Sports Law Blog’s Michael McCann updates our recent discussion (me: here and here; and Professor McCann here) of the Harlem Ambassadors’ complaint to the FTC regarding the Globetrotters’ use of exclusivity windows in sports arena leases. In response to our debate, the Harlem Ambassadors’ founder and president Dale Moss emailed us some very interesting comments. Here is an excerpt (Sports Law Blog has the whole thing) summarizing the key points of the Ambassadors’ complaint:
1.) HGI unreasonably restrains the business activities of the Harlem Ambassadors through the implementation of a specific “Use of Arena” restriction contained in a standard lease addendum applied to all of HGI’s arena lease and/or co-promotion contracts.2.) This “Use of Arena” restriction blocks the Harlem Ambassadors out of the affected arenas for a period of eight weeks prior and six weeks following the HGI event.3.) In these situations, based upon HGI’s own pre-event marketing patterns, this 14 week black out period is excessive.4.) In total, the Harlem Ambassadors are blocked from over 20,000 potential performance nights in these arenas, even though the Globetrotters are only performing on about 210 of these nights.5.) These restrictions impact over 200 arenas over a 46 state area (in 2003-2004 HGI season, the period used for the examples in the complaint).6.) Virtually all of the facilities impacted are publicly-owned arenas, auditoriums, gymnasiums, and convention centers. These are facilities that have been built and are operated with municipal, county, and state funding.7.) The “Use of Arena” restriction also limits the access to these major public arenas by the featured women performers of the Harlem Ambassadors. HGI employs no women performers and hasn’t in over 13 years.
The complaint certainly adds some key information to the debate. For example, we now know that the exclusivity clauses are 14 weeks in length and have enough information to make a “back of the envelope” foreclosure calculation. Professor McCann believes this new information tips the scales in favor of the Ambassadors’ claim:
“We’ll see what the FTC does, but if accurate, the Ambassadors’ argument appears promising, particularly if they can show that the 3 1/2 month window is unreasonable.”
I have a somewhat different reaction to this new information below the fold.First, our prior debate focuses on the threshold question of whether the Globetrotters have “antitrust” market power. This begs the market definition question bantered about in our prior entries. The new information from the complaint leaves this question unanswered. For instance, what is the appropriate market definition? What is the Globetrotters’ share of such a market? As discussed, in the absence of monopoly power, these exclusivity windows cannot harm consumers.
Second, what about the 14 week exclusivity windows? Taking the complaint as given, the Ambassadors are “foreclosed” from distributing their product 98 days (14 weeks) for each night the Globetrotters perform (210 nights). Multiplying these figures gives us the approximately 20,000 nights (20,580) that the Ambassadors are prevented from performing as a result of the contracts across the country. But the relevant antitrust question is the percentage of distribution foreclosed. So what is the denominator of this fraction? The total number of available nights during the year? The total number of nights during “basketball season”? If it is the former, the foreclosure is about 28% (20,580/ (200 nights*365 days per year)), leaving 72% of available arena/days for exhibitions. I understand there is arguably some variation in the foreclosure requirement across circuits and statutes, but exclusive dealing arrangements foreclosing less than 40% are routinely upheld. If it is the latter, obviously, the case becomes more interesting. I wonder what the distribution of the Globetrotters’ 210 performances looks like? Are these dates distributed over the entire year or over a shorter “season?” Is there a feasible argument that these 210 performances foreclose a greater percentage of available dates than the 28% figure suggests? I don’t know. But it seems to me that such a claim (and evidence) will be necessary in order for the claim to be successful.
Finally, Professor McCann hones in on another crucial issue — whether the duration of the exclusivity windows is unreasonable. The facially obvious pro-competitive defense for the exclusivity windows, aside from the market power and foreclosure issues, is that the Globetrotters use the exclusive windows to prevent the Ambassadors (and others?) from free-riding on the Globetrotters’ promotional and marketing investments related to performances. In other words, the exclusivity prevents competitors waiting for the Globetrotters to advertise, market, and promote the exhibition basketball product and free-ride on those investments by scheduling performances (presumably at lower prices) around the Globetrotters’ scheduled date. Presuming this is the goal of the exclusivity windows, is 14 weeks excessive? Modern antitrust doctrine favors a presumption of legality for short term exclusive dealing contracts — though this view is certainly not universal (I have argued that in favor of a safe harbor for such short term distribution contracts here). From an economic perspective, it would be very interesting to know when the exclusivity leases came into use. Are they a recent innovation? Did they come into play after incidents of the type of free-riding described above? This type of evidence would go a long way towards figuring out the motivation of the exclusivity term.
Without more, I do not find the additional information in the complaint sufficient to justify increased optimism on the merits. While the complaint adds some very interesting details to the story, which is fascinating, claims regarding competition for contract include inquiries into the monopoly power of the defendant and the pro-competitive justification for the practice at issue. Even assuming the foreclosure is sufficient to trigger a Section 1 or 2 violation, and based solely on the available information, I remain skeptical that the Ambassadors’ claims will be able to overcome these obstacles.