Legal Commentary on American Needle Ranked No. 8 by SSRN

My short legal commentary about the sports-business implications of American Needle v. Nat'l Football League was recently ranked No. 8 by the Social Science Research Network ("SSRN") in its list of Top Ten Papers Published in the Past 60 Days about Constitutional Liberties.

Article on Baseball Collusion Makes SSRN Top 10 List

Exciting news: My article on the history of collusion in Major League Baseball was recently ranked No. 10 by the Social Science Research Network ("SSRN") in its list of Top 10 papers about collective bargaining.

Hall of Fame Inductee Andre Dawson Important in Fight Against Baseball Collusion

This Sunday, power-hitting outfielder Andre Dawson will earn his induction into the Major League Baseball Hall of Fame. To many, Dawson is best known for his 438 career home runs, 314 stolen bases, and 1987 MVP Award.

However, from a sports law perspective, Dawson is also important for having signed a blank contract with the Chicago Cubs during the 1986-87 off-season--an act that helped to expose Major League Baseball's collusive practices during that era.

According to labor arbitrator George Nicolau's 1988 arbitration ruling, he notes that Dawson was so willing to leave the Expos during the collusion era that he called a unilateral press conference to announce he would sign a blank contract to play for the Cubs. Embarrassed by these events, Cubs management then offered the all-star outfielder a contract for $500,000—almost half of his previous season’s salary.

After accepting this 50% pay cut, Dawson won the 1987 National League MVP for the last-place Cubs--becoming the first play in baseball history to win that award for a last place team.

(Cross-posted on Sports Law Blog)

Lebron James to Europe? NBA Labor Negotiators' Worst Nightmare

At 9 P.M. tonight, Lebron James is making his big announcement about where he will play next season.

Cleveland? Chicago? Miami? New York? New Jersey?

What about Europe?

Lebron once told ESPN he might play overseas for $50 Million per year. And NBA players should hope that Lebron chooses Europe for reasons far more important than just their chances of winning an MVP Award.

As most basketball fans know, the NBA collective bargaining agreement (pdf) is set to expire on July 1, 2011. Thus far, the NBA club-owners have taken a hard line stance, demanding that players accept a reduction in the current salary cap. According to NBA club-owners, they are losing money due to the down economy.

Irrespective of whether NBA owners are actually losing money, their demands right now are credible. If there is no other practicable place for top NBA players to work, the NBA players union will have no choice but to either accept the NBA’s proposed terms, strike, or seek to decertify the union and file an antitrust suit against the league (all undesirable options — each for different reasons).

If Lebron James makes the bold decision to sign in Europe, however, everything could change. The NBA club-owners would likely abandon their proposal for a lower salary cap because capped NBA clubs would struggle to compete for top players against uncapped EuroLeague clubs. Indeed, the very moment Lebron James puts on a EuroLeague basketball uniform, the threat of other players following him overseas becomes more credible.

While the thought of a star player leaving the NBA to help fight against the salary cap is unusual, it is not unprecedented. Back in August 1989, player discontent with the NBA’s salary cap (one that disparately impacted new players) led two young NBA players, Brian Shaw and Danny Ferry, to sign contracts with the EuroLeague club Il Messaggero (now known as Virtus Roma). Shortly thereafter, Il Messaggero began to court other top NBA players including Rick Mahorn (successfully) and Patrick Ewing (unsuccessfully). As a result, the NBA clubs simply agreed to increase their salary cap.

Despite the current down economy, there are probably a few EuroLeague clubs that could attempt to get into the action for one of the world’s best basketball players. For example, the Greek team Olympiacos Piraeus—winners of the 2006-07 EuroLeague championship—are owned by billionaire Greek brothers Panagiotis Angelopoulos and Giorgos Angelopoulos. The team plays in an approximately 15,000-seat arena, has already signed former Atlanta Hawks forward Josh Childress to a three-year, $20 million contract, and is seemingly not affected by the Greek debt crisis.

The Angelopoulos brothers probably could afford to sign Lebron James to a 1-year, $50 million deal—especially if they then streamed their games on the Internet to a worldwide audience (something NBA clubs likely cannot do due to the league’s New Media and territorial broadcast policies).

Likewise, Greece might make an interesting one-year “home” for Lebron. Unlike NBA players, EuroLeague players only compete in one or two games per week. This would leave King James a lot of time for personal travel.

Of course, this all presumes that Lebron is really willing to leave his friends and family to go overseas–a move that is rare among American-born NBA players. Indeed, just 9-15% of current NBA players have competed professionally overseas, and many of these players only did so when faced with no NBA alternative.

However, on balance, maybe the thought of Lebron going to Europe is really not so farfetched. We’ll see tonight.
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Marc Edelman, Above the Law’s sports columnist, is an Assistant Professor at Barry University’s Dwayne O. Andreas School of Law. He is teaching this summer at Fordham Law School, Seton Hall Law School, and Rutgers School of Law-Camden. His full collection of law review articles is available here.

