WWiilllliiaamm && MMaarryy LLaaww RReevviieeww Volume 19 (1977-1978) Article 2 Issue 3 March 1978 DDeefifinniinngg tthhee RReellaattiioonnsshhiipp BBeettwweeeenn AAnnttiittrruusstt LLaaww aanndd LLaabboorr LLaaww:: PPrrooffeessssiioonnaall SSppoorrttss aanndd tthhee CCuurrrreenntt LLeeggaall BBaacckkggrroouunndd Barry S. Roberts Brian A. Powers Follow this and additional works at: https://scholarship.law.wm.edu/wmlr Part of the Entertainment, Arts, and Sports Law Commons RReeppoossiittoorryy CCiittaattiioonn Barry S. Roberts and Brian A. Powers, Defining the Relationship Between Antitrust Law and Labor Law: Professional Sports and the Current Legal Background, 19 Wm. & Mary L. Rev. 395 (1978), https://scholarship.law.wm.edu/wmlr/vol19/iss3/2 Copyright c 1978 by the authors. This article is brought to you by the William & Mary Law School Scholarship Repository. https://scholarship.law.wm.edu/wmlr William and Mary Law Review VOLUME 19 SPRING 1978 NUMBER 3 DEFINING THE RELATIONSHIP BETWEEN ANTITRUST LAW AND LABOR LAW: PROFESSIONAL SPORTS AND THE CURRENT LEGAL BATTLEGROUND BARRY S. ROBERTS* BRIAN A. POWERs** The proper relationship of federal labor law and federal antitrust law has confounded the judiciary since the enactment of the first federal antitrust statutes. Our national labor policy encourages collective bargaining as the best means of promoting industrial peace. One of the underlying foundations of free collective bargain- ing is labor's capability to affect management's competitive posi- tion in the marketplace by means of strikes, boycotts, and worker organization.' Viewed in the context of the collective bargaining process, the national policies favoring collective bargaining create tensions with the policies favoring an unrestrained marketplace, which form the foundation of federal antitrust laws. With varying results, courts have struggled over issues such as the merits of exempting unions from antitrust regulation, the proper extent of this labor exemption, and the degree of scrutiny to be given collective bargaining agreements. In cases involving significant labor considerations and slight antitrust implications courts have found paramount the national policies favoring collective bargain- ing and have granted immunity or applied a labor exemption. Con- versely, in cases involving significant market restraints and only tangentially affecting labor interests courts have applied the anti- * B.A., University of Pennsylvania; J.D., University of Pennsylvania School of Law; LL.M., Harvard University School of Law. Assistant Professor of Legal Studies, University of North Carolina. ** B.A. State University of New York at Oneota; M.S.C., London School of Economics; J.D., University of North Carolina. Staff counsel to National Labor Relations Board Member John A. Pennello. 1. See NLRB v. Insurance Agents' Int'l Union, 361 U.S. 477 (1960). WILLIAM AND MARY LAW REVIEW [Vol. 19:395 trust laws. Because no case has arisen with major labor and anti- trust implications, the proper relationship between the fundamen- tal national policies reflected in these laws never has been defined. Consideration of this important issue may occur in the context of challenges to the player restraint system in the professional sports industry. Professional athletic teams are similar to other enterprises engaged in selling an entertainment package to the public. Virtually every major public policy towards business-antitrust, labor rela- tions, taxation, race and sex discrimination-has a potentially sig- nificant application to sports. Yet, for many years professional sports were not recognized for what they were, a big business. An age of innocence contributed to a low player salary structure, to an advantageous tax treatment for team owners, and to a virtual im- munity for professional sports' legal arrangements from antitrust challenges. This tolerance is vanishing quickly, however; players, Congress, courts, and the public have become restless with the ex- isting power structure in the professional sports world. Senator Sam Ervin articulated the changed attitude in 1972, when he com- plained: [h]ow callously professional sports will deny a man his right to a livelihood because he did not wish to play for a particular team at a dictated salary, or how quickly a franchise will be shifted, thereby denying fans the opportunity to see their favorites ... Even if I believed the solemn predictions of the pro sports indus- try spokesman, and I don't, I would still oppose a system that demands lord-like control