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NORTH AMERICAN SOCCER LEAGUE v. NFL

November 17, 1980

NORTH AMERICAN SOCCER LEAGUE; ORANGE COUNTY PRO SOCCER; CHICAGO WORLD SOCCER INC.; CARIBOUS OF COLORADO, INC.; MICHIGAN SOCCER, LIMITED; HOUSTON PROFESSIONAL SOCCER CLUB, LTD.; AZTEC PROFESSIONAL SOCCER CLUB; MEMPHIS SOCCER CLUB, INC.; MINNESOTA SOCCER, INC.; LIPTON PROFESSIONAL SOCCER, INC.; COSMOS SOCCER CLUB, INC.; OAKLAND STOMPERS, LTD.; PHILADELPHIA SOCCER ASSOCIATES; OREGON SOCCER, INC.; BLUE & GOLD, LTD.; SAN DIEGO PROFESSIONAL SOCCER CLUB; SAN JOSE EARTH-QUAKES, LIMITED; TAMPA BAY SOCCER CLUB, INC.; PRO SOCCER, LTD.; TULSA ROUGHNECKS, LTD.; VANCOUVER PROFESSIONAL SOCCER CLUB, LTD.; and WASHINGTON DIPLOMATS SOCCER CLUB, INC., Plaintiffs,
v.
NATIONAL FOOTBALL LEAGUE; SAN FRANCISCO 49ers; OAKLAND RAIDERS; NEW ENGLAND PATRIOTS FOOTBALL CLUB, INC.; MINNESOTA VIKINGS FOOTBALL CLUB, INC.; THE FIVE SMITHS, INC.; BALTIMORE FOOTBALL, INC.; HIGHWOOD SERVICE, INC.; CHICAGO BEARS FOOTBALL CLUB, INC.; CINCINNATI BENGALS, INC.; CLEVELAND BROWNS, INC.; DALLAS COWBOYS FOOTBALL CLUB, INC.; EMPIRE SPORTS, INC.; THE DETROIT LIONS, INC.; GREENBAY PACKERS, INC.; HOUSTON OILERS, INC.; LOS ANGELES RAMS FOOTBALL CO.; NEW ORLEANS SAINTS; NEW YORK FOOTBALL GIANTS, INC.; NEW YORK JETS FOOTBALL CLUB, INC.; LEONARD H. TOSE, d/b/a PHILADELPHIA EAGLES FOOTBALL CLUB; PITTSBURGH STEELERS SPORTS; CHARGERS FOOTBALL COMPANY; CHICAGO CARDINALS FOOTBALL CLUB; PRO-FOOTBALL, INC.; and TAMPA BAY BUCCANEERS, INC., Defendants.



The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

INTRODUCTION

This is a private antitrust suit, tried to the Court without a jury. Plaintiff North American Soccer League (the "NASL") is an unincorporated association of 24 professional soccer clubs located throughout the United States and Canada. The other plaintiffs are 21 of those 24 member organizations. Defendant National Football League (the "NFL") is an unincorporated association of 28 professional football clubs located throughout the United States. The other defendants are 25 of those 28 member organizations.

 In October, 1978, the NFL scheduled a meeting to vote upon a proposed amendment to its by-laws which reads as follows:

 
"Amend Article IX, by adding a new Section 9.4 as follows:
 
"9.4(A) No person (1) owning a majority interest in a member club, or (2) directly or indirectly having substantial operational control, or substantial influence over the operations, of a member club, or (3) serving as an officer or director of a member club, nor (4) any spouse or minor child of any such person, may directly or indirectly acquire, retain, or possess any interest in another major team sport (including major league baseball, basketball, hockey and soccer).
 
"(B) The prohibition set forth in subsection (A) hereof shall also apply to relatives of such persons (including siblings, parents, adult children, adult and minor grand children, nephews and nieces, and relatives by marriage) (1) if such person directly or indirectly provided or contributed all or any part of the funds used to purchase or operate the other sports league entity, or (2) if there exists between such person and any such relative a significant community of interest in the successful operation of the other sports league entity.
 
