Legal Analysis of Player Restraints Under the Sherman

Act

Philly firms “drafting” top DSL students

• This would be illegal per se

• Why is the NFL draft any different?

• Do you agree with Smith that NFL clubs are not “competitors in any economic sense”?

The Antitrust “Rule of Reason”

1) Plaintiff demonstrates an actual restraint of trade

2) Defendant can justify by “legitimate business purposes”

3) Justifications must be “reasonably necessary” – plaintiff can rebut by showing that challenges rules are overly or unnecessarily restrictive

Proof of “Restraint of Trade”

• Compare challenged rule to what “would otherwise be” absent the restraint– Ask what would league do if this rule were

struck down?

• Price is higher

• Output is lower

• Output is not responsive to consumer demand

What is a “legitimate business purpose”?

• Is competitive balance a legitimate justification under the antitrust laws?

• Is it permissible to restrict competition to protect a club’s investment in player development?

• Player continuity

Applying the Rule of Reason to the NFL Rookie Draft

• Does the draft have the effect of restraining trade?

• Does the draft actually improve competitive balance?

• Is the draft reasonably necessary to improve competitive balance, or is it unnecessarily restrictive?

Mackey

• Per se illegality inappropriate because of clubs’ “unique” interdependence

• Black-letter analysis under rule of reason:1) can plaintiff show some demonstrative anti-

competitive effect?2) is the rule justified by legitimate business

purposes?3) is the rule no more restrictive than necessary?

Applying the Rule of Reason to Restraints on Free Agency (Veteran

Players)Mackey Fraser McNeil

1) Actual anticompetitive effect? YES NO YES

2) Legitimate justification? YES N/A YES

3) No more restrictive than necessary? NO N/A NO

Point #1: Actual Restraint of Trade

• Did the Rozelle Rule have an actual anticompetitive effect?

• Who is harmed by the rule?

Actual effects: efficient allocation of players among teams

• SUPPOSE TM A NEEDS QB, TM B NEEDS RB, A HAS EXTRA RB, Q HAS EXTRA QB?

• SUPPOSE A HAS EXTRA RB, B HAS EXTRA LB, C HAS EXTRA QB AND NEEDS A LB?

• SUPPOSE A HAS EXTRA RB, B HAS EXTRA LB, C HAS EXTRA QB BUT NEEDS A PK?

• RESULT IN A FREE AGENT MKT?

Fraser v MLS

• How is the elimination of all labor market competition in MLS consistent with Mackey?

Point #3: Overly Restrictive?

• Was the Rozelle Rule necessary to achieve the desired level of competitive balance?

Rule 5 Draft

• Applied to Penn State catcher Ben Heath– Drafted by Astros in 2010

draft– Started for Tri-Valley (NYP)– Promoted to Lexington (low

A)– Finished w/ 4 games at

Corpus Christi (AA)– Split 2011 season between

Lexington and Lancaster (High A)

SPORTS LAW FALL 2011

Ben Heath: Rule 5 draft

• When was Heath eligible to be selected in the Rule 5 draft?

• Assuming he was on the AA roster when eligible, who could select him?

• Will he likely be placed on the AA roster?

• Can the Pirates draft him, put him on the 40-man ML roster, and then option him to AAA Indianapolis?

SPORTS LAW FALL 2011

Goals of Rule 5 draft

• Does this rule promote competitive balance?

SPORTS LAW FALL 2011

Antitrust Analysis of Salary Caps

• Do salary caps restrain trade?

• What is the general effect of caps on competitive balance?