Quarterback Drew Brees Explains Why Supreme Court Should Block NFL From Having Exclusive Licensing Deals

from the worth-reading dept

Mon, Jan 11th 2010 1:29am — Mike Masnick

We were recently discussing how the idea of "officially licensed" gear for professional sports teams is a relatively new phenomenon. In the past, anyone could produce gear for fans. However, there's a Supreme Court case looking at this issue, involving the NFL's exclusive license deal with Reebok, and reader Fitz points us to a quite well argued op-ed by New Orleans Saints quarterback Drew Brees explaining the harm that such exclusive deals do, noting that it seems like a clear violation of antitrust rules, in that all of the different NFL teams are effectively teaming up to exclude competition:

The NFL originally won the case because the lower courts decided that, when it comes to marketing hats and gear, the 32 teams in the league act like one big company, a "single entity," and such an entity can't illegally conspire with itself to restrain trade. The NFL-Reebok deal is worth a lot of money, and fans pay for it: If you want to show support for your team by buying an official hat, it now costs $10 more than before the exclusive arrangement.

Amazingly, after the NFL won the case, it asked the Supreme Court to dramatically expand the ruling and determine that the teams act as a single entity not only for marketing hats and gear, but for pretty much everything the league does. It was an odd request -- as if I asked an official to review an 80-yard pass of mine that had already been ruled a touchdown. The notion that the teams function as a single entity is absurd; the 32 organizations composing the NFL and the business people who run them compete with unrelenting intensity for players, coaches and, most of all, the loyalty of fans.

Brees rips apart that argument by noting the competition he, himself, faced as a free agent -- a right that players only got after a series of court battles. This isn't a huge surprise. Like plenty of other businesses, sports leagues have a keen understanding of what monopoly rents are, and do everything possible to profit from them.

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Filed Under: competition, drew brees, football, licensing, monopolies
Companies: nfl

29 Comments

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AdamR (profile), 11 Jan 2010 @ 4:43am

Zone Coverage
Well I read the Wash. Post article and it has nothing to do with the poor little companies getting squeezed out by the merchandising agreements the NFL makes! This is all about the looming lock out for 2011. The various player associations are afraid of losing the main bargaining power, which is running to the government and court system and claiming antitrust issues. The players don’t care about any small companies all they want to know is what there cut will be!
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The Anti-Mike (profile), 11 Jan 2010 @ 4:50am

However, Mr Brees would still like to be paid an exorbitant wage to play a child's game, in a league where some teams won't even make a net profit equal to his yearly take home pay.

I think he better check out which hand is feeding him again.
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Kesey, 11 Jan 2010 @ 5:06am

Re:
Even the Detroit Lions are making money. I don't know where you get your info from.
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AdamR (profile), 11 Jan 2010 @ 5:11am

As usual Anti-Mike you have to make stupid comments. So by your reasons the owners have exclusive rights to make exorbitant amounts of money? It’s the owners that ask for and get tax payer money to build these stadiums and they add PSL’s(Personal Seat License) and turn what used to a 75.00 ticket per game to 300.00+ per game and shut out true fans. It’s really funny their tax money went to build the stadium in the first place. The teams that are losing money are located in area where they should have never been in the first place. The Jacksonville Jaguars are the perfect example, they never been located there but greed put them there. They saw all the money the College teams are making and thought we can to… well guess not.
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The Anti-Mike (profile), 11 Jan 2010 @ 5:25am

Re: Re:
Brees gets 10 million a year (5 year, 50 million contract).

GreenBay's pretax profits for the year are 20 million:

http://www.nfl.com/news/story?id=09000d5d810ec974&template=without-video-with-commen ts&confirm=true

However, as a commenter below the article notes, "The Packers' operating profit was $20.1 million, but after deducting their investment loss and taxes, their net income was only $4 million, for a profit margin (net income divided by gross sales) of 1.61%, which is minuscule."

The Packers are the only publically owned franchise, which makes it hard to find solid numbers. Their profits dropped 50% year over year. Pretty much every set of numbers I could find that estimated pre-tax profits, there was always at least one team below 10 million.

