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Labor relations did not play a dominant role in professional sports until the early 1970’s. Prior to unions and collective bargaining, professional athletes were treated like “privileged peons.” Today sport is more career and business than avocation and pastime. Today professional players pursue their playing careers as businesses. And agents and unions have helped to complicate a once very simple, but one-sided, labor situation. The principal objective of the sports union is to promote its effectiveness in collective bargaining. In achieving its objectives, the union engages in the following activities: (1) organizing its membership for solidarity; (2) negotiating contracts applicable to all players; (3) enforces the terms of the negotiated agreement through the grievance procedure; and (4) serves an internal governmental function in conducting meetings, voting on contracts negotiated and providing other means of communication to members. Workers involved in interstate commerce, which includes professional team sports, are covered by the National Labor Relations Act, as amended. Section 7 of this law provides three basic rights: (1) the right to self-organize, to form, join or assist labor organizations; (2) the right to bargain collectively through representatives; and (3) the right to engage in activities for employees’ aid or protection (use pressure tactics). Section 8 of this law concerns unfair labor practices of employers, i.e., an employer cannot interfere, restrain or coerce an employee not to organize, form or join a labor organization. Specifically, section 8(a) (5) states that “It shall be an unfair labor practice for an employer - to refuse to bargain collectively with the representatives of his employees, subject to the provisions of section 9(a) of the law.” The National Labor Relations Board enforces the law by policing unfair labor practices committed by either labor or management. The Board also reviews questions concerning what issues are subject to negotiation under the law. The two most common allegations of unfair labor practices are that the employer has disciplined or discharged players for engaging in union activities and that the employer has refused to bargain in good faith. The collective bargaining agreements reached in professional sports are not industrywide. Rather, there is a separate one for baseball, football, etc. This makes bargaining in sports unique from other unions. Also, the clubs bargain as a group with unions over certain aspects of wages, hours and working conditions. However, the most important issue, individual salary, is negotiated between the club and player. The National Labor Relations Act seeks to promote collective bargaining to resolve employer and employee concerns. Because many agreements between labor and management sometimes affect and/or restrain competition under the context of the Sherman Act of 1890, a judicially created labor exemption, has been created. This exemption attempts to accommodate inherent conflicts between national labor and antitrust policy and to protect labor-management agreements over issues of central importance to labor from antitrust interdiction. The primary purpose of antitrust legislation is to promote freedom of competition in the marketplace, while the primary purpose of the National Labor Relations Act is to promote collective bargaining and to protect certain union or concerted employee activities. Unions, however, are anticompetitive and the U.S. Supreme Court has recognized that a central purpose of the labor movement is to reduce competition among employees regarding wages and conditions of employment. This goal is achieved by individuals giving up their right to individually pursue an employment contract. Unions represent everyone by pooling their strength with the threat of strikes and similar activities. Agreements between employers and unions are frequently “‘combinations in restraint of trade’ within the literal language of the Sherman Act.” However, agreements regarding matters such as uniform wage rates, seniority systems and hiring halls are matters that normally constitute mandatory subjects of bargaining and which national labor policy encourages agreement. The effort to accommodate these two important national policies has been left largely to the courts and the Supreme Court has addressed this on several occasions. For example, the NFL eligibility rule which dates back to the 1920’s is a case in point. Originally, the League stated that the rule was adopted to provide competitive balance. Today, however, it appears to be more of a mechanism for maintaining a farm system for the League that assures well-seasoned players for the draft. The eligibility rule states that a player is not eligible for the draft until he has graduated from college or attended for five years. This rule is the most restrictive rule of its type in professional sports and is “devoid of legally cognizable justification.” The NFL’s draft eligibility furl has been made a part of the collective bargaining agreement between the NFL owners and the players’ union. Existing Supreme Court precedent and lower court application of the labor exemption doctrine in cases challenging other aspects of the employment relationship, including the reserve systems in professional sports clearly show that the interests protected by the draft eligibility rule are not in line with the intent of national labor policies. Future reconciliation of this problem will have to include a balancing of the agreement’s impact on competition against the importance of the employee interests. If not, the rule will continue to substantially put a burden on competition without advancing any important interest of active football players as employees. The NFL has an exemption from