Tag Archives: antitrust

Is there a Place in the Octagon for Antitrust Laws?

December 18, 2015

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By Leah Seneviratne – Thompson Rivers University JD Student

If consumers are receiving the best product, is an alleged monopoly still harmful? American antitrust laws are in place to prohibit agreements that restrain trade and result in a monopoly. The intended result is the promotion of a competitive marketplace and protection of consumer welfare. However, monopolies in professional sports are rarely portrayed as harming consumer welfare. Rather, they have come to be expected of the most popular American sports leagues, evidenced in the domination enjoyed by the NBA, MLB and NFL. As a result, we are left with the question of whether antitrust laws should still have a place in professional sports businesses, if they still manage to produce the best possible product for consumers.

In a recent court decision, the Ultimate Fighting Championship’s parent company, Zuffa LLC, failed in their application to dismiss a class action lawsuit filed by various current and former fighters for allegedly anticompetitive business practices. The plaintiffs have brought their action under section 2 of The Sherman Act, and claim that Zuffa’s scheme has resulted in fighters being paid a fraction of what they would earn in a competitive Mixed Martial Arts market. As Dana White, the president of Zuffa, once stated, “There is no competition. We’re the NFL. There is no other guy”.

The alleged scheme of Zuffa was to directly acquire potential rival companies who were unable to compete profitably, as well as to impair competition by locking their professional MMA Fighters into lifetime exclusive contracts that bar them from working with up and coming MMA promotion companies. The scheme also included refusing to contract with any sponsor who agreed to work with an actual or potential MMA promotion rival, and requiring major physical venues to supply their services exclusively to the UFC. This greatly impedes the ability of potential UFC rivals to attract enough viewers and money to be profitable and avoid acquisition. The plaintiffs also allege that professional MMA fighters are deprived of an opportunity to make a comparable salary to those of boxers, or even NFL players, who at least have the benefit of multiple teams competing to acquire them.

What is noteworthy is that despite being part of one of the fastest growing professional sports, the latest Forbes’ list of the, “Top 100 Highest- Paid Athletes in the World” revealed a complete lack of professional MMA fighters, while boxers and soccer players dominated the list. Forbes Magazine reports the annual revenue of the UFC to be from $350-450 million, while they estimate the median fight payout for a fighter to be between $17,000 and $23,000.

So to answer the question, should the same antitrust laws be applied when it comes to the area of professional sports, where Zuffa is allegedly taking actions that result in a monopoly? In the end, the answer lies in the nature of the business practices. Section 2 of the Sherman Act is violated where there is monopolization, an attempt to monopolize, or combination or conspiracy with another person to monopolize a part of trade or commerce. It is behaviour that amounts to an exclusion of an actual or potential rival that is prohibited by The Sherman Act. If the allegations of the plaintiffs are correct, then we have a market in which a company with massive power and resources willfully obstructs competition. This type of exclusionary behaviour has allegedly resulted in a substantially increased difficulty of survival for competitors, as well as reduced bargaining power for professional fighters in contract negotiations. If the legislation clearly values competition and preventing the restriction of business transactions, then antitrust laws need to be taken seriously in the area of professional sports, in order to prevent the anticompetitive tactics that undermine them. The allegations facing Zuffa emphasize the necessity of antitrust laws in professional sports, which include preventing harm to both the competitor and the player.

 

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Antitrust in Mixed Martial Arts

December 9, 2015

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By Edward Hulshof – Thompson Rivers University JD Student

The UFC’s legal woes continue as the Le et al v. Zuffa antitrust lawsuit enters discovery. Zuffa, LLC (“Zuffa”), the corporate entity who owns the Ultimate Fighting Championship brand, has been the subject of staunch criticism for anticompetitive practices and the use of coercive adhesion contracts for several years. Zuffa recently lost a motion to stay document discovery proceedings – the document production obligations a part of the normal course of litigation – and with it, potentially, the shroud of mystery ensconcing its promotional and venue agreements with fighters and event hosts. If the antitrust lawsuit is successful, Zuffa could see fundamental reforms to its UFC brand and increased competition from market competitors such as Bellator MMA, a competing MMA promoter.

At issue is whether or not Zuffa’s business practices amount to “anticompetitive, illicit, and exclusionary acts,” which illegally acquire, enhance and maintain its dominant position in the market for promoting elite level professional MMA bouts as well as its control of MMA fighters. The Antitrust Class Action Complaint, filed December 16, 2014, (the “Complaint”) hinges on economic considerations, namely Zuffa’s control of “output markets,” that is, promoting MMA events, and “input markets,” fighter contracts.

