American Needle and the Future of the NFL

It's been said here and elsewhere than the USSC's unanimous rejection of the NFL's request for a broader anti-trust exemption, which the MLB enjoys, is good news for the 2011 season.  That may be true, and when September 2011 rolls around I'll be very happy if the NFL season begins as scheduled.

But I can't help but think that the American Needle case has potentially broader implications for what kind of league the NFL might become in the second decade of this century and beyond.  And that possibility worries me.

If you're a baseball fan, or even vaguely aware of the way the MLB functions in reality, you might know what I mean already.  Some 50 years ago now, Pete Rozelle thought the NFL had a problem.  It was already significant, but he was smart enough to realize that it would get exponentially larger as time went on.  The New York Giants, in 1960, were selling their TV rights for 10 times what the Green Bay Packers could get, and while each team was a member of the league, and it was Rozelle's job to make the league grow in popularity, federal law prohibited them from working together in negotiating contracts with TV networks.  Only one entity, Congress, had the authority to grant an exception to that prohibition, and Rozelle lobbied Congress to grant the NFL that exception, which they granted in a matter of months.

With the exemption in hand, he then lobbied the owners, and particularly the large market Giants, Colts and Redskins, to agree to the concept of revenue sharing in the hopes of keeping teams in places like Green Bay competitive and profitable.  The fact that they agreed to do so seems remarkable now, and likely did then as well, at least for those who bothered to notice.  In 1961 the NFL inked a TV contract with CBS for just under 10 million dollars, and the proceeds were split among all of the teams.  Over time, revenue sharing expanded to include ticket proceeds, licensing and (with a few notable exceptions) virtually every major source of revenue an NFL team produces.

Other sports made different choices.  Baseball, with the advantage of a complete anti-trust exemption, followed the NFL's practice of sharing TV contract and licensing revenues, but, in part because of the nature of their season, resisted sharing local media revenues, which have become disparate enough that the Yankees generate more from their local TV contract than the Brewers, for example, gross from all of their revenue sources combined.  Predictably, competitive balance in the MLB has become a joke, though one that fans of the Yankees, Red Sox and other franchises continue to decline to acknowledge isn't all that funny.  Over the course of the last 50 years, the NFL, not coincidentally, has become the most popular sport in this country, while baseball has seen it's "golden age" slip until revenues, attendance and TV ratings stagnated in the 1980's and 90's. 

But all was not well.  Periodically, billionaires would buy into the league and find themselves the owners of potential revenue titans like the Cowboys and Redskins.  Jerry Jones complained openly after he bought the Cowboys about the fact that he had to share the revenue he generated with less successful clubs.  And he wasn't alone.  Snyder made similar complaints in Washington.  Jones fought a battle with Rozelle's hand picked successor over revenue sharing even as your Green Bay Packers won their first Super Bowl in 30 years back in 96.  The Cowboys signed independent contracts with Pepsi, Nike and American Express, all of whom were in direct competition with NFL sponsors, and the NFL sued.  The Cowboys sued back for 750 million, and Tagliabue went public with his views:  "Jerry Jones dishonors the agreement he made when he came into the NFL partnership.  He takes what does not belong to him.  The NFL is what we sell.  It belongs to 30 teams, not to the Dallas Cowboys."

Tagliabue lost the showdown that followed.  The lawsuits were dropped and Jones got to keep his deals, though he shared the revenue they generated, at least to the extent that NFL rules required.  Even after the cases were dropped, Jones commented that "In general we're still not on the same page", while insisting that his contracts didn't violate league rules.  A committee of the leagues "brightest owners" was formed, including Jones, to try to head off such confrontations in the future.  Naturally, since it was run by the owners who were the source of the conflict, it failed.

Jones continued to chafe under the restrictions the league placed on his business practices as the years went on, even though they existed and he agreed to abide by them when he bought his team.  He frequently railed against the requirement that the Cowboys had to subsidize smaller market teams: 

"If you look at the teams that want more revenue sharing, those are the teams without a lot on the table.  They've long since not had any investment in their teams."

"I think if ultimately we see something that's doable between the labor and the league, then you can have it without any additional revenue sharing."

"It wouldn't be the worst thing in the world if we didn't have a salary cap."

This year, speaking specifically about the Vikings, a team that struggles financially because their stadium lacks the revenue generating facilities of places like Lambeau, or Jones temple to his ego in Dallas, Jones said: 

"It's unthinkable that the market you've got here, 3 1/2 million people, and have teams like Green Bay and Kansas City subsidizing this market.  That's going to stop."  A few months before making that comment, Jones told a Dallas newspaper he was tired of writing checks to his competition in the NFC.  Goodell promptly fined Jones $100,000 for violating the league's gag order on CBA related issues.

Weeks after those quotes were made, the NFL terminated the "supplemental revenue sharing" that was required under the terms of the collective bargaining agreement the owners voted to opt out of.  That program distributed $100 million to the league's have nots and was required under the terms of the CBA.  The Union demanded a ruling from the arbitrator on whether the fact that 2010 was uncapped allowed the league to void other aspects of its obligations to its members that were tied to the cap.  In April 2010, the arbitrator ruled in favor of the union and the league was ordered not to abandon the program for the duration of the agreement.  Which of course means until the owners carry out their threats to lock the players out in 2011.

Jones has, over the years, made it clear that he'd like to limit and perhaps end revenue sharing the NFL and allow teams like the Cowboys to translate their economic advantages into on the field advantages.  In short, he'd very much like the NFL to be more like the MLB.

And now here comes the USSC's decision in American Needle.  It's important to note that the American Needle case isn't over.  Procedurally, the lower court tossed the antitrust lawsuit filed by American Needle over the league's decision to sell a licensing contract previously held by American Needle to Reebok.  American Needle contests that (now that it's on the outside looking in) it should be able to negotiate with each team instead of the league as a whole, and the league's decision to sell it's entire contract to Reebok violates anti-monopoly laws.  The lower court, relying on the limited antitrust exemption Rozelle obtained, tossed the case.  American Needle appealed to the USSC, and won.  Essentially, all the USSC did was say it wasn't clear that the limited exemption granted in 1960 permitted the league to negotiate as a whole for anything other than TV contracts.  The Court also rejected the NFL's argument that its exemption was as broad as the MLB's.  Now the case goes back to the trial court, and a jury, and the NFL might well win at that level and preserve the status quo.

But what if they lose?  If they do, the USSC's finding that the league is 32 separate businesses, and not 1, could provide powerful ammunition for an owner looking to make trouble.  Like Jerry Jones.  What if Jones latches onto the USSC's language and says that he HAS to be able to negotiate his own licensing deals AND keep the money if the league wants to avoid an anti-trust claim?  In short, if the league loses the American Needle case at trial (and that trial admittedly won't come for a year or more), that case might hand Jones the best weapon he's ever had to attack the NFL's system of revenue sharing by arguing that letting him keep the money his separate business earns is the ONLY way the league can avoid losing billions in the numerous antitrust suits that would follow a successful claim by American Needle.

And if that happens my friends, you'd better get used to seeing the Giants, Jets, Cowboys, Bears and Raiders in the playoffs, because they'll make it year after year by simply outspending their rivals and trading for the most talented players the quasi-farm clubs in Green Bay, Buffalo and similar places produce just before they leave as free agents their drafting teams can't afford.

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