UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
November 15, 1978
JAMES MCCOY SMITH
PRO FOOTBALL, INC., A MARYLAND CORPORATION, A/K/A WASHINGTON REDSKINS AND THE NATIONAL FOOTBALL LEAGUE, APPELLANTS JAMES MCCOY SMITH
Before McGOWAN, MacKINNON and WILKEY, Circuit Judges.
UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA CIRCUIT
FOOTBALL, INC., a Maryland Corporation,
a/k/a WASHINGTON REDSKINS and the
NATIONAL FOOTBALL LEAGUE 1978.CDC.192
Date Decided: 9 November 1978; As Amended November 22, 1978. As Amended January 31, 1979.
Rehearing Denied February 1, 1979.
Appeals from the United States District Court for the District of Columbia (D.C. Civil 1643-70).
Opinion for the Court filed by WILKEY, Circuit Judge.
Opinion filed by MacKINNON, Circuit Judge, concurring in part and dissenting in part.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WILKEY
This private antitrust action challenges the legality of the National Football League player selection system, commonly called the "draft." The plaintiff is James McCoy (Yazoo) Smith, a former professional football player who played one season for the Washington Redskins after being drafted by them in 1968. The defendants are Pro-Football, Inc., which operates the Redskins, and the NFL. Smith contends that the draft as it existed in 1968 was an unreasonable restraint of trade in violation of §§ 1 and 3 of the Sherman Act, *fn1 and that, but for the draft, he would have negotiated a far more lucrative contract when he signed as a player in that year. Smith alleges that he has been injured in his business or property *fn2 in the amount of the difference between the compensation he actually received and the compensation he would have received had there existed a "free market" for his services.
After a trial to the court, District Judge Bryant held that the NFL draft as it existed in 1968 constituted a "group boycott" and was thus a Per se violation of the Sherman Act. *fn3 Alternatively, he held that the draft, tested under the rule of reason, was an unreasonable restraint because it was "significantly more restrictive than necessary" to accomplish whatever legitimate goals the NFL had. *fn4 Judge Bryant awarded Smith treble damages totaling $276,000. The Redskins and the NFL have appealed the finding of antitrust liability; both sides have appealed the damage award. Relying on the rule of reason, we affirm the finding of antitrust liability and remand for recomputation of damages. I. BACKGROUND
The NFL draft, which has been in effect since 1935, is a procedure under which negotiating rights to graduating college football players are allocated each year among the NFL clubs in inverse order of the clubs' standing. Under the draft procedures generally followed, the team with the poorest playing-field record during the preceding season has the first opportunity, as among the NFL teams, to select a college player of its choice; the team with the next poorest record has the next choice, and so on until the team with the best record (the winner of the previous year's "Super Bowl") has picked last. At this point, the first "round" of the draft is completed. In 1968 there were 16 succeeding rounds in the yearly draft, the same order of selection being followed in each round. Teams had one choice per round unless they had traded their choice in that round to another team (a fairly common practice). When Smith was selected by the Redskins there were 26 teams choosing in the draft.
The NFL draft, like similar procedures in other professional sports, is designed to promote "competitive balance." By dispersing newly arriving player talent equally among all NFL teams, with preferences to the weaker clubs, the draft aims to produce teams that are as evenly-matched on the playing field as possible. Evenly-matched teams make for closer games, tighter pennant races, and better player morale, thus maximizing fan interest, broadcast revenues, and overall health of the sport.
The draft is effectuated through the NFL's "no-tampering" rule. *fn5 Under this rule as it existed in 1968, no team was permitted to negotiate prior to the draft with any player eligible to be drafted, and no team could negotiate with (or sign) any player selected by another team in the draft. The net result of these restrictions was that the right to negotiate with any given player was exclusively held by one team at any given time. If a college player could not reach a satisfactory agreement with the team holding the rights to his services he could not play in the NFL. *fn6
Plaintiff Smith became subject to the draft when he graduated as an All-American football player from the University of Oregon in 1968. The Redskins, choosing twelfth, picked Smith as their first-round draft choice. After several months of negotiations, in which he was represented by an agent, Smith and the Redskins signed a one-year contract a version of the Standard Player Contract that the NFL requires all players to sign. *fn7 The contract awarded Smith a $23,000 "bonus" for signing, an additional $5,000 if he made the team, and a salary of $22,000, for a total first-year compensation of $50,000.
Smith made the team and performed at a high level of play as a defensive back until he suffered a serious neck injury in the final game of the 1968 season. His doctors advised him not to continue his football career. After his injury the Redskins paid Smith an additional $19,800, representing the amount he would ordinarily have received had he played out the second ("option") year of his contract. *fn8
Two years after his injury Smith filed suit in the District Court. After finding that the draft violated the antitrust laws, Judge Bryant awarded Smith damages equal to the difference between his actual compensation and the compensation he could have received in a free market. To compute the latter amount, Judge Bryant assumed that plaintiff in a free market would have been able to negotiate a three-year contract with an "injury protection clause," I. e., a clause guaranteeing payment for the full term of a player's contract even if he should be incapacitated. Judge Bryant estimated Smith's annual "free market salary" by taking the annual salary ($54,000) of another defensive back (Pat Fischer) who signed as a "free agent" *fn9 with the Redskins in 1968. The resulting calculation yielded $162,000 as the contractual value of Smith's services in a free market. From this sum Judge Bryant subtracted the $69,800 that Smith in fact received, netting actual damages in the amount of $92,200. This figure was trebled to $276,600 in accordance with the antitrust laws. *fn10 II. ANALYSIS
The legality of the NFL player draft under the antitrust laws *fn11 is essentially a question of first impression. *fn12 This case requires us to consider (1) whether the legality of the draft is governed by a Per se rule or by the rule of reason; (2) whether the draft, if tested by the rule of reason, is a reasonable restraint; and (3) whether, if the draft violates the antitrust laws, the measure of damages adopted by the District Judge was proper. We discuss these issues in turn.
A. Per Se Illegality
The traditional framework of analysis under § 1 of the Sherman Act is familiar and does not require extended discussion. Section 1 prohibits "(e) very contract, combination . . . or conspiracy, in restraint of trade or commerce." While this language is broad enough to render illegal nearly all commercial understandings, the Supreme Court in Standard Oil *fn13 established a judicial gloss on the statute which made the "rule of reason" the prevailing mode of analysis. Under this rule, the fact-finder weighs all the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an Unreasonable restraint on competition. The inquiry mandated by the rule of reason, however, is often laborious, and as the courts gained experience with antitrust problems they identified certain types of agreements which were so consistently unreasonable that they could be deemed illegal Per se, without elaborate inquiry into their purported justifications. Among the practices that have been deemed so pernicious as to be unreasonable Per se are certain "group boycotts." *fn14
Plaintiff argues that the NFL draft constitutes a "group boycott" because the NFL clubs concertedly refuse to deal with any player before he has been drafted or after he has been drafted by another team, and that the draft is in consequence a Per se violation of § 1. The District Court accepted this argument. We reject it. We hold that the NFL player draft is not properly characterized as a "group boycott" at least not the type of boycott that traditionally has been held illegal Per se and that the draft, regardless of how it is characterized, should more appropriately be tested under the rule of reason.
The classic "group boycott" is a concerted attempt by a group of competitors at one level to protect themselves from competition from non-group members who seek to compete at that level. *fn15 Typically, the boycotting group combines to deprive would-be competitors of a trade relationship which they need in order to enter (or survive in) the level wherein the group operates. The group may accomplish its exclusionary purpose by inducing suppliers not to sell to potential competitors, by inducing customers not to buy from them, or, in some cases, by refusing to deal with would-be competitors themselves. *fn16 In each instance, however, the hallmark of the "group boycott" is the effort of competitors to "barricade themselves from competition at their own level." *fn17 It is this purpose to exclude competition that has characterized the Supreme Court's decisions invoking the group boycott Per se rule. *fn18
The NFL player draft differs from the classic group boycott in two significant respects. First, the NFL clubs which have "combined" to implement the draft are not Competitors in any economic sense. The clubs operate basically as a joint venture *fn19 in producing an entertainment product football games and telecasts. No NFL club can produce this product without agreements and joint action with every other team. To this end, the League not only determines franchise locations, playing schedules, and broadcast terms, but also ensures that the clubs receive equal shares of telecast and ticket revenues. These economic joint venturers "compete" on the playing field, to be sure, but here as well cooperation is essential if the entertainment product is to attain a high quality: only if the teams are "competitively balanced" will spectator interest be maintained at a high pitch. No NFL team, in short, is interested in driving another team out of business, whether in the counting-house or on the football field, for if the League fails, no one team can survive.
The draft differs from the classic group boycott, secondly, in that the NFL clubs have not combined To exclude competitors or potential competitors from their level of the market. *fn20 Smith was never seeking to "compete" with the NFL clubs, and their refusal to deal with him has resulted in no decrease in the competition for providing football entertainment to the public. The draft, indeed, is designed not to insulate the NFL from competition, but to improve the entertainment product by enhancing its teams' competitive equality. *fn21
In view of these differences, we conclude that the NFL player draft cannot properly be described as a group boycott at least not the type of group boycott that traditionally has elicited invocation of a Per se rule. *fn22 The "group boycott" designation, we believe, is properly restricted to concerted attempts by competitors to exclude horizontal competitors; it should not be applied, and has never been applied by the Supreme Court, to concerted refusals that are not designed to drive out competitors but to achieve some other goal. *fn23
We are guided in reaching this conclusion by decisions in analogous areas of antitrust law. The courts have consistently refused to invoke the boycott Per se rule where, given the peculiar characteristics of an industry, the need for cooperation among participants necessitated some type of concerted refusal to deal, *fn24 or where the concerted activity manifested no purpose to exclude and in fact worked no exclusion of competitors. *fn25 In view of the joint-venture characteristics of the professional football industry and the purpose of the concerted activity here, these decisions support our conclusion that the NFL player draft is not a group boycott which is illegal Per se.
Whether the draft is a group boycott, or not, we think it is clearly not the type of restraint to which a Per se rule is meant to apply. A Per se rule is a judicial shortcut; it represents the considered judgment of courts, after considerable experience with a particular type of restraint, that the rule of reason the normal mode of analysis can be dispensed with. As the Supreme Court explained in Northern Pacific Railway Co. v. United States, *fn26 "there are certain agreements or practices which because of their Pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." A court will not indulge in this conclusive presumption lightly. Invocation of a Per se rule always risks sweeping reasonable, pro-competitive activity within a general condemnation, and a court will run this risk only when it can say, on the strength of unambiguous experience, *fn27 that the challenged action is a "naked restraintof trade with no purpose except stifling of competition." *fn28
The Supreme Court emphasized the "demanding standards" of Northern Pacific Railway last Term in Continental T. V., Inc. v. GTE Sylvania Inc. *fn29 Reiterating that "(p)er se rules of illegality are appropriate only when they relate to conduct that is Manifestly anti-competitive," *fn30 the Court overruled Arnold, Schwinn & Co. *fn31 which had held certain vertical restraints illegal Per se. The Continental Court noted that the vertical restrictions in question possessed "redeeming virtues" in their stimulation of inter-brand competition; that the restrictions were "widely used in our free market economy"; and that there existed "substantial scholarly and judicial authority supporting their economic utility." *fn32 For these reasons, the Court held that the restraints at issue were to be analyzed not under a Per se rule, but under the rule of reason.
For similar reasons we reach the same conclusion here. The NFL player draft, we think, quite clearly fails to satisfy the "demanding standards" of Northern Pacific Railway. Given that the draft's restrictive effect is temporally limited, we would hesitate to describe its impact on the market for players' services as "pernicious." More importantly, we cannot say that the draft has "no purpose except stifling of competition" or that it is without "any redeeming virtue." Some form of player selection system may serve to regulate and thereby promote competition in what would otherwise be a chaotic bidding market for the services of college players. The Redskins, moreover, presented considerable evidence at trial that the draft was designed to preserve, and that it made some contribution to preserving, playing-field equality among the NFL-teams with various attendant benefits. The draft, finally, like the vertical restraints challenged in Continental T.V., is "widely used" in our economy *fn33 and has both judicial *fn34 and scholarly *fn35 support for its economic usefulness.
