Tuesday, 10 December 2013

Understanding the FANS Act

A piece of sports-related legislation was proposed in the U.S. House of Representatives and Senate last month: the Furthering Access and Networks for Sports (FANS) Act.  The bill was first introduced in the House by Rep. Brian Higgins (D-NY), with Senators Richard Blumenthal (D-CT) and John McCain (R-AZ) following suit in the Senate a week later (this is the second piece of legislation implicating professional sports proposed by Senator McCain this year).  The FANS Act features two main sections, the first dealing with blackouts of televised sporting events, and the second with baseball's antitrust exemption. 


The first part of the FANS Act is intended to reduce the frequency with which live sporting events are blacked out on local television networks and over the Internet.  While all four major U.S. professional sports leagues engage in blackouts to some extent, the NFL's policies have generally drawn the most criticism.  Traditionally, the NFL mandated that a game be blacked out in the local television market of the home team unless the stadium was sold out at least 48 hours in advance.  The NFL modified this restriction last year in the face of mounting pressure, now allowing games to be aired locally when as few as 85% of the tickets have been sold.  Meanwhile, the NBA, NHL, and MLB primarily utilize blackouts in connection with their pay-per-view cable (NBA Full Court, NHL Center Ice, and MLB Extra Innings) and Internet packages (e.g., MLB.tv), through which viewers purchase the right to watch every league game.  These packages typically prevent fans from watching any game on a pay-per-view basis if it is being broadcast locally on either network television or via a regional sports network (RSN).  The NHL's and MLB's blackout rules are the subject of pending antitrust litigation in the Southern District of New York.

The FANS Act attempts to force the leagues to modify their blackout policies by retracting the Sports Broadcasting Act of 1961 (SBA) for any league that engages in unauthorized blackouts.  The SBA currently provides a limited antitrust exemption to the four major professional sports leagues allowing them to collectively sell the broadcast rights to their games to over-the-air, broadcast networks (i.e., NBC, ABC, CBS, and Fox).  The SBA was passed at the behest of the NFL after the league's plan to sell a package of league games to CBS was struck down by a federal court in 1961.  The SBA does not apply to the leagues' contracts with cable stations, however, which courts have held do not fall within the SBA's protection of "sponsored telecasting."  See, e.g., Shaw v. Dallas Cowboys Football Club, 172 F.3d 299 (3rd Cir. 1999).

Section 3(a) of the FANS Act would eliminate the SBA's antitrust immunity for any league that allows its games to be blacked out on network television.  Meanwhile, section 3(b) of the bill revises a passage in the SBA authorizing blackouts of a team's home games in its local market.  These changes would have by far the greatest impact on the NFL, which is not only the biggest beneficiary of the SBA -- given its multi-billion dollar deals with NBC, CBS, and Fox -- but is also the only league that blacks out its network broadcasts in local markets based on the home team's ticket sales.  Thus, these provisions of the FANS Act appear to be intended to motivate the NFL to continue to relax its blackout restrictions.  As Senator Blumenthal explained, "they know the legislation is looming if they engage in blackouts. It’s a not-so-subtle pressure.”

The blackout portion of the FANS Act would have a much more limited impact on the NBA, NHL, and MLB.  Not only do these leagues derive a much smaller share of their television revenue from the over-the-air networks, but they also do not typically blackout a home team's games from its local market on network television.  Therefore, the biggest impact of the FANS Act on the other three leagues would be with respect to their Internet blackout policies.  Specifically, section 3(c) of the FANS Act would prevent the leagues from blacking out games that are being aired on over-the-air network television (but not cable) from their Internet packages, but only if the game is unavailable on the fan's local television station.  For example, MLB's agreement with broadcast network Fox permits the station to televise up to four baseball games every Saturday, with different regions seeing different games.  Thus, under the FANS Act, MLB would lose its protection under the SBA if it continued to prevent fans from watching games on the Internet that were not available on their local Fox affiliate.  But MLB would still be able to blackout whichever game is airing on a fan's local Fox affiliate from his MLB.tv Internet subscription. 

