Sports Labor Relations and other Sports Industry Issues

Supreme Court overturns (9-0) the Seventh Circuit’s ruling in American Needle v. National Football League

2010-05-25T16:01:00.004-04:00

This case is important to labor relations because a ruling in favor of the league could not only identify a single entity for NFL apparel contracts, but for all business dealings, including labor issues. As Michael McCann points out in his SI.com column the decision provides NFLPA with relief going forward into labor talks.

Many collective bargaining provisions are, outside of the CBA, violations of antitrust, but off limits to challenges because of the non-statutory labor exemption. Nonetheless the unions’ leverage remains in the antitrust courts, and a decision for the league in this case could seriously tilt the playing field. Simply compare the recently settled MLS CBA to those of the the NFL, NBA, MLB, and NHL. The MLS enjoys legal single entity status, and the MLS players union was able to negotiate little more than reserve era rights and no level of free agency.

Fehr to Step Down as Head of MLBPA

2009-06-23T12:44:00.005-04:00

As has been widely reported Donald Fehr, Executive Director of the Major League Baseball Players Association, announced his retirement Monday, June 22, effective no later than the end of March 2010. Fehr’s retirement paves the way for his successor, Michael Weiner, to lead negotiations for the next collective bargaining agreement. The current CBA expires with the 2011 season.

Fehr’s quarter century tenure, during which the MLBPA maintained it’s reputation as the most powerful and effective of the professional sports unions, is marked by three milestones. Fehr managed the union’s successful efforts in the court victories over the owners in the collision cases of the late 1980s. He led the resistance to the owners’ brazen attempt at union busting in 1994, calling for the strike that cancelled that year’s World Series, but restored the terms of the collective bargaining agreement sans salary cap. His final decade is marked by the reluctant inclusion of incrementally more rigorous drug testing into the CBA. The first two, especially from the perspective of the players who hired him, will be considered feathers in his cap and bolster his reputation as a highly skilled lawyer and formidable negotiator. Fehr’s handling of the union’s position on performance enhancing drugs is more ambivalent.

Initially Fehr maintained a staunch civil liberties posture toward drug testing—a holdover from the union’s position on recreational drugs. Protection of civil liberties and privacy rights is laudable and has extensive legal justification. However, it provides some cover for the cheaters and criminals at the expense of the other "clean" players. Moreover, because performance, and therefore compensation in baseball is relative, the dimensions of damage to the rank and file are quite different than with recreational drug use. It’s with this balance that Fehr has struggled, and his reluctance to more aggressively address testing and performance enhancing drugs, whether admirable or misguided, will doubtless haunt his legacy.

NFL Labor Negotiations: Early Posturing over Disclosure of League Financial Information

2009-06-12T11:59:00.009-04:00

NFL commissioner Roger Goodell and DeMaurice Smith, executive director of the NFL Players Association opened talks toward a new collective bargaining agreement when the two met last week in New York. AP coverage on the meeting reports that an early point of contention is the commissioner’s refusal to offer the union full financial information.

One early subject of contention: the union's demand the NFL teams open their books and the league's position that the union already has all the relevant financial information.

The battle over financial disclosure in negotiations is not new, and whether the league or union are legally in the right depends on the particular circumstances. However if the NFL maintains that financial concerns are driving their bargaining position, they should be obligated to open their books to the union.

In 1980, the Major League Baseball Player Relations Committee (PRC) proposed replacing the free agency with a more restricted version, akin to the NFL’s Rozelle Rule, whereby clubs losing a free agent could select a player from the roster of the club signing that player. The union, under the leadership of Marvin Miller, strongly objected, contending (correctly) that the market for free agents would be significantly restrained. Prior to the negotiations, Commissioner Kuhn and some individual club owners (Kroc and Turner) made public comments to the effect that escalating salaries, driven by free agency, had caused serious financial problems to the game— to the degree that some clubs were on the verge of bankruptcy. The commissioner’s statements implied that a financial threat to MLB clubs, and therefore players’ livelihoods, was imminent if players did not accept restrictions on free agency. Miller consequently petitioned the NLRB to force MLB to open its books and provide evidence to the union of the claimed financial distress, under the conventions of good faith bargaining. Miller’s position was that the Players Association must have the requested financial data in order to fulfill its duty of fair representation. The Board agreed with Miller, but the PRC appealed in US District Court (Silverman v. MLB PRC, US District Court, Southern District of NY, 1981). The Court overruled the NLRB in favor of the PRC. The rationale given was based on the PRC’s exclusive authority (my emphasis) to formulate the bargaining position of the clubs. The commissioner was not a member of the PRC—nor was an agency relationship established between them to the Court’s satisfaction. Therefore, the commissioner’s statements could not be attributed to the PRC as a statement of their bargaining position.

