The Impact of American Needle v. NFL on Sports Apparel Industry

Daniel Walsh of the Advertising Specialty Institute has a very thoughtful and comprehensive article on the litigation background of American Needle v. NFL and the impact of the decision on the sports apparel industry. The nearly 2,000 word article titled, "Reversing Field," is unique because it looks at the decision partly from the vantage point of the sports apparel industry, as opposed to offering solely an antitrust or sports business perspective. Here is an excerpt:

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Then came the 1980s and a fashion explosion. Sports caps and jerseys became hugely popular, thanks to fashion tastes and the rise of sports on cable television. “It just became a major, major thing,” [Jeff] Carey [American Needle's in-house counsel] says. “Sales went through the roof. We grew accordingly.”

So did others. New businesses jumped into the mix, and the sports leagues gave out licenses to more and more producers. Licensed merchandise flooded the market. The increased supply and competition drove down prices. In turn, that decreased NFL royalties from the sales, Carey says.

It also created “chaos,” according to Matt Powell, an analyst with SportsOneSource, which follows the sporting goods industry. Different firms would make products of varying quality, some better than others, Powell says. “The league really realized that this was a failed business concept,” he says. “Let’s put aside the legal side for a moment. This just wasn’t working, and the league had to do something about it.”

NFL owners voted in 2000 to move toward exclusive licenses, an increasingly common trend in licensing. Among the exclusive licensees was Reebok, which claimed the hat contract at American Needle’s expense After that move, NFL hat prices rose $10. “I remember American Needle had this huge catalog in like 2000,” says Dave Weintraub, chief operating officer of Pinnacle Promotions in Atlanta. “It was just beautiful. It was like 150 pages. Then they just fell off the map.”

License to Succeed?

Licensing is often the first and last word when it comes to professional sports merchandise. “You’re in with a license situation, or you’re not,” says Bob DeMasse, co-owner of Colorado-based APC, which once held exclusive promotional product licenses for the NBA’s Denver Nuggets, NHL’s Colorado Avalanche and Colorado Rapids of Major League Soccer. “You’re obviously a major player if you’re in, but if you’re not, there obviously are no options.”

But, while licensing may seem like a golden ticket for a few lucky distributors, it can also be a millstone. For one, some leagues offer preferred-bidder status to companies that make up-front payments. Preferred status allows distributors, for example, to be 5% higher than the next closest bid and still win the contract. The problem is those up-front fees can run into the tens or hundreds of thousands of dollars, depending on the size of the contract being pursued. These fees and licenses can outweigh almost everything else.

Tim Lavin thought his NFL ties would help secure business for his company, Mad Dog Promotional Products. The former University of Southern California starting fullback had handled security for the NFL’s San Francisco 49ers and Oakland Raiders, as well as the Golden State Warriors of the National Basketball Association, so he had the contacts. As it turns out, it wasn’t enough.

“The tricky part is, even if you had $200,000 to shell out, I find with so many people involved, there’s heavy bidding,” Lavin says. “Your profit margin is so low to begin with that we’d be lucky to get a 10% to 15% markup. Then if you’re paying 8% to 9% to the NFL, the profit margin is very low.”

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To read the rest, click here.

This Day in Sports Law: The Cubs say "Let There Be Light"

Today, August 8, is the 22d anniversary of the first night game at Wrigley Field, between the Cubs and the Phillies. Or at least the first attempted night game. Play was called because of rain after 3 1/2 innings--which many took as a sign from God--and the first official game was played the following evening, against the Mets. So the date still is appropriate, even if you do not read this until tomorrow.

This is an appropriate part of our "This Day in Sports Law" series, since the whole thing occurred in the shadow of zoning and land-use wrangling, primarily between the residents of Wrigleyville (supported by state and local government) and the Cubs and Major League Baseball. The Cubs began pushing for lights in the early 1980s, even threatening to leave Wrigley. In 1984, MLB Commissioner Peter Uebberoth threatened that if the Cubs made the World Series, their home games would be move to Busch Stadium (a threat that became moot when the Cubs gagged a 2-0 NLCS lead to San Diego). The City Council dug in, initially passing an ordinance that effectively banned night baseball in Chicago (grandfathering in Comiskey Park); the Illinois General Assembly did the same. The controversy even worked its way into an underrated Chicago movie, Nothing in Common, where Tom Hanks is approached to sign a "No Lights at Wrigley" petition and Hanks says he already signed.

