I had always assumed the only way American sports leagues could institute salary cap systems, without running into anti-trust problems, was through collective bargaining. That assumption, like many of my assumptions, may have been wrong.
The 30 National Basketball Association franchises control the competitive market for top flight professional basketball in America, which includes the market bidding for the services of top flight basketball players. Therefore any collective agreement among them that would tend to suppress competition among them for those players is automatically suspect under existing federal anti-trust laws.
So how do such clear anti-competitive schemes like salary caps survive anti-trust scrutiny? Until now, I thought they survived only because they were collectively bargained.
In Powell v NFL, the federal courts created a “nonstatutory labor exemption” that permitted rival sports franchise owners to limit competition among themselves for the acquisition of player services if the players agreed to those limitations through collective bargaining. Essentially, the courts must have reasoned, the Sherman Act was passed to protect the players. If the players want to waive those protections, why should we stop them from doing so?
However, I have come to learn that the NBA could theoretically impose their salary cap restrictions without the players collective approval.
Here’s how. Its been made clear by the courts that collective agreements among sports franchises are not automatically considered anti-trust violations, even if they stifle competition. Courts have recognized that sports franchises must engage in collusive behavior (like scheduling, uniform restrictions, etc) in order to produce an entertainment product that will attract more consumer entertainment dollars. In other words, the courts allow sports leagues to engage in certain internally anti-competitive practices because those practices promote competition in another external market (the overall entertainment market).
So, federal courts apply a “rule of reason” test to collective agreements between rival sports franchises. I knew that, but I didn’t think something as patently restrictive as a salary cap system could survive such a test. That’s where I may have went wrong.
In case after case, the NBA owners have argued that a salary cap is necessary to competitive balance among the franchises. (See, NBA v. Williams “[S]alary cap provisions survive scrutiny under the Rule of Reason because the efficiencies these provisions afford in the way of competitive athletic balance among NBA teams outweigh their effect on competition for the services of players[.]”). That argument itself does not surprise me. What surprises me is that at least one federal district court appears to have bought the argument.
But then I thought about the matter a little. From what I can tell, most fans agree with this “competitive balance” argument. And if one court has already concurred on the very question, why wouldn’t another court?
What does this mean for the future?
Here’s what all of that potentially means for the future of the NBA’s labor lockout.
The owners may continue to feign good faith negotiations with the players’ union for the foreseeable future. But the courts have said “good faith” does not require one inch of compromise. So, if the owners do not budge, there will come a point in time where they may declare an “impasse” has been reached in the negotiations. At that point the NBA may attempt to unilaterally impose their new salary cap, on the grounds that such action is permitted under the Williams ruling. (“It is also settled law that employers may implement terms and conditions of employment after good-faith bargaining to an impasse[.]”)
At that point the players will undoubtedly bring an anti-trust claim against the owners. Should they do so, the case will turn on two questions: (1) Was there a true impasse?; and if so, (2) Are the newly implemented salary cap conditions reasonably necessary to promote competitive balance in the NBA?
Now, I would vigorously argue “no” to question two, and I would cite specific numerical evidence to back my argument. The NBA has had a salary cap in place since the 1980s. Yet there is no sign that the league has become any more competitively balanced than it was prior to the imposition of that cap. Indeed, the evidence points in the exact opposite direction. (I found that the period between the merger and the imposition of the original salary cap was the most competitively balanced in NBA history — since then competition among the franchises has become increasingly more unbalanced).
As I have written in the past, by certain statistical standards, the NBA is the most non-competitive sports league in America. (measured by the percentage of teams finishing with wins that are at least within the square root of half their scheduled games). By the aforementioned standard the NBA is less competitive than baseball, despite the fact that the NBA has had a salary cap in place for three decades, while baseball has never had any salary cap.
For that reason, I believe the NBA salary cap has done nothing to increase competitive balance, and I don’t really think it was ever intended to do so. I think it was always intended as a mechanism to artificially control player costs amongst a group of businessmen that have never had a clue how to properly price player services. “Save us from ourselves” should be their battle cry.
But, based on comments I received after I first made the above argument, mine is clearly a minority position. Thus, if the NBA unilaterally imposed a new, more restrictive, salary cap, the cap could very well pass anti-trust muster based on the NBA’s “competitive balance” argument. Its bullshit, in my opinion, but it might work.
So they might try it. But if that’s their battle plan, God help us as fans, because such a plan could not be put into effect until the negotiations have reached a clear point of impasse. And for those not fluent in French, “impasse” means “a long fucking time from now”.
Of course, “a long fucking time” appears to be exactly what the owners are willing to invest in this labor struggle. Clearly, the owners want massive cost restructuring and are willing to go to any limits to get it. Reports suggest the NBA owners battle plan is modeled the one used by the NHL owners a few years ago (which itself was modeled after similar plans used by Bill Sherman when he was trying to get to the Atlantic Ocean on foot and the guy who famously explained that he had to burn the village down in order to save it.) If those reports are true, we will not likely see real pro basketball played in America for a long fucking time.