Why do Emerging Sports Leagues Fail?

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By: Dylan Scilabro
Articles Editor, American Journal of Trial Advocacy

Baseball has tried, football has tried, and basketball has tried. All three sports have attempted to offer an alternative to the major leagues, and they have all failed. But, why? Why can no other league exist alongside the MLB, NFL, and NBA? The answer to that question simply varies by league.

Emerging Football Leagues and the NFL

Let’s start with one of the greatest flops, the United States Football League (“USFL”). Like all great business ventures, you have to spend money to make money. Which was certainly the case for the USFL. After just three seasons, the USFL was $200 million in the hole.[1] But this was not without promise. In just three of those short seasons, the league garnered the attention of some of the sport’s top icons. Athletes such as Herschel Walker, Jim Kelly, Steve Young, and Reggie White all spent time playing in the league. The league was really starting to take off. The National Football League (“NFL”) played in the Fall, and the USFL played in the Spring. This meant year-long football for fans. So where did it go wrong? In my opinion, it went wrong where it goes wrong for all emerging leagues—in trying to do business with the already established league like the NFL. When Donald Trump came into the picture, he made his entrance known. He amped up the media coverage and players’ salaries immediately.[2] His next step was to convince the USFL to move the season into the Fall and to force a merger with the NFL. As one could imagine, this turned out to be a disastrous decision. In order to force a merger, the USFL decided to file an antitrust lawsuit against the NFL.[3] Although the business decision was bad, the lawsuit was not all bad. For once there was hope that an emerging football league could challenge the NFL and win. This can be seen in the case of United States Football League v. National Football League, which caught traction in the famous venue of the United States District Court for the Southern District of New York and made it all the way to the Second Circuit Court of Appeals.[4] Once in front of a jury, the jury concluded that the NFL had in fact violated Section 2 of the Sherman Act.[5] The NFL appealed, and the Second Circuit Court of Appeals affirmed the Southern District’s ruling.[6] You would think this was a big success that would open the door to future cases. But it was the opposite. The USFL was only awarded $1; yes, $1.[7] But hey, on the bright side we are talking about an award regarding an antitrust violation, so the damages are tripled . . . ladies and gentlemen, the USFL was awarded a whopping $3 for their masterful triumph against the NFL.[8] The precedent that this case set is that even if you win, you just do not win.

There are valuable lessons to be learned from the USFL case. One, the NFL will bleed an emerging league out in litigation costs and even if they win a case against NFL, the courts will not grant an emerging league damages large enough to buy a cheeseburger from Wendy’s. Second, an emerging league does not have the capital to take on major league sports. They are too big to fail. The third lesson is to stop trying to do business with the NFL. The XFL and the Alliance of American Football (“AAF”) could have learned from that mistake, but they decided not to anyway. This can be seen by the sudden disappearance of teams such as the Birmingham Iron. When the AAF started out, the founders, Charlie Ebersol and Bill Polian, said they recognized the mistakes that other start-up leagues had made.[9] The mistakes, as they saw them, were (1) seeing the NFL as a partner rather than a competitor, (2) battling for major markets, and (3) over selling the product.[10] Charlie, Bill . . . come on guys—I thought you said you learned. The first mistake that all of these emerging leagues have made is seeing the NFL as a partner. The NFL is not their partner and does not want to be. If the USFL had just kept playing in the Spring and had avoided trying to merge with the NFL, I am willing to bet they might still be around. The XFL, on the other hand, just did not meet fans’ expectations. They oversold the value of what they were. Whereas, the USFL actually had value, with marquee players to boot. The AAF was smart not to try to be bigger than what they were, but they failed because they tried to fill their rosters with NFL practice squad players. There was no way the NFL was going to be okay with that. The AAF broke their cardinal rule, seeing the NFL as a partner, and died because of it. As the cases show, at least where the NFL is concerned, the failure to emerge as a new league is less a legal issue and more of a business issue. Although the courts have not given a start-up league a fighting chance in an antitrust judgment (e.g., $3 in damages), the successes and failures of these leagues rest on the business decisions of their founders.

Emerging Basketball Leagues and the NBA

Like football, basketball had an emerging league go up against an existing powerhouse league and win as well. But, unlike the USFL, the American Basketball Association (“ABA”) was actually starting to appear as if it were better than the existing league. The Mavericks, Heat, Hornets, and Timberwolves all got their starts in the ABA.[11] This was the league that put Dr. J (Julius Erving) on the map.[12] But, where the ABA, like the USFL, went wrong was in their ambition of a merger. However, unlike the USFL, the ABA actually saw their merger through. The San Antonio Spurs, New York Nets, Denver Nuggets, and Indiana Pacers were all swallowed up by the NBA.[13] The remaining ABA teams folded.[14] Cue the antitrust suit. In 1970 a class action lawsuit was filed against the NBA involving free agency and broadcast revenue for expansion teams.[15] The lawsuit was filed by basketball legend Oscar Robertson.[16] The result of the merger litigation was a settlement that seemed rather generous: the Silna brothers made $800 million off the deal,[17] and the former ABA players were to receive the same pension benefits as the NBA.[18] However, the result was not so altruistic. In the end, NBA players received $2,000 a month for each year of service for their pension, whereas ABA players would receive $60 a month for each year of service.[19] So in short, what is the takeaway for an emerging basketball league? Like football, do not try to merge, it only results in unequal bargaining power, a lack of judicial enforcement, and it leaves the athletes wondering how they are going to pay their bills.

