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Court backs 'single entity' MLS ruling boosts XFL, other fledgling leagues
Posted: Friday May 05, 2000 06:35 PM
BOSTON (AP) -- The XFL is planning to open next year with smashmouth action and in-your-face access. But one aspect of the World Wrestling Federation's new football league will be more subdued than the NFL, and just about every other established league, too: There will be no renegade owners stalking the sidelines as Al Davis and Jerry Jones do, because, like most new leagues these days, the XFL really won't have owners. Teams in the XFL will be controlled by the league office, a "single-entity" structure that keeps player salaries down without running afoul of the antitrust laws. A similar arrangement in Major League Soccer recently was blessed by a federal judge when he threw out the bulk of a players' lawsuit, a decision that cleared the way for other single-entity leagues like the XFL, WNBA, CBA and a new women's soccer league, WUSA. "The fact that this ruling is out there will only provide encouragement for leagues to do this," said Andrew Zimbalist, a Smith College professor and author of several books on the business of sports. "But it's going to be challenged." Although it's too early to tell how the changing face of the leagues will affect the sports themselves -- other than by keeping any budding Steinbrenners, Schotts or Reinsdorfs at bay -- legal experts question whether the trend towards single entity leagues is good for the fans. "The reason owners have organized in this way is to keep player salaries down. The question is: Is this structure conducive to putting the best product on the field?" asked Steve Ross, a University of Illinois law professor who teaches sports and the law. "There is an argument that organizing as a single entity does not result in the best quality product on the field." The Sherman Antitrust Act was passed by Congress in 1890 to ban "every combination ... in restraint of trade." For most sports -- the exception being baseball, which was exempted early on -- that keeps owners from acting in concert to deflate player salaries or from conspiring to put out a cheaper, second-rate product. In 1984, the U.S. Supreme Court ruled that the Sherman Act's prohibition against collusion applies only to distinct businesses, and not, for example, to a corporation and its wholly owned subsidiary. The test, the court said, is whether the cooperating parties are "separate business entities whose products have an independent value." Existing sports leagues have tried since then to convince judges that they meet the single-entity test, arguing that their teams are merely franchises in the service of the central office. Although they have had little success, their efforts encouraged new leagues to tailor their structure to avoid the antitrust burden. MLS formed in 1996 with a collection of investor-operators who didn't have their own teams but instead held a share of the league. They were entrusted with a franchise to run and given some autonomy over it, but most player allocation and some other decisions were made at the league office. In 1997, a group of players filed a lawsuit in Boston arguing that the single-entity structure was a sham designed to keep player salaries down. District Judge George O'Toole disagreed. "Game competition, without a doubt, is part of the league's entertainment product, not an indicator of divergent economic interests among operators," O'Toole wrote in throwing out the crux of the lawsuit. "MLS is what it is. As a single entity, it cannot conspire or combine with its investors ... and its investors do not combine or conspire with each other in pursuing the economic interests of the entity." Both Zimbalist and Ross questioned O'Toole's decision, noting that MLS investor-operators profit based on the success of their teams and have some control over their rosters. Even if O'Toole's decision is upheld on appeal, though, Zimbalist said it might be a mistake for leagues to look at the single-entity structure as the key to success. With salaries artificially deflated, players could choose to play in leagues in other countries. And, if fans believe that the league is manipulating team rosters for business reasons, they could choose to go elsewhere, too. "Fans must have faith in the integrity of the competition or they will lose interest. That integrity is provided by owners trying to put the best team on the field and putting their pocketbook on the line," Zimbalist said. "Even if the legal system says this is OK, it's not clear that it is the formula for success." That's one reason why the existing major leagues aren't expected to follow this trend. The other reason gets back to the reason why George Steinbrenner and Al Davis got into sports in the first place. "If Jerry Reinsdorf wants to be a mere employee of Bud Selig, baseball could be a single entity. But most owners are not interested in being a division manager," Ross said. "There's ego involved."
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