[House Hearing, 111 Congress] [From the U.S. Government Publishing Office] ANTITRUST IMPLICATIONS OF AMERICAN NEEDLE v. NFL ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON COURTS AND COMPETITION POLICY OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION __________ JANUARY 20, 2010 __________ Serial No. 111-126 __________ Printed for the use of the Committee on the Judiciary [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://judiciary.house.gov COMMITTEE ON THE JUDICIARY U.S. GOVERNMENT PRINTING OFFICE 54-536 PDF WASHINGTON: 2010 ________________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Printing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, [email protected]. JOHN CONYERS, Jr., Michigan, Chairman HOWARD L. BERMAN, California LAMAR SMITH, Texas RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr., JERROLD NADLER, New York Wisconsin ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina MELVIN L. WATT, North Carolina ELTON GALLEGLY, California ZOE LOFGREN, California BOB GOODLATTE, Virginia SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California MAXINE WATERS, California DARRELL E. ISSA, California WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia STEVE COHEN, Tennessee STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr., TRENT FRANKS, Arizona Georgia LOUIE GOHMERT, Texas PEDRO PIERLUISI, Puerto Rico JIM JORDAN, Ohio MIKE QUIGLEY, Illinois TED POE, Texas JUDY CHU, California JASON CHAFFETZ, Utah LUIS V. GUTIERREZ, Illinois TOM ROONEY, Florida TAMMY BALDWIN, Wisconsin GREGG HARPER, Mississippi CHARLES A. GONZALEZ, Texas ANTHONY D. WEINER, New York ADAM B. SCHIFF, California LINDA T. SANCHEZ, California DEBBIE WASSERMAN SCHULTZ, Florida DANIEL MAFFEI, New York [Vacant] Perry Apelbaum, Majority Staff Director and Chief Counsel Sean McLaughlin, Minority Chief of Staff and General Counsel ------ Subcommittee on Courts and Competition Policy HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman JOHN CONYERS, Jr., Michigan HOWARD COBLE, North Carolina RICK BOUCHER, Virginia JASON CHAFFETZ, Utah CHARLES A. GONZALEZ, Texas F. JAMES SENSENBRENNER, Jr., SHEILA JACKSON LEE, Texas Wisconsin MELVIN L. WATT, North Carolina BOB GOODLATTE, Virginia MIKE QUIGLEY, Illinois DARRELL ISSA, California DANIEL MAFFEI, New York GREGG HARPER, Mississippi [Vacant] Christal Sheppard, Chief Counsel Blaine Merritt, Minority Counsel C O N T E N T S ---------- JANUARY 20, 2010 Page OPENING STATEMENTS The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in Congress from the State of Georgia, and Chairman, Subcommittee on Courts and Competition Policy............................... 1 The Honorable Howard Coble, a Representative in Congress from the State of North Carolina, and Ranking Member, Subcommittee on Courts and Competition Policy.................................. 2 WITNESSES Mr. Gary Gertzog, Senior Vice President, National Football League, New York, NY Oral Testimony................................................. 7 Prepared Statement............................................. 9 Mr. Kevin James Mawae, President, National Football League Players Association, Washington, DC Oral Testimony................................................. 17 Prepared Statement............................................. 20 Mr. William L. Daly, III, Deputy Commissioner, National Hockey League, New York, NY Oral Testimony................................................. 24 Prepared Statement............................................. 27 Mr. Stephen F. Ross, Lewis H. Vovakis Distinguished Faculty Scholar, Professor of Law and Director for Sports Law, Policy and Research, Pennsylvania State University, University Park, PA Oral Testimony................................................. 36 Prepared Statement............................................. 38 ANTITRUST IMPLICATIONS OF AMERICAN NEEDLE v. NFL ---------- WEDNESDAY, JANUARY 20, 2010 House of Representatives, Subcommittee on Courts and Competition Policy Committee on the Judiciary, Washington, DC. The Subcommittee met, pursuant to notice, at 2:01 p.m., in room 2141, Rayburn House Office Building, the Honorable Henry C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) presiding. Present: Representatives Johnson, Conyers, Jackson Lee, Watt, and Coble. Also present: Representatives Smith and Gohmert. Staff present: (Majority) Christal Sheppard, Subcommittee Chief Counsel; Anant Rant, Counsel; Rosalind Jackson, Professional Staff Member; (Minority) Stewart Jeffries, Counsel; and Tim Cook, Professional Staff Member. Mr. Johnson. This hearing of the Committee on the Judiciary, Subcommittee on Courts and Competition Policy will now come to order. Without objection, the Chair is authorized to declare a recess. Last week, the NFL went before the Supreme Court seeking immunity under the antitrust laws. It is a simple question. When the NFL and its 32 teams get together and make business decisions like apparel licensing, are they a group of competitors subject to the antitrust laws, or are they more like a board of directors incapable of illegally conspiring with themselves? Single-entity protection established by the Copperweld case would protect many of the business decisions made by the league and its 32 teams from challenges as illegal anticompetitive contracts and conspiracies. The NFL argues that it deserves this immunity because it acts as a single entity in promoting the ``NFL product.'' What is less clear is where the NFL product ends. What are the boundaries of single-entity status? As a single entity, could the NFL eliminate free agency? Could they impose a salary structure on coaches and personnel? Could they move teams whenever they did not get more local tax breaks? Would they be able to charge $400 for a jersey? Would they be able to move all of their games to the NFL network and turn playoff games into pay-per-view? Co-brand credit cards and set rates and fees associated with those cards? And the list of possibilities is endless. Last week in front of the Supreme Court the NFL said that the league should be able to determine the price tag for each team. And this kind of unlimited control would not stop at the NFL, ladies and gentlemen. In the event of a pro-NFL decision by the U.S. Supreme Court, other sports leagues are likely to follow. Antitrust experts have also predicted a spillover effect into other markets. Credit card networks and real estate listing services, among others, might start claiming immunity from parts of the antitrust laws. What I want to know is why does the NFL need special antitrust immunity? The NFL has sought antitrust immunity from Congress multiple times over the past few decades. Time and time again, Congress has said no. The NFL is seeking indirectly from the courts what it could not get from Congress. The only thing that immunity would do would be to eliminate so-called ``frivolous'' antitrust litigation. Well just about everybody thinks that litigation is frivolous when they are the defendant. In recent years, the Supreme Court's decision in Twombly, Credit Suisse and Trinko have raised the bar for plaintiff litigants in antitrust cases. A pro-NFL decision could raise that bar even higher. As a former judge, I can assure you there is no way to write a law that preserves only good cases and weeds out the bad ones. I look forward to what I am sure will be a lively debate on these issues. With that, I now recognize my colleague, Ranking Member Howard Coble, the distinguished Ranking Member of the Subcommittee, for his opening remarks. But before I do that, I would like to point out that votes are pending, or votes are soon to be announced. And at the appropriate point, we will recess the hearing to go take those votes. I think there is four of them. And then we shall come back and resume. Mr. Coble? Mr. Coble. Thank you, Mr. Chairman. Thank you for calling the hearing. Thank you all for being in attendance today. When it comes to protecting jobs, Mr. Chairman, particularly in the textile industry in my congressional district, pardon my modesty, but I will take a back seat to no one. The V.F. Corporation is located in Greensboro, North Carolina, which is in my district, and has a very significant interest in its business with NFL Properties, manufacturing NFL jerseys. As you can imagine, we are very interested in today's hearing. It seems relatively clear to me that any sports league must act as a single entity in order to produce the sport. Without a schedule, rules, basic equipment or other guidelines, the sport would have no value. There would be chaos if the Carolina Panthers, for example, had to negotiate who they were playing and the rules for each game. The question of when it is rational for the NFL to act as a single entity for antitrust purposes gets a little murky beyond its product of games on the field. However, to my mind, the question presented by the American Needle case, whether the NFL acts as a single economic entity for marketing purposes, is also pretty clear. The NFL would not function as a marketing entity if some or all of its teams refused to license their marks collectively. Fans would be damaged because they would not be able to get merchandise with their favorite team's logo or could only purchase it at the price that their team was willing to sell its license. Manufacturers would be damaged because they would have to negotiate with individual teams for different products over different lengths of time, thereby dramatically raising their costs of production. And the league's value would be diminished because not all the teams would be well marketed and because some teams might choose to license their products for goods that do not represent the best interest of the league and its brand. Finally, Mr. Chairman, the revenues and profits are shared equally throughout the league. Indeed, the plaintiff in this case, American Needle, seemed to enjoy contracting with the NFL and receiving all 32 team logos when it was an official licensee. But once the league opted to go with different--with a different hat manufacturer, American Needle decided to sue the league over its collective bargaining practices. It is apparent that the antitrust laws exist to protect competition, not competitors. The district court of the Court of Appeals felt that the NFL's licensing practice was valid. I am inclined to agree. Having lost the benefit of that bargain, it appears that American Needle had a case of manufacturer's remorse and attempted to obtain through litigation that which it could not obtain through normal negotiation. I recognize that the Supreme Court's decision in this matter could have an impact beyond the instant set of facts. However, without the decision in hand, it is too early, it seems to me, to tell what Congress needs to be concerned about here, if anything. I am interested in ensuring that the NFL--or any other professional sports league, for that matter--does not abuse its power, but I am also concerned that stakeholders use today's forum--hearing as a forum to speculate and draw conclusions about the NFL before the Supreme Court's decision. That being said, I encourage all the witnesses to proceed with the requisite amount of caution, because there is clearly more at stake than the case at hand. I yield back the balance of my time, Mr. Chairman. Mr. Johnson. Thank you, Ranking Member Coble. We have about 7 minutes and 35 seconds left on this first vote, and I think what I would like to do, if it is okay---- Mr. Coble. Sure. Mr. Johnson [continuing]. Is to just introduce the witnesses, and thereafter we can depart. Mr. Coble. That would be fine. Mr. Johnson. All right. Thank you. I am now pleased to introduce the witnesses for today's hearing. Our first witness is Mr. Gary Gertzog, senior vice president for business affairs and general counsel to the National Football League. Mr. Gertzog oversees the league's commercial operations and--including media broadcasting, consumer product licensing and intellectual property. Welcome, Mr. Gertzog. Our second witness is Mr. Kevin Mawae, and--actually, Mawae--starting center for the Tennessee Titans and current president of the National Football League Players Association. A 16-year veteran, this LSU grad was just named to his eighth pro bowl after helping running back Chris Johnson set the NFL record for yards from scrimmage this past season. Welcome, Mr. Mawae. And congratulations on how your team snapped back after so many disappointments prior to this season, a testament to the human spirit collectively as a team. Next we have Mr. Bill Daly, deputy commissioner of the National Hockey League. Mr. Daly worked previously at the law firm of Skadden Arps in New York before joining the National Hockey League as chief counsel. Welcome, Deputy Commissioner Daly. And finally, we have Professor Stephen Ross from Penn State. Professor Ross is one of the Nation's most renowned and most accomplished sports antitrust experts. Mr. Ross worked previously as an antitrust attorney at the Federal Trade Commission and the Antitrust Division of the Department of Justice. He has also served as counsel to the Senate Judiciary Committee under Senator Metzenbaum. Mr. Ross-- so that tells you about how--or gives you idea to date