FRANCHISE LOCATION ENTRY Horizontal and Vertical Restraints in

FRANCHISE LOCATION & ENTRY

“Horizontal” and “Vertical” Restraints in Antitrust Law • Addyston Pipe: bid-rigging agreement among competitors is a “naked cartel” and is per se illegal • Sylvania: TV manufacturer limit on where its brand can be resold by dealers is “vertical” restraint and subject to Rule of Reason • US v General Motors: Car manufacturer limit is per se illegal when acted under concerted pressure from rival car dealers seeking to rid selves of rival • Sealy: Mattress manufacturer limit on where its brand can be resold is “horizontal” because defendant company was a joint venture of all the rival sellers

Are Sports League Agreements Horizontal or Vertical? • Raiders finds NFL’s structure “has both horizontal and vertical attributes” – vertical: impose best interests of whole league on individual clubs – horizontal: owners collude in own clubs’ selfish interests • Current issue in Europe, with restraints imposed by governing boards, not clubs

Raiders I rule of reason • First look to see if NFL significantly restrained trade • Imagine if there were 4 rival leagues – Any concern if AFL decides not to let Raiders relocate to LA? • In real life, who competes with NFL?

Raiders I justifications • Promote investment and inhibit free riding • Loss of TV Revenue or other harm to geographic scope – Would geographic concerns balance concerns justify blocking these relocations? • Canucks, Flames and Oilers all move to US • Pirates, Twins, Royals, and Brewers move to NJ, Brooklyn, White Plains, and Stamford CT

/2 Raiders I justifications • Maintain rivalries – Could NL block Giants move to east coast? • Operational concerns – NHL block St. L move to Saskatoon? – NBA block Kings move to Tokyo?

/3 Raiders I justifications • Stability, fan loyalty, and recouping local investment • Interleague competition – Does this support Rule 4. 3?

Is Raiders I special? • NFL made no showing that transfer would have any harmful effect on league • If so, why did owners reject move 22 -0?

Apply Raiders I to Seals • Would the NHL’s veto of the Seals’ relocation from be ok if purpose was. . . – to promote strategy to maximize TV audience in US? – to allow NHL to expand by finding a more suitable owner in Vancouver? – to protect Toronto Maple Leafs’ TV and marketing monopoly in English Canada

Post-Raiders litigation • Raiders II: offset damages with gain from franchise relocation • Clippers: clarifies that Raiders I is fact-specific • Rams: can charge fees to cover league losses • What is the social problem with franchise relocation?

ANTITRUST ISSUES WITH THE SELECTION OF A PARTICULAR OWNER OF AN EXISTING FRANCHISE • Levin: P wants to join Ds, not compete with them • Reason for rejection matters (although means no summary judgment)

REJECTION OF CLUB SEEKING NEW ENTRY INTO THE LEAGUE • How does the NFL’s refusal to expand to Memphis affect inter-league competition (i. e. competition with another league)? • How does the refusal affect intra-brand competition (i. e. competition with other clubs within the NFL? )

REFUSAL TO EXPAND • Are there any reasons to question a league’s refusal to expand? Why can’t the NFL owners always be relied upon to expand except for legitimate business reasons? • Does Art 37 of the NHL Constitution offer meaningful protection against unwarranted refusals to expand?

UNLIMITED EXPANSION • Is it desirable to force a monopoly sports league to admit anyone who wants to join the league?

ALTERNATIVE WAYS TO PREVENT TAXPAYER SUBSIDIES • Ban on “state aids” – subsidies distort competition to unfairly help club (e. g. US v Cdn NHL) – exploit consumers – EU bans while US Congress doesn’t • Judicial/Administrative regulation of entry (Braves)

ALTERNATIVE OF PROMOTION & RELEGATION: The Concept • The “Patriot League” – NJ, Connecticut, Columbus, Las Vegas, Portland, Orlando, Indianapolis, San Antonio, Buffalo, Sacramento – Relegation playoff • NBA 2

P&R: Legal Arguments • Restraint of trade in market for “competition organizing services” – leagues provide these services to clubs, who provide “team services” – Where clubs control league decisions, this is a “horizontal” agreement, like Sealy – Unlike Grizzlies, clubs ARE in competition with each other: to stay in top league • Resulting scarcity allows league to increase price

P&R: Policy Arguments • • • Entry by merit Reduce taxpayer exploitation Interesting relegation races Prevent teams exploiting loyal fans (Bulls) Induce small market investment Better 2 nd tier competition than AAA

P&R Conclusions • Have I persuaded you that the FTC should bring a case and issue and order requiring P&R? Are there any better alternatives?