ARE PROFESSIONAL SPORTS LEAGUES CONTROL OVER THEIR MEMBER TEAMS AND OWNERS IN DOUBT?

Transcription

1 ARE PROFESSIONAL SPORTS LEAGUES CONTROL OVER THEIR MEMBER TEAMS AND OWNERS IN DOUBT? David Falk* I. INTRODUCTION A professional sports league and its teams must agree on certain rules and procedures for it to produce competitive and entertaining games, attract fans, and maintain teams profits. 1 However, whether such cooperation is essential for a league to function or rather an unreasonable restraint on the markets in which a league and its teams participate can be unclear at times. Consequently, courts have not always agreed when presented with this cooperation issue. The recent Supreme Court decision of American Needle, Inc. v. National Football League, sheds some light on this question, but it remains to be seen how expansive the Supreme Court s ruling will be. This Note will examine the history of this question, professional sports leagues attempts to control team purchases and relocations within the context of bankruptcy, and what effect, if any, the Supreme Court s American Needle decision will have on these procedures. II. SPORTS LEAGUES AND THEIR TEAMS The four major professional sports leagues, the National Football League ( NFL ), the National Hockey League ( NHL ), the National Basketball League ( NBA ), and Major League Baseball ( MLB ), are economically * J.D., Rutgers University School of Law Camden, May 2012; B.S., Lehigh University, The author would like to thank his family for all of their support. 1. See Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, 2216 (2010). 337

2 338 RUTGERS LAW JOURNAL [Vol. 43:337 structured in similar fashions. 2 This section will delve into the unique structure of sports, the problems presented by the structure, and how the courts have dealt with it. A. The Unique Structure of Professional Sports Leagues The NFL is made up of thirty-two teams that, together, generate over 250 games a year. 3 The league is an unincorporated joint venture with each team operating as separate corporations or partnerships. 4 The NFL, acting separately from its teams, focuses on scheduling, resolving disputes among players and [teams], supervising officials, discipline,... public relations, and primarily providing competitive football games for public entertainment. 5 The league is run by a Commissioner, currently Roger Goodell, who makes day-to-day decisions regarding [its] operations. 6 Once a member of the league, the owner receives a non-assignable... right to operate a team in its designated home city... against other NFL 2. See Brief for Nat l Football League Players Ass n et al. as Amici Curiae Supporting Petitioners at 3 4, Am. Needle v. Nat l Football League, 130 S. Ct (2010) (No ), 2009 WL In Fraser v. Major League Soccer, the First Circuit noted that Major League Soccer ( MLS ) is structured differently than the other professional sports leagues. Fraser v. Major League Soccer, LLC, 284 F.3d 47, 57 (1st Cir. 2002). MLS is structured as a limited liability company and is owned by a number of independent investors. Id. at 53. The league is governed by a management committee. Id. The league owns all of its teams, as well as all [team and league] intellectual property rights, tickets, supplied equipment, and broadcast rights. Id. 3. Am. Needle Inc. v. Nat l Football League, 538 F.3d 736, 737 (7th Cir. 2008). Since the four major professional sports leagues are similarly structured, the NFL s composition can serve as illustration of each league s basic structure. 4. See Am. Needle, 538 F.3d at 737; N. Am. Soccer League v. Nat l Football League, 670 F.2d 1249, 1251 (2d Cir. 1982). See also NFL CONST. art. II, 2 (2006) (noting that the NFL is not organized or operated for profit). For a league to be successful, an economic joint venture that maintains the following is essential : [The] number of separate football teams, each dispersed in a location having local public fans willing to buy tickets to games or view them on TV; a group of highly skilled players on each team who are reasonably well-matched in playing ability with those of other teams; adequate capital to support the teams operations; uniform rules of competition governing game play; home territory stadia available for the conduct of the games; referees; and an apparatus for the negotiation and sale of network TV and radio broadcast rights and distribution of broadcast revenues among members. N. Am. Soccer League, 670 F.2d at L.A. Mem l Coliseum Comm n v. Nat l Football League, 726 F.2d 1381, 1389 (9th Cir. 1984); N. Am. Soccer League, 670 F.2d at L.A. Mem l Coliseum Comm n, 726 F.2d at 1389.

3 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 339 members pursuant to the league s constitution and bylaws. 7 The league s primary goal is to promote and foster the business of its teams. 8 B. Problems Presented by the Structure of Professional Sports Applying many aspects of the law to the unique industry of professional sports can be complicated. The most recent professional sports litigation before the Supreme Court, American Needle, exemplifies the difficulties in applying traditional law to disputes in sports. 9 Courts have continuously noted the complexity of applying antitrust law to professional sports. 10 Recently, the bankruptcy courts have had similar frustrations dealing with professional sports teams filing Chapter 11 bankruptcy. 11 Other controversial issues involve professional sports leagues policies, as outlined in their constitutions and bylaws, regarding the transferring of team ownership and the relocation of teams N. Am. Soccer League, 670 F.2d at NFL CONST. art. II, 1(A). The league s ultimate goal is to attract fans to attend games, and induce advertisers to sponsor the league and its teams. N. Am. Soccer League, 670 F.2d at Also noteworthy is that profits are shared amongst teams within the league. See NFL CONST. art. X, 3 (providing that, for example, [a]ll regular season (and preseason network) television income will be divided equally among all teams). 9. See Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, (2010) (noting that, with respect to antitrust law, the special characteristics of professional sports leagues require a unique analysis). 10. See, e.g., Brown v. Pro Football, Inc., 518 U.S. 231, 248 (1996) (noting that the clubs that make up a professional sports league are not completely independent economic competitors ); Super Sulky, Inc. v. U.S. Trotting Ass n, 174 F.3d 733, 741 (6th Cir. 1999) (observing that the notion of concerted action liability in the field of professional sports is at best confusing ); L.A. Mem l Coliseum Comm n, 726 F.2d at 1391 (noting the difficulty of analyzing the negative and positive effects of a business practice in an industry which does not readily fit into the antitrust context ). 11. See, e.g., In re Texas Rangers Baseball Partners, 431 B.R. 706 (Bankr. N.D. Tex. 2010); In re Dewey Ranch Hockey, LLC, 406 B.R. 30, 35 (Bankr. D. Ariz. 2009). There is an inherent conflict between the goals of professional sports leagues and the U.S. Bankruptcy Code with regard to the sale of a professional sports team. Lawrence J. Kolter & Matthew E. Hoffman, Rangers, Coyotes Asset-Purchase Agreements: Trumping Bankruptcy s Fundamental Goals?, 29 7 AM. BANKR. INST. J. 26, 26 (2010). The bankruptcy court in Dewey Ranch Hockey noted that the Phoenix Coyotes NHL team bankruptcy filing was the first case under the Bankruptcy Code where a professional sports team [sought] to use the rights contained in the Code to force a sale and relocation of a team, which presented novel and unique issues to the court. In re Dewey Ranch Hockey, 406 B.R. at See generally Sullivan v. Nat l Football League, 34 F.3d 1091 (1st Cir. 1994); Fishman v. Estate of Wirtz, 807 F.2d 520 (7th Cir. 1986); L.A. Mem l Coliseum Comm n, 726

4 340 RUTGERS LAW JOURNAL [Vol. 43:337 C. History of the Single Entity Defense Professional sports leagues have attempted to use the single entity defense when attacked under antitrust law. 13 The single entity defense has its origin in the Sherman Antitrust Act, 15 U.S.C. 1 ( Section 1 ). 14 Section 1 was intended to protect consumer welfare. 15 In Copperweld Corp. v. Independence Tube Corp., 16 the Supreme Court held that concerted action which deprives the marketplace of... independent... decision making, harming consumers by creating anticompetitive risks, and shifting the economic power unfairly to the hands of the concerting parties is a violation of Section However, not all instances of cooperation between two parties will restrain trade and violate Section There has been a history of Section 1 claims brought against professional sports leagues. 19 F.2d at ; S.F. Seals Ltd. v. Nat l Hockey League, 379 F. Supp. 966 (C.D. Cal. 1974); Levin v. Nat l Basketball Ass n, 385 F. Supp. 149 (S.D.N.Y. 1974). 13. See, e.g., Michael A. McCann, American Needle v. NFL: An Opportunity to Reshape Sports Law, 119 YALE L.J. 726, (2010); Stephen F. Ross, Antitrust Options To Redress Anticompetitive Restraints And Monopolistic Practices By Professional Sports Leagues, 52 CASE W. RES. L. REV. 133, 146 (2001) (claiming that individual teams in one league are incapable of conspiring with each other). 14. See McCann, supra note 13, at 734. Section 1 provides, in part, that: Every contract, combination... or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony. 15 U.S.C. 1 (2002). 15. Nat l Collegiate Athletic Ass n v. Bd. of Regents, 468 U.S. 85, 107 (1984) (internal quotation marks omitted). There is a traditional concern for consumer welfare and price competition. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 221 (1993). See also PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 1462b at (2d ed. 2003) (noting that the central evil addressed by Section 1 is the elimination of competition that would otherwise exist ) U.S. 752 (1984). 17. Copperweld Corp., 467 U.S. at 769. The single entity defense was initially fashioned in Copperweld Corp. where the Supreme Court held that a parent corporation and its wholly owned subsidiary are incapable of conspiring with each other for purposes of Section 1 scrutiny. Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, 2211 (2010) (quoting Copperweld Corp., 467 U.S. at 777). The Court explained that although a parent corporation and its wholly owned subsidiary are distinct entities under corporate law, a single center of decisionmaking controls them both. Id. A parent and subsidiary may maintain complete unity of interest and thus [w]ith or without a formal agreement, the subsidiary acts for the benefit of the parent. Id. at 2212 (internal quotation marks omitted). 18. Am. Needle, 130 S. Ct. at The Supreme Court noted that there is not necessarily concerted action simply because more than one legally distinct entity is involved.

