any rich kid does when in trouble: it pulled strings, running off to the Congress to get a special exemption from antitrust law in the form of the Sports Broadcasting Act of 1961. This act allows the NFL to sell the teams' individual broadcast property rights as a group. But there's a limit: NFL teams may join together to sell their broadcast rights as a group, but only for what the act calls "sponsored telecasts" of games. This is obviously pre-Information Age language, but basically what the Congress had in mind, as NFL Commissioners have conceded, is free, over-the-air, received-with-rabbit-ears-held-by-duct-tape, old-fashioned network broadcasts. (Somehow not even the federal Congress foresaw the rise of cable, ESPN, and the internet, even though young Al Gore was around and could have been asked.) So it's pretty clear the SBA doesn't protect the NFL from antitrust scrutiny when it ventures beyond network broadcasts, as the NFL has done with the NFL Network.

5. So the solution to the Battle of Big Business is for someone to sue the NFL for violating the antitrust law in creating and broadcasting its games jointly over the NFL Network. Maybe those fans who sued and made millions over the Direct TV NFL package could make some more money on this one. Or maybe the United States government could stop worrying about the election and turns its attention to a problem that bothering millions of Americans. Or maybe even Jerry Jones, no stranger to suing the NFL, could find his way back into court to reclaim his ownership of the broadcast rights to this game and sell them to the highest bidder. The solution to the problem lies with holding the NFL's corporate feet to the fire. Now the NFL might well prevail in an antitrust suit: a contemporary court may not agree with the federal court's 1953 decision. The league's collective marketing of these game rights poses a close question; it might be nice to get it answered. I'd like to see Thursday's game.

Book Notes: Running the Table

Running the Table: The Legend of Kid Delicious, the Last Great American Pool Hustler, by L. Jon Wertheim (Houghton Mifflin 2007).

So what's wrong with this picture? A young man, just a kid really, has trouble with traditional schooling and suffers from severe mood swings, chronic obesity and depression. But he finds he has a skill, an extraordinary talent really, to shoot pool at a professional level. His talent breeds interest and lifts him out of his suffering and gives him cause to live. Building on local success, he travels the countryside playing pool against all comers, earning money that allows him to support himself, while making friends and learning strategies to deal with his mental illnesses. He even earns a memorable moniker, "Kid Delicious."

Success story, right? Troubled young American overcomes obstacles to attain self-sufficiency. The problem is that, thanks to the widespread American prohibition on gambling, Kid Delicious' climb out of the doldrums involved a long string of criminal actions. Betting on a contest, even one in which one is a participant, remains illegal. Why?

1. I'd characterize this title as a safari book, or Category Three, for those of you carefully scoring according to my overall breakdown of all sports books. The classic of this genre is the reporter who follows a team up-close for a season, or maybe even "participates" in some minimal way, as did George Plimpton famously in Paper Lion or Jack McCallum more recently. Author Jon Wertheim's narrative encompasses several years. Wertheim obviously did not follow this young man around, and instead had to reconstruct events through witness interviews and the like. The author's literal and chronological distance from his subject and the events of that subject's life is the strength of this book. It's also the problem. What makes the story interesting is less the chronology of events and more the ambiance of the pool room, the mechanics of the hustle, and the colorful and at times pathetic cast of characters that pass through the Kid's life. Wertheim's distance makes him relate this aspect in historical, matter-of-fact terms that don't adequately convey the tension in the smoke-filled pool hall. The market is ripe for a player with Wertheim's sensitivity and eye for detail to write the true insider account.

2. And tension in the pool hall there is. Imagine shooting pool for all your savings and as your sole source of income. As is your desperate opponent. Side-bets galore, all in cash, the implicit threat of cheating and subsequent violence always just one wrong word away from the table action. We're not talking high-living athletes on guaranteed contracts trying to decide which Bentley they'll motor over to the stadium; these pool players make tomorrow's rent today. What reckless daring, what a strong constitution, what courage. Like most people, I'd love to play professional sports. Also like most people, I could never put my entire life's savings on the line in any bet where my opponent stood a significant chance of winning. To me it is a weird personality strength/defect that allows (mostly) men to have that huge preference for risk. And it's fascinating for the rest of us to watch these wild swings in fortune that depend on the tumbling of a billiard ball.