Please, carry on.
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:), 11 Jan 2010 @ 5:30am

Re: Re: Re:
That is not the proper use of the "hollywood accounting system" :(
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AdamR (profile), 11 Jan 2010 @ 5:49am

Re: Re: Re:
You also forgot to mention they have over 127 million in cash tucked away...
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Chris ODonnell (profile), 11 Jan 2010 @ 6:01am

Football contracts also aren't guaranteed. A baseball player with an $50 million contract will make $50 million, even if he is a bust or gets injured. A 5 year football contract is usually only guaranteed for the first two years or so. The numbers look good in the paper, and the Brees family certainly isn't worried about where the next meal is coming from, but pro football players do not have the same level of financial security as other sports.
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The Anti-Mike (profile), 11 Jan 2010 @ 6:01am

Re: Re: Re: Re:
whatever cash a team has tucked away isn't part of this year's net profit, is it?
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Call me Al, 11 Jan 2010 @ 6:18am

Re: Re: Re: Re:
But having $127mil in capital doesn't detract from their relatively low annual profit. If anything they should be congratulated for having that money put aside.

Without looking closely at the numbers its difficult to see if there was anything else which would contribute to such a low net profit.

There is no denying though (as the Anti-Mike pointed out) that the wage bill is enormous and clearly has a detrimental effect on the team's profits as a whole which will of course be a concern for the owners of the team.

Could I just take a second to urge commentators who want to criticise Anti-Mike to save their criticism for when he does say something dumb and not just to spit bile at every opportunity. Save it for when its worthwhile.
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Dementia (profile), 11 Jan 2010 @ 6:33am

And the rest of the country has exactly what financial security based on their jobs? Why don't you explain to the thousands of people who lost their jobs in the last year why we should be so concerned about the job security of any sports figure making these obnoxiously large salaries.
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Anonymous Coward, 11 Jan 2010 @ 6:42am

Re:
What's wrong with a man realizing his company is being evil and speaking up about it. If anything it shows strength of character to risk his wealthy job for this.
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MCR, 11 Jan 2010 @ 6:49am

Re:
Since the league's Salary Cap is based off a percentage of overall revenue, overall players income is pre-determined and how a team decideds to divide up their salary pool is entirely up to them. If they want to give Brees $10M per, that's $10M against their cap and reduces the overall amount they can play the other team members.

Also, while his contract is 5 years, they can cut Brees at any time and void his contract. NFL Players usually sign big contracts with big signing bonuses, cause the players/agents/teams know they can cut the player at anytime.
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The Anti-Mike (profile), 11 Jan 2010 @ 7:01am

Re:
AdamR, your logic is wonderful, I wish that it was applied here on Techdirt more often in relation to ever expanding ticket prices.

They are pricing the scarcities to the levels that concert ticket prices are reaching, and you feel locked out an angry. How long before you feel the same about concerts?
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AdamR (profile), 11 Jan 2010 @ 7:11am

Re: Re: Re: Re: Re:
But it shows that have been making millions of dollars thru the years. The 127 million didn’t magically show up. The last couple years they had to readjust their team which lead to a losing record and losing some money plus tack in the bad economy, with the changes they have made they are back on track to making a lot more money
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The Anti-Mike (profile), 11 Jan 2010 @ 7:19am

Re: Re: Re: Re: Re:
Thanks Al.

The 127 million is a very good number, Green Bay is certainly an exception case in many ways. I can't help but wondering though what their net profits are each year on merchandising. I wonder if that has anything to do with at least some of that 127 million, as GB gear is pretty darn popular all over the place (especially from the time of Favre being there).

In the end, exclusive licensing deals are often the best way to profit from this sort of situation. It allows the merchandise maker to sell a higher end product (quality wise), and to sell it for a price in line with quality and desirablity. It allows them to take the risk without worrying about a flood of cheap knockoffs in the market place that would hurt their ability to invest in product and inventory. There is no reason that the teams should not be allowed to enter into such an agreement.
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Anonymous Coward, 11 Jan 2010 @ 7:34am

Re: Re:
They can't just "cancel" a contract unless it's written with that verbiage in the contract. Potential or star players receive additional incentives for play that reduces having to pay out if they don't accomplish them but their contracts are generally guaranteed.
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AdamR (profile), 11 Jan 2010 @ 7:34am