5 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 341 In applying Section 1 and antitrust law to professional sports, the Seventh Circuit saw no reason why a sports league cannot be treated as a single firm under Copperweld Corp. 20 A league produces a single product[, thus,] cooperation is essential (a league with one team would be like one hand clapping). 21 Therefore, the Seventh Circuit concluded that a sports league cannot deprive the market of independent centers of decisionmaking. 22 Further, in 1996, the Supreme Court in Brown v. Pro Football noted that professional sports teams depend upon a degree of cooperation for economic survival and, as a result, are not completely independent economic competitors. 23 The Seventh Circuit indicated that more than one characterization is possible when determining whether a professional sports league is a single entity. 24 Id. at Even if the parties may be integrated under common ownership, that is not enough to say that cooperation between them restrains trade. Id. The focus of an antitrust inquiry should be on substance over form. Id. Certain features of professional sports leagues illustrate that each team [is] an entity in large part distinct from its league. L.A. Mem l Coliseum Comm n v. Nat l Football League, 726 F.2d 1381, (9th Cir. 1984). In certain areas of the country, there may be a number of teams that operate in close proximity to each other and compet[e] for fan support, local television and local radio revenues, and media space. Id. 19. See, e.g., Brown v. Pro Football, Inc., 518 U.S. 231, 249 (1996) (challenging the league s labor policies as violative of Section 1); Nat l Collegiate Athletic Ass n, 468 U.S. at 99 (claiming the NCAA s television plan violated Section 1); Sullivan v. Nat l Football League, 34 F.3d 1091, 1098 (1st Cir. 1994) (claiming the NFL s ban on public ownership of teams violates Section 1); Mid-South Grizzlies v. Nat l Football League, 720 F.2d 772, 787 (3d Cir. 1983) (alleging the NFL s refusal to grant membership into the league violates Section 1); N. Am. Soccer League v. Nat l Football League, 670 F.2d 1249, 1255 (2d Cir. 1982) (alleging that the NFL s ban on ownership of teams in other professional sports leagues violates Section 1). 20. Chi. Prof l Sports Ltd. P ship v. Nat l Basketball Ass n, 95 F.3d 593, (7th Cir. 1996) (holding that the NBA and its teams could be treated as a single enterprise with respect to the league s sale of broadcasting rights, even though they may have competing interests). 21. Id. 22. Id. 23. Brown, 518 U.S. at Chi. Prof l Sports Ltd. P ship, 95 F.3d at 599. Additionally, the Seventh Circuit held that Copperweld Corp. inquiries regarding whether a professional sports league should be treated as a single entity or should be done on a league-by-league and case-by-case basis: [W]e do not rule out the possibility that an organization such as the NBA is best understood as one firm when selling broadcast rights to a network in competition with a thousand other producers of entertainment, but is best understood as a joint venture when curtailing competition for players who have few other market opportunities. Id. at 600.

6 342 RUTGERS LAW JOURNAL [Vol. 43:337 On the other hand, other circuits have concluded that no such single entity defense will be afforded to professional sports leagues. 25 When a league acts together and reduces competition, it may constitute concerted action for the purposes of establishing a Section 1 violation. 26 Although Section 1 could be read to literally reject all concerted activity, most courts, in applying Section 1 to professional sports, have analyzed the challenged action under Rule of Reason analysis. 27 Under Rule of Reason scrutiny, a restraint on trade is unreasonable if it was intended to restrain trade and enhance prices... based either (1) on the nature or character of the contracts, or (2) on surrounding circumstances giving rise to the inference or presumption. 28 Once an unreasonable restraint is demonstrated, the proponent of the anticompetitive behavior has a high burden to show that 25. L.A. Mem l Coliseum Comm n v. Nat l Football League, 726 F.2d 1381 (9th Cir. 1984); N. Am. Soccer League v. Nat'l Football League, 670 F.2d 1249, 1259 (2d Cir. 1982). 26. Murray v. Nat l Football League, No , 1996 WL , at *22, 26 (E.D. Pa. June 28, 1996) (holding that the NFL and its teams are not considered a single enterprise; nevertheless, the league s rejection of a new team did not violate antitrust law because the league s rejection was not for anticompetitive reasons; there were no current teams in or near the proposed new host cities). 27. L.A. Mem l Coliseum Comm n, 726 F.2d at The unique nature of professional sports makes application of a per se rule inappropriate. Id. at Because agreements between members of a joint venture can under some circumstances have legitimate purposes as well as anticompetitive effects, they are subject to scrutiny under the rules of reason.... This entails an inquiry into whether the challenged agreement is one that promotes competition or one that suppresses competition... that is, whether the procompetitive effects of this restraint outweigh the anticompetitive effects.... [T]he existence of (less restrictive) alternatives is obviously of vital concern in evaluating putatively anticompetitive conduct. N. Am. Soccer League, 670 F.2d at Nat l Collegiate Athletic Ass n v. Bd. of Regents, 468 U.S. 85, 103 (1984) (noting that the inquiry is confined to a consideration of impact on competitive conditions ). As the Supreme Court highlights in American Needle, Justice Brandies outlined Rule of Reason analysis over 90 years ago: The true test of legality [under Rule of Reason scrutiny] is whether the restraint imposed is such as merely regulates... [but] promotes competition or whether it... may suppress or even destroy competition. [T]he court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint is imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, 2217 (2010) (quoting Bd. of Trade of Chi. v. United States, 246 U.S. 231, 238 (1918)).

7 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 343 such deviation from the operations of a free market was justified. 29 Therefore, prior to American Needle, courts disagreed as to whether or not professional sports leagues could be classified as single entities, which would shield them from Section 1. D. American Needle, Inc. v. National Football League In the early 1960 s, the NFL and its teams formed the National Football League Properties ( NFLP ) to develop, license, and market their intellectual property. 30 NFLP was authorized to grant vendor licenses to manufacture and sell team apparel to fans that bore the teams logos. 31 After years of simultaneously granting these apparel licenses to different vendors in 2000, NFLP was authorized by the league and its teams to grant an exclusive headwear license through a bidding process. 32 In late 2000, Reebok won the bidding war and NFLP granted them an exclusive headwear license for ten years. 33 Prior to December 2000, American Needle had a nonexclusive license from NFLP to manufacture and sell apparel bearing team insignias. 34 Following the Reebok-NFL deal, American Needle filed a complaint alleging that the agreements between the NFL, its teams, NFLP, and Reebok violated Section The NFL responded by asserting that they 29. Nat l Collegiate Athletic Ass n, 468 U.S. at 113. The Supreme Court found that an NCAA television agreement failed the Rule of Reason analysis and constituted an unreasonable restraint on the operation of a free market. Id. The agreement limited the number of college football games an association member could televise, and also prohibited any member to sell its television rights except in accordance with the agreement. Id. 30. Am. Needle, 130 S. Ct. at 2207 (the majority of revenues generated by NFLP have either been given to charity or shared equally among the [32] teams ). 31. Am. Needle, Inc. v. Nat l Football League, 538 F.3d 736, (7th Cir. 2008). Each NFL team has its own name, colors, and logo, and owns related intellectual property. Am. Needle, 130 S. Ct. at Am. Needle, 538 F.3d at Id. The NFL owners approved a long-term licensing agreement with Reebok International by a 30-1 vote... granting Reebok exclusive rights to manufacture and sell NFL team uniforms and sideline apparel beginning in NFL owners approve long-term Reebok deal, SPORTS BUSINESS JOURNAL (Dec. 18, 2000), /Journal/Issues/2000/12/ /No-Topic-Name/NFL-Owners-Approve-Long-Term- Reebok-Deal.aspx. 34. Am. Needle, 130 S. Ct. at Am. Needle, 538 F.3d at 738. American Needle asserted that since each of the individual teams separately owned their team logos and trademarks... their collective agreement to authorize [NFLP] to award the exclusive headwear license to Reebok was... a

8 344 RUTGERS LAW JOURNAL [Vol. 43:337 were incapable of conspiring within the meaning of [Section 1] because they are a single economic enterprise, at least with respect to the conduct challenged. 36 The Seventh Circuit agreed with the NFL and granted its summary judgment motion. 37 The Supreme Court held that NFL teams are best described as a single source of economic power when promoting NFL football through licensing the teams intellectual property. 38 In mid-2009, the Supreme Court agreed to hear American Needle s appeal of the Seventh Circuit s decision. 39 Many experts acknowledged the importance of this decision. 40 Moreover, other professional sports leagues, conspiracy to restrict other vendors ability to obtain licenses for the teams intellectual property. Id. 36. Am. Needle, 130 S. Ct. at 2207 (internal quotation marks omitted). The NFL argued that a number of federal courts have applied the Supreme Court s holding in Copperweld Corp. a parent corporation and its wholly owned subsidiary are a single entity for antitrust purposes to mean that affiliated companies... could also be considered a single entity in certain circumstances. Am. Needle, 538 F.3d at 738. See, e.g., Jack Russell Terrier Network v. Am. Kennel Club, Inc., 407 F.3d 1027, 1035 (9th Cir. 2005); Eleven Line, Inc. v. N. Tex. State Soccer Ass n, 213 F.3d 198, 205 (5th Cir. 2000); Chi. Prof l Sports Ltd. v. Nat l Basketball Ass n, 95 F.3d 593, (7th Cir. 1996); City of Mt. Pleasant v. Associated Elec. Coop., Inc., 838 F.2d 268, 271, (8th Cir. 1988). Therefore, the NFL and its teams acted as a single entity when collectively promoting NFL football through Reebok. Am. Needle, 538 F.3d at Am. Needle, 538 F.3d at Id. The lower court found that the NFL and [its] teams act as a single entity in licensing their intellectual property, thus, the teams collective agreement with Reebok promoted NFL football as a whole. Id. When affirming the lower court s decision, the Seventh Circuit recognized the difficulties presented by the uniqueness of the sports industry in determining whether a league should be classified as a single entity immune from antitrust scrutiny or a joint venture between independently owned teams subject to Section 1 scrutiny. Id. at 741. The court reasoned that the Supreme Court s commentary in National Collegiate Athletic Association v. Board of Regents supported its holding. Id. at 743. In that case, the Supreme Court noted that some business activities can only be carried out jointly... [and] league sports is an example. Nat l Collegiate Athletic Ass n v. Bd. of Regents, 468 U.S. 85, 101 (1984) (emphasis added). When a league of professional lacrosse teams is formed, it would be pointless to declare their cooperation illegal on the ground that there are no other professional lacrosse teams. Am. Needle, 538 F.3d at 743. (citing Nat l Collegiate Athletic Ass n, 468 U.S. at 101). 39. Supreme Court Agrees to Hear Appeal of NFL Antitrust Case, SPORTS BUSINESS DAILY (June 30, 2009), 196/Law-Politics/Supreme-Court-Agrees-To-Hear-Appeal-Of-NFL-Antitrust-Case.aspx. Although the NFL won in the Seventh Circuit, they also pushed for the Supreme Court to hear the case. Id. The NFL sought a favorable precedential ruling from the Supreme Court on the application of the antitrust laws to the unique structure of a sports league. Id. 40. Id. Marquette University Law School National Sports Law Institute Director, Matt Mitten, said that a favorable court decision could no longer subject leagues to litigation