over the serf-like hired hands in order to guarantee survival of the pro teams.' Despite this change in perception, the road to a reconciliation between the divergent interests represented by athletes, sports teams, the antitrust laws, and the labor laws is strewn with obsta- cles. New player control systems arising from collective bargaining agreements place significant market restaints on aspiring profes- sional athletes and certainly will be challenged in court. Before considering the antitrust issues, however, courts must decide whether these collective bargaining agreements are subject to anti- trust scrutiny. In discussing the latter issue, this Article examines 2. Hearings before the Antitrust Subcomm. of the Senate Comm. on the Judiciary,9 2d Cong., 2d Sess. 244 (1972). 19781 PROFESSIONAL SPORTS the applicability of federal antitrust law to professional sports, ana- lyzes the development of labor exemptions and immunities and their relevance in the sports industry, and identifies the issues perti- nent to a consideration of whether the current collective bargaining agreement between the National Football League Players Associa- tion (NFLPA) and the National Football League Management Council, which includes a new player restraint system, should be immune from antitrust attack. ANTITRUST AND PROFESSIONAL SPORTS: AN OvERVIEW3 Until recently, very little litigation concerned the market freedom of professional athletes and the applicability of the antitrust laws to the professional sports industry. The Supreme Court in 1922 first considered these issues in regard to professional baseball. The Court concluded in Federal Baseball Club, Inc. v. National League of ProfessionalB aseball Clubs4 that the sport was immune from anti- trust attack because baseball games were not interstate commerce5 and "although made for money would not be called trade or com- merce in the commonly accepted use of those words."6 In 1953 the Court in Toolson v. New York Yankees, Inc.7 reaffirmed baseball's exemption from the federal antitrust lawss on the rationale that for thirty years baseball had developed free from those laws and that any change in the status quo was within the province of Congress rather than the courts.9 Finally, in 1972 the Court acknowledged in Flood v. Kuhn0" that baseball was a business engaged in interstate 3. For an in-depth analysis of this subject, see L. SoBEL, PROFESSIONAL SPORTs AND THE LAW (1977). 4. 259 U.S. 200 (1922). 5. "The business is giving exhibitions of baseball which are purely state affairs." Id. at 208. 6. Id. at 209. 7. 346 U.S. 356 (1953) (per curiam). 8.I d. at 357. 9. Id. Moreover, the Court noted that Congress, after FederalB aseball Club, had declined the opportunity to amend the pertinent statutes. Id. Also noteworthy is that the Court decided Toolson subsequent to its broadening of the concept of interstate commerce. See NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937); Martin, The Aftermath of Flood v. Kuhn: ProfessionalB aseball'sE xemption from Antitrust Regulation, 3 W. STATE U.L. REV. 262 (1976). 10. 407 U.S. 258 (1972). Flood, an outstanding professional baseball player with 12 years experience for the St. Louis Cardinals, was traded to the Philadelphia Phillies without being consulted about nor informed of the trade until its consummation. After unsuccessfully petitioning the Commissioner of Baseball to classify him as a free agent, Flood initiated an WILLIAM AND MARY LAW REVIEW [Vol. 19:395 commerce; nevertheless, relying on Federal BaseballClub and Toolson, the Court reaffirmed the exemption of baseball's reserve system" from the Sherman Act.'" antitrust action against organized baseball, asserting that Toolson and FederalB aseball Club should be overruled. Id. at 264-66. 11. Justice Blackmun's opinion for the Court in Flood presented a comprehensive descrip- tion of baseball's former reserve system: The reserve system, publicly introduced into baseball contracts in 1887 ... centers in the uniformity of player contracts; the confinement of the player to the club that has him under the contract; the assignability of the player's contract; and the ability of the club annually to renew the contract unilaterally, subject to a stated salary minimum. Thus A. Rule 3 of the Major League Rules provides in part: "(a) UNIFORM CONTRACT. To preserve morale and to produce the similar- ity of conditions necessary to keen competition, the contracts between all clubs and their players in the Major Leagues shall be in a single form which shall be prescribed