Congress that allows it to pool television rights without violation of the antitrust law. The merger between the NFL and AFL was also exempted. Congress has expressed a preference for ordering the employment relationship in a way that encourages employees to act together to pool their economic resources so labor interests can confront management groups from a position of collective bargaining strength, and not simply as individuals. In order to encourage labor negotiations in a collective bargaining setting, courts have interpreted these developments in a way that allows participating unions to escape section 1 liability. Two cases in particular have shaped the nonstatutory labor exemption in the context of professional sports league operating rules. In Mackey v. National Football League, the Court of Appeals for the Eighth Circuit developed a test for determining when a restraint is properly incorporated into a collective bargaining agreement, thereby excusing league officials from the Sherman Act. In Mackey, a group of active and retired NFL players argued that the League’s free agent indemnity system, known as the Rozelle Rule, operated to restrain players’ ability to market their services freely. The League argued that the agreement was part of the collective bargaining contract and that proper accommodation of federal labor and antitrust policy required that the agreement be deemed immune from antitrust provisions. The court concluded that when evaluated under the rule of reason the indemnity rule could not be sustained. Furthermore, in order to avail itself of the exemption, management must show that the restraint primarily affects only the parties to the collective bargaining relationship, that the challenged term concerned a mandatory subject of collective bargaining, and that the restraint was the product of bona fide arm’s-length negotiation. The Court ultimately found the Rozelle Rule invalid. While the restraint affected only the parties to the collective bargaining agreement, and the restricted mobility of players constituted a mandatory subject of bargaining, the court felt that the League had imposed this restraint on a weak and inexperienced union and that vigorous and intensive arm’s-length negotiation had not taken place. Shortly after the Mackey case, the Sixth Circuit addressed this same question, but concerning hockey. In McCourt v. California Sports, Inc. the NHL faced an antitrust challenge against its free agency indemnity rule. The Court applied the Mackey test and discovered that the hockey players association did not bargain from a position of weakness and that the union vigorously opposed the inclusion of this restraint in their collective bargaining agreement. This case was the opposite of Mackey and so much so that the court signaled a new direction in the application of the Mackey test allowing management to meet the third prong simply by showing that the union fully participated in the negotiations leading up to the collective bargaining agreement. The first important legal case challenging the owners’ control over player actually occurred twenty years earlier in Radovich v. NFL. Radovich, a guard for the Detroit Lions, contended that he had been blacklisted by the NFL and prevented from earning a living in his profession. He charged the league with a conspiracy to monopolize and control professional football in violation of the Sherman Act. The Supreme Court did not award damages to Radovich but it did establish the principle that professional football comes under the coverage of the antitrust laws because of the volume of interstate commerce involved in the sport. After this decision, the NFL attempted to persuade Congress to grant it a complete exemption from the antitrust laws; however, they were unsuccessful. Prior to Mackey, Joe Kapp challenged the Rozelle Rule. His lawsuit sought damages from the NFL for terminating his playing career after refusing to sign a standard player contract after playing out an option with another team. Although the federal court rejected Kapp’s claim that the Rozelle Rule was an illegal conspiracy to restrain trade and monopolize football in violation of the antitrust laws, it did find that the League’s enforcement of the rule was too severe and caused undue hardship on the players. The NFL draft was challenged on antitrust grounds in the Smith v. NFL case. Smith’s suit alleged that the draft denied him bargaining power and restricted him from obtaining contract provisions to protect his financial future in case of a disabling injury. While the case was being heard in the federal courts, the NFL changed the draft rules. Even though the case did not have an effect on the modified draft procedure, the U.S. Court of Appeals found that the old draft procedure was illegal. Although no violation of antitrust laws were found, the Court did note that the draft reduced competition by taking away opportunities for college players to market their talents. The U.S. District Court had noted earlier that one of the ways to decrease the anticompetitive influence of the NFL draft on college players was to reduce the number of selection rounds. The League did take this step in an effort to try to remove itself from additional litigation. Herschel Walker’s signing with the USFL brought to light more questions about the draft. Before Walker signed, the USFL had indicated that it would follow the NFL’s college eligibility rule. However the USFL broke its own rule and signed Walker, a college junior. And in 1984 a University of Arizona student challenged the rule and the U.S. District Court agreed by overturning the USFL rule on antitrust grounds. The Judge found that the rule constituted a group boycott and was a per se violation of the Sherman Act. Player draft rules provide a scheme that is beneficial to owners in the sense