The Complaint specifically alleges that “[t]he UFC has used the ill-gotten monopoly and monopsony power it has obtained and maintained…to suppress compensation for UFC Fighters in the Bout Class artificially and to expropriate UFC Fighters’ identities and likeness inappropriately.” This isn’t the first time Zuffa has been called to answer for its use of career suffocating fighter contracts.
Indeed, in 2008, well-renowned UFC fighter Ken Shamrock sued Zuffa for breach of contract when, it is alleged, Zuffa refused to extend Shamrock’s contract when he returned from retirement. (The court ruled against Shamrock, interpreting a key provision in the contract as providing Zuffa with the right to suspend and terminate the contract.)

More recently, Zuffa underwent intense media scrutiny when its confidential fighter contract with Eddie Alveraz was produced in a New Jersey lawsuit. The contract provided for extensive ancillary rights to Zuffa for the purposes of promoting the UFC brand and bouts. Additionally, and more troublingly, the contract granted Zuffa certain exclusive rights in perpetuity for promotional purposes, closing the door on Alvarez’s right to exploit and promote his own image outside the octagon and with other MMA promoters. Zuffa’s fighter contracts, it appears, choke the supply of inputs into competing MMA promoters.

It should come as no surprise then that MMA fighters are contemplating unionizing in an effort to strengthen their bargaining position with Zuffa and the UFC. The movement is a reflection of the repetitions of history, being reminiscent of the movement in boxing in the 90s which ushered in the Mohammed Ali Boxing Reform Act, legislation designed to rectify anticompetitive practices and coercive contracts between boxers and promoters. With Zuffa as the most powerful MMA promoter with a collection of fighters signing contracts with renewal options in favour of Zuffa, it is not surprising that many fighters are seeking to regain control of their careers. Zuffa, it appears, likes control. Even if the antitrust lawsuit is unsuccessful, it should serve as a signal to Zuffa to reform its contract practices and marketplace strategies ahead of the shifting balance in power that has been the source of tension between promoters and athletes for years.

 

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NHL Geographical Expansion – Does Relocation Require Unanimous Consent?

November 23, 2015

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By Aasim Hirji – Thompson Rivers University 3L JD Student

On June 24, 2015, Commissioner Gary Bettman announced that the NHL is officially exploring expansion plans. The window for applications was to be between July 6 and August 10 with the application fee being $10 million, $2 million of which was non-refundable. At the time, Bettman noted that the expansion fees would be at least $500 million.

The Board of Governors of the NHL control the expansion process in the NHL, as governed by the Constitution and ByLaws of the NHL. Article 3.3 of the Constitution states that there must be a vote of 3/4 of the Board of Governors in order to allow a new member into the NHL.

Only two markets sufficiently followed the NHL protocol to continue on to the next expansion phase, Quebec City and Las Vegas. Surprisingly, no expansion team was bid on in the Greater Toronto Area.

In the NHL Constitution, in Article 4.3, there is a “veto” right to member teams. “No franchise shall be granted for a home territory within the home territory of a member, without the written consent of such member.” The implications of this clause are very important. It would mean to infringe on the Toronto Maple Leafs’ rights, it would require the Maple Leafs consent for another team to come in that region. Article 4.1 defined the territorial rights as being within fifty miles of that city’s corporate limits.

In Re Dewy Ranch Hockey LLC, where Jim Balsille attempted to sidestep the process, Article 4.3 was challenged as a potential antitrust issue. Gary Bettman, Commissioner of the NHL stated that they are not enforcing that provision, rather relying on bylaw 36, which states that approval of 3/4 of the Board of Governors would ratify a transfer. Bettman also stated that there have been no objections to the league not enforcing Article 4.3, despite a letter dated November 29, 2006 from the Maple Leafs to the NHL stating that they believe a unanimous vote would be required, thus giving the Maple Leafs a veto.

The Canadian Competition Bureau (CCB) analyzed the NHL’s policies in 2008 regarding potential antitrust issues with the relocation policies. The Competition Bureau aimed to determine if the 50-mile home territory rule was an undue restriction of competition. The CCB believed that the veto rule has not been in effect since 1993, precisely what Gary Bettman had stated in Dewy Ranch. Without the veto rule, the CCB determined that there is no legal issue with needing 3/4 of approval from the Board of Governors.

The NHL has not been tested on enforcing Article 4.3 should 3/4 of the Board of Governors agree to relocate a franchise within the territorial rights of another. Relocation and expansion fees can be as high as $500 million, which gets distributed amongst the member teams. As a team in the Toronto region would be incredibly valuable, the fee could even be higher. There may be incentive for certain markets to vote in the affirmative due to receiving a share of the expansion or relocation fee (a 1/30th share).

