Monday, January 25, 2010

Is the NFL a Monopoly?

The National Football League exists as a monopoly--or does it? The NFL exists as a group of competitors who band together and form an entity that can be described as a monopoly--or can it?

The United States Supreme Court is having a look at the NFL and a case involving an apparel maker that was shut out of doing business with the NFL years ago. The Los Angeles Times weighs in with an editorial:

American Needle Inc. used to be one of several companies that provided souvenir sportswear for NFL teams. But it lost its franchise when the league reached an exclusive contract with Reebok in 2000 to manufacture caps bearing team logos. American Needle wants a trial to prove that the NFL is an alliance of separately owned teams subject to a federal antitrust law prohibiting monopolies and contracts or conspiracies "in restraint of trade and commerce."

The dispute has attracted unusual attention not only because of its connection to professional sports -- how many cases can be featured on both ESPN and C-SPAN? -- but also because a decision could extend beyond arrangements for the sale of caps and sweat shirts.
Players fearthe NFL's argument that it is a single economic entity could be used to prevent them from negotiating with individual teams for salaries and benefits. But that doesn't follow automatically from a decision in favor of the NFL in this case.

Can the NFL restrain trade and commerce? I would say, no, it cannot. The teams that make up the NFL are rooted in communities all over the country.

Cities and communities build roads and infrastructure to accommodate NFL teams; not just stadiums and the like. This is how an NFL team can derive enormous benefit from being in a particular location; the league, after all, has control over where a team can be located. The league can veto a franchise move if it wants to do so. That makes these teams more beholden, or as beholden, to the places where they do business as they are to the league. The NFL cannot then turn around and selectively do business with one group and shut out another. That is the definition of restraint of trade, since the NFL has team logos, likenesses, and profitable merchandise that it can use as a weapon to drive companies out of business if it uses those assets to favor one entity over another. How do you compete with someone who has the exclusive rights to Pittsburgh Steeler merchandise? If you can't tap into the huge market for jerseys and team apparel, you have a significant handicap.

The process of deciding who can, and who cannot, sell NFL merchandise comes down to "more is better" and I don't have a problem with quality standards. I think that, if you are going to manufacture NFL apparel, you should have to meet quality standards to ensure that "cheap knockoffs" don't tarnish a brand tied to the community in which it operates. It has to be open to competition and bidding, and it has to do business openly and honestly in the communities where the franchises are located.

I think there's also an issue with taxation. Specifically, if the item can be taxed, how can it be exclusively made and available from only one source? We're not talking about an exclusive item; we're talking about clothing. Can you have restraint of trade when something can be sold anywhere to anyone?

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