9 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 345 including the NHL and NBA, filed amici briefs in support of the NFL. 41 The Supreme Court, applying Copperweld Corp., focused on whether the agreement between the NFL, its teams and Reebok merge independent centers of decisionmaking, conspiring in violation of Section The Court held that each NFL team, while related to each other, still compete for fans, receipts and contracts with managerial and playing personnel. 43 The Court further held that since teams compete in the apparel market, the collective agreement with Reebok depriv[ed] the marketplace of independent decisionmaking. 44 The fact that NFL teams need to cooperate concerning such issues as relocation and team ownership requirements. Id. Tulane University Sports Law Program Director, Gabe Feldman, noted that a favorable ruling for the NFL could rewrite almost all of sports antitrust law. Id. Sports Law Professor, Marc Edelman, also noted that: [A] broad classification of the NFL being just one thing would allow them [and other professional sports leagues] to act in a whole host of matters that would make them much more powerful vis-à-vis consumers and other parties involved.... [I]f the NFL were a single entity, they might even be able to set ticket prices the same amongst all of the teams... [or control r]ules with respect to teams moving into different markets, [or] with respect to players who are suspended. Lawyer-2-Lawyer: American Needle, Inc. v. NFL, LEGAL TALK NETWORK (May 27, 2010), See, e.g., Brief for Nat l Basketball Assoc. as Amici Curiae Supporting Respondents, Am. Needle, Inc. v. Nat l Football League, 130 S. Ct (2010) (No ), 2009 LEXIS 1262 at *1 4; Brief for Nat l Hockey League as Amici Curiae Supporting Respondents, Am. Needle, Inc. v. Nat l Football League, 130 S. Ct (2010) (No ), 2009 LEXIS 1266, at *1 5. In a recent interview, Professor Edelman noted that the NBA, the NHL, [and] Major League Soccer, all submitted amicus briefs... in favor of the NFL....[the MLB] stayed out of the case. Lawyer-2-Lawyer: American Needle, Inc. v. NFL, supra note 40. Presumably [because]... the Curt Flood Act of 98 affirmed that MLB was exempt from antitrust laws since the business of baseball is purely state affairs... [and] not a subject of commerce ; the courts specifically say that this exemption does not apply to the other professional sports. Id.; see also 15 U.S.C. 12 (2006); Flood v. Kuhn, 407 U.S. 258, 285 (1972); Fed. Baseball Club of Balt., Inc. v. Nat l League of Prof l Baseball Clubs, 259 U.S. 200, 207 (1922). Professor Edelman added however, that it is unknown how broad baseball s [antitrust] exemption is, [though MLB] claims to interpret that exemption broadly... by not getting involved; they were taking the stance that American Needle would not affect them because they already are exempt... whether that s actually [true] remains to be seen. Lawyer-2-Lawyer: American Needle, Inc. v. NFL, supra note Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, 2212 (2010). 43. Am. Needle, 130 S. Ct. at Id. at The Court explained that a firm making hats [considers] the Saints and the Colts... two potentially competing suppliers of valuable trademarks... acting as separate economic actors pursuing separate economic interests. Id. (quoting Copperweld

10 346 RUTGERS LAW JOURNAL [Vol. 43:337 in some manner in order to survive does not mean they are immune from antitrust law. 45 The Court classified NFL teams cooperative action, at least with respect to licensing agreements, as a joint venture between individual economic competitors, and therefore subject to Section 1 scrutiny. 46 Additionally, the fact that one separate corporation, NFLP, made the licensing decisions for all NFL teams does not bar it from Section 1 examination. 47 The Court effectively classified NFLP as a shell corporation through which the teams make cooperative licensing decisions. 48 In reversing the Seventh Circuit s decision, the Supreme Court held that the NFL-Reebok agreement was concerted action between competitors Corp. v. Independence Tube Corp., 467 U.S. 752, 769 (1984)). Furthermore, the Court indicated that Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned.... Common interests in the NFL brand partially [unite their] economic interests... but the teams still have distinct, potentially competing interests. Id. at 2213 (internal quotation marks omitted). An example of NFL teams divergent interests relating to the licensing of trademarks was demonstrated back in 1995 when Dallas Cowboys owner, Jerry Jones, sued the NFL and NFLP. See Richard Alm, Jones Strikes Back, Sues NFL: Cowboys $750 million Action Says League Violates Antitrust Laws, DALLAS MORNING NEWS, Nov. 7, 1995, at 1A. Jones alleged that the league s centralized marketing efforts violate antitrust laws. Id. Jones sought to break up NFLP and give the Dallas Cowboys control of the club s trademarks and logos. Id. Jones said that the NFL, regarding [its] marketing, is an illegal cartel, and it has stymied competition between the clubs. Id. 45. Am. Needle, 130 S. Ct. at Even though, as the Seventh Circuit noted, two teams are needed to play a football game, the Supreme Court clarified that not all aspects of... interleague cooperation are necessary to produce a game.... Members of any cartel could insist that their cooperation is necessary to produce the cartel product and compete. Id. at 2214 n.7 (internal quotation marks omitted). 46. Id. at In characterizing sports leagues as such, the Court observed that: Any joint venture involves multiple sources of economic power cooperating to produce a product.... [F]or many... the participation of others is necessary. But that does not mean that necessity of cooperation transforms concerted action into independent action; a nut and a bolt can only operate together, but an agreement between nut and bolt manufacturers is still subject to [Section 1] analysis.... The mere fact that the teams operate jointly in some sense does not mean that they are immune. Id. 47. Id. at It is irrelevant that NFL teams have been using NFLP to collectively license their trademarks since the 1960s. Id. at [A] history of concerted activity does not immunize conduct from [Section 1] scrutiny. Id. at Each team owns its share of the jointly managed assets, and each capture[s] individual economic benefits separate[ly]... from NFLP profits, which are shared among the group. Id. at Id. at 2215.

11 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 347 subject to Section 1 review under Rule of Reason analysis, and remanded the case. 49 However, the Court did not entirely close the single entity door on cooperation among the teams. 50 Still, it is not entirely clear what type of cooperative action will be subject to Section 1 scrutiny. 51 E. American Needle follow-up: Deutscher Tennis Bund v. ATP Tour, Inc. Deutscher Tennis Bund v. ATP Tour, Inc. 52 was the first professional sports litigation in which the Supreme Court s American Needle decision was discussed. 53 The German Tennis Federation ( GTF ) and the Qatar Tennis Federation ( QTP ), owners of a tennis tournament in Hamburg, Germany, that was part of the Association of Tennis Professionals ( ATP ) 49. Id. at On remand, the NFL-Reebok agreement will be scrutinized under the Rule of Reason. Id. If the court finds the agreement pro-competitive, the NFL wins. Daniel Walsh, Reversing Field, ADVERTISING SPECIALTY INSTITUTE, (Aug. 2010), If not, then an American Needle victory could preclude exclusive professional sports licensing by leagues, allowing smaller distributors and embroiderers to compete with Reebok and other giants of the sports apparel world. Id. 50. Am. Needle, 130 S. Ct. at The Court noted that teams that need to cooperate are not trapped by antitrust law... [and] many kinds of agreements in the sports industry may be justified. Id. at Generally, joint ventures agreements are legal where they are necessary to market the product and depending upon the concerted activity... the Rule of Reason may not require a detailed analysis.... Id. at A relevant element to consider under Rule of Reason scrutiny is the necessity of cooperation. Id. at 2214 n Professor Michael McCann, a preeminent Sports Law Professor at Vermont University Law School, commented on the Court s ambiguity of a professional sports league s possible single entity status. See Lawyer-2-Lawyer: American Needle, Inc. v. NFL, supra note 40. Professor McCann said that the Court left open the possibility of single entity recognition in some type of undefined area for professional sports leagues. Id. However, he is unsure exactly what type of concerted action would be acceptable: I suspect [the Court s] referring to things like game rules... you can t play competitive games unless you agree on the underlying rules.... [P]ossibly he s referring to other types of activity, although clearly not in the context of apparel.... [B]ut that s all we know, maybe [the Court] is referring to broadcasting deals, maybe... video game licensing contracts,... [Although] I suspect [the Court s] referring to... things that are clearly not litigious. Id F.3d 820 (3d Cir. 2010). 53. Daniel Kaplan, Federal Appeals Court Affirms ATP s 08 Antitrust Victory, SPORTS BUSINESS JOURNAL (June 25, 2010), /2010/06/Issue-197/Leagues-Governing-Bodies/Federal-Appeals-Court-Affirms-Atps-08- Antitrust-Victory.aspx.

12 348 RUTGERS LAW JOURNAL [Vol. 43:337 worldwide circuit, brought an antitrust lawsuit against the ATP. 54 In 2007, the ATP initiated a plan to revamp its worldwide tour with the goal of improving its popularity. 55 The new plan was designed to better attract the tour s top players to the top tournaments. 56 The part of the plan that spurred this lawsuit was the ATP s redesignation of certain tournaments to different tiers. The ATP demoted GTF and QTF s Hamburg tournament, from a Tier I tournament to a Tier II tournament. 57 GTF and QTF alleged that the ATP s plan violated Section 1, because the ATP conspired to control the supply of top men s professional tennis players services, establishing a favored class of tournaments... precluding other tournaments from competing for such player services Deutscher, 610 F.3d at 824; see also Ravi Ubha, ATP Tour Sued by Hamburg Masters, Accused of Running Cartel, BLOOMBERG NEWS (Mar. 29, 2007), Deutscher, 610 F.3d at 825. The ATP realized it was losing ground in the sports and entertainment markets. Id. Therefore, they wanted to enable tennis fans... to see the top tennis players play against each other more often. Id. The top players had begun to participate in fewer top-tier events... weakening the member tournaments ability to secure television coverage, sponsorships and ticket sales. Id. 56. Id. The plan, which came to be known as the Brave New World plan, altered the number of ranking points awarded to winning players in different tiers of tournaments. Id. Tournament Level Points Awarded Old System Points Awarded New System Tier I Tier II Tier III Id. at 826. Additionally, the plan instituted sanctions for top players who did not report to Tier I events and some Tier II and III events. Id. The plan also adjusted the schedule to align tournaments with the same surfaces (i.e. grass, hard-court, clay). Id. 57. Id. at Id. at 827. GTF and QTF claimed that the ATP Brave New World plan would have a major effect on the ability of Tier II and III events to attract marquee players, making life very difficult for such tournaments. Brief for Petitioner-Appellant at 29, Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 820 (3d Cir. 2009) (No ), 2009 WL GTF and QTF also alleged a Section 2 violation, claiming the ATP was monopolizing the market for men s professional tennis players services, and that the ATP s directors breached their fiduciary duties owed to them by adopting the new plan. Deutscher, 610 F.3d at 827.