The inference drawn from Silverman is that if the specific financial concerns are part of the NFL’s official bargaining position, the union is justified in asking for financial disclosure. Included in the NFL’s statement in May 2008, as their rationale for opting out of the current CBA two years early was the following:

The NFL earns very substantial revenues. But the clubs are obligated by the CBA to spend substantially more than half their revenues – almost $4.5 billion this year alone -- on player costs. In addition, as we have explained to the union, the clubs must spend significant and growing amounts on stadium construction, operations and improvements to respond to the interests and demands of our fans. The current labor agreement does not adequately recognize the costs of generating the revenues of which the players receive the largest share; nor does the agreement recognize that those costs have increased substantially -- and at an ever increasing rate -- in recent years during a difficult economic climate in our country. As a result, under the terms of the current agreement, the clubs’ incentive to invest in the game is threatened.

It appears that financial issues are a significant part of the league’s official bargaining position. (Although that determination will have to be made by the NLRB or courts.) Commissioner Goodell claims that the union has all relevant information and, as required by the CBA for salary cap computations, the union does have access to all revenue information and labor costs. However, they are not privy to information on costs as they relate to capital expenses, specifically stadium construction, which the league claims have changed the economic climate to the degree that a new CBA is necessary. As such, the NFL should be required to open its books to the union.

NBA Age Minimum May Face Congressional Scrutiny

2009-06-07T15:35:00.000-04:00

The Clarett decision discussed this post may be old news, but age minimums in pro sports were front and center again last week. Congressman Steve Cohen, D- Tennessee, lambasted the NBA’s age restrictions. (NYT reg. required)

“It’s a vestige of slavery,” Cohen said Wednesday in a phone interview, noting that most of the players affected by the rule are African-American. “Not like the slavery of 150 years ago, but it’s a restraint on a person’s freedoms and liberties.”

Cohen also invoked the tiresome analogy that an 18 year old can serve his country but cannot . . . blah, blah, blah.

Cohen may be grandstanding, but he indicated his office is exploring the legalities of the rule, and that hearings before the House’s Judiciary Committee and legislative proposals are possible. If he follows through, this is commendable.

NBA Commissioner David Stern responded quickly in a press conference prior game one of the NBA Finals on Thursday. (NYT reg. required). Stern emphasized that the rule is simply a business decision. Doubtless, it is good business –perhaps not on par with some of J.D. Rockefeller’s sound “business decisions” allowing him monopolize the oil industry, or the reserve system that served the business interests of sports very well for many years. It is a good business move for the NBA nonetheless, as they may temporarily forgo a little talent, but are able to pass on a fair amount of labor market risk to the NCAA or Europeam leagues. In the match of inappropriate analogies, “Thomas Jefferson” Stern does manage a one-up on the Congressman when he equates the NBA rule to the Congressional age minimum of 25.

NFLPA Settles Lawsuit with Retired Players

2009-06-05T12:25:00.000-04:00

The AP is reporting that NFLPA has settled its lawsuit with retired players.

The settlement amount is close to the $28.1 million the NFLPA was ordered to pay after a federal jury in San Francisco ruled in favor of the players in November. . . . .The NFLPA appealed the ruling in February, a move that further angered retired players, who already felt disenfranchised by the union and its previous executive director, Gene Upshaw, who died in August.

The decision to settle and forgo the appeal, reflects a significant change in the union’s relationship with retired players under its new executive director DeMaurice Smith, who took over in March. The press release reports Smith has made addressing the rift with retired players a priority, on par with the opening of negotiations on the new CBA with the NFL. If nothing else, this action should be public relations coup for the union, which has been roundly criticized for it's unsympathetic treatment of former players, as it heads into CBA negotiations.

Judge Sotomayer and the NFL Draft-Eligibility Rule (Clarett v. NFL)

2009-06-04T16:33:00.000-04:00

Judge Sotomayor served on the three-judge panel of the U.S. Court of Appeals for the 2nd Circuit, who unanimously overturned the US District Court’s decision in favor of Clarett. In doing so, Sotomayor, writing for the panel, preserved 2nd Circuit’s convention of rigid application of the non-statutory antitrust exemption in cases involving sports leagues— interpretations that generally favor the league’s position. The Clarett ruling represents a significant extension of the non-statutory exemption, the intent of which is to facilitate the negotiation process by permitting the use of some anticompetitive practices as bargaining chips. Simply put, the exemption theoretically improves net welfare by exchanging a reduction in market efficiency for greater efficiency of negotiation. The draft-eligibility rule, in the absence collective bargaining, is manifestly anticompetitive (see Haywood v. NBA). Moreover, it represents at best a trivial point of negotiation between sports unions and management. In fact, at the time of the ruling, age restrictions had never been explicitly included within a sports collective bargaining agreement. (Subsequently, the NBA and NFL agreements made eligibility restrictions explicit.) There is no welfare gain from this trade. The recognition of employment eligibility restrictions based on age is not consistent with the intent of the non-statutory antitrust exemption and the 2nd Circuit overstepped with their ruling allowing its inclusion.