In the United States, in LA Coliseum 1, the NFL was found to be violating the Sherman Antitrust Act by preventing the Raiders from moving to LA from Oakland. On appeal, the court vacated the damages and offered clarification on the result from Coliseum 1. The court stated that due to the unique nature of professional athletic leagues, territorial restrictions may be required. The court further stated that “objective factors such as population, economic projections and the like would be more likely to pass antitrust scrutiny”. These factors were included in the NBA franchise relocation rules after the San Diego Clippers moved to Los Angeles.

It is clear that infringement of territorial limits would likely lead to long and complex legal cases, whether it be for the Leafs or any other franchise. Since the 2006 letter, the Leafs have unequivocally stated that they believe infringing on territorial limits requires unanimous approval, thus giving every team a veto.

Should a franchise attempt to move into the Toronto area, based on precedent, the Leafs are unlikely to be pleased with the result. There is a significant benefit for other owners to allow a team into the GTA, as there is revenue sharing in the NHL. It is unlikely that the courts would allow the Leafs to exercise a veto, based on the US cases of Coliseum and San Diego Clippers. Even when looking at objective measures outlined in these cases, there is sufficient population, and strong economic projections to launch another team in the GTA.

 

 

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March Madness or March Sadness

October 5, 2015

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By Christine Purewal – Thompson Rivers University 2L JD Student

One of the most sacred annual traditions in US sport occurs as winter wanes and spring looms on the horizon – March Madness. March Madness 2015 is a near-month long collegiate basketball championship tournament that brought in over 10 million views worldwide and more than $1 billion dollars in revenue.

Athletes participating in National Collegiate Athletic Association (NCAA) sports are not considered professional athletes. The 440 page NCAA manual refers to these student athletes as amateurs. Despite such a contentious characterization, March Madness brings in more revenue than the Super Bowl. Such high revenue and viewership is made possible because every aspect of the tournament is branded.

Despite such limitless branding, NCAA President Mark Emmert maintains that the NCAA is not a moneymaking industry. It is directly stated on the NCAA official website that “the association’s belief in student-athletes as students first is a foundational principle”. This principle has formed the basis of President Mark Emmert’s argument that amateur athletes should not be compensated for their participation in NCAA sporting events or tournaments. During his testimony for Wilkins v NCAA, President Mark Emmert stated that student athletes are not employees and to pay them would change the very nature of the game.

President Mark Emmert’s contention regarding the compensation of student athletes came under scrutiny when Ed O’Bannon filed a lawsuit against the NCAA for the use of images of its former student athletes for commercial purposes. District Judge Claudia Wilken ruled in favor of Ed O’Bannon and made several findings that would impact the future of the NCAA and its athletes. Firstly, she held that NCAA rules regarding restraint of trade were unreasonable and violated antitrust law. Secondly, she ordered that NCAA scholarships should be structured to include cost-of-living expenses, which were currently excluded. Finally, District Judge Claudio Wilken held that colleges should be permitted to put up to $5,000 in a trust for its athletes during each year of eligibility. The NCAA appealed Wilken’s ruling to the 9th U.S. Circuit Court of Appeals in San Francisco. No decision has been reached in the appeal.

Since the O’Bannon ruling we have seen a changing climate in the courtroom, whereby judges are increasingly questioning the NCAA’s stance and allowing more scholarship cases to be heard.
Most recently, in June 2015 Martin Jenkins, Nigel Hayes and Alec James filed a lawsuit against the NCAA and five major conferences. The injunction sought by the plaintiffs would allow a true free market for college athletes. However, in order to succeed the plaintiffs must challenge the NCAA’s argument that they comply with antitrust laws because they are functioning as a non-commercial entity with an educationally driven mission.

The NCAA’s declaration of being “educationally driven” began to unravel in 2015 when Rashanda McCants filed a class action lawsuit against the NCAA and the University North Carolina Chapel Hill. The lawsuit brings to light the decades-long academic scandal at UNC surrounding “paper classes”. McCants contends that student-athletes were directed towards programs and courses with little rigor in attempt to free their schedules for athletic commitments. In some instances, student athletes were enrolled in non-existent classes within the department of African and Afro-American studies. It is a combination of these factors which McCants claims deprived her of a meaningful education; a meaningful education being of the upmost importance since less than 2% of NCAA student athletes goes on to play professionally.

Given the emergence of these more recent cases, it appears that the climate for student-athletes has not completely changed following the O’Bannon ruling. Although there is a wider acceptance to hear cases regarding the NCAA and possible antitrust law violations, any substantial change to the structure of the NCAA will be a slow process. This is in part due to the flawed system in which the NCAA operates. The system is structured in such a way to maximize revenue through extensive branding and the exploitation of its athletes. It is a combination of these factors which have turned the NCAA into a moneymaking industry.

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