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‘Sports Armageddon?’ Supreme Court issues landmark ruling favoring Vikings and individual teams over NFL

WASHINGTON — In a landmark case that will send shock waves from Washington to Winter Park, the Supreme Court today declared all 32 NFL teams to be single entities for purposes of selling branded merchandise.

The unanimous ruling, written by retiring Justice John Paul Stevens, will allow the Vikings and any other team that chooses, to reach separate merchandising contracts that are currently under exclusive license to individual suppliers. Wrote Stevens:

The NFL teams do not possess either the unitary decision making quality or the single aggregation of economic power characteristic of independent action. Each of them is a substantial, independently owned, independently managed business, whose “general corporate actions are guided or determined” by “separate corporate consciousnesses,” and whose “objectives are” not “common.”

They 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.

Directly relevant here, the teams are potentially competing suppliers in the market for intellectual property. When teams license such property, they are not pursuing the “common interests of the whole” league, but, instead, the interests of each “corporation itself.”

The case in question was brought by American Needle, Inc., an Illinois-based firm that used to make team hats, before the NFL consolidated its hat deals in one exclusive license to Reebok.

It’s a colossal loss for the NFL, which bet big on a winner-take-all case that the league (and many of the its opponents) thought was almost inevitable win.

Bouyed by its victories in lower courts, the NFL took the rare leap of actually joining with American Needle to petition the Supreme Court to hear the case. The league was reportedly counting on the generally pro-business Roberts Court to side with it and grant a a powerful and far-reaching anti-trust exemption.

How far-reaching? ESPN analyst Lester Munson, writing last July, likened a potential NFL victory in the case to a sports Armageddon and worried that if the league won, it would inevitably lead to things like NFL-mandated salary schedules, decreased competition leading to increased merchandising costs, neutered players’ unions and widespread strikes by said unions in a last-ditch bid to remain relevant.

But for owners, a ruling their way would be a cash cow. No surprise then, that every other sports league from Major League Baseball to Major League Soccer — and the NCAA — signed on to support the NFL’s bid.

Instead, the Armageddon cuts the other way.

While Stevens allowed that the NFL teams were allowed to work together for certain things, like scheduling and producing games, it’s conceivable that this precedent could serve as the backbone of a challenges to things like salary caps and contract severability.

Applied beyond just the NFL, this case law could also support challenges to everything from collective television licencing deals to the Bowl Championship Series.

Comments (13)

  1. Submitted by Sheila Ehrich on 05/24/2010 - 02:14 pm.

    Thanks for the great article. Not something I would have paid attention to were it not for your article.

    Is this the wedge that may break apart the individual monopolies that the various major sports have become?

  2. Submitted by David DeCoux on 05/24/2010 - 02:33 pm.

    I hate to ask it, but could this affect the Williams’ ruling?

  3. Submitted by Hiram Foster on 05/24/2010 - 02:52 pm.

    So what does that mean for television rights? Will each team be required to negotiate it’s own tv deal? If it does mean that, the value of the small market Vikings just took quite a hit, and the argument for moving to a larger market just got a lot more compelling.

  4. Submitted by Derek Wallbank on 05/24/2010 - 03:12 pm.

    Sheila – I think you’ll see this as the foundation case for further legal tests. I talked to a few Supreme Court reporters some months back about the difference between 9-0 and 5-4 rulings, and their take is that the 9-0 ones tend (on average) to be far more broad.

    Exactly how broad is TBD, we’ll see in the coming years.

    David – I’d defer to proper legal scholars here, but my read is that leagues continue have the right to determine their own rules of competition and fair play, and doping regulations fall under that umbrella.

    Hiram – My understanding is that it could affect that, but that’s another gray area unearthed in this case. Does a TV deal count as game “production,” as Stevens mentioned? Or is it separate from that? And how do local TV rights differ from national?

    Unfortunately, I don’t think there are crystalline answers to that question beyond the response that we’ll see what gets challenged and how. But you’re quite right that the largest market teams would see a massive boost in revenues if NFL teams could negotiate TV deals one-on-one.

  5. Submitted by John Reinan on 05/24/2010 - 03:36 pm.

    It’s been a bedrock piece of sports-business analysis that the success of the NFL stems in large measure from the leaguewide TV deal.

    Pete Rozelle, longtime commissioner, persuaded the big-city owners in the early 1960s that they’d be better off in the long run if the league shared TV revenues rather than negotiating team by team.

    It’s that deal and its successors that have allowed Green Bay to keep a franchise. How much do you think the Packers would get for their TV rights in the 70th largest media market?

  6. Submitted by Michael Friedman on 05/25/2010 - 01:02 pm.

    I would infer that network-league contracts would still be okay (in all sports, not just football) so long as they did not preclude the ability of a local team to negotiate its own TV contract on the side (even as a duplicate telecast) — which is in fact the status quo for radio rights.

