This week in LWIB, are the Texas Rangers the new Montreal Expos?, the potential impact of “American Needle” on MLB and relatively soft demand for Cubs tickets.
ARE THE TEXAS RANGERS THE NEW EXPOS?
Earlier this month LWIB reported that, “The Texas Rangers on field performance has been one of the 09 season’s best stories…..As for Rangers’ owner Tom Hicks, his well chronicled financial problems has been one of MLB’s most embarrassing storylines of the season. Reports have circulated for months that MLB loaned the Rangers $15 million this season to meet payroll. LWIB saw speculation that MLB’s involvement in the Rangers goes beyond the loan and that they are, de facto, in control of the Rangers.
Dallas Sports Fans blogger Cody Dunlop compared the Rangers situation to that of the final years of the Montreal Expos, when MLB operated the club on a minimal budget. David Roth wrote in the WSJ, “Despite their on-field success, the Rangers are an economic mess, and essentially in receivership.” Jim Reeves wrote in the Fort Worth Star-Telegram:
Owner Tom Hicks essentially has lost fiscal control of the team, which has had to borrow at least $15 million from major league baseball. MLB is making many of the calls regarding Rangers’ moves, including the one that cost them the ability to sign No. 1 draft pick Matt Purke.
The Rangers thought they would be able to offer Purke one amount, but commissioner Bud Selig, responding to pressure from other owners, forced them to back away from that offer and Purke wound up rejecting the team’s subsequent lower offer and will play for TCU instead.
Many reporters, including Mr. Reeves, are also questioning whether or not MLB will forbid the Rangers to use SP Kevin Millwood again this season. Millwood, a season long stalwart in the Rangers rotation, is 4 1/3 innings short (entering games of September 20) of reaching 180 IP, which would vest his $12 million option for the 2010 season. The possibility that the Rangers will sit Millwood for the remainder of the season are increased by the Rangers recent fall out of the playoff race and Millwood’s declining performance during the second half of the season.
Mr. Hicks acknowledges that MLB has loaned the Rangers money this season but denies reports that his financial problems are impacting upon baseball decisions. T.R. Sullivan interviewed Mr. Hicks for MLB.com:
Rangers owner Tom Hicks said on Saturday afternoon that his ballclub is continuing to conduct business as usual under normal budgetary constraints, without any interference from Major League Baseball and without being affected by the potential sale of the team.
Hicks said that the Rangers asked for a $15 million line of credit earlier this summer as an advance toward future revenue coming in at the end of the season. He said the Rangers have taken advantage of only less than half that amount and that it has not had a negative effect on the club's operations.
"We are free to operate the Texas Rangers baseball operations in the normal course of business, consistent with our budget and normal business practices," Hicks said. "There is nothing from Major League Baseball that restricts us. There are no restrictions, as long as we stay within our budget.
"All decisions being made are being made by myself, [team president] Nolan Ryan and [general manager] Jon Daniels, and not by Major League Baseball."
According to recent reports, several potential buyers have emerged in the sale of the club. However it is unlikely that the sale will be concluded soon, making the upcoming off season a potentially difficult one for Rangers management. Will GM Jon Daniels, much lauded for stocking the Rangers system with perhaps the best collection of young talent in MLB, have the resources and latitude to further his goals? Or will MLB largely determine the off season moves of the Rangers by determining (restricting?) their player payroll for the 2010 season?