13 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 349 The ATP argued that it is a single enterprise and its internal decisions to adopt the new tour plan could not violate Section The Third Circuit emphasized that, under American Needle, [t]he key is whether the alleged contract, combination... or conspiracy is concerted action that is, whether it joins together separate decision makers. 60 Furthermore, a Section 1 inquiry centers on diminution of competition in a relevant market that would otherwise exist. 61 The ATP s tournament members new plan/agreement might have deprived a marketplace of potential competition. 62 However, GTF and QTF failed to prove a relevant market for professional tennis players. 63 Thus, even if the jury had found concerted action, and rejected the ATP s single entity argument, the alleged restraint did not unreasonably deprive a marketplace of competition, and in fact was pro-competitive. 64 Since QTF and GTF failed to establish the 59. Deutscher, 610 F.3d at 835. The ATP asserted that: [E]ach of its tournament members is dependent on the others to produce a common product a marketable annual professional tennis tour that competes with other forms of entertainment.... [That] its members do not compete but... cooperate to produce the Tour, and [the ATP s] adoption of the [new plan] was the core activity of producing this product. Id. The district court determined that the decision of whether the ATP and its members function as a single business entity should be left up to a jury. Id. at Accordingly, the court gave the jury ATP s proposed single enterprise instruction. Id. at 836. Based on these instructions, the jury did not find the requisite concerted action to support a Section 1 claim. Id. at Id. at 835 (internal quotation marks omitted). 61. Id. 62. Id. at 837 (internal quotation marks omitted). The plaintiffs asserted that the individual tennis tournaments... compete for player talent... [and] an agreement restricting this competition should not... be immune from Section 1 scrutiny. Id. They urged that this paralleled the Supreme Court s holding in American Needle that NFL teams decisions to license their separately owned trademarks collectively and to only one vendor... depriv[ed] the marketplace of independent centers of decisionmaking, and therefore of actual or potential competition. Id. (internal quotation marks omitted). 63. Id. Under Rule of Reason analysis, the burden remains on the challenger to demonstrate that the proffered procompetitive effect [on the market] does not plausibly result in a net procompetitive effect, or possibly no effect at all on competition within the market. Id. at 832 (internal quotation marks omitted). The ATP was able to illustrate that the plan enabled it to compete with other spectator sports and entertainment products by improving the quality and consistency of its top-tier events. Id. at 833. Additionally, the ATP s modifications to the tour calendar, increase of investment, higher payments to players, and expanded geographic reach were all designed to improve the Tour. Id. Therefore, the Third Circuit found that GTF and QTF failed to show that the ATP s alleged restraints on the marketplace were anticompetitive. Id. 64. Id. at 837.

14 350 RUTGERS LAW JOURNAL [Vol. 43:337 relevant market component of a Section 1 claim, the Third Circuit was not required to fully apply American Needle s ruling. Therefore, the court only glossed over the Supreme Court s ruling s possible effect on professional sports and antitrust disputes. 65 III. BANKRUPTCY IN PROFESSIONAL SPORTS The Phoenix Coyotes ( Coyotes ) and Texas Rangers ( Rangers ) bankruptcy cases both highlight a troubling trend where leagues attempt to exert tremendous control over the bankruptcy courts. 66 The Coyotes and Rangers cases are situations where lenders and creditors have pushed for bankruptcy courts to sell distressed [teams] to high bidders rather than a sports league s preferred buyer. 67 The bankruptcy courts were forced to deal with antitrust issues relating to professional sports leagues control over the transfer of ownerships and the relocation of teams. In both cases, the leagues eventually got what they wanted, although in different manners. A. The Chapter 11 Bankruptcy Process The purpose of Chapter 11 bankruptcy is to restructure a business s finances to allow it to continue its operation. 68 A committee of creditors is 65. This case was by no means a simple exercise of applying American Needle to the facts of the case... [t]here was nothing that extended, distinguished, or refuted American Needle. Ryan M. Rodenberg, Deutscher Tennis Bund vs. ATP World Tour, SPORTS LAW BLOG (June 25, 2010), As Thomas Salerno, counsel for the Coyotes in its bankruptcy case, observed: Outside of a professional sports team bankruptcy, if you had parties conspiring like that to say, I don t care whether other buyers are going to pay more, you can t negotiate with them it would be extraordinary.... But in a professional sports team bankruptcy, that s apparently okay. Their agenda is not to maximize value, their agenda is to do what s good for the sport. Fair enough. But that goes head to head with the imperative of bankruptcy law. Bankruptcy Objectives Hold Own in Second Match-Up Versus Professional Sports Leagues, BCD NEWS AND COMMENT, Aug. 17, Zach Lowe, The End of the Epic Rangers Bankruptcy, THE AMERICAN LAWYER (Aug. 8, 2010), =1&hbxlogin= Timothy D. Cedrone, Comment, A Critical Analysis of Sports Organization Bankruptcies in the United States and England: Does Bankruptcy Law Explain the Disparity in Number of Cases?, 18 SETON HALL J. SPORTS & ENT. L. 297, 308 (2008). Generally, the company filing, known as the debtor-in-possession, continues to manage and hold onto its property. Id. at 309.

15 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 351 normally appointed to construct a reorganization plan and supervise the filing company. 69 Once the bankruptcy petition is filed, an automatic stay against the filing company s debts is ordered which allows the company to reorganize. 70 If needed, the company is loaned funds by a third party in order to operate; this financier is given default priority over other creditors. 71 Finally, the reorganization plan must be submitted and approved by the court The Phoenix Coyotes Bankruptcy Case Since at least 2004, the Coyotes NHL team had been operating at a loss of close to $72 million or worse. 73 In late 2006, Jerry Moyes was approved by the NHL to become the new majority owner of the Coyotes. 74 However, in the summer of 2008, the Coyotes were again spiraling downwards and Moyes informed the NHL that he would no longer be able to sustain the operation of the team. 75 The NHL subsequently stepped in and began 69. Id. at 309; 11 U.S.C. 365 (2005). 70. See 11 U.S.C In a sport bankruptcy case, the automatic stay will protect the [team s] contract rights and leases (the [team s] primary property) from litigation. Cedrone, supra note 68, at U.S.C. 363; Cedrone, supra note 68, at The need for... a sport [team] to obtain post-petition financing is of utmost significance due to [its] large operating expenses. Cedrone, supra note 68, at U.S.C Reorganization plans for sports teams generally restructure the team through a plan in which the current ownership maintains control or through a liquidating plan in which new ownership takes over the team. Cedrone, supra note 68, at In re Dewey Ranch Hockey, LLC, 414 B.R. 577, 579 (Bankr. D. Ariz. 2009). Year Operating Loss Total Loss 2004 $49,425,000 $75,352, $26,786,000 $50,675, $31,410,000 $75,343, $107,763,000 $117,175, $54,817,000 $72,131,000 Id. 74. Id. at 580. Moyes purchased a controlling interest (91.7%) in the Coyotes from Steve Ellman. Id.; see also David Vest, NHL Expected to Approve Moyes as Main Owner, THE ARIZONA REPUBLIC (June 21, 2006), /articles/0621yotesnb0621.html. 75. In re Dewey Ranch Hockey, 414 B.R. at 580.

16 352 RUTGERS LAW JOURNAL [Vol. 43:337 advancing funds to pay the Coyotes operating losses. 76 Meanwhile, both Moyes and the NHL attempted to find potential buyers. 77 In early 2009, Moyes was informed that PSE Sports and Entertainment ( PSE ), whose principal owner was James Balsillie, was interested in purchasing the Coyotes and relocating the team to Hamilton, Ontario, Canada. 78 Negotiations soon began with PSE, even though Gary Bettman, Commissioner of the NHL, expressly told Moyes to halt talks with PSE and Balsillie, because the Coyotes were staying in Arizona. 79 Ignoring Bettman s instructions, on May 5, 2009, a sale of the Coyotes was executed between PSE and Balsillie, conditioned upon the team moving to Hamilton. 80 Additionally, the team filed Chapter 11 bankruptcy in an attempt to speed up the sale, and if needed, against the will of the NHL. 81 The motion filed by the Coyotes to accelerate the approval of the sale was denied. 82 PSE and the Coyotes argued, among other things, that the NHL was committing antitrust violations by not approving the transfer of ownership to 76. Id. 77. Id. 78. Id. At the time, Balsillie was a director and founder of Research in Motion, Ltd. ( RIM ), one of the most successful businessmen in Canada, and among the top 500 richest people in the world. The World s Billionaires: #421 James Balsillie, FORBES.COM (Mar. 10, 2010), This was Balsillie s third attempt to acquire a NHL team. In re Dewey Ranch Hockey, 414 B.R. at 581. Previously, he sought to purchase the Pittsburgh Penguins and Nashville Predators. Id. at Each time the purchases fell apart due to, among other things, Balsillie s desire to relocate the teams to Hamilton, Ontario, Canada. Id. at In re Dewey Ranch Hockey, 414 B.R. at Id. 81. Id. The day the Coyotes filed for Chapter 11 bankruptcy, they signed an Asset Purchase Agreement ( APA ) with PSE. Id. at 582. The APA said that: (1) PSE would pay the Coyotes $ 212,500, in cash for the Coyotes and most of its assets including all of its rights as a member team in the NHL and (2) the bankruptcy court order approving the sale must expressly provide that the home games would be played at the location of PSE s choice in Southern Ontario, Canada, regardless of the lack of consent or agreement of the NHL and its members. Id. (internal quotation marks omitted). PSE, Balsillie and the Coyotes were attempting to [use] the powers granted [to] the court under Sections 363 and 365 of the Bankruptcy Code... [to] sell the Phoenix Coyotes to PSE and authorize the relocation of the Phoenix Coyotes to Ontario, Canada free and clear of... the claims and objections of the NHL.... In re Dewey Ranch Hockey, LLC, 406 B.R. 30, 35 (Bankr. D. Ariz. 2009). 82. In re Dewey Ranch Hockey, 406 B.R. at 32.