This is not to say, of course, that the draft in any one of its incarnations may not violate the antitrust laws. It is only to say that the courts have had too little experience with this type of restraint, and know too little of the "economic and business stuff" from which it issues, *fn36 confidently to declare it illegal without undertaking the analysis enjoined by the rule of reason.
Our conclusion that the legality of the NFL draft should not be governed by a Per se rule parallels the conclusion of most courts *fn37 and commentators *fn38 that the legality of player restrictions in professional sports should be governed by the rule of reason. In the case most nearly on point, the Eighth Circuit recently declined, for reasons akin to ours, to apply a Per se approach to the NFL's Rozelle rule. *fn39 While we fully appreciate the administrative convenience of a Per se rubric, ease of application alone cannot suffice to recommend it. *fn40 In antitrust law, as elsewhere, we must heed Justice Cardozo's warning to beware "the tyranny of tags and tickets." *fn41 When anticompetitive effects are shown to result from a particular player selection system "they can be adequately policed under the rule of reason." *fn42
B. Rule of Reason
Under the rule of reason, a restraint must be evaluated to determine whether it is significantly anticompetitive in purpose or effect. In making this evaluation, a court generally will be required to analyze "the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed." *fn43 If, on analysis, the restraint is found to have legitimate business purposes whose realization serves to promote competition, the "anticompetitive evils" of the challenged practice must be carefully balanced against its "procompetitive virtues" to ascertain whether the former outweigh the latter. *fn44 A restraint is unreasonable if it has the "net effect" of substantially impeding competition. *fn45
After undertaking the analysis mandated by the rule of reason, the District Court concluded that the NFL draft as it existed in 1968 had a severely anticompetitive impact on the market for players' services, and that it went beyond the level of restraint reasonably necessary to accomplish whatever legitimate business purposes might be asserted for it. We have no basis for disturbing the District Court's findings of fact; *fn46 and while our legal analysis differs slightly from that of the trial judge, having benefited from intervening guidance from the Supreme Court, we agree with the District Court's conclusion that the NFL draft as it existed in 1968 constituted an unreasonable restraint of trade.
The draft that has been challenged here is undeniably anticompetitive both in its purpose and in its effect. The defendants have conceded that the draft "restricts competition among the NFL clubs for the services of graduating college players" and, indeed, that the draft "is designed to limit competition" and "to be a "purposive' restraint" on the player-service market. *fn47 The fact that the draft assertedly was designed to promote the teams' playing-field equality rather than to inflate their profit margins may prevent the draft's purpose from being described, in subjective terms, as nefarious. But this fact does not prevent its purpose from being described, in objective terms, as anticompetitive, for suppressing competition, is the Telos, the very essence of the restraint.
The trial judge was likewise correct in finding that the draft was significantly anticompetitive in its Effect. The draft inescapably forces each seller of football services to deal with one, and only one buyer, robbing the seller, as in any monopsonistic market, of any real bargaining power. *fn48 The draft, as the District Court found, "leaves no room whatever for competition among the teams for the services of college players, and utterly strips them of any measure of control over the marketing of their talents." *fn49 The predictable effect of the draft, as the evidence established and as the District Court found, was to lower the salary levels of the best college players. There can be no doubt that the effect of the draft as it existed in 1968 was to "suppress or even destroy competition" *fn50 in the market for players' services.
The justification asserted for the draft is that it has the legitimate business purpose of promoting "competitive balance" and playing-field equality among the teams, producing better entertainment for the public, higher salaries for the players, and increased financial security for the clubs. The NFL has endeavored to summarize this justification by saying that the draft ultimately has a "procompetitive" effect, yet this shorthand entails no small risk of confusion. The draft is "procompetitive," if at all, in a very different sense from that in which it is anticompetitive. The draft is anticompetitive in its effect on the market for players' services, because it virtually eliminates economic competition among buyers for the services of sellers. The draft is allegedly "procompetitive" in its effect on the playing field; but the NFL teams are not economic competitors on the playing field, and the draft, while it may heighten athletic competition and thus improve the entertainment product offered to the public, does not increase competition in the economic sense of encouraging others to enter the market and to offer the product at lower cost. Because the draft's "anticompetitive" and "procompetitive" effects are not comparable, it is impossible to "net them out" in the usual rule-of-reason balancing. The draft's "anticompetitive evils," in other words, cannot be balanced against its "procompetitive virtues," and the draft be upheld if the latter outweigh the former. In strict economic terms, the draft's demonstrated procompetitive effects are nil.
The defendants' justification for the draft reduces in fine to an assertion that competition in the market for entering players' services would not serve the best interests of the public, the clubs, or the players themselves. This is precisely the type of argument that the Supreme Court only recently has declared to be unavailing. In National Society of Professional Engineers v. United States, *fn51 the Court held that a professional society's ban on competitive bidding violated § 1 of the Sherman Act. In so holding the Court rejected a defense that unbridled competitive bidding would lead to deceptively low bids and inferior work "with consequent risk to public safety and health," *fn52 terming this justification "nothing less than a frontal assault on the basic policy of the Sherman Act." *fn53 Ending decades of uncertainty as to the proper scope of inquiry under the rule of reason, the Court stated categorically that the rule, contrary to its name, "does not open the field of antitrust inquiry to any argument in favor of a challenged restraint that may fall within the realm of reason," *fn54 and that the inquiry instead must be "confined to a consideration of (the restraint's) impact on competitive conditions." *fn55 The purpose of antitrust analysis, the Court concluded, "is to form a judgment about the competitive significance of the restraint; it is not to decide whether a policy favoring competition is in the public interest, or in the interest of the members of an industry. Subject to exceptions defined by statute, that policy decision has been made by Congress." *fn56
Confining our inquiry, as we must, to the draft's impact on competitive conditions, we conclude that the draft as it existed in 1968 was an unreasonable restraint of trade. The draft was concededly anticompetitive in purpose. It was severely anticompetitive in effect. It was not shown to have any significant offsetting procompetitive impact in the economic sense. Balancing the draft's anticompetitive evils against its procompetitive virtues, the outcome is plain. The NFL's defenses, premised on the assertion that competition for players' services would harm both the football industry and society, are unavailing; there is nothing of procompetitive virtue to balance, because "the Rule of Reason does not support a defense based on the assumption that competition itself is unreasonable." *fn57
We recognize, on analogy with the Supreme Court's reasoning in Goldfarb *fn58 and Professional Engineers, that professional football "may differ significantly from other business services, and, accordingly (that), the nature of the competition" *fn59 for player talent may vary from an absolute "free market" norm. Given the joint-venture status of the NFL clubs, we do not foreclose the possibility that some type of player selection system might be defended as serving "to regulate and promote . . . competition" in the market for players' services. *fn60 But we are faced here, as the Supreme Court was faced in Professional Engineers, with what amounts to a "total ban" on competition, *fn61 and we agree with the District Court that this level of restraint cannot be justified. The trial judge concluded, with pardonable exaggeration, that the draft system at issue was "absolutely the most restrictive one imaginable." *fn62 Even though the draft was justified primarily by the need to disperse the Best players, it applied to all graduating seniors, including average players who were, in a sense, fungible commodities. It permitted college players to negotiate With only one team. If a player could not contract with that team, He could not play at all.
Without intimating any view as to the legality of the following procedures, we note that there exist significantly less anticompetitive alternatives to the draft system which has been challenged here. The trial judge found that the evidence supported the viability of a player selection system that would permit "more than one team to draft each player, while restricting the number of players any one team might sign." *fn63 A less anticompetitive draft might permit a college player to negotiate with the team of his choice if the team that drafted him failed to make him an acceptable offer. *fn64 The NFL could also conduct a second draft each year for players who were unable to reach agreement with the team that selected them the first time. *fn65 Most obviously, perhaps, the District Court found that the evidence supported the feasibility of a draft that would run for fewer rounds, applying only to the most talented players and enabling their "average" brethren to negotiate in a "free market" *fn66 The least restrictive alternative of all, of course, would be for the NFL to eliminate the draft entirely and employ revenue-sharing to equalize the teams' financial resources a method of preserving "competitive balance" nicely in harmony with the league's self-proclaimed "joint-venture" status. *fn67
We are not required in this case to design a draft that would pass muster under the antitrust laws. We would suggest, however, that under the Supreme Court's decision in Professional Engineers, no draft can be justified merely by showing that it is a relatively less anticompetitive means of attaining sundry benefits for the football industry and society. Rather, a player draft can survive scrutiny under the rule of reason only if it is demonstrated to have positive, economically Procompetitive benefits that offset its anticompetitive effects, or, at the least, if it is demonstrated to accomplish legitimate business purposes and to have a net anticompetitive effect that is Insubstantial. *fn68 Because the NFL draft as it existed in 1968 had severe anticompetitive effects and no demonstrated procompetitive virtues, we hold that it unreasonably restrained trade in violation of § 1 of The Sherman Act.
The trial court found that plaintiff would have negotiated a more remunerative contract but for the draft as it existed in 1968, and estimated his damages (before trebling) at $92,200 the difference between plaintiff's actual compensation and what his "services would have brought in a free market." *fn69 Plaintiff urges that this estimate was too low. He contends principally that it was error to include in the subtrahend the $19,800 he was paid after his injury, since the Redskins allegedly are seeking to offset this sum against his pending workmen's compensation claim. *fn70 Defendants urge that the estimate was too high. They contend that Pat Fischer, an eight-year veteran and twice all-pro, was not comparable to plaintiff, an untried "rookie"; and that the trial court's hypothesis of a three-year "fully guaranteed" contract was speculative, since no Redskins' first-round draft choice and no defensive back in NFL history rookie or veteran had ever negotiated such advantageous terms.
The computation of damages in antitrust cases invariably has a certain Alice-in-Wonderland quality to it. As the Supreme Court has observed, "damage issues in these cases are rarely susceptible of the kind of concrete, detailed proof of injury which is available in other contexts." *fn71 Detailed proof of injury is particularly difficult here: because the draft has existed continuously since 1935, there has never existed (as there usually exists, for example, in price-fixing cases) a "free market" for players' services that might serve as a guide to the prices that would have prevailed absent the antitrust violation. *fn72 In view of such difficulties of ascertainment, the fact-finder is permitted to make "a just and reasonable estimate of the damage based on relevant data," which may include "probable and inferential as well as direct and positive proof." *fn73 "The essential thing is that the available data be used in rational ways which warrant confidence that the damage figure reached is, in fact, a reasonable if imprecise estimate, rather than a speculative guess." *fn74
Making full allowance for the deference that must be accorded the trier of fact, we have concluded after examining the record that his damage calculation must be overturned. Inclusion of the disputed $19,800 in Smith's "actual compensation," we think was clearly proper; *fn75 and the comparison with Pat Fischer, while it produced a hypothetical annual salary ($54,000) well in excess of that paid to any rookie defensive back in NFL history even during the years of the NFL-AFL "bidding war" was not clearly erroneous. *fn76 But there was simply no evidence to support the judge's finding that Smith, absent the draft, would have been able to negotiate a contract containing a guarantee of three years' full salary, regardless of injury. *fn77 No such guarantee had been negotiated by Pat Fischer, the trial court's object of comparison, and no such guarantee had ever been negotiated by any Redskins' first-round draft choice, or by any defensive back at any time in NFL history. The evidence established that multi-year guaranteed contracts expose clubs to great financial risk, and that such guarantees in consequence can generally be negotiated only by veteran players of "Hall of Fame" caliber in key positions. There was, moreover, considerable evidence that Smith, like many rookies, was not even Interested in a multi-year guaranteed contract, preferring more "up-front" money and the right to negotiate new terms on the basis of his first-year performance.
Nor do we think that the district judge was free to ignore all this evidence on the theory that it was irrelevant to what would have happened under "free market conditions." Draft or no draft, Smith's ability to negotiate such lucrative terms would have depended on the Redskins' capacity to afford them. The Redskins, like the other NFL clubs, presumably were charging for tickets and TV rights approximately what the market would bear, yet their operating income was only $260,000 in 1968 and $300,000 in 1969. Sheer economics as well as consistent past practice may thus have prevented the Redskins from assuming, in the case of an untried rookie, the financial risks attending the type of contract Smith proposes.