for this fine gentleman here. Mr. Ross serves as pro bono counsel to the American Antitrust Institute and the Consumer Federation of America on issues relating to sports antitrust. Welcome, Professor Ross. And I want to thank each one of you for your willingness to come and participate at today's hearing. Without objection, your written statements will be placed into the record, and we would ask that you give us about 5 minutes before we come back. Actually, it is going to be a little longer than that, but about 20 to 30 minutes. And when we come back we will begin with your--with testimony. Thank you very much. This hearing is recessed. [Recess.] Mr. Johnson. Ladies and gentlemen, we are waiting on one other very distinguished gentleman to arrive on our Subcommittee, so it shouldn't be much longer. Thank you. This hearing is back in session, and before I turn it over to the witnesses for their opening statements, I want to extend the invitation to the Ranking Member of the full Committee, Mr. Lamar Smith of the great state of Texas, for his opening remarks. Mr. Smith. Okay. Thank you, Mr. Chairman. I also want to thank you for your courtesies. When the vote came at 2 o'clock and that was the beginning of the hearing, I went to go vote, never thinking that you all would act so quickly. And I know you had the opening statements prior to the votes, and I appreciate your, therefore, letting me add my opening statement after the votes. Mr. Chairman, the American Needle case involves a dispute involving an apparel manufacturer that lost a hot contract with the NFL because the NFL had entered into an exclusive apparel rights contract with Reebok. However, depending on how the Supreme Court rules on this case, the NFL may be able to claim that it acts as a single entity and not 32 individual teams for antitrust purposes in a broad variety of transactions. Granting the league single-entity status means that it would be immune from antitrust scrutiny with respect to internal business decisions, not just negotiations with apparel manufacturers but potentially also labor disputes or the negotiation for television rights. With respect to television rights, the NFL currently makes use of the Sports Broadcasting Act, which gives a limited antitrust immunity to sports leagues for the purposes of negotiating television packages. However, if the NFL is viewed as a single entity for all negotiation purposes, then the Sports Broadcasting Act could be rendered superfluous. A favorable ruling for the NFL could eliminate one tool, antitrust suits against the team owners, which the NFL Players Association has used to extract favorable terms from the league. Excuse me, Mr. Chairman. However, given that the NFL Players Association and other professional sports unions are the wealthiest labor unions around, one wonders whether they need any extra leverage. One particularly wonders this when other unions such as the United Auto Workers cannot sue fully integrated companies like General Motors under the antitrust laws to obtain relief that they cannot get from the collective bargaining system. This case could significantly impact the other sports leagues, including the National Basketball Association, the National Hockey League and, to a lesser extent, Major League Baseball. As various amicus briefs have argued, the case could also implicate all joint ventures. This outcome could have dramatic effects on antitrust law generally and might well merit congressional response. This case was argued just last week, and the court's decision is not likely to come out for several months. This is the third hearing in 3 months that the House Judiciary Committee has held on matters relating to the NFL. The first two hearings were on the legal implications of head injuries suffered while playing professional football. That will also be the topic of another field briefing in Houston on February 1st. While these are important issues, they are not the only important issues that the Committee should consider. We should hold hearings on the attempted Christmas Day terrorist attack on a Northwest Airlines flight bound for Detroit, the Department of Justice's decision to drop charges against New Black Panther Party members for voter intimidation, and the question of whether to close the Guantanamo Bay detention facility. All these are full Committee jurisdiction issues. But the NFL and NFLPA are literally and figuratively big boys. They do not need Congress' help to referee every business dispute. That is what the courts and the labor negotiation process are for. Mr. Chairman, again, thank you for your courtesies, letting me make an opening statement slightly late, and I will yield back the balance of my time. Mr. Johnson. You are quite welcome, my friend. And what I would like to do now is open it up for the written--excuse me, for the oral statements of the witnesses. You will each have 5 minutes. Okay. Well, I will tell you what. Before we go down that road, I would like to fulfill my duty and my obligation, which is to give my Chairman an opportunity to make a opening statement. Mr. Chairman? Mr. Conyers. Thank you. I am happy to be here with you, and I always like to comment after the Ranking Member of the full Committee and listen to his instructions as to which hearings ought be given priority, because that is an important way that we keep comity in the Committee. So I will take his recommendations under consideration. But these hearings on sports I think are pretty important because, first of all, this is more than just who is going to make the caps for the football players' league. The question here may get into antitrust considerations, and this is what we are here to learn more about today--is that this--the case that is pending--and I did a lot of work, Lamar--I didn't do a lot of work, but my staff did the work. But I asked this question, how many cases--how many hearings have we had in which there was an anticipated ruling from the court that would have a profound effect on whatever the subject matter was, because I hadn't been thinking that much along those lines. And I found out that there were plenty--namely, the civil rights cases, the Voter Rights Act, the--what were some of the others? Which? Oh, yes, the Jefferson case in Louisiana, in which the former Chairman of the Committee was active in getting into the court. And so what I am more worried about, rather than who makes caps, is--oh, affirmative action cases, voter rights cases--oh, is this the whole sheet? Why don't I just put it in the record instead of reading it all? There is one, two, three, four, five--six cases. So this is what we do. As a matter of fact, that is why the Committee has its name, Judiciary Committee. There is a connection here. We are not the court, but we look--we oversee the court. Now, how will the players be affected by the ruling that is pending? Well, for one thing, the league could impose a uniform salary structure on players, coaches and other non-player personnel. I don't say that that would automatically happen, but that is a direction that it might be going in. It could affect the free agency concept, as the only option would be a player strike. As we all know, those things are sometimes limited. As a matter of fact, one may be looming up now. I hope to get some insight from the witnesses on this. And it is not apparent what actions would be preserved under the labor exemption itself if the Supreme Court happens to rule in favor of the league. And then what should the role of the legislature be if this single-entity concept prevails in the court? This will depend on the breadth or narrowness of the Supreme Court decision itself. But it seems to me that we must ensure the rights of the players to protect players as well as just look out for fans. And then we can have some unintended consequences applying joint ventures outside of the sports context. And I close with this observation, that both the Department of Justice and the Trade Commission have expressed reservations about treating integrated entities with less favor than single entities, the concern that such a decision might have far- reaching implications for joint ventures among, for example, credit card networks, health care agencies, and thus impairing those two--the DOJ and the Trade Commission's ability to enforce antitrust laws. And so, witnesses, I look forward for your clarification and points of view on these several issues. I thank the Chairman for his indulgence. Mr. Johnson. Thank you, Mr. Chairman. And without further ado, each of you all will have 5 minutes to make your opening statements. You will notice the lighting system down there. It is green when you start. At the end of 4 minutes, it turns yellow. And then at the end of the 5 minutes, it turns red, and--so keep a close eye on that. Anything that you don't say will be in your written remarks, and those will be submitted for the record. And you will note that we will have--after each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions, subject to the 5-minute limit. Mr. Gertzog, please begin. TESTIMONY OF GARY GERTZOG, SENIOR VICE PRESIDENT, NATIONAL FOOTBALL LEAGUE, NEW YORK, NY Mr. Gertzog. Good afternoon, Mr. Chairman, Ranking Member Coble---- Mr. Johnson. You may want to hit that microphone---- Mr. Gertzog. Good afternoon, Mr. Chairman, Ranking Member Coble, Members of the Subcommittee. My name is Gary Gertzog. I am senior vice president, business affairs and general counsel of the National Football League. I appreciate the opportunity to testify before you this afternoon on the antitrust implications of American Needle v. NFL. Last week, the nine justices of the United States Supreme Court heard oral argument in a lawsuit brought by a former NFL headwear licensee challenging the NFL's decision to grant an exclusive license to another company. The question in this case is whether the NFL, NFL Properties and the NFL's 32 member clubs function as a single business entity when deciding how to promote NFL football through licensing of league and club trademarks on headwear products. The district court and the Seventh Circuit Court of Appeals each agreed with our long-held position that the NFL is a single business entity for these purposes. In a previous case, the Seventh Circuit held that the question of whether a professional sports league acts as a single entity should be decided on a league-by-league, aspect- by-aspect basis. We believe that approach is the correct way to analyze the case before the Supreme Court. American Needle petitioned the court to review the Seventh Circuit ruling. The NFL chose to support the petition not because we agreed with American Needle's position on the merits but, rather, in an attempt to obtain a national and uniform rule confirming that the Seventh Circuit's decision was correct. The NFL should be treated like any other business in making decisions about how to best promote its product and how best to respond to consumer demand. This case is not about any other aspect of the NFL's business. It is not about labor relations, franchise relocation or our broadcast policies. Indeed, our collective bargaining relationship with the NFL players is governed by Federal labor law, not by the antitrust laws. The American Needle case is simply about the NFL's ability to license its trademarks like any other business. There are no other issues before the Supreme Court. The NFL's mission is to produce a premier entertainment product that appeals to the broadest possible audience. As part of that effort, we encourage fans and potential fans to identify with the NFL and their favorite team in a variety of ways. Those efforts include ensuring that fans of all teams have access to a broad variety of high-quality, appealing consumer products that bear NFL and team marks and logos. Those promotional efforts have been successful. We are America's most popular sport, with over 180 million fans. The NFL produces an annual integrated series of more than 250 football games leading to the playoffs and culminating in the Super Bowl. Each team is inherently incapable of generating on its own a single NFL game. Every member club is dependent upon every other member club to create what we know as NFL football. The league controls all aspects of the production of NFL football. It determines when and where the games are played, the rules of the game, the playing schedule and rules relating to how the entertainment product is produced and presented to fans. While the NFL clubs compete on the field, they are partners in a business enterprise. In fact, approximately 80 percent of all league and club revenues are shared among the member clubs. They engage in extensive revenue-and cost-sharing. Revenues from licensing marks and logos are shared equally among the member clubs. Such economic integration has led to competitive balance on the football field and made it possible for small market teams such as Green Bay and New Orleans to compete effectively with large market teams. This very much serves consumers' interest. The NFL has more clubs that play in more communities than any other sports league in this country. Because of the league's extensive revenue-sharing and promotion of all of its members, all