17 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 353 Balsillie, as well as barring the relocation of the Coyotes. 83 Chief among the NHL s counterarguments were that granting the Motion would wreck havoc in the professional sports industry and, therefore, the Bankruptcy Code... should not be used to cause such devastation to the very significant economic benefits generated by these leagues. 84 In support of its argument, the NHL cited a number of rulings which held that a professional sports league is a single economic entity incapable of conspiring with itself to violate Section The court ordered a bankruptcy sale auction; however, each bidder was required to submit the required change of ownership or location applications to the NHL Subsequently, the NHL board of governors voted unanimously to not approve [Balsillie s] application because [he], in their view, did not have the character and integrity required under [the NHL bylaws] to be an owner of a NHL team Id. at 35. The Coyotes, PSE and Balsillie argued that application of the NHL s bylaws in a manner that blocks or otherwise restricts [PSE s] attempts to relocate the Phoenix Coyotes would violate antitrust laws. Motion of the Debtors at 43, In re Dewey Ranch Hockey, LLC, 406 B.R. 30 (Bankr. D. Ariz. 2009) (No. 2:09-bk-09488), 2009 WL In re Dewey Ranch Hockey, 406 B.R. at 34 (internal quotation marks omitted). The NHL s position was supported by amici curiae briefs filed collectively by the NBA, NFL, and MLB. Id. at 35. The leagues collectively argued that the financial investments and the emotional commitments depends upon an expectation of continuity, of teams remaining in their communities, thus, deviation from the rules and procedures created by the leagues regarding team relocations would put all of the foregoing investments at risk. Brief for NBA, et. al. as Amici Curiae Supporting NHL s Objection to Debtors Request to Sell the Phoenix Coyotes under Sections 365 and 363 of the Bankruptcy Code at 4, In re Dewey Ranch Hockey, LLC, 406 B.R. 30 (Bankr. D. Ariz. 2009) (No bk RTBP). Additionally, they joined the NHL in arguing that by not allowing league membership to determine whether [a] proposed transfer of ownership is likely to serve the best interests of the league, it would undermine the business of professional... sports. Id. at 5, NHL s Objection to the Debtors Request to Sell the Phoenix Coyotes Under Sections 365 and 363 of the Bankruptcy Code at 29 n.16, In re Dewey Ranch Hockey, LLC, 406 B.R. 30 (Bankr. D. Ariz. 2009) (No bk RTBP). 86. In re Dewey Ranch Hockey, 414 B.R. at 582. Balsillie and two other potential bidders submitted... applications. Id. 87. Id. at (internal quotation marks omitted). The board was told that although Balsillie had sufficient financial means to ensure the financial stability of the Coyotes, there were five issues that led to the questioning of his integrity. Id. at 583 (internal quotation marks omitted). Those five issues were his conduct regarding the Penguins, the Predators, the [Canadian Bureau of Competition s ( CBC )] investigation of the NHL, his wrongdoing at RIM related to the backdating of options, and his conduct relating to his current attempt to purchase the Phoenix Coyotes. Id. at 583 (internal quotation marks omitted).

18 354 RUTGERS LAW JOURNAL [Vol. 43:337 Even with the rejection, the September auction commenced. 88 Subsequently, the NHL submitted a bid to acquire the Coyotes, because it decided that it was in the best interests of the NHL [and] the Coyotes PSE s eventual bid was $212.5 million, conditioned upon the court approving the relocation of the Coyotes to Hamilton, while the NHL s bid was $140 million. 90 PSE and the Coyotes urged that the Bankruptcy Code directs the court to order the sale of the Coyotes to PSE, including authorizing the relocation of the Coyotes to Hamilton, in spite of the NHL s objections. 91 The NHL asserted that the proposed sale to PSE cannot be approved because it rightfully denied the PSE/Balsillie ownership application on character and integrity grounds; there was no proof that the NHL s actions were for anticompetitive reasons. 92 The court decided not to usurp the NHL s disapproval of the sale of the Coyotes to PSE and Balsillie. 93 Initially the court denied the NHL s bid, but it was eventually approved The Texas Rangers Bankruptcy Case Since 1998, Thomas Hicks, through HSG Sports Group, LLC ( HSG ), had owned and controlled the Texas Rangers MLB team. 95 However, after Hicks took over, the team s profitability was minimal. 96 Hicks eventually agreed to sell the Rangers to Rangers Baseball Express, LLC ( Express ), 97 and simultaneously entered into an agreement with the Office of the 88. Id. at Id. The two [other] potential bidders for the Coyotes... announced that they would not be submitting any bid(s).... Id. 90. Id. at 587, Id. at 588. PSE and the Coyotes argued that Section 363(f) of the Bankruptcy Code controls; it permits the sale of property free and clear of others interests. Id. at Id. at Id. at 592 (internal quotation marks omitted). The court determined that the clear statutory statement in Section 363(e) [of the Bankruptcy Code] requires that the court shall prohibit any sale, where the interests sought to be removed by the proposed sale free and clear of such interests, can not be adequately protected. Id. 94. The Associated Press, Sale Of Coyotes To League Approved $140 Million Bid Ends Long Court Fight, PITTSBURGH POST-GAZETTE, Nov. 3, 2009, at D In re Texas Rangers Baseball Partners, 434 B.R. 393, 398 (Bankr. N.D. Tex. 2010). 96. Id. By 2008, Hicks had advanced upwards of $100 million to cover the Rangers cash flow shortfalls. Id. 97. Hicks Reaches Definitive Deal to Sell Rangers to Greenberg, Ryan, SPORTS BUSINESS DAILY (Jan. 25, 2010), /Daily/Issues/2010/01/Issue-91/Franchises/Hicks-Reaches-Definitive-Deal-To-Sell-Rangers- To-Greenberg-Ryan.aspx. Express was headed by Chuck Greenberg and Nolan Ryan. Id.

19 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 355 Commissioner of Baseball ( BOC ) for them to assist in covering the team s cash flow shortfalls. 98 Express, as a potential buyer, had been approved by the BOC, but not yet by the required number of owners. 99 However, some of the Rangers creditors, 100 whose loans the Rangers had defaulted on, asserted that there were other potential purchasers who would pay more for the Rangers than... Express, and wanted to test the waters. 101 Due to this stalemate between the Rangers, MLB, and the team s creditors, the Rangers filed Chapter 11 bankruptcy in an effort to expedite the sale to Express. 102 The creditors argued that the court had the duty to ensure that the Rangers were sold for the maximum value. 103 The court noted though, that the Bankruptcy Code explicitly contemplates that a class of creditors or equity owners may choose to accept less recovery than the class might be entitled to. 104 The court therefore held that (1) the reorganization plan was 98. In re Texas Rangers Baseball, 434 B.R. at 398. Hicks was no longer able to afford funding the Rangers. Id. The agreement between BOC and Hicks led to over $20 million being borrowed, as well as gave the BOC certain rights respecting [the] sale of the Rangers. Id. 99. Id. at 399 n The lenders/creditors were comprised of JP Morgan Chase Bank, N.A., and GSP Finance LLS. Id. at Id. at 399. The creditors mainly Chase claimed to have control over the Rangers due to the team defaulting on its loans. Id. However, the court ruled that since they did not obtain [MLB s] approval... [they were] not entitled to exercise control pursuant to their loan agreement. Id. at 403. At one point, four potential bidders expressed interest in buying the Rangers. See Barry Shlachter, Mark Cuban named serious bidder for Texas Rangers, STAR-TELEGRAM (July 21, 2010), Dallas Mavericks owner, Mark Cuban, the Express Group, a Houston businessman, Jim Crane, and Dallas investor, Jeff Beck, all expressed their interests in purchasing the Rangers. Id In re Texas Rangers Baseball, 434 B.R. at 399. The Rangers wanted to accelerate the sale of the team, similar to the Coyotes case Id. at The creditors asserted that the Rangers must seek out the highest possible economic return for its assets; it [was their] contention that [the Rangers had] a duty to test the purchase offer of Express in the market place. Id. at 400. However, the court noted that simply maximizing a debtor s estate... does not ensure that equity owners are adequately represented. Id. at 400 n Id. at 401. The court said that: Code 1129(a)(7)(A)(i) excepts from testing under the so-called best interest of creditors (or equity interest owners) test treatment of a class that has been accepted by all members of the class; similarly sections 1123(a)(4) and 1129(a)(9), e.g., specifically allow for a party to agree to less favorable treatment than the party would otherwise be entitled to... A class... may have motives other than maximizing return. Id.

20 356 RUTGERS LAW JOURNAL [Vol. 43:337 confirmable even if a better offer for purchase of the Rangers could be had, and (2) the Rangers did not have a duty to maximize the value obtained for its estate. 105 However, the court still ordered an auction to take place, and Express filed a motion coercing the court to approve the sale already agreed upon by Express, the Rangers and MLB. 106 MLB made many controversial moves in an attempt to discourage other interested buyers to bid and compete with Express. 107 When Judge Lynn and the lawyers for MLB were discussing the list of potential buyers, according to Judge Lynn, it was clear that MLB had its approved buyers in Ryan and Greenberg (Express), and they were sticking to it. 108 Eventually, Express came out as the winner, although not as smoothly as the court or MLB would have liked Id. at See Bankruptcy Court Official Says Rangers Auction Should Occur, SPORTS BUSINESS DAILY (July 1, 2010), /Daily/Issues/2010/07/Issue-201/Franchises/Bankruptcy-Court-Official-Says-Rangers- Auction-Should-Occur.aspx At one point, a MLB lawyer said, [i]f [Judge Michael Lynn] doesn t confirm the plan, we ll just terminate the franchise. We ll take over the (expletive) franchise, this according to Stephen Shimshak, MLB s outside counsel, who clearly expressed MLB s opinion that it believed that it had control over how Judge Lynn should decide. See Daniel Kaplan, Creditors fear Selig comment will affect Rangers bids, SPORTS BUSINESS JOURNAL (July 20, 2010), Apparently, Shimshak said this during a conference call with Judge Lynn and other parties, and did not think his voice was audible. Richard Sandomir, In Rangers Case, Lawyers and Designated Hitter Annoyed the Judge, N.Y. TIMES, Nov. 23, 2010, at B16. Evidently, MLB tried unsuccessfully to disqualify the bids of Crane and Cuban, however, it was unclear exactly what the nature of the dispute was. Daniel Kaplan, Rangers Auction Set After Cuban/Crane Bid Not Disqualified, SPORTS BUSINESS JOURNAL (Aug. 4, 2010), 223/Franchises/Rangers-Auction-Set-After-Cubancrane-Bid-Not-Disqualified.aspx A couple months after the Rangers bankruptcy case came to a close, Judge Lynn expressed his opinion regarding the manner in which the case proceeded: He scorned journalists covering the case... threaten[ed] to sanction two lawyers... [and] felt bullied by lawyers he felt were trying the case in the news media.... Lynn said that he would file an ethics grievance [against Greenberg]... [and] vowed to remove Shimshak from the case if he repeated the threat and denigrated his professionalism. Sandomir, supra note See Lowe, supra note 67. Express lawyer said that he s never seen a case like this.... At one point during the proceedings, one party s lawyer stormed out of the courtroom, apparently furious over the auction procedures, and cursed out... [the] courtappointed officer overseeing the auction. Id.