Re: Re:
ROFL. I’m neither locked out or angry, I only go to a couple baseball games a year and rather watch the games within the comforts of my house. I feel for those that want to go to games and support their teams but are getting priced out by greedy owners that want extract every possible nickel from them. Since you asked about concerts I never been to one but I always had luck in finding where they would going to play or hang out afterwards and just head there.
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Avatar28 (profile), 11 Jan 2010 @ 8:22am

how much will he be fined?
The NFL tends to not like someone speaking out against the party line. I wonder if they will try to fine him for this op-ed piece and how much if they do.
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Accounting 101, 11 Jan 2010 @ 8:26am

Re: Anti-Mike
Your math is most likely correct, I don't dispute it. Your argument is not exactly rock solid. Every company, public or private, does everythign they can to limit their tax exposure, most likely structuring debt (re-model of Lambou Field expenses, charter flights for teams) so that they reduce their tax exposure. Take a look at the filings for the Fortune 500 companies ranked 11-16, and you will see that in the past 2 years, 1.61% profit margin using your calculation would put them as one of the top performing companies in the US.
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The Groove Tiger (profile), 11 Jan 2010 @ 8:31am

Re:
Which is funny since injuring other players is much more a goal in this game than it is in others.
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Anonymous Coward, 11 Jan 2010 @ 8:32am

Re: Re: Re: Re: Re: Re:
What you are missing is that profit is net of all those salary expenses and everything else. The players are the ones actually playing the game and the ones that put the fans in the seats.

Does it make sense that the players should get less and the owners should get more?

I think bringing in an extra $4 mil beyond paying your players and staff and various other contracts is a pretty sweet deal. And since these teams arent public, there are no shareholders to reap the benefits. That money goes straight into the pocket of the owner, or gets reinvested into the team next year in one form or another.

Plus, in an economy where companies are folding left and right, ANY profit at all is a windfall.

As a side note: This is actually a pretty perfect analogy to all the music discussions on this site: players = musicians. Teams/owners = record labels.

I used to be of the opinion that players were overpaid primadonnas, and in a lot of ways they are. But, they are paid what the market says they are worth. The alternative is akin to Gladiators in ancient Rome - owners getting rich off the blood and sweat of underpaid serfs. I like the current system better.
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SJSColleg, 11 Jan 2010 @ 9:51am

quite whining
if your unhappy with a company making a profit, stop consuming their products. The NFL pays players what they do because they can...not complicated, if no one ever bought another ticket/jersey//cheese hat then the NFL would players the same as professional LaCrosse players...But they are popular and people pay $150 for an official jersey, so who is really to blame?
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:), 11 Jan 2010 @ 10:41am

The owner is to blame.
What is wrong with people these days?

The owner or club have all the cards to play to get people to sign off they could easily not accept those terms no?

And people should stay away from over bearing people who want to create monopolies(exclusive contracts) those people are destroying the U.S.
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Anonymous Coward, 11 Jan 2010 @ 11:58am

I wish I could download NFL. Those owners are crooks and should be put out of business, because their business model is dying.
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Johnny Canada, 11 Jan 2010 @ 11:59am

The owners pays for the team, they own the team's name and its logo's.

Why should some freeloaded be able to make T-shirts (to sell for a profit) and not pay the owner of the team?
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BentFranklin (profile), 11 Jan 2010 @ 2:28pm

If My Team is Just a Sock Puppet then Count Me Out
Speaking strictly as a consumer, if the NFL is successful in its argument that the various teams are just its sock puppets, I will seriously consider canceling my subscription (season tickets, cable package, merch, all of it).

It's very short sighted of them. But then I guess the average fan won't care.
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Coach David, 11 Jan 2010 @ 3:19pm

Kool-Aid
I agree with Mr. Breeze. The Government should take action before the NFL is to big to fail. If something needs to be done then do it. Stop placating the people who are told to believe the Government(For the people by the people) has no business helping the people.

(rant)
Athletes make money just like movie stars. Actors play dress-up and Football Players play with a ball. We pay for it and love it. As long as we are willing to pay we should not complain.
One thing I would like to mention is the relatively high ratio of profit share that the NFL players get. The NFL is not allowing for competition, making poor business decisions, just like any other poorly run Corporation.
Thursday night games? Only hurts what made the NFL big (Fantasy football). Exclusive deals with EA, and DirecTv only hurt the quality and perception of the NFL.

The NBA, which does not have the luxury of having weekly games that lend it self to a Fantasy Game, but manages to keep the Exclusivity to a minimum, contracts guaranteed.
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tony, 9 Dec 2011 @ 8:13am

yeah but you guys make more money from it
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