The (Un)Importance of American Needle

To most everyone's surprise, the American Needle litigation has found its way to the U.S. Supreme Court. When that court grants cert it's usually to reverse, but because of the strange posture of this petition (both sides sought the grant), the usual rules don't apply.

Plenty of commentators have reviewed the appeal and discussed its prospects before the high court. What has surprised me is the discussion of the decision's potential ramifications. Judging from the weight of expert opinion, if the NFL prevails, the players will suffer complete reversals of the wage and work condition gains from the past several decades. For a particularly notable example, see this article by ESPN's Lester Munson. Under the understated title, "Antitrust Case Could Be Armageddon," Munson paints a picture of owners gone wild: players bound to their teams for life, baseball games barred from cable broadcast, extravagantly expensive game mementos, and players retaliating with widespread strikes. It's a bleak picture; one can only hope Judge Sotomayor comes to the court's rescue, much like her court (thought it) did during the baseball strikes decades ago.

I'm more than a little dubious about these conclusions. I doubt the Supreme Court will use the American Needle litigation to make the pronouncement about the nature of the NFL's business and its relation to antitrust law that the NFL wants it to. Even if the Court obliges the NFL, I doubt that any of the predictions Munson and other commentators make will come true. In short, there will always be an NFL, regardless of what the Court writes.

1. First of all, I thought it was the common consensus that professional athletes are overpaid? Doesn't that mean owners are underpaid? It's a zero-sum game. If we want athletes to make less money, then we have to empower the owners to cut back salaries.

2. But, one might ask, would empowering the owners (should the NFL win the Needle appeal) necessarily come at the expense of the players? In other words, wouldn't the fans also get ripped off, as Munson suggests? I don't see this happening. I assume that every sports franchise is in a competitive market for fans. Each team competes against all the other entertainments and leisure activities which fans might consume in lieu of spectator sports. If the market is competitive, or even approximately competitive, then if the price of spectating is raised the teams will lose profits, no matter if those profits eventually accrue to the owners or the players.

3. Should we, as spectators, care much about who wins the battle between the players and the owners? As long as players command a sufficient salary to keep them from leaving the field, and owners make enough to maintain their investments, why should fans care? Maybe we as fans prefer the current era of comparative player liberty (free agency, arbitration rights, limitations on draft rights), but a lot of anecdotal evidence suggests fans like when players stay on the home team.

4. What may underlie concern about the American Needle case is a preference for the labor side. That's fine, as far as it goes, but really shouldn't be conflated with a concern over the well-being of fans. And even on the labor issue, I doubt that a pro-owner decision in American Needle would do much to alter the balance of power. Undoubtedly the NFL players have had a great deal of historical success attacking the NFL's labor practices under antitrust law. But contemporary courts have adopted a more modern view of business practices. They understand that most significant markets are national in scope, if not international, and that some degree of cooperative behavior among firms is necessary to produce cost-savings and other efficiencies to allow firms to compete. Undoubtedly the NFL today competes in a national market. It will adopt whatever rules on player movement and salary rates that best position it to compete for the nation's attention. In other words . . .

5. Assume the NFL wins and the owners were allowed complete collusion. To put the case more strongly, assume that the NFL were purchased by a single owner and run as a single business. Would the owner prohibit all player movement, despite the attention the league earns from the draft, trades, and free agency? Would the owner eliminate terminable contracts? It strikes me that the NFL already has all the rules in place it wants.

6. Would player salaries diminish? Few employees take salary diminishment lying down. The NFL's salary structure could change, with more wages being devoted to the star and less to the star's complements. Look for quarterbacks to make more; left tackles less. One historic effect of unions is to redistribute salary among themselves. Have the unions also increased the total amount of salary distributed to players? Yes, if we assume that the collective bargain extracts a larger amount of money devoted to labor than would a series of individual negotiations without the constraint of salary slotting and the implicit sharing demanded by unionization. That's a large and very contestable assumption. In any event, it's unlikely the union or the collective bargaining agreement will go away.

7. I'm not saying that the case is insignificant; if the court resolves the case on any but the narrowest grounds, it would give the NFL a significant victory and clear away any antitrust worries for the league when it operates outside of the collective bargaining agreement. But the real balance of power is struck in the CBA; the union is endemically weak because the short-term nature of the NFL player career makes it so. Nothing the court says about antitrust law will change that.

8. As for professional leagues other than the NFL, the newer ones (see Major League Soccer) have from their inception organized in order to appear a "single entity" for antitrust purposes. The older leagues don't have the luxury of starting from scratch. But what would stop the owners in a league from selling their shares to a common company and then "redistributing" owner-like authority back to the former franchisees? It might appear a cynical attempt to avoid antitrust problems, but how would this device be any different from MLS? Recall a few years ago when some wealthy person put in a bid for the entire NHL at a very substantial price? He argued that if he bought the whole thing he could achieve efficiencies that are lost in a league with individual, non-cooperating owners. In other words, along many dimensions it makes business sense for the leagues to act as a single entity. If the courts decide they can't act as a single entity, then they can reorganize to achieve it anyway.