The City finally relented, agreeing to a maximum of 18 night games each season, none on Fridays or Saturdays, with sharp restrictions on street parking to push people into paid lots or onto the El. The numerical limit has been played with--the Cubs play 28 night home games this year, although the Friday/Saturday restriction remains in place (most of the night games are Mondays and Tuesdays, when the team returns from a road trip).

I began going to Wrigley regularly during college, after lights had been installed, so I missed the great debate. But I always have enjoyed night games there (I should add that I have an aerial photograph from this night hanging in my office). They did a wonderful job in designing the lighting system. They used wide, low rows of lights rather than tall towers. And the lights sit atop the park roof, which only extends (basically) foul line to foul line, so there are no lights behind the outfield or directly behind home plate. This gives the place a unique glow--almost like a municipal park.

The park also plays very differently at night, especially in spring and fall--the cold weather means the wind blows in and it plays like a pitcher's ballpark.

Should NCAA Allow Isiah Thomas to be a college head coach and a consultant to an NBA team?

Jeff Eisenberg of Rivals.com has a very interesting piece on the New York Knicks hiring of its former head coach and president of basketball operations, Isiah Thomas, to be a consultant to the team. Thomas, who was fired by the Knicks in 2008, is currently the head coach of Florida International University's men's basketball team.

Here are some excerpts from Eisenberg's piece, which details the potential conflicts of interest:

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At a time when Boise State coaches can't even offer condolences to the family of a deceased recruit without facing NCAA punishment, the organization apparently sees no competitive advantage in a coach receiving a paycheck from an NBA team. The NCAA says it won't step in to prevent Thomas from working for the Knicks even though the franchise admitted in a press release on Friday that one of Thomas' duties will be "player recruitment."

Under this unique arrangement, Thomas would be in position to promise potential top recruits that he'll recommend them to the Knicks if they agree to play for him at FIU. Furthermore, he'll have the chance to advise FIU players whether or not to leave school early, a potential violation of NBA rules that forbid league personnel from having contact with players who haven't formally entered the draft.

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NCAA spokeswoman Jennifer Royer e-mailed the following statement on Friday when asked whether her organization had any concerns about Thomas' arrangement.

"According to an official interpretation on June 6, 2001, NCAA member institutions are provided the discretion to establish their own policies regarding employment and income arrangements between their athletics department staff members and professional sports organizations. An NCAA coach must, however, still comply with NCAA bylaws as they relate to the recruitment of prospects and the scouting of opponents."

What the NCAA may be doing by taking that stance is opening another loophole for coaches to exploit. If Thomas' consulting role with the Knicks helps FIU secure an extra recruit or two, how long will it take Bruce Pearl to ask for a similar role with the Memphis Grizzlies or Billy Donovan to hire a Miami Heat scout as his director of basketball operations?

Amazingly enough, the NBA may end up being the organization that forces Thomas to choose between FIU and the Knicks. Since the hire could violate league rules that forbid college coaches from having jobs with NBA teams, spokesman Tim Frank told the Associated Press that the league is looking into it.

"We are reviewing the agreement, in consultation with the Knicks, for compliance with league rules," he said.

To read the rest of Eisenberg's article, click here. To read our blog's previous coverage of Isiah Thomas, who has generated a number of sports law topics over the years, click here.

The Yow Plan: Universities Sanctioned by the NCAA Should Sue Agents who broke NCAA Rules

The new Athletic Director of N.C. State, Debbie Yow, has a message for agents who intend to break NCAA recruiting rules while on the N.C. campus: if you do, and the NCAA punishes us with sanctions, we'll be suing you. Ken Tysiac of the News and Observer has the story, which is excerpted below.

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. . . Yow said the letter will warn agents that if they violate the law while dealing with N.C. State athletes, the school will sue them. "I'm going to protect N.C. State University from any agent abuse," Yow said.

North Carolina's Uniform Athlete Agent Act requires agents to register with the state and refrain from promising anything of value to athletes while they're in school.

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Violations of the law are a Class I felony in North Carolina. The law allows a civil fine of up to $25,000, but ACC commissioner John Swofford would like unscrupulous agents to face more substantial penalties.

Yow hopes the potential of a lawsuit that could extract greater damages will be an additional deterrent. The Uniform Athlete Agents Acts in North Carolina and Maryland specifically mention that an educational institution can seek damages, including lawyers' fees, from an agent (or former athlete) who injures the school.