For these reasons, we conclude that the trial judge's hypothesis of a fully guaranteed, three-year contract can be characterized only as a "speculative guess." There was no evidence on which this hypothesis could be founded, no evidence from which it could be inferred. We accordingly remand this case to the District Court for recomputation of damages.
Affirmed in part, reversed in part, and remanded for proceedings consistent with this opinion.
MacKINNON, Circuit Judge, concurring in part and dissenting in part:
We are here called upon to rule in a backhanded way upon the validity under the antitrust laws of the National Football League's 1968 college player draft.1 The litigation was not instituted as a class action to benefit players who were allegedly victimized by the player draft but rather as an indirect means of obtaining compensation for a football injury to a player that the court has ruled is not otherwise compensable.2 I would similarly deny the claim in this indirect effort.
The district court held that the 1968 college player football draft3 conducted by the National Football League4 amounted to a Per se violation of the Sherman Act, in that it constituted a group boycott,5 and alternatively, a violation of the Rule of Reason because it was "significantly more restrictive than necessary" to accomplish the valid "player distribution needs of the league . . .."6 On the basis of such conclusions, and without finding that any particular "less restrictive alternative" would guarantee the survival of the legitimate objectives that were attained by the operation of the draft the district court progressed to its third finding: that plaintiff-Smith was entitled to $276,000 in damages, because he had received $92,000 less compensation than he would have received but for the illegal restraint imposed by the 1968 draft, and he was entitled under the antitrust laws to treble his loss.7
In this court, the majority (1) here set aside the district court's conclusion that the 1968 draft was a Per se violation of the antitrust laws; and, (2) claiming support from the very recent decision of the Supreme Court in National Society of Professional Engineers v. United States, 435 U.S. 679, 98 S. Ct. 1355, 55 L. Ed. 2d 637 (1978), affirm the court's second conclusion that the draft violated the Rule of Reason; and, (3) finding that the testimony does not support the conclusion that in a free market Smith would have been able to negotiate a three-year contract, set aside the trial court's computation of damages and remand for recomputation by the district court.
I concur in the majority's conclusions and the reasoning in support thereof that the NFL college player draft is not the type of group boycott that had traditionally elicited invocation of the Per se rule and that the district court should not have found the draft to be a Per se violation of the antitrust laws.8 However, for reasons hereinafter set forth, I disagree with the majority's holding that the draft is a violation of the Rule of Reason and with its reasoning that the Supreme Court's decision in Engineers requires that conclusion. Assuming Arguendo that the draft as it existed in 1968 was a violation of the antitrust laws, I would concur with the majority in setting aside the trial court's computation of damages. However, even there, I would disagree with the majority's theory as to the proper measure of damages. I. BACKGROUND
My views are in general agreement with the factual statements set forth in the majority opinion (Maj. Op. at -- - - -- - of 193 U.S.App.D.C., at 1174-1175 of 593 F.2d). However, there are many other material facts, which, in my view, are important to a full understanding of the antitrust implications of the draft and of the proper measurement of Smith's alleged damages.
A. The Circumstances of Smith's Signing with the Redskins.
To have a more complete understanding of the negotiations which culminated in Smith signing his player's contract with the Redskins, it should be noted that Otto Graham, who was head coach and general manager of the Redskins between 1965 and 1968,9 and who conducted the contract negotiations for the Redskins with Smith's agent, at the outset of the bargaining proposed the possibility of a long-term contract and a percentage raise each year. Graham's original offer was for a three-year contract with one option-year, I. e., a possible four-year contract. The beginning salary would have been in the neighborhood of $17,500 with approximately a 10 percent increase each year; the option-year would have been subject to the usual option provisions.10 Smith and his agent, however, wanted more money immediately. Since clubs are generally willing to pay higher salaries for short-term contracts than for long-term contracts because the latter entails greater risks if the player is injured, Smith and his agent were able to obtain and elected to sign a one-year contract at a higher salary ($22,000 for the year) than the Redskins were willing to pay for a three-to-four year contract with annual raises.11 A "no-cut contract" was discussed briefly, but was not pursued seriously since, as Graham stated, such a provision in a one-year contract for a first-round draft choice would have been "kind of ridiculous," as a player with such recognized qualifications was practically assured of being kept on the team for the full season.12
There was also discussion between Smith's agent and Graham of a fully-vested contract, but nothing materialized in this respect; and in connection with the one-year contract, there was no discussion of compensation for injuries.13 The agent, however, did advise Smith to take out an insurance policy to protect his insurability in case of injury, and Smith did obtain such insurance.14 Contract negotiations were closed in early April, 1968,15 and the actual contract was signed on May 11, 1968.16 It provided for a salary of $22,000, a $5,000 professional bonus if he "made the team," and a signing bonus of $23,000 $50,000 total.
B. The Business of Football, and the History and Purpose of the Draft
(1) The Need for this Analysis. Since the draft is not illegal "Per se," it must be analyzed under the Rule of Reason, the "second category" referred to by Engineers, 435 U.S. at 693, 98 S. Ct. 1355, at 1365, 55 L. Ed. 2d 637 . Under this standard, the "competitive effect" of the agreement of the teams to maintain a college player draft must
be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed. . . . he purpose of (this) analysis is to form a judgment about the competitive significance of the restraint . . ..
Id. After analysis of the opinions of the trial court and of the majority and their discussion of the business of professional football as operated in 1968 by the National Football League, I find that the majority and the trial court have overlooked and not given adequate consideration to many significant facts concerning the history of the draft, the reasons which brought it into being and compel its continuance, and the peculiar nature of the business of professional football in the United States.
(2) The Nature of the Business. A critical fact "peculiar to the business" as presently constituted is that the component members of the NFL are not Economically competitive with each other. In 1968, the NFL operated through 26 separate corporations in an economic joint venture which fielded teams and thereby furnished entertainment and continue to do so today to paid spectators and a large television audience. Each team has a substantial economic stake in the financial success of all the other teams.
Without doubt, the antitrust laws reflect a basic assumption of our economic system: that competition is the most desirable and efficient regulator of economic activity. As stated in Engineers,
The Sherman Act reflects a legislative judgment that ultimately competition will not only produce lower prices, but also better goods and services. "The heart of our national economic policy long has been faith in the value of competition." Standard Oil Co. v. Federal Trade Commission, 340 U.S. 231, 248, 71 S. Ct. 240, 249, 95 L. Ed. 239. The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain quality, service, safety, and durability and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers. Even assuming occasional exceptions to the presumed consequences of competition, the statutory policy precludes inquiry into the question whether competition is good or bad.
435 U.S. at 695, 98 S. Ct. at 1367. Application of the policy of competition to professional sports, just as with the application of the policy to other unique, exceptional industries, presents special problems that the Court recognized in Engineers do occasionally arise. Professional sports teams are in some respects traditional economic units seeking to sell a product to the public. But economic competition between teams is not and cannot be the sole determinant of their behavior.17 Professional sports leagues are uniquely organized economic entities; the ultimate success of the league depends on the economic Cooperation rather than the economic competition of its members. United States v. National Football League, 116 F. Supp. 319, 323-24 (E.D.Pa.1953); Note, The Super Bowl and the Sherman Act: Professional Sports and the Antitrust Laws, 81 Harv.L.Rev. 418, 418 (1967). The product being offered to the public is more than an isolated exhibition it is a series of connected exhibitions that culminate in the annual grand finale contest between the two teams with the best records in the League, which have demonstrated their prowess in organized, rigidly scheduled League competition. The product being offered the public is the "league sport," and the value of this product at the stadium gate and to the television networks depends on the competitive balance of the teams in the league. Spectators and television viewers are not interested in lopsided games or contests between weak teams.
In many respects, the business of professional football as carried on by the NFL resembles a "natural monopoly." The structure of the League as a single entity outside the antitrust laws was also specifically authorized in 1966 by Act of Congress. See note 34 Infra. As defined by two authorities, a natural monopoly is a
monopoly resulting from economies of scale, a relationship between the size of the market and the size of the most efficient firm such that one firm of efficient size can produce all or more than the market can take at a remunerative price, and can continually expand its capacity at less cost than that of a new firm entering the business. In this situation, competition may exist for a time but only until bankruptcy or merger leaves the field to one firm; in a meaningful sense, competition here is self-destructive.
C. Kaysen & D. Turner, Antitrust Policy: An Economic and Legal Analysis 191 (1959). At the present time, the NFL, as an organized association of various teams (or firms), has a statutorily recognized monopoly over production of the "league sport" of major professional football. Anyone who wishes to watch a major professional football game must watch an NFL game, played under NFL rules with NFL teams and players. History suggests that it is easier for the NFL to expand the number of teams than it is for another league to form and operate successfully. Competition may exist for a time, as the experiences of the American Football League and the World Football League demonstrate, but in the long run such competition is destructive and many teams fail, even as they did within the NFL in its free market formative years.
(3) The History and Effect of the Draft. The draft was adopted in 1935 at a time when baseball was recognized as the national sport. In order to consider and evaluate properly the role and effect of the draft, it is necessary to view the conditions that existed in professional football at that time. Books could be written on the changes in professional football between 1935 and 1968; we have room only for a few of the most significant details.
In 1935, there were only nine teams in the NFL; four in the Western Division and five in the Eastern Division.18 The League was confined to a few cities in the east, and extended no further west than Chicago. Squads were much smaller (around 22 players, instead of 43 to 47), a free market existed for players' services, and salaries were much lower.19 Even the game itself was substantially different. The rules were designed to create a game for the players rather than to attract spectators by what today in many contests results in what may accurately be described as basketball on grass. Players formerly had to be able to play both on offense and defense and to be in condition to play 60 minutes if necessary rather than only one way for less than 30 minutes; substitution was greatly limited; platooning of offensive, defensive, kicking, and special teams was Not permitted; and winning teams stressed the running game from various formations, instead of forward passing from the "T formation" where 9 men are called upon to try to block 11 on running plays with little or no deception that characterized the T formation when it was revived in the 30's. There were fewer crippling injuries because players were younger and they did not play at the excessive weights that are prevalent today. Four teams generally dominated the League the Chicago Bears, the New York Giants, the Green Bay Packers, and the Boston (later Washington) Redskins.20 The 1935 regular season consisted of 12 games, which included home and away games with teams in the same division; the season was followed by one championship game between the winners of each division.
During this era of the sport, the League was in substantial competition with business in general and coaching positions for college graduates. For many good football players coming out of college the professional football teams could not compete with the salaries, security and future prospects that were offered by business, the professions, and coaching jobs in colleges, universities and other educational institutions and so they elected not to sign pro contracts. Also, the best coaches chose to remain with colleges and universities. Many players recognized that professional football, at best, was only a seasonal occupation of limited duration at best, that the pay was modest, that it offered only temporary income with some risk of injury, and that once their playing days were over (even today, the average playing life of a player is only about four and one-half years),21 they would have to start belatedly in their life's work. Many players recognized that the delay in starting their permanent career, or in interrupting it for a few professional seasons, could impair their permanent careers. For that reason, many college players passed up professional football and went directly into business. Lucrative jobs coaching college football, with the opportunity for embarking on a well-paying lifetime career with considerable stability, presented substantial competition for the outstanding players, and these job opportunities in the teaching profession also carried the opportunity for eventual tenure and retirement. As Paul Brown, a former coach at Ohio State University and later coach of the Cleveland Browns and the Cincinnati Bengals, testified, graduating players at Ohio State never thought about playing professional football.22 A great many of those who played did so because "they liked to play football";23 and it is fair to say that the "mercenary" element had not affected the sport to the extent it has today (and that has produced a host of complications). Some college players also went to graduate school to prepare for a profession; some went into other professional sports. In 1935, professional football was thus in substantial competition with a host of other vocations and occupations for graduating college players. Even among those who played, many only devoted a half-day to the team, and thus did not give the game the effort that it would come to demand in 1968.