Emerging Baseball Leagues and the MLB

Unlike the NBA and NFL, there have been no real successful challenges to major league baseball because of binding precedent. Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs is the Supreme Court case that directly addresses why emerging baseball leagues cannot challenge Major League Baseball (“MLB”).[20] In Federal Baseball, when the Federal League (the challenging league to the modern-day MLB) was failing to reach profitability, the American and National Leagues offered the Federal League owners a chance to either purchase some of their existing teams or to accept a buyout option. Many of the Federal League teams took one of the options; however, the lone holdout team was the Baltimore Terrapins. The Baltimore Terrapins instead decided to file their own lawsuit, this time against both the American and National League as well as the Federal League teams who left their league. However, their pursuit for justice did not prevail. The Supreme Court found in favor of the defendants (the now MLB), and the rest is history.[21]

Since 1922, there have been cases such as Toolson v. New York Yankees, Inc.[22] and Flood v. Kuhn.[23] In Toolson, the Court got a second chance to overturn Federal Baseball and, for lack of a better phrase, chickened out. The Court in Toolson did, however, decide that Congress did not intent for baseball to fall within the scope of the Federal antitrust laws.[24] But what does this mean? What is the implication of the Toolson decision? The impact of this decision means that the Federal Baseball decision remains precedent. The Court failed to overturn the arguably antiquated precedent. Which led to the case of Flood v. Kuhn, in which the Court again continued to uphold the decision of Federal Baseball.[25] It took another quarter century after Flood before Congress finally passed the Curt Flood Act of 1998, but even then the act was only applicable to antitrust labor disputes in baseball.[26] This is why even after almost 100 years there have still been no real challenges to Major League Baseball.

So Can an Emerging League Ever Survive?

Until those who choose to take on the powerhouses take heed of those who have fallen before them, the answer is no—especially not in baseball while Federal Baseball is still good law. But I remain optimistic that a basketball or football league can succeed, so long as they stay away from any idea of a merger. If a league can just stay within their means (staying focused on their market share, their size, right players, etc.), then I believe there is no reason why they cannot succeed. But if they decide they want to swim with the big fish and file an antitrust suit, their efforts may end up being more fruitless than fruitful. The true feasibility of a start-up league in football or basketball will lie in the hands of the beholder. For now, lawyers and plaintiffs alike can only get so creative. In order for an emerging league to succeed, absent bad business decisions, courts are inevitably going to have to break up the monopoly that is professional sports.

[1] Drew Jubera, How Donald Trump Destroyed a Football League, Esquire (Jan. 13, 2016), https://www.esquire.com/news-politics/a41135/donald-trump-usfl/.

[2] Id.

[3] Id.

[4] U.S. Football League v. Nat’l Football League, 842 F.2d 1335 (2d Cir. 1988).

[5] Id. at 1341.

[6] Id.

[7] Id.

[8] Id.

[9] Tyler Lauletta, The 3 Things New Pro Football Leagues Get Wrong and How the AAF Hopes to Avoid Them, Bus. Insider (Feb. 16, 2019, 6:00 PM), https://www.businessinsider.com/aaf-charlie-ebersol-xfl-mistakes-2019-2.

[10] Id.

[11] Paul Flannery, Remembering the ABA, the Upstart League That Challenged Pro Basketball and Won, SB Nation (Aug. 24, 2015, 10:42 AM), https://www.sbnation.com/2015/8/24/9066375/aba-legacy-julius-erving-basketball-history.

[12] Id.

[13] Ed Odeven, Broken Promises: NBA Never Fulfilled Settlement Agreement with ABA, Ed Odeven Reporting (June 19, 2017), https://edodevenreporting.wordpress.com/2017/06/19/broken-promises-nba-never-fulfilled-settlement-agreement-with-aba/.

[14] Id.

[15] Post Staff Report, NBA Antitrust Case Review, N.Y. Post (Nov. 23, 2011, 5:00 AM), https://nypost.com/2011/11/23/nba-antitrust-case-review/; Robertson v. Nat’l Basketball Ass’n, 556 F.2d 682 (2d Cir. 1977).

[16] Id.

[17] Joseph Steinberg, 4 Lessons From the Greatest Business Deal in Sports History, Inc. (May 3, 2016), https://www.inc.com/joseph-steinberg/4-lessons-from-the-greatest-business-deal-in-sports-history.html.

[18] Id.

[19] Ed Odeven, Broken Promises: NBA Never Fulfilled Settlement Agreement with ABA, Ed Odeven Reporting (June 19, 2017), https://edodevenreporting.wordpress.com/2017/06/19/broken-promises-nba-never-fulfilled-settlement-agreement-with-aba/.

[20] Fed. Baseball Club of Balt., Inc. v. Nat’l League of Prof’l Baseball Clubs, 259 U.S. 200, 208 (1922).

[21] Id.

[22] 346 U.S. 356 (1953).

[23] 407 U.S. 258 (1972).

[24] Toolson, 346 U.S. at 361.

[25] Flood, 407 U.S. at 292.

[26] 15 U.S.C.A. § 26b (West 2019).

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