By Doug Fuglsang. Mr. Fuglsang is a licensed attorney in Illinois and Wisconsin with a Sports Law Certificate from the National Sports Law Institute. He can be reached at email@example.com.
The Raiders are staying in Oakland for the 2016 season after coming to terms on a one-year lease with the Oakland Alameda County Coliseum. The lease additionally contains two one-year options that could potentially keep the team in Oakland until the end of the 2018 NFL season, though in all likelihood the Raiders days in Oakland are numbered. It’s common knowledge that the Coliseum is figuratively, and in some instances literally a dump. Mark Davis is saying all the right things publicly about wanting to keep the Raiders in Oakland but an uncooperative government in a State strapped for cash; a feud with A’s owner Lew Wolff over development rights to a new Coliseum; and the high probability of getting some public assistance elsewhere; lead me to conclude the Raiders will be playing elsewhere in the near future.
Where they will be playing is a mystery after the Raiders were left standing without a chair when the music stopped in Los Angeles, but they still have several intriguing relocation options. Division rival San Diego Chargers have until January 15, 2017 to negotiate a deal to join the Rams in Los Angeles, which will likely have a major impact on where the Raiders end up. If Dean Spanos passes on Los Angeles or reaches an impasse with crotchety Stan Kroenke, there is a possibility the Raiders could end up in L.A. or even possibly join the Chargers in San Diego in a new their stadium. In November the voters of San Diego will get to decide if they want to fork over the public funds to keep the Chargers in San Diego, recent polls demonstrate an uphill battle, but Dean Spanos sounds like he would rather stay in San Diego. If they do stay, a potential venture with the Raiders on a joint stadium could reduce cost significantly. There is also a small possibility the Raiders stay in the “Bay Area” as the second tenant of Levi’s Stadium in Santa Clara, current home of the San Francisco 49ers. The NFL contributed $200 million to the construction of Levi’s Stadium on the condition that it was capable of supporting two franchises. However, it is highly unlikely this happens, USA Today published a good run down of the finances and obstacles to this scenario; even though it makes the most sense egos will likely prevent it. Finally, I’ve heard San Antonio mentioned, I, for one, don’t think perennial hawk Jerry Jones will EVER let this happen, so I’ll believe it when I see it.
There is, however, a potential wildcard in all this — Las Vegas.
The Sands Corp., which operates the Venetian, Palazzo, and several casinos abroad, announced their intention to cooperate with UNLV on a $1 billion, 65,000-seat domed stadium on a vacant 42 acres of land at the corner of Tropicana Avenue and Koval Lane near McCarran International Airport. In response to the news, the NFL released a memo that stated it was too early to comment because no proposal has been submitted, reiterated the rules regarding franchise relocation, and acknowledged there is no prohibition on moving to any particular city. Yet, as anyone who’s had the privilege of attending a “Big Game” party in Las Vegas can attest, the NFL has a very contentious relationship with Sin City, going as far as prohibiting the Las Vegas Convention and Visitors Authority from using the term Super Bowl. The NFL, who inundated your television screens with DraftKings and FanDuel ads this fall, still wants you to believe the sanctity of competitive balance would somehow be violated if it associated itself with legalized gambling. As a student member of Marquette’s Sports Law Review, I wrote about the legal hurdles Las Vegas must overcome to obtain a professional sports franchise. That Law Review comment is the inspiration and background for this detailed account of the issues behind a potential Vegas pro sports franchise.
II. Sports Market Defined
Before I get into the specific legal challenges to relocating to Las Vegas it’s important to determine if Las Vegas can support an NFL franchise. A viable sports market is necessary for the success of an individual franchise as well as the long-term success of the league. But what makes a sports market viable? In general you need a receptive community: a term coined by my former Law Professor Martin Greenberg that I happen to agree with. A receptive community is one that has the infrastructure to support and maintain a professional sports franchise. There are several factors that determine whether a city can be a receptive community but I believe the most influential include: population, facilities, television market, and corporate partners. The recession highlighted several mistakes made by each of the four major professional sports league and forced a recalibration of the criteria used for awarding a city a franchise.