by the Major League Executive Council. No club shall make a con- tract different from the uniform contract or a contract containing a non-reserve clause, except with the written approval of the Commissioner . "(g) TAMPERING. To preserve discipline and competition, and to prevent the enticement of players, coaches, managers and umpires, there shall be no negotiations or dealings respecting employment, either present or prospective, between any player, coach or manager and any club other than the club with which he is under contract or acceptance of terms, or by which he is reserved, or which has the player on its Negotiation List, or between any umpire and any league other than the league with which he is under contract or acceptance of terms, unless the club or league with which he is connected shall have, in writing, expressly authorized such negotiations or dealings prior to their comm- encement." B. Rule 9 of the Major League Rules provides in part: "(a) NOTICE. A club may assign to another club an existing contract with a player. The player, upon receipt of written notice of such assignment, is by his contract bound to serve the assignee. "After the date of such assignment of rights and obligations of the assignor clubs thereunder shall become the rights and obligations of the assignee club C. Rules 3 and 9 of the Professional Baseball Rules contain provisions paral- lel to those just quoted. D. The Uniform Player's Contract provides in part: "4.(a) . . .The Player agrees that, in addition to other remedies, the Club shall be entitled to injunctive and other equitable relief to prevent a breach of this contract by the Player, including, among others, the right to enjoin the Player from playing baseball for any other person or organization during the term of this contrct." "5.(a) The Player agrees that, while under contract, and prior to expiration of the Club's right to renew this contract, he will not play baseball otherwise than for the Club, except that the Player may participate in post-season games 1978] PROFESSIONAL SPORTS 399 In the interim between Federal Baseball Club and Flood, the Supreme Court and its individual Justices rendered decisions sub- jecting professional boxing,3 football," and basketball5 to the fed- eral antitrust laws." As a result, litigation and controversy focused under the conditions prescribed in the Major League Rules... " "8.(a) The Player agrees that this contract maybe assigned by the Club (and reassigned by any assignee Club) to any other Club in accordance with the Major League Rules and the Professional Baseball Rules. "10.(a) On or before January 15 (or if a Sunday, then the next preceding business day) of the year next following the last playing season covered by this contract, the Club may tender to the Player a contract for the term of that year by mailing the same to the Player at his address following his signature hereto, or if none be given, then at his last address of record with the Club. If prior to the March 1 next succeeding said January 15, the Player and the Club have not agreed upon the terms of such contract, then on or before 10 days after said March 1, the Club shall have the right by written notice to the Player at said address to renew this contract for the period of one year on the same terms, except that the amount payable to the Player shall be such as the club shall fix in said notice; provided, however, that said amount, if fixed by a Major League Club, shall be an amount payable at a rate not less than 80% of the rate stipu- lated for the preceding year. "(b) The Club's right to renew this contract, as provided in subparagraph (a) of this paragraph 10, and the promise of the Player not to play otherwise than with the Club have been taken into consideration in determining the amount payable under paragraph 2 hereof." 407 U.S. at 259 n.1 (citation omitted). 12. Id. at 285. Section 1 of the Sherman Act, 15 U.S.C. § 1 (1970), provides in pertinent part: "Every contract, combination in the form of trust or otherwise, or conspiracy, in re- straint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." Section 2 of the Act, 15 U.S.C. § 2 (1970), provides in pertinent part: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony .... Although baseball has remained exempt from the federal antitrust laws, this peculiar immunity ironically has not prevented upheavals in the sport's player restraint systems. Relying on arbitration, professional baseball players have achieved a degree of freedom com- parable to that possessed by athletes competing in other major professional team sports. See Note, ProfessionalS ports: Restraining the League Commissioner's Prerogativesi n an Era of Player Mobility, 19 WM. & MARY L. REv. 281, 297-300 (1977). See also L. SOBEL, supra note 3, at 197-218. 