The 'Needle' and the damage done?

[BallWonk]

Getting back to the case, I'm surprised that SCOTUS seems to be sympathetic towards American Needle:

Gregg H. Levy, a lawyer for the league, ran into trouble when Justice Antonin Scalia asked just how far the teams? ability to act collectively extends.

?So does that mean they can agree to fix the price at which their franchises will be sold, by concerted agreement, because, after all, they are worthless apart from the N.F.L.?? Justice Scalia asked.

Mr. Levy said yes.

?Ooh,? Justice Scalia responded, surprised. ?I thought I was reducing it to the absurd.?

In which exchange the NFL essentially argues, "Because we are a monopoly, we are therefore exempt from the laws against monopolistic behavior." That is why this is such a terrible case; almost any conceivable ruling will either be a just resolution of the particular conflict that makes absurd and unjust changes to the law in general, or it will be an absurd and possibly league-wrecking resolution of the particular conflict that preserves the justice and integrity of the law as it stands. Almost has me rooting for American Needle here.

[Gothamite]

Sure is a mess, isn't it?

The NFL doesn't make all that many missteps, but I think they've really put their foot in it this time. Yikes.

[BBTV]

Sure is a mess, isn't it?

The NFL doesn't make all that many missteps, but I think they've really put their foot in it this time. Yikes.

OK, I'm a little lost now. How did the NFL put their foot in it? What did I miss?

[The_Admiral]

Even if you hate Scalia and all that he stands for, you have to admit he's pretty cool.

[Gothamite]

Sure is a mess, isn't it?

The NFL doesn't make all that many missteps, but I think they've really put their foot in it this time. Yikes.

OK, I'm a little lost now. How did the NFL put their foot in it? What did I miss?

They asked the court to review this case. They wanted the issue to be settled by the courts, and this is the case they chose to settle it.

This is the hill they chose to die on, and based on the initial sessions, they have a hard road ahead of them.

[Perfect Zero]

Here is a link on the case from Wall Street Journal's perspective

It seems like this could actually be a victory for American Needle, but I don't know how this will really play out. There is a whole can of worms in this case, and they are about to explode as far as Tim- buk- freakin'- tu.

[Gothamite]

Interesting tidbit from the Journal piece:

Gregg Levy, representing the NFL, argued that NFL souvenirs should not be treated as ordinary products under competition laws because they were conceived as a promotional tool for the sport rather than an independent source of profit.

"The purpose of the licensing here is to promote the product. It's to promote the game," he said.

Well, if they're not considered "an independent source of profit", I can't wait for them to start giving the licensed caps away. Surely that would increase the number worn around town and therefore promote the game far more effectively.

[Panthers]

Yes folks, indeed NFL Properties was started to promote the teams through merchandising. Originally, it was a charitable organization.

A couple of thoughts:

1) American Needle is lucky it is not a public company. Certainly, any shareholder with half a brain would have realized that, even if AM wins, what NFL team would want to deal with them? If you just cost me millions of dollars then come begging for my business, I'd tell you to f off.

Secondly, this was settled long ago. In order for teams to stay competitive, they have to share equally from things like merchandise sales. Without competitive balance, why would I want to watch sports?

By the way, how is the NFL different from say Subway or Dunkin' Donuts? Here in Manahattan, when you get off the subway at 53/Lexington Ave, there are three Dunkins, three Subway sandwich shops, three branches of Citibank all within a 5-6 block radius. Are the Dunkins' not competing against each other for customers? Yes, they are. Do they have to adhere to corporate rules? Yes, they do. Do they merchandise, buy ingredients on their own? No they don't. So wouldn't that in itself constitute a monopoly?

AM got it wrong. There are other leagues in the "NFL space" - the CFL, AF1 and the UFL. If AM wants a football client, let 'em sign on with the UFL.

[Gothamite]

By the way, how is the NFL different from say Subway or Dunkin' Donuts? Here in Manahattan, when you get off the subway at 53/Lexington Ave, there are three Dunkins, three Subway sandwich shops, three branches of Citibank all within a 5-6 block radius. Are the Dunkins' not competing against each other for customers? Yes, they are. Do they have to adhere to corporate rules? Yes, they do. Do they merchandise, buy ingredients on their own? No they don't. So wouldn't that in itself constitute a monopoly?

No. Not unless all those doughnut shops were required to be Dunkin Donuts, or the banks required to be Citibank, to set up shop on those corners and compete for those customers. That's where your analogy falls flat.