Prior to the first draft, there was a "free market" for players' services. Even so, players' salaries were very modest, and limited club incomes made many franchises precarious. The League would go through 40 franchises before it reached its present stability, with 28 teams.24 The testimony shows that the Chicago Bears, even though they won the League Championship in 1932, lost $18,000; George Halas, their coach and owner, at the end of the season had to give promissory notes for $1,000 each to Bronko Nagurski and Red Grange for the balance due on their salaries.25
The college player draft was adopted in 1935 at the suggestion of Bert Bell,26 after Cincinnati (which finished the season as the St. Louis Gunners), the bottom team in the Western Division in 1934, had been forced to drop out of the then 10 team league.27 The 1935 draft as adopted was a pure draft simple, uncomplicated, and complete. The team with the poorest winning record drafted first; the others followed in inverse order to their won-lost record; the team with the best record in the prior season drafted last. In its early years, the draft covered 30 rounds, but was later reduced to 17 rounds.28
The draft was first conducted in 1936 and has continued annually for the last 42 years. If we assume that roughly 400 players have been drafted each year, approximately 17,000 players have been drafted by professional football teams. What is significant about this large number is that, although a great many players have been affected by the draft, there have been a relatively insignificant number of lawsuits challenging the validity of the draft as conducted by the NFL. Maj. Op., at -- - of 193 U.S.App.D.C., at 1176 of 593 F.2d. This case is stated to be one of first impression attacking the legality of the draft under the antitrust laws.29 It is also a material fact, of considerable significance, that no case has been pointed to where the Antitrust Division of the Department of Justice has ever attacked the validity of a player draft in any professional sport.
In my view, there are compelling reasons why the draft has continued so long without serious challenge. In effect a player draft is Natural for league sports. Competitive equality among the component teams is an inherent requirement for meaningful sports competition and the survival of a conference or league high school, college, or professional and all of its members.30 Close rivalries are the backbone of any successful sport. When the NFL established the draft, its objective was to give each team the same fair Opportunity to be competitive; it sought to achieve a competitive balance among all the League's teams, that is, to "try to equalize the teams."31 The intended result was to create a situation where each League game would become a closer contest, where spectator interest in the game and the players themselves would be increased, where the interesting individual contests would create an interesting League championship race, and where ultimately the teams and their players would benefit from the greater income resulting from the increased fan interest.
A player draft to achieve competing balance is not new. Early explorers in the American west found the Indians employing a form of the draft in their game of shinny, played with curved sticks and a wooden ball. The Aborigines of Minnesota, Minnesota Historical Society (1911) quotes the following description from George P. Belden, "The White Chief" (p. 37):
he young men . . . go out on the prairie near the camp . . . (and) having found a smooth spot, they halt, and two of the youths, by common consent, take opposite sides and pick out the players, first one and then another, until enough are had.
The need for and the benefits derived from competitive equality are apparent even on sand lots, where two captains "choose up sides"; the flip of a coin determines who chooses ("drafts") first, and subsequent choices are exercised in alternating fashion. If one side was certain to lose the game, the number of people who would be interested in playing or watching would be seriously diminished. Spectators and players are not attached to athletic slaughters or to contests where the result is foreordained.
What lack of competitive balance in a football league can do to spectator attendance was demonstrated during the existence of the All-America Football Conference and is spelled out in the record here. In that League the Cleveland Browns coached by Paul Brown started out drawing 60,000 to 70,000 people for its home games. They won the championship every year, and their "attendance fell down to under 20,000" because the fans said, "Oh, they are going to win anyway. What is the use of going out there?"32 This is an absolute answer to the contention that the league can survive if competitive equality of the teams is destroyed. There will always be a league but constant losses by their teams would cause many areas to lose their franchises.
All major sports, in recognition of the need for competitive balance, have drafts. Hockey33 and basketball have drafts, and baseball instituted a draft when it became clear from the long domination of the New York Yankees that the farm system was not producing competitive balance.
Since the first college football player draft was held in 1936, the results sought to be accomplished have clearly been achieved. Some argue that this has been caused by other factors, but the preponderance of the Factual testimony and record evidence supports a conclusion that the college player draft was the key factor which produced the competitive balance of the teams, which in turn brought about the exciting games and interesting championship races and increased public interest in the sport, which ultimately led to the huge gate receipts and large television contracts that are presently producing enormous benefits for the players themselves. There was no showing to the contrary in the 2000 page record. The majority argue that it is television that produces the interest and the revenues but the balanced teams produced by the draft Came first and caused the close contests which attracted the public and eventually television.
Since 1935, the number of teams has increased from 9 to today's League of 28 teams, and the number of players per team has also been increased substantially. Instead of the small squads of around 26 players in the early days of the sport, the modern team's roster once swelled to 47 and was later reduced to 43 players. This has increased the total number of active players in the League as a whole to slightly over 1,200. Gate receipts have increased tremendously due to the increased popular interest in the game. Also important are the television revenues, which constitute a large part of each team's annual income. The NFL television contracts between the League and the television networks have distributed hundreds of millions of dollars to all teams in the League; and current news reports indicate that the payments are to be substantially increased. The lucrative television contract, made possible by an Exemption from the antitrust laws enacted by Congress,34 is negotiated for all teams by the League Commissioner. These moneys are distributed Equally to each team in the League without regard to the size of the team's local television market. In 1968 the revenues from television accounted for approximately 30 percent of the total revenue of the Redskins and this was approximately the same percentage as the average for all NFL teams in that year.35 Team revenue from gate receipts, television contracts, and other sources has increased tremendously since 1935, and the NFL teams and their players are the direct recipients of the benefits of the increased national interest in NFL games. College players, 22 years old, coming out of college in 1976 and playing in the NFL were making $20,000 to $150,000 their first year.36
No end is in sight to the escalation in benefits received by the players on account of the growth in the interest of NFL football. Many club owners have devoted and continue to devote a very substantial portion of their gross revenue to players' salaries, bonuses, pensions, medical aid, hospitalization, and other player benefits. For some players, their salaries are astronomical. Today, the Average player salary is $48,000, not including additional fringe benefits worth approximately $6,000, for a six month playing season.37 Salaries have more than kept pace with inflation: they are 300 percent higher today than they were in 1966.38 The total salaries that the Redskins Club paid to its players doubled from $1,604,407 in 1968 to.$3,350,080 in 1974.39
Due to the increased benefits afforded professional football players, the competition for graduating college football players that previously existed from lucrative coaching positions and numerous other business and professional opportunities has been successfully met, if not altogether eliminated as a practical matter. The increasing popularity of pro football and its attractiveness to graduating college players assures those interested in the success of the game such as television and radio broadcasters and networks, stadium owners, team owners, and players already playing in the NFL that the best college football players year after year will continue to join the professional ranks and assure the quality and attractiveness of their games. In fact, a great many players now go to college for the sole purpose of establishing a playing record which will result in their being drafted by one of the professional teams; a first-round draft choice in the professional league is viewed by many as the substantial equivalent of Summa cum laude and first-round draft choices are generally paid much higher starting salaries.
Football, it is claimed, has now become the national game, supplanting baseball. Fan interest in the nearest local team has become so intense that city after city has secured a franchise for a local team and has substantially Subsidized the entire professional football industry (a fact not generally recognized) by erecting huge stadiums with hundreds of millions of dollars of taxpayers' money or pledges of public credit and with exemptions from the payment of real estate taxes on account of their municipal ownership. There is also an additional subsidy in raising construction funds through tax exempt municipal bonds which because of the tax exemption carry lower interest rates on the borrowed funds. Twenty cities have erected these huge new stadiums with "amortized tax dollars" and of the 29 stadiums in use only four were privately financed.40 These stadiums facilitate the large crowds that are necessary to enable the "local" team to compete in gate receipts with the teams of other localities that are considered rivals.41 The local fans in most areas where the teams have established reasonably respectable winning records acquire a strong interest in their local team and a powerful attachment to certain players whose performance they admire. Such interest lags if the team becomes a "loser."
From my analysis, the testimony of record overwhelmingly supports the conclusion that the growth of football between 1935 and 1968 was largely due to the competitive balance that the League achieved during those years and to the creation of a quality product, the "league sport." This competitive balance, and the consequential tremendous growth in public interest, which has inured greatly to the benefit of the players themselves, is in large part a result of the college player draft. The growth in the attractiveness of the team sport has resulted in the expansion of the League; more teams mean more jobs for players. Indeed, the statute authorizing the merger of the NFL and AFL was conditioned on the expectation that the merger would increase, rather than decrease, the number of franchises, as explained in note 34 Supra. A larger League, further encouraged by the expanding TV market, means more jobs for players, and ultimately more money for those playing in the League. The draft created the competitive balance, that created the public interest, that led other cities to organize teams, that led to national expansion of the league, that enlarged the total gate receipts, that led to the large revenue producing television contracts. Actually the average attendance at NFL games has only increased 12,697 spectators per game from 43,617 in 1959 to 56,347 in 1976 but the increase in the number of expansion teams has increased the number of games from 72 to 196. Encyc., p. 437. To the contention that it is the revenue from television that produces competitive quality it must be remembered that it was the competitive equality produced by the draft that Came first and that money alone has never produced competitive equality. We all know that lopsided games are quickly tuned out, and mismatched teams fail to draw. In my view of the record and the dynamics of professional football the draft is also essential to a continuation of competitive balance. If the draft is removed, or its full effect substantially diminished, present balance can continue for a while because of the great strengths that the draft has built up but in my opinion the creditable testimony and evidence here reflects that in such event the few advantaged teams will acquire the best players and achieve superiority and eventually the other teams will lose competitive strength and the league will lose balanced strength. But we seem to be in for judicial tinkering with the draft.
(4) The Reasons for the Draft. The growth of professional football between 1935 and 1968 is, by itself, compelling evidence of the need for the existence of the draft. The product being provided by the component parts of the NFL the "league sport" is of high quality because the teams, acting jointly, cooperate in several respects: rigid scheduling of contests, set formulas for reaching the playoffs, uniform rules, disciplinary sanctions, and other player regulatory devices, such as the draft. For example, without uniform rules, which is a restraint on how the players play the game, it is doubtful that the product, the league sport, could even exist.
The draft figures importantly in insuring the vitality of the NFL's product. A former counsel to the NFL Players Association, the American Football League Players Association, and the World Football League Players Association, who at one time or another "represented all professional football players,"42 assisted in the preparation of a statement (which was later delivered in a speech by the President of the AFL Players Association in January, 1969) which he read into the record in this case:
The common draft and the option clause are no doubt restrictions on our personal freedom to trade our services. But these restrictions are acceptable in the understanding that they enhance the competition, which alone can provide the profits that pay high salaries, fringe benefits, and expanding job opportunities for all players.
J.A. 1578. To the best of the witness' knowledge, this statement reflected the position of the Board of Representatives of the AFL Players' Association at the time it was made.43 The evidentiary record indicates that almost all members of the football industry, owners, coaches and players alike, recognize the importance of the college player draft. No substantial creditable testimony opposed its merits.
It is significant that the majority opinion recognizes that some sort of draft "might be defended as serving "to regulate and promote . . . competition' in the market for players services." Maj. Op. at -- - of 193 U.S.App.D.C., at 1187 of 593 F.2d. Moreover, the district court stated that the draft violated the antitrust laws because its restraints could be imposed in a less restrictive manner.44 All of this is but another way of expressing the opinion that the draft in some form would Not violate the antitrust laws and may be necessary to preserve competitive balance, and concomitantly the quality of the product and perhaps the existence and strength of the League as it presently exists.45 This indirectly recognizes the uniqueness of the economic nature of the NFL. Each sport has its own peculiarities. As Judge Sprecher held, "baseball cannot be analogized to any other business or even to any other sport or entertainment." Charles O. Finley, Inc. v. Kuhn, 569 F.2d 527 at 537 (7th Cir. 1978).
Both the trial court and the majority suggest alternative types of a less restrictive draft which might be legal, but both fail to discuss the further issue, which their suggestions involve whether the suggested alternatives would preserve the Necessary competitive balance. There is no evidence of record to support a conclusion that their suggestions would. As a general rule, the majority state that
a player draft can survive scrutiny under the rule of reason only if it is demonstrated to have positive, economically procompetitive benefits that offset its anticompetitive effects, or, at the least, if it is demonstrated to accomplish legitimate business purposes and to have a net anticompetitive effect that is insubstantial.
