Chicago Pro. Sports v. National Basketball Ass'n, 90 C 6247.

• Decision Date: 24 January 1991
• Docket Number: No. 90 C 6247.,90 C 6247.
• Citation: 754 F. Supp. 1336
• Parties: CHICAGO PROFESSIONAL SPORTS LIMITED PARTNERSHIP and WGN Continental Broadcasting Company, Plaintiffs, v. NATIONAL BASKETBALL ASSOCIATION, Defendants.
• Court: U.S. District Court — Northern District of Illinois

754 F. Supp. 1336

CHICAGO PROFESSIONAL SPORTS LIMITED PARTNERSHIP and WGN Continental Broadcasting Company, Plaintiffs, v. NATIONAL BASKETBALL ASSOCIATION, Defendants.

No. 90 C 6247.

United States District Court, N.D. Illinois, E.D.

January 24, 1991.

COPYRIGHT MATERIAL OMITTED

Joel G. Chefitz, Stephen D. Libowsky, James E. Hanlon, Jr., Andrew M. Hale, Katten, Muchin & Zavis, Chicago, Ill., for Chicago Professional Sports Ltd. Partnership.

John R. McCambridge, Irving C. Faber, Darrell J. Graham, Eric D. Brandfonbrener, Grippo & Elden, Chicago, Ill., for WGN Continental Broadcasting Co.

Tyrone C. Fahner, Matthew A. Rooney, Kenneth E. Wile, Herbert L. Zarov, Mayer, Brown & Platt, Chicago, Ill., Jeffrey A. Mishkin, Marc J. Goldstein, Proskauer, Rose, Goetz & Mendelsohn, New York City, Christopher Wolf, Warren L. Dennis, Proskauer, Rose, Goetz & Mendelsohn, Washington, D.C., for Nat. Basketball Ass'n.

FINDINGS OF FACT, CONCLUSIONS OF LAW AND OPINION

WILL, District Judge.

The National Basketball Association ("NBA"), acting through its Board of Governors, limits the number of games NBA teams may broadcast over "superstations." Superstations are independent, over-the-air television stations that broadcast in their local market areas and are also carried by cable systems to other parts of the country. WTBS in Atlanta, WGN TV in Chicago and WWOR in New York are all examples of superstations. The NBA's rules, including those limiting games on superstations, of which there have been several over the years, are enacted by vote of the NBA's Board of Governors, a body consisting of one representative from each of the 27 NBA teams.

During each of the last five seasons, the NBA's superstation rules allowed every NBA team to broadcast up to 25 games on a superstation. But effective this season, the Board of Governors has adopted a new rule reducing that number from 25 to 20. Chicago Professional Sports Limited Partnership, owners of Chicago's NBA franchise, the Chicago Bulls, and WGN Continental Broadcasting Co. ("WGN"), to whom the partnership ("the Bulls") had licensed 25 Bulls games for this season, seek to enjoin the league from enforcing the new 20-game rule so that the Bulls may sell and WGN may buy rights to televise 25 rather than only 20 Bulls games for broadcast nationwide.

This is an antitrust case. The Bulls and WGN allege that the league's decision to reduce the number of superstation games permitted to any team constitutes a horizontal agreement among the NBA teams to restrict output and to boycott superstations, in violation of Section 1 of the Sherman Act. 15 U.S.C. § 1.

Having heard evidence and arguments over the course of five days and read the pleadings, the briefs, the relevant exhibits and designated deposition testimony submitted by the parties, we now enter our opinion, incorporating our findings of fact and conclusions of law as required by Fed. R.Civ.P. 52. The parties have submitted a joint stipulation of undisputed facts, which should be considered findings of the Court, though some of those facts may not expressly appear in this opinion.¹

This opinion is divided into fifteen parts. Parts I through VII discuss the structure of the NBA, the history of the NBA's television policies as well its current policies, the logistics of superstations, WGN's contract with the Bulls and television coverage of Bulls games in Chicago and nationwide. Parts VIII through XIII summarize the contentions of the parties and address each of those contentions on the merits. Parts XIV and XV contain concluding remarks.

For the reasons set out in this opinion, judgment will be entered for plaintiffs, the Bulls and WGN. The NBA's five-game reduction in the number of superstation telecasts allowed to each team, from 25 to 20, is an unreasonable restraint of trade. A separate order recording the judgment and a permanent injunction, restraining the NBA from enforcing its present 20-game restriction on superstation broadcasts, will be entered.