This article appeared first on Above the Law.

American Needle v. NFL: The Aftermath Beyond Just Licensing

With more than a week having passed since the Supreme Court's ruling in American Needle v. Nat'l Football League, discussion about the case has begun to shift from what the ruling means for American Needle Inc. to what it means for other sports-related businesses.

Here are four sources that begin to address that issue:

• First, in an editorial published in this week's Sports Business Journal, I discuss the impact of the American Needle ruling on labor relations, ticket pricing, and the way that investors will likely structure new professional sports leagues (here).

• Second, in an interview with Ripten Magazine, I discuss the impact of the American Needle ruling on the football video game market and the NFL's exclusive licensing deal with EA Sports (here).

• Third, in traditional law review format, University of Iowa's esteemed Ben V. and Dorothy Willie Professor of Law Herbert J. Hovenkamp discusses the impact of American Needle on the credit card, hospital, and real estate industries (here).

• Finally, over on the Legal Talk Network, attorneys and co-hosts J. Craig Williams and Bob Ambrogi interview both Michael McCann and me about the effects of the American Needle case, via podcast (here).

(Cross-posted on Sports Law Blog)

May Commissioner Goodell Legally Suspend Ben Roethlisberger?

Yesterday, Pittsburgh Steelers quarterback Ben Roethlisberger became the first NFL player suspended by Commissioner Roger Goodell who has not been charged or convicted of a crime. Whether this suspension will stand, however, depends upon how one interprets a few important clauses in the NFL Collective Bargaining Agreement.

First, whether the NFL Personal Conduct Policy is even part of the NFL Collective Bargaining Agreement ("CBA") is not entirely clear. NFL club-owners announced the league's current Personal Conduct Policy on April 10, 2007, which postdates the most recent CBA. While the NFL Personal Conduct Policy was informally approved by a group of NFL players, the NFL Personal Conduct Policy was never written and signed into the CBA (at least not according to publicly available information). This may present a problem for Commissioner Goodell's enforcement because Article LV, Section 19 of the NFL CBA states that "[n]one of the Articles of this Agreement may be changed, altered, or amended other than by a signed written agreement."

Second, presuming the NFL Personal Conduct Policy is not deemed part of the NFL Collective Bargaining Agreement, Commissioner Goodell may alternatively argue that Paragraph 15 of the NFL Player Contract allows him to suspend Roethlisberger for "being deemed guilty of any other conduct reasonably judged by the League Commissioner to be detrimental to the League or professional football." Paragraph 15 of the NFL Player Contract is part of the CBA, as it is incorporated by reference as Appendix C. However, it is not altogether clear that Ben Roethlisberger has done anything "detrimental to the League or professional football," nor that he is in any way "guilty" as the term may be defined by that paragraph.

Finally, it is worth noting that Paragraph 11 of the NFL Player Contract grants individual club owners the power to terminate any player contract if that player "is engaged in personal conduct, reasonably judged by [the club] to adversely affect or reflect on [the club]." This clause seems to be far broader than Paragraph 15 of the NFL Player Contract and may present grounds for the Steelers to terminate Roethlisberger's contract. However, this clause extends only to a player's team, and not to the Commissioner, who is acting on behalf of the league overall.

(Cross-posted on Sports Law Blog)

Baseball Collusion: MLBPA Opens 2010 Season with New Set of Concerns

On Tuesday morning, the Associated Press reported that the Major League Baseball Players Association may file a grievance against Major League Baseball club-owners for allegedly colluding in the market to sign free-agent players during the 2009-2010 off-season. One reason why the MLB players union seems to believe that club-owners have engaged in collusion is because player salaries rose only by 1% last season, even though total league revenues have increased at an annual rate of 7.6% over the past three years .

Another reason why the MLBPA may be concerned about collusion is that MLB club-owners have a long history of colluding in the free-agent player market. For example, in my 2008 Wayne Law Review article, "Moving Past Collusion in Major League Baseball: Healing Old Wounds and Preventing New Ones," I discuss how three arbitration decisions from the 1980s found MLB club-owners to have colluded against players' rights. One esteemed labor arbitrator, George Nicolau, even found Commissioner Bud Selig to have been directly involved in collusion during the 1986-87 off-season (see pages 619-20).

With this week's newest collusion concerns, the MLBPA now has to decide whether to file a formal labor grievance over three separate, outstanding sets of claims:

• First, there are this week's collusion allegations, over which MLBPA leader Michael Weiner has stated "in one fashion or another we will respond."

• Then, there are similar allegations from the 2008-09 off-season, over which the MLBPA, one year after announcing its concerns, still has not filed a grievance.
  

