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MLB Settles, Leaving Unanswered Questions: Do Sports Leagues’ Regional Blackout Agreements Violate Antitrust Laws?

In the wake of Major League Baseball’s settlement of antitrust claims on the eve of trial, the central question from the lawsuit remains:  are sports leagues’ exclusive broadcasting territories for live games an antitrust violation?  Although suits against the MLB and National Hockey League have both settled, analogous antitrust claims are pending against the National Football League, leaving open the possibility that these issues may be finally resolved in the court room.

Despite a variety of plaintiffs, including the Department of Justice, bringing different iterations of these antitrust allegations for the past 60 years—for example, United States v. National Football League—major professional sports leagues have long engaged in dividing the “live-game video presentation market” into exclusive territories, which are protected by blackouts.  Here is how it works.  The sports leagues (or teams, depending on who owns the broadcasting rights) assign an exclusive territory to each team and its television partners, sometimes known as regional blackout agreements.  The team and television partners enjoy exclusivity in their territory because the other teams and their television partners are prohibited from broadcasting their games in that territory, thus eliminating competition among regions, plaintiffs argue.

The assigned partners in each region then assign their telecasts back to the sports leagues, who license the right to broadcast out-of-market packages.  These packages are usually only available from one or two providers at a steep cost and require consumers to buy access to all out-of-market games for the entire season, even if a consumer wants to view only the games of one team.

While sports leagues have long enjoyed partial immunity from antitrust scrutiny – since sports leagues require some cooperation to produce the games, even though they are also competitors in the market – longstanding Supreme Court precedent holds that “agreements limiting the telecasting of professional sports games are subject to antitrust scrutiny . . . under the rule of reason.”  Yet, no court has ever ruled on the legality of the modern regional blackout agreements.

Most of the arguments for both sides are well known.  In 2012, several class action suits were brought against the NHL and MLB, separately, for antitrust violations.  These cases were consolidated and Judge Scheindlin in the Southern District of New York ruled on both a motion to dismiss and a motion for summary judgment.  In those motions, many of the issues were fully briefed and the court opined on the strength of some of the evidence for both sides.

In the summary judgment motion, the court held that plaintiffs produced sufficient evidence to prove injury to competition, finding that regional blackout agreements decrease consumer choice and increase price.  Defendants did not challenge the allegation that they have market power, so the court did not address that issue.

Next, the court examined the sport leagues’ six pro-competitive justifications, namely that the agreements:

•  prevent free riding;

•  preclude competition with joint venture products;

•  incentivize investment in higher quality telecasts;

•  maintain competitive balance;

•  preserve a balance between local loyalty and interest in the sport as a whole; and

•  increase the overall number of games that are telecast.

The court quickly dismissed the first two justifications as “unpersuasive.”  As for the third justification, the court noted that defendants were arguing that they had an incentive to invest in higher-quality telecasts because of the “inflated profit stemming from limited competition.”  However, the rule of reason “‘does not support a defense based on the assumption that competition itself is unreasonable,’” so the court rejected that justification too.

Regarding the fourth justification, the court noted that it was not clear whether the territorial restrictions helped or harmed competition.  On the one hand, the regional blackouts could protect less popular teams from more popular teams broadcasting live in their exclusive markets; on the other hand, small market teams are required to “refrain from broadcasting in larger, more populous markets, while big market teams forego only small, less populous markets.”

Defendants argued for their fifth justification that they have a pro-competitive interest in maintaining a “‘balance between the promotion of [the sports] as [] national game[s] and the need to incentivize Clubs to build their local fan bases.’”  The court found these goals conflicting and held that defendants could not establish that their balance “is better for consumers, or for demand, than the balance that would prevail in a free market.”

Finally, defendants argued there would be fewer telecasts in a free market “because less popular teams would struggle to get their games produced or televised.”  Yet, the court noted defendants’ inconsistent position since they also insisted that the telecast rights “are so valuable that [the current broadcast providers] would compete for those rights vigorously even in the absence of the territorial rules.”

Despite the court’s rejection of the six pro-competitive justifications offered by defendants, the court noted that these justifications were “conceivable,” but hardly conclusive enough to establish them as a matter of law, which is the standard at the summary judgment stage.

Both the NHL and the MLB settled the suits before going to trial and no issues were finally resolved.  So far, there has been no indication whether the NFL will follow suit – the case has been consolidated at In re: National Football League’s ‘Sunday Ticket’ Antitrust Litigation in the Central District of California, No. 2:15-ml-2668, and discovery is expected to commence shortly.