Monday, May 2, 2011

Five Things to Know about the NFL Lockout

Today has been a slow day in the NFL (and, of course, a very big day for other -- much more important -- news). In large part, it seems like people on all sides are recovering from the flurry of activity last week and over the weekend. So during this pause in the action, let's take stock of where things stand. Here are five things to know about the NFL Lockout: how we got here, what the two sides are saying, and what to expect down the road.

1. The Owners Forced the Issue. In 2006, the players and owners negotiated a collective-bargaining agreement. In 2008, the owners opted out of the CBA, because they felt like it was not adequately accounting for the increasing costs that owners faced. If the owners had not opted out of the CBA, we wouldn't be here today, becuase the 2006 CBA would have, by its terms, run through the 2012 season.

2. The Players Aren't Making Things Any Easier. The NFL Players' Association, almost from the beginning, was making preparations to "decertify". Antitrust law prevents competitors -- the 32 NFL clubs -- from acting together in an anticompetitve manner. So, for example, rules about the draft, free agency, the salary cap, etc., could potentially violate antitrust law. But a union cannot sue an employer for antitrust violations. The NFLPA "decertified" so that individual players could sue the NFL. (That's why the lawsuit is captioned "Brady v. NFL", rather than "NFLPA v. NFL".) Decertification typically takes place when employees are dissatisfied with a union. Here, decertification was more of a legal tactic.

3. The Legal Battle is Far From Over. When the union decertified, the owners imposed a lockout and the players sued. The players asked for, and got, a "preliminary injunction", which lifted the lockout. The owners asked the district court for a "stay" -- which would have put the ruling on hold pending appeal -- but the court denied it. The owners have asked the Appeals Court for a stay, and that request is pending. But in the meantime, the Appeals Court has issued a temporary stay. This reinstates the lockout temporarily, while the court decides if it should lift the lockout or allow it to remain in place while the owners challenge the underlying order granting a preliminary injunction. A decision on the preliminary injunction appeal will take weeks if not months. Judge Nelson's district court decision granting the injunction was a big step; the appeals court's decision on the stay will be the next big step.

4. Players Are Feeling the Effects of the Lockout Already. In their brief, the owners argue that we are in the NFL's offseason, so the players are not suffering "irreprable harm". This may be true from a legal standpoint; "irreparable harm" is a term of art. But it is undisputed that players -- particularly incoming rookies -- are feeling the effects of the lockout. For example, in the few days the lockout was "lifted" (between Judge Nelson's order and the Eighth Circuit's temporary stay) there was serious talk of a draft-day deal involving Philadelphia Eagles Quarterback Kevin Kolb. The Eagles likely could have gotten a first-round pick for Kolb, maybe even a top-10 pick. The Eagles reportedly have a first-round offer for 2012 for Kolb, but that is much less valuable than a guaranteed top-10 pick. (Teams are ranked within each round in reverse order of their record. If a team with a top-10 pick in 2011 did very well in the upcoming season, their pick next year might wind up being in the 20s, and thus much less valuable to the Eagles.)

Over the weekend, 254 players were drafted by 32 teams. But every year, undrafted rookie free agents sign with teams, and many make a big splash. Undrafted free agents can be quite productive -- the Packers won the Super Bowl with three undrafted free agents among their 22 starters. But those types of player transactions cannot occur during a lockout.

Even drafted players feel the pinch. Rookies cannot work out with teammates, study playbooks or film at team facilities or meet with coaches. NFL football is much more complicated than college football, and these rookies may be behind the curve even if the year starts on time. On the other hand, the owners are right: you can't unscramble eggs. What if free agency opened, only to have it close again a few weeks later? Would trades be invalidated? Would free agent signings be undone?

5. Parties Bargain in the Shadow of the Law. In an earlier post, I wrote about an article (in a different context) where two law professors wrote that the law does not impose obligations; instead, it sets up a framework and parties negotiate within that framework. I suspect that's what will happen here. The Eighth Circuit will issue a stay pending appeal, or not. Within that framework, the parties will negotiate a settlement that reflects each side's new-found (or lost) leverage. For us poor fans, the next best chance of a settlement will be later this month, when the parties re-convene for a mediation on May 16. Presumably by then the Eighth Circuit will have decided one way or another on the stay, and the losing party will want to get to a resolution quickly.

I am still optimistic that the parties will work something out. But then again, in 1992, the players went to trial, and won, on antitrust claims against the owners. Although trial is extremely unlikely -- some 95% of cases in general settle -- it is always a lurking possibility. Jim Quinn, an attorney for the players, was the players' trial counsel in 1992, so he is no stranger to this process.

***
As always, I'll continue to keep an eye on things and let you know when I have any news. I've previously covered in more depth the legal issues presented by the lockout here and here.

24 comments:

  1. Is Quinn of quinn emmanuel?

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  2. Goutam, I am a college fball fan, and one of my more favorite players did not get drafted. I am perplexed at why the draft was permitted to go on, but why teams were not permitted to sign undrafted players. In your opinion will this affect the post-draft signing process?

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  3. @7:07, no, James Quinn is with Weil Gotshal. (The players also have Ted Olson on board and he is signing all of the submissions on appeal.)

    @8:08, the draft went on because there is a bit of a quirk to this process. The undrafted players are now free agents; your player is in limbo because the lockout means no free agency. But the entering draft class is sort of sui generis; the players are not free agents BEFORE the draft. Thus, the players argue that they will face irreparable harm for precisely this reason: If post draft signings are curtailed, these players will lose out on opportunities. The owners counter that the harm is not really serious, because it doesn't matter if the signing period starts May 1st or, say, June 1. This much we know: There were about 1/3 fewer trades during the draft this year, compared to last.

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  4. The USFL also won an anti-trust suit against the NFL. Fat lot of good it did them.