• Finally, there are even allegations of collusion dating back to the 2007-08 season that involve the market for now-retired outfielder Barry Bonds. In October 2008, the MLBPA announced that it had made a preliminary finding of collusion against MLB club-owners in the market for Bonds's services; however, the union thus has neither filed a grievance nor publicly settled this matter with baseball's club-owners.
  

(Cross-Posted on Sports Law Blog)

Next Up in Selig's Free Stadium Game: Tampa Bay?

They've got a dynamic offense, a great new closer, and a 2008 World Series birth under their belt. Next up for the Rays: a new stadium?

According to the Tampa Bay Online, MLB Commissioner Bud Selig might involve himself in the stadium negotiations between Rays ownership and their municipality. This would be nothing new for Selig, who just last year helped Florida Marlins owner Jeffrey Luria to obtain a new publicly funded stadium.

I have written extensively about how professional sports leagues maintain an under-supply of teams to ensure public stadium financing. For example, in my law review article Sports and the City: How to Curb Sports Teams' Demands for Free Public Stadiums, I explain how the Florida Marlins pressured their municipality into providing huge subsidies by threatening to otherwise move to Las Vegas.

It will be interesting to see what develops in Tampa Bay. Until now, Rays owner Stuart Sternberg has not threatened franchise relocation. It is not clear, however, that Selig would follow the same classy approach.

Fordham Sports Law Symposium: This Friday @ 9:30 A.M.

This Friday, at 9:30 A.M., I (Marc Edelman) will be speaking at the 14th Annual Fordham Sports Law Symposium about the case American Needle v. Nat'l Football League.

The other speakers on my panel will be American Needle's general counsel Jeffrey Carey, Jones Day partner Meir Feder and Herrick Feinstein partner Irwin Kishner. The panel will be moderated by Tulane Law School professor Gabe Feldman.

Friday's sports law symposium is free and open to the public. New York lawyers who attend are eligible for six non-transitional, professional practice CLE credits.

For those interested in the full lineup of events (beginning with registration at 8:30 A.M.), see here.

For those interested in why I believe the Supreme Court should rule in favor of American Needle and remand this case back to the district court for a full antitrust review, please see here and here.

Update on Ed O'Bannon's Lawsuit Against the NCAA

In the age old debate about compensation for collegiate athletes, score a small victory for the players.  In 2009, former UCLA star Ed O'Bannon filed a class action lawsuit against the NCAA, accusing them of using his likeness and image in video games and memorabilia illegally.  The suit does not impact current collegiate athletes, but contends that the NCAA doesn’t have the right to continue to the player's image once he/she stops playing.  On February 9, 2010, a U.S. District Court Judge denied the NCAA's motion to dismiss the suit, meaning that the case moves forward.

Many video games will contain unlockable, historic teams and while a player's name may not appear directly in the game, when playing as the 1979 Michigan State basketball team, it's pretty easy to figure out who Magic Johnson is.  O'Bannon's suit contends that these players are entitled to compensation.    

Yahoo Sports provides another prime example of how the NCAA could be impacted by this case:

Consider a famous play such as Christian Laettner’s buzzer-beating 3-pointer that lifted Duke past Kentucky in the 1992 NCAA tournament. The footage has been sold by the NCAA to be used in commercial advertisements for nearly two decades. In most cases, neither Laettner, nor any other player in the footage, has been paid. The O’Bannon lawsuit could cause the NCAA to retroactively compensate everyone in the highlight (the UK players guarding Laettner, the bench players, celebrating Duke teammates, etc.) for a cut of the revenue advertisements using that footage generated. Then there’s memorabilia, classic sports television rebroadcasts, in-house ads and so on. (Yahoo Sports)

 The O'Bannon case is a long way from being argued in court, decided and/or appealed, but the ramifications could fundamentally change the NCAA's business model.

Pace Law School Lecture on SportsJudge

On Tuesday February 2 at 4:00 P.M., I will be delivering a keynote address to Pace Law School's Alternative Dispute Resolution Society about SportsJudge.com and the emergence of alternative dispute resolution in online gaming.

For those interested in attending this event, please contact Danielle Reddan at dreddan at law dot pace dot edu.

American Needle v. NFL: Discussing the Supreme Court Transcript

As many of you know, the Supreme Court heard oral arguments on Wednesday January 13 in the case American Needle v. NFL. A full discussion of the case is available here, and the full transcript is available here.

My main takeaway from the transcript is that the Supreme Court will reject the 7th Circuit's classification of the NFL as a single entity (a classification that I have described as being legally wrong in two law review articles--here and here).

However, some justices may be willing to outline a more narrow antitrust exemption for sports leagues.