21 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 357 IV. IMPLICATIONS OF AMERICAN NEEDLE ON ISSUES ENCOUNTERED BY BANKRUPTCY COURTS In the Coyotes and Rangers bankruptcy cases, the leagues power to determine who can own their teams and limitations on relocation were put to test. Under their respective constitutions and bylaws, the leagues are directed how to approve transfers of ownership and team relocations. 110 In the Coyotes bankruptcy case, the NHL s owners did not approve Balsillie as an 110. Regarding the transfer of ownership, the NHL s constitution says, in pertinent part: Each applicant for membership shall file an application with the league following which, the Commissioner conducts an investigation. NHL CONST. art. 3, 3, 5. After the investigation, the Commissioner... submit[s] the application to the members for approval, together with his recommendations.... A favorable vote of three-fourths of the members is required. Id. Additionally, NHL Bylaw 35 sets forth the considerations that guide the Board of Governors in its evaluation of prospective ownership transfers, including whether the prospective member is able and willing to commit sufficient financial resources to provide for the financial stability of the [team] and is of good character and integrity. Declaration of Gary Bettman, In re Dewey Ranch Holdings, LLC, 406 B.R. 30 (Bankr. D. Ariz. 2009) (No. 2:09-bk RTBP) (quoting NHL BYLAWS 35). Regarding the relocation of teams, the NHL constitution says, in pertinent part: The League shall have exclusive control of the playing of hockey games by Member Clubs in the home territory of each member.... No member [can] transfer its [team] to a different city... without the consent of three-fourths of all the members of the League.... Each member [has] exclusive control of the playing of hockey games within its home territory.... Subject only to the exclusive rights of other members with respect to their respective home territories.... No other member of the League shall be permitted to play games... in the home territory of a member without the latter member s consent. No [team] shall be granted for a home territory within the home territory of a member, without the written consent of such member. NHL CONST. art. 4, 2, 3. NHL bylaw 36 provides additional rules and procedures governing a prospective [team] relocation as well as 24 factors that the Board of Governors shall consider in its evaluation of any such proposal.... [O]nly a majority of the Board of Governors present and voting is required to approve a [team] relocation. Declaration of Gary Bettman, In re Dewey Ranch Holdings, LLC, 406 B.R. 30 (Bankr. D. Ariz. 2009) (No. 2:09- bk rtbp) (citing NHL BYLAWS 36). As for MLB, its constitution sets forth that: The vote of three-fourths of the Major League Clubs shall be required for the approval of... (1) Expansion by the addition of a new Club or Clubs... (2) The sale or transfer of a control interest in any Club; provided, however, that a majority vote of all Major League Clubs shall be sufficient to approve any such sale or transfer occurring upon the death of an owner to a spouse or one or more lineal descendants.... (3) The relocation of any Major League Club. MLB CONST. art. V, 2.

22 358 RUTGERS LAW JOURNAL [Vol. 43:337 owner. Additionally, the league did not approve of the relocation of the Coyotes team to Ontario, Canada. In the Rangers bankruptcy case, MLB approved the Express group, but continued to delay any possible approval of other potential buyers. The Coyotes and PSE argued that the bankruptcy court should have ordered the sale of the Coyotes, in spite of the NHL s position. 111 They argued that the NHL s position on ownership transfers and team relocations, referring to the league s constitution and bylaws, violated antitrust law on its face. 112 However, the court noted that in Sullivan v. National Football League, the failure of Sullivan to request a vote [was] critical and potentially dispositive. 113 Additionally, the court held that professional sport leagues [team] movement restrictions are not invalid as a matter of law... the question of what restraints are reasonable is one of fact... [and] the mere existence of terms and conditions for team relocation and ownership transfers cannot violate antitrust law. 114 The Coyotes and PSE filed their antitrust action in the beginning of May; at that point, however, Balsillie had yet to file an ownership and transfer application with the NHL, as was required. 115 Therefore, the court found that under, Sullivan and L.A. Memorial Coliseum Commission, the fundamental problem with with Balsillie s antitrust argument was that the NHL had not yet applied its relocation [and ownership] requirements to [Balsillie s] request. 116 The creditors in the Rangers case argued that the bankruptcy court had a duty to maximize the value of the sale of the Rangers and, more importantly, the creditors themselves were the parties that must approve the sale of the team, not MLB. 117 Initially, the court held that there was no duty to 111. In re Dewey Ranch Hockey LLC, 406 B.R. 30, 38 (Bankr. D. Ariz. 2009). The Coyotes and PSE argued that Section 363(f)(1) allows a sale free and clear of other s interests therein where applicable nonbankruptcy law permits the sale of the property. Id. (internal quotation marks omitted) Id. at Id. at 40 (citing Sullivan v. Nat l Football League, 34 F.3d 1091 (1st Cir. 1994)) Id. at 39. The bankruptcy court emphasized that antitrust claims are inherently factually driven cases and it is not an antitrust violation for professional sports leagues to have terms and conditions on relocations of teams and transfers of team ownership. Id. at Id. at 39; see also NHL CONST. art In re Dewey Ranch Hockey, 406 B.R. at In re Texas Rangers Baseball Partners, 434 B.R. 393, 399 (Bankr. N.D. Tex. 2010).

23 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 359 maximize the value of the sale of the team. 118 The court then ruled that since MLB s constitution requires that any change in control of the Rangers be approved by the [Commissioner] and/or the requisite majority of baseball team owners, the creditors (i.e. Chase) must obtain[] such approval. 119 Therefore, given that no such approval was granted, the court held that the creditors were not authorized to exercise such control. 120 The Supreme Court s ruling in American Needle might affect leagues abilities to regulate team ownership and relocation in the future, and, thus, may have spurred different outcomes in these cases had the Supreme Court s decision come down earlier. 121 A. Single Entity with respect to Approval of Owners and Team Relocation Under American Needle, professional sports leagues will likely not be considered a single entity with respect to their collective action regarding their approval policies of new owners and team relocation. However, there may be some room for interpretation when breaking down the Supreme Court s last section in its American Needle opinion. 122 The Supreme Court in American Needle limited its holding such that a sports league is not a single entity when it comes to the marketing of the teams individually owned intellectual property. 123 Some have speculated 118. Id. at 402. The court held that the bankruptcy code explicitly contemplates that a class of creditors... may choose to accept less recovery than the class might be entitled to and act in the best interest of themselves. Id. at 401. Reasoning that MLB may favor one purchaser over another because of an interest in maintaining the [team s] location. Id Id. at Id. at The court held that any effort on the part of Chase to enforce its contractual right to control [the Rangers] is not allowed. Id. at 404. The bankruptcy court did not address the antitrust issues relating to the league s ownership transfer policies. See id Some have opined that after American Needle, courts may take a different approach from siding with the leagues and treat[] teams as individual businesses.... Perhaps the next time a major sports team enters bankruptcy, the court will confirm a plan allowing a sale to the highest bidder, regardless of whether the league or its owners approve. Mark Donnell, What Role Can a Professional Sports League Play When One of Its Teams Enters Bankruptcy?, JETLAW (June 8, 2010), See Lawyer-2-Lawyer: American Needle, Inc. v. NFL, supra note 40 (Professor McCann referred to the Court s statement football teams that need to cooperate are not trapped by antitrust law and discussed the situations when a league may possibly claim single entity status) Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, (2010) (holding that the fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate... provides a perfectly sensible justification for making a host of [other] collective decisions ).

24 360 RUTGERS LAW JOURNAL [Vol. 43:337 that the Court left open the possibility of single entity status with respect to broadcasting deals or video game licensing contracts. 124 A single entity determination is very fact sensitive. While the Court noted that single entity status could be reserved for leagues and their teams collectively agreeing on such things as the production and scheduling of games, it is arguable that other joint decisions may also qualify. 125 However, the types of league agreements which qualify for single entity status have yet to be defined. 126 The crux of American Needle s holding was that since teams compete in the market for intellectual property, they cannot collectively license their own trademarks. 127 Applying this simple standard to teams collective agreements to approve new buyers and team relocations could go either way. 1. Approval of Potential Buyers The leagues agreements providing them the power to block sales of their teams to interested buyers likely fall within Section 1 scrutiny. Professional sports leagues bylaws which govern their teams and owners may constitute agreements which combine separate decisionmakers depriving the market of competition amongst potential owners. 128 The question of whether or not such restrictions on transfers to new owners unreasonably restrain competition in violation of Section 1 and the Rule of Reason is a more difficult question. However, there is also a possibility that leagues may be considered single entities with respect to such policies, with the development of leagues ownership policies and the Supreme Court s treatment of recent case law in American Needle See Lawyer-2-Lawyer: American Needle, Inc. v. NFL, supra note Am. Needle, 130 S. Ct. at Both the Supreme Court s American Needle decision and the Third Circuit in Deutscher cite to North American Soccer League as providing a recognized case that denied single entity status from a professional sports league. See id. at ; Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 820, 836 n.14 (3d Cir. 2010). However, in North American Soccer League, the Third Circuit listed features that a league needs to control to be successful. N. Am. Soccer League v. Nat l Football League, 670 F.2d 1249, 1251 (2d Cir. 1982). Among those are a league s ability to control the number of separate teams, control team location, and ensure adequate capital to support teams operations. Id. These features are all encompassed by leagues constitutions and bylaws policies on ownership approval and team relocation. Id See Deutscher, 610 F.3d at 837, 837 n.15 (noting that the circumstances of the case did not require the court to decide whether single entity status applied to the ATP and its tournament members) Id. (citing Am. Needle, 130 S. Ct. at 2213) (internal quotation marks omitted) Id. at 835 (citing Am. Needle, 130 S. Ct. at 2212) (internal quotation marks omitted).