I

The NBA is a joint venture of its 27 professional basketball teams, based in cities and television markets as large as New York, Los Angeles and Chicago and as comparatively small as Charlotte, North Carolina and Salt Lake City, Utah. As joint venturers the teams have understandably entered into agreements about how many players are allowed on the basketball court, how high the basket should be, how many seconds should run on the shot clock and the like. Obviously, agreements on game rules are essential to producing basketball games at all. But the teams have also entered into league-wide agreements on a great many other subjects, including collective bargaining with the players, the college draft, group insurance, the licensing of products, and television contracts with the national networks. Those agreements are not strictly necessary to produce basketball games. The NBA is not simply a rule-making organization. It has an economic significance of its own and controls some competition between the teams off the court as well as on it.

In several areas, the league has virtually preempted economic activity by the individual teams. In marketing, for instance, the merger of the teams into the league is almost complete. It is undisputed that the league controls the trademarks and logos of all the teams and that, outside their own arenas, the teams have few if any rights to license the sale of merchandise — jackets or pennants or posters — with team or NBA logos. Through licensing agreements with the league's marketing arm, NBA Properties, Inc., each team has granted the league the sole and exclusive worldwide right, subject only to narrow exceptions, to license and use its "symbols." Several other facts are also undisputed: each team has granted all rights in the film footage of its games to NBA Properties, and no team may produce and sell a home video involving NBA basketball to the public, except as permitted by the NBA. Highlight videos of the Bulls superstar Michael Jordan, the Mikhail Baryshnikov of basketball, are, for example, licensed by the NBA not the Bulls. As a final example, in 1990, when Lee Auto Parts in Chicago wanted to run a sweepstakes promotion using Bulls tickets as prizes, the Bulls were required to submit their agreement with Lee to the league office for advance approval. SF 69, 70, 87, 103-105.

In substantial measure, the league acts as an integrated firm. Revenues generated from contracts for licensed products entered into by the league are split evenly among the teams, and the even split is redistributive. Not all teams contribute equally to sales. Last year, Bulls paraphernalia outsold every other team's products. SF 81. Notwithstanding, the Bulls receive the same 1/27th draw of the net as all the other teams.

The teams also pool and market some of their television rights jointly, through the league, under an exemption from the anti-trust laws granted by Congress. See 15 U.S.C. §§ 1291-1295 (the "Sports Broadcasting Act"). For this season and the next three seasons, the NBA has sold broadcast rights, on behalf of all the teams, both to the National Broadcasting Company ("NBC") and Turner Network Television ("TNT"), a cable network. Revenues from those contracts will be shared jointly and the share to each team from the combined rights fees received from NBC and TNT this season will come to $6.8 million. SF 388; Tr. at 1079.

These fees from NBC and TNT represent the single largest source of shared revenues among the teams, and their agreement to pool certain TV rights, sell them jointly, and split the proceeds evenly reflects a kind of nonaggression pact among all the teams, an agreement not to compete in an area where they otherwise might. In a free open market, with each team doing its own bargaining, strong teams like the Bulls, the Detroit Pistons, the Los Angeles Lakers and the Boston Celtics would command more money this season than weaker teams like the Sacramento Kings or the Miami Heat. Under their agreement to pool TV broadcast rights, however, each team will receive the same amount. Whether the strongest teams could negotiate on their own for as much money as their pro rata share of what the league has obtained for them by pooling their rights is an open question.

The income of all the teams is significantly enhanced by the revenues from their joint projects. Combining the revenues from all their joint projects, broadcast and other, each team will receive nearly $8.5 million from the league this season as shared profits of their joint venture. For many teams the revenues from the shared ventures may mean the difference between operating in the black and net operating losses. The NBA Commissioner, David Stern, estimated that but for the $8.5 million they will receive from the league, 20 of the 27 teams would run net operating losses this season. Stern also testified that, even with the shared revenues, one or two teams might still finish the season in the red. Tr. at 917, 1076.

It is not disputed, and it is plain from the financial figures, that the prosperity of the league currently depends on the volume of the shared revenues generated by the league's economic activity on behalf of the teams and particularly on the revenues generated by the broadcast contracts with the national networks. As has been mentioned already, of the $8.5 million the league will distribute to each team this season, $6.8 million or 80% is attributable to revenues from national television contracts negotiated by the league.

Nevertheless, and despite the substantial economic collaboration among the teams, the NBA is only a partially integrated venture. The level of contractual integration among the teams lies somewhere in between what would be tolerated under the antitrust laws among wholly separate firms, on the one hand, and what one would expect from a fully merged or integrated firm on the other. Joint enterprises like NBA Properties, Inc. and the...