The Justice Department Is Now Very Interested in Sports

From a Wall Street Journal story by Louise Radnofsky, Andrew Beaton, and Robert O’Connell headlined “It’s Not Just Golf. The Justice Department is Very, Very Interested in Sports”:

In January of this year, executives from the Big3 basketball league met with Justice Department officials in Washington to present their case: that the National Basketball Association was violating federal antitrust law. The meeting, according to people familiar with the matter, included Jonathan Kanter, the Biden administration’s assistant attorney general for antitrust, who often likes to reference his own sports fandom.

The DOJ’s antitrust division has since launched an investigation into the question, people familiar with the matter said, but its attention is part of something far broader than whether the NBA acted anti-competitively in response to a 3-on-3 basketball league. The Justice Department is very, very interested in sports.

The biggest and most powerful leagues in the country are under unprecedented scrutiny from U.S. antitrust enforcers these days. Other organizations known to be in the DOJ’s sightline in some form include the PGA Tour, Augusta National Golf Club, Major League Baseball, FIFA and U.S. Soccer, and the NCAA. Even esports haven’t escaped the brightening spotlight.

The picture is clear: professional sports leagues, which had often been left alone by federal regulators, are increasingly getting attention from the top antitrust enforcers in the United States.

The Justice Department hasn’t explicitly said this publicly. But the new focus has been sitting in plain sight in court filings and speeches made by key figures in the antitrust division over the past five years.

“Many sports leagues complain that, while competition is well and good for most of the economy, it just doesn’t make good sense for them,” said Eric Dunn, counsel to the assistant attorney general, in a keynote address at a sports law symposium at the University of Memphis in February.

“Companies have always complained about so-called ruinous competition. But it seems in the context of sports that people take these arguments more seriously,” Dunn said. “There is no reason to accept the assumption that competition is unreasonable in a particular sport, or industry.”

Similar remarks had been made as early as 2018 by the previous antitrust chief, Makan Delrahim, who was pointed in his conviction that college sports weren’t immune from antitrust law. DOJ’s antitrust division went on to file a Supreme Court brief against the NCAA in a case where the association was arguing that it should be allowed to maintain strict limits on athlete compensation, and enjoy ample latitude to govern college sports.

“Few businesses could credibly assert that their products are defined by the compensation (or lack thereof) that their workers receive, much less that their compensation policies foster consumer demand,” the DOJ brief said. “The product’s unusual features do not justify the more relaxed antitrust scrutiny that petitioners advocate.”

In June 2021 the Supreme Court ruled unanimously in favor of the athletes who had initiated the case, and against the NCAA. The decision appears to have boosted the DOJ’s confidence that it can pursue cases against other big sports bodies now.

“That puts anyone asserting an antitrust claim against the sports business in a stronger position,” said Jeffrey Kessler, a veteran sports antitrust lawyer, who represented the athletes in the 2021 Supreme Court case, and has a case against FIFA and U.S. Soccer in which the DOJ has also filed a brief that he sees as helpful to his position.

“This division in this administration has been very interested in competition in sports, just as in any other business,” Kessler said. “I think the sports leagues are well aware that the DOJ is going to enforce the antitrust laws in the sports business, and that will impact their operations in a whole variety of different ways.”

During the Biden administration, the antitrust division also often says that one of its priorities is the impact of competition on workers. That includes athletes.

The theory is that athletes—whether minor league baseball players, basketball players who aren’t up to playing in the NBA, college athletes or millionaire golfers—all benefit from competition for their services, and the absence of viable rival leagues harms them and depresses wages. It isn’t just labor, either. Division lawyers have also said that fans stand to benefit when leagues have to compete on everything from the quality of their product to ticket prices.

That means the antitrust division cares a lot about how well-established leagues respond to rival upstarts trying to get off the ground, looking at everything from their behavior to their bylaws.

The investigation into the NBA centers on Big3, a 3-on-3 league founded by the rapper and actor Ice Cube and entertainment executive Jeff Kwatinetz. Despite Big3’s relatively small footprint—it largely attracts aging former NBA players—the DOJ is looking into whether the most successful basketball league in the world has directed anticompetitive behavior toward it. The investigation was previously reported by TMZ Sports.

According to people familiar with the matter, the DOJ is examining whether the NBA pressured advertisers and TV partners not to do business with Big3. It’s looking at whether the NBA prohibited its own players—who routinely participate in summer leagues such as the Los Angeles-based Drew League—from participating. To date, only one active NBA player, Jaylen Brown of the Boston Celtics, has appeared in a Big3 event, when he played in last summer’s All-Star game.

The investigation has also shown an interest in whether the NBA has kept team owners from investing in Big3, the people said. The NBA’s constitution says that no owner can hold “any direct or indirect financial interest in” any other basketball league or non-NBA team, unless approved to do so by a three-fourths vote of fellow owners.

In baseball, DOJ’s antitrust division has spoken up in the lower courts in support of a challenge to MLB’s antitrust exemption, saying that at the very least MLB is overinterpreting it, adding that the carve-out “does not rest on any substantive policy interests that justify players and fans losing out on the benefits of competition.”

“To the extent the Court analyzes the scope of the ‘baseball exemption,’ the United States respectfully requests that the Court define the exemption narrowly and decline to extend its scope beyond conduct that is central to the offering of professional baseball exhibitions,” DOJ lawyers wrote, in a case brought by minor league teams arguing that MLB franchises illegally colluded in opting to eliminate their affiliation.

The teams are now asking the Supreme Court to take up the case, and to overrule its own prior decisions upholding the exemption. The DOJ could be invited to weigh in again. MLB’s lawyers said in filings that plaintiffs “have not plausibly alleged a conspiracy” against them, and called the lawsuit “a half-baked attempt to manufacture a test case for revisiting a 100-year-old precedent.”

The DOJ has also put itself in the middle of the battle for golf’s future: the Justice Department has been investigating the PGA Tour, as well as Augusta National Golf Club, the PGA of America, and U.S. Golf Association, for potential anticompetitive behavior in the golf establishment’s response to the Saudi-backed upstart LIV Golf circuit.

After the stunning framework agreement between the warring golf bodies, DOJ antitrust attorneys’ attention quickly swiveled. The Justice Department almost immediately notified the PGA Tour that it would review the Tour’s planned merger with LIV’s Saudi backers for antitrust concerns, people familiar with the matter said. The Tour has said it is confident it will prevail.

In esports, meanwhile, the antitrust division filed a civil suit against Activision Blizzard in April, saying the videogame developer had violated antitrust law in having rules that limited compensation for players in its “Overwatch” and “Call of Duty” leagues. The DOJ secured a consent decree barring Activision from imposing rules the government said were suppressing wages. An Activision spokesman said that they had never enacted the rules in question and had already dropped them by the time of the legal action—but believed they were lawful.

“Professional esports players—like all workers—deserve the benefits of competition for their services,” Kanter said.

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