Court Opinion

ID: 9489558
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:18:52.261517+00
Date Added: 2024-06-11T17:53:35.914846
License: Public Domain

CUDAHY, Circuit Judge,
concurring:
Although I agree with the majority’s firm conclusion that the “quick look” doctrine does not apply to these complex facts, I must indicate some differences in significant matters that are reached in the course of the majority opinion. Thus, in arriving at its conclusion that a full Rule of Reason analysis is required, the majority seems to be extrapolating from its discussion of whether the NBA may be a “single entity.” Classification as a “single entity” means immunity from Sherman Act, § 1, considerations, a distinction much more drastic than the conclusion that the conduct in question here deserves a “quizzical look” rather than a mere “quick look.” So, although it is not entirely clear, the majority seems to be saying that, since the NBA may be a single entity, its conduct certainly merits more than a quick look. Perhaps so, but, since the single entity question is unresolved, I would prefer to address the problem from a slightly different direction.
For the “quick look” approach should have a narrow application, reflecting its recent and sharply delimited origin in the NCAA case. Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of the Univ. of Oklahoma, 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984). That case, involving a loose alliance of colleges which had agreed on price and output restrictions on broadcast of their football games, held that under some circumstances a full analysis of market power is not required to determine that an agreement is anticom-petitive. This framework should not be extended to the more highly integrated and economically unitary NBA.
The colleges which made up the NCAA were entirely separate economic entities, competing with each other in many areas unrelated to their athletic encounters. There is, of course, a sort of continuum of economic integration, with entities at different points along the continuum warranting differing levels of antitrust concern. At one end are loose alliances of economic actors having independent concerns (like the NCAA), the anticompetitive nature of whose agreements is obvious from a “quick look.” At the other end are fully-integrated entities in which the economic interests of the participants are so completely aligned that antitrust scrutiny of their policies is unnecessary except where § 2 of the Sherman Act is violated. In the center is the broad range of organizations (generally like the NBA) whose separate constituents are individually owned but are closely but not completely tied economically to their organizations. These entities are *602capable of anticompetitive agreements, but a full Rule of Reason analysis is necessary to ensure that productive cooperation is not mistaken for anticompetitive conduct. Single entity aside, there is certainly enough concern here for the efficiency of the league as a competitor in the entertainment market to require full Rule of Reason analysis.
On a more clear-cut point, I think it was appropriate for Judge Will to examine the size of the NBA’s fee for the WGN broadcasts of Bulls games. In this connection, the majority rejects considerations of fairness “and the like” and asserts that, “The core question in antitrust is output.” Maj. Op. at 597. Under the reductive view that prevails in antitrust matters, this somewhat grating aphorism appears to be correct. If efficiency (or consumer welfare) is the be-all and end-all, more seems to be better no matter how the more is distributed. But taking these principles as a given, it is still difficult for me to understand how output can be disjoined from cost under the circumstances of this case. In fact, Judge Will found as a fact that, “[the NBA’s proposed fee] may well at some future date decrease output and distribution of Bulls games on WGN_” Dist. Ct. Findings of Fact, Conclusions of Law and Opinion, NBA App. at 77a. But, particularly since output is currently constrained to 30 games, rather than whatever the market would produce, it is difficult to ascertain whether the fee is high enough to reduce output below the competitive level. Since it is not clear to me that the magnitude of Judge Will’s adjustment was justified by antitrust considerations alone, I would include this issue with other matters to be considered on remand.