3. Often we lament the sad lifestyle of the problem gambler, and equate this particular addiction with drug or alcohol abuse. Yet is it correct to lump these addictions together? We have to recognize the contribution our laws make to the impoverishment of the "problem gambler." These are people who have a unique skill: they have an apparently bottomless tolerance for risk. In a world in which large bets were legal, people who are willing to take big risks would make money from their unique talent. Anyone who has played poker knows that a player who is willing to risk his whole stack, even on a slim advantage, can win pots others would lose. Not only does the widespread legal prohibition on gambling preclude risk-takers from profiting from their comparative advantage, it also (conveniently) protects the rest of us from losing money. Gambling is illegal, generally speaking, and so for these risk-takers to make money from their skill they are driven underground, to the dingy and dangerous late-night cash games far from official eyes.

4. Some gamblers can make money legally. The law allows speculation in the stock market, in so-called derivative instruments, and in certain commodities futures. Some of these investments are nothing more than a bet. Some derivatives, for example, allow speculators to wager on fluctuations in the value of foreign currencies and movements in indexes: it is doubtful that many investors who make these bets know what they are doing. (See Frank Partnoy's insightful inside account of the world of derivatives trading here.) Access to the legal markets for large bets is limited to the comparatively few. Obviously some risk-taker living out of the trunk of his car is not going to to be speculating on the rise of the Mexican peso. Why not allow betting markets for the middle class? We can go to Las Vegas or Atlantic City and bet hundreds of dollars on the turn of a card or the fall of a roulette ball; why not allow pool sharks to bet on their practiced skill?

5. What's remarkable is how well this underground economy runs itself. Pool sharks new to the game hit the road, traveling from town to town, on the lookout for competitors who are willing to lay thousands of dollars on the line playing against traveling players of unknown acumen. The shark will try to hide his talent, setting up the opponent for the big score, and then leave town (in a hurry) after the victory. Word travels fast, and the shark's ability to get games diminishes as his identity spreads. Eventually the shark's run is complete, and he's left to turn to professional pool, with its meager payouts, and to occasional high-stakes matches against players of equal skill. Gone is the easy money from overmatched suckers. Gone is the nice income. Why shouldn't suckers be allowed to lose their money? It's just like the stock market: one sells, another buys; someone made the wrong bet. The loser learns to be a winner, or finds something else to do.

6. The pool hustlers will play and wager despite the legal prohibition on gambling. It's the rest of us, the suckers, who fear the law and withdraw, relegating the sharks to the back roads and dank halls in search of a game. The prohibition limits the market to the few, the committed, the addicts. It drives the unaddicted, the easy marks and clueless suckers, out of the game. Our protection of the addicts makes them play against other addicts, shark against shark. Even very good players will struggle when the competition gets this stiff. The law doesn't protect against problem gamblers. It protects the rest of us, and relegates pool sharks to a hard life on the road.

William

I can't let this day go by without remembering the birthday of my little boy William, my first-born son. He was as sweet and happy and active and beautiful a young child as you'll ever meet, and my wife and I were in shock when he was diagnosed with a rare and untreatable form of leukemia. We tried every possible remedy for him. Six months later he died in my arms, on December 6, 1991, at the age of three. I'd give anything, absolutely anything, to hold him again, even for a single minute. Those of you with children, be thankful. As deeply sad as I am and always will be about losing William, I have always been grateful to know that I loved that boy as much as I possibly could, and that he knew he was loved.

Collusion

Recently Donald Fehr, head of the Major League Baseball Players Association, worried publicly about some of the grumbling by baseball executives concerning Alex Rodriguez' stupefying salary demands. (Three hundred and fifty million dollars does seem like a lot of money, at first blush.) Major League Baseball, of course, has a history of collusion in attempting to restrict player salaries, giving the union cause to be worried. But Fehr's reputation as a combative and strident union boss seems to have led him to see hidden monsters on this one. As Time magazine today reports, no way teams would collude over just one player contract, right?