Among the justices who seem most likely to reverse and remand is Hon. Antonin Scalia, who responded to Hon. Stephen Breyer's broad questioning about the competitive effects of joint licensing with the following inquiry (p. 18-19):

• JUSTICE SCALIA: Is this issue before us here? Or is it just the issue of whether the lower court was wrong to dismiss your suit on the basis that this is a unitary operation? I think that was the only issue.

• MR. NAGER: You're -- that is the only issue, Justice Scalia.

• JUSTICE SCALIA: Well, why am I worrying about this other stuff.

Another justice who seems likely to reverse is Hon. Sonia Sotomayor, who accused the NFL clubs of "seeking though this ruling what you haven't gotten from Congress: An absolute bar to an antitrust claim." (p. 47).

NFL Counsel Greg Levy gave a long answer to this question but never directly addressed the NFL's failed efforts in Congress.

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Marc Edelman is an Assistant Professor at Barry University’s Dwayne O. Andreas School of Law, where he teaches in the areas of contracts, property, antitrust and sports law. His full collection of law review articles is available here. Professor Edelman’s article, Why the ‘Single Entity’ Defense Can Never Apply to NFL Clubs: A Primer on Property Rights Theory in Professional Sports, has been cited in three Supreme Court briefs on this case.

American Needle v. NFL: Oral Arguments Begin Tomorrow

Tomorrow, the Supreme Court will begin hearing oral arguments in the case American Needle v. National Football League for the purposes of determining whether the NFL clubs’ collective licensing of individual club trademarks is exempt from Section 1 of the Sherman Act under antitrust law’s single entity defense.

American Needle, which is represented by the law firm Jones Day, will argue that the Supreme Court should uphold the ruling of at least seven lower courts, each of which has found that the business practices of the NFL clubs are subject to Section 1 of the Sherman Act (American Needle’s briefs are available here and here). By contrast, the NFL, which is represented by the law firm Covington & Burling, will argue that, despite these lower court rulings, the NFL is really more akin to a single company and should be treated as such for antitrust purposes (The NFL’s brief is available here).

For those who are less familiar with the American Needle case, the original plaintiff, American Needle Inc., had for more than twenty years maintained a non-exclusive license to design and manufacture headgear bearing the NFL clubs’ names and logos. Then, nine years ago, the NFL clubs decided to offer an exclusive license to American Needle’s main rival, Reebok.

Upon being foreclosed from the opportunity to sell NFL headgear, American Needle sued the NFL clubs in the Northern District of Illinois, contending that the new NFL licensing arrangement violated Section 1 of the Sherman Act by illegally restraining trade in the market for purchasing rights to NFL logos. The NFL clubs, in turn, responded by not only alleging that their licensing arrangement was pro-competitive under antitrust law’s Rule of Reason but also by arguing that the NFL clubs constituted a single entity under antitrust law.

American Needle’s surprising choice of where to bring suit played an important role in this case making its way to the Supreme Court. Although the First, Second, Third and Ninth Circuits have long since rejected the NFL’s single entity defense, American Needle instead decided to bring suit in the Seventh Circuit, which had never before addressed the issue. Upon reviewing the matter, the Seventh Circuit disagreed with these other circuits’ views of the single-entity exemption and instead held that the single-entity status of a sports league should be determined on a case-by-case basis, and that the NFL constituted a single-entity for the purposes of licensing intellectual property.

The Seventh Circuit’s ruling has since been challenged by both American Needle and the NFL clubs. American Needle, as expected, filed a petition for certiorari, urging the Supreme Court to reverse the Seventh Circuit’s ruling and adopt the position previously articulated by the First, Second, Third, and Ninth Circuits. Meanwhile, the NFL clubs have petitioned the Court to not only uphold the Seventh Circuit’s ruling with respect to licensing markets, but more broadly to rule that sports leagues are single entities for all purposes—thus shielding the NFL from future Section 1 antitrust challenges.

In arguing for a complete exemption from Section 1 of the Sherman Act, the NFL clubs rely on a broad reading of the 1984 Supreme Court case Copperweld Corp. v. Independence Tube Corp., in which the Court had held that a tubing company and its wholly-owned subsidiary comprised just one entity for antitrust purposes. Meanwhile, American Needle relies primarily on a different Supreme Court case from that same year, National Collegiate Athletic Association v. Board of Regents of the University of Oklahoma, in which the Court ruled that NCAA football teams are independent actors and not a single entity for purposes of antitrust law.

The only justice who remains on the Supreme Court from these earlier rulings is Hon. John Paul Stevens, who wrote the majority opinion in NCAA and dissented to Copperweld. Since that time, the Supreme Court has moved in a decidedly more conservative direction, having ruled in antitrust cases almost exclusively in favor of the defendants.