The NHL is the probably the prime example of what not to do; they made a string of bad decisions and tried to expand into the Sun Belt. Popular franchises in the northern United States and Canada such as the Winnipeg Jets, Quebec Nordiques, Minnesota Northstars, and Hartford Whalers were plucked from their markets and moved to the Sun Belt during the great expansion of the 1990s. From 1991-2001 the NHL added eight teams and relocated four. The result was franchises in Colorado, Phoenix, North Carolina, Nashville, Atlanta, Columbus, Tampa Bay, and Anaheim. The inability to draw a consistent fan base put a strain on the owners and by 2004 the NHL was in serious financial trouble—the NHL owners desperately wanted to control costs by instituting a salary cap, collectively seventy six percent of the clubs’ gross revenues were being spent on player’s salaries, which resulted in a loss of $273 million in 2003. The NHL owners made the drastic decision to lock out the players for the entire 2004-2005 season; the NHL is still trying to recover.
The NFL weathered the storm, thanks in part to billion dollar television deals and corporate welfare. The NFL’s current business model is heavily focused on television revenue and state of the art facilities. The one thing that all three current relocation candidates have in common is an outdated stadium incapable of generating the revenue to compete with newer facilities. Generally, teams bringing in the lowest amount of operating income, also have outdated facilities, Coincidently the San Diego Chargers, St. Louis Rams and Oakland Raiders finish near the bottom every year; the Atlanta Falcons whom ranked dead last in 2014, bringing in $25 million in operating income(earnings before interest, taxes, depreciation and amortization), are set to open a shiny new stadium in 2017. Perennial cellar dweller, the Minnesota Vikings, who ranked thirty-first among the thirty-two NFL franchises in operating income according to Forbes, reached a deal on a new state of the art facility to keep the team in Minnesota. The Vikings lost $19 million in 2007, and made a meager $8 million in 2008 and 2009, years in which they had a home playoff game to add extra revenue. Keep in mind this is all relative, the Green Bay Packers’ financials show that each team received an equal portion of a kitty roughly worth $7 billion from broadcasting rights in 2014, about $226 million per team before a single game is played, and that number will rise annually going forward. Without the NFL’s socialist revenue sharing model the Vikings would have likely folded years ago. Instead, the Vikings will be opening a new $1 billion stadium in Minneapolis, $500 million of which will come from the taxpayers of Minnesota, which is increasingly looking like a raw deal because of shortfall in gambling funds allocated to the project.
Similarly, future relocation candidates; the Buffalo Bills, Tennessee Titans and Jacksonville Jaguars often rank at the bottom of the NFL in operating income. In 1993, Jacksonville was awarded an expansion team which surprised many, considering there were already two franchises in Florida, Jacksonville’s small market size(1.3 million 2015), and the fact that Los Angeles, the second largest market, remained without a team. During the 2010-2011 season the NFL “blacked out” two Jacksonville Jaguars home games pursuant to the NFL’s old television blackout policy. Under this policy the NFL retained the right not to broadcast home games within a ninety-mile radius of the home city if the stadium had not sold out its tickets within seventy-two hours prior to kick-off. The Jacksonville Jaguars even tried the extreme measure of reducing stadium capacity from 76,000 to 66,066 to avoid the NFL blackout policy. The NFL suspended its’ blackout policy for the 2015 season saving the Jacksonville Jaguars and San Diego Chargers from weekly embarrassment. In 2011 there was a ray of hope for the Jaguars, the team was purchased for $770 million by Shahid Khan, head of Illinois-based Flex-N-Gate Corporation. Khan proceeded to pour over $100 million of his own money into EverBank stadium improvements.