Wrong. I never quite believed the MLB owners colluded on player salaries back in the 1980's. But I do believe they could do it now, especially with respect to Alex Rodriguez.

1. First the legal issue: collusion can happen with respect to just one single contract. In other words, if one player is not offered a contract at a fair market price and that failure is the result of an agreement between bidders, even a tacit agreement, then that's collusive behavior.

2. Colluding to keep Rodriguez from maximizing his salary makes all the sense in the world from the perspective of the clubs. A-Rod is baseball's best player and will undoubtedly again set the upper benchmark for player salaries. The incentive is palpable to limit his deal. As great a player as Rodriguez is, other players are not far behind in ability. At this point, however, these other great players are far behind in salary, even though Rodriguez signed his record-breaking contract about seven years ago. At some point, soon one would expect, these other great players will be in position to catch up to Rodriguez' salary, escalating star salaries to a new level. From the perspective of the clubs and the union, a lot rides on A-Rod's next contract. The clubs have reason to cheat; the union has reason to be vigilant.

3. Colluding is easy in this case. Only one player contract is involved; only a small handful of clubs appear to have the wherewithal and revenue potential to pay Rodriguez what he wants. Communications in the digital age are simpler, quicker and potentially more secretive than ever before. A quick call from a cell phone or message from a PDA could accomplish in moments what once may have required travel, secretaries, and phone messages. I'm not saying clubs have colluded here, of course, despite some odd public statements. It is curious, however, that with baseball attendance and revenues at historic levels, Rodriguez is having trouble getting a raise from his year 2000 contract despite remarkable performance. Could his 2000 contract have so far outpaced the market that, even seven years later, he's still overpaid?

4. What's remarkable is that, in a sense, Rodriguez himself effectively induced two MLB clubs to collude with respect to his last contract. A couple of seasons after signing A-Rod as a free agent, the Texas Rangers escaped the lion's share of the obligation by trading him to the Yankees. So for the last few seasons, New York has benefited from A-Rod's services at something of a discount (not counting the players and money that went back to Texas in the trade). Two clubs, ostensibly competitors, joined together to pay the game's top performer. Now look at this the other way: assume back in off-season 2000 no single MLB club was willing to pay off the entirety of Rodriguez' contract. By signing with Texas and then departing a few seasons later, Rodriguez allowed the Rangers to split the bill. Could that arrangement ever be brought about at the outset? In other words, could A-Rod today tell the Red Sox he'll play third base for $30 million per season, with but 20 coming from the Sox and the rest from some other team(s)? No, that's absurd. But that absurdity is exactly the arrangement Rodriguez ultimately wrangled. So why couldn't a team like Boston sign Rodriguez today, giving him the money he wants, all the while planning that a few seasons down the road the team will trade Rodriguez and remain liable for only a fraction of his salary? Heck, players have been traded multiple times and had their contract paid by multiple teams. Even if no single team could (or was willing to) pay Rodriguez over the course of a 350 million dollar contract, the reality is that several teams (together) could, and that baseball has an explicit mechanism in place (trades) to make that collusive conclusion a reality. My point is: there is or should be a market for Rodriguez and that market should be a a level that is a substantial raise above his last contract because teams know they can for all practical purposes collude with other teams (via trades) to share the burden of a player's contract. So why is the market for Rodriguez not there? There are reasons consistent with non-collusion: team needs, financial limitations, concerns about the player's age and compatibility. But collusion provides a sufficient explanation too.