That said, I turn to the single entity issue, where the discussion of the majority is deserving of comment both as to substance and to procedure. My first reservation is procedural and concerns whether this issue may be reached at all. The majority announces an exception — without precedent to my knowledge — from the usual rules of waiver of issues on appeal. The exception applies, according to the majority, to “defendants in complex cases” without elaboration. Why we should have more forgiving policies for highly skilled and highly compensated counsel in big corporate eases than for pro se litigants or appointed counsel of perhaps lesser qualification is certainly unclear to me. Our earlier opinion in this case states that “the NBA did not contend in the district court that the NBA is a single entity, let alone that it is a single entity as a matter of law.” Chicago Professional Sports Ltd. Partnership v. National Basketball Ass’n, 961 F.2d 667, 673 (7th Cir.1992), cert. denied, 506 U.S. 954, 113 S.Ct. 409, 121 L.Ed.2d 334 (1992). We also stated that:
Characterization is a creative rather than exact endeavor. Appellate review is accordingly deferential. The district court held a trial, heard the evidence, and concluded that the best characterization of the NBA is the third we have mentioned: a joint venture in the production of games but more like a cartel in the sale of its output. Whether this is the best characterization of professional sports is a subject that has divided courts and scholars for some years, making it hard to characterize the district judge’s choice as clear error.
Id. at 672. No one seems to have argued that the basic structure of the NBA has changed since that opinion. I think, therefore, that, despite dicta in our earlier opinion speculating that “[p]erhaps the parties will join issue more fully [regarding the single entity status of the NBA] in the proceedings still to come in the district court,” id. at 673, there is a real question whether we can reach the single entity issue — fascinating though it may be.
However, on the assumption that the “single entity” question may be reached (and presumably will be reached on remand) a number of considerations will be relevant. Assuming as I must that the sole goal of antitrust is efficiency or, put another way, the maximization of total societal wealth, the question whether a sports league is a “single entity” turns on whether the actions of the league have any potential to lessen economic competition among the separately owned *603teams.1 The fact that teams compete on the floor is more or less irrelevant to whether they compete economically — it is only their economic competition which is germane to antitrust analysis. In principle, of course, a sports league could actually be a single firm and the individual teams could be under unified ownership and management. Such a firm would, of course, be subject to scrutiny only under § 2 of the Sherman Act and not under § 1. From the point of view of wealth maximization, a league of independently-owned teams, if it is no more likely than a single firm to make inefficient management decisions, should be treated as a single entity. The single entity question thus would boil down to “whether member clubs of a sports league have legitimate economic interests of their own, independent of the league and each other.” Sports Leagues Revisited at 127. It follows that a sports league, no matter what its ownership structure, can make inefficient decisions only if the individual teams have some chance of economic gain at the expense of the league.
Another form of the same question is whether a sports league is more like a single firm or like a joint venture. With efficiency the sole criterion, a joint venture warrants scrutiny for at least two reasons — (1) the venture could possess market power with respect to the jointly produced product (essentially act like a single firm with monopoly power) or (2) the fact that the venturers remain competitors in other arenas might either distort the way the joint product is managed or allow the venturers to use the joint product as a smoke-screen behind which to cut deals to reduce competition in the other arenas. The most convincing “single entity” argument involving the NBA is that the teams produce only the joint product of “league basketball” and that there is thus no significant economic competition between them. NBA Br. at 25-27. If this is the ease, the argument goes, type (2) concerns drop out and only type (1) concerns remain. • Type (1) concerns, of course, are exactly those appropriate for § 2 analysis of a single firm.
There are, however, flaws in this single entity argument. The assumption underlying it is that league sports are a different and more desirable product than a disorganized collection of independently arranged games between teams. For this reason, it is contended that joining sports teams into a league is efficiency-enhancing and desirable. I will accept this premise.2 It is perhaps true, as argued by the NBA and many commentators, that sports are different from many joint ventures because the individual teams cannot, even in principle, produce the product — league sports. However, the fact that cooperation is necessary to produce league basketball does not imply that the league will necessarily produce its product in the most efficient fashion. There is potential for inefficient decisionmaking regarding the joint product of “league basketball” even when the individual teams engage in no economic activity outside of the league. This potential arises because the structure of the league is such that all “owners” of the league must be “owners” of individual teams and decisions are made by a vote of the teams. This means that the league will not necessarily make efficient decisions about the number of teams fielded or, more generally, the competitive balance among teams. Thus, the fact that several teams are required to make a league does not necessarily imply that the current makeup of the league is the most desirable or “efficient” one.