Maj. Op. at -- - of 193 U.S.App.D.C, at 1188 of 593 F.2d. The application of this standard to this case is discussed in greater detail below,46 but at this juncture it is useful to consider the practicalities of less restrictive restraints, for here the reasons for the draft become more apparent.
A pure draft takes all of the college players that are coming into the market with the teams with the poorest records having preference in the order of their won and lost records. The draft as it existed in 1968 was a pure draft, and it is submitted that the draft should be that extensive if the opportunity for maximum competitive balance is to be assured. If the draft only lasts two rounds, as the trial court here suggested, the rest of the players are left for the free market and the preponderance of those players, or at least the preponderance of the better players in that group, would go to teams with special attractions and the teams owned by super-wealthy millionaires who desire very greatly to own a winning team.47 Not even a complete sharing of team revenues could overcome the unfair advantage posed by wealthy owners and collateral attractions of a few cities. Large cities such as New York, Chicago, Los Angeles, and Washington offer special advantages for publicity, endorsements, and lucrative off-field jobs in business. Cities with better weather are more attractive to some players, and teams with better prospects of winning in a particular season furnish a certain attraction for some players.48 Larger cities with larger stadiums realize more income49 and hence are somewhat able to offer larger salaries than teams with smaller cities and stadiums. So are teams owned by wealthy sportsmen who place a premium on winning and are willing to support their desires with almost unlimited financial resources. The draft has substantially reduced the ability of these owners to dominate the league.
Given these factors that would permit a few teams to corner the "developing players" that in a great many instances eventually surpass developed players, drafted in the earlier rounds, it is necessary to have a draft that reaches the Maximum number of potential players who are absolutely necessary to preserve competitive balance. When the draft does not reach that many players, the few stronger teams with the natural advantages will be able to corner the best remaining prospects who become free agents. The testimony indicated that a few "super wealthy" owners with a very deep pocketbook could obtain a very substantial advantage if there were a substantial pool of free market players.50
The factual testimony is uncontradicted that the draft is essential to competitive balance and vital to the continuation of public interest and the revenues presently being generated from gate receipts and television contracts. In my opinion the record also supports the conclusion that some form of the draft is the only way to regulate the involved problems. No person has suggested a better solution. It has proved to be effective. I would place the number of draft rounds at a high figure, and err, if at all, on having too many rather than too few selection rounds. It should be recognized that the losing teams need a wider draft than the winning teams. J.A. 1616, 1626. It is beyond serious dispute that many players with good prospects for development go in the later rounds. After all most draftees are just getting out of college at around 22 years of age and have not reached their maximum mental or physical development. They should not be denied the advantage of having the draft put a value on their services and the losing teams need them. In the early rounds, the teams look for immediate prospects, that is, developed players who can have an immediate impact on the team. In the later rounds, players with prospects of further maturation are likely to be drafted,51 and havoc would be created if a few teams could garner most of this talent that has not evidenced or achieved its full potential.
The argument that the draft could successfully be limited to a very few rounds is based on the false premise that only the "blue-chip" players or super-stars in college contribute to the success of the professional team. No creditable testimony supports the conclusion that the necessary competitive balance could be assured if the draft were limited to those 56 graduating college players that the scouts deemed the best prospects at the time, much less if it were limited to the 5 to 8 superstars that generally develop annually. Football is a Team game and a team is generally not made by drafting one or two graduating college "stars."52 Notwithstanding the fact that the "stars" get the billing, a passing quarterback, for instance, cannot succeed unless the rest of the team are of sufficient ability to do their jobs. If his blockers cannot stop the defensive rush, or his receivers can not get free, the quarterback's ability will never show. Thus, it is pure illusion to suggest that if a few so-called stars or "blue-chip" players were distributed equally by a draft confined to two rounds that a continuation of competitive equality could be assured. So-called "stars" soon become "black-and-blue" chip players if their teammates who are necessary to their success are overshadowed by players on other teams. The pitiful showing of the "great" O. J. Simpson for this year with the San Francisco 49ers, after moving from his successful years with the Buffalo Bills, is current proof. Winning teams need strong players at all positions,53 and good players to substitute for those who inevitably become injured. These are not produced solely from first and second round draft choices.
My reading of the entire 2027 page evidentiary transcript leads me to the conclusion that the preponderance of the evidence supports the conclusion that the draft is necessary to provide the essential competitive balance in the NFL. To argue about the fine details of a draft that the players do not complain of, and which is the very heart of their revenue, in order to comply with a hornbook interpretation of a law that was never intended to apply to sports, is pure folly. Also, there has been no showing that less restraints would benefit players in the lower rounds that is just a speculative, untested assumption. Anyone with only a TV fan's knowledge of pro-football can come up with less restrictive draft procedures. It is always open season in court for such suggestions but none of these carry anything other than a tinkerer's assurance that the Necessary objective of an equal opportunity for competitive balance will be achieved in the years to come. The same lack of assurance that changes from the wide pure draft will continue in years to come to produce the necessary competitive balance is also true of recent changes in the draft. II. THE RULE OF REASON
The starting point in Rule of Reason analysis must be the Supreme Court's recent opinion in Engineers, which held that a professional society's canon of ethics which prohibited competitive bidding by its engineer members violated Section 1 of the Sherman Act under the Rule of Reason. The Court stated:
he Rule (of Reason) does not open the field of antitrust inquiry to any argument in favor of a challenged restraint that may fall within the realm of reason. Instead, it focuses directly on the challenged restraint's impact on competitive conditions.
435 U.S. at 688, 98 S. Ct. at 1363. Proper analysis, the Court went on to state, requires looking to the "facts peculiar to the business, the history of the restraint, and the reasons why it was imposed." 435 U.S. at 692, 98 S. Ct. at 1365. The intendment of this analysis is to form a judgment about "the competitive significance of the restraint." Id. See Maj. Op. at -- - - -- - of 193 U.S.App.D.C., at 1179-1181 of 593 F.2d.
After Engineers, there can be no doubt but that the Rule of Reason requires us to focus on Competitive conditions. The Court stated that the Rule does not permit an inquiry into the reasonableness of the prices set by private agreement, and does not allow the argument that because of the special characteristics of a particular industry, monopolistic arrangements will better promote trade and commerce than competition. 435 U.S. at 690, 98 S. Ct. 1355, 55 L. Ed. 2d 637. The Court noted that under Standard Oil v. United States, 221 U.S. 1, 58, 65, 31 S. Ct. 502, 55 L. Ed. 619 (1911), which first announced the Rule of Reason test, "the inquiry is confined to a consideration of impact on competitive conditions." 435 U.S. at 690, 98 S. Ct. at 1364. This is the very essence of Rule of Reason analysis.
Yet it is equally clear, after Engineers, that Rule of Reason is not to be performed by resort to any rigid balancing or weighing formula. The perceptive analysis of Justice Brandeis in Chicago Board of Trade v. United States, 246 U.S. 231, 38 S. Ct. 242, 62 L. Ed. 683 (1918), was quoted in part in Engineers, 435 U.S. 679, 691, 98 S. Ct. 1355, 55 L. Ed. 2d 637, with approval:
he legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as Merely regulates and perhaps thereby promotes competition or whether it is such as may Suppress or even destroy competition. To determine that question The court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, Are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation, or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.
246 U.S. at 238, 38 S. Ct. at 244 (emphasis added). The entire thrust of the Sherman Act is to set out a broad mandate, to be given shape and content by the judiciary. See 435 U.S. at 690, 98 S. Ct. 1355, 55 L. Ed. 2d 637. Just as mere categorization of particular combinations as Per se illegal results in "an unintended and undesirable rigidity in the law," Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 50 n.16, 97 S. Ct. 2549, 2558, 53 L. Ed. 2d 568 (1977), a wooden balancing approach under the Rule of Reason without regard to the factors listed in Chicago Board of Trade can lead to the same kind of "rigidity" condemned by the Court in Continental T.V.
The majority opinion states that the purpose of Rule of Reason analysis is to determine whether a restraint "is significantly anticompetitive in purpose or effect." Maj. Op. at -- - of 193 U.S.App.D.C, at 1183 of 593 F.2d. The majority agree that to make this evaluation the court must analyze "the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed," as required by Engineers. Then, the majority set forth the following rule:
If, on analysis, the restraint is found to have legitimate business purposes whose realization serves to promote competition, the "anticompetitive evils" of the challenged practice must be carefully balanced against the "procompetitive virtues" to ascertain whether the former outweigh the latter. A restraint is unreasonable if it has the "net effect" of substantially impeding competition.
Maj. Op. at -- - of 193 U.S.App.D.C., at 1183 of 593 F.2d. Later in the opinion, the majority elaborate on this rule:
player draft can survive scrutiny under the rule of reason only if it is demonstrated to have positive, economically Procompetitive benefits that offset its anticompetitive effects, or, At the least, if it is demonstrated to accomplish legitimate business purposes and to have a net anticompetitive effect that is insubstantial.
Maj. Op. at -- - of 193 U.S.App.D.C., at 1188 of 593 F.2d (emphasis original). At first blush, this language appears to be a fair statement of a test that "focuses directly on the challenged restraint's impact on competitive conditions," 435 U.S. at 688, 98 S. Ct. at 1363, and which takes into account the salient factors necessary to test the reasonableness of a restraint. Upon closer scrutiny, however, the test stated by the majority appears as one which easily lends itself to rigid, wooden application, in contravention of the Court's warning in Chicago Board of Trade that the legality of a restraint "cannot be determined by so simple a test, as whether it restrains competition." 246 U.S. at 238, 38 S. Ct. at 244.
It is not enough under the Rule of Reason simply to find that a restraint is anticompetitive in purpose or effect.54 Under Engineers And Chicago Board of Trade, an objective anticompetitive purpose will not invalidate a restraint provided the restraint is not "Unreasonably restrictive of competitive conditions," Standard Oil v. United States, 221 U.S. 1, 55, 31 S. Ct. 502, 55 L. Ed. 619 (1911) Quoted in Engineers (supra) 435 U.S. at 690, 98 S. Ct. 1355 meaning that the restraint has long term procompetitive benefits or promotes legitimate business purposes, which benefits or purposes are surmised from the context of "all (the) relevant facts" set forth in Chicago Board of Trade, 246 U.S. at 238, 38 S. Ct. 242, 62 L. Ed. 683 . Similarly, an anticompetitive effect may not invalidate a restraint, provided it meets the Standard Oil test, as explained above.
This is not to say that courts can consider the factors to which Engineers explicitly forbids them to look. But Engineers does say that the restraint must be looked at in context. This is consistent with past Supreme Court development of the Rule of Reason. A restraint need not be procompetitive to be valid; the question is whether the restraint is "unreasonably restrictive of competitive conditions."55 The Eighth Circuit in a current opinion by Chief Judge Gibson, upholding a settlement of a class action antitrust suit by the NFL Players Association which attacked the Rozelle Rule, for compensating teams that had lost players who played out their option, recognized that "(some) leveling and balancing rules" were necessary to maintain adequate competitive equality:
It appears from the objectors' brief and argument that they desire complete, unrestricted freedom of movement from club to club, offering their services to the highest bidder. This position ignores the structured nature of any professional sport based on league competition. Precise and detailed rules must of necessity govern how the sport is played, the rules of the game, and the acquisition, number, and engagement of players. While some freedom of movement after playing out a contract is in order, Complete freedom of movement would result in the best franchises acquiring most of the top players. Some leveling and balancing rules appear necessary to keep the various teams on a competitive basis, without which public interest in any sport quickly fades. This, of course, is the crux of most of the past restrictive rules and those now in force. Professional sports are set up for the enjoyment of the paying customers and not solely for the benefit of the owners or the benefit of the players. Without public support any professional sport would soon become unprofitable to the owners and the participants.