Nevertheless, even despite the recent conservative push of the Supreme Court, this case may perhaps represent an instance where even law-and economics minded conservatives would support the plaintiff’s position. Indeed, while there may be strong reasons why a court would ultimately uphold the NFL joint licensing program under the Rule of Reason (e.g., lack of market power in a broader market for sports logos and reduction of transaction costs), it makes little sense from a law-and-economics perspective for the Court to broaden antitrust law’s single-entity defense at the expense of allowing for full discovery and economic analysis.
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Marc Edelman is an Assistant Professor at Barry University’s Dwayne O. Andreas School of Law, where he teaches in the areas of contracts, property, antitrust and sports law. His full collection of law review articles is available here. Professor Edelman’s article, Why the ‘Single Entity’ Defense Can Never Apply to NFL Clubs: A Primer on Property Rights Theory in Professional Sports, has been cited in three Supreme Court briefs on this case.

Sports Law 2010: Does the NBA Still Have Market Power

In the 2002 case Fraser v. Major League Soccer, the First Circuit Court of Appeals upheld a jury's finding that Major League Soccer clubs compete in an international market for men's professional soccer labor and thus lack enough "market power" to collude illegally under Section 1 of the Sherman Act.

Since Fraser, few courts have addressed the geographic market definition issue in a labor-side antitrust matter. However, as we approach the 2010s, this issue seems likely to resurface.

In my newest law review article, Does the NBA Still Have Market Power? Exploring the Antitrust Implications of an Increasingly Global Market for Men's Basketball Player Labor (to be published in Volume 41 of Rutgers Law Journal), I discuss the potential antitrust implications of approximately 10-15% of the premier men's basketball labor force moving seamlessly between the NBA and foreign leagues.

Presuming the Supreme Court does not cut away too much at sports-antitrust law when it rules in American Needle v. Nat'l Football League (oral arguments begin Jan. 13, 2010), I predict the issue of geographic market definition will emerge as an important one for sports law in the upcoming decade.

(Previously posted on Sports Law Blog)

The House Takes on the BCS

As Matt mentioned yesterday, earlier this week the U.S. House of Representatives took further action on H.R. 390, which has a goal "To prohibit, as an unfair and deceptive act or practice, the promotion, marketing, and advertising of any post-season NCAA Division I football game as a national championship game unless such game is the culmination of a fair and equitable playoff system." [Bill Text Here]

This bill was introduced in January 2009 and the action this week, 11 months later, was that the Commerce, Trade, and Consumer Protection subcommittee sent the bill to the full Committee on Energy and Commerce.    From there it needs to be voted out of committee and sent to the House floor.  If it passes there, the bill needs to go through the Senate and signed by President before it becomes law.  If it gets that far, the bill doesn't take effect until January 31, 2011.

The bill has a very long way to go before it becomes law - if we ever get to that point - but let's try to examine why Congress has chosen this topic as something to spend its valuable time on.  The text of the bill identifies college football as interstate commerce and therefore under the direct jurisdiction of Congress.  Given that, Congress certainly has the right to address this topic, but aren't there more pressing things for Congress to deal with? 

I've always been skeptical of Congress getting involved in sports and I don't think this is any different.  However, since our representatives have taken little action on initial hearings on other sports related inquiries (i.e. steroids), I can't imagine this bill will make it out of committee, let alone see the President's desk.  Can you imagine a debate on the House or Senate floor about the pros and cons of a college football playoff?  Neither can I.... thankfully. Let's hope Congress gets back to other issues and leaves sports alone. 

Sports and the Law: Cubs Sale Complete

Two weeks ago, we discussed the news out of Chicago that the Cubs had filed for and emerged from Chapter 11 bankruptcy protection within a 48 hour period. (Click here for previous coverage on the Cubs bankruptcy.) The bankruptcy filing was part of the sale process of the team from the Tribune Co. to the Ricketts family. As expected, the sale of the Chicago Cubs has now been finalized, and the team is now in control of billionaire Joe Ricketts.

The total value of the sale is approximately $845 million. That amount is the most that has ever been paid for a franchise, topping the $660 million that was paid for the Boston Red Sox and its related properties in 2002. For its $845 million, Joe Ricketts will receive not only 95% of the Cubs franchise, but also Wrigley Field and and 25% of Comcast Sportsnet, the television station that broadcasts most of the Cubs' games. Tribune Co. will retain the remaining 5% of the team. At the end of the day, Tribune Co. will actually receive about $740 million after taxes and fees are taken out.

So was it a good deal for Tribune Co.? In April, Forbes valued the franchise at $700 million, a number that included a $149 million valuation of Wrigley Field. The Forbes valuation took into account the pending sale to the Ricketts family, although at the time, the price tag was $900 million - $60 million more than the final number and less than other bidders were then offering for the club. In fact, some reports after the first round of bidding for the Cubs in late-2008 stated that bids were made as high as $1.3 billion. On the other hand, the Red Sox, a team now valued at $833 million by Forbes, sold for $660 million only 6 years ago. So, in only 6 years, the price for a Major League Baseball franchise rose almost $200 million dollars, and that is for a team (the Cubs) arguably less valuable than the previously sold team (the Red Sox). So, to answer the initial question, this appears to be a good deal for Tribune Co., or at least a fair deal for both parties. What do you think?