clubs have a comparable chance at success on the playing field. For example, of the four teams that remain in the playoffs this year, three represent smaller markets. Fans in New Orleans, Indianapolis and Minnesota continue to root for their favorite teams this year. Mr. Chairman, antitrust lawsuits are complex, time- consuming and extremely costly. The NFL has spent millions of dollars defending suits like the one American Needle brought. Even the threat of such costly lawsuits is anticompetitive and inconsistent with consumer welfare because it chills competitive zeal to the detriment of consumers. Our business partners are entitled to know when they are doing business with us whether they are buying a license or whether they are buying a lawsuit. Since 1963 when NFL intellectual property was first marketed on a collective basis, NFL Properties has increased exponentially the volume, variety and quality of NFL-licensed products available to consumers. The centralized licensing and marketing structure of NFL Properties has served the interests of consumers and contributed to the success, popularity and growth of NFL football. Thank you, and I look forward to your questions. [The prepared statement of Mr. Gertzog follows:] Prepared Statement of Gary Gertzog [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Mr. Johnson. Thank you, Mr. Gertzog. Mr. Mawae? What--Mawoo? What is it, sir? Mr. Mawae. It is Mawae. Mr. Johnson. Mawae. Mr. Mawae. Yes, sir. Mr. Johnson. All right. Thank you. TESTIMONY OF KEVIN JAMES MAWAE, PRESIDENT, NATIONAL FOOTBALL LEAGUE PLAYERS ASSOCIATION, WASHINGTON, DC Mr. Mawae. Thank you. Good afternoon, Chairman Johnson, Ranking Member Coble and other Members of the Committee for inviting me here today to take part in this important hearing. My name is Kevin Mawae, and I am the president of National Football League Players Association. I have played professional football for the last 16 years. I am the--currently the starting center for the Tennessee Titans. I have played for the New York Jets and for the Seattle Seahawks, where I was the 36th pick overall in the 1994 draft. I have had the privilege of being a seven-time Pro Bowl selection and just recently named to my eighth pro bowl, and I am a three-time All-Pro player. More importantly, my career has enabled me to focus on charitable endeavors with Children's Cup, Feed the Children and Building Blocks for Kids. And twice with the New York Jets I was named Community Man of the Year. When I began my professional career, just 1 year had passed since the landmark settlement of the Reggie White case that led to the significant gains of players, giving me a unique perspective on an era of labor peace built upon the ability of players to bring and win antitrust claims. One of the greatest honors in my career is serving as president of the NFLPA, a position that I was elected to by players of all 32 teams. As president of the NFLPA, I am tasked with ensuring the welfare of my peers, a job that I take extremely seriously, and one that brings me before you today. And some of our members are in this room and around the halls of Congress. American Needle v. NFL is a case that could change the sports world as we know it. There have been claims by some that this case has been over-hyped. There are those who say that this case is simply a small licensing dispute without broader ramifications. Put simply, this is an effort to deceive the Supreme Court, Congress and the general public. Why else would the NFL seek to review a case that it has already won not once but twice? Just last week, during the oral arguments at the Supreme Court, the NFL finally confirmed just how broad this case really is. In response to a question from Justice Scalia, the NFL stated that it should be allowed to unilaterally set the price for each team, prompting Justice Scalia to remark that his question was meant to be taken into the absurd. After hearing from the NFL, Justice Sotomayor stated the obvious. The NFL is seeking through this ruling what it has not gotten from Congress, an absolute bar to the antitrust claim. Indeed, Congress has repeatedly refused to grant the NFL a broad antitrust exemption. Even the exceptions only to prove this rule. The Sports Broadcasting Act, for example, only grants a limited antitrust exemption with certain requirements imposed upon the league. The NFL's ideal post-American Needle world is indeed chilling. Sports leagues could set ticket prices and prevent teams in the same or adjacent markets from competing for fans; owners could force--could end free agency by restricting player movement from team to team and imposing a salary schedule for coaches and players; leagues could transfer all television and radio rights of their games, including local rights, to their own, wholly-owned subscription cable and satellite networks; leagues could even require any stadium to be built be completely subsidized by local taxpayers. I think it is important to note that the NFL has unsuccessfully sought this blanket exemption for decades. It is the holy grail of would-be antitrust defendants. Recognizing the once-in-a-generation chance to find success through American Needle, the other three major professional sports joined the NFL by filing friends-of-the-courts briefs. It is clear that American Needle is just the latest attempt by sports leagues to find their vaunted holy grail. The case may be their best chance at success yet, due to the wolf-in- sheep's-clothing approach of an apparel license case. Recognizing the imminent danger American Needle presents, it has sparked great interest from outside the sports world, with the Department of Justice, Federal Trade Commission, Merchant Trade Association, the American Antitrust Institute and an independent group of 20 prominent economists weighing in against the NFL. Despite the nuanced approach that the NFL is using in American Needle, an antitrust exemption must be resoundingly rejected. As I mentioned before, I have been a professional football player for 16 years, starting the year after the 1993 collective bargaining agreement brought unrestricted free agency to players in the NFL for the first time in its history. In the past, players were subject to systems severely limiting their rights to market their services to other clubs when their contracts expired. It was a successful antitrust lawsuit that ended those restrictions. As a two-time free agent, and now one for the third time, I can personally attest to the fact that the 32 teams of the NFL do compete vigorously for players, coaches and fans. I am proud to be the president of an organization whose success has been built upon the likes of players like Bill Radovich, Freeman McNeil and Reggie White, who had the courage to sue their teams in order to secure rights for all players. Over the course of my career, I have seen firsthand how that antitrust lawsuit catapulted the league to unprecedented popularity by bringing parity to the league, free agency to the players, and a year-round football season where there is always hope for the season for the fans. It is not only fans and players that have benefited during the 17 years. The league itself has experienced significant economic growth. NFL franchise values have increased by 550 percent since 1993. Again, that is 550 percent, during this era of free agency and parity, built upon a foundation of labor peace. As I sit here today, I am not sure why anyone would want to tamper with such a profitable economic model. The league has also experienced unmatched growth in the past couple of seasons, even while the world's worst economic crisis since the Great Depression raged. In 2008, the NFL experienced its third most profitable year. Revenues rose to $7.6 billion, more than any other league. Average team profits increased 31 percent, and while labor costs increased only 4 percent. While regular folks and companies are cutting costs wherever they can, the NFL continues to renew lucrative agreements that guarantee revenue beyond the 2011 season, whether football is played or not. This year, fans watched NFL games in their largest number since 1990, with regular-season games being the highest-rated local program 89 percent of the time, up from 55 percent in 2001. Viewers did not come to the expense of ticket sales. League attendance declined a negligible percent--1 percent when the commissioner himself estimated that they would be over 100 percent--no, he was off by 100 percent. The NFL teams played in front of less-than-full stadiums less than 9 percent of the time in 2009. To be sure, this era of labor peace has benefited the league, owners and players alike. Our labor peace, which is secured by the antitrust laws, has also benefitted the hundreds of thousands of stadium workers, small business owners and their employees that derive significant revenue from my beloved sport--revenue and paychecks--this is the last one--and that means a great deal to many families in this current economic climate. And, sir, I am not a product. I am a person, and I am a player in the NFL. Thank you. [The prepared statement of Mr. Mawae follows:] Prepared Statement of Kevin Mawae [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Mr. Johnson. Mr. Daly, please proceed. TESTIMONY OF WILLIAM L. DALY, III, DEPUTY COMMISSIONER, NATIONAL HOCKEY LEAGUE, NEW YORK, NY Mr. Daly. Chairman Johnson, Ranking Member Coble and other Members of the Subcommittee, thank you for the opportunity to appear before the Subcommittee today to testify on the antitrust implications of American Needle v. The National Football League. My name is Bill Daly, and I am the deputy commissioner of the National Hockey League. Like the NFL, the NHL is structured as a legitimate joint venture created by its members to produce, promote and sell the fundamental league product, professional hockey games, and its constituent products, including league and team intellectual property, in competition with other sports leagues and entertainment providers. Significantly, professional sports leagues such as the NHL and NFL compete against a large multitude of single firm entertainment providers. However, these leagues often cannot compete with one another and against other entertainment providers as vigorously as they otherwise would because of the threat of litigation under Section 1 of the Sherman Act, which prohibits agreements among competitors that unreasonably restrain trade. All league decisions on how best to produce, promote and sell the league's products are inherently pro-competitive because none of the league's output would exist but for the league and the collaboration among the teams. As with the NFL, the economic value of an individual NHL member club as well as its intellectual property derives solely from its joint participation in the league and its role in producing, collectively with the other 29 member clubs, NHL hockey. If a particular club were not a member of the NHL venture, its team, as well as its team-related intellectual property and products, would have no meaningful economic value. Because of this economic interdependence, the collective efforts to market and sell NHL hockey and the venture's output are part of the very essence of the NHL enterprise. Under the NHL constitution and by-laws, the affairs of the NHL are governed by the NHL Board of Governors, which is comprised of one representative from each of the thirty member clubs. Over time, the Board of Governors has made the business judgment that NHL hockey and its constituent output are best promoted and sold through a combination of, one, collective economic activity taken on behalf of all NHL member clubs by the league; and two, decentralized, individual economic operation by each club in its exclusive home territory, which rights are granted under the NHL constitution. It must be emphasized that every decision regarding the structure and organization of the NHL venture, including the delegation of certain economic operations to individual clubs, emanates exclusively from the organic documents of the league-- the NHL constitution and by-laws--which can only be modified by appropriate vote of the NHL Board of Governors. The legitimate scope of the NHL joint venture necessarily includes the collective production and, at times, independent promotion and sale of NHL hockey and its constituent products, all of which derive their value from the league venture as a whole. Consequently, it defies economic reality for the courts to view an agreement among the teams of a professional sports league such as the NHL as ``representing a sudden joining of two independent sources of economic power previously pursuing separate interests,'' the standard articulated by the Supreme Court in Copperweld. NHL seeks to promote demand for, and fan interest in, its product, NHL hockey, and to create, market and sell NHL hockey and its constituent products in competition with other producers and marketers of sports and entertainment products. To effectively compete in the broad entertainment marketplace, the NHL member clubs must have the ability to jointly decide how best to market NHL hockey, including when to centralize and when to decentralize their economic activities. The