The NBA’s justification for its restriction of Bulls broadcasts centers on the need to maintain a competitive balance among teams. *604Such a balance is needed to ensure that the league provides high quality entertainment throughout the season so as to optimize competition with other forms of entertainment. Competitive balance is not the only contributor to the entertainment value of NBA basketball, however. Fan enjoyment of league sports depends on both the opportunity to identify with a local or favorite team and the thrill of watching the best quality of play. A single firm owning all of the teams would presumably arrange for the number of teams and their locations efficiently to maximize fan enjoyment of the league season. There is, however, no reason to expect that the current team owners will necessarily make such decisions efficiently, given their individual economic interests in the financial health of their own teams.
It’s not surprising that far-flung fans want to watch the Bulls’ superstars on a superstation. The NBA argues that the broadcasting of more Bulls games to these fans will , disturb the competitive balance among teams. However, one can also speculate that, since sports viewing has become more of a television activity than an “in the flesh” activity, these fans might prefer to have a league composed of fewer, better teams (like the Bulls). If this were the case, league policies designed to shore up all of the current teams would be inefficient. The point, of course, is not that this speculation is necessarily correct, but that the efficient number of teams (or, more generally, the efficient competitive balance) may not be obtained as a matter of course given the current league ownership framework.
The team owners thus retain independent economic interests. This would be the case even if they did not compete for the revenues of the league. Teams do compete for broadcast revenues, however. “A conflicting economic interest between the league and an individual club can exist only when league revenues are distributed unequally among the member clubs based on club participation in the games generating the revenue.” Sports Leagues and the Sherman Act at 297-99. When teams receive a disproportionate share of the broadcast revenues generated by their own games, such a situation exists.
The analysis of this issue is tricky, however, since decisions about how to allocate broadcasting revenues are made by the league. It may be that “member clubs of a league do not have any legitimate independent economic interests in the league product” and “each team has an ownership interest in every game” (including an equal a priori ownership interest in the broadcast rights to every game). Sports Leagues Revisited at 135-36. If this assumption is correct, then whatever arrangements for revenue distribution the league decides to make will be, like bonuses to successful salespeople in an ordinary firm, presumptively efficient. If, however, broadcast rights inure initially to the two teams participating in a particular game and if, as is certainly the case, some games are more attractive to fans than others, the league cannot be presumed to have made decisions allocating those broadcast revenues efficiently.
The analogy, within the context of an ordinary firm, is to allow the salespeople to vote on the bonuses each is to get. Each salesperson has some incentive, of course, to promote the overall efficiency of the firm on which his or her salary, or perhaps the value of his or her firm stock, depends and therefore to award the larger bonuses to the most productive salespersons. However, in this scenario each salesperson has two ways of maximizing personal wealth — increasing the overall efficiency of the firm and redistributing income within the firm.3 The result of *605the vote might not be to distribute bonuses in the most efficient fashion. The potential for this type of inefficiency is particularly great when, as with the NBA, the league is “the only game in town” so that a team does not have the option of going elsewhere if it is not receiving revenues commensurate with its contribution to the overall league product.4 In any event, a group of team owners who do not share all revenues from all games might well make decisions that do not maximize the profit of the league as a whole.5
As this discussion demonstrates, determining whether the potential for inefficient decisionmaking survives within a joint venture because of the independent economic interests of the partners is extraordinarily complex and confusing. For this reason, a simple, if not courageous, way out of the problem might be to establish a legal presumption that a single entity cannot exist without single ownership. To avoid the complexities and confusions of attempted analysis, one might simply ordain that combinations that lack diverse economic interests should opt for joint ownership of a single enterprise to avoid antitrust problems. On the other hand, judges may want to play economist to the extent of resisting simplifying assumptions.