"(C) The Commissioner shall investigate, to the extent he deems necessary or appropriate, any reported or apparent violation of this Section and shall report his findings to the Executive Committee prior to imposition of disciplinary action by the Committee.
 
"(D) Beginning on February 1, 1980, any person who, after notice and hearing by the Executive Committee, is found to have violated subsection (A) or (B) above will be subject to fines of up to $ 25,000 per month for each of the first three months of violations; up to $ 50,000 per month for each of the next three months; and up to $ 75,000 per month thereafter. In addition, violations of more than six months' duration may be dealt with by the Executive Committee pursuant to Article VIII, Section 8.13(B).
 
"(E) If such person does not pay such fine to the League Treasurer within 20 days of its assessment, the unpaid amount thereof may be withheld, in whole or in part, by the Commissioner from available funds in possession of the League Office belonging to the member club with which the person in violation is affiliated."

 This proposed by-law will hereafter be referred to as the "cross-ownership ban."

 Plaintiffs allege that the cross-ownership ban, if enacted by defendants, would violate Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Their complaint, invoking Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, sought to preliminarily and permanently enjoin implementation of the by-law. Plaintiffs also prayed for a declaratory judgment pursuant to 28 U.S.C. § 2201, declaring the proposed cross-ownership ban, together with other actual and threatened conduct by defendants, violative of the Sherman Act, and for treble damages. Jurisdiction lay under 28 U.S.C. §§ 1331 and 1337, and venue under 28 U.S.C. § 1391 and 15 U.S.C. §§ 15 and 22.

 Defendants denied the allegations of the complaint, and asserted two counterclaims against plaintiffs, alleging Sherman Act violations on their part.

 At the outset I granted plaintiffs a preliminary injunction, restraining defendants from enacting the proposed by-law or otherwise implementing the cross-ownership ban. 465 F. Supp. 665. The case then proceeded through discovery, preparation of a joint pre-trial order, and trial. I wish particularly to compliment counsel for both sides for meticulous preparation and able advocacy.

 I now enter the following Findings of Fact, Discussion, and Conclusions of Law. Rule 52(a), F.R.Civ.P.

 FINDINGS OF FACT

 These findings adopt, in substantial measure, the helpful statement of agreed facts prepared by the parties in connection with the pre-trial order.

 I. THE PARTIES

 No. 1 : Plaintiff North American Soccer League (the "NASL") is an unincorporated association of twenty-four (24) professional soccer clubs located throughout the United States and Canada.

 No. 2 : The NASL was organized in 1968 upon the merger of two predecessor soccer leagues for the purpose of promoting major league professional soccer in North America and is engaged in interstate commerce in the business of operating a professional soccer league.

 No. 3 : The other plaintiffs (or their successors) are 21 of the NASL member organizations (each of which is a corporation except where noted) which, at the time suit was filed, owned and operated professional soccer clubs for profit under the names and in the cities set forth below:

 TABLE

 The NASL and these NASL member clubs are hereinafter referred to collectively as the NASL plaintiffs (while this opinion was in preparation, the Philadelphia Fury was sold to Molson Breweries of Montreal, and the Philadelphia NASL franchise transferred to the latter city).

 No. 4 : Defendant National Football League (the "NFL") is an unincorporated association of 28 professional football teams which is engaged in interstate commerce in the business of operating a major professional football league in the United States.

 No. 5 : The other defendants are 25 of the NFL member organizations (each of which is a corporation except where noted) which own and operate professional football clubs for profit under the club names and in the cities set forth below:

 TABLE

 The NFL and the 24 NFL member club defendants other than Pro-Football, Inc. are hereinafter referred to collectively as the "NFL defendants"; defendant Pro-Football, Inc. is referred to as the "Redskins." St. Louis Cardinals Football Co. is a named defendant herein, but has not been served with process. (The Redskins were dismissed from the suit on plaintiffs' consent, at the conclusion of plaintiffs' case. That is because Edward Bennett Williams, the Redskins' principal owner, has consistently opposed the NFL cross-ownership ban.)