The improvements didn’t help on the field; the Jags have a record of 19-61 over the last five seasons. Khan has been sending mixed signals about the future of the Jaguars. He recently agreed to host one home game per year at Wembley Stadium, in London, through the 2020 NFL season, while simultaneously working with the city of Jacksonville on a $90 million project to improve the club seats at EverBank and build an indoor practice facility and amphitheatre near the stadium. Khan has stated he is committed to Jacksonville, while rumors of a move to London persist. It’s likely Khan is serious about this commitment; the Jaguars are locked into a stadium until the year 2030 and the lease contains a liquidated damages clause requiring payment of the remaining rent, which is around $100 million right now. However, if Khan can show the Jags lost money one year and had below-average revenue the ensuing two years the payout can get cut by as much as 40 percent. Of course he would have to open his books and most likely those of other NFL teams, something the NFL has been reluctant to do. Additionally, the London games have all but assured the Jags won’t lose money in spite of having a very small corporate base, a measly 45,000-person season ticket holder base, one of the lowest in the NFL, and a season ticket renewal rate of 83%-most teams are above 90%. In 2013 the Jags Operating Income was $15.5, but has since risen to $67 million, it seems the London partnership is helping keep the Jags afloat and if they do relocate down the road, London would likely be the destination especially with the recent emphasis on taking the game international. The Jags are a unique example, I wouldn’t consider Jacksonville a receptive community but unique circumstances and revenue sharing have allowed them to survive.
The Buffalo Bills were often rumored as a relocation candidate while the team was up for sale after Ralph Wilson died; the team eventually sold in 2014 for $1.1 billion to the Pegula family. The Bills play in an outdated stadium, in a small market, and have recently been flirting with Toronto, so the conjecture is understandable. A year prior to the sale the Bills former owner, Ralph Wilson, agreed to a ten-year lease with the State of New York and Eerie County that additionally allocated $130 million for stadium renovations. The lease expires in 2023 and contains a non-relocation agreement that is praised by many for providing ironclad protection against relocation. The non-relocation agreement is secured by the right of specific performance, meaning the county or State can get an injunction barring the team’s move, and if the owner ignored the court and violated the injunction, they could potentially be charged with civil or criminal contempt of court and face millions in fines on top of a $400 million liquidated damages penalty. If the Pegula family wants to move the Buffalo Bills during the term of the lease they’ll have an uphill battle, except for the year 2020, in which the Bills retain the right to terminate the contract by paying a small termination fee of $28.4 million. It would be highly entertaining to see this play out in the courts, but unfortunately, I don’t think the Bills are going anywhere until at least 2020.
Lastly, depending on whom you listen to the Tennessee Titans may be up for sale. Since the passing of Bud Adams, the ownership structure might not comply with NFL rules and provisions regarding ownership, the group insists the team Is not for sale however the NFL has remained adversarial and could force the sale of the team. The league’s current position is that: (1) the current structure doesn’t comply with league rules; and (2) the only way to comply with league rules is to sell. Ownership would be forced to file an antitrust challenge to the NFL rules regarding ownership. The league has allegedly lined up as much as six potential buyers for the franchise, but its unlikely the Titans could move before their lease expires in 2028. While Las Vegas could eventually host one of these three teams, I don’t see a reason for the delay, the Raiders should take a hard look at Las Vegas.
So why choose Las Vegas? Not only is it a receptive community, but now that Los Angeles is occupied, the NFL owners are running out of receptive cities to use as leverage against their current city for a new stadium. If population is your preferred measuring stick than Las Vegas ranks 29th in the U.S., with similar populations sizes to Baltimore and Nashville, and a larger population than Miami, Tampa, Atlanta, New Orleans, Cleveland, Cincinnati, Pittsburg, Kansas City, Oakland and Minneapolis, all of which currently have an NFL franchise. If you prefer to measure by Metropolitan Statistical Areas, the Las Vegas-Henderson-Paradise Valley area ranks 30th, similarly ahead of many metropolitan areas home to a NFL franchise. Additionally, in 2014, forty million people visited the city of Las Vegas, 19% of these visitors are foreign, and with the recent vocalization to take the game global, the tourism industry only strengths the argument for Las Vegas. Relying on tourism to supplement residential population would not be unique to Las Vegas, both Orlando and Tampa Bay, rely on tourism to support their professional sports franchises.