In any event, sports leagues argue that they must maintain independent ownership of the teams because separate ownership enhances the appearance of competitiveness demanded by fans. But the leagues cannot really expect the courts to aid them in convincing consumers that competition exists if it really does not. If consumers want economic competition between sports teams, then independent ownership and preservation of independent economic interests is likely an efficient choice for a sports league. But that choice, as with other joint ventures, brings with it the attendant antitrust risks. The NBA cannot have it both ways.
Relating all of this to the majority’s treatment of the single entity issue, I see two problems with the majority analysis. First, as already noted, divorcing the question of single entity from the question of ownership is likely to lead to messy and inconsistent application of antitrust law. The bottom line may be that the inquiry into whether separate economic interests are maintained by the participants in a joint enterprise is likely to be no easier than a full Rule of Reason analysis.
Second, some of the majority’s discussion of independent interests is puzzling. The majority contends that the district court “concluded that all cooperation among separately incorporated firms is forbidden by § 1 of the Sherman Act, except to the extent Copperweld permits.” Maj. Op. at 598, citing Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771, 104 S.Ct. 2731, 2741-42, 81 L.Ed.2d 628 (1984). Copperweld concluded that a parent corporation and its wholly-owned subsidiary have a “complete unity of interest” and hence should be treat*606ed as a single entity. Here the district court simply concluded that the NBA, because it involved cooperation between separately-owned teams, was subject to antitrust analysis. Dist.Ct. Findings of Fact, Conclusions of Law and Opinion, NBA App. at 34a. This conclusion is a far cry from deciding that all cooperation among separately incorporated firms is, forbidden.
I also cannot agree with the majority’s analysis of the type of “unity of interest” required for single entity status. The majority states, Maj. Op. at 598, that “[e]ven a single firm contains many competing interests.” The opinion goes on to cite the competition for salary and bonuses between division managers as an example. However, when Copperweld talks about unity of interests in the single entity context, I think it must be taken to mean unity of economic interests of the decisionmakers. See Copperweld, 467 U.S. at 769, 104 S.Ct. at 2740-41. A single firm does not evidence diverse economic interests to the outside world because final decisions are made by the owners or stockholders, who care only about the overall performance of the firm. Only because this is the case can single firms be assumed to behave in the canonical profit-maximizing fashion. The diverse interests mentioned in the majority opinion seem as irrelevant to the antitrust analysis as is the on-court rivalry between teams in the NBA.
Thus, when Copperweld refers to conduct that “deprives the marketplace of the independent centers of decisionmaking that competition assumes,” it does not refer to “deci-sionmakers” whose economic independence is only potential. The antitrust issue is really whether, as a result of some cooperative venture, economic interests which remain independent coordinate their decisions. As Copperweld notes, “[t]he officers of a single firm are not separate economic actors pursuing separate economic interests....” Id. Therefore, their joint decisionmaking is of no antitrust concern. Employees or divisions within a firm, on the other hand, may remain separate economic actors pursuing separate economic interests but they do not make the final decisions governing the firm’s operations. They may compete for shares of the firm’s revenues, but they do not decree how that revenue will be shared. Thus their conflict or cooperation does not pose antitrust issues either. Joint ventures, on the other hand, are subject to antitrust scrutiny precisely because separate economic interests are joined in decisionmaking, with the potential for distorted results.
As long as teams are individually owned and revenue is not shared in fixed proportion, the teams both retain independent economic interests and make decisions in concert. Where this is the case, there is a strong argument that sports leagues should be treated as joint ventures rather than single entities because there remains a potential that league policy will be made to satisfy the independent economic interests of some group of teams, rather than to maximize the overall performance of the league. Thus, it is possible, if more Bulls games were broadcast, league profits might increase. But, if the revenue from the broadcast of Bulls games goes disproportionately to the Bulls, the other league members may not vote for this more efficient result.