The impact of this provision would be extremely limited.  Not only would the change have no impact on fans who subscribe to a league's cable pay-per-view package (e.g., MLB Extra Innings), but it would also do nothing to prevent the leagues from continuing to blackout games aired locally on an RSN from a fan's cable or Internet pay-per-view package.  Moreover, MLB and Fox had already gone one step further than the FANS Act, announcing in 2012 that they would cease to black out Fox's Saturday Games of the Week from both MLB Extra Innings and MLB.tv beginning in 2014.  Thus, it is unclear if the FANS Act would have any appreciable impact on the NBA, NHL, or MLB.

Meanwhile, although the FANS Act would potentially have a significant impact on the NFL, the league could nevertheless decide to preserve its blackout restrictions even if the legislation were to be enacted.  Indeed, the FANS Act would not actually force the NFL to change its blackout policies, but instead would simply condition the league's continued antitrust protection under the SBA on such a modification.  The NFL might thus decide that the odds of an antitrust challenge to its network television deal are so low, or that its prospects for winning such a suit under the rule of reason are strong enough, as to warrant maintaining its blackout policy despite the passage of the FANS Act.  Along these lines, each league's collective sales of television rights to cable networks such as ESPN have seldom been challenged under antitrust law, despite the lack of protection afforded to those deals by the SBA. 

Baseball's Antitrust Exemption

While the blackout restrictions in the FANS Act are fairly complex, the second half of the bill is perhaps even more difficult to decipher.  It purports to eliminate baseball's historic exemption from antitrust law, at least as applied to MLB (the bill appears to leave the immunity in place for the minor leagues, as discussed below).  In particular, the bill would amend the Curt Flood Act of 1998 (CFA), which repealed baseball's antitrust exemption simply in one respect: by allowing current major league players to file antitrust lawsuits against MLB. 

The FANS Act proposes to further limit baseball's antitrust immunity by revising a series of passages in the CFA that were intended to confirm that the 1998 legislation did not alter baseball's antitrust status in any respect other than for suits filed by MLB players.  For example, the FANS Act would amend section (a) of the CFA as follows (the crossed out text reflects what would be struck from the CFA by the FANS Act):
(a) Subject to subsections (b) through (d), the conduct, acts, practices, or agreements of persons in the business of organized professional major league baseball directly relating to or affecting employment of major league baseball players to play baseball at the major league level are subject to the antitrust laws to the same extent such conduct, acts, practices, or agreements would be subject to the antitrust laws if engaged in by persons in any other professional sports business affecting interstate commerce.
This revision would appear to largely revoke baseball's antitrust exemption by broadly exposing the activities of MLB to antitrust law (as is the case for the NFL, NBA, and NHL).  However, subsequent language in the FANS Act makes the intended effect of this modification less clear.  In particular, the bill would also amend section (b) of the CFA as follows (subsections (b)(1) and (b)(2), unaffected by the FANS Act, would preserve baseball's antitrust immunity for the minor leagues):
(b) No court shall rely on the enactment of this section as a basis for changing the application of the antitrust laws to any conduct, acts, practices, or agreements other than those set forth in subsection (a). This section does not create, permit or imply a cause of action by which to challenge under the antitrust laws, or otherwise apply the antitrust laws to, any conduct, acts, practices, or agreements that do not directly relate to or affect employment of major league baseball players to play baseball at the major league level, including but not limited to


(3) any conduct, acts, practices, or agreements of persons engaging in, conducting or participating in the business of organized professional baseball relating to or affecting franchise expansion, location or relocation, [or] franchise ownership issues, including ownership transfers, the relationship between the Office of the Commissioner and franchise owners, the marketing or sales of the entertainment product of organized professional baseball and the licensing of intellectual property rights owned or held by organized professional baseball teams individually or collectively
By retaining the language in section (b)(3) of the CFA relating to expansion, relocation, and franchise ownership, this portion of the FANS Act would seemingly maintain MLB's exemption for those critical areas, while simply retracting the immunity for broadcasting and other merchandise licensing purposes.  Thus, it is unclear whether the bill's sponsors intend to broadly revoke MLB's antitrust immunity (as suggested by their revision of section (a) of the CFA), or if they only seek to apply the antitrust laws to MLB's broadcasting and other licensing policies (as seemingly suggested by their revision of section (b)(3)).  Indeed, both sections (a) and (b) of the CFA incorporate one another by reference, so it is unclear which of the two provisions would be given priority should the FANS Act be enacted.