13. United States v. International Boxing Club of New York, Inc., 348 U.S. 236 (1955). 14. Radovich v. National Football League, 352 U.S. 445 (1957). 15. Haywood v. National Basketball Ass'n, 401 U.S. 1204 (Douglas, Circuit Justice, 1971). 16. Recognizing the Court's disparate treatment of the various professional sports, Justice Blackmun stated in Flood that baseball's exemption was an anomaly, an aberration that has been with us now for half a century, one heretofore deemed fully entitled to the benefit of stare decisis, and one that has survived the Court's expanding concept of interstate commerce .... WILLIAM AND MARY LAW REVIEW [Vol. 19:395 on the validity of the player control mechanisms used in those sports lacking baseball's immunity. These control mechanisms were simi- lar to professional baseball's reserve system, which as a consequence of its adoption by the nation's oldest organized professional sport, had served as a prototype for the player restraints used in other sports. Antitrust challenges to player restraints emanated from two sources: adversary leagues competing for athletes within a limited labor market and players attempting to increase their options in contract negotiations with club owners. Professional basketball was the first sport whose player restraint system was scrutinized closely under the antitrust law. Tradition- ally, courts had resolved possible antitrust conflicts arising from that sport's Uniform Player Contract by holding that the National Basketball Association's (NBA) option clause," which ambiguously provided that a team had the right to renew a player's prior contract for one year with substantially "the same terms" as those existing in the previous year, should be regarded as exercisable for only one year rather than in perpetuity.'" Moreover, a player could satisfy the option clause either by playing out or by sitting out his option year.9 Other professional sports operating interstate-football, boxing, basketball, and, presumably, hockey and golf-are not so exempt. 407 U.S. at 282-83 (footnotes omitted). 17. The NBA's option clause provided: On or before September first next following the last playing season covered by this contract and renewals and extensions thereof, the club may tender to the Player a contract for the next succeeding season .. . .If the Player fails, neg- lects, or omits to sign and return such contract to the Club so that the Club receives it on or before October first next succeeding, then this contract would be deemed renewed and extended for the period of one year upon the same terms and conditions in all respects as are provided herein, except that the compensa- tion payable to the Player would be the same provided in the contract tendered to the Player pursuant to the provisions hereof, which compensation would in no event be less than 75% of the compensation payable to the Player for the last playing season covered by this contract and renewals and extensions thereof. The Club's right to renew this contract, as herein provided, and the promise of the Player not to play otherwise than for the Club and its assignees, have been taken into consideration in determining the amount of compensation payable under paragraph two hereof. NBA Uniform Player Contract 24. 18. Lemat Corp. v. Barry, 275 Cal. App. 2d 671, 80 Cal. Rptr. 240 (1969); Central New York Basketball, Inc. v. Barnett, 19 Ohio Op. 2d 130, 181 N.E.2d 506 (C.P. Cuyahoga County 1961). See L. SOBEL, supra note 3, at 137-44. 19. Compare Lemat Corp. v. Barry, 275 Cal. App. 2d 671, 80 Cal. Rptr. 240 (1969)(basket- ball) with Dallas Cowboys Football Club, Inc. v. Harris, 348 S.W.2d 37 (Tex. Ct. Civ. App. 1978] PROFESSIONAL SPORTS 401 In 1971, however, Spencer Haywood, a skilled basketball player, challenged the validity of certain components of the NBA's player draft and reserve clause, particularly its four-year rule0 denying players eligibility as draftees until the graduation of their college class." A federal district court in Denver Rockets v. All-Pro Man- 1961)(football). See L. SosE, supra note 3, at 145-46. Additionally, the court actually en- forced basketball's one-year option clause in Washington Capital's Basketball Club, Inc. v. Barry, 419 F.2d 472 (9th Cir. 1969). 