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  5. Since the NFLPA has decertified I would think the owners would get together and stipulate they are competitors and as such there is no salary cap and the owners are free to negotiate with any player for any salary they can agree to. Of course, it would mean no further contributions to player medical or pension funds but the players could fund that themselves.

    I've always wondered why the players thought they needed a union when they negotiate individual contracts.

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  6. Maybe you could shed light on something. As I understand it, the last CBA has expired. The district court judge preliminarily enjoined the lockout. Without a CBA, exactly what rules apply to the relationship between the players and the owners?

    E.g., If under the CBA the NFL provides medical insurance for players and their families, does the NFL have to continue to provide that insurance under the preliminary injunction? Does the insurance policy have to remain the same? What if that is one of the terms that was in dispute--that is, the NFL wanted to players to make a larger contribution--under the preliminary injunction, who pays for the medical insurance?

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  7. The players are a bunch of crybabies.

    Hard to feel pity for a group of guys that choose to play a game and get million dollar contracts.

    The owners, own the team and it's not like they're under-paying their labor.

    Why, exactly do football players need a union?

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  8. @Caseym54
    This quickly leads to the situation where teams with more revenue sources outpace teams in payroll that don't have those resources.

    Much of the popularity of the NFL derives from the belief by fans that their team has a fair shot at the title in any given year. Thus the smallest market Packers can compete with the biggest market Giants/Jets, and face a midmarket Steelers in the championship game.

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  9. Anon 12:36

    The 06 CBA was agreed to at the 11th hour before games would be canceled in th06 season. The owners caved because the proviso was included that they were permitted to opt out of the agreement after the '10 season, which they did. There is currently no CBA, no rules,no midical insurance, nothing. If the appeals court upholds lifting the lockout, they'll have to impose rules, most likely the 2010 rules.

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  10. Thanks for providing such great coverage of this issue. Your analysis has been much appreciated.

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  11. On what basis did the district court lift the lockout? The owners had the right to opt out of the CBA. Not only that, the second party to the contract (NFLPA) no longer exists. I don't understand how the district court figures it can force the NFL to continue to pay the players.

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  12. @12:36, 12:55 -- the District Court "enjoined" the lockout, meaning that the lockout was lifted. This was on the basis of the players' showing of irreparable harm as a result of the lockout (what the players called a "group boycott"), and their showing of a fair chance of succeeding on their claim that the lockout constituted an antitrust violation. In other words (@12:36), it is irrelevant to this aspect of the legal analysis whether or not the owners (or the NFLPA) had the right to opt out of the CBA. Thus, the order means that the lockout must be lifted and that the league must reopen for business. But it does not specify any particular rules that must be in place. (The owners countered that the new rules themselves might violate antitrust laws, but Judge Nelson essentially said that the owners had to take that risk.)

    The owners have won a temporary stay, meaning that the Judge Nelson's order is not yet in effect (and the lockout is back on) while the appeals court decides whether to grant a longer stay while it hears the actual appeal. The longer stay will last until the Eighth Circuit decides the appeal, which could take weeks or even months.

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  13. Do you know how much light print on a dark background sucks? It sucks!

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  14. 1) I concur with Anonymous 3:47--light print on a dark background inhales vigorously.

    2) What bugs me is the application of antitrust laws here. The 32 teams are NOT economic competitors, merely athletic one. It's absurd that Major League Soccer can adopt a "single-entity" structure to avoid all this--"no collusion here, we're just one big company"--but a league of separately owned franchises is treated like an industry rather than a cooperative firm. Maybe scheduling games only with each other should also be restraint of trade, so I should be able to form the Anonymous Anteaters, challenge NFL teams on the gridiron, and if they all refuse to play me sue them for antitrust violations. I'm sorry, but this charade is nuts, and the calm way all the commentators (everywhere) pass over the absurdity is doubly nuts.

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  15. I actually like the white on black. But I'm a raiders fan.

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  16. @6:34 -- You point has some intuitive appeal -- "obviously the teams are acting as one unit to promote the NFL!" but then again, they clearly compete -- for wins, for market share, for revenue, for players, for sponsors, etc. I don't think the point is obvious, and it's hard to characterize American Needle v. NFL (which I assume you have in mind?) as a "charade" when it was unanimous (though, clearly, one can criticize the decision).

    With regard to MLS -- with which I am not really that familiar -- this post http://www.nutmegradio.com/single-entity-time-american-needle-and-what-it-means-for-mls/ suggests that MLS took pains to structure itself in a way that was distinct from the NFL. So the leagues would be distinguishable on that basis.

    @6:41, then shouldn't you prefer SILVER and black? PS, whatever happened with JaMarcus Russell?

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  17. I'm an economist, not a lawyer, and I'm not up on the precedents that led to the current absurd application of antirust laws to the NFL.

    The teams do not compete for revenue--they share TV revenue and their stadium businesses do not compete due to a) geographical distance and b) playing in each other's stadiums. About the only competitive venue on the revenue side is merchandising, a fairly small piece of the pie. More to the point, if they had their druthers they WOULDN'T compete with each other for anything except wins. Using their accommodation to the antirust laws as a justification for applying antitrust reaches new levels of pretzel logic. Also, I still don't see why my hypothetical about the Anonymous Anteaters isn't on point if we are to treat the league as an industry rather than a coop.

    As for the MLS angle, my point is that a legal technicality like that ought to have no impact on antitrust policy because it has no effect on customer welfare or total economic efficiency. In what way does the NFL have more monopoly or monopsony power over football than MLS has over soccer? And if the NFL were to adopt the MLS structure (sort of like the NFLPAs opportunistic decertification), then it seems odd that the evil they were supposedly engaging in would suddenly become perfectly OK.

    ReplyDelete
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