5. I've never bought the conventional line on the mid-1980's. Here's the story: that the entirety of the major leagues, all 28 teams, acted in concert for the better part of a decade, and with regard to not just a few but all free agent salaries; that these teams concocted, enforced and achieved a league-wide conspiracy to limit player compensation, and that this improbably successful conspiracy would have continued unabated but for the unprecedented penalties imposed by labor arbitrators at the behest of the union. It's a fairy tale, and I just don't buy it. How could baseball's owners, a bunch of loudmouth, self-made millionaires with a taste for public attention (hence the decision to purchase a baseball team) have negotiated and stuck by this secret pact and then breathed not a word of it, not even to this day? Think of the hundreds of people who would have had to have been "in the know" on this national conspiracy: not one of them has ever breathed a word? Where's the direct evidence of this conspiracy? Where are the secret documents, the smoking guns, the closed-door meeting notes, the tell-all book from somebody's assistant? The story is that, apparently, with nothing more than a wink and nod, all of baseball's owners toed the line, even though the incentive to "cheat" (by signing a free agent) and capture the riches and fame of a championship season was palpable and within easy grasp. Would all teams, even those struggling at the gate with fans starved for a winner, forgo the substantial chance to win it all? Why would these teams abide by this supposed agreement to fix salaries, especially if those teams that profited from the conspiracy got to keep their profits (the best free agent players) and never had to pay back the losers (the teams that went without improvement)? Why stick to a conspiracy that only benefited your competitors, especially when those competitors had no means of punishing cheating clubs? Conspiracies don't last without a means of keeping cheaters in line. Yet somehow this conspiracy, in an industry whose every move to subject to intense press scrutiny, managed to remain a secret right in front of our noses.

6. The arbitrator(s) who heard the union's grievance found collusion. But that collusion was not shown by "direct evidence" (such as a written agreement, or testimony of telephone calls); instead, it was shown only "circumstantially." Circumstantial proof means that certain results or conditions are proved and those results or conditions are "consistent with" illegal behavior, although they don't necessarily prove it. For instance, if a man lies dead in a room and I'm the only person who had access to that room, then my access provides circumstantial proof of my guilt. The problem with circumstantial proof is that it relies on an inference from a fact, and the reality is that other, often equally compelling inferences are also available from that fact. So in 1986 or so when Jack Morris, a star pitcher, became a free agent and failed to get a decent offer, that fact circumstantially suggests the clubs were colluding. It also circumstantially suggests the clubs couldn't afford Morris. Both inferences are available: it requires a volitional decision to pick one inference over the other. I'm not saying circumstantial proof is worthless; I'm saying circumstantial proof without more is not very convincing.

7. The arbitrator rested his decision not on the few phone calls that were made between a few clubs, but on what he termed "conscious parallels" in clubs' decision-making. It's very hard to separate illegal (but tacit) parallel behavior from legal (and even explicit) independent decision-making that takes into account competitors' behavior. Both clubs and agents use bids from other clubs to gauge contract requirements and shape their offers. The Red Sox will bid in light of what they expect the Yankees will pay; indeed, agents inadvertently facilitate price fixing by acting as the conduits of bid information from club to club. When the Red Sox decide to limit their offer in light of the Yankees' bid, that's just good business. Multiply that good business to all competitor clubs, and it provides circumstantial (but merely circumstantial) evidence of collusion. It also provides circumstantial evidence of good business sense.

8. I'm not crying for A-Rod. He'll get paid plenty. But it is odd to me that commentators seem so eager to dismiss charges of collusion in this case, where collusion would be easy to accomplish and where clubs have every reason to commit it. It's even more odd that these same commentators are happy to embrace the standard line about the miraculous collusion of the 1980's. It all seems so backward to me.

9. By the way, the only reason it's "illegal" for owners to collude is that "concert of action" is prohibited in the collective bargaining agreement. It's not illegal in any other sense, given the exemption labor agreements enjoy from antitrust scrutiny. Why is this phrase in the CBA? Because the owners insisted on it in the 1970's after Mike Schmidt and Larry Bowa of the Philadelphia Phillies tried to market themselves jointly in seeking new contracts. Why did the owners worry about that? All it would mean is that Schmidt (the better player) would have taken a bit less to give Bowa more; who cares if Schmidt wants to pay Bowa part of his salary? Who cares if Texas was willing to pay part of A-Rod's salary? He only got the market price.