Tim Cedrone is a judicial law clerk in the New Jersey Superior Court, Appellate Division. This blog post and all others written by Mr. Cedrone are his work and his alone and express only the author's views. Nothing in this blog post or any other blog post written by Mr. Cedrone represents the views of the New Jersey Superior Court or any related entity.

Sports and the Law: Cubs First Non-NHL Team to File Chapter 11

Well that was fast. In a case that was the antithesis of the Phoenix Coyotes saga, the storied Chicago Cubs filed for and emerged from Chapter 11 bankruptcy this past week in the course of 48 hours. (For previous coverage of the Cubs filing, click here.) With its filing, the Chicago Cubs became the first non-NHL team to file Chapter 11 team among the four major professional leagues (NFL, NBA, MLB, and NHL) since the inception of the current Bankruptcy Code in 1978. The filing was part of the planned sale of the Cubs by the Tribune Co. to billionaire J. Joseph Ricketts, the founder of TD Ameritrade. With that said, let's look at some of the details of the case.

The Facts. The Tribune Co. bought the Cubs in 1981 for $20.5 million. Since then, Tribune faced some difficult times, culminating with the company's Chapter 11 bankruptcy in December 2008. Tribune's filing did not include the Cubs. In attempt to shed itself of some assets, Tribune decided to sell the Cubs, with the Ricketts family winning a bidding war that once included Mark Cuban. The final deal calls for payment of $845 million by the Ricketts family in exchange for 95% of the Cubs, Wrigley Field, and Tribune's stake in a sports TV network. Tribune will retain 5% of the Cubs and end up with $740 million from the deal. Major League Baseball owners previously approved the sale of the Cubs to the Ricketts family by a unanimous vote.

The Filing. The Cubs filed what is known as a "pre-packaged" bankruptcy plan. Under a "pre-pack," the debtor and creditors work out a refinancing structure for the debtor before filing, and then to make the deal work, the debtor files Chapter 11 to take advantage of Bankruptcy Code provisions needed to carry out the plan. Pre-packs allow for a quick resolution of the case, as seen here with the Cubs. In the Cubs case, the team filed for bankruptcy to eliminate any claims against the team stemming from Tribune's bankruptcy case. In other words, by filing itself, the Cubs can eliminate the possibility of Tribune creditors seeking payment of their claims via the Cubs.

The History. The Chicago Cubs are the first non-NHL team among the four major professional leagues to file for Chapter 11 bankruptcy protection since the inception of the current Bankruptcy Code in 1978. Since then, only 4 NHL teams have filed for bankruptcy: the L.A. Kings, Pittsburgh Penguins, Buffalo Sabres, and Phoenix Coyotes. (For a list of other teams that have had encounters with bankruptcy, check out my law review article here.) Some may remember that the Baltimore Orioles were sold in a bankruptcy auction to Peter Angelos as part of the bankruptcy case of the team's previous owner, Eli Jacobs; however, the Orioles themselves never filed. The Cubs bankruptcy is most similar to that of the L.A. Kings. In 1995, the Kings filed for and emerged from Chapter 11 bankruptcy protection in the same day. The bankruptcy flowed from the individual bankruptcy of one-time owner Bruce McNall, and was essentially designed to approve the sale of the franchise previously negotiated and approved by the NHL - much like that of the Cubs here. At the end of the day, the Cubs are the newest members of a club no one wants to be in.

The Lesson to be Learned. The divergent cases of the Coyotes and Cubs represent opposite ends of how to go about selling a sports organization via bankruptcy. On the one hand, you have the Coyotes. The owner, Jerry Moyes, filed bankruptcy in a blatant attempt to sell the team to an owner of his choosing (Jim Balsillie) without NHL approval. After contentious court battles, the bankruptcy court rejected Balsillie's bid to buy the team, and the franchise currently sits in bankruptcy limbo after filing 5 months ago. The Cubs, on the other hand, worked out the franchise's sale ahead of time, got MLB's approval, filed bankruptcy to effectuate the sale, and emerged one day later. What can we learn from this? Very simply, selling a professional sports franchise via the Bankruptcy Code will be most easily accomplished through staying in bankruptcy for a short period and getting league approval for sale of the franchise. Failure to get league approval first will certainly result in a case more like that of the Coyotes and less like that of the Cubs.