 II. NATURE OF INTERSTATE TRADE AND COMMERCE

 No. 6 : Both the NFL defendants' operation of and engagement in the business of major league professional football and the NASL plaintiffs' operation of and engagement in the business of major league professional soccer involve substantial volumes of interstate trade and commerce, including, inter alia, the following interstate activities: travel; communications, purchase and movement of equipment; broadcasts and telecasts of league games; advertisements; promotions; sales of tickets and concession items; employment of players and referees; and negotiations for all of the above.

 III. THE CHARACTERISTICS OF PROFESSIONAL TEAM SPORTS LEAGUES

 No. 7 : The NASL and the NFL are two of the major professional sports leagues in the United States. Each is composed of member teams located throughout the United States (and, in the case of the NASL, in parts of Canada) which compete on the playing field with each other and also operate jointly to promote attendance at and fan interest in the games which they play and to create and market professional athletic entertainment events in competition with other sports leagues (and other producers and marketers of sports and other entertainment events.)

 No. 8 : The NASL and NFL, along with the other major professional sports leagues in hockey, basketball and baseball, compete with each other in the entertainment industry.

 No. 9 : The NASL, the NFL and the other major professional sports leagues all compete in interstate commerce for fan interest, media attention, advertising revenues and network television revenues. The primary "products" sold to the public by the individual sports leagues and/or their member teams, including the NFL and NASL, are tickets for spectator viewing and the broadcast rights to games which the individual clubs play with other league members.

 No. 10 : In the case of ticket sales and sale of local radio/television broadcasting rights, this competition occurs within the metropolitan areas in which any two or more leagues have teams; in the case of network broadcasting and telecasting rights, it occurs in a market including the entire United States and some contiguous areas of Canada.

 No. 11 : The ways in which the NFL, the NASL and other professional sports leagues organize the activities to be carried out by a central league office, various committees and the member clubs individually vary from league to league. Professional team sports leagues like the NFL and NASL, as opposed to their individual member teams, are generally responsible for, inter alia: national promotional activities; the negotiation of network television contracts; the employment of referees; the structure and rules of competition for the sport; certain aspects of player relations; and the establishment and enforcement of rules governing league membership.

 No. 12 : The individual clubs which comprise the NASL, like those which make up the NFL, each require, inter alia:

 (a) adequate capital investment to support operations;

 (b) membership in a league in which the member teams are reasonably well matched in playing ability;

 (c) the employment of a group of highly skilled players;

 (d) location in a geographic area that is able to support the team by attendance at games sufficient to provide adequate revenues;

 (e) the sale of radio, television and ancillary rights to the games which they play; and

 (f) a share of league revenues or funds from other sources adequate to assure the ability to field a team which is reasonably well matched with others in the same league.

 No. 13 : The economic success of each franchise in a professional sports league is dependent on the quality of sports competition throughout the league and the economic strength and stability of other league members.

 No. 14 : Damage to or the loss of any professional sports league member ordinarily damages the stability, success and operations of both the league and its individual members.

 IV. MARKETS IN WHICH PROFESSIONAL TEAM SPORTS LEAGUES COMPETE WITH EACH OTHER

 No. 15 : As noted in Finding No. 8, supra, professional sports leagues compete with each other in the entertainment industry. The general entertainment market includes television, and identifiable submarkets such as professional sports, professional team sports, and specialized television sports programming.

 No. 16 : The NASL contends that the leagues also compete with each other in a market for "sports ownership capital and skill," whose boundaries are confined to individuals presently owning controlling interests in major league sports teams. I find, however, that to the extent a "sports ownership capital and skill" market exists, its boundaries are significantly wider than the NASL suggests. The market includes sports-minded, wealthy individuals who are not presently team owners, but would be receptive to an attractive investment opportunity in the field; and corporations of the type previously and presently involved in professional sports team ownership.