of “allowing them to collude to keep salaries low by monopoly control over signings.” It may promote a more equal distribution of talent among teams because teams draft in reverse order of their place in league standings the year before. But it penalizes players for being talented because they best go to the least successful teams. In contrast to the NFL draft, the USFL draft allowed for territorial draft choices so that players could be retained in the regions where they played their college careers. The case of Reynolds v. NFL indicated that there still needs to be further judicial examination of player mobility under collective bargaining agreements. In Reynolds, the Eighth Circuit court considered the allegation that the Mackey agreement was more restrictive the Rozelle Rule. Reynolds indicates a preference for allowing the labor exemption on agreements negotiated during antitrust litigation, but it leaves the possibility of a case-by-case examination of the nature and effects of certain practices and procedures. Another case concerning the National Basketball Association also applied the nonstatutory labor exemption in order to protect the league from the reach of the Sherman Act. In Wood v. National Basketball Association a promising college draftee failed to convince the court that the collective bargaining agreement should not insulate the NBA from the antitrust laws when the affected player was not a party to the earlier agreement. The Second Circuit court ruled that player associations reach agreements with league officials on behalf of all existing and future players. The court did not grant Wood’s claim for relief because there was no issue as to whether the restraints and the union’s participation in its adoption satisfied the Mackey test. In examining the three prongs of the Mackey test, it can be found that the first prong mandates that the impact of the practice being examined fall primarily on the contracting parties before agreement on the matter will come within the labor exemption. The origin of this requirement can be found in the U.S. Supreme Court precedents dating as far back as 1945. In those cases, the Supreme Court refused to grant antitrust immunity to agreements between employers and unions even though the agreement concerned wages or some other matter of mandatory bargaining and was of central concern to employees and unions. The second prong of the test requires that the particular player restraint being examined be a mandatory subject of bargaining within the meaning of the National Labor Relations Act. The Court’s refusal to grant an automatic exemption to mandatory subjects suggests that the second prong of the test is somewhat broader and more flexible than the Court’s holding actually state. The draft eligibility rule is not a mandatory subject of bargaining because those eligible players are not employees to whom an employer’s obligation to bargain flows and the subject matter itself, employment eligibility, is not within the definition of wages, hours, and other terms and conditions of employment. Since college undergraduates are not employees within the meaning of the Sherman Act and could not be included in a bargaining unit with active players nor vote for the selection of a bargaining representative, the duty to bargain on their terms and conditions of employment does not attach. The draft eligibility rule concerns the relationship between the employing clubs and persons outside the collective bargaining relationship without really affecting active players. And, the interests of prospective players and active players conflict. Due to these reasons, the draft eligibility rule does not come within the exception to the rule that matters involving persons outside the employment relationship. Being a non-mandatory subject, the eligibility rule fails the second prong of the standard and should not be immunized from antitrust interdiction. The third prong of the standard requires that the restraint under scrutiny be a product of vigorous collective bargaining before immunity will attach. In both Mackey and McCourt, the primary factor was the extent to which the free agent indemnity rule under challenge was the product of actual bargaining. The Mackey court determined that the Rozelle Rule was not the product of bona fide arm’s-length bargaining. In McCourt the court concluded that the rule had been included in the collective bargaining agreement and was not the product of bona fide arm’s-length bargaining and would not come within the labor exemption. If bona fide arm’s-length bargaining were the only ground for finding the eligibility rule not covered by the labor exemption, then one should not conclude that the matter falls outside the area of immunity. Given the determination that the matter fails all three prongs of the standard, however, lack of actual bargaining is one more justification for not extending immunity. Many agree that professional sports leagues present a unique form of economic organization. All of the assumptions about sports leagues all lead to the belief that this is a special industry, deserving of special antitrust consideration and much of the case law and literature have shown that the business of sports entertainment cannot be thought of in the same way as other more traditional forms of industrial organization. Certain league practices that would fail any test of Sherman Act liability in other contexts in other industries must be justified because of the unique qualities that professional sports leagues present. Because of this the courts have developed a series of assumptions about how to apply the Sherman Act to leagues. However, these assumptions indicate that the courts do not believe that sports leagues should be insulated from antitrust laws. A closer examination of these assumptions shows that the