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Managing a Brand v. Restricting Competition

Brad has done an excellent job of keeping TSE readers informed and discussing elements of the American Needle v. NFL case including posts on oral arguments, key implications, and a comprehensive listing of useful links on briefs and related materials.    As his links page notes, economists filed friend-of-the-court briefs on both sides of the case.  The pro-American Needle brief includes a Who's Who of sports economists, while the pro-NFL brief includes several antitrust heavy hitters.

I wanted to step back from the details and implications of this particular case and give the non-economists among TSE readers a brief view of the underlying economic tensions.  While some may think economists suffer from a chronic case of  internal disputes, that's really not the case.   There are really broad areas of agreement among economists.  Although I tend to lean toward the views expressed by the "sports econ brief," the issue of whether sports leagues should be viewed as single entities or joint ventures of disparate firms is tricky.

At the economic heart of the matter turns on whether a league's/association's activities are making the product better, promoting attributes valued by consumers -- "brand management" --  or merely extracting value from consumer or resource suppliers by limiting competition.  The tricky part is that many activities fall along a spectrum of these two extremes.   Speeding up games may fall close to extreme of brand management but most activities incorporate a little or a lot of both brand managing and competition restricting.  For example, limiting player movements or pay may promote competitive balance and "the brand" while limiting competition and providing market power to owners vis-a-vis consumers, players or other resource suppliers like American Needle.  As a result, the specifics of the case and emphasis/perspective of a particular analyst influences whether brand management or competition restriction is deemed dominant.

The 7th Circuit opinion in the American Needle case leans heavily on the 1996 7th Circuit case of WGN/Bulls v. the NBA ("Bulls II") where Frank Easterbrook, now Chief Justice for the 7th , wrote the majority opinion  (Easterbrook is a longstanding, widely respected figure in law and economics).  He noted:

Whether the NBA itself is more like a single firm, which would be analyzed only under sec. 2 of the Sherman Act, or like a joint venture, which would be subject to the Rule of Reason under sec. 1, is a tough question under Copper- weld. It has characteristics of both.

The 1996 Bulls II case draws very fine (mainly) legal distinctions to find in favor of the single entity concept for the NBA, reversing the 7th Circuit's 1992 "Bulls I" opinion where the same panel of judges ruled against the Bulls.  In the 1996 case, one of the appellate justices writes a concurring opinion drawing out some of the key single entity v. joint venture issues.  As the 7th Circuit opinions make clear, the single entity-joint venture issue is a complex legal/economic landscape with important landmarks such as the 1984 Oklahoma v. NCAA case as well as more recent events such as the federal district court decision treating the NHL as a "single entity" in regard to the Phoenix Coyotes location (see Phil Miller post) Given this varied landscape, the 9-0 decision is a bit surprising to me.

Narrowly considered and taking antitrust activities as a given, I lean toward limiting the use of the single entity concept for sports leagues to only a bare minimum number of activities.  Fleisher-Goff-Tollison expressed this principle in our 1992 NCAA Cartel book to which Easterbrook refers in his 1996 opinion.  However, I also hold a somewhat inconsistent and more cynical view of antitrust activities when viewed from a broader, longer run perspective informed by empirical work on the political economy of antitrust activity.  On the whole, this work suggests that antitrust often works against rather than for consumer interest.  While the specifics of the NFL case don't seem to fit this critique closely, reading the varied opinions across time in these cases does lead me to some cynicism about the role of economics.  While econ analysis is employed in the opinions, it not clear whether it is persuasive or merely an tool of convenience for various legal/political leanings.  In his 1996 opinion, Frank Easterbrook chides the District Court judge because

The district court's opinion concerning the fee reads like the ruling of an agency exercising a power to regulate rates. Yet the antitrust laws do not deputize district judges as one-man regulatory agencies.

Yet, reading these varied opinions, including some of Easterbrook's, is subject to the same criticism.