Select Read More to see details on the landmark American Needle vs. NFL case and how it relates to MLB, plus how the chilly economy has finally been the one thing that has dug into demand for seeing the Cubs, especially from the rooftop clubs
“AMERICAN NEEDLE” AND MLB
Last week American Needle Inc. filed its opening brief with the US Supreme Court in the much anticipated American Needle v. National Football League“ case. Most readers are likely aware of “American Needle”, which began in 2000 when the NFL signed an exclusive deal with Reebok to manufacture apparel for all 32 NFL franchises. American Needle Inc., which had previously manufactured apparel for some individual NFL franchises, was shut out and subsequently sued the league. American Needle Inc. argued that the NFL’s exclusive deal with Reebok violated antitrust laws. To date American Needle Inc. has been unsuccessful in their litigation against the league and the Supreme Court is expected to rule in this 2009-10 session. The question before the Supreme Court is whether the NFL is a “single entity” and, as such, exempt from antitrust laws. Adding to the interest in the case is the NFL’s eagerness to have American Needle Inc.‘s appeal heard before the Supreme Court. The NFL is hopeful of obtaining a wider ruling that extends the antitrust exemption beyond apparel licensing. The case is of great interest and importance to all the “stick and ball” leagues (the NHL and the NBA filed briefs in support of the NFL) and the players unions across all four leagues. .
Last week a paper authored by law professor Michael McCann, “American Needle v. NFL: An Opportunity to Reshape Sports Law” (read the paper here - PDF) was made available at the Sports Law Blog. Professor McCann’s paper will be published in the upcoming edition of the Yale Law Journal.
….American Needle presents the most meaningful sports law controversy in recent memory. For the first time, a U.S. court of appeals has expressly recognized that in certain settings of collusive behavior, a professional sports league and its independently-owned franchises may function as a single entity. American Needle offers the Supreme Court an opportunity to settle a longstanding source of confusion: how should antitrust law regulate the peculiar, if incomparable, business entity known as a professional sports league?
The stakes could not be higher. If the Supreme Court agrees with the Seventh Circuit or, as the NFL hopes, furnishes an even more sweeping recognition of single entity status, professional sports leagues could be shielded from section 1 in a bevy of decision-making contexts that have traditionally been subject to section 1 scrutiny. Particularly when compared to their past treatment, leagues could become uniquely sovereign and commanding.
…..Single entity recognition may benefit these organizations when they negotiate television contracts, restrain players’ salaries and employment autonomy, and execute exclusive contracts with sponsors and licensees, among other pursuits traditionally subject to section 1 scrutiny.
(LWIB note - “section 1” is section 1 of the Sherman Antitrust Act)
Of particular interest to readers of the Biz of Baseball are professor McCann’s remarks concerning the potential impacts of “American Needle” on MLB. Professor McCann believes that “American Needle”, “even before its final disposition” contributed to MLB’s decision last year to strike a deal with Topps to become the sole licensed manufacturer of MLB player cards. Professor McCann’s remarks concerning “American Needle’s” potential impact on drug testing in MLB and the notorious “list” from the 2003 “survey testing” are more intriguing.
MLB might also avail itself of the single entity defense to ameliorate the lingering embarrassment associated with the steroids scandal and to diminish the possibility of a similar scandal re-occurring……
Propelling the scandal is a purportedly confidential list of 104 names of players who tested positive for steroids in 2003.….The names have been sealed pursuant to a court order, but the names of seven players…..were leaked in 2009 and much speculation persists as to the identities of the remaining 97 names.
While the court order, as well as fiduciary duties, precludes the MLBPA from releasing the remainder of the list, MLB, which is not subject to the court order, may be able to divulge it. MLB Commissioner Bud Selig could maintain that the “best interests of the game” power, as vaguely contained in MLB’s constitution (a document from 1921 that was not collectively bargained), accords him sufficient authority. On the other hand, courts have limited the scope of that authority and the CBA itself contains confining language, particularly in regards to mandatory subjects of bargaining, which includes drug testing. Provided the single entity defense extends to mandatory subjects of bargaining or at least to testing, however, Selig would likely obtain the authority to release the list. Though less likely given the presence of the CBA, Selig may also obtain the requisite authority should the defense extend to matters which damage the integrity of the game.
MLB could similarly employ single entity status to unilaterally impose more stringent drug testing than has been yielded through collective bargaining. Current testing protocols do not test for human growth hormone, a banned performance-enhancer which has been linked to players. Additionally, various commentaries have admonished against the development of new steroids that will evade collectively-bargained testing procedures. Since testing implicates mandatory subjects of bargaining, MLB would only obtain the capacity to unilaterally impose new testing protocols if the Court defined single entity status as at least partially inclusive of those subjects.
