What American Needle v. NFL Could Mean for Gamers

Today, the Supreme Court of the United States is scheduled to hear American Needle v. NFL, a case that has the potential to significantly alter the way in which all professional sports teams conduct business.  So, what does this have to do with video games?  For starters, an unfavorable ruling for the NFL could put an end to EA’s exclusive NFL license, which would allow competing developers (read: 2K Games) to offer games featuring NFL teams for the first time since 2004.

The facts of the case are as follows:

In 2002, NFL Properties (“NFLP”), the business responsible for controlling all NFL licensing contracts, signed a ten-year exclusivity agreement granting Reebok the sole right to manufacture officially licensed NFL apparel.  American Needle, an apparel manufacturer that held a non-exclusive license to produce NFL apparel for nearly three decades, argued that the NFL’s exclusive agreement with Reebok is a violation of federal antitrust law, specifically Section 1 of the Sherman Antitrust Act.

While private companies are typically allowed to engage in exclusive licensing agreements without violating the Sherman Act, Section 1 of the Act forbids competitors to conspire in order to limit competition or harm consumers.  Because the NFL consists of 32 privately-owned, competitive teams and NFL Properties is equally owned by all 32 teams, American Needle argues that the Reebok exclusivity contract constitutes an agreement between the NFL teams to limit competition and harm consumers in violation of the Sherman Act.

American Needle argues that the Reebok/NFLP agreement limits competition by preventing apparel manufacturers from negotiating with individual NFL teams for the right to produce branded apparel and, as a result of exclusivity in apparel markets, allows Reebok to charge higher prices than it could with adequate competition.  Anyone who has ever paid $100+ for a polyester Bears jersey has surely felt the effects of exclusivity agreements.

Aside from merely harming consumers through increased prices, the Sherman Act is also designed to prevent competitors from conspiring to limit consumer choice, which American Needle argues is a major concern when there is only one apparel supplier.

In response, the NFL argues that it is, despite being composed of separate and competitive teams, a “single entity” for purposes of antitrust law.  As a single entity, the NFL cannot possibly conspire with itself nor can it limit competition because it is, quite literally, the only game in town.

Both the district court and Seventh Circuit Court of Appeals opined that the NFL is a single entity for purposes of antitrust law, but I would tend to disagree with their decision.  A 1984 Supreme Court opinion held that only parent companies and their wholly-owned subsidiaries qualify as single entities, which certainly doesn’t apply to the structure of the NFL or NFLP.  While there are a number of good reasons to maintain the NFL’s current licensing arrangements, it does not seem to me that the long history of competition between NFL teams–including ticket sales and media rights–supports the idea that the NFL should be considered a single entity.

While the effects of the Court’s decision will be far-reaching, the primary concern for gamers will be over existing licensing arrangements for sports games.  If the NFL loses the case, EA could lose its current position as the exclusive publisher of NFL-licensed games.  Furthermore, the ways in which future game licensing agreements are negotiated would be forever changed.  Rather than appealing to a single business or organization, such as the NFLP, publishers would be able to negotiate with individual teams.  While this could lead to more competition in the sports gaming markets, it could also lead to really wonky arrangements–imagine EA releasing an NFL game with 20 NFL teams and a dozen or so fantasy teams to round out the roster while 2K releases a game with the 12 NFL teams missing from EA’s game and a handful of its own fantasy teams.  However, it’s also very likely that publishers would have no trouble securing the rights to each individual team for their games.

In another interesting scenario, publishers could consider the cost to license individual marks and opt only to enter into agreements with the teams that seemed economically “worth it.”  After all, it is possible that a publisher does not derive as much value from including the Lions in their game as they do from including the Packers.  While the Madden franchise will certainly continue to include the full “NFL experience,” it’s likely that another publisher may want to take advantage of individual licensing agreements to create a scaled-back football experience that only includes top teams.

With the American Needle decision potentially affecting the NFL, NBA, and NHL (among others), gamers may soon be seeing some big changes in a significant portion of the industry.