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Trust-busting the NFL

By Steven Pearlstein
Wednesday, October 21, 2009

What do you call a business that consistently overcharges its customers for an inferior product, hires the wrong people and pays them above-market wages, and yet still manages to be one of the most profitable and valuable franchises in its industry?

Here in the nation's capital, we call it the Washington Redskins.

Economists, however, have a more generic name for such an enterprise. They call it a monopoly.

It should be apparent at this point that, whatever his other virtues, Dan Snyder isn't the business whiz he's cracked up to be. From the traffic jams and drunken crowds to the soggy hot dog rolls and the endless TV time-outs, a Redskins game at FedEx Field may be one of the worst entertainment experiences you can buy at any price. And that's not even taking into account the opera buffa now playing out on the field and in the locker room.

But for the fact that Washington football fans have no other choice, the Redskins by now would be in bankruptcy court, right alongside Snyder's other big fiasco, Six Flags.

Snyder, of course, didn't create the Redskins monopoly power and his monopoly profits -- he purchased them, in effect, from the National Football League. Now the league is looking to further entrench its monopoly by asking the Supreme Court to grant what amounts to a blanket exemption from the century-old Sherman Antitrust Act.

The case was brought by American Needle of Buffalo Grove, Ill., which for years had manufactured hats with the insignia of various professional football teams under license from the NFL. In 2000, however, NFL team owners got the idea that, rather than selling multiple licenses to competing producers, they could make more money by selling an exclusive license on behalf of all teams to just one vendor. Not surprisingly, a big company -- Reebok -- won the auction. American Needle filed suit, claiming that a group of supposedly independent businesses, the teams of the NFL, had colluded to limit competition in violation of the Sherman Act.

A federal district court judge dismissed American Needle's case on summary judgment, ruling that the NFL was acting as a "single economic entity," much as it does when it schedules games among teams or sets rules that apply on the playing field. On appeal, the district court's ruling was upheld by the U.S. Court of Appeals for the 7th Circuit in a decision noteworthy not only for how much it conflicted with similar cases decided in other circuits, but also for how it so blithely ignored the clear intent of Congress.

So favorable was the circuit court's decision that when American Needle appealed the case to the Supreme Court, the NFL and all the other professional sports leagues actually urged the justices to take the case, hoping that the conservative majority on the high court would finally grant them the blanket exclusion from antitrust laws that they had sought for decades.

I won't go into all the eye-glazing legal arguments, but suffice it to say that if the NFL wins this case, professional sports leagues will wind up with the best of both worlds -- all the legal advantages of being a collection of independent businesses plus all the advantages of being a single business.

With a blanket antitrust exemption, the leagues could transfer all television and radio broadcasts of their games -- including local rights -- to their own, wholly owned subscription cable and satellite networks, bypassing independent networks and distributors.

Without antitrust restraint, the leagues would finally be able to kill free agency and restrain the competitive bidding among teams for the best players and coaches.

An antitrust exemption would allow the league to dictate ticket prices and prevent teams in the same or adjacent markets from competing for fans by offering discounts. It would also allow the teams to act in concert to require that all sales of tickets in the secondary market be channeled through a brokerage system owned or licensed by the league.

And by ridding itself of antitrust laws, the league would be able to do explicitly what it now does surreptitiously, requiring that any stadium built or leased by a team be heavily subsidized by local taxpayers.

Moreover, if the appeals court ruling in American Needle is permitted to stand, it would surely invite the creation of joint ventures in any number of industries that allow independent companies to collude rather than compete.

Given the stakes, it's not surprising that the U.S. government has now weighed in on the side of American Needle -- and against the NFL. So have the unions representing professional baseball, basketball, football and hockey players; the NFL coaches association; the Consumer Federation of America; the American Antitrust Institute; and 20 sports economists.

Senator Sherman had it right: Americans would be better off if professional sports leagues and their teams were forced to compete -- on the field and off -- for fans, players, coaches, capital and public adulation. Too much of that competition has already been lost by allowing the development of monopoly leagues with local monopoly franchises. Let's hope the Supreme Court does not make things even worse by tightening their stranglehold and further insulating failed teams and their owners from the discipline of the marketplace.

Steven Pearlstein will host a web discussion today at 10 a.m. at washingtonpost.com.

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