Thursday, February 14, 2013

Unions and labor exemptions in sports.

It is not uncommon to hear complaints about seemingly anticompetitive conduct in professional sports leagues at the nexus of college and professional sports. In professional football, the complaint regards the requirement that an individual be three years removed from their last high school football season. In professional basketball, it is the requirement that an individual be one year removed from their last high school basketball season. In professional baseball, 18-year olds can declare for the draft. But if they choose to go to college, they must remain in college for three years.

In short, the complaints are right. It is literally a restraint of trade to require athletes to wait a certain number of years before they can declare for a professional sports draft. It is literally anticompetitive. But the antitrust laws in the United States are not literal. They are as nebulous as any body of law in the United States. A cursory reading of the statutory antitrust laws in this country would take about five minutes, and afterward one might get the impression that there are enforceable antitrust violations all the time.

While anticompetitive conduct is a fairly regular occurrence, unless something is anticompetitive without any plausible procompetitive justification, courts will generally give an antitrust defendant's argument deference. Antitrust cases are notoriously difficult to predict, and extremely expensive. The antitrust defendant may not win, but unless the anticompetitive conduct is illegal per se -- illegal on its face -- the antitrust defendant will at least be able to provide a plausible procompetitive justification.

You may have heard about labor exemptions in antitrust law, but they are not well-understood. Hence, the abundance of complaints about athletes having to wait a certain number of years before declaring for a professional sports draft. Labor exemptions have been relevant the past few years. In the last two years alone, the NBA and NFL both had labor disputes. The NBA lost 18 regular season games in 2012. The NFL almost lost games in 2011, but came to an agreement at the 11th hour. 

There are two types of labor exemptions: Statutory and Nonstatutory. The Statutory Labor Exemption provides that unions can enter into agreements within the market (sport) that prevent the formation or competition from other unions. Basically, the National Basketball Players' Association (NBPA) or National Football Players' Association (NFLPA) can exist and operate without having to worry about competition from a rival union.

The Nonstatutory Labor Exemption basically provides that agreements made at arms' length between unions and management are exempt from antitrust law. This is called either a "collective bargaining agreement," or "CBA." So long as the NFLPA or NBPA collectively bargained for a particular agreement with the NFL or NBA, respectively, it will be exempt from antitrust law.

One of the items collectively bargained for is the number of years that amateur athletes must wait before declaring for a professional sports draft. The NBA made an agreement with the NBPA to not allow college players, or players from Europe, to enter the league before one year after the player's last high school season. The NFL made an agreement with the NFLPA to not allow college players to enter the league before three years after the player's last high school season. These agreements benefit the NFL and NBA because they are able to obtain more information about the mental capacity and physical capabilities of its future constituents. These agreements benefit the NFLPA and NBPA because preventing players from entering the league until they are more mature enhances player safety. It also protects their current constituency by limiting the number of amateurs that are able to oust current players from their jobs.

In 2002, former Ohio State freshman running back, Maurice Clarett, challenged the rule that a college player had to wait three years before being eligible for the NFL draft. Since the three year requirement was collectively bargained, Clarett's suit ended as quickly as it began. He was given virtually no opportunity to argue his claim, because the three year requirement was the subject of arms' length bargaining by the NFLPA and NFL. Clarett's situation was a vindication of the three year requirement, because he was constantly in trouble with the law, and it would have been a mistake for any NFL team to draft him.

In connection with the 2011 NFL labor dispute, the NFLPA "decertified," which essentially means it disorganized or disbanded. This decertification allowed the NFLPA to sue the NFL under antitrust law. Shortly before decertification, the NFL locked-out the players. Since the subject of the labor dispute was the subject of collective bargaining, it was a legal error that the NFLPA won an injunction at the district court level. The injunction prevented the NFL from "locking out" the players. The effect of this was to continue the previous collective bargaining agreement until a new one was in place. So, the players could go back to their jobs.

Obviously, the NFL would have lost a lot of bargaining power if the injunction remained in effect. But the NFL was able to defeat the injunction and enforce the lockout. If the case had gone to trial, I think it is almost certain that the NFL would have easily won the case. The court would have used the nonstatutory labor exemption to tell the NFLPA, in effect, "you made your bed, now sleep in it."

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