Fumbling the Antitrust Football

November 12, 2009 2:14 PM by S.M. Oliva (Archive)

Tonight the National Football League will telecast the first Thursday night game of the season on the league-owned NFL Network. Football fans might wonder why the NFL, which generally plays on Sundays and Monday nights, would force teams to radically alter their weekly routines to play on Thursdays. While the NFL's contracts with various television networks reserve Sunday and Monday telecasts, surely the NFL could reserve a Friday or Saturday evening slot so that a highlighted game could be played with less disruption to the participating clubs.

Well, the NFL doesn't have that option, in large part because federal antitrust law severely restricts the ability of the NFL -- and only the NFL -- to televise live games on Fridays and Saturdays. And, yes, it's a long story.*

On December 8, 1940, the NFL championship game between the Chicago Bears and the Washington Redskins -- a 73-0 rout by Chicago -- became the first NFL game carried on nationwide radio. The Mutual Broadcasting System paid $2,500 to broadcast Red Barber's play-by-play over 120 stations.

Ten years later, the Los Angeles Rams, the first NFL team on the west coast, was also the first club to televise all of its home and away games. Other clubs followed suit, and soon thereafter the league office, under the leadership of Commissioner Bert Bell, decided to adopt a common television policy.

The primary concern was the impact of televising games on live attendance. The Rams had experienced a decline in attendance during the 1950 season when its home games were televised. Given that television rights fees were then insignificant compared to ticket and related stadium revenue, the NFL was understandably concerned that television would cannibalize its live product.

Accordingly, in 1951, the NFL owners adopted Article X to the league's by-laws. Article X prohibited the telecasting of any NFL games within the "home territory" of a team playing a home game that day. The home territory was generally defined as a 75-mile zone surrounding the team's home city. This core provision of Article X was commonly referred to as the "blackout rule."

Article X did permit a team to broadcast its away games in its home territory. However, teams could not broadcast their games in another team's home territory, even if the other team was playing an away game, without the permission of the teams playing the other game. For example, if Chicago was playing at Cleveland and Green Bay was playing at New York, then Article X allowed the Chicago-Cleveland game to be telecast in Chicago but not Cleveland. The Green Bay-New York game could not be telecast in Chicago or Cleveland, unless Chicago, Cleveland, and the commissioner granted a waiver.

In 1953, the United States Department of Justice filed a lawsuit in Philadelphia, Pennsylvania, challenging Article X under section one of the Sherman Act, which broadly prohibits "[e]very contract, combination * * * or conspiracy in restraint of trade or commerce among the several states." The courts have interpreted this to mean that only "unreasonable" restraints of trade are illegal, but only the courts can determine what in fact is unreasonable.

The case was assigned to U.S. District Judge Allan K. Grim, a former Democratic Party official appointed to the bench three years earlier by President Truman. On November 12, 1953, Grim partially granted the government's request for an injunction. Grim said the NFL could prohibit the televising of a team's games within its home market, but it could not prohibit the televising of games from outside the home market. In other words, the NFL could blackout the Cleveland-Chicago game in Chicago, but not the Green Bay-New York game.

Grim accepted the NFL's argument that allowing telecasts of home games in home territories "has an adverse effect" on home attendance, and that "[t]his clearly indicates by implication that the telecast of an outside game, particularly a head-on game, also adversely affects attendance at a home game." Grim concluded that such restrictions were pro-competitive under the Sherman Act:

This is not a case of one industry fighting the competition of another, as for instance coal fighting the competition of oil, or railroads fighting the competition of trucks, or moving pictures fighting the competition of television. Football provides a magnificent spectacle for television programs and television provides an excellent outlet and market for football. They both can use and indeed need each other. By working together intelligently each will be an important adjunct to the other. The objective of the clubs in agreeing to a television blackout of the home territory (except for the remote possibility of a home game telecast) during the day a home game is played is not to restrain competition among the individual clubs in the sale of television rights or competition among television stations and networks and advertisers and advertising agencies in the purchase of such rights. This particular restriction promotes competition more than it restrains it in that its immediate effect is to protect the weak teams and its ultimate effect is to preserve the League itself. By thus preserving professional football this restriction makes possible competition in the sale and purchase of television rights in situations in which the restriction does not apply.

Conversely, Grim said the NFL failed to produce evidence justifying the blackout of out-of-market games, which he deemed "unreasonable" under the Sherman Act.

Grim's oversight of the NFL's television policies did not end in 1953. Eight years later, the government's injunction against Article X would strike down the league's attempt to expand the quantity of televised football.

In the years following Grim's decision, NFL teams individually negotiated television contracts for games not subject to the home blackout rule. In 1961, the league authorized Commissioner Alvin Rozelle to negotiate a single national television contract with CBS, under which the network could telecast all games (except the championship game, which was sold separately.) After signing the CBS contract, the NFL filed a petition asking Grim to find the deal did not violate his 1953 decision.

Grim declined. On July 20, 1961, he said the single-network contract also constituted an "unreasonable" restraint of trade under the Sherman Act. Although the concept of a single network contract was not at issue in the original case, Grim said the text of his order had to be strictly interpreted to condemn the new arrangement as illegal.

