Opinion ID: 2583
Heading Depth: 3
Heading Rank: 5

Heading: Professional Sports Ventures

Text: In the present case, the district court observed that antitrust challenges to the operations of sports leagues have generally been analyzed by the courts under the rule of reason, rather than being held illegal per se, because competition among the teams in their fields of play is to an extent dependent upon the teams' cooperation with each other in various other respects. Salvino contends that this was error, arguing that the licensing of intellectual property is only  collaterally related to professional sports and that [t]he conduct at issue here, naked horizontal price and output restrictions, traditionally falls within the per se proscriptions. (Salvino brief on appeal at 20 (emphasis added).) Given that the record shows only increases, not decreases, in output ( see Parts I.B.2. and II.C.1. above), and that the so-called price restriction challenged by Salvino is simply the Clubs' equal sharing of MLB Intellectual Property licensing profits ( see Part II.C.2. above), Salvino's contention that the district court erred in not applying per se or quick-look analysis is meritless. As discussed in Part I.B.1. above, the MLB Entertainment Product comprises some 2,400 interrelated regular-season Major League Baseball games played each year, followed by playoff games for the American and National League championships, and culminating in the World Series. The production of this entertainment requires the joint efforts of the 30 Clubs; it cannot be produced by any one Club individually or even by a few Clubs. In creating the MLB Entertainment Product, the Clubs plainly do not operate separately or independently but rather are interdependent entities in an organization that is highly integrated. It is undisputed that the production and value of the MLB Entertainment Product affect the value of MLB Intellectual Property. For example, when the Major League Baseball players were on strike in 1994 and 1995, sales of products bearing MLB Intellectual Property decreased; when the strike ended, sales of those products increased. Further, the value of the intellectual property of a particular Club is dependent in part on that Club's membership in MLB (for example, Fisher pointed to the decline in value of the intellectual property of such former Clubs as the Houston Colt 45s and the St. Louis Browns), and in part on the Club's popularity. Although every Club no doubt has a core of die-hard fans, a Club's popularity is affected principally by its success on the baseball field and by how the play of each game relates to the season as a whole. Moreover, it cannot be disputed that the performance aspect of a Club's popularity is related to the Clubs' interdependence. Obviously, a team cannot win games or championships unless it has opponents. Thus, even Clubs that fail to achieve winning records, and that have only small steadfast fan bases, contribute to the popularity of the more successful Clubs. Direct licensing by the Clubs, as recommended by Salvino and Guth, would result in the more popular Clubs granting more licenses and receiving more income for their intellectual property than the less popular Clubs would grant and receive. ( See, e.g., Salvino brief on appeal at 30 (If an organization is successful in ... competition, then it should be entitled to reap the fruits of its acumen.); Guth Report ¶ 32 (describing an alternative role for MLBP in which Clubs' ability to generate revenues from their licensing would be dependent on the value of their mark[s]).) This inequality in licensing income, however, would over-compensat[e] the popular team for the joint efforts of all Clubs. (Fisher Report ¶ 81.) Further, the disproportionate distribution of licensing income would foster a competitive imbalance among the Clubs. The concept of competitive balance reflects the expected equality of opportunity to compete and prevail on the field. Competitive balance also relates to the fans' expectations that each team is a potential champion  i.e. that each Club has a reasonable opportunity to win each game and also to compete for a championship. ( Id. ¶ 14.) There is no genuine dispute here that maintaining the value of the MLB Entertainment Product requires competitive balance among the Clubs. Fisher calls competitive balance ... critical to the success of MLB. ( Id. ¶ 68.) And Salvino acknowledges that MLB teams, like all teams in sports leagues, need to cooperate in terms of scheduling, rulemaking, league format, competitive balance and both the live performance and televising of games, in order to create and market the product, which is baseball games. (Salvino brief on appeal at 27 (emphases added); see also Salvino's California action complaint ¶ 14 (citing on-field competitive balance as a legitimate or procompetitive goal).) Accordingly, Fisher opined that  all the Clubs must be rewarded in order to ensure continued league-wide efforts as well as to foster competitive balance. (Fisher Report ¶ 68 (emphasis in original).) And while Salvino argues that MLBP's equal distribution of licensing income to the Clubs is illegal per se or upon quick-look analysis, it is telling that precisely such a distribution was ultimately approved by Salvino's own expert. In his initial Report, Guth stated that the goal of equalizing the Clubs' competitiveness could be achieved by sharing ticket revenues and broadcast revenues and the imposition of team salary cap rules. (Guth Report ¶ 10.) We find it difficult, as a logical matter, to fathom why the sharing of revenues from the licensing of intellectual property should be any less valid than the Guth-recommended sharing of revenues from other sources. And in fact, Guth himself ultimately suggested that the free-rider problems, which could occur if Clubs licensed directly, should be solved by the revenue sharing aspect of the MLBP, i.e., the equal distributions of the licensing profits to the Clubs: [T]he solution to these problems as analyzed in the economics literature has to do with modifying the pay-offs to the Clubs individually so that their incentives are consistent with capturing prevailing externalities.... Thus, for example, MLBP currently sets pay-offs to the clubs based on a one-thirtieth proportionate share to each club. Moreover, Major League Baseball generally has a variety of tools available to it to deal with too large a slice of overall revenue going to one Club or another. These include sharing ticket revenues, national TV contract revenues, MLB intellectual property licensing, and excessive payroll adjustments. In this case, the revenue sharing aspect of the MLBP, or something similar, is likely sufficient to solve an externality problem, if such a problem actually exists. (Guth Decl. ¶ 17 (footnote omitted) (emphases added).) Indeed, Guth's view is that equal distributions of profits  which is the only conduct that Salvino challenges as price restrictions  would in fact be procompetitive:  Revenue sharing in which teams' payoffs are based on the total figure would encourage teams to maximize total revenues in order to maximize their own, even if this would otherwise be inconsistent with their individual interests. (Guth Decl. ¶ 17 (emphases added).) In sum, given Salvino's own view that MLB teams, like all teams in sports leagues, need to cooperate in terms of. competitive balance (Salvino brief on appeal at 27), and Salvino's expert's view that [r]evenue sharing ... encourage[s] teams to maximize output and revenues (Guth Decl. ¶ 17), it would defy reason for this Court to accept Salvino's contention that any anticompetitive aspects of the Clubs' agreement on the equal division of MLBP's licensing profit are at all apparent, much less so obvious that that agreement should have been held illegal per se or upon a quick look.