court believes its activities should be supervised more carefully. The issue of a per se violation versus the use of the Rule of Reason arose in Smith. Smith contended that the NFL draft and consequent restrictions constituted a per se violation of the antitrust laws. The owners argued that the league would not survive the competition for players within the draft and furthermore that if antitrust laws applied, the draft would be permitted under the Rule of Reason standard. The court however, precluded application of the Rule of Reason because of the clear restraints of the group boycott. The court also stated that even if the rule was applicable, the owners would not be saved from liability. For the draft to be lawful under the Rule of Reason it would be necessary for the court to find that the draft was a reasonable way of pursuing legitimate business interests and that it did not have the purpose or effect of unreasonably restraining competition. The question of whether player restraints in general should be treated as per se illegal or judged under the rule of reason has received much attention. Since it is uncertain which approach might be employed by a court in determining the legality of the draft eligibility rule, it is analyzed first under the per se test and then under the rule of reason. To justify the draft eligibility rule under the rule of reason the leagues would have to establish that the restraint merely regulates and perhaps promotes competition rather than suppresses it. After first applying the rule of reason it will then look at the alleged restraint to determine whether it has any legitimate business purpose. It will then balance this purpose against the burdensome competition to ascertain whether the former outweighs the latter. A restraint is unreasonable if it has the net effect of substantially impeding competition. In most of the prior litigation in which the NFL was involved, the league argued that the restraint it had imposed was necessary to insure competitive balance. Generally, the courts have accepted this as a legitimate business purpose in light of the League’s unique position. One of the most recent cases, Powell v. National Football League again involves team owners and players over the issue of free agency and movement among teams. However, while this issue was being decided, the Court invoked the provisions of Section 7 of the Norris-LaGuardia Act regarding the use of temporary or permanent injunction in cases involving a labor dispute. While the Court agreed with arguments on both sides, ultimately it felt that complete and unrestricted freedom of movement by players between clubs would result in the fear felt by many -- that the best teams with the most money would have the best players and the league would become unbalanced and unfair. It would appear that professional football’s draft eligibility rules are an unreasonable restraint of trade and that obviously collusion is utilized by the owners. The NFL’s rule cannot be legitimized by its inclusion in the collective bargaining agreement between the League and the players’ association. The draft eligibility rule fails each prong of the three prong-test formulated by the courts. Furthermore, the anticompetitive effects of the rule far outweigh its importance to the players and therefore tip the balance in favor of antitrust application. Examined under substantive antitrust provisions, the rules violate section 1 of the Sherman Act since they unreasonably restrain competition for the services of talented young football players. The draft eligibility rules are not subject to the exception since they are overbroad and do not further any goal or purpose reasonably necessary to the leagues’ need for self regulation. If the rules are analyzed under the rule of reason they also violate antitrust laws. The rules effectively deny an entire class of amateur football players an opportunity to play professionally while not aiding competition. The balance between the provisions of the National Labor Relations Act and the antitrust laws is not always an easy one to maintain. However, in all the cases, the use of Section 8(a)(5) has been clear and utilized whenever possible by both sides. As a protection mechanism it has done its job. The future bargaining relationship between player associations and league management is likely to reduce the situations under which a union can claim that the nonstatutory labor exemption is unavailable to shield otherwise unlawful player restraints from antitrust liability. It will become more difficult in the future for courts to find that leagues forcefully and unilaterally imposed restrictive league rules upon player bargaining representatives. Only on those matters that are not mandatory subjects, or in those situations where a league has unilaterally incorporated into the collective bargaining agreement restrictive practices that were not subject to arm’s-length negotiation will player groups be able to overcome management’s reliance on the nonstatutory labor exemption. Bibliography: Berry, Robert C., William B. Gould, IV and Paul D. Staudohar. Labor Relations in Professional Sports. Dover: Auburn House Publishing Company, 1986. Berry, Robert C. and Glenn M. Wong. Law and Business of The Sports Industries. Dover: Auburn House Publishing Company, 1986. McCormick, Robert A. and Matthew C. McKinnon. “Professional Football’s Draft Eligibility Rule: The Labor Exemption and the Antitrust Laws,” Emory Law Journal, 33 (1984), 375-440. Rosenbaum, Thane N. “The Antitrust Implications of Professional Sports Leagues Revisited: Emerging Trends in the Modern Era,” University of Miami Law Review, 41 (1987), 729-822. Staudohar, Paul D. The Sports Industry and Collective Bargaining. New York: ILR Press, 1986. Word Count: 3707
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