specter of treble damages exposure, significant litigation costs and burdensome discovery from rule of reason scrutiny under Section 1 of the Sherman Act has the potential to create a chilling effect on the structural and innovative decision-making of legitimate professional sports league joint ventures such as the NHL. This risk looms in connection with literally every internal disagreement regarding how best to make, promote and sell the league venture's product. Consequently, rather than serving the marketplace and responding to consumer demand and competition from a vast array of other entertainment providers, as would any single-firm entertainment provider, professional sports leagues are forced to calibrate their innovation and competitive vigor to account for the risk of protracted and costly rule of reason litigation. Indeed, the NHL just spent more than a year in the midst of such litigation in the MSG case that is described in my written statement. The effects of this case on the NHL's business were significant. The broad-ranging litigation results in an enormous expenditure of both monetary and human resources, a disruption to normal business operations, uncertainty for transactions with existing and potential business partners, and adverse effects on the league's relationship with its fans. The litigation sought to have a Federal court insert itself into the NHL boardroom in order to review virtually every one of the clubs' output-related business decisions, the vast majority of which are decades old now. We don't believe such scrutiny is warranted. And as a result, we believe the American Needle case was correctly decided by the Seventh Circuit. I will be happy to answer any questions you have at the appropriate time. [The prepared statement of Mr. Daly follows:] Prepared Statement of William L. Daly, III [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Mr. Johnson. Thank you, Mr. Daly. Last but not least, Professor Ross? TESTIMONY OF STEPHEN F. ROSS, LEWIS H. VOVAKIS DISTINGUISHED FACULTY SCHOLAR, PROFESSOR OF LAW AND DIRECTOR FOR SPORTS LAW, POLICY AND RESEARCH, PENNSYLVANIA STATE UNIVERSITY, UNIVERSITY PARK, PA Mr. Ross. Mr. Chairman and Members of the Committee, I appreciate the invitation to speak to you today about the appropriate standards by which to judge antitrust claims against sports leagues controlled by club owners who operate the leagues in their own parochial self-interest, without any economic incentive or legal obligation to set league policy in the interests of the sport as a whole. Four key points dominate policy considerations regarding this issue. One, fans suffer from inefficiencies resulting from the control of sports leagues by club owners guided by their own selfish, parochial interests. Two, single-entity status would result in a significant shift of games to more expensive pay and cable media and would increase the risk of labor strife. Three, contrary to league claims, antitrust scrutiny of dominant sports leagues under the rule of reason has worked relatively well in protecting the public interest. Four, unless a pro-defendant Supreme Court decision is limited on an unprincipled and sui generis basis to sports leagues, it will likely create huge problems for antitrust treatment of competitor collaborations generally. Now, in a recent book called ``Fans of the World, Unite!'' a prominent British sports economist and I detailed numerous areas where the club-run structure of dominant North American sports leagues has harmed fans. Most prominent are policies that serve neither consumers nor the best interests of the league as a whole. These include anticompetitive franchise relocation policies, TV blackouts that actually reduce overall ratings, inefficient labor market rules, and a systemic lack of oversight of individual club mismanagement. My co-author and I conclude that sports leagues would be better off if they actually were single entities, where policies were adopted by a single economic driver. If Commissioners Selig, Goodell, Stern and Bettman worked for boards of directors with a fiduciary duty to the league as a whole, many of these inefficiencies would disappear. To answer Chairman Johnson's question, the owners are not like a corporate board of directors. Now, the notion that sports leagues would benefit if leagues were controlled by a true single entity is not something we simply invented. Rather, in organizing NASCAR, founder Bill France recognized that ``it would require a central racing organization whose authority outranked all drivers, car owners and track owners.'' In contrast, pundit Bob Costas has acridly observed that baseball owners ``couldn't even agree on what to order for lunch.'' Our study concluded that Bill France's efforts on behalf of NASCAR to change engineering rules to attract auto company investment, develop a business model where clubs relied extensively on sponsorship income, expand the appeal of the sport from the south to the entire Nation, and increase national television appeal through the Chase for the Cup would all have been inhibited or blocked if the sport were controlled by participating racing teams or racetrack owners. Around the world, the modern trend has been to keep league operations separate from control of self-interested club owners. If the NFL were considered a single entity, however, the Sports Broadcasting Act would be rendered a complete nullity and NFL need no longer abide by its limits. As a result, an NFL scheme to place most of their games on their own NFL network and then significantly increase the fees charged to watch the games would be perfectly lawful. By way of comparison, in 1992 the English Premier League signed a new contract assigning TV rights previously awarded to free-to-air networks to the Sky Sports cable network. Viewership declined from 7 million to 1 million a game, although clubs profited substantially from higher rights fees. Some of the sharp questioning at last week's oral argument signaled concerns that some justices believe our basic structure of antitrust enforcement is flawed, and that defendants should not have to defend under the rule of reason legitimate agreements against meritless complaints. It is true that under our system of antitrust laws any agreement among competitors is subject to Section 1, and any decision by collaborating competitors is the potential target of a lawsuit. But it is also true, as many cases recent cases demonstrate, that these suits can be and are summarily dismissed when the plaintiff is unable to demonstrate any anticompetitive effect. And I add that the bipartisan Antitrust Modernization Commission appointed by President Bush, with a clear majority with unimpeachable Republican and pro-business credentials, rejected claims that our treble damage system of private litigation should be scrapped. Although surgical repairs on private antitrust litigation might be appropriate, the clumsy device of an unprincipled expansion of Copperweld to label self-interested, inefficient joint ventures as single entities is terrible competition policy. Ranking Member Coble is correct to want to protect legitimate ventures, but to protect against abuse. Calling leagues a single entity takes away any possibility that abusive actions can be remedied under the antitrust laws. If the Supreme Court so rules, Congress should overrule. Mr. Chairman, transforming a duck into a goose, I suggest, would be better for consumers. Simply calling a duck a goose, as the NFL wants, would not. Thank you for inviting me to testify. [The prepared statement of Mr. Ross follows:] Prepared Statement of Stephen F. Ross [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Mr. Johnson. Thank you, Professor. We will now begin with questioning. I will start for my 5 minutes. I would like to ask Mr. Gertzog that, as a single entity, will it be easier for the league to shift more of its games from free over-the-air broadcasting to the NFL network cable channel? Will it be easier for the league to do that? Mr. Gertzog. Mr. Chairman, as I indicated in the opening statement, what the NFL is seeking in the American Needle case is a ruling consistent with the Seventh Circuit decision that for purposes of one aspect of its business, licensing intellectual property which promotes its game, the NFL operates as a single entity. Mr. Johnson. Well, no, I understand that. I am just asking a simple question. Will it be easier for the league as a single entity to take most of its games or all of its games off of free broadcast TV and only allow the rich and the powerful to watch the games on cable or satellite? Mr. Gertzog. Mr. Chairman, right now, as you are probably aware, 90 percent of the NFL games are broadcast on free over- the-air television. Mr. Johnson. And are---- Mr. Gertzog. The other 10 percent of the games are broadcast on cable, but the fans in the markets of the participating teams can watch those games. That is truly unique in all of sports. We have a longstanding commitment to free over-the-air television. We recently extended our television agreements through 2013. So we don't see any change. Mr. Johnson. Well, I mean, but it is possible that it will--well, I mean, it is going to be easier if you are granted single-entity status to shift more games to pay TV or NFL cable network, or whatever you would call the entity, at the expense of free broadcast games. Isn't that true? Mr. Gertzog. We don't agree with that. We don't see that being a function of a single-entity decision in the American Needle case. Mr. Johnson. All right. And now, Professor Ross, I am sure you would disagree with that. What would be your take on that, sir? Mr. Ross. Mr. Chairman, in the first place, the NFLPA statement is absolutely correct. The NFL wouldn't have asked the Supreme Court to grant cert if they just wanted to win this thing and make sure that this one narrow issue, which they already won would have been prevailed. If the Supreme Court rules aspect by aspect and simply says a very narrow ruling, then it is up to new rulings later, and it wouldn't probably raise your fears. But if the Supreme Court broadly adopts what the NFL has been asking in their briefs, which is they are a single entity--if we accept Mr. Daly's legal position as the law--then a decision to put all the games on NFL Network is the decision of a single entity. It would not be challengeable under Section 1 as an agreement among the clubs. The Sports Broadcasting Act, which only exempts agreements among clubs, and assumes that these things were agreements among clubs, would not apply. And unless one could come up with a theory that by putting it on the NFL Network the NFL was somehow contributing to the monopolization of broadcast, or something like that, it would be completely immune from antitrust scrutiny. So the NFL can claim its commitment here. Perhaps of a greater concern of free market conservatives, the NFL could, if the ruling comes back, keep coming back and making political deals with your--you know, you could cut a deal with them yourself where they make a voluntary deal and they say, ``We will keep 14 games on TV,'' and then you could say, ``Well, I am going to introduce legislation,'' and then they go, ``Okay, 13 games on TV.'' They could do all that, and they could have a--but legally, your question is correct. Under Section 1, if they win, there is no antitrust remedy to moving the games to NFL Network. Mr. Johnson. All right. Thank you. And let me ask this question. A Reebok executive publicly stated that NFL-branded caps that used to cost $20 can now be priced at $30 because Reebok no longer has any competition in this market. How is the consumer better off when the league and the 32 teams act together in this way, Mr. Gertzog? Mr. Gertzog. The consumer has been much better off since we entered into the agreement with Reebok. The consumer has found that the---- Mr. Johnson. The price has gone up or gone down for merchandise? Mr. Gertzog. We have products priced at all different price points. Mr. Johnson. Well, I mean---- Mr. Gertzog. If you go on---- Mr. Johnson [continuing]. New products come online and---- Mr. Gertzog. Yes. If you---- Mr. Johnson [continuing]. That kind of thing, but---- Mr. Gertzog. If you go---- Mr. Johnson [continuing]. But as far as the products that were already online at the time of the exclusive agreement with Reebok, isn't it true that there will be no--well, there will be no breaks they can put on how--that can be put on the price of merchandise? Mr. Gertzog. Mr. Chairman---- Mr. Johnson [continuing]. As you feel like you could get. Mr. Gertzog. Mr. Chairman, I respectfully disagree with that. You know, number one, the NFL does not set the price for its products. Those decisions are made, number one, by a licensee that will sell to a retail store; number two, the retail store will make a determination as to how much it wants to charge to the consumer. If you go online today, you will see that NFL caps are priced competitively with caps from all of the other sports leagues, colleges, entertainment providers, branded companies like Nike. There are caps that are more expensive than NFL caps and there are caps of other companies that are less expensive. And we have found that the