Reynolds v. National Football League, 584 F.2d 280, 287 (8th Cir. 1978). (emphasis added). An anticompetitive restraint may be valid if, in light of the facts peculiar to the business, the history of and reasons for the restraint, and other factors mentioned in Chicago Board of Trade, the restraint is not unreasonably restrictive within the meaning of Standard Oil. This demands that the focus be on competitive conditions and the "economic conceptions," 435 U.S. at 690 n.16, 98 S. Ct. 1355, 55 L. Ed. 2d 637, implicit therein. It does not demand a finding of the existence of competitive conditions, though an anticompetitive restraint will not be valid absent some redeeming quality found by analyzing the competitive significance of the restraint, a quality which is sufficient to remove the restraint from the realm of the "unreasonably restrictive."
This interpretation is particularly apparent in the Court's discussion in Engineers of Mitchel v. Reynolds, 1 P.Wms. 181, 24 Eng.Rep. 347 (1711). Mitchel involved the enforceability of a covenant by the seller of a bakery not to compete with the purchaser of the business. The Court noted that the covenant in Mitchel was limited both temporally and geographically. 435 U.S. at 688, 98 S. Ct. 1355, 55 L. Ed. 2d 637. The covenant was upheld as reasonable, "even though it deprived the public of the benefit of potential competition. The long-run benefit of enhancing the marketability of the business itself and thereby providing incentives to develop such an enterprise outweighed the temporary and limited loss of competition." Id. At the bottom line, Mitchel involved a total prohibition on competition between the seller and purchaser for a limited period of time in a specified area, and the purpose of the prohibition was to benefit the industry and to promote trade and commerce. The prohibition in Mitchel was necessary because of "special characteristics of the particular industry." The restraint in Mitchel helped assure the survival of the business, which would ultimately attract other businesses into the area where the restraint was operative and thereby promote competition.
Yet Engineers also states that courts cannot consider whether "monopolistic arrangements will better promote trade and commerce than competition," Id., or "whether competition is good or bad." 435 U.S. at 695, 98 S. Ct. at 1367. Clearly, based on the Engineers discussion of Mitchel, it is possible to have an anticompetitive restraint that does not violate the Rule of Reason. Approving the restraint in Mitchel does not involve a judgment about whether competition is good or bad; it is simply a judgment that, based on all the relevant facts set forth in Chicago Board of Trade And adopted in Engineers, competition that the restraint eliminates is not in the best interest of that business immediately nor in the interest of that industry, insofar as a failing business would discourage new businesses whose entry into the market would promote competition. This analysis focuses on competition, and is consistent with the Rule of Reason.
In a sense, Mitchel reflects the philosophy that "some business is better than no business, for with no business, there can never be competition." Yet this philosophy is inconsistent with the implication the majority seems to find in Engineers that a court can never look to the effect of restraints on enhancing the business of the parties to the restraint. Maj. Op. at -- - of 193 U.S.App.D.C., at 1180 of 593 F.2d. In my view, Engineers does not reach as far as this implication, because it is impossible to ignore the effect of a restraint on a business if one is to form an opinion about how a restraint might ultimately serve to attract other businesses and thereby enhance competition. There is nevertheless a tension present in Engineers for it is not easy to distinguish permissible restraints which, though carrying an anticompetitive effect, are not unreasonably restrictive, from impermissible restraints which are designed only to enhance the business of the parties to the restraint. In the final analysis, this tension is unavoidable if the antitrust laws are to retain the flexibility necessary to deal with myriad types of businesses particularly one as unique as professional sports in a manner consistent with the manner in which Congress intended the Act to be enforced.
Thus, in my view, to the extent evidence is presented that the draft is essential to or materially enhances the vitality of the NFL, and the economic benefits of the players, I do not believe that such evidence is automatically irrelevant under the Rule of Reason. The mere fact that the restraint increases League revenues or that the quality of the game is improved viewed apart from any other consideration is not relevant.56 But to the extent that the draft figures in the vitality of the business in the Mitchel sense, these considerations are relevant.57 In logic, a successful League may encourage other football leagues to develop as occurred with the American Football League and more recently the World Football League (although that effort was ultimately to fail). Such leagues created direct competition in the market for players' services. League success may also encourage other sports, similar in attraction or reasonable substitutes for fan interest, to develop such as soccer which may compete against football for the attention of the public and possibly for some players. In some instances, the different sports might compete for the same athletes; certainly there is competition for the attention of young athletes training themselves in a sport, with the hope of one day making themselves available for play in a professional league. It is well known that football drafted some track and basketball players. Such competition between sports is healthy; it gives the public and some players the opportunity to choose between different forms of the same product, the "league sport."
Furthermore, to the extent professional football as a business resembles a natural monopoly, that status is relevant to the analysis. By focusing on competitive conditions, one might come to the conclusion that the business is a natural monopoly, and given all the other factors, one might decide that the restraint of the draft, vital to the business, is not unreasonable. Where the conditions are such that the forces of competition left alone would produce a monopoly, some organized manner of increasing the number of firms must be developed so that an "artificial competition" can be created where naturally there would be none. Government intervention by regulation or control might provide the artificial competition, or carefully policed agreements among the members of the firm might provide the "artificial competition." Consistently with proper Rule of Reason analysis, the draft can be viewed as a "carefully policed agreement" among the members of the League which is necessary to the stability of the League and ultimately its success as a functional business.
The majority frame the issue as a balancing of the procompetitive effects and the anticompetitive effects of the draft with respect to the market for players' services. It is important to understand the nature of this market. The teams' owners, the purchasers of players' services, are "adverse" to each other in the sense that each owner desires to obtain the most talented available players. The players are to some extent "adverse" to each other, as the players desire to play for the best teams, though what is "best" may vary in the perceptions of different players, just as some people like different foods or colors. It is fair to say that a large percentage of the players are attracted toward the teams that pay the most, have winning records, are located in large cities, and play in a warm climate. Some want to play close to home or where they made their college reputations; or some prefer an invigorating climate with knowledgeable sportswriters and fans who understand the basics of the game. The weight of any particular factor varies according to individual taste and preference, thus rendering the notion of the "best" team from the players' perspective somewhat variable.
Given this market, the majority opinion assesses the competitive impact of the draft on the competition among the teams' owners for players' services. The majority see the draft as an absolute ban on competition between teams for the services of players just out of college. Finding an absolute anticompetitive effect, the majority conclude there can be no procompetitive benefit. After stating that it is impossible to balance, Maj. Op. at -- - of 193 U.S.App.D.C. at 1186 of 593 F.2d, the majority proceed to balance and find what essentially amounts to a predicted outcome to be plain the anticompetitive effects outweigh the procompetitive benefits, and the draft is invalid. Maj. Op. at -- - of 193 U.S.App.D.C., at 1187 of 593 F.2d.
In my opinion this result is not required by Engineers or the Rule of Reason. Before dealing with the instant case, it is useful to consider how the majority's approach would deal with a related context where the proper result, in my view, is even more clearly cut.
Regulation of player conduct by disciplinary sanctions is one of several factors which help make the product of the "league sport." Players must perform according to certain rules both on the field and off of it; without such rules, the product could not exist. The antitrust implications of disciplinary sanctions in professional sports were confronted in Molinas v. National Basketball Association, 190 F. Supp. 241 (S.D.N.Y.1961). Plaintiff, a star player, was suspended by the league for placing bets on league games. The court stated that "a disciplinary rule invoked against gambling seems about as reasonable a rule as could be imagined." The court said that the rule was not only reasonable, "but (was) necessary for the survival of the league." 190 F. Supp. at 243. The anticompetitive effects of the disciplinary measure which prohibited any NBA team from using the services of plaintiff was absolute. No one could contract with plaintiff; no competition for his services in any respect was encouraged. The ban was total, complete, absolute, and purely anticompetitive. Were we to consider only these factors, however, in the manner done by the majority in this case with respect to the draft, we would be required to find that the disciplinary sanctions constituted a violation of the antitrust laws.
I would not agree with such a result, and I do not believe that Engineers requires it. Widespread cheating would seriously jeopardize the marketability of the product of professional basketball. In a Mitchel sense, the prohibition of disciplinary sanctions in such cases would be disastrous to the League. I do not believe that Engineers was intended to overrule Molinas, or that congressional action is required to allow professional sports to effectuate such restraints. I would say that in the long run, the restraint in Molinas facilitates the survival of the League. It may ultimately encourage more competition; other Leagues, if the NBA grows, may form, or other sports leagues may develop and compete for the attraction of athletes and basketball fans. In my view, Molinas is indicative of the approach which should be used in this case.58 III. THE RULE OF REASON AND THE COLLEGE PLAYER DRAFT59
The district court grounded its decision in the application of the Per se rule, but then went on to state that "even . . . application (of the Rule of Reason) would not save defendants from liability for the operation of the draft."60 The court concluded that the evidence on whether the draft was essential to competitive balance was "at best equivocal,"61 and that no correlation was demonstrated between the draft and survival of the League and in reaching such conclusion ignored the uncontradicted Factual testimony to the contrary in preference to an economist's "expert" Opinion not based in factual evidence.62 The court did not consider these matters in detail, however, as it believed that "the current structure is significantly more restrictive than necessary,"63 and thus the draft could not satisfy the Rule of Reason. The court said that the number of rounds could be restricted, or more than one team could be permitted to draft each player.64 Although the majority utilize a slightly different approach, they affirm the conclusion of the district court.
The majority find that the draft is anticompetitive in its purpose (Maj. Op. at -- - of -- - U.S.App.D.C., at 1186 of 593 F.2d). It is true that the draft in an objective sense is intended to restrict the competition among teams for the services of the players. Clearly, this purpose is not "nefarious"; the draft is intended to promote the entire NFL, the quality of the product to be offered the public and to ensure the vitality of the game's existence at the professional level. But this purpose only exists at one level, or in one market the "player-service" market, for this is the only market or level where the draft operates. As discussed above, an anticompetitive purpose, by itself, cannot be enough to disqualify a restraint under the antitrust laws, for then the restraint in Mitchel or Chicago Board of Trade, which in objective terms was clearly anticompetitive for the period of its duration, would never have passed muster.
At least in this case, the important consideration is the Effect of the draft. The majority concludes that the draft strips the players of "any real bargaining power," lowers their salaries, and suppresses if not destroys competition for their services. Maj. Op. at -- - of 193 U.S.App.D.C., at 1185 of 593 F.2d. I disagree. The majority opinion and the trial court only looked at the draft from the players' side and only at a portion of that. As for bargaining power, the operation of the draft also restrains the team from dealing with other players (even though there are exceptions, discussed below). This is particularly true when a team drafts for a position, as the Redskins did in drafting Smith as their first round choice in 1968. The Redskins drafted Smith in the first round to fill a need at the "free safety position." In using their first round draft choice to select a player for that particular position, they practically put all of their eggs in one basket for that year. In selecting Smith, they passed over or did not reach, all other players of nearly equal ability for that position. After the Redskins had exercised their first draft selection, these other players would be chosen by other teams with later picks, and would thus not be available in later rounds. Even if another player was later available, it would be a waste of a valuable draft choice for the Redskins to use any subsequent choice to draft for that same position, since the position needed only one player and the team had other needs to fill as well. That is the way the 1968 player draft went for the Redskins. After they had drafted Smith first to fill that position, the team practically had to sign him if they wanted to fill what they considered was a vital team vacancy. These circumstances gave Smith very substantial bargaining leverage,65 as his professional negotiating agent frequently reminded the Redskins. Also, a first round draft choice commands considerable publicity in the locality, and the team is under very considerable pressure from its fans to sign the player and thereby put the first-round pick in a uniform.66 Smith was the beneficiary, as a first round choice, of such public pressure.
While in a free market a player could negotiate with several teams, a team could also negotiate with several players of nearly equal ability and play one off against the others. If Smith had negotiated with the Redskins in a free market, the Redskins could also have simultaneously negotiated with the next-best prospect for free safety as well and the availability of the other player might have served to reduce the salary offers to Smith. Then if Smith and the Redskins could not come to terms, the Redskins could always opt for one of the other prospects they considered to be close to Smith in ability, well realizing, as experience has many times proven, that the ultimate development and performance of the second or third choice might eventually eclipse that of their first favored choice.67 Drafting college players is not an exact science.