Tim Cedrone is a judicial law clerk in the New Jersey Superior Court, Appellate Division. This blog post and all others written by Mr. Cedrone are his work and his alone and express only the author's views. Nothing in this blog post or any other blog post written by Mr. Cedrone represents the views of the New Jersey Superior Court or any related entity.

Sports and the Law: Coyotes Roaming in the Desert

Last week, we here at SportsJudge Blog alerted you to Judge Redfield Baum's rejection of the two proposed reorganization plans for the Phoenix Coyotes under which a new entity would purchase the moribund franchise out of bankruptcy. (For previous posts on the Phoenix Coyotes bankruptcy, click here.) Those two competing entites, of course, are Jim Balsillie (co-CEO of BlackBerry-make RIM) and the National Hockey League. Given the consequences of Judge Baum's decision, two issues are worth examining: What exactly did Judge Baum's decision say and what happens next to the Coyotes?

The Decision: Judge Baum Rejects Both Bids, But Leaves the Door Open to the NHL

Two bids were presented to Judge Baum for consideration, both of which called for the proposing entity to buy the Coyotes and bring them out of bankruptcy. Jim Balsillie's bid was for $242.5 million, a $30 million increase from his previous bid as part of an attempt to get the city of Glendale to drop its objection to his bid. Balsillie's bid was contingent on being able to move the team to Hamilton, Ontario. The NHL's bid was worth $140 million, and called for payment of unsecured creditors as chosen by the NHL. After evaluating both bids, Judge Baum decided to accept neither. Balsillie's bid was rejected because Judge Baum determined that the NHL's interests in selecting its member owners could not be adequately protected from an economic perspective as required by the Bankruptcy Code.

The NHL's bid was rejected because the language of the bid had a practical effect of allowing the NHL to pay all creditors in full except for Jerry Moyes and Wayne Gretzky. Under the Bankruptcy Code, a reorganization plan cannot allow for the purchasing entity to pick and choose which creditors it will pay. The silver lining for the NHL, however, is that its bid was rejected without prejudice, meaning that it can fix its bid and re-propose it for the court's consideration. Balsillie's bid, on the other hand, was rejected with prejudice, meaning that he cannot propose another bid. With rejection of both bids, the Coyotes will remain in bankruptcy until a new reorganization plan is filed by the NHL or another party.

Where Do the Coyotes Go from Here?

Now that the Coyotes are remaining in Chapter 11 for a while longer, an important question to ask is how will they finally emerge? One possibility is that the NHL could re-propose its bid with provision for payment of Moyes and Gretzky at the same rate as other unsecured creditors. Another possibility is that a new entity could propose a reorganization plan. Such a scenario is not unprecedented in sport organization bankruptcies. For example, the Pittsburgh Penguins languished in bankruptcy for about ten months after filing for bankruptcy in November 1998. Three reorganization plans were proposed, including one by the NHL and one by Mario Lemieux. Lemieux proposed his plan late in the bankruptcy process, becoming the knight in shining armor that rescued the Penguins from bankruptcy. Could the same thing happen with the Coyotes? It's possible, but given the ease with which the NHL could amend its bid, you can bank on the NHL getting control of the franchise. At that point, expect the NHL to sell the team outside of bankruptcy, possibly even to Jerry Reinsdorf, a previous bidder for the franchise. And if the NHL is really lucky, maybe it can secure a price higher than what it paid for the club, considering the new buyer would be getting the team free and clear of all the bankruptcy problems.

Tim Cedrone is a judicial law clerk in the New Jersey Superior Court, Appellate Division. This blog post and all others written by Mr. Cedrone are his work and his alone and express only the author's views. Nothing in this blog post or any other blog post written by Mr. Cedrone represents the views of the New Jersey Superior Court or any related entity.

Phoenix Coyotes Decision: Baum Rejects Both Bids For Bankrupt Franchise

Yesterday, Judge Redfield Baum of the US Bankruptcy Court rejected both offers to buy the bankrupt Phoenix Coyotes franchise. Following five months of negotiations and legal maneuvering which played out under intense media scrutiny, Baum decided neither Jim Balsillie or the NHL's bids could be approved:

"...the court can not approve the bids by PSE and the NHL. Therefore, PSE's bid is denied, with prejudice because the interests of the NHL can not be adequately protected as required by Section 363(e) if the sale to PSE were approved. The NHL's bid is denied, without prejudice. As stated above, the NHL can probably cure the deficit in its bid if it elects to make the required amendment(s)."

The required amendments referenced in the decision are in regards to an ambiguous statement in the NHL's bid which may leave out former head coach Wayne Gretzky and owner Jerry Moyes:

"The evidence is that its bid is designed to allow payment of "all legitimate creditors". It may be that such statement is ambiguous because it could mean a payment of differing amounts to legitimate creditors or it could be payment of all legitimate creditors...

...It seems obvious to the court and the apparent practical effect of the NHL's bid is to pay all creditors in full except the Moyes and Gretzky claimants...