20. By-Laws of the National Basketball Association § 2.05 provided: High School Graduate,e tc. A person who has not completed high school or who has completed high school but has not entered college shall not be eligible to be drafted or to be a Player until four years after he has been graduated or four years after his original high school class has been graduated, as the case may be, nor may the future services of any such person be negotiated or contracted for, or otherwise reserved. Similarly, a person who has entered college but is no longer enrolled, shall not be eligible to be drafted or to be a Player until the time when he would have first become eligible had he remained enrolled in college. Any negotiations or agreements with any such person during such period shall be null and void and shall confer no rights whatsoever; nor shall a Member violating the provisions of this paragraph be permitted to acquire the rights to the services of such person at any time thereafter. Section 6.03 provided: Persons Eligible for Draft. The following classes of persons shall be eligible for the annual draft: (a) Students in four year colleges whose classes are to be graduated during the June following the holding of the draft; (b) Students in four year colleges whose original classes have already been graduated, and who do not choose to exercise remaining collegiate basketball eligibility; (c) Students in four year colleges whose original classes have already been graduated if such students have no remaining collegiate basketball eligibility; (d) Persons who become eligible pursuant to the provisions of Section 2.05 of these By-laws. 21. Haywood was voted Rookie of the Year and Most Valuable Player of the American Basketball Association (ABA) for the 1969-70 season, following which he renegotiated his contract with the ABA's Denver Rockets. Although Denver represented that it would give Haywood a six year, $1,900,000 contract, it ultimately tendered to Hiywood a standard contract providing only $394,000 in compensation. Nevertheless, Haywood signed, purport- edly relying on the Denver managers' representations that the contract furnished compensa- tion of $1,900,000, as negotiated. After learning of the inconsistency, Haywood unsuccessfully attempted to renegotiate and then voided his contract "by reason of fraudulent misrepresen- tations." Denver Rockets v. All-Pro Management, Inc., 325 F. Supp. 1049, 1053 (C.D. Cal. 1971). Denver thereafter filed suit to force Haywood to play basketball for it through the 1975- 76 season and to enjoin him from playing for any other team. Contending that his contract with Denver was rescinded, Haywood entered into a new agreement with the NBA's Seattle Supersonics. The Commissioner of the NBA, however, voided this contract, which was in violation of the four-year rule. Id. at 1056; see note 20 supra. Haywood counterclaimed that the NBA was engaging in an unlawful restraint of trade and sought an injunction allowing WILLIAM AND MARY LAW REVIEW [Vol. 19:395 agement, Inc.22 concluded that the four-year rule constituted a group boycott, a concerted refusal to deal, that was a per se violation of section 1 of the Sherman Act.Y In determining the applicability of the per se standard, the court found that the contested action was outside the scope of the excep- tion enunciated by the Supreme Court in Silver v. New York Stock Exchange,4 within which a market restraint could be evaluated under a rule of reason standard. To qualify his actions for the exten- sive review provided by the Silver exception, the district court con- cluded that an antitrust defendant had to establish three factors: first, that the legislative or market structure of the particular indus- try mandated self-regulation; second, that the collective action was intended to accomplish an end consistent with the policy justifying self-regulation, was reasonably related to that goal, and was no more extensive than necessary; and third, that the collective group pro- vided procedural safeguards for anyone harmed by their action.2 The NBA's four-year rule lacked the notice and hearing provisions necessary for it to receive a rule of reason evaluation; thus, the court granted Haywood a partial summary judgment, declaring the rule a per se antitrust violation." him to play for Seattle. 