Whether or not a judgement in favor of “single entity” status would extend to labour matters is of great importance to the leagues and their respective players associations. The 7th circuit, which ruled in favour of the NFL last year in “American Needle“, suggested that “single entity” status for the NFL should not extend to labour matters. The Sports Business Journal’s labour reporter, Liz Mullen, wrote last week in reference to “American Needle” that, “…labor law experts say a broad Supreme Court decision for the NFL that applies to labor is unlikely.) Nonetheless the players unions must be vigilant in this case. A Supreme Court ruling granting “single entity” status which extends to collective bargaining would be catastrophic for the players associations. Matthew Futterman reported last week for the WSJ;
“If the Supreme Court rules that the leagues are exempt from section one of the Sherman Antitrust [Act] for all operations, it could have a major effect,” said Jeff Kessler, counsel to the players unions for both the NFL and the NBA. “Right now, no one knows what the Supreme Court will do.”
Additional exemptions from anti-trust laws don’t usually bode well for labor peace. “You look at the period of baseball until the passing of the Curt Flood Act in 1998, and what you kept seeing were labor stoppages,” Kessler said referring to legislation that protected baseball players under antitrust laws in labor. “Since that passed, they haven’t had any stoppages.”
A different perspective on “American Needle” is available at Willamette University law professor Jeffrey Standen’s blog, The Sports Law Professor. Professor Standen wrote in a post titled, The (Un)Importance of American Needle.
Plenty of commentators have reviewed the appeal and discussed its prospects before the high court. What has surprised me is the discussion of the decision's potential ramifications. Judging from the weight of expert opinion, if the NFL prevails, the players will suffer complete reversals of the wage and work condition gains from the past several decades.
I'm more than a little dubious about these conclusions. I doubt the Supreme Court will use the American Needle litigation to make the pronouncement about the nature of the NFL's business and its relation to antitrust law that the NFL wants it to.
Professor Standen is not alone in his position that the importance of “American Needle” has been greatly exaggerated by pundits and experts. Shawn Hoffman at Baseball Prospectus wrote from the same perspective in July. However the expensive rosters of lawyers hired by the different leagues and players associations to support their positions in “American Needle” indicate that regardless of the outcome, both labour and ownership see the potential for a drastic restructuring of professional team sports in the United States.
SOFT DEMAND FOR CUBS TICKETS
This season may have proven that even professional sports most “lovable losers”, the Chicago Cubs, have not been immune to the diminished demand for tickets across MLB in 2009. LWIB, CNBC’s Darren Rovell attended a Wrigley “rooftop” game and reported:
It's official. No sports team is recession proof. How do I know this? Because I spent the day at the amazing rooftops across from Wrigley Field.
With other teams, it's hard to tell if it's the economic times or the performance of the team. But the Cubs provide the perfect control. Why? Because since 1984, fans have filled the park -- and subsequently the rooftops -- win or lose.
The Cubs, who haven't won the World Series in more than 100 years, aren't going to win it this year either. And while a quick glance at the team's attendance shows 97 percent capacity, the truth is that brokers bought these tickets, but they are not selling many of them -- losing thousands of dollars a day.
What I learned today is that capacity is not a good indicator of how a team is weathering the storm. Good teams like the Cubs have already sold their tickets. The best way to measure how the economy is putting a hurt on a team is to look at how much of a discount the tickets are going for the secondary market.
Mr. Rovell is not the first to report on the relatively soft demand for Cubs tickets this season. Earlier this month, Nick Friedell reported for ESPN Chicago that demand for the September 03 Wrigley cross town match up with the White Sox was less than typical. And last month, Petrina Crockford reported for TicketNews.com that demand for Cubs tickets was relatively weak. At the time of Ms. Crockford’s report the Cubs were still in the playoff hunt, 4 games back of the first place St. Louis Cardinals.
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Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.
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