25 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 361 Previously, cases involving a professional sports league s refusal to approve the transfer of team ownership to a new owner have withstood Section 1 scrutiny. 129 These decisions found no such antitrust violations because the potential owners who were rejected by the leagues were not competing with the defendant sports leagues, but rather, were seeking to join those leagues. 130 Although most courts, even prior to American Needle, determined that a sports league is not a single entity exempted from antitrust law, a league s refusal to approve... a new team merely prevent[s] outsiders from joining the league, and does not limit competition between the teams themselves. 131 The leagues policies on transfers of ownership can be analogized to that of shopping center tenants in bankruptcy. 132 A team s owner is interested in 129. See, e.g., Fishman v. Estate of Wirtz, 807 F.2d 520, 544 (7th Cir. 1986) (internal quotation marks omitted) (holding that only one competitor could win NBA approval, so it was not anticompetitive for one potential buyer to suggest to the NBA that it should be the lucky one.... Both [potential buyers] were free to vigorously compete for NBA approval... one competitor succeeded and... the other failed, illustrating that there in fact was very strenuous competition. ); Levin v. Nat l Basketball Ass n, 385 F. Supp. 149, (S.D.N.Y. 1974) (holding that the potential buyers wanted to join... those unwilling to accept them, not compete with them, but to be partners in the operation of a sports league.... [T]he exclusion of the [buyers] from membership in the league did not have an anticompetitive effect nor an effect upon the public interest, and therefore, was not a violation of the antitrust laws ) Sullivan v. Nat l Football League, 34 F.3d 1091, 1098 (1st Cir. 1994) Id. at The court noted that the NFL s former policy barring the public ownership of teams compromise[d] the entire process by which competition for club ownership occur[red]. Id. at The league s former policy also required a unanimous vote to approve ownership transfers. Id. Individual decisions to block the sale of a [team] do not implicate the harm to competition that is caused by a policy restricting all sales of a certain type of ownership interest. Only [a] broad based policy has the potential to compromise the entire competitive process for the buying and selling of a good in a relevant market. Id. at n See Alan S. Glover & Ian J. Silverbrand, Phoenix Coyotes Bankruptcy Can Still be Model for Troubled Sports Franchises, 27 ENT. & SPORTS LAW. 4, 7 8 (2009). [T]he interests of a... shopping center tenant and a... lessor are frequently in conflict. [I]t is in the [tenant] s best interests to assign a lease to any party willing to pay the highest price, [but] a shopping center lessor is concerned with having a lease assigned to a tenant who will contribute to the tenant mix of the shopping center. The proper tenant mix promotes healthy revenues for all shopping center tenants, thereby preserving the lessor's percentage rents. An earlier House Committee Report discussed the purpose of a tenant mix: A shopping center is often a carefully planned enterprise, and though it consists of numerous individual tenants, the center is planned as a single unit, often subject to a master lease or financing agreement.

26 362 RUTGERS LAW JOURNAL [Vol. 43:337 assigning its interests in its league and selling his team to the party willing to pay the most. 133 A league, however, may be more concerned in a team s ownership... that best supports... [competitive] balance... much like a shopping center lessor s concern to maintain a proper tenant mix. 134 The Supreme Court in American Needle held that some features of league agreements may not require a detailed analysis under the Rule of Reason test. 135 An agreement between a league and its teams to require interested buyers to apply for league and owners approval does not unreasonably suppress competition in the market of potential buyers. 136 As the Seventh Circuit held in Fishman, leagues approval policies allow interested buyers to compete against each other for the purchase of a team. 137 The professional sports leagues constitutions and bylaws merely create a process by which an interested buyer may become a member of a league. Assuming a league s rejection of a potential buyer is made in good faith, these policies do not violate antitrust laws. 138 Only when leagues maintain policies which do not allow a certain class of owners to even attempt to bid Additionally, the assignment of a shopping center lease in contravention of its own provisions can harm other tenants because the assignment to a new business may upset the balance of product lines or the competitive rental structure. Id. (quoting H.R. REP. NO , at 148 (1970), reprinted in 1977 U.S.C.C.A.N. 5963, 6305) Id. at Id. Other similarities include: [A] league... is likely interested in maintaining its geographic balance... to protect the financial investments spent to develop fan loyalty and community identification with its member clubs, the fans emotional investments to support the members clubs, and the stable business operations of other member clubs;... [similar] to a shopping center lessor s interest in preserving the revenues of all other shopping center tenants and maintaining the shopping center as a cohesive, integrated unit.... [S]hopping center tenants [are concerned with] the assignment of a tenant s... shopping center lease... caus[ing] them harm by upsetting the... center s product balance;... similar to the concern [teams have where]... the... relocation of a bankrupt [team]... into their market will lessen their local monopoly power. Id Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, 2217 (2010) Fishman v. Estate of Wirtz, 807 F.2d 520, 544 (7th Cir. 1986) Id See L.A. Mem l Coliseum Comm n v. Nat l Football League, 791 F.2d 1356, 1361 (9th Cir. 1986) (holding that if one party has a right of approval or such discretionary power over the rights of another, such powers must be exercised in good faith).

27 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 363 on a team, do such restrictions on potential owners violate antitrust law. 139 Since leagues agreements requiring approval of owners do not unreasonably restrain market competition, such arrangements would withstand Rule of Reason analysis under Section 1 scrutiny, even after American Needle. Therefore, the Rangers and Coyotes bankruptcy cases, at least in terms of the leagues ownership approval policies, would still be decided the same after American Needle. The NHL permissively disapproved Balsillie and PSE as a potential owner of the Coyotes, and the bankruptcy court was correct to affirm this. 140 Even though the bankruptcy court in the Rangers case did not address the antitrust issues regarding MLB s ownership transfer policies, its decision would withstand Section 1 scrutiny as well. However, after American Needle, there may be reason to believe that a league can be considered a single entity with respect to the approval of new owners. In Levin, the Southern District of New York noted that it is true that the antitrust laws apply to a professional athletic league, and that joint action by members of a league can have antitrust implications. 141 However, the plaintiffs in Levin wanted to join with those unwilling to accept them, not to compete with them, but to be partners in the operation of a sports league, and take part in its profits. 142 Therefore, the court held that the league s rejection of the plaintiffs ownership application was not for anticompetitive reasons and did not have an effect upon the public interest. 143 Furthermore, in Mid-South Grizzlies, the Third Circuit found that the plaintiffs, a joint venture interested in forming a football team to join the NFL, were lawfully rejected admission by the NFL into its league. 144 The interested potential owners met all the qualifications for membership specified in the NFL Constitution and By-Laws. 145 However, the court held that the exclusion was patently pro-competitive because it left the interested buyers and the city of Memphis available as a site for another football league to establish 139. See Sullivan v. Nat l Football League, 34 F.3d 1091 (1st Cir. 1994) (holding that to preclude all instances of public shareholder ownership runs afoul of the Rule of Reason test and violates antitrust laws) In re Dewey Ranch Hockey, LLC, 414 B.R. 577, 589 (Bankr. D. Ariz. 2009) Levin v. Nat l Basketball Ass n, 385 F. Supp. 149, 152 (S.D.N.Y. 1974) Id Id Mid-South Grizzlies v. Nat l Football League, 720 F.2d 772, 775, (3d Cir. 1983) Id. at 786.

28 364 RUTGERS LAW JOURNAL [Vol. 43:337 a team. 146 The court, however, did not affirm or deny that a professional sports league is a single entity with respect to the approval of owners. 147 Both the Supreme Court and the Third Circuit in American Needle and Deutscher cite to Mid-South Grizzlies as a case that identifies how teams within a league compete with each other. 148 However, the Mid-South Grizzlies court s holding was not based on these conclusions, and in fact, held that the plaintiffs failed to establish more than [a] minimal level of potential competition[ ] in the product markets in which [NFL] members might compete. 149 Neither court directly addressed the issues presented in Levin. Therefore, if a league s ownership policies do not establish a blanket ownership ban against one group of potential buyers, 150 and the decision to reject an interested buyer is made objectively and in good faith, 151 it may not be considered concerted action that could restrain trade. Leagues ownership approval processes could be seen as a mere application procedure that a prospective buyer must go through in order to join a league; making a league a single entity with respect to such a policy. 2. Relocation of Teams Professional sports leagues constitutions and bylaws authorizing them the power to prevent the relocation of their teams will generally be subject to Section 1 scrutiny as well. The leagues constitutions and bylaws, which govern their teams and owners, may constitute agreements, which combine separate decisionmakers depriving the market of competition amongst teams and cities/communities vying for teams. 152 A major issue is whether 146. Id Id. at 787 n.9. The court noted that [c]onceivably within certain geographic submarkets two league members compete with one another for ticket buyers, for local broadcast revenue, and for sale of the concession items like food and beverages and team paraphernalia. Id. at 787. However, the plaintiffs in Mid-South Grizzlies presented no evidence that such a market was being restrained, since the nearest possible competitor, another NFL team, was located over 280 miles away in St. Louis, Missouri. Id See Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, (2010) (noting that Mid-South Grizzlies held that teams compete with one another, not only on the playing field, but to attract fans, for gate receipts and for contracts with managerial and playing personnel. ); see also Deutscher Tennis Bund v. ATP Tour, 610 F.3d 820, 837 (3d Cir. 2010) Mid-South Grizzlies, 720 F.2d at See Sullivan v. Nat l Football League, 34 F.3d 1091, (1st Cir. 1994) See Levin v. Nat l Basketball Ass n, 385 F. Supp. 149, 152 (S.D.N.Y. 1974) Deutscher, 610 F.3d at 835 (citing Am. Needle, 130 S. Ct. at 2208).

29 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 365 the output and competition among professional sports teams would be unreasonably reduced or harmed in the relevant markets. The issue of limiting team relocation was first addressed in San Francisco Seals Ltd. v. National Hockey League. 153 The Seals requested to relocate to Vancouver, British Columbia, Canada. 154 However, the NHL Board of Governors denied their request, and the Seals subsequently sued the league, alleging that the league unlawfully prevented its relocation in violation of Section The court determined that the NHL was a single enterprise incapable of conspiring with itself in violation of Section However, single entity status as it relates to team relocation was quickly overruled in the leading case regarding professional sports teams relocation. 157 In L.A. Memorial Coliseum Commission, the court was presented with a similar situation as in San Francisco Seals. Al Davis, then owner of the Oakland Raiders, submitted an application to the NFL seeking to relocate his team to Los Angeles. 158 The NFL subsequently denied the move in accordance with the league s constitution. 159 Following the league s denial of Davis desired relocation, he sued the NFL claiming that it was restricting team relocation in violation of Section The NFL argued, similar to the NHL in San Francisco Seals, that it was a single entity incapable of conspiring in violation of Section The court recognized that F. Supp. 966 (C.D. Cal. 1974) S.F. Seals, 379 F. Supp. at Id. at Id. at 969. The court held that the Seals wishe[d] to participate in the league not compete with it. Id. The team expected to maintain its league membership and to accept and enjoy all of the exclusive territorial benefits that come with being a member of the NHL. Id See L.A. Mem l Coliseum Comm n v. Nat l Football League, 726 F.2d 1381 (9th Cir. 1984) Id. at Id. Section 4.3 of the NFL s constitution states: The League shall have exclusive control of the exhibition of football games by member clubs within the home territory of each member. No member club shall have the right to transfer its [team] or playing site to a different city, either within or outside its home territory, without prior approval by the affirmative vote of threefourths of the existing member clubs.... NFL CONST. art. 4, 3. The league voted 22-0 against the move, with five teams abstaining. L.A. Mem l Coliseum Comm n, 726 F.2d at L.A. Mem l Coliseum Comm n, 726 F.2d at Id. at 1387.

