NFL: American Needle and the Collective Bargaining Agreement

Recently, the United States Supreme Court ruled 9 – 0 in favor of American Needle and against the National Football League (NFL). America Needle sued the NFL alleging anti-trust violations of Section 1 of the Sherman Act wherein “every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade” is made illegal. The lawsuit raised the questions of whether the NFL is capable of engaging in a “contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade” as defined by Section 1 of the Sherman Act or whether the alleged activity performed by the NFL “must be viewed as that of a single enterprise for purposes of Section 1” of the Sherman Act.

If all thirty-two NFL teams could act as one entity, then provisions with respect to collusion could be severely eroded or exterminated altogether. This could allow the NFL to establish salary caps for players which would normally be illegal. This is significant given the pending labor dispute between NFL owners and the NFL players association (NFLPA). The United States Supreme Court held that each of the NFL teams is “substantial, independently owned, and independently operated.” Moreover, the court noted that the NFL teams compete with one another, not only on the playing field, but to attract fans, for gate receipts, for contracts with managerial and playing personnel and when it comes to licensing decisions even if it is through a joint venture known as the NFLP. With regard to the American Needle case, the court found that the NFL teams compete in marketing for intellectual property in terms of pursuing interests of each “corporation itself.” The court held that decisions by the NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that “deprive the marketplace of independent centers of decision making and therefore of actual or potential competition.”

NFL owners for the most part are smart people. Do you really believe that NFL owners expected to prevail with regard to American Needle’s allegations of anti-trust violations? Do you really think NFL owners believed that just because they organized the NFLP they would be insulated from Section 1 of the Sherman Act? Do you really believe that NFL owners thought the American Needle case was their golden ticket to increase their power over the NFLPA? NFL owners and the league knew there was a high probability that their position in the American Needle case would not prevail.

As a result of the American Needle case, the NFL is not going to be able to establish salary caps for players unless they have the approval of the NFLPA. One major issue with respect to the upcoming labor negotiations is a rookie salary cap. Right now, rookie salaries are not capped. NFL teams who pick at the top of the first round of the NFL draft do not necessarily want these picks even though they are in prime position to obtain the finest talent. These teams do not want these picks because of the amount of money they must guarantee (e.g. $40 million) to a player who has never played a single down in the NFL. The NFL draft is as much art as it is science and with this comes high risk in return for substantial gains or loses, e.g. JaMarcus Russell, Ryan Leaf, etc. NFL owners do not want to guarantee so much money to an unproven player. Can anybody really blame them? Would you put up $40 million for an unproven player? Is it reasonable to expect an owner to make that type of investment in a player who has not enhanced the value of the team?

Many so called experts claim that the American Needle case allowed the NFLPA to gain leverage at the bargaining table with respect to a new collective bargaining agreement (CBA) so that:

1. A lockout is less likely; and
2. NFL owners will put more effort into executing a new CBA to avoid a lockout.

Did the NFLPA really gain any leverage at the bargaining table? NFL owners are for the most part billionaires and have access to substantial sums of money to cover any debt service associated with facilities or costs with respect to operating their franchise. Moreover, the NFL has a television contract with DirecTV which is to pay $1 billion per year from 2011 – 2014. Even if there are no games in 2011, each NFL team will earn about $31 million per team during a lockout just with respect to the DirecTV deal. NFL owners are not hurting for money and will still eat three meals a day, live in their same homes and drive their same cars.

On the flip side, the average career for a NFL player is 3.5 years, the players’ contracts are not guaranteed and the vast majority of NFL players do not make millions of dollars in a year let alone over a career. Despite not earning large sums of money over their NFL career, most NFL players live well beyond their means in terms of homes, cars, clothes, entertainment, etc. NFL players need to remember who cuts their paychecks, why the have the privilege of playing in the NFL and who has incurred the debt to run a NFL franchise. The players have the privilege of being in the NFL because of the owners. Without the NFL and its owners, the vast majority of NFL players would be working a forty hour a week job earning a marginal income. The NFLPA and its members always want more money and benefits but they never want to take on any debt or risk associated with running a professional sports franchise. May be the NFL players should personally guarantee some of the corporate debt associated with the thirty-two NFL teams since they want to share in the profits.

The vast majority of NFL players cannot earn the same or similar salary in any other industry that comes close to what they can make in 3.5 years in the NFL. Since the average NFL career is 3.5 years, any time missed as a result of a lockout or strike would take time away from a playing career since any NFL player can always be replaced by a younger player. When NFL players were on strike for fifty-seven days in 1982, many of them wanted the strike to end so that they could get back to work and make their usual salary as opposed to earning strike pay. Although, one difference from 1982 is that the NFLPA has built up a large war chest for a long lockout and owns its own building which it can borrow against if in a pinch. However, NFL players know that they can be replaced as they were in 1987 with so called scab players. Even though the term “scab” paints a picture of lesser quality, fans have to realize that the NFL draft used to have many more rounds than the current seven rounds, i.e. Johnny Unitas taken in the ninth round, and every year players who are not drafted make NFL rosters, i.e. Kurt Warner, London Fletcher, etc. Thus, there are plenty of talented former college football players who are waiting to play in the NFL to show a team what they can do. While there may be a drop off in terms of the elite NFL talent, there surely is not much of a difference between high caliber scab players and the average NFL player.

The NFL has the best professional sports product in the United States with an $8 billion business which continues to grow. The NFL has never been more popular inside and outside of America. NFL owners and the NFLPA are well aware of the numbers and are not eager to ruin their product. NFL owners and league officials are well aware of what happened during the 1982 fifty-seven day long players strike and the 1987 strike which introduced fans to scab players for three weeks. Based on all the totality of the circumstances:

1. NFL owners are not eager to ruin their product with or without a victory in the American Needle case;
2. A lockout is not more or less likely given a NFL loss in the American Needle case;
3. NFL owners have the same motivation to avoid a lockout today as they did before the American Needle case; and
4. The leverage is still with the NFL owners when it comes to negotiating a new CBA.