NEW YORK (AdAge.com) -- Lucrative marketing and licensing deals between apparel makers and professional sports leagues could forever change in the wake of yesterday's Supreme Court decision that an antitrust lawsuit against the National Football League can go forward.
In one of the most important -- and potentially landmark -- sports law cases in years, the high court ruled in a 9-0 decision that the NFL was not a single business and is not immune from antitrust laws, and that the league should be considered an umbrella organization that consists of 32 separate teams -- not unlike an ad agency holding company.
Justice John Paul Stevens, writing for the court, said, "Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that 'deprive the marketplace of independent centers of decision making,' and therefore of actual or potential competition."
The ruling paves the way for a high-profile lawsuit filed by American Needle against the NFL to continue in lower court. American Needle, Buffalo Grove, Ill., was once an apparel maker of branded hats for NFL teams, but was dumped when the league signed a 10-year, $2 billion deal with Reebok in 2002 to become the exclusive manufacturer of NFL apparel. American Needle sued the NFL, claiming a monopoly was created with the Reebok deal that violated antitrust laws.
Possible licensing changes ahead
If American Needle is successful when the case goes to trial in federal court in Chicago, "expect to see changes in licensing and marketing relationships by the leagues," said Robert Boland, sports marketing professor at New York University and a former antitrust lawyer.
In that instance, individual franchises would have more control of their own marketing, particularly with apparel. Several years ago, the Dallas Cowboys tried to cut its own separate apparel deal with Nike but was shot down by the NFL.
"This potentially could open up the pool for more brands to come in. If American Needle wins, then the teams are not bound to group licensing," said New York-based sports marketing expert Joe Favorito. "It gives local teams the ability to sell their own kind of deals. If [Maryland-based] Under Armour wanted to come in and give $20 million to the Baltimore Ravens to be their official apparel supplier, and it was a bigger slice of the pie than the Ravens were getting from the league's overall apparel deal with Reebok, the Ravens could do the deal with Under Armour."
Of course, if that happens, the trend of "the rich get richer" could continue to benefit large-market teams.
"The question is, what will somebody like a Nike do if American Needle wins the case and apparel manufacturers can cut deals directly with teams?" Mr. Favorito asks. "Would Nike spend their money on every team, or will they cherry-pick, like Bank of America, and just spend their money in certain markets?"
"It's really going to depend upon league members and what they believe is the best option," said Harvey Schiller, the former president of Turner Sports and former executive director of the U.S. Olympic Committee. "My experience with the USOC is that in some sports, the participants were asked to assign their rights to the organization to market them collectively.
Can be 'better for the common good'
"Not everybody likes that, but sometimes it's better for the common good," Mr. Schiller said. "The danger I see here is when you have one participating club or team that has greater popularity with the public, or is located in a larger population base. That's not good for the rest of the league's teams."
The Supreme Court did not rule on whether the NFL actually violated antitrust law. That will come at the trial in federal court in Chicago. For now, the Supreme Court decision denied the NFL's argument that it was a single entity and immune from antitrust law.
Reebok referred inquiries to the NFL. The league released a statement in which it said that "[We] remain confident we will ultimately prevail because the league decision about how best to promote the NFL was reasonable, pro-competitive, and entirely lawful."
The NFL argued that it deserved antitrust exemption just as Major League Baseball enjoys -- the only pro sports league protected by antitrust exemption in a ruling that goes back to 1922 -- and the National Basketball Association, the National Hockey League, the National Collegiate Athletic Association, Nascar, professional tennis and Major League Soccer all backed the NFL in its case, hoping to also gain antitrust protection.
"This decision will embolden other manufacturers denied continuing licenses with pro sports leagues to sue and maybe win," Mr. Boland said. "I would expect leagues will be careful about bidding out contracts, and every league will give some analysis to how they manage their exclusive licensing contracts and whether they are passing antitrust muster in their procedures -- and maybe letting more bidders in -- and the leagues refraining from throwing their weight around as much before."