  7. Submitted by tom moore on 05/25/2010 - 02:01 pm.

    i wonder if one of the first and/or effective challenges related to this ruling will come not from third parties like merchandisers or broadcasters, or even from labor/players, but from an owner like, say, jerry jones. he doesn’t like the revenue sharing with teams like the vikings and also wants to cut his own merchandising deals. the nfl nixed this in the past. but now he may have the courts on his side.

  8. Submitted by Gregory Lang on 05/26/2010 - 03:19 am.

    Interesting ruling! As I recall the the current NFL revenue sharing agreement ends in a year or two. What I envision is a system similiar to the current MLB baseball where there are national games, perhaps a national game network like the MLB network for the “league” revenue with some sharing. With MLB baseball, we have the “minors” or “farm” league and supposedly the “major leagues”. In the American League the Central Division where the Twins reside is arguably “middle league” if we use the criteria of total team salaries.

    The same could occur with football. Basically the rationale behind new stadiums was that they would have more “corporate suites”. This was one of the few sources of revenue allowed under the current NFL situation. This may actually favor the Metrodome because it’s a cheap facility. Also, if the current economic slump continues corporate suites could fall out of fashion.

    The unanimous ruling of the Supreme Court could lead to a further decentralization of the NFL “revenue sharing”.

  9. Submitted by Hiram Foster on 05/26/2010 - 06:47 am.

    I do think the owners have been and will continue to pressure the Vikings to bring more revenue to the League. I doubt that will take the form of an open rebellion, such as would be implied by a lawsuit, but within the league, owners like Jones will find support for cutting down the Vikings’ share of jointly controlled revenue streams.

  10. Submitted by Gregory Lang on 06/07/2010 - 07:35 pm.

    Probably outside parties will initiate the lawsuits followed by the “rich” owners. Everyone hates non-sellout TV blackouts so this is “low hanging fruit”. The NFL “revenue sharing” system is rather bizarre, rather like a McDonald franchise only getting additional revenues from inside Angus burger and Latte coffee sales. This distorts the marketplace.

    Large market teams are paying out for “parity” so they might support reform, especially if it can be done indirectly.

    As to the Vikings this may reduce revenue sharing and thus the Vikings team payroll. This will make for a weaker team on the field. One the other hand if revenue restrictions are removed the Metrodome might seem more attractive because of it’s low cost. The Metrodome would definitely need a makeover for long term Vikings play (the new Gopher stadium has artificial turf) but that would not be that costly without the corporate suite requirement. If someone filed and won a suite that required that stadiums assess actual costs this would favor the Metrodome.

  11. Submitted by Gregory Lang on 06/07/2010 - 11:51 pm.

    My key focus on this is the Metrodome and the Vikings staying here. I have talked to several people and received some emails related to this and have tried to reply.

    This “clothing” ruling seems to open the door for other legal challenges against the NFL way of doing businesses. Basically the NFL powers that bee have decreed that one of the few means of individual team revenue is the “luxury suites”. This basically requires a new stadium to meet this goal.

    Remove that and the Metrodome is pretty good. The new TCF Gopher’s stadium has artificial turf. Heard any complaints? I haven’t. So it get’s down to “commingling with the weather.”. For the hardcores maybe but it’s like motorcycles, eventually you get a windshield because you get tired of bugs in your teeth.

    I’ve talked to a number of out of town people who came here to watch their team play and they all liked the Metrodome. Standard comment was “you don’t have to worry about the weather”. Again, the TCF/Gopher stadium has plastic grass.Repeat! it has plastic grass!

    Basically, I see the NFL as the “Wicked witch of the west” of the Wizard of Oz. Everyone hates the blackout rule so challenge that first. Next the revenue sharing. Both will probably prevail in the US Supreme Court.

    Then the Metrodome looks pretty good. With a quarter century under it’s belt the Metrodome needs a makeover but this could be focused on Vikings football with secondary adaption to other uses (college baseball was recently played at the “Mall of America Field”.

    The corporate luxury suite thing looks a bit dicey in the “great recession”

    If the US Supreme Court starts ruling against the NFL on a regular basis (note the unanimous opinion) everyone might (figuratively) be dancing in the streets singing “ding dong the witch is dead!”. (hint: everyone hates non sellout local blackouts)

    A decline in revenue sharing would hurt the Vikings in the long run. There are negatives.

  12. Submitted by Gregory Lang on 06/08/2010 - 01:20 am.

    On a lark I checked and was available so I registered it for five years.

    I might be the only one but I believe that the US Supreme Court ruling is a “game changer” when it comes to new stadiums. I’ll post/repost my ideas on the website once I get it going. The goal is to keep the Metrodome primarily for the Vikings but usable for other sports and as a community asset at an affordable cost.

  13. Submitted by Gregory Lang on 06/11/2010 - 03:16 am.

    My work in progress.

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