consumer has the ultimate vote. If the consumer believes the hat is too expensive, the consumer will not purchase the cap. The consumer will purchase a cap from a different sports entity. So in this town, if someone believes the Redskins cap is too high, they can go purchase a Capitals cap. Mr. Johnson. Well, but it just can't say Redskins and have the trademark on there, the NFL and the--what is it? A arrow or something like that, with a redneck, or something--there is something of that nature. You can't find an official NFL cap unless you do it through an authorized entity. And you would be able to control the price to--that that entity would sell the hat for. Is that true? Mr. Gertzog. It is not true because we operate in a very competitive sports and entertainment marketplace. So as I said earlier, the consumer has the ultimate vote. If the consumer believes the cap is too expensive and they want an NFL item, they can buy a different item. We have thousands of licensed products, and the consumer has many, many different options. Through the Reebok agreement, they were able to, over the past few years, upgrade the quality of the products. The consumers have responded quite well to that. They have extended the number of products to our fans--women's products that didn't exist before, many different products for kids. So we think this is---- Mr. Johnson. So it is better for---- Mr. Gertzog [continuing]. Very pro-consumer. Mr. Johnson [continuing]. Consumers. Yes, okay. Well, let me interrupt you and just ask for your comment about that, Professor Ross. Mr. Ross. Mr. Chairman, I would like to offer you my expertise when I have expertise and not when I don't, and I have no idea if Mr. Gertzog is correct or not. He made two key statements, though. The consumer has the ultimate vote and, relatedly, we operate in a competitive merchandise market. If that is so, this case is dismissed summarily under the rule of reason with the NFL not being a single entity because they are in a competitive marketplace. Under the rule of reason, it is only when firms have market power or, as Judge Posner wrote, it is only when firms, if they err, will not face swift market retribution that the antitrust law needs to be concerned. So if, in this particular case, the merchandise case, Mr. Gertzog is correct, then the proper result in this case is summary dismissal of American Needle's claim under the antitrust laws. Mr. Johnson. Thank you, Professor. Next I am going to call upon the Ranking Member, Mr. Lamar Smith--I am sorry, the Ranking Member of the Subcommittee, Mr. Howard Coble. Mr. Coble. Thank you, Mr. Chairman. Gentlemen, thank you all for being with us this afternoon. Mr. Daly, to what extent do you think that the NHL teams act as a single entity? And when do the teams not act as a single entity? Mr. Daly. Well, I think, clearly, Mr. Congressman, that the NHL clubs act as a single entity--they acted when they formed the league to become a single entity to produce, promote and sell NHL hockey and NHL hockey games and products. And all the decisions they make in the production, promotion and sale of those products--as decisions made by a single entity under the antitrust laws. You know, to maybe go back to Chairman Johnson's question a little bit, I think sports leagues generally--but the NFL also--are constrained by the marketplace in those decisions, and they can't willy-nilly make decisions that aren't responsive to the competition in the marketplace. And we compete with other professional sports leagues and other entertainment providers, many of whom are single-firm and make those pricing decisions all the time without any concerns about Section 1 scrutiny. And so our activities within that marketplace are constrained by our competition within that marketplace. And to the extent there is a dominant position or, as Professor Ross indicated, a market power position in the marketplace, there are other competition laws that protect consumers in those circumstances, not Section 1 of the Sherman Act. Mr. Coble. Thank you, Mr. Daly. Mr. Mawae, let me put a two-part question to you. Do you have any objection to the operation of NFL Properties, A? And B, is it your contention that apparel and merchandise revenues sold under this single-entity theory are distributed evenly throughout the league? Mr. Mawae. To answer your second question first, are they sold--do you mean sold separately as--or sold as a single entity? Can you repeat the question again, the second one, first? Mr. Coble. Yes. Is it your contention that apparel and merchandise revenues or revenues resulting from the sale sold under this single entity theory are distributed evenly throughout the league? Mr. Mawae. Well, I think, first of all, the limited amount I know about how the NFL shares their revenues--there is a portion of their revenues that are shared equally, but then there is a portion that is not. Every team has an ability to set prices on certain things. Some of that could be merchandise, and some of it could be ticket sales, concessions or whatever. But I know there is a portion that does go into the shared profits of the NFL. But when an NFL team has the ability to market their own products, make their own merchandise, then that puts more pockets in that single owner's--more money in that single owner's pocket, with a percentage of it due--having to go back to the NFL. I don't know how much. We are in the process through our CBA negotiation of finding out how much they are making, how much they are sharing and how much they are not sharing. And that is information that we will get to receive. To answer your other question, I cannot answer that. It is not my case. It is not my expertise or my knowledge to be able to answer that question. Mr. Coble. I thank you for that. Mr. Gertzog, are there areas that you would concede that the NFL could or would never assert single-entity status? Mr. Gertzog. Yes. At the moment, there was an example that was used during the Supreme Court argument that if the NFL clubs decided to go into a new venture, in the trucking business as an example, that would be one that would fall outside of the single entity for the National Football League. I may want to add, you know, one other point on Mr. Mawae's response. You know, the union itself, through their licensing affiliates, has their own agreement with Reebok. They have supported the agreement with Reebok that we have had since the inception in 2001. And they have granted Reebok exclusivity for uniforms that the players wear and that are sold at retail. Mr. Coble. Thank you, sir. Mr. Gertzog, I am going to put another question to you. Would you prefer that your single-entity status be affirmed by the Supreme Court or that the law explicitly lists aspects of professional sports league that should qualify? What would be your preference? Mr. Gertzog. Yes, our preference is the one that was adopted by the Seventh Circuit where you look at it league by league and each facet of its business. And certainly, with the Supreme Court decision, they would be reviewing an important part of the NFL's business. And some of the principles and reasoning of that case could well extend to other facets of our business, but that is not what we asked the court for. Mr. Coble. Does this case have any direct bearing on the upcoming collective bargaining agreement negotiations? Mr. Gertzog. Absolutely not. Mr. Coble. Okay. Mr. Gertzog. As I indicated in my opening statement, those negotiations are governed by the labor laws, not the antitrust laws. The NFL owners are committed to working as hard as possible to reach a new agreement with the union. We think we will reach a new agreement. It is just a question of when. Mr. Coble. Thank you, sir. Professor Ross, I hadn't forgotten you. One final question, if I may, Mr. Chairman. Professor, the V.F. Corporation argues that the current arrangement by NFL Properties is the best deal for consumers, manufacturers and the NFL. Their views are detailed in an amicus brief filed with the Supreme Court. Do you concur or disagree with the V.F.'s conclusion? Mr. Ross. Mr. Coble, I don't know enough about the merits of the particular marketing to agree or disagree. Your opening statement was one of the best defenses under the rule of reason of a reasonable restraint that I have heard in quite a while. But my answer is if what you said in your opening statement was true, the correct legal response ought to be that under the rule of reason the restraint is reasonable. But you can imagine a licensing scheme--for example, suppose somebody like Jerry Jones of the Cowboys provided an innovative marketing scheme, offered to share a lot of revenue with the rest of the league, but Ralph Wilson of the Buffalo Bills decided, ``I don't want to compete with Jones because he is so aggressive, so let's not let any of our members do any licensing of the sort.'' And if he got one-fourth plus one of his fellow owners to go along with them, he could block that deal. That would be, in my opinion, one of the abuses you talked about. So the real question for American Needle is not whether the contract with Reebok is a reasonable contract. It may well be. The question is whether courts ought to look at it to decide whether it is an abuse, as you were worried about, or whether it is something reasonable. The position that the leagues want to take is that the antitrust courts should not look at that at all, and I would be interested to hear what possible protections exist for consumers other than the FTC act if the leagues win big in the Supreme Court. Mr. Coble. Thank you, Professor. I see my red light is illuminated so I yield back, Mr. Chairman. Mr. Johnson. Thank you, Mr. Coble. And next we will have--what I would like to do--there is a important meeting that I need to attend with the speaker, and so I am going to go ahead and depart at this time. I have asked the Chairman of the full Committee, Mr. Conyers, to--whether or not he would be so kind as to continue to Chair the Committee, and he has said that he would. Mr. Conyers. [Presiding.] I wanted to ask Mel Watt--because he is the only jock on this Committee--or ex-jock on this Committee. I don't know which, but--oh, I don't want to do this without him being in the room. But let me ask Mr. Gertzog, what is it that Professor Ross doesn't quite get about this whole subject matter that we are discussing, from your friendly point of view? Mr. Gertzog. I think there is a few things, Congressman. You know, number one, the relief that we are seeking is an affirmance of the Seventh Circuit ruling focused on the aspect of the business that evidence was developed at trial--namely, intellectual property licensing involving--products. Two, a lot of the opening statement for Professor Ross was focused on radical changes to the governing structure of a sports league, and we don't think that is really proper subject matter for this particular hearing. It is an interesting academic discussion, but in real life--I have worked at the NFL 16 years. I understand how these decisions are made. And they are not made in the parochial interest of the owners. The owners understand that the whole is greater than the sum of the parts, and they do what is in the best interest of the league. And in terms of this particular issue, what Professor Ross has said is, ``Well, if the NFL is right, let's take it to a rule of reason analysis, and I am sure this sounds right. It is pro-competitive. Whether it is Reebok, V.F., they have made some valid points. Why don't we let it get to that point?'' And if we do, you are talking about over $10 million of litigation expenses, the threat of treble damages, uncertainty to our business partners, and that is really not a good way to run a business. It would put us at competitive disadvantages with other companies that we compete against that are single entities and do not have to be faced with these sort of threats and lawsuits. Mr. Conyers. Well, Mr. Daly, what do you think that Professor Ross could be enlightened on in a friendly hearing like this this afternoon? Mr. Daly. I think one of the theories of Professor Ross is that sports leagues in their current structure act irrationally and, again, protecting parochial interests of the members. I can speak for the National Hockey League, and I believe I can speak for most other professional sports leagues--that we have in our constitution voting rules that generally produce, if not all the time produce, rational business decisions that are made, so that the interests of a few owners who may have parochial points of view on certain subject matters are overruled by a majority and, in some cases, super-majority of other owners who are looking out for the benefit of the league. So I would say that business decisions made by the league are economically rational, in the best interests of the league and the league's business, and not made for parochial interests. The other thing I would reinforce is Mr. Gertzog's point that while there are defenses to rule of reason and, as professor Ross said, some cases may be summarily dismissed, they are not summarily dismissed under the rule of reason until the parties have engaged in many months, and sometimes years, of very