I suspect that the drafters of the FANS Act intend for the bill to broadly revoke MLB's antitrust immunity.  Not only does the proposed revision to section (a) of the CFA appear to reflect such an intent, but the preamble to the bill states in part that the FANS Act would "require the application of the antitrust laws to Major League Baseball."  If that is the case, however, then it would be cleaner and clearer to simply excise subsection (b)(3) of the CFA in its entirety.

The drafters may have opted to retain the remaining language in subsection (b)(3) of the CFA in order to further protect minor league baseball, and specifically its expansion, relocation, and ownership restrictions.  Elsewhere, the FANS Act leaves intact subsections (b)(1) and (b)(2) of the CFA, which explicitly state that the antitrust laws do not apply to minor league baseball or its relationship with MLB.  These sections were originally inserted into the CFA following a massive lobbying campaign orchestrated by the minor leagues, which feared that the 1998 legislation would disrupt their relationship with MLB.  The drafters of the FANS Act may have thus left the remaining portion of subsection (b)(3) in place to placate the minor league lobby.  However, if that was the intent of the legislators, it would be much more effective if they inserted some language into subsection (b)(3) clarifying that it only applies to the minor leagues.

Alternatively, it is possible that the FANS Act is only intended to address the blackout and related licensing issues, and thus that the second half of the bill only seeks to expose MLB's broadcasting and merchandising practices to antitrust law.  If this is the case, then the drafters could accomplish this goal much more clearly by simply stating that baseball's antitrust exemption does not apply to MLB's broadcasting or other intellectual property licensing activities.  Ironically, MLB did not even assert its antitrust exemption in the pending litigation challenging its blackout policies in the Southern District of New York, potentially rendering the current bill unnecessary should its intended effect be more narrow.  Indeed, the only reported court decision on record, involving a dispute surrounding the Houston Astros' local radio broadcast agreements, held that the exemption does not shield baseball's broadcasting activities.  Henderson Broadcasting Corp. v. Houston Sports Ass’n, 541 F. Supp. 263 (S.D. Tex. 1982).

Regardless of the legislators' intent, as currently drafted the FANS Act's treatment of baseball's antitrust exemption is unclear.  I would expect this portion of the bill to be fine-tuned considerably should it advance through the legislative process.

Prospects for Passage 

Passage of the FANS Act does not appear to be particularly likely, as the four leagues will presumably lobby vigorously against the bill.  That having been said, of its two parts, the blackout section of the FANS Act would seem to have a stronger chance at passage than does the baseball antitrust exemption portion of the bill.  While the leagues can be expected to fight the blackout provision, that lobbying effort could be offset to some degree by the broadcast networks themselves.  Indeed, backers of the bill reportedly consulted with various television networks when drafting the legislation.  The value of CBS and Fox's broadcast packages with the NFL would rise (even if only incrementally) if the networks were assured of being able to broadcast each home team's game in its local market regardless of the number of tickets sold.  That fact, along with general fan discontent with blackouts, could potentially enable supporters of the FANS Act to overcome the leagues' inevitable lobbying campaign against this portion of the bill.

Meanwhile, the legislation's attempted revocation of MLB's antitrust exemption appears less likely to pass.  Unlike with the blackout issue, there is no obvious, well organized constituency to counterbalance MLB's likely lobbying efforts against this portion of the FANS Act.  Moreover, while baseball's antitrust exemption is certainly anomalous, there is no immediately pressing, nationwide public concern that will be remedied by its repeal.  Thus, barring some unforeseen development, it appears unlikely that the FANS Act will mark the end of baseball's nearly century old antitrust immunity.

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