By: Elliot Hangos
If you are reading this right now, I would like to try an experiment. Go onto Google and search for any NFL or MLB team as if you were looking to buy a jersey. Notice the amount of scrolling you have to do before you find any link that does not direct you to MLB Shop or NFL Shop, which are both owned and operated by Fanatics.
Fanatics, Inc., designed to be a one-stop shop for sports fans, has developed a significant supply chain through amassing licensing deals with all of the major professional sports properties, giving them the ability to welcome any interested sports fan, from any sport, through their e-commerce’s front-doors. As such, this near-domination of the market prompted Casey’s Distributing, Inc. (“Casey’s”), which is a licensed distributor for many of the same major sports properties as Fanatics, to raise claims that the NFL, MLB, Fanatics, and other actors within the industry, have violated the Sherman Antitrust Laws by conspiring to lock-out small businesses and third-party online marketplaces.
Every year, consumers spend billions of dollars on licensed sportswear products. In order to compete in a billion-dollar industry, you must be big, and Fanatics is just that. They are the manufacturer, wholesaler, distributor, and retailer, which not only holds the MLB and NFL’s license to distribute their team’s products, but also holds a three-way exclusive licensing deal with both leagues, as well as Nike, to be the exclusive manufacturer of all Nike-branded merchandise.
Fanatics’ public perception is propped up by the legacy and goodwill of the household names that have played for the MLB and the NFL since their beginnings. Fanatics’ ability to smear its name across the first page search results of Google is impressive when taking into account the competition from market giants—Amazon and Walmart—for that same screen space. So, this begs the question: What are Fanatics’ barriers to keep out competition, and are they legal?
Analyzing Casey’s alleged antitrust violations requires an overview of how this claim will proceed in the courts. The NFL and MLB have long held the title of operating as natural cartels, as they are single entities, comprised of many sub-entities. Both leagues have antitrust immunity when negotiating major broadcasting deals because Congress allows the leagues to bind themselves with all of their respective sub-entities, therefore, allowing them to dramatically increase their financial value. As U.S. antitrust laws currently operate, the most straightforward avenue to challenge the NFL or MLB’s allegedly overexpansive licensing deals is through Sections 1 or 2 of the Sherman Act. The Sherman Act’s purpose is to prohibit monopolies and protect competition.
Casey’s complaint, filed in the New York District Court, alleges that the conduct of the NFL, MLB, and Fanatics is a per se violation of both Section 1 & Section 2 of the Sherman Act. In essence, Plaintiff alleges that Defendants have entered into and are engaging in an illegal conspiracy to control the prices of their products, which in turn, unlawfully restricts competition between online retailers of MLB and NFL Licensed Products on third-party online markets, such as Amazon. The Defendants’ conspiracy to monopolize is evidenced by a phone call conversation between Casey’s and one of their distributees, a competitor with Fanatics at the time, that disclosed the Defendant’s establishment of compliance trackers. These compliance trackers allowed the Defendants to monitor the number of products and established sellers on Amazon. Some of the specific illegal tactics alleged include acquiring the exclusive rights to design, manufacture, and distribute all Nike MLB fan gear. In addition, both Defendants updated their licensing policies. By granting themselves the power to restrict which third-party sellers could sell on Amazon, they were able to, over time, decrease competition and control prices. All of the NFL and MLB teams separately own their trademarks, yet they all jointly contract their licensing deals, which disrupts competition.
To more clearly grasp the online sports retail market, it is helpful to look at the NFL’s control and their historical contractual relationship with Fanatics. In 2017, Fanatics paid around $225 million to acquire the sports apparel maker Majestic, allowing them to expand their involvement in the supply chain. The following year, in 2018, the NFL and Nike inked an 8-year deal making Nike responsible for suiting up all 32 teams with gameday uniforms and other team apparel. And in that same year, Nike, along with the NFL, formed a licensing deal formalizing Fanatics as the exclusive manufacturer and distributor of all Nike-branded merchandise. The MLB and Fanatics made similar deals and Casey’s alleges the same claims in the separate lawsuit. This begs the next question: why is Casey suing the leagues separately?
The NFL and MLB are big, profitable engines. And when you produce not only income, but entertainment, you are especially valued. For antitrust purposes, the NFL and MLB want to be considered single entities, representing all their respective teams under one umbrella, which would exempt them for purposes of Section 1 of the Sherman Act, as opposed to being considered separate entities.
A landmark 1922 Supreme Court decision for the MLB, referenced as Federal Baseball, found that the alleged antitrust claims against the MLB, and all of its clubs, were exempt from antitrust lawsuits. The Federal League, which was formed to provide competition for the National and American Leagues of baseball which already existed, was troubled by an MLB mandate in 1922 preventing the Federal League from acquiring enough high-quality players to adequately compete with MLB teams. The Federal League alleged that the MLB, and its teams, conspired to monopolize baseball by inducing players to leave the Federal League, effectively destroying their ability to compete. In Justice Holmes’ majority opinion, he did not find the business of baseball to be “trade or commerce,” because the game of baseball is not interstate trade or commerce, it necessarily takes place in one spot. Therefore, any legal action against the business of baseball—specifically, the MLB—is not subject to the Sherman Act. More recently, the 2010 U.S. Supreme Court case, American Needle, Inc. v. Nat’l Football League, limited the NFL’s antitrust exemption by allowing apparel-maker American Needle to proceed with its antitrust claim that the NFL conspired with its 32 teams to restrain trade.
With all that being said and history on their side, the NFL and MLB’s shell of immunity has been cracked by recent case decisions supporting the argument that antitrust exemptions likely will not extend to sports merchandise. Further, there is market research evidence to support Casey’s allegations. On the other hand, the Supreme Courts’ ruling in American Needle, which viewed the MLB and the NFL as separate from their 30 or 32 individual teams, is an example of courts fairly adapting these sports behemoths’ vulnerability to antitrust lawsuits. The NFL’s claims that its exemption to antitrust lawsuits is generated from the popularity and growth of NFL football, as antitrust lawsuits “[chill] competitive zeal,” suggests their belief that the licensing deal with Fanatics is beneficial for all parties involved, as the focus should primarily be on the expansion and quality of consumer choice. We will have to stay tuned to see how Casey’s complaint fairs.
Student Bio: Elliot Hangos is a second-year law student at Suffolk University Law School. He is a staffer on the Journal of High Technology Law and is pursuing an LL.M. in Taxation. Elliot received a Bachelor of Business Administration in Sports Management and Marketing from the George Washington University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