expensive discovery on rule of reason issues, on such things as market definition and market power, before you get to the point where they can be summarily dismissed. So it is an enormous waste of resources for professional sports leagues but also for plaintiffs in those circumstances, and a waste of money. Mr. Conyers. Now, Mr. Gertzog, you--it is your suggestion that NFL should be a single entity--should be regarded as a single entity in the court proceedings? Mr. Gertzog. What we are asking is as part of the American Needle case, which we are discussing here today, the Supreme Court should affirm the Seventh Circuit decision which held that for purposes of the NFL's licensing business for apparel, the NFL constitutes a single entity. Mr. Conyers. So yes or no? Mr. Gertzog. In that part of the business, the NFL constitutes a single entity. It also gives plaintiffs the opportunity to pursue a Section 2 claim. They are not without an antitrust remedy. Mr. Conyers. Okay. Third time. Yes or no? Mr. Gertzog. I am sorry, maybe I didn't understand the question. Mr. Conyers. Do you remember what the question was? Mr. Gertzog. Should the NFL be a single entity in the courts? Mr. Conyers. Right. Mr. Gertzog. And I apologize. I thought I answered the question that for purposes---- Mr. Conyers. I said yes or no. Mr. Gertzog. The answer would be yes, for some purposes. Mr. Conyers. Wow, this was quite a--all right. It is important that we all stay in the same understanding of the usage of the English language. So thanks. Now, Professor Ross, I hope that you consider yourself somewhat enlightened by the friendly discussion that we have had so far. Do you have anything to say for yourself? Mr. Ross. I am always enlightened when I hear from real- life people in the business. The Members of this Committee are familiar with this issue, and it is one of the reasons why we have separation of powers in our country. I am quite sure that the Members of this Committee want to do what they think is best for the Nation. But push comes to shove, they have a very difficult time if what they--what might well be best for the Nation happens to be contrary to what might be best for the 14th Congressional District of Michigan or the 6th Congressional District of North Carolina, et cetera. And in that case, not always but often, the Members of this body are going to vote the interests of their district first. And that is not economically irrational. It is not political irrational. Similarly, there are going to be times when members of sports leagues act in the best interest of their club because that is what they are responsible for. Mr. Conyers. Lamar, we are not supposed to do that, are we? Mr. Smith. Mr. Chairman, I didn't---- Mr. Conyers. Oh. Well, I don't know how this question got turned onto the Members of the Committee, but here we are. Mr. Ross. It is just an illustration, Mr. Chairman, that any time somebody is a representative of a particular group, there are interests--they have two interests. There is a conflict of interest in that sense between things that might be good for the parochial self-interest and things that might be good for the general interest. Being at Penn State, we honor Dan Rooney, the former owner of the Pittsburgh Steelers and now ambassador to Ireland. And if you read his book and look at the prologue by Commissioner Goodell, they rave about what a great owner Mr. Rooney is because he puts the interests of the league first. That is what everybody talks about. Now, I would suggest, Mr. Chairman, that if Dan Rooney was just like every other person, if the owners were like the way Mr. Daly describes them, Dan Rooney would be nothing special. Wellington Mara would be nothing special. Jerry Colangelo in the NBA would be nothing special. All these owners who put the league first are hailed, but the implicit reason is because many of their other colleagues are not so league-oriented. Mr. Conyers. Well, I thought you were going to give a profound response to the two fellow witnesses who were--well, you look it up, how about? And now you are responding to my questions by propounding that we sometimes or frequently--I forgot which you said---- Mr. Ross. Sometimes. Mr. Conyers [continuing]. That we put the interests of our district over our national responsibilities. Do you know what the Constitution says about that? Mr. Ross. I don't mean to suggest--I don't think you are putting your district in front of your national responsibilities, Mr. Chairman. I would respectfully suggest that the reason the framers devised a House of Representatives of people from districts is so that they would have people from different areas and different perspectives who would bring the perspectives of their districts to bear on the national interest. That is the Madisonian genius, I would suggest, Mr. Chairman. But it is also one of the reasons why we have an executive branch as well. But I am sorry to have digressed into an area that you have greater expertise than me. The point is I think--and---- Mr. Conyers. But what about what they said about your thinking on the subject matter for which we are gathered today? Mr. Ross. Mr. Chairman, I do not believe, without regard to the particular facts of this case, which I have tried to say I don't have an opinion on. In general, when you think about the move of the Montreal Expos to Washington and how that was held up by the veto of the Baltimore Orioles, when you think about other franchise relocation issues, when you think about the Bulls litigation which I have detailed in my statement. I think there are a number of examples of where sports leagues have acted in the best interest of individual owners and have not behaved in the way that Mr. Daly would like sports league owners to behave when they sit around the table. Mr. Conyers. Well, let me ask you this. Did you hear what Mr. Gertzog said---- Mr. Ross. Yes. Mr. Conyers [continuing]. When he responded to my question of helping you understand things from a different point of view? And is what you said to me your answer to him? Mr. Ross. I disagree with his factual characterization that the National Football League owners invariably act in the best interests of the league. I think there are many cases where the National Football League owners do not act in the best interest of the league and require leadership from the commissioner's office or others, which is sometimes successful and sometimes not. Mr. Conyers. Okay. Did you hear Mr. Daly make some--what he thinks as positive suggestions about your views on the subject matter that brings us here today? Mr. Ross. Yes, Mr. Chairman. Mr. Conyers. Do you have any response for him, or do you think that they were fairly accurate? Mr. Ross. Mr. Daly and I disagree about whether the frequency of owner behavior that is self-interested justifies having continuing antitrust treatment of sports league decisions. Mr. Conyers. So do you consider yourself far apart in your views from Mr. Gertzog and Mr. Daly, or are they relatively close? Mr. Ross. In terms of what is the subject of this hearing, which is the single entity status of sports leagues, I would say that my views are fairly far apart from Mr. Daly's and Mr. Gertzog's. Mr. Conyers. Well, let me turn to Lamar Smith, the Ranking Member, to---- Mr. Smith. Thank you, Mr---- Mr. Conyers [continuing]. See if he can throw some light on this. Mr. Smith. Thank you, Mr. Chairman. I do have a couple of questions. But let me also confess at the outset that my only connection to professional sports, which isn't necessarily bad, is--and I am proud of them--is the San Antonio Spurs, of course, and then I happen to represent the University of Texas, so the other professional athletes I would have to say are the front line of the University of Texas football team, or at least soon to be, probably. Mr. Ross, let me address my first question to you, and you have already responded in part to it, but it is this. In so many issues, particularly the ones we are facing today, the real question is where do you draw the line. And in the case of the National Football League, there are instances where it does act as a single entity--for example, in the schedule of games and in the setting of the rules of play and so forth. So obviously, there are instances where it acts as a single entity and other instances where it does not. Where would you draw the line beyond what you have already said? Mr. Ross. Yes, that is the position of the government, and it has some merit. I have to say, I don't think that there is a line there per se. I think that you might want to say that on an aspect-by-aspect basis, a plaintiff should have to show that the clubs are not acting in the best interests of the league. But let me give you a law professor example of rules. As you may know if you are a baseball fan, the strike zone basically got distorted by umpires and then got changed by Major League Baseball about 5 years ago. And the rule that got changed happened to favor the Atlanta Braves because they had great pitching. Now, I would argue that if the Braves' owner had gotten a minority of the fellow owners to block a change in the rules purely to favor their own self- interest, and you could show some competitive harm--I don't know how you could about that, but you could show some competitive harm, then that might be something where single- entity status should not be applied. So even in scheduling and rules, I would say that the focus ought to be is this a single economic driver or not. And in some cases, you are right, the league is operating as a single economic driver. In point of fact, the NHL and their labor dispute was completely united, and Mr. Daly and Mr. Bettman did a great job there. But in other cases, although he would prefer it not to be, quite frankly, Mr. Daly is not leading the single economic driver, but he is basically being dictated to by a committee of horses. And when that is happening, I think they are not a-- then the league is not a single entity. Mr. Smith. Okay. Thank you, Mr. Ross. Mr. Gertzog, a couple of questions for you. Some of the professional sports--I think soccer is one--constituted themselves as a single entity when they formed. Why didn't the NFL do the same thing? And in any case, why haven't they sort of reconstituted themselves as a single entity even if they didn't do it originally? Mr. Gertzog. Well, in terms of the NFL's structure, our league dates back many years prior to MLS, which I think is the league that you are referring to. We believe that there are many benefits---- Mr. Smith. Major League Soccer, yes. Mr. Gertzog. Correct. We believe that there are many benefits to having local ownership. It helps make the league stronger. There is an identification in the marketplace with an owner and executives, and we think we have a very strong business model that has been proven out by how successful we have been. Mr. Smith. Okay. Quick answer, but a good answer. The second question is this. Going back to American Needle, as I recall many years ago before NFL gave Reebok the contract, American Needle was the licensee and, I think, the licensee for all 30 teams. And it sort of looks like they are complaining now because they didn't get the contract, even though they themselves were in a very similar favorable position years ago. Do you have any comment on that? Mr. Gertzog. Yes. It is ironic that they are complaining about the very structure that they benefitted from for two decades. Mr. Smith. Right. Mr. Gertzog. They are also, as I understand it, currently a licensee of Major League Baseball, which has a very similar structure to NFL Properties, where they have a license agreement for all 32 teams. What they didn't like is the nature of being a licensee in professional sports and entertainment, or any other field, is you bid for licenses. You are granted rights for a period of time, and then when those licenses expire, you have to re-bid. They re-bid. The NFL made a different decision. And after two decades of being an NFL licensee, they sued us because they didn't---- Mr. Smith. So is this---- Mr. Gertzog [continuing]. Like the decision. Mr. Smith [continuing]. A case of what is good for the goose is good for the gander, or is it a case of what is good for the goose one time should be just as well for the goose another time? Mr. Gertzog. I like your goose analogy better than the professor's. [Laughter.] Mr. Smith. Okay. Thank you, Mr. Gertzog. Thank you, Mr. Chairman. I don't have any other questions. Mr. Conyers. Mr. Mawae, do you want the last response before we adjourn? Oh, wait a minute. I didn't see you come back in. Wait a minute. Well, I will yield to you now before I yield to the gentlelady from Texas. Mr. Mawae. You will let me--my comments on this? You know, I can't sit here and speak from a legal standpoint with legal lexicon. I don't know contracts. I am not an educated professor. But I am a pretty smart football player, and I know the business of football. And what I do know and what American Needle represents to us is a possibility that the NFL could be recognized as one single entity, in which term would give them the power to oversee every aspect of the game, including what happens with the players. As a player, I