[BallWonk]

By the way, how is the NFL different from say Subway or Dunkin' Donuts? Here in Manahattan, when you get off the subway at 53/Lexington Ave, there are three Dunkins, three Subway sandwich shops, three branches of Citibank all within a 5-6 block radius. Are the Dunkins' not competing against each other for customers? Yes, they are. Do they have to adhere to corporate rules? Yes, they do. Do they merchandise, buy ingredients on their own? No they don't. So wouldn't that in itself constitute a monopoly?

No. Not unless all those doughnut shops were required to be Dunkin Donuts, or the banks required to be Citibank, to set up shop on those corners and compete for those customers. That's where your analogy falls flat.

An analogy very similar to this was made by the NFL's counsel at the Supreme Court, and ridiculed even by one of the most pro-business justices. Which led the NFL's counsel to argue that in effect fans don't care what team is represented by NFL merchandise. In all seriousness, the NFL's legal argument rests in part on the theory that every fan who bought a Redskins cap last year would have bought a Cowboys cap instead if that was all that was available.

The problem is that a sports league isn't like any other normal business. The NFL in no way resembles a fast-food franchise, for example. The closest real-world analogy is to a trade association, and trade associations very much are prohibited by federal law from doing things that in any way resemble granting industry-wide exclusive contracts to Reebok. However, even that analogy is imprecise, and fails to capture some of the unique features of a sports league. Yet American law is founded on analogy -- the law should be applied in a like manner in like cases. And so the NFL is almost required to stand before the Supreme Court and simply lie about what it does and how it behaves in order to sustain the most favorable model of analogy.

And, because of the absurdities that unusual cases often produce in our legal system, the courts unfairly come out looking like idiots in these sorts of cases. The NFL's legal arguments here are clearly absurd. But then again, fully applying Sherman to the NFL as if it were an industry trade association would be unjust. So what is really needed is a new law, one that carefully extends antitrust laws to sports leagues in a way that allows a league to act like a single entity in the areas where such action is necessary for the league to function but forces teams to act like competitors in the areas where collusion is not strictly necessary -- such as equipment and merchandising contracts. And Congress, not the Supreme Court, is where any such law should come from.

[aci]

The way I look at it, the NFL should be able to license things as a unit (either hats with the NFL logo on them, or of individual teams). But on the same note, each team is an autonomous unit within the greater unit, and should also be allowed to license their own items (custom Philly Eagles hats through American Needle, for example) if they so choose. Preventing a team from making their own decision, and thereby locking out companies when the owners of individual teams may wish to do business with them comes across as wrong.

Next thing you know, the NFL will ban teams from being sponsored by rival companies (no Pepsi when the NFL likes Coke, no Budweiser when the NFL prefers Miller, no Ford when the NFL prefers General Motors). It's a potentially huge mess. An owner pays hundreds of millions of dollars for their team- that kind of money should be buying some independence, too.

[Waleslax]

I am surprised you would all want other companies to be able to compete for business. Look at the NHL where, for example, teams all having their uniforms designed by Reebok is FAR superior to that mess we had in the 90's where teams could choose their own suppliers and designs. Imagine how horrible it'd be if we had to have more choices of hat styles! That could be awful if aAM wins!!!

[BBTV]

The way I look at it, the NFL should be able to license things as a unit (either hats with the NFL logo on them, or of individual teams). But on the same note, each team is an autonomous unit within the greater unit, and should also be allowed to license their own items (custom Philly Eagles hats through American Needle, for example) if they so choose. Preventing a team from making their own decision, and thereby locking out companies when the owners of individual teams may wish to do business with them comes across as wrong.

Next thing you know, the NFL will ban teams from being sponsored by rival companies (no Pepsi when the NFL likes Coke, no Budweiser when the NFL prefers Miller, no Ford when the NFL prefers General Motors). It's a potentially huge mess. An owner pays hundreds of millions of dollars for their team- that kind of money should be buying some independence, too.

One totally counteracts the other. No company is going to pay big money for a league-wide contract with the NFL to produce caps with team logos on it if one of those teams could just go and sign a deal with their competitor to produce essentially the same hat.

That's the point of this - companies pay a premium for exclusivity. Two non-exclusive contracts is probably not going to net you as much as one exclusive one.

[Gothamite]

Doesn't seem to hurt New Era. They have the on-field contract for MLB, but plenty of other companies can (and do) "produce essentially the same hat" for retail.

That's what we might be left with if American Needle prevails - the NFL can still sell Reebok an exclusive contract, but only for "on field authentic" merchandise (for teams and retail). Other merchandise contracts will then be offered to various manufacturers.