A Senate committee later characterized Grim's reasoning as follows: "The 1961 decision was based on the fact that by transferring their rights to the network the individual clubs unlawfully restricted themselves from determining the areas within which telecasts of games might be made." (Italics added.) This despite the fact that the NFL's new rival, the American Football League, had signed a single network contract with NBC in 1960, and the National Basketball Association and the National Hockey League had entered into similar deals.

In response to Grim's second decision, Congress passed the Sports Broadcasting Act (SBA), which was signed into law by President Kennedy on September 30, 1961. The SBA's key provision said that the antitrust laws did not apply,

to any joint agreement by or among persons engaging in or conducting the organized professional team sports of football, baseball, basketball, or hockey, by which any league of clubs participating in professional football, baseball, basketball, or hockey contests sells or otherwise transfers all or any part of the rights of such league's member clubs in the sponsored telecasting of the games of football, baseball, basketball, or hockey, as the case may be, engaged in or conducted by such clubs.

Now here's the twist: The National Collegiate Athletic Association, which regulates college football, lobbied for a special provision in the SBA that only applied to the NFL. The NCAA was concerned that the NFL might use its newfound television freedom to, er, compete against college football games that were played on Fridays and Saturdays. Thus, at the NCAA's insistence, Congress qualified its antitrust exemption to say that a television contract was still an "unreasonable" restraint of trade if it allowed,

the telecasting of all or a substantial part of any professional football game on any Friday after six o'clock postmeridian or on any Saturday during
the period beginning on the second Friday in September and ending on the second Saturday in December in any year from any telecasting station located within seventy-five miles of the game site of any intercollegiate or interscholastic football contest scheduled to be played on such a date . .

In other words, the same antitrust law that prevented the NFL from voluntarily blacking out certain games now mandated such blackouts within 75 miles of any stadium where a college game is being played on Friday or Saturday.

The Senate committee that sponsored this amendment justified it as follows:

While both professional leagues have assured the committee that it is their intention to continue their present Sunday scheduling practices, the committee believes that a legislative exemption of professional football from the antitrust laws should be specifically conditioned so that college football, upon which substantial educational programs depend for revenue, is not unduly prejudiced.

Keep in mind, the issue was not preventing NFL telecasts from competing against NCAA telecasts. At the time, the NCAA severely restricted its own members ability to televise college football games. In 1951, the NCAA adopted a television policy that "limited national broadcasts to one per week on seven of the ten Saturdays during the regular season, and no team could appear more than twice annually."

The Department of Justice never applied the same antitrust standard to the NCAA that it did to the NFL. The NCAA television restrictions were abolished by the Supreme Court in 1984 after several member universities filed suit.

Back to the NFL. In June 1966, the NFL and AFL signed a merger agreement, effective in 1970. To preempt a possible antitrust challenge, the leagues returned to Congress for another exemption. President Johnson signed the exemption into law as part of an unrelated tax bill in November 1966.

The 1966 exemption not only reaffirmed the 1961 ban on NFL telecasts on Friday and Saturday; it expanded the ban to include any Friday or Saturday competition against high school football games. Thus, no NFL game could be broadcast within 75 miles of any college or high school where a game was being played on a Friday or Saturday. According to a later court decision, this amendment was made "in response to requests from representatives of high school football groups."

Since then, there has never been any serious effort to repeal the Friday-Saturday ban. But the issue has come up. In September 2004, the NFL was forced to reschedule a Miami Dolphins-Tennessee Titans game due to a hurricane approaching Miami. The NFL moved the game up a day -- from Sunday to Saturday -- in order to beat the storm. Under the Sports Broadcasting Act, the game could not be televised nationally. The NFL did televise the game in the local markets of Miami and Nashville, which reportedly was only legal because the league obtained waivers from the colleges and high schools within 75 miles of both cities.

In October 2005, another Dolphins home game, this time against the Kansas City Chiefs, was moved back a day in anticipation of another hurricane. Again, the NFL restricted its telecast to the two home markets to avoid a federal antitrust violation.

The NFL rejected a request by KWCH-TV, the CBS affiliate in Topeka, Kansas, to telecast the Chiefs-Dolphins game live. KWCH reported that "due to NFL regulations," the telecast was limited to Kansas City and Topeka. (No mention was made of the antitrust laws.) Wichita is approximately 170 miles from Kansas City and nearly 350 miles from the next-closest NFL city (Dallas).

KWCH's general manager, Joan Barrett, strongly protested the blackout mandate to CBS and the NFL, but to no avail. She said her station had received a "steady stream of calls" from irate Chiefs fans in Wichita. Bob Moore, the Chiefs director of public relations, added that the Chiefs were a "regional franchise" that drew fans from all over Kansas, Nebraska, and Iowa, and that it was "unfair" to prevent all Chiefs fans from watching the game live. KWCH encouraged unhappy viewers to complain to the NFL and provided the phone number of the league's New York headquarters.

Antitrust enthusiasts are no doubt scratching their head wondering how the Sherman Act -- the "Magna Carta of free enterprise," according to the Supreme Court -- could be used to frustrate consumers this way. The answer, of course, is that once antitrust invites the federal courts to second-guess the decisions of private businesses, as Judge Grim did in 1953, you set off a chain of political intervention that diverges from consumer interests.

*This post is excerpted from an earlier paper I authored.