...There has been no determination that the Moyes and Gretzky claims are not "legitimate creditors." It would be inherently unjust for this court to deprive them of their possible rightful share of any proceeds without first providing all involved a fair trial on their claims."

On the surface, this ruling leaves the door open for the NHL to clean up it's bid to include Moyes and Gretzky and eventually get the team to do as they wish. You can download the full court decision here:

http://www.nhl.com/league/ext/pdf/phx_decision.pdf

We'll continue to have additional legal insight on the developments in this proceeding in the coming days. Click here to read more of our coverage of the Coyotes bankruptcy throughout the summer.

Why PETA Shouldn't Blame Roger Goodell for Michael Vick's Return

This Sunday marks Michael Vick’s official return to the National Football League—an event that has been widely criticized by People for the Ethical Treatment of Animals (“PETA”), as well as some sports writers and doggie bloggers.

What those who criticize NFL Commissioner Roger Goodell for reinstating Vick fail to understand, however, is that the NFL may have ultimately lacked any real choice. Had the NFL not reinstated Vick, Vick could have potentially filed an antitrust lawsuit against the 32 NFL clubs for concertedly refusing to deal with him. Even though such a lawsuit would have likely failed in the Second and Seventh Circuits (due to the holdings respectively in the Clarett and American Needle cases), a lawsuit against the NFL clubs would have likely gotten to a jury in the Third, Sixth, Eighth and D.C. Circuits—all places where professional athletes have previously won large antitrust settlements.

As a quick background in antitrust law, Section 1 of the Sherman Act, in pertinent part, states that “[e]very contract, combination … or conspiracy in the restraint of trade or commerce … is declared to be illegal.” Although most Section 1 claims involve restraints of trade related to product markets, the Sherman Act likewise prohibits restraints in labor markets, as long as these restraints occur outside of the proper workings of a collective bargaining agreement (“non-statutory labor exemption”).

Courts in general determine whether a particular restraint violates Section 1 of the Sherman Act in three steps. First, courts will determine whether a particular restraint emerges from a “contract, combination or … conspiracy” among two or more parties. Next, they will determine whether the restraint yields a net anticompetitive effect to consumers. Finally, they will assess whether any antitrust exemption would negate the finding of liability.

With respect to finding a “contract, combination or … conspiracy,” most courts outside of the Seventh Circuit have found that any decision made by a league commissioner is tantamount to an agreement made among each of the individual club-owners, given that club-owners elect the commissioner to act on their behalf. Thus, outside of the Seventh Circuit, Goodell’s original decision to suspend Michael Vick would be viewed no differently under antitrust law than if the 32 NFL owners sat in a room and all agreed to suspend him. (Of course, this could change depending on the Supreme Court’s pending ruling in the case American Needle v. Nat’l Football League).

As to the net effects of indefinitely suspending a player, a court would likely find these effects to weigh heavily in the direction of being anticompetitive because suspending a player from a premier sports league reduces consumers’ ability to attend games that would feature the boycotted player, presuming a team would otherwise choose to play him. Although the 1961 Southern District of New York case Molinas v. Nat’l Basketball Association had upheld the NBA’s indefinite suspension of a player under antitrust law, that case involved a peculiar set of facts (a player gambling on games in which he played) and has since been called into doubt by the Supreme Court’s decision in U.S. v. National Society of Professional Engineers, which explained that defendants may not use a rationale based solely on public policy to offset liability for anticompetitive conduct.

Finally, with respect to potential affirmative defenses, courts in the Third, Sixth, Eighth, and D.C. Circuits would probably not find any of these defenses applicable. While it is true that most terms of good-faith collective bargaining agreements are exempt from antitrust scrutiny under the non-statutory labor exemption, the NFL Personal Conduct Policy (unlike the NFL drug policy and anti-gambling policy) does not appear explicitly in the NFL Collective Bargaining Agreement, thus likely making it fall outside the exemption in these circuits. In addition, even though a group of NFL players purportedly approved the NFL Personal Conduct Policy in 2007, their approval is likely irrelevant because the NFL Collective Bargaining Agreement requires any changes or modifications to be signed in writing. There is no public record of such writing.

Thus, even if NFL Commissioner Roger Goodell had not reinstated Michael Vick into the league, Vick may still have gone to court and litigated his way back. By simply reinstating Vick, the NFL avoided the headache of legal action, minimized the risk of having to pay damages to Vick, and resolved this matter without drawing added attention to Michael Vick’s past misconduct.

Can PETA really blame the NFL for that?

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(Article originally posted at 10:05 A.M. on Above the Law; for more details on the legality of commissioner suspensions, see my article in the 2009 Catholic University Law Review: Are Commissioner Suspensions Really any Different from Illegal Group Boycotts).