Furthermore, the draft gives an advantage to the player in permitting him and his agent to know the approximate value that the team places on his services. This can be determined from the round in which he is selected in the draft and what his and other clubs are contracting to pay players of his relative ability at his position and draft status. As the testimony in the trial court disclosed, in a free market players would be at some disadvantage in negotiating a contract because they would not necessarily know in advance what value the team placed on their services. A player drafted in the first round obviously knows he is highly valued by the team, and he can use this expression of relative value to bargain for a higher salary accordingly.68 In fact, the particular round in which a player is drafted, when coupled with the position he plays, has the practical effect of giving that player's services from year to year a definite monetary value.
Having this advance knowledge places a drafted player in a position of strength in his competitive bargaining with the team for his services and salary wise this considerably offsets the competitive disadvantage of being limited to one team. Indeed, this fact, when coupled with the practical compulsion for the drafting team to sign their choice, particularly when a team drafts to fill a position, gives the negotiating player a very considerable advantage in bargaining for his salary.69
In any event, the restraint that actually results on the player from being restricted to bargaining with one team can be overestimated if one just reads the majority opinion and looks no further than the written word. Actually there are a number of league practices that alleviate what might appear to be the strict requirements of the draft. It is a "common practice" for a player to be drafted by one team, and then to deal with another team, followed by a trade between the club having the negotiating rights and the club wanting the player.70 At oral argument, it was brought out that Jack Snow of Notre Dame was drafted as a wide receiver by the Minnesota Vikings in the first round.71 However, Snow expressed a dislike for playing in the Minnesota climate, refused to negotiate with the Vikings, and was traded to the Los Angeles Rams where he played eleven seasons, 1965 to 1975.72 Joe Namath was also selected on a first round draft choice obtained in a player trade. Encyc., 184. It is common knowledge that teams frequently trade players to satisfy compelling personal preferences of the players.73 So in practical reality the draft is not as restrictive as it may seem to those who are unfamiliar with it or who blind themselves to how it works in practice.
All teams recognize that player morale is an important factor in football.74 The player draft is not a cold austere proceeding conducted by ruthless automatons who make their selections regardless of the desires of the players they select. To assure that players will be agreeable to playing for them the teams contact players they expect to draft in advance of the selection,75 and try to avoid players who do not want to sign to play with them.76 If the play of forces in the draft result in a situation where the player does not sign with the team that drafted him, a trade is generally worked out to some team where he will agree to sign.77 The drafting team has every incentive to do this in order to salvage something out of their exercise of a valuable draft choice. Sometimes a team drafts a player with the intention of trading him for a veteran player with some other team. The draft works in many ways to achieve team balance. Generally players consider it an honor to have been drafted78; it is those who are not drafted who are disappointed.79
Simply because the draft is essential to the vitality of the business does not mean that players entering the League, as opposed to veterans already playing in the League, have no interest in the existence of a draft. It would be error to suggest otherwise because without a draft a less stable League with fewer franchises and lower salaries would result. Incoming players receive salaries and bonuses far in excess of what they could command in a free market of teams in a league that did not have the competitive balance which a player draft produces. The vitality of the League, which is admittedly dependent in large measure on the balanced team competition produced by the draft, has attracted so great a public interest that the public in most localities, as referred to above, has subsidized the teams by the erection of huge stadiums without full contribution to their cost by the teams that use them. This fact has enabled salaries paid to draftees to be higher than what they would be in a free market with the attendant destructive competition, unequal competitive balance, and resulting shaky franchises. It cannot be said that rookie players have no interest in the existence of the college player draft.
In short, in my opinion, the evidentiary record here supports the conclusion that the draft also has a favorable effect on the bargaining position of players, which to a considerable extent nets out the adverse effect it has in limiting the players' right to negotiate with other teams. And this bargaining equivalency vitiates the assertion that players' salaries are depressed on account of the draft.
As for suppressing competition for players' services, it is true that the draft, objectively speaking, restricts such competition between teams. But beyond that, the existence of the draft has a direct relationship to the vitality of the business in the Mitchel sense, which takes this draft out of the realm of "unreasonably restrictive" restraints. The majority asserts that improving competitive balance has no immediate effect on the market for players' services, and that the draft does not increase competition in the sense of encouraging others to enter the market. Maj. Op. at -- - of 193 U.S.App.D.C., at 1186 of 593 F.2d. Improving competitive balance may not have an immediate, direct effect in the market for players' services, but competitive balance is related to the quality of the product and the vitality of business and the production of the revenues that the player market expects for its services. And as league revenues have increased so have player salaries. While entry into the market of professional sports leagues is not particularly easy, that avenue is not absolutely blocked. And a successful league does provide an incentive for entry. In fact, since the draft was inaugurated in 1935 there have been 19 teams successfully added to the league and a number of others tried. And for a considerable period of time there was inter-league competition for players' services. This is a very substantial procompetitive benefit in the Mitchel sense, and it is not taken into account by the majority in its balancing approach. Yet to the extent entry is assumed to be impossible, this only supports the contention that the business of professional football is a "natural monopoly" where carefully policed agreements, somewhat restrictive in themselves, are tolerated because they are essential to the vitality and existence of the business. Regardless of which track one's analysis takes, it does not follow that the draft violates the Rule of Reason.
In addition to enhancing the possibility of competition from other Leagues, it must be recognized that the NFL must compete with businesses and other careers for the best graduating college players in order to attract spectators to its games and a large audience to the television. In some instances, the NFL must even compete with other sports for the services of the same athletes. Since 1935, the draft has helped the NFL in this competition. Now, almost all of the best college players sign with professional teams, the attractiveness of the game has increased, baseball (according to some) has been supplanted as the national game, and teams' incomes and players' salaries have greatly increased to astronomical amounts in some instances.
So viewed, the argument of the Redskins and the NFL here differs from that advanced in Engineers. It is true that the engineering profession argued that lifting the ban on competitive bidding would reduce the quality, durability, and safety of the product. But this was not found to be true and it had nothing to do with the Mitchel consideration of whether the ban was essential to the wholesome existence of the industry, or in the long run served to encourage competition for the provision of that product or comparable products. That is what is involved here when the matter of "competitive balance" is invoked; what was condemned in Engineers is not the same thing.
The majority, like the trial court, hints at, but does not assess the legality of, less restrictive alternatives. I have already indicated why I believe such alternatives would not fulfill the present purpose of the draft. In evaluating less restrictive alternatives as a matter of law, it is difficult to imagine what kind of draft would be valid if the existence of a less restrictive alternative would automatically render the present draft unreasonable. Some less restrictive alternative can always be imagined. When applying the Rule of Reason, the test is not whether the defendant used the least restrictive alternative. Rather, the issue, as explained above, is whether the restriction is "Unreasonably restrictive" in the context of the particular case.80 A reasonable restriction does not become illegal merely because a less restrictive alternative exists. In my view, there is no proof in this record that a less restrictive draft can achieve the necessary benefits of the present draft in preserving the vitality of the business, as I have discussed that matter above, and thus just because some less restrictive alternatives might be conjured up is of no force. All the less restrictive alternatives result in free agents and these can be acquired to assure continued team dominance not competitive equality. As the New York Yankees have proved, just one free agent added to a strong roster by a free spending owner can assure team dominance and deny it to another team.
In any event, it is not necessary for this court to prescribe what form the draft should take. And it will probably never be necessary to do so because it appears that the labor exemption may already have been used to validate a draft with less restraint than the one that existed in 1968 and there is no showing that the present draft damages the players. But there is no proof that the present draft, or one that might be hereafter negotiated, will be as beneficial to the players, by way of preserving the necessary competitive balance. The present momentum of the League's growth can continue for a considerable period, and perhaps for some time can survive changes in the draft that eventually will prove to be detrimental in the long run. But when making changes, they are tampering with the goose that continues to lay the golden egg; they should be careful lest they create problems for the future. Like it or not, there will always be some form of player draft because it is necessary to the success of the League. The aim is to have all teams as nearly as possible at roughly equal competitive strength and drawing power, and not to create problem franchises. Instead of imagining less restrictive alternatives courts should work to improve the draft to benefit the weaker teams. Hockey is losing its television attraction,81 its lack of competitive balance is weakening and losing franchises, and soccer is coming on strong. Whether television revenue would continue at its present astronomical figure if soccer became the national game as in most of the rest of the world is an open question. Certainly it would provide substantial competition for football if public interest shifted though the seasons are not parallel. These changing conditions indicate the need to avoid unwise changes in the draft which might harm the overall strength of the NFL. The draft is one of the most important methods by which weaker teams can improve themselves.82
Antitrust analysis must retain the flexibility to cope with the multiplicity of types of businesses and types of restraints that pervade our economic system. This is particularly true with boycotts, which is in essence the type of restraint that is involved with the college draft. Various kinds of concerted action must be distinguished, and treated in different ways. Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S. Ct. 705, 3 L. Ed. 2d 741 (1959), teaches that if a group of store owners in combination urge manufacturers to stop selling wholesale goods to the competition and if the group backs up its request by refusing to do business with the manufacturer, the restraint the effect and purpose of which is to drive the competition out of business is illegal Per se. However, if a group of citizens in combination refuse to patronize the store, the restraint the effect and purpose of which is to drive the store out of business, or cause it to sell different kinds of books would not be deemed violative of the antitrust laws, even though it is very similar to the conduct condemned in Klor's. Courts recognize that citizen groups can restrain trade for non-economic purposes, even though the intent of the restraint bringing economic sanctions to bear on the object of the boycott is the same as other conduct deemed illegal.
The draft, in my view, fails somewhere in between the boycott condemned in Klor's and the boycott for a non-economic purpose. The draft is designed to obtain an economic benefit promoting the economic vitality of the League through competitive balance. But unlike both the Klor's and the citizen restraint, the benefit sought is Not at the expense of the object of the boycott, i. e., those veteran football players who play in the NFL. They profit enormously from it, and drafted rookies expect to and do as evidenced by the size of their salaries and bonuses. The economic benefit which is obtained by producing a viable product, league sport, inures to the benefit of those who are, at one time or another, the objects of the boycott, namely the players. This is a consideration which should not be taken lightly; it is endemic of the type of analysis which is within the realm of the Mitchel doctrine, as related in Engineers.
In short, I do not believe that Engineers requires that the draft as it existed in 1968 be struck down as violative of the Rule of Reason, and I would conclude that the 1968 draft was not unreasonable under the Engineers' standard.
Finally, the majority's reasoning should be noted that:
player draft can survive scrutiny under the rule of reason only if . . . at the least . . . it is demonstrated to accomplish legitimate business purposes and to have a net anticompetitive effect that is insubstantial.
Maj. Op. p. -- - of 193 U.S.App.D.C., p. 1188 of 593 F.2d. The majority admit that the draft is not pernicious and that it does contribute to the accomplishment of a legitimate business purpose the improvement of the league product so all players and teams may benefit. All that remains is to find that the net anticompetitive effect is "insubstantial." If we find with the majority that there is no procompetitive effect then it is purely a question of evaluating the anticompetitive effect of the draft. This brings us in this case to the effect of the draft on Smith's salary. Smith's salary was in line with those of other Redskins. J.A. 423-575. Since the financial records for 1968 indicate that the Redskins and the other league teams were paying out practically all their income in players' salaries and other operating costs it is obvious that, draft or no draft, Smith's chance of getting a higher salary was practically non-existent. Thus, the effect of the draft on him was Insubstantial and under the majority's formulation the draft would survive. I would concur in that conclusion. It is merely another way of saying that Smith has no cause of action because he obtained as favorable a contract as he could even if there were no draft. IV. DAMAGES
If the draft does not violate the Rule of Reason, it is unnecessary to reach the question of the proper measurement of damages. However, assuming Arguendo that the draft as it existed in 1968 was illegal, I would still conclude that Smith was not entitled to any recovery against defendants.83 In my view, this is so clear that it is not necessary to remand to the district court for recomputation.
