Antitrust, Single Entity Leagues, & Why the NFL Prefers to be the MLS
What in the world is antitrust? Antitrust refers to an effort by federal and state governments to prohibit contracts or agreements that illegally restrain trade by creating anti-competitive situations. Essentially, we can’t have too much economic power assembled in the hands of the few. These types of situations are more commonly known as monopolies. After all, this is America damn it and we are built on freedom of competition!! So, legislation such as the Sherman and Clayton Acts protect against such as things as price-fixing, conspiracy between competitors to restrain trade, etc. This is highly important because anti-competitive behavior can lead to diminished economic growth within a particular market due to a lack of incentive to innovate. So, why does the sporting world care about antitrust and why do the leagues consistently argue for an antitrust exemption?
Well, as is usually the case, it all comes down to Benjamins! Not having to worry about antitrust means being able to restrict player movement, set lower player salary levels, sell broadcasting rights as a group, and essentially make a whole lot more money for the owners and the league. All of this also means more league-wide control over players and teams. But, apart from limited antitrust exemption via the Sports Broadcasting Act of 1961, which the permits the ability to sell a unitary video package to TV networks, most leagues do not enjoy an antitrust exemption on their operations. The question is why. After all, isn’t the NFL one entity? If so, then how can it possibly conspire against itself? Right?
Wrong! The “Big 4″ leagues (NFL, NBA, MLB, and NHL) are all structured as multiple entities. Each team is an independent entity from the other teams in the league. Essentially, they are all in competition with one another for players, sponsors, partnerships, and the like. Thus, it is for this very reason that those 3 leagues have spent millions of dollars over many decades arguing for exemptions from antitrust, and largely to no avail. And, therefore, it is for this very reason that the NFL, along with the other Big 4, really wishes it was the MLS.
Major League Soccer, as a league, is constructed very differently from the other major sporting leagues. From the beginning, the MLS was designed and incorporated as a “single entity.” The idea is that, simply put, the league is not made up of independent entities (teams) competing against one another economically, but rather the teams are akin to the subsidiaries of a corporation, with centralized revenue, and so the league and its teams are all part of a large “single entity.” Thus, in the MLS, the league has an ownership interest in and control over each and every team, the brands, licensing, and, what’s more, the players are all employees of the MLS, not the teams that they play for. Even the players’ salaries are paid by MLS, not the teams. Therefore, MLS completely operates as a single entity. And, a single entity cannot conspire against itself. So, MLS is effectively exempt from antitrust simply by its creative structural format. Or is it?
Interestingly enough, the recent case of Fraser v. MLS challenged the league’s right to specifically and openly structure itself as a
single entity. The lower court held for the league, stating that a single entity could not conspire against itself. However, on appeal, the 1st Circuit it called the league a “hybrid.” In their view, the MLS teams showed a “diversity of entrepreneurial interests that goes well beyond the ordinary company.” Yet, the court still held in the league’s favor. So, does this mean that we could someday see a successful challenge the MLS and its single entity argument. I don’t believe so. It is not uncommon for corporate subsidiaries to have entrepreneurial interests of their own and apply them differently than their sister entities. I trust that it was for this reason that the 1st Circuit still held in favor of the MLS despite the “entrepreneurial interests” language. Additionally, this case will serve as precedential to upcoming cases.
So, with a bit of creativity and learning from the mistakes of its larger brethren leagues, Major League Soccer enjoys legal benefits that the economic giant that is the NFL only wishes it could. How does this bode well for the MLS’ economics going forward? We shall have to wait and see.