 No. 17 : As for individuals, the NASL's perception of a "sports ownership capital and skill" market is based upon an archetypal figure I came to know during the trial. I shall call him, for lack of a better word, the "sportsman." The sportsman has these distinguishing characteristics: love of sport; love of the limelight (or at least a willingness to be exposed to public view); substantial capital and a readiness to risk it in ventures with the potential for large short-term losses; and, in some cases, a familial affection for the city in which his teams perform. Sportsmen who testified during the trial included Lamar Hunt of Dallas; Joseph Robbie of Miami; Leonard Tose of Philadelphia; Edward Bennett Williams of Washington; Aaron Fogelman of Memphis; and Peter Pocklington of Edmonton. Just as some successful individuals turn for their extracurricular fulfillment to music (Avery Fisher Hall), rare books (the Beinecke Library), or fine art (the Frick Museum), so these individuals, at various stages in their personal races through life, have turned to professional sports.

 No. 18 : The paths by which individuals come to professional sports team ownership vary, as do the individuals themselves. Hunt has for a number of years focused his energies and largely inherited fortune upon a variety of sporting ventures: controlling ownership of the NFL Kansas City Chiefs and the NASL Dallas Tornado, as well as a leading role in professional tennis tournaments. Williams acted as attorney for other individuals who owned the Redskins, eventually acquired a controlling ownership himself, and recently expanded his sports interests to ownership of the baseball Baltimore Orioles. Pocklington was a businessman (meatpacking, car dealership, real estate development) who acquired his first sports ownership interest in the Edmonton Oilers (then of the now defunct World Hockey Association, now a National Hockey League team) as the result of a casual exchange with a friend. Tose is chairman of an interstate trucking company, who in 1969 acquired a minority interest in the Philadelphia Eagles, and now owns 99 per cent of the team. These individuals illustrate the ways in which, from various walks of life, one can become a professional sports team owner, frequently without prior experience in the field.

 No. 19 : Corporate owners have been a significant factor in American professional team sports. The NFL's by-laws prohibit corporate ownership as a matter of policy, but the other four major leagues do not. Major league baseball currently has 10 corporate investors in control group positions; the NASL has 8 (including Molson Breweries' recent acquisition of the Philadelphia franchise); the National Basketball Association has 3; and the National Hockey League 8. Thus 29 corporations hold controlling interests in four major sports leagues. The industries most heavily represented among corporate sports owners are those involved in consumer products sold to sports fans (beer, soft drinks and other beverages, cigarettes, home building supplies), or in communications, which market sports. Many other corporations, not currently sports owners, fit this profile. There are also a number of corporations in other fields that are identified with a particular city, and have invested in one of that city's professional teams.

 No. 20 : Shifts between individual and corporate ownership occur. We have noted the sale of the Philadelphia NASL franchise by a limited partnership of individuals to a corporation. Conversely, I may judicially notice that some years ago, CBS, a communications corporation, sold the baseball New York Yankees to a group of individuals headed by George Steinbrenner, who conforms neatly to the "sportsman" profile described in Finding No. 17.

 No. 21 : The presence of potential individual or corporate investors in professional sports precludes an effort to confine the boundaries of a "sports ownership capital and skill" market to present major league sports owners. While the NASL has been relatively unsuccessful in recent years in attracting potential investors, that is because the league has lost increasing amounts of money over the years. In 1979, for the second consecutive year, every NASL team operated at a loss, with some teams losing in excess of $ 2,000,000; and the NASL teams showed an aggregate operating loss of over $ 20,000,000, the most in the NASL's history. By way of contrast, when the NFL, a consistently profitable league, expanded by adding the Seattle and Tampa Bay franchises in 1974, the league had no difficulty attracting competing bidders. The capital resources of potential sports investors are reasonably interchangeable with those of present investors.

 V. MARKETS IN WHICH CONSTITUENT MEMBER TEAMS OF A SPORTS LEAGUE COMPETE WITH EACH OTHER

 No. 22 : Member teams of the NASL and NFL, as in the other major sports leagues, are separate legal entities. Within a professional sports league, the member teams compete with each other in certain identifiable markets. These include competition for player services, and, where two teams of the same league play in the same geographical area, competition for the loyalty in the hearts, and dollars in the pockets, of local sports fans, as well as coverage in the local media.