I agree with the majority that it was proper for the trial court in computing the damage award to include the disputed $19,800, which the Redskins paid Smith after his injury, in Smith's "actual compensation." I also agree with the majority that it was error for the district court to compute the damages based on the finding that Smith, if he had been negotiating in a free market, would have been able to negotiate a three-year contract with salary guaranteed regardless of injury. In my view, it was clearly erroneous for the trial court to conclude that Smith could have obtained such a contract. No rookie in history had obtained such a contract. The Redskins had originally offered Smith a three-year contract, with a fourth-year option, at a beginning lesser salary of $17,500 but with regular annual increases. Smith and his agent had rejected such offer in favor of a one-year contract, and one additional option-year, at the higher $23,000 salary and a $5,000 performance inducement if he "made the squad." And a $22,000 signing bonus was added total for 1 year $50,000. The evidence shows that Smith did not want a three-year contract at a lesser salary, and it does not support a finding that a player in Smith's position, an unproven rookie, would be successful in obtaining a contract in which the compensation would be guaranteed for a three-year period.
However, I am unable to agree with the majority's affirmance of the district court's comparison with Pat Fischer to produce an annual salary of $54,000 for Smith if the antitrust violation had not occurred. The district court compared Smith with his teammate Pat Fischer, and based Smith's salary on that received by Fischer in 1968. In my opinion, for a number of reasons, equating Smith with Fischer for salary purposes was clearly erroneous, and I dissent from the majority's affirmance of that portion of the trial court's judgment.
The trial court is in error when it states that Fischer played the Same position and the majority is in error when they find sufficient similarity to base his salary on the salary paid for Fischer's position which they term a "similar position." Maj.Op., p. -- -, n.76 of 193 U.S.App.D.C. p. 1190, n.76 of 593 F.2d. The trial judge asserted "Fischer was recognized as an outstanding Defensive back (plaintiff's position)" and that he was "looking at the compensation received by other Top players in the league at that time, Particularly those playing his position or with the Redskins."84 The majority assert: "Pat Fischer, like plaintiff, was a Defensive back who signed with the Redskins in 1968." Maj.Op. n.75. Actually, the men played different positions as the testimony indicated.85 Smith was a "free safety," and Fischer was a "left cornerback."86 Of course, defensive backs, like defensive linemen are all "similar" in some respects, but there are also great dissimilarities. Cornerback, as has been aptly stated is "the game's most demanding position."87 Left cornerback is a far more difficult position in today's defenses than free safety, as it requires the player to cover eligible pass receivers over a greater area of the field (from the line of scrimmage to the limit of a passer's throwing ability), and the eligible receivers they are generally required to cover are usually the opponent's fleetest and best pass receivers. Cornerbacks also invariably have more passes thrown to the players they are assigned to cover. Saying that Smith and Fischer played the same position, "Defensive back," is almost as erroneous as saying that all Offensive backs play the same position, or that all offensive linemen play the same position. But fullbacks are not the same as quarterbacks and wide ends are not the same as centers, or guards, etc. The wide differences between safety and cornerback may escape many television viewers because TV rarely shows a safety except just before a pass arrives in his playing area. Actually the positions are more like a running guard and the back guard in the early basketball game.
In addition, the facts with respect to Smith and Fischer, which teams take into consideration in determining salaries, are so different in material respects that it could not be reasonably concluded that Smith was the equivalent of Fischer. Smith was selected as an All-American player on defense at the University of Oregon, but in the 1968 draft he was still only a rookie with considerable promise, Untested in professional football. As one of plaintiff's own witnesses testified:
I think Pat Fischer had a record that he could stand behind and Yazoo (Jim Smith) still had something to prove in the NFL.
J.A. 1070. Fischer was a veteran cornerback in the NFL. He had played eight years with the St. Louis Cardinals, had been All-Pro twice, and had been selected as the "most valuable player" on the Cardinals. Fischer was a Proven player and was qualified at a more difficult position to play. His total pass interceptions in the league was very impressive as would befit an All-Pro at cornerback. The trial court asserted that Smith played up to his advance billing as a free safety, but at oral argument it was admitted that Smith had not intercepted a single pass during the 1968 season. The testimony reflects that Smith was a good athlete and a fine prospect but, despite the undoubted promise that he demonstrated, when one considers that the leading passers averaged about 20 forward passes a game,88 and Smith in ten leagues games playing a free safety position did not intercept even one pass out of roughly 200 passes, his actual league play does not indicate outstanding performance in the most important duty that his position required covering forward passes.
By misinterpretation of the testimony, the trial court is also in error in flatly asserting that "Commissioner Rozelle . . . determined that Fischer's services were not as valuable as those of . . . the plaintiff, and instead awarded the Cardinals compensation consisting of the Redskins' second . . . and . . . third round draft (choices) . . . ."89 Rather, it appears to me that the sense of Commissioner Rozelle's testimony was that he concluded that awarding the two draft choices was the most equitable solution because Smith was the Redskins' first round draft choice and such fact carried A great deal of public relations value in the community.90
Thus, for the variety of the above stated reasons, in my view, it was clearly erroneous for the district court to base Smith's salary computation on the assumption that he was comparable to Pat Fischer.
Even assuming that Smith was comparable to Fischer, when one takes into account that fact that Smith himself selected a one-year contract with a one-year option and the higher salary that goes with a shorter contract, instead of a three year contract, and that Smith as an untested rookie was unable to get more, it becomes clear that Smith made a conscious choice and really suffered no damages. Smith, under his contract, received $28,000 for making the squad and playing in 196891 and a signing bonus of $22,000, making his total compensation $50,000 for the first season. Fischer, who obtained a two-year contract, received a salary of $30,000 per year and a signing bonus of $48,000. When Fischer's salary is annualized, he received $54,000 for the 1968 season.92 At best, Fischer only received $4,000 more than Smith and this does not take into account the fact that Smith was an untested rookie who was not the equivalent of the proven Fischer, nor does this take into account the fact that the Redskins paid Smith an additional $19,800, which is what he would have received in the Next season had Smith played out his option. The Redskins had no obligation to make this payment to Smith. Thus, Smith actually received $69,800 for playing his first season. Notwithstanding the disparity in Smith's and Fischer's proven worth, Smith received substantially the same amount in 1968 as did Fischer if the $19,800 is ignored; taking that sum into account, Smith received substantially more. In my view such facts reflect an absence of damage to Smith.
I agree with the majority that the district court in determining damages should consider evidence of "free market conditions." However, I find that the evidence is overwhelming that Smith would not have received more absent a draft than he actually did receive with the draft in effect. The following table illustrates how the Redskins compared with the average of all NFL teams in certain financial categories in 1968:
Redskinsa ALL NFL Teamsb
Gross Income $3,964,035 $3,550,624
& Bonuses 1,604,407 (40% of GI) 1,369,422 (39% of GI)
Operating Income 264,559 ( 7% of GI) 320,422 ( 9% of GI)
Income Before Taxes 132,279c 155,923
Income Taxes 66,139c 77,962
Net Income 66,139c 77,962
These figures show that the Redskins had a larger gross income than the average team in the NFL and that they spent a larger percentage of that sum on salaries and bonuses for players than the average team in the NFL (40%, as opposed to 39%).93 The comparative financial statements (Id.) also demonstrate that if the NFL teams were to base their operations on the amount of their actual revenues, players' salaries with the Redskins, and on the average with the other league teams, in 1968 were just about as high as they could go. This was even more true of the Redskin club which spent a larger proportion of its gross revenue on players' salaries than the average NFL team. Practically all of the money that any reasonable person would expect was devoted to players' salaries and bonuses by the Redskins and by the average League team. Thus, whether or not there was a free market for players' services would not appear to be of much significance, as there was not sufficient money available in 1968 to pay substantially more in players' salaries than the salaries and bonuses that were being paid. Even if the Redskins had devoted their entire remaining income before taxes to players' salaries, it would only have resulted in a small increase for each player. And Smith might have fared less well with a team that did not pay as much of its gross income to its players as did the Redskins. Plus, given the fact that the draft definitely contributes to the competitive balance of the teams, and hence enhances their gate receipts and TV income, in a free market, with its attendant lack of competitive balance, there would have been less money available for players' salaries if the experience of the NFL under the prior free market conditions is any criteria. If a free market is to be considered in assessing damages the court must necessarily appraise the reduced income that teams suffered when a free market existed. Under such circumstances, it is difficult to perceive how Smith suffered any damage by the contract his agent negotiated and which he signed.
Furthermore, there are additional reasons why the testimony in my view does not support the trial court's conclusion that salaries of players would necessarily "increase . . . in a free market situation."94 As indicated above, while a free market might permit a player to play one team off against another in salary negotiations, the teams could also play one player off against one or several players that were considered to be of near-equal ability. The competition between teams for the players' services that might tend to increase salaries could be offset by the teams negotiating with several players at the same time and selecting what the team, everything considered, determined to be the best deal. While a free market, offers a wider choice to a player it also gives a great deal more mobility to a team in its player negotiations. This would tend to decrease salaries. Also, in "free-market bargaining," players would not have the advantage of knowing, from the round they were selected in the draft, what relative value the team placed on their services. The absence of this bargaining factor would impair the bargaining position of Smith, and would work to his detriment. Thus a free market would not be the panacea for Smith and other players that the trial court envisioned.
Finally, it seems ironic that Smith attacks the system from which he has profited so greatly. As noted above, most of the teams, and indirectly the players, are being Subsidized tremendously by the local communities which furnish the playing facilities for their games. If the teams were required to finance and build the huge stadiums in which they play and to pay local taxes thereon, the money for the players' salaries would be greatly reduced. Most of this has developed under the draft, and yet it is argued that a player is damaged by the absence of a free market. Under the free market for players' services, there were greatly lowered salaries, fewer teams, fewer jobs for players, smaller and fewer stadiums, shaky franchises, and far less public interest (which to the extent it existed showed a great preference for college football). During that period, a player might be lucky to go with a good team which would stay good or he might be unlucky to go with a bad team which would stay bad and perhaps fold. That is what the evidence shows. The NFL has been built to its present status since the draft was inaugurated and the existence of the draft was one of the features of NFL operations that encouraged the creation of new teams, as Mitchel suggested it might. So, in my view, Smith has not proved that he was materially damaged by the absence of the free market with its attendant evils, smaller stadiums, less stable teams, smaller crowds, fewer teams, and a less profitable television contract.
When all of these considerations are added together, even if there was an antitrust violation, I cannot agree that Smith was damaged thereby. It is a mistake to ignore the history of the draft, the practical realities of its operation and the objective it has achieved and then through an overly restrictive interpretation apply a law that was intended for normal business enterprises to a sport with unique operating characteristics, and I do not find that the Supreme Court's decisions so require. V. HOLDING
In my view the draft as it existed in 1968 was not a violation of the Rule of Reason and therefore illegal under the Sherman Act. Even if it was, the record reflects that Smith was not damaged thereby, and that this is sufficiently clear to make a remand unnecessary.
In sum, I conclude, because of the unique nature of NFL football and the historical reasons that led to the inauguration of the draft, that the 1968 NFL college player draft is not unlawful under the antitrust laws. While graduating players are generally required with exceptions to sign with the team that drafts them, the teams by the nature of the game and the draft are also practically restricted to signing the players they have drafted, or else suffer the loss of very valuable draft choices. Also, in actual practice the draft allows players considerable mobility. Other considerations, discussed above, also indicate that the bargaining positions of graduating players, who are represented by agents in a great many instances, are not hampered. For these reasons, I believe that the draft is within the Rule of Reason as outlined in Engineers.
Even if the 1968 draft violated the antitrust laws, I do not believe that Smith was damaged by any "anticompetitive evil." The record reflects that in 1968 Smith, and other rookies, would not have obtained any larger salary in a free market because, as it was, team revenues were almost completely expended for players' salaries, bonuses, and other benefits, and for team operating expenses. Thus, there were insufficient team assets for a free market to produce any larger salaries. The preponderance of the evidence also indicates that under a free market a few teams owned by wealthy individuals and having other special advantages would benefit to the exclusion of other teams and thus destroy the competitive balance that is vital to the overall strength and revenues of the League. I also conclude that it was clearly erroneous for the district court in its salary computation to compare Smith with Fischer because they were both "defensive backs" when they played the substantially different positions of "free safety" and "cornerback." I would therefore reverse the judgment of the district court and order the case dismissed. To that end I respectfully dissent.95