It's difficult, however, to assign a potential dollar amount for those damages in court. It's conceivable that serious NCAA violations could, for example, force a school to give back hundreds of thousands of dollars in NCAA tournament money. If a school is banned from bowl participation, violations could cost a school more than $1 million.

But legal experts say it would be difficult to hold an agent responsible for such large amounts, because such serious penalties usually are levied only when a lack of institutional control on the part of the school accompanies the violations.

"You're going to have this question about whether the harm was caused by the action [of the agent] or by the failure of the institution effectively to control," said Paul Haagen, a Duke professor and co-director of the university's Center for Sports Law and Policy. "There would be a contributory negligence kind of thing there. That would be a difficulty [in court]."

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Vermont Law School professor Michael McCann said there's a public relations advantage, though, in sending the letter, even if it doesn't have a big legal impact.

"Is it a good idea to send a letter?" said McCann, who specializes in sports law. "In some ways it's a deterrent. It also shows that the school cares."

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Two Additional Thoughts:

1) As raised by ESPN's Seth Wickersham in a Facebook conversation: "It seems like she put her own coaches on notice as well, right? I mean, a lot could come out in a possible court case, if it ever went that far." I agree with Seth. If NC State were to sue an agent for damages resulting from an NCAA sanction, the NCAA States coaches who breached NCAA rules would be subject to the discovery process and possibly have to testify.

2) Another form of sanction for unscrupulous agents is for the Players' Associations that license the agents to sanction them, including through a suspension or license forfeiture. That type of sanction, though, would not directly benefit a university sanctioned by the NCAA.

Join the "What is Sport" Conversation

ESPN's Page 2 is seeking opinions, in the wake of the Title IX/cheerleader case, on what is not a sport and why. Join the conversation.

USA Swimming's Attempts to Ban Technologies

Tara Bhupathi, a rising 3L at the University of North Carolina School of Law and an Editor on the North Carolina Journal of Law and Technology, has posted on SSRN a copy of her article in the New York State Bar Association's Art, Entertainment and Sports Law Journal on USA Swimming's attempts to ban certain technologies and the antitrust implications of those attempts. USA Swimming is the national governing body of competitive swimming in the United States. Tara was a member of the women's crew team at Georgetown University, from where she graduated in 2006.

Here's an abstract of her article:

This article argues that the Ninth Circuit acknowledged the risk of financial interests influencing decisions to ban certain equipment because of the broad economic scope of the sports industry, governing bodies' unchecked authority over said market, and the sentiment that, in light of each governing body's heavy reliance on sponsorships, complete disregard of financial motives in governance is no longer appropriate.

Further, courts should continue to implement the Ninth Circuit's policy of increasing scrutiny of governing body financial interests in rule-making for two reasons. First, shedding light on the complex and competing financial interests among industry players, including fans, athletes, teams, leagues, communities, media, and sponsors, should enhance confidence in the purity of a governing body's decisions. Second, abandoning complete deference in governing bodies could ease manufacturers' fears of investing in technology only to be subsequently banned due to collusion between market competitors and the governing bodies. This in turn would mitigate the stifling effect the latter have had on technological developments in sports equipment.

This is a very informative and interesting article. I recommend checking it out.

Criticism of Biediger v. Quinnipiac University and the Rejection of Competitive Cheer as a Title IX Eligible Sport

Over on Saving Sports, the official blog of the College Sports Council which advocates reform of Title IX, Eric McErlain argues on behalf of competitive cheer qualifying as a Title IX sport. He also takes issue with U.S. District Judge Stefan Underhill's recent opinion in Biediger v. Quinnipiac University, where Quinnipiac was ordered to keep it's women's volleyball team in order to comply with Title IX. McErlain contends that the lack of international and professional competitions for competitive cheer should not impair competitive cheer's chances for Title IX recognition since similar opportunties for softball are on the decline as well (and Eric cites Holly Vietzke post on our blog titled Is Softball on Life Support?). Eric also notes:

Despite Judge Underhill's ruling, female student athletes have already decided on their own that competitive cheer is a sport. As of the 2008-09 academic year, competitive cheer was more popular with female student athletes in the nation's high schools than golf, field hockey, lacrosse or gymnastics. Overall, it is the ninth most popular sport for female high school students.

For an additional reading critical of Judge Underhill's analysis, see this column from Gregg Easterbrook on ESPN.com.