 No. 23 : However, in markets where the competition pits one league against another, with joint league activity neither implicating nor impinging upon competition between member teams, the league acts in fact as a single economic entity. That is the situation with respect to competition in the identifiable economic markets revealed by the evidence in this case.

 VI. THE RELATIVE POSITIONS OF THE NFL AND NASL AMONG PROFESSIONAL TEAM SPORTS

 No. 24 : In the past decade, the NFL has been the most successful professional sports league in the United States with respect to average per-game attendance, network media revenues and coverage, average value of franchises and total league-wide and per-club revenues.

 No. 25 : Soccer is one of the fastest growing sports in the United States on both the amateur and professional sports levels.

 No. 26 : Since 1968, professional soccer has experienced substantial and accelerating growth in fan interest, media following, paid attendance, number of franchises and geographic scope, and the NASL has emerged as the leading professional soccer league in the United States.

 No. 27 : The NASL and its predecessor leagues have engaged in the business of presenting professional soccer in the United States continuously for approximately 13 years. Compared to the other major professional sports leagues in football, baseball, basketball and hockey currently competing with the NASL in the U. S. professional sports, professional team sports and television programming markets, the NASL is by far the youngest, the least mature, and the most recent entrant.

 No. 28 : In order to compete with these other pre-existing professional sports leagues, the NASL needs to: (i) develop fan and media interest in a relatively new sport, (ii) attract and maintain sufficient sources of capital and entrepreneurial skill, and (iii) gain access to suitable stadium facilities.

 No. 29 : As a relatively new professional sports league, the NASL must also develop fan loyalties and interest.

 No. 30 : In the past decade, which included the early years of NASL history, each of the other major professional sports leagues the NFL, Major League Baseball ("MLB"), the National Basketball Association ("NBA") and the National Hockey League ("NHL") all exceeded the NASL in per-game attendance and seasonal attendance, and at least the NFL and Major League Baseball exceeded the NASL in gross media revenues received.

 No. 31 : The NFL and Major League Baseball are approximately equivalent in public popularity and financial health, followed by the other major professional sports leagues in basketball, hockey and soccer. The NFL is not "dominant" over its competitors. The NFL seeks to compete with the NASL and other professional sports leagues and to develop a totally independent strategy for the marketing of its products.

 No. 32 : Competition between the NASL and NFL has grown over the past few years because of the similarity between the two sports and the overlaps between their seasons, their franchise locations and, in some cases, their stadiums.

 No. 33 : While the ability of professional sports teams to operate at a profit depends upon several factors, including league-wide and local television and radio revenues, gross attendance, ticket prices, stadium size, local population (i. e., spectator base) and the success of a particular team on the playing field, the existence of a lucrative network television contract is particularly important. In that regard, the NFL has far outstripped the NASL. The NFL currently enjoys contracts with the three major television networks which yield about $ 650 million over four years, or $ 5,200,000 per team per year. In 1979 the NASL's network television contract provided only $ 500,000, or $ 21,000 per team.

 No. 34 : The NASL has undergone a continuing process of change and experimentation in ownership and franchise location over the past eleven years. Since the NASL's formation in 1968, through the time of trial, 41 NASL franchises have either been sold, moved or ceased operations and 25 franchises have, at one time or another, been added to the league.

 No. 35 : Apart from the divestiture of NASL ownership interests which could result from implementation of the NFL Constitution and By-law amendment in issue in this litigation, at least seven NASL franchises were at the time of trial seeking refinancing or transfers of club ownership and/or locations.

 VII. THE STRUCTURE OF NASL AND NFL OWNERSHIP

 No. 36 : One of the NFL's ownership policies is that, as far as possible, each NFL team have a 51% controlling owner. Thus, the number of NFL owners with operational control of NFL teams (by virtue either of majority ownership or a position such as managing general partner or chief executive officer) is less than 50. Another of the NFL's ownership policies is that the controlling owner of NFL teams cannot be a corporation whose primary business purpose is not the ownership and/or operation of an NFL team.

 No. 37 : Current NFL and NASL owners vary in their capital resources, personal entrepreneurial skills devoted to the activities of their team, public ...


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