No Trust And No Antitrust In CBA

August 2, 2004
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GRAND RAPIDS — Officials from the National Hockey League and their counterparts from the NHL Players Association meet Wednesday to hammer out a new collective bargaining agreement and to avert a possible work stoppage — most likely a lockout — that threatens the upcoming season.

Both sides last met for four hours on July 21, their first official gathering concerning the CBA that will expire on Sept. 15. But throughout the unofficial discussions between NHL Commissioner Gary Bettman and NHLPA Executive Director Bob Goodenow, largely voiced in media accounts the past year, neither has exhibited any trust.

And apparently there is no antitrust involved, either.

Bettman has repeatedly said owners need “cost certainty,” a term most have interpreted as meaning a salary cap, and has called for a payroll ceiling of roughly $35 million for each team. After the July meeting, NHL Executive Vice President Bill Daly said he offered “six different concepts for a new system” to the union, without disclosing any details. All Daly would say was all six meet the league’s goal and that several included a salary cap.

Some feel a salary cap means restraint of trade, as it limits the salary a player could earn while plying his trade in a free market system, and violates the Sherman Antitrust Act.

But that’s not always the case. It is illegal if a cap is arbitrarily imposed. But it isn’t if it comes out of a CBA.

“If you look at how the pro sports leagues work, almost everything they do is a classic restraint of trade,” said Brian Masternak, a partner and antitrust attorney at Warner Norcross & Judd. “But because a salary cap would be arrived at as a result of collective bargaining between the players’ union and the NHL, that is exempt from antitrust scrutiny.”

A collective bargaining exception to the antitrust law allows pro sports leagues to operate freely as long as both sides agree to any restraint measure.

Major League Baseball, of course, is exempt from the Sherman Act and is a legal monopoly. The National Football League and National Basketball Association, like the NHL, aren’t excluded from the act. Both have different forms of salary caps and some consider these to be “soft.” In one, the cap figure can change. In the other, there is “room” under the cap.

If a player re-signs with his NBA team and gets a raise, the additional dollars that are added to the franchise’s payroll come under the cap and don’t count against the figure. So NBA teams can go over their cap figure, which, for them, is a soft number.

The cap for each NFL team is based on the league’s total revenue from the previous season. When the revenue changes, so does the salary cap. That change, however, isn’t enough to make it a soft cap.

“The NFL is the classic paradigm of the hard cap. It’s hard for the year that it’s in. Next year there may be a different hard cap because revenues may escalate the entire pool that will be available to be distributed throughout the entire league,” said Masternak.

“But that doesn’t mean that individual teams have the right to exceed their cap allocation, like they do in the NBA.”

But it makes no difference whether a cap is soft, like in the NBA, or hard, as in the NFL and as Bettman has proposed for hockey. Neither violates the antitrust law because both are the result of collective bargaining.

“Any kind of a salary cap would be a restraint on trade, but for the collective bargaining exception,” said Masternak.

Maurice Clarett made the most recent antitrust challenge to pro sports. The former Ohio State University running back, who had a great season as a freshman but was suspended by the school for National Collegiate Athletic Association violations as a sophomore, argued the NFL rule that prohibits teams from drafting players until they are three years removed from high school amounted to an illegal restraint of trade that kept him from declaring for the April draft.

The NFL countered that the rule emerged as part of the CBA the league reached with the union in 1990 and it didn’t breach the Sherman Act.

In February, a U.S. district judge ruled in Clarett’s favor, saying the NFL failed to show that the rule enhances competition. Instead, the judge said the rule excluded him from that competition, accomplishing exactly what the law was designed to prevent.

But in April the Second U.S. Circuit Court of Appeals blocked that ruling, agreed with the NFL’s position, and barred Clarett from entering the draft. One of the three justices went as far as to say that a union excludes people on a daily basis to protect its members.

“Even though on its face it appears to be a naked restraint of trade, the rule is in the players’ contract,” said Masternak, a Harvard Law School graduate. “The contract was negotiated between the league and the players’ association, so it’s OK.”

The importance of collective bargaining in relation to antitrust law was highlighted a few years back when the NCAA imposed a cap on assistant coaches. The regulating body saw its action as a way to control rising costs in athletic programs and to reduce the stress some schools feel in serving as sort of a minor league for pro teams.

“That was overturned on antitrust grounds. It was found to be a violation of the Sherman Act because it wasn’t a negotiated deal. It was just something the NCAA tried to impose on its member institutions from on high,” said Masternak.

“But in the case of the sports leagues, where you have collective bargaining agreements, it just doesn’t play out the same way.”

The soon-to-expire NHL CBA was initially a six-year agreement that came about in the 1994-95 season after the owners locked out the players for four months. In 1997, the league and the union extended it for four more years.

Bettman wants a cap for the new CBA because NHL figures show player salaries now consume 75 percent of all operating revenues, roughly 25 percent more than in the three other major sports. On top of that, a study commissioned by the league revealed that NHL owners lost $273 million two seasons ago with 19 of the 30 franchises knee-deep in red ink that year.

The NHLPA’s Goodenow, however, disputes the league’s numbers, saying they didn’t include all the revenue sources that owners have. He has consistently said the union will never accept a cap and that he wants an agreement based on free-market economics.

If an agreement can’t be reached because the league insists on a cap, Masternak said the union would have to look elsewhere than to the Sherman Act for legal relief.

“There may be some labor issues that they could raise, but not antitrust ones.”

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