30 366 RUTGERS LAW JOURNAL [Vol. 43:337 cooperation [may be] necessary among league members for some purposes. 162 However, [t]o tolerate such a loophole would permit league members to escape antitrust responsibility for any restraint entered into by them that would benefit their league or enhance their ability to compete.... Moreover, the restraint might be one adopted more for the protection of individual league members from competition than to help the league. 163 Therefore, the court denied the NFL single entity status with respect to team relocation, analyzing it under the Rule of Reason. 164 The Rule of Reason standard is whether an agreement among two or more persons or distinct business entities is intended to harm or unreasonably restrains competition, and actually causes injury to competition. 165 In order to decide the reasonableness of the restraint, the court had to determine whether [the relocation restriction] reasonably serve[d] the legitimate collective concerns of the owners or instead permit[ted] them to reap excess profits at the expense of the consuming public. 166 The court found that the NFL s policy on team relocation was unreasonable, but the court did leave open a window through which such relocation policies would withstand antitrust scrutiny. 167 Finally, in National Basketball Association v. SDC Basketball Club, Inc. the Clippers NBA team moved from San Diego to Los Angeles without seeking the NBA s approval. 168 The league subsequently sought to investigate the move. 169 However, the Clippers argued that the requirement that a team seek [league] approval before it relocates violates antitrust law. 170 The Ninth Circuit held that the mere existence of team relocation 162. Id. at Id. (quoting N. Am. Soccer League v. Nat l Football League, 670 F.2d 1249, 1257 (2d Cir. 1982)) Id Nat l Basketball Ass n v. SDC Basketball Club, 815 F.2d 562, 567 (9th Cir. 1987) (alteration in original) (citing L.A. Mem l Coliseum Comm n, 726 F.2d at 1391) L.A. Mem l Coliseum Comm n, 726 F.2d at Id. at The court noted that restrictions on team movement should be more closely tailored to serve the needs inherent in producing the NFL product and competing with other forms of entertainment.... Some sort of procedural mechanism to ensure consideration of [objective] factors may also be necessary. Id SDC Basketball Club, 815 F.2d at Id Id. at 568.

31 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 367 provisions in league constitutions and bylaws cannot violate antitrust. 171 This holding was later clarified in the Eighth Circuit. 172 The court there concluded that the existence of high relocation fees accompanied by certain relocation rules did not violate antitrust laws. 173 In applying the reasoning in these cases and others, the bankruptcy court in the Coyotes case concluded that the NHL s approval policy regarding team relocation did not violate Section The NHL had not applied its relocation requirements because Balsillie failed to seek approval of the league regarding the Coyotes potential relocation. 175 The court held that the mere existence of potentially unfair relocation policies does not violate antitrust laws. 176 However, a cooperative agreement between the NHL and its teams to restrict team relocation, combined with a transfer fee, is concerted action. The league and its teams are collectively deterring, if not prohibiting, certain communities from having a team, and current team owners or interested buyers from relocating to those communities. In interpreting the Supreme Court s decision in American Needle, the Third Circuit in Deutscher held that where an agreement joins together independent centers of decisionmaking[,]... the court must decide whether the restraint of trade is... unreasonable. 177 Furthermore, the Supreme Court highlighted Justice Brandeis s classic formulation of the Rule of Reason. 178 Justice Brandeis makes clear that the history of the restraint and its intention needs to be evaluated. 179 In the Coyotes case, given Balsillie s history with the NHL and its team relocation policy, the court should have determined whether the agreement among NHL teams to collectively restrict team relocation was an unreasonable restraint on trade which violates the Rule of Reason under a Section 1 inquiry Id See St. Louis Convention & Visitors Comm n v. Nat l Football League, 154 F.3d 851, 861 (8th Cir. 1994) Id. at In re Dewey Ranch Hockey, LLC, 406 B.R. 30, (Bankr. D. Ariz. 2009) Id. at Id. at Deutscher Tennis Bund v. ATP Tour, 610 F.3d 820, 835 (3d Cir. 2010) (citing Am. Needle, Inc. v. Nat l Football League, 130 S. Ct. 2201, 2212 (2010)) Am. Needle, 130 S. Ct. at (quoting Bd. of Trade of Chi. v. United States, 246 U.S. 231, 238 (1918) Id. at 2216 n.10 (quoting Bd. of Trade of Chi., 246 U.S. at 238).

32 368 RUTGERS LAW JOURNAL [Vol. 43:337 Balsillie has attempted to purchase NHL teams on two prior occasions. 180 On both occasions, the main issue barring the sale was Balsillie s desire to relocate both teams to Ontario, Canada. 181 Therefore, the fact that Balsillie and PSE did not submit a relocation application during the attempted Coyotes purchase and were merely challenging the existence of the NHL s team relocation approval policy does not tell the entire story. Balsillie has, on numerous occasions, attempted to start the formal relocation application process, but has continued to hit obstacles because of the onerous application process set forth by the league policies on team relocation. In fact, during his attempted Nashville Predators acquisition, Balsillie began the process of filing a relocation application with the NHL. 182 In challenging the NHL s policies, Balsillie, the Coyotes and PSE alleged that they anticipate[d] that the NHL or other members of the league might seek to block or prohibit the [Coyotes sale] because of purported rights [under its constitution and bylaws] or interests to prevent the relocation of the Coyotes. 183 This anticipation is clearly born out of Balsillie s prior dealings with the league. The NHL bylaws require a majority approval vote for any proposed relocation. 184 It is an agreement between the NHL and its teams intended to restrict the movement of teams into other markets that could support such a team, and in fact, in the Coyotes case, desire such a team. 185 Whether it 180. In re Dewey Ranch Hockey LLC, 414 B.R. 577, (Bankr. D. Ariz. 2009). In 2006 he attempted to purchase the Pittsburgh Penguins, and the Nashville Predators in Id Id See NHL Sources Say Balsillie's Bid For Preds Will Be Rejected, SPORTS BUSINESS DAILY (June 14, 2007), /Daily/Issues/2007/06/Issue-181/Franchises/NHL-Sources-Say-Balsillies-Bid-For-Preds-Will- Be-Rejected.aspx; Balsillie's Bid to Buy Predators Hits Snag, CBC SPORTS (June 22, 2007), (noting that NHL Commissioner, Gary Bettman, said that there was not a fully completed application before the board of governors ) (emphasis added) Motion of the Debtors at 36, In re Dewey Ranch Hockey, LLC, 406 B.R. 30 (Bankr. D. Ariz. 2009) (No. 2:09-bk-09488), 2009 WL NHL BYLAWS, supra note 110, Numerous recognized experts in the sports industry that Balsillie brought in to testify believed that the Ontario region could support another NHL team. See, e.g., Second Declaration of Andrew Zimbalist for the Debtors In re Dewey Ranch Hockey, LLC, 406 B.R. 30 (Bankr. D. Ariz. 2009) (No. 2:09-bk-09488), 2009 WL Andrew Zimbalist, Professor of Economics at Smith College, concluded that: Hamilton is a superior economic location to many of the metropolitan areas that currently host an NHL team and... there is no economically justifiable reason for the NHL to reject Hamilton as a host city for a relocated team. Adding another team in the southern Ontario market will be a boon to its hockey fans. Not only will the fans

33 2012] LEAGUES CONTROL OVER THEIR MEMBER TEAMS 369 unreasonably restricts this particular relocation comes down to whether the pro-competitive effects of the NHL s policy outweigh the anticompetitive effects. Recalling the comparison to shopping center tenants, a league may be more concerned in a team s... operation in a location that best supports geographic balance and dispersion... much like a shopping center lessor s concern to maintain a proper tenant mix. 186 Such geographic balance should be weighed against Hamilton s ability to foster a successful team. As exemplified by Professor Zimbalist s analysis, this is clearly the case. 187 In this particular case, the NHL s team relocation policy has injured both the city of Hamilton, by denying them a team and Balsillie, by denying him the opportunity to relocate a team into a competitive market. Thus, after American Needle, the Bankruptcy court s antitrust inquiry into the NHL s relocation policy would have been different. V. CONCLUSION American Needle does not define whether leagues will qualify as single entities with regard to their approval of owners and team relocation policies. However, the Supreme Court s acknowledgment that the single entity defense is not dead, except with respect to intellectual property rights, may still leave a window of possibility. Additionally, the Court s concession that some concerted activity between leagues and their teams can be easily justified without a detailed Rule of Reason analysis may spur a new avenue of defense for professional sports leagues. Nevertheless, league policies on team ownership and relocation will continue to be relied on by professional sports leagues as well as challenged by potential buyers. 188 Furthermore, the experience increased choice and a stronger chance of supporting a competitive team, the presence of a second team will create competitive price pressure on the tickets for the Toronto Maple Leafs at the Air Canada arena. It is almost a certainty that, in the presence of competition, ticket prices for Maple Leafs games will be lower than they would otherwise be.... [T]he Maple Leafs will experience more pressure to put a good team on the ice, and the team has a sufficient revenue and profit cushion to more than absorb any possible drop off in fan demand with the introduction of a new team in Hamilton. Id. at Glover & Silverbrand, supra note 132, at See Zimbalist, supra note See Mike Harrington, Golisano Bids His Farewell, THE BUFFALO NEWS, Feb. 3, The sale agreement between former owner, B. Thomas Golisano, and future owner, Terry Pegula, includes a clause that precludes Pegula from moving the team. Id. The NHL approved the sale to Pegula, who closed on his purchase of the team from Golisano on

34 370 RUTGERS LAW JOURNAL [Vol. 43:337 bankruptcy courts may be presented with these issues again soon, as more professional sports teams have recently been undergoing financial difficulties. 189 February 21st. Adam Kimelman, Emotional Pegula takes reins of Sabres, NHL.COM (Feb. 22, 2011), See Reuters, Mets, Other Teams Face Major League Debt Problems, MONEYNEWS.COM (Feb. 18, 2011),