325 F. Supp. at 1054. Granting Haywood's request, the district court issued a preliminary injunction, id. at 1067, which subsequently was upheld by Justice Doug- las, sitting as Circuit Justice. Haywood v. National Basketball Ass'n, 401 U.S. 1204 (1971). The district court also ordered that a "partial summary judgment in favor of plaintiff Hay- wood be granted, to the limited extent of ruling that the NBA's four-year college rule. . . is a violation. . .of the Sherman Act." 325 F. Supp. at 1066-67. See generally L. SOBEL, supra note 3, at 447-69. 22. 325 F. Supp. 1049 (C.D. Cal.), stay vacated sub nom. Haywood v. National Basketball Ass'n, 401 U.S. 1204 (Douglas, Circuit Justice, 1971). 23. Id. at 1066-67. For the pertinent text of § 1 of the Sherman Act, 15 U.S.C. § 1 (1970), see note 12 supra. 24. 373 U.S. 341 (1963). 25. See 325 F. Supp. at 1065. 26. Id. at 1066-67; see note 21 supra. A complete analysis of the standard under which courts should review alleged antitrust violations in situations involving professional sports is beyond the scope of this Article. The judiciary has not fully resolved this issue. As recognized by the court in Denver Rockets, two possible standards of review could be implemented: the rule of reason or the per se test. Under a rule of reason evaluation a court must determine whether the particular restraint of trade places an undue burden on competition. See, e.g., Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49-50 (1977); Chicago Bd. of Trade v. United States, 246 U.S. 231, 238-39, 241 (1918); Standard Oil Co. v. United States, 221 U.S. 1, 59-60 (1911). Such an analysis, which requires the court to weigh the prospective costs and benefits of the activity in question, generally necessitates extensive discovery of intricate economic data, which then is presented in a long, expensive, and elaborate trial. Relieving 1978] PROFESSIONAL SPORTS A second major challenge to professional basketball's player re- straint system arose in a 1975 suit by the player representatives of the fourteen NBA teams, who alleged that the NBA's college draft, its Uniform Player Contract reserve clause, and its compensation plan (analogous to the National Football League's Rozelle Rule)" were illegal, anticompetitive restraints. In Robertson v. National Basketball Association" the court denied the defendant NBA's mo- tion for summary judgment and the defendant American Basketball Association's (ABA) motion to dissolve a preliminary injunction against an NBA-ABA merger granted earlier to the plaintiffs.21 The court declined to grant summary judgment for the plaintiffs because of the uncertainty over whether the disputed control mechanisms "came into being in the context of arm's length union-employee negotiations,"30 a fact that would determine the appropriateness of exempting the restraints from antitrust attack.3 Although the court in Robertson refused to rule on the legality of the NBA's player restraints,32 it suggested that the player draft and perpetual reserve system violated the antitrust laws under either a per se test or rule of reason standard.s In discussing the restraints' possible defects under a per se standard, the court noted that they were "readily susceptible to condemnation as group boycotts based on the NBA's concerted refusal to deal, '34 following the Supreme courts and antitrust plaintiffs of-the difficult analytical problems imposed by a rule of reason inquiry, the Supreme Court has identified several practices in businesses other than profes- sional sports that are sufficiently anticompetitive to be deemed illegal per se. See, e.g., United States v. Container Corp. of America, 393 U.S. 333 (1969) (price-fixing); Northern Pac. R.R. v. United States, 356 U.S. 1 (1958) (tie-in contracts); International Salt Co. v. United States, 332 U.S. 392 (1947) (tie-in contracts); Fashion Originators' Guild of America v. FTC, 312 U.S. 457 (1941) (group boycotts); United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) (price-fixing). For a more detailed discussion concerning the most appropriate standard of review of alleged antitrust violations in professional sports, especially in situations involving player discipline, see Weistart, PlayerD iscipline in ProfessionalS ports: The AntitrustI ssues, 18 WM. & MARY L. REv. 703, 705-17 (1977). 27. For a discussion of the Rozelle Rule, see note 64 infra & accompanying text. 28. 389 F. Supp. 867 (S.D.N.Y. 1975). 29. Id. at 880, 896. The defendants also moved to dismiss the complaint both for failure to join an indispensible party, the Players Association, and for lack of jurisdiction, contending that primary jurisdiction belonged to the National Labor Relations Board. Id. at 878-79. 30. Id. at 895. 31. Id. 32. 389 F. Supp. at 895-96. 33. Id. at 895. 34. Id. at 893.