The legal basis for the 2nd Circuit opinion is murky; arguments, both pro and con, now populate several law reviews. The non-statutory exemption, derived from US Supreme Court decisions, dictates that the conditions negotiated in the collective bargaining process are off limits to antitrust challenges from individuals party to the agreement—labor law trumps antitrust law in cases where the two conflict. In the instance of sports leagues, players represented by the union, and club owners represented by the management negotiating team, forgo individual antitrust protection for the sake of advancing the collective bargaining process. Conventional features negotiated under current sport league collective bargaining agreements, including restrictions on open labor markets such as rookie drafts and salary caps, are typically decreed anticompetitive and proscribed by antitrust law. Yet these restrictions are legal under labor law, and are exactly the issues around which labor negotiations in sports center. The negotiation process is doubtless better facilitated by their removal from antitrust scrutiny.

Nonetheless, the non-statutory exemption provides for antirust review of the provisions of collective bargaining agreements, given particular conditions. Unfortunately, the parameters of these conditions are not well defined by the Supreme Court. The 2nd Circuit, as is clear in the opinion, has limited antitrust scrutiny of collective bargaining agreements to challenges based on product market competition, effectively maintaining that a labor market challenge, such Clarett’s, always falls under the exemption. The 8th Circuit, conversely, developed the three pronged Mackey Test to the exemption for labor market cases, stipulating that the exemption holds only if all three prongs are satisfied.

1. The labor policy favoring collective bargaining may potentially be given pre-eminence over the antitrust laws where the restraint on trade primarily affects only the parties to the collective bargaining relationship.

2. Federal labor policy is implicated sufficiently to prevail only where the agreement sought to be exempted concerns a mandatory subject of collective bargaining.

3. The policy favoring collective bargaining is furthered to the degree necessary to override the antitrust laws only where the agreement sought to be exempted is the product of bona fide arm's-length bargaining.

The District Court applied the Mackey test and found the case met none of the three criteria. The 2nd Circuit appears to dismiss the District Court’s use of the test as inappropriate, out of hand, because Clarett is not a harmed product market competitor. However, apparently for reinforcement, they reviewed each of the three prongs, as applied to the case, and scored it the necessary 0-3 against Clarett.

That at least one of these prongs is not satisfied seems to me quite likely, although persuasive arguments from legal scholars can be found on both sides. For example, The Sports Economist has problems with prong one, and I think this prong best represents the anticompetitive inefficiency. The 2nd Circuit relies on Wood v. NBA here; but can draft eligible rookies, just a motion away from union membership, and those banned from the league, and therefore the union, both be classified as parties to the collective bargaining relationship? Compelling arguments that Clarett meets neither prong two or three are found here.

Notwithstanding, the 2nd Circuit is mistaken in its interpretation that review the non-statutory antitrust exemption is appropriate only in cases brought by product market competitors. This is parallel to an affirmation that the Sherman Act is not applicable to labor markets, an argument long since decided as flawed. The bottom line is that the decision does not just permit, but encourages an anticompetitive practice—note the almost immediate imposition of a eligibility restriction rule by the NBA— and all the accompanying market inefficiency for no apparent gain in bargaining efficiency.

Judge Sotomayor and Sports Labor Relations

2009-06-03T00:02:00.000-04:00

U.S. Supreme Court nominee Sonia Sotomayor’s relationship with sport labor relations was discussed by more than a few writers last week. Her injunction, preventing Major League Baseball owners from imposing their economic system on the players, effectively ended the 1994-95 strike. The President’s comment, at her introduction, that Judge Sotomayor was thought by some to have saved baseball, instigated a journalistic review of the state of affairs surrounding that case, summarized nicely by The Biz of Baseball. To maintain that her decision “saved baseball” is hyperbole. However, the injunction was exactly the right call as it forced both sides back to the bargaining table and eventually to the new CBA in 1997. That reasoning is of course completely lost on the reliably obtuse Mike Lupica and George Will (from Political Punch).

Sotomayor’s other significant judgment on sport labor relations was her decision against Maurice Clarett in his challenge to the NFL age restriction policy. This verdict received far less attention last week, but was well documented by The Sports Economist, and Deadspin has a spirited take. I’m far less satisfied with this decision and will discuss my arguments in the next post.

Sports Labor Relations

2009-06-02T17:40:00.000-04:00

The purpose of this blog is to bring together information and analysis on matters relevant to industrial relations, and other labor issues in sports. Coverage of current and upcoming collective bargaining negotiations, analysis of collective bargaining proposals, and the collective bargaining agreements will be included. Additionally, judicial decisions and changes in the law and political landscape that influence labor issues in sports will be addressed. Antitrust and contract law applications to sports will be discussed. Reader comments are welcome and encouraged.