There may, of course, be cases in which independent ownership of the partners in a joint venture does not pose any real possibility of inefficient decisionmaking. This would be the case if the parties did not compete in any other arena and if all revenues were shared in fixed proportions among the partners. In general, however, a plausible case can be made for the proposition that independent ownership should presumptively preclude treatment as a single entity. This certainly does not mean, of course, that “all cooperation among separately incorporated firms is forbidden by § 1 of the Sherman Act,” Maj. Op. at 598. It would mean only that such cooperation must ordinarily be justified under the Rule of Reason. Justification might not be more difficult than the elusive search for treatment as a single entity-

. See, e.g., Michael S. Jacobs, Professional Sports Leagues, Antitrust and the Single-Entity Theory: a Defense of the Status Quo, 67 Ind.L.J. 25 (1991); Gary R. Roberts, The Antitrust Status of Sports Leagues Revisited, 64 Tul.L.Rev. 117 (1989); Myron C. Grauer, The Use and Misuse of the Term "Consumer Welfare”: Once More to the Mat on the Issue of Single Entity Status for Sports Leagues Under Section 1 of the Sherman Act, 64 Tul.L.Rev. 71 (1989); Lee Goldman, Sports, Antitrust, and the Single Entity Theory, 63 Tul.L.Rev. 751 (1989); Gary R. Roberts, Sports Leagues and the Sherman Act: The Use and Abuse of Section I to Regulate Restraints on Intraleague Rivalry, 32 UCLA L.Rev. 219 (1984), for discussions of this issue.

. But the Green Bay Packers and the Chicago Bears played, presumably before enthusiastic crowds, before there was a National Football League.

. Those favoring the single entity treatment of sports leagues frequently compare them to law firms, making the argument that sports leagues are like law firms, law firms are single entities, therefore sports leagues are single entities. See, e.g., Myron C. Grauer, Recognition of the National Football League as a Single Entity Under Section 1 of the Sherman Act: Implications of the Consumer Welfare Model, 82 Mich.L.Rev. 1, 23-35 (1983); Maj. Op. at 597-98. This argument is only valid, however, if law firms should be treated as single entities. If law firms do, in fact, have some of the same potential for inefficiencies as sports leagues because of the diverse economic interests of the partners, the economically correct solution is still to treat sports leagues as joint ventures. A mere analogy to law firms is not convincingly invoked by those seeking to defend their arguments on purely economic (rather than precedential) grounds.
*605Applying the same logic in reverse, there is considerable precedent for treating sports leagues as joint ventures. Nat'l Collegiate Athletic Assoc. v. Bd. of Regents of the Univ. of Oklahoma, 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984); Sullivan v. National Football League, 34 F.3d 1091, 1099 (1st Cir. 1994), cert. denied, - U.S. -, 115 S.Ct. 1252, 131 L.Ed.2d 133 (1995); Los Angeles Memorial Coliseum Comm’n v. National Football League, 726 F.2d 1381, 1388-90 (9th Cir.1984), cert. denied, 469 U.S. 990, 105 S.Ct. 397, 83 L.Ed.2d 331 (1984); North American Soccer League v. NFL, 670 F.2d 1249, 1252 (2d Cir.1982), cert. denied, 459 U.S. 1074, 103 S.Ct. 499, 74 L.Ed.2d 639 (1982); Smith v. Pro Football, Inc., 593 F.2d 1173, 1179 (D.C.Cir.1978); Levin v. National Basketball Ass’n, 385 F.Supp. 149, 150 (S.D.N.Y.1974). Therefore, one might equally well argue that sports leagues have never been treated as single entities and, to the extent that law firms are like them, law firms should not be treated as single entities either.

. The hypothetical example of a team taking its broadcast rights elsewhere does seem to suggest, however, that broadcast rights are at bottom the property of the teams participating in a given game. Indeed, if the team does not own the broadcast rights to the games in which it participates, it is hard to understand what it means to own a team at all.

. See Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 Colum.Bus.L.Rev. 1 (1995), for a general discussion of the ways in which joint ventures can act inefficiently either by excluding members (or, here perhaps, over-including members) or by excluding products (superstation broadcasts, perhaps?).