have been on the free agent market three times. I have benefitted by the broadcasting act because in 1998 the NFL signed a new agreement with the broadcasters for $17 billion. I hit the free agent market that year and became the highest-paid center in the history of the league. So in that sense, I benefitted from the NFL and the deals that they have struck. But the issue goes further than that, that in the case--or in the event that the NFL gets recognized as a single entity, then they control player markets. They control player salaries and player movement. It would not be beneficial to the players for the owners to take--say and dictate which teams that each player should go to, dictate the cost of ticket sales, which drives up the revenue, and things like that. It is a free agent market for the owners. It is a free agent market for the players. And it is a free agent market for the NFL, because they compete against all the other major league sports. As it pertains to the players in general, we are concerned because we have fought so hard over the years to have labor peace. That has been protected through the antitrust legislation and has not allowed them full exemption. And we are concerned, especially in this decade or this era of our organization, that if the NFL does, indeed, get what they want out of this American Needle case that we could lose much of what we have fought for over the course of these last 30 or 40 years. That is my statement. I am here to represent the 1,900 guys. And, sir, I just appreciate your time and just for me to give my very quick and brief opinion. Thank you. Mr. Conyers. Thank you. Mr. Gertzog, is there anything that you could leave the head of the football players association with that would make him feel more comfortable this evening as he reflects on what we did here? Mr. Gertzog. I appreciate the promotion to commissioner, but I am just a mere senior vice president of the National Football League. But in any event, in terms of that question, as I said earlier, the NFL owners are firmly committed to reaching a new deal through the collective bargaining process. As Mr. Mawae knows, there was a negotiation session yesterday. There have been 11 of these sessions over the past few months. And everyone is firmly committed to trying to reach a new deal. A work stoppage does not benefit anyone. It does not benefit the owners. It does not benefit players. We have got a good thing going. We want to continue it. We have just got to find some common ground. And the way to do that is at the negotiation table, not at a courtroom. Mr. Conyers. You think that is going to make him rest more comfortably this evening? Mr. Gertzog. I hope so. Mr. Conyers. I do, too. Well, are you? I said well, are you going to be more comfortable now that you have had his response to my question. Mr. Mawae. No, sir, we will not be more comfortable. Mr. Conyers. You won't be more comfortable. Well, I will turn this over to Congresswoman Sheila Jackson Lee. Maybe she can help us feel better about this. Ms. Jackson Lee. Thank you very much, Mr. Chairman. Let me ask Mr. Daly, are you a nonprofit, the NHL? Mr. Daly. The league itself is a not-for-profit association, that is correct. Ms. Jackson Lee. Not-for-profit. Is that a 501(c)(3), or what is the configuration? Mr. Daly. I probably---- Voice. Six. Mr. Daly.--I should know the answer to that question. Voice. Six. Ms. Jackson Lee. 501(c)(6)? Mr. Daly. Thank you, Joe. Ms. Jackson Lee. Okay. And, Mr. Gertzog, what is the NFL? Mr. Gertzog. It is similar. It is an unincorporated association not-for-profit, and--but the league has a number of for-profit business units. NFL Ventures L.P. houses our commercial operations, which would include broadcasting, NFL Properties licensed products, our international business and our Internet and satellite business. Ms. Jackson Lee. What is the name of it that houses it? Mr. Gertzog. NFL Ventures L.P. Ms. Jackson Lee. And I assume the value of that is public. What is the approximate value of the NFL Ventures L.P.? Mr. Gertzog. It is not public. Ms. Jackson Lee. Those numbers are not public? Mr. Gertzog. No. Ms. Jackson Lee. I thought it was for profit. Mr. Gertzog. It is for profit. Ms. Jackson Lee. So is it public on your tax returns? Mr. Gertzog. It is a private corporation. Ms. Jackson Lee. It is a private corporation, so in essence---- Mr. Gertzog. Owned by the members of the National Football League. Ms. Jackson Lee. So in essence, you still have a certain degree of protection, so the public cannot access what the NFL Ventures L.P. profits are. Is that correct? Mr. Gertzog. Not to my knowledge. Ms. Jackson Lee. All right. And the---- Mr. Gertzog. One of our teams, the Packers, is a public team, and you can track through their public filings some of the revenue streams that come from NFL Ventures. Ms. Jackson Lee. The NFL, then, is a 501(c)--the one that is a not-for-profit--what is that, 501(c) what? Mr. Gertzog. I think it is six, but I would have to check on that for you. Ms. Jackson Lee. And your guess would be that the NHL would be a six as well? Is that my understanding? Mr. Gertzog. Yes. Ms. Jackson Lee. Okay. Let me try to give the approach that I would like to take. And I thank you gentlemen for being here. And I thank you, Professor. I am getting ready to come and put you either in the hot seat or the cold seat. First, I would like to thank the Chairman for this hearing and thank Chairman Johnson for this hearing and just remind the NFL that in another hearing in another Subcommittee where our Chairman Bobby Scott had passed out of Committee the Promise Act, we were able to include language in the bill that spoke about the NHL, the MLB, the NBA and the NFL engaging in antiviolence activities that are somewhat different from antiviolence not of the players, of course, on the field--let me characterize it correctly--working with our youth. And many times you always say we do those kinds of programs. This is somewhat different, because I found that in the NHL and others who have a certain persona of a lot of activity on the field, a lot of blustering, and may even have some persona of some missteps publicly that the media will highlight on, all the other guys that have been playing year after year that are individuals that young people should see-- hard-working individuals who serve their community and many times don't get the glare of the media, except for maybe when they are on the playing field. So we wanted to give them an opportunity to be mentors. I say that to say that I think the players are valuable. And I compare it to a situation of a teeming stadium. The big one in Texas, of course, is up north, so we are very proud of the Reliance Stadium in Houston. This, of course, is the NFL. We are proud of our--all of our teams. But we would have this teeming team, the big stadium in Texas up north, and then the great stadium in Houston, the Reliance Stadium for the Houston Texans. And it would be teeming with excitement and noise, and we are all sitting there with bated breath, and nobody comes on the field. A politician may go out and ask people to vote. Somebody else may come out and do a dance or two. It might even be a major entertainer that will sing the Star-Spangled Banner. But there are no players, absolutely no players. Do we have anything? Are we going to have a audience sitting there smiling and say, ``I am so excited to be here today, I am just going to sit here in silence watching an empty field?'' That is what this antitrust exemption represents to me. It is a question of whether or not the valuable aspect of this game, the people who play every day, whether it is the NHL players, the NFL players, are going to be hindered because of the approach that is being taken and the seemingly impenetrable exemption that the leagues happen to have. Mr. Mawae, if I have it correct, let me just ask you, do you expect a lockout in 2011? Mr. Mawae. Ma'am, we are fully anticipating a lockout, and we are preparing all 1,900 of our players to do so. We have done them--we have educated them in terms of saving financially, on what to do in case there is a lockout and things like that. Obviously, we don't want that to happen. We have been to the table a number of times. But right this moment, we are anticipating that, because that is all the indications are showing, that that is where we are headed. Ms. Jackson Lee. And tell me, what--and thank you for qualifying that you do not represent yourself as a person providing legal advice, counsel or information, but you are a player, and you do--you are the president. So let me try to ask this question. What is a lockout? And what gives the league the authority to lock you out? Mr. Mawae. Over the history of our league, the work stoppages that we face have been strikes by players where we have refused to go to work. This is not the case. We are not fighting for anything. We are not wanting anything extra. We don't want another percentage point. We like the system the way it is, and we think it works well for both sides. A lockout would be a sense where the owners are not willing to participate in the collective bargaining agreement that we have at place. They have already opted out of our dill 2 years in advance, which would make us go into a season of uncertainty prior to the 2011 season. Players would be ready to come to training camp with the gates locked and the locker rooms shut and us not having a place to go to work. That is what a lockout is. That is the way our players understand it. Ms. Jackson Lee. And with the entity being a ``single entity,'' which is what will be affirmed possibly if the Needle case, the American Needle case, goes up on appeal, which is, in actuality, the league's desire to reaffirm the lower court's decision--they already won, as I understand it, but they want to put it in blood. But as a single entity, that means that you are--if you are a player, couldn't skip over to Green Bay if you are playing for the Saints. You would be locked out. Mr. Mawae. I would be locked out because all---- Ms. Jackson Lee. You would have no movement to say, ``Okay, I am going to go to----'' Mr. Mawae [continuing]. All 32 teams' doors would be shut. Ms. Jackson Lee. ``--the Giants and take my chances.'' Pardon me? Mr. Mawae. All 32 teams would be shut. Ms. Jackson Lee. All 32 teams---- Mr. Mawae. And there is no comparable league. Ms. Jackson Lee [continuing]. Would shut down on workers, and workers could not go onto the field to work. Mr. Mawae. Yes, ma'am. Ms. Jackson Lee. Is that my understanding? Mr. Mawae. Yes, ma'am. Ms. Jackson Lee. Professor Ross, with the American Needle case--and I think Mr. Gertzog made an eloquent case that American Needle had a relationship for 20 years, and I am sure they were celebrating that relationship. And so one could argue you had yours for a period of time, and it is time to say goodbye. I take a different perspective as to whether their single relationship was healthy. If we speak about jobs, apparently American Needle is fighting for their life. They apparently have a number of employees, or had some employees, who are gainfully employed, providing for their families. And in this context, America is looking to hire people and to lower the unemployment and raise the employment. What impact and what configuration could we actually substitute for this antitrust exemption which would balance the business interests of the NFL--which are, by the way, protected enormously with the private entity and the 501(c)(6), if that is accurate--to ensure that the product is a quality product but that there is diversity in the opportunities for businesses to do business with the NFL? Maybe it would not be American Needle. I am not here to argue their case. But maybe it would be American Johnson, American Red White & Blue, that could stand alongside Reebok, provide the opportunity for good quality, decent prices and maybe even better prices for the consumer, and a little bit of competition among the distributors. Is that too confusing a concept? Mr. Ross. Congresswoman, it is not too confusing a concept. I think we don't know enough because of this single entity decision by the district court and the Court of Appeals to know what the real facts are. Now, if you listen to Mr. Gertzog's testimony, the answer is that the efficient result is to give the business exclusively to Reebok, they can do a better job, hire more workers, produce a better-quality product that will appeal to consumers, and because, after all, what they are really doing is they are selling NFL hats in competition with other merchandise, and the idea is you--if the Redskins hat gets too pricey, somebody is going to buy a Washington Capitals hat-- makes Mr. Daly happy, and Mr. Gertzog unhappy. And if that would---- Ms. Jackson Lee. Or off-brand somewhere. Mr. Ross. Or off-brand. And if that is what is going on, what the antitrust laws say is that is fine. Now, if this Committee wants to deal with the important social issues you raise about diversity in various forms of industries, that is a separate question that certainly would warrant the attention of the Committee. But that is not what the antitrust laws look at. The antitrust laws---- Ms. Jackson Lee. Oh, I am fully aware of that, but I am looking at the impact. But then characterizing--I am fully aware of your argument, but then what is the value of the antitrust exemption when it reaches into the quality of life and the ability for Mr. Mawae to be compensated appropriately for his work? Mr. Ross. Well, the particular issue as it arises in labor is relatively narrow but can be potentially important. The effect of the exemption would not change the current collective bargaining relationship between the NFL Management Council and the NFL Players Association. What an American Needle victory would do--a big victory would do--would be to take away an option that the NFL players were able to exercise in the 1990's, which is in the face of a labor impasse, they could decertify as a union and then continue to offer to play and have the issue decided by the courts while the season was going on. So to go back to the sort of battle days of labor strike and the NFL--and during the 1980's we had a couple of strikes. We had some work stoppages. Ms. Jackson Lee. Absolutely. Mr. Ross. And then in the 1990's, the NFL players kept playing the whole time that case was being litigated. Fans continued to enjoy NFL football. And then there was antitrust litigation. That option, the decertify and sue option, would be precluded if the Supreme Court's decision is a very broad decision. Now, if the Supreme Court's decision is as narrow as Mr. Gertzog now says he wants it to be, only deciding what--the impact on licensing issues, then that issue would not arise and you wouldn't necessarily have that difficulty. And if the players think that they are--and this would only be a last resort for the players, because I am sure that the NFL players would prefer to reach an agreement through collective bargaining and stay organized as a union under the National Labor Relations Act, as opposed to simply becoming a trade association, as they did for a brief period in the 1990's. I note, for example, in hockey, during the NHL lockout the players did not choose to decertify but continued to use their--well, they didn't do it too well, but continued to fight the issues under the labor law. So even having that option isn't necessarily one that would prevent a strike or a lockout. But it would at least give the union the option of continuing to play and taking it to the courts if that was the option that they chose to pursue. Ms. Jackson Lee. Well, my understanding is what the unions have gained are the ability to--I think it is a 51--or 60-40 breakdown of the revenue. Is that accurate? And that part of this ongoing negotiation is to break that and have the owners go up and you go down. Mr. Mawae. Well, initially, on the surface of it, it looks like a 60-40 percent in the total revenue, but we know now that it is more of a 54 percent to the players because of cost credits already given off the top before you take into account the percentage that we split between the---- Ms. Jackson Lee. So are you happy with that? Mr. Mawae. No, ma'am. Ms. Jackson Lee. You think it should get---- Mr. Mawae. Well, I am sorry about that. We are happy with where we are at right now. Ms. Jackson Lee. Right, that is what I am trying to understand. Mr. Mawae. We are being asked to give a 20 percent rollback on player salaries without proof that they have lost 20 percent in revenue. Ms. Jackson Lee. Okay. Mr. Ross, does that come about with the antitrust exemption? Mr. Ross. The antitrust exemption only comes into play in real life if the leagues and the union are at such an impasse that the players decide to exercise their option to stop being a union and take their chances in court. As long as there is any opportunity for the deal to be worked out--and there was a whole series of failures in the of the NFLPA to get the owners to move at all on free agency, which was a huge psychological, I think, threshold, until their successful McNeil litigation. But the current dispute is really one of labor law between--law and then the economics and fairness of whatever the two respective positions are going to be on whether the current thing works, whether the players ought to have give- backs or something. That is really not an antitrust decision until and unless the players feel that their prospects are so poor that we need to take this out of collective bargaining and end the collective bargaining relationship. Ms. Jackson Lee. Well, I would like to be an optimist, but I think the antitrust exemption may come into being because every player that I have informally polled believes that a lockout is looming and that the option that they have to decertify, which would be thwarted by the antitrust exemption, is crucial. And I would be interested in understanding how Mr. Gertzog believes--I guess his appeal is going to be narrowly drawn. But how are you going to dictate what the Supreme Court may rule? And the Supreme Court may give a broad ruling which, in essence, would, in essence, implode the rights that the players have by way of the antitrust exemption. Mr. Gertzog. Certainly we are not in a position to dictate the Supreme Court's ultimate decision, so I agree with you on that. It should be noted that there were 70 minutes of oral argument last Wednesday before the Supreme Court. There was not a single question by any of the justices regarding the impact on labor, and the sports unions from many different leagues had submitted amicus briefs on that point, pointing out some of what we will call the doomsday scenarios. And eight of the nine justices asked questions, many of them multiple questions--not a single question on that point. So we don't expect that a ruling in our favor will cover labor. Ms. Jackson Lee. Okay. Mr. Chairman, I will conclude with this question, I guess, to Mr. Ross. The idea of the 32 entities, which is partly labor law, acting, I will just say, as one--the question I posed to Mr. Mawae, which means that while they are locked out, they can't go anywhere else and offer their services. Sometimes the law intertwines, even though the antitrust distinctions you have made very clear. In and of itself, it appears that you are denying a person's worth and that the antitrust exemption gives less oversight as to whether or not there are any antitrust implications. I know you are speaking to labor law, but does that exemption not allow, then, to look at the actions that are going on on the labor side as being--as undermining any competitiveness? On the face, it does not seem that way, but maybe there is something. And my last point is the American Needle case--I am just seeing the whole crowd and cloud, and my question would be when you have these single entities like Reebok, could they not subcontract or joint venture with American Needle? Does that mean that small minority businesses need not knock on the door? To me, that is what it says. These single distribution-- that means if I am an African American business, or a small business or Hispanic business, I probably wouldn't even know where the front door of the NFL is, because they wouldn't be looking for me. Frankly, I think that is anticompetitive. Mr. Ross. Congresswoman, I would be remiss in not saying what a pleasure it is to talk to the whole Committee and particularly note my father-in-law and you both went to Jamaica High, so I am particularly pleased to answer your question in that regard. The antitrust laws are focused primarily on consumer choice. If, as Mr. Gertzog claims, the Reebok deal is good for consumers in a lower cost or more quality, then that is really only what the antitrust laws are concerned about. There are a lot of reasons for economic diversity. But I would use the example of the Federal Communications Act which separates the issues, so that there are competition law issues, say, in a merger, and then there are issues of minority access and diversity of viewpoints and things like that. Now, I think it is a serious public policy question whether sports leagues ought to be having exclusive contracts with single large multinational corporations, especially if there aren't some socially responsible deals with other enterprises and things like that. Ms. Jackson Lee. And especially if they don't look for them. Mr. Ross. And I think that is a fair question. But with all respect, I think that is a very useful topic for another hearing, because that is really not an antitrust question. That is really a question of social justice and the economic power that really doesn't impact on consumer. Ms. Jackson Lee. So just quickly, it does impact on consumers if they did not look to see whether or not smaller entities, non-multinationals, would provide a better deal. I am sure in their appeal they have made the argument, or the lower case they made the argument, that the better deal was with Reebok, but you made--Reebok, but you made the point. It is a multinational company and others are left outside the door. And because of the antitrust exemption, the NFL can do that. Mr. Ross. Actually, let me make one other clarification to that. If, in fact, the--sports was such a driver for merchandise as it is for television, for example, that small and minority business enterprises could not compete in the marketplace without getting a sports contract--I have no idea if that is true, but if that were true, then that would be an antitrust violation. But the single-entity status doesn't really matter there. The contract, the Section 1 agreement, that you would challenge if you were, say, a small minority business enterprises would be the agreement between the National Football League and Reebok. There is no question that that is still an agreement--or the National Hockey League and whoever you happen to have as your agreement. If, in fact, these sorts of agreements really do exclude small and medium apparel manufacturers and others from the marketplace, that is an antitrust question, and I think that is actually one that maybe the Federal Trade Commission or the Justice Department should take a look at. But that really is not affected by this--the American Needle case. Whether they are a single entity or a group of clubs, it is the agreement with Reebok that---- Ms. Jackson Lee. Right. Mr. Ross [continuing]. You would be looking at, and that is a very legitimate question that you raise. Ms. Jackson Lee. Mr. Chairman, thank you. I think that this hearing, once again, is vital, as the hearings that you have taken leadership on, and we have joined you, on the NFL brain injuries, one to be held in Houston on February 1st, one held in Washington, one held in Detroit. I think it has made enormous difference. I had the chance to visit with some of my players--and when I say ``my,'' we take ownership and have great respect for you all--and the testimonies, not in front of a hearing, Mr. Chairman, but just personal testimonies, are just amazing. So I think we are doing good here, and I, frankly, believe the antitrust question has to be continuously explored. I don't know what the Supreme Court is going to do, but I have a sense the Supreme Court can do anything they want to do. They don't have to be narrowly defined. And I would add that with respect to the ongoing negotiations--but do include labor agreements--I understand that--but there is some oversight that Judiciary would have. We need to monitor this particular lockout potential, which we don't want, very closely, because the product of the player is what the sports fan comes to see. They don't want to see me singing or speaking. Great respect for all of the investors that invest into the sports, but not too many of them could draw attention on the field. And I don't know why, in the words of Rodney King, we can't all get along. And I certainly hope that we will have a steady watch of this. And even though my great professor has interpreted very well the requirements--or the stricture, rather, of the antitrust laws, I see a little creeping over. And I am going to be exploring that, doing research, to see how this unity of the 32 is also impacting both antitrust and NLRB on the workers' rights. So I have sort of moved around in this issue, but I do think there is a way of trying to address this question and to get the facts and to juxtapose it against the law, and maybe do a little bit more research, Professor Ross. But I thank you, Mr. Chairman, and I thank Mr. Gertzog for his presentation. Mr. Daly, we have left you alone a little bit but hope you will participate in this antiviolence effort. We will get your card. And, Mr. Mawae, you need to keep us all apprised of these negotiations. Got some good Texans down there. I will acknowledge, Mr. Chairman, that you had a chance, as I understand, to meet one of our very fine Houston Texans, a Mr. Chester Pitt, who was here and was very impressed with your leadership. I think he might have been in a group meeting that you may have had with these players. And I want you to know that they are fine civic citizens, and we really do appreciate what they do for our communities. I thank you, Mr. Chairman, and I yield back. Mr. Conyers. Thank you all very, very much. This was a very instructive and beneficial hearing. The Subcommittee stands adjourned. [Whereupon, at 4:42 p.m., the Subcommittee was adjourned.]