Currently Las Vegas does not have a state-of-the-art facility capable of generating the type of revenue necessary to maintain a pro-sports franchise. Sam Boyd Stadium, home of the University of Nevada-Las Vegas (UNLV) Rebels, is too small to support a professional football team, let alone a Division I football team. However, the new Sands Corp. and UNLV collaboration, if built, will be more than adequate do satisfy this requirement. As for the last two factors: media market and corporate sponsors, while true Las Vegas has a relatively small media market ranking 41st nationally, it’s bigger than four current NFL markets: Jacksonville, New Orleans, Buffalo, and Green Bay. Additionally, the NFL’s broadcast revenue is derived from a national TV deal, so it’s not really an important factor for an NFL franchise versus those in other professional sports leagues. Finally, Las Vegas has more than enough corporate sponsors to support the franchise. Casinos will line up to purchase luxury boxes in order to supply high rollers with tickets on Sundays. The team would have suitors fighting each other for the naming rights, especially because a new stadium guarantees you a Super Bowl as part of the package.
Las Vegas is also a receptive community because they have demonstrated a willingness to support a professional franchise. Las Vegas is home to several minor league teams and has seen its share of “non-major” pro sports teams. In 2000, the Chief Executive Officer of the World Wrestling Entertainment Vincent Kennedy McMahon, announced his intention to enter the world of professional football. McMahon created the Xtreme Football League (XFL), a ten-team league whose season began right after the NFL season ended. McMahon signed a deal with NBC to broadcast the games, and the hype around the rule changes made the XFL a promising league. Las Vegas was awarded a team that became known as the Las Vegas Outlaws However, after one disappointing season, the XFL folded. Fan support was not a problem for Las Vegas; rather, it sold out most of its games at Sam Boyd Stadium. The Las Vegas Outlaws finished third in attendance for the now defunct XFL demonstrating an appetite for professional football.
More recently, Las Vegas acquired the Las Vegas Locomotives of the United Football League (UFL). Bill Hambrecht created the UFL with the hopes of expanding professional football into non-NFL markets. The UFL was semi-successful but folded in 2012. The Las Vegas Locomotives won the UFL championship in their inaugural season, and had the highest attendance in the league, averaging 13,225 fans per game. With the success of smaller leagues like the UFL and XFL, Las Vegas has demonstrated the potential qualities necessary to support an NFL team.
There is some evidence to the contrary; Las Vegas has had a tumultuous relationship with the Arena Football League. In 2015 the Las Vegas Outlaws folded, no relation to the XFL team, marking the third time an arena football franchise has failed. In 1996, the Sting moved to Anaheim after two seasons and in 2008 the Gladiators moved to Cleveland after an unsuccessful five-year run. While ownership issues were partly to blame, attendance was poor. The team averaged a measly 3,900 fans a game, while the AFL’s top draw, averages 11,313 per game. But all is not lost; the AFL is a different style of football and more of a niche sport, there were several other issues that could have been responsible for the franchise’s failure.
Considering the four major factors to sustain a successful pro sports franchise, the Las Vegas market appears more than adequate. As previously discussed, Las Vegas has the thirtieth largest market in the United States. The city has chased a major league franchise for almost two decades; in addition to the NFL, the city is trying to lure an NHL team to the T-Mobile Arena, which is under construction on the Las Vegas strip. The 20,000-seat arena will open in April; it was privately funded by the MGM Casino Corp., a competitor of Sands Corp. Lastly, fans have supported non-major professional sports when they have played in the city so, there must be some reason why no professional sports franchise has rolled the dice on Las Vegas? That reason is simple legalized sports gambling.
III. History of Sports Gambling
In order to understand the stigma of legal sports gambling, it is necessary to be wary of the potential pitfalls associated with gambling. A brief history lesson will explain how a few point-shaving incidents in college athletic led to the passage of the Professional and Amateur Sports Protection Act.
It starts with the Black Sox scandal, which may have been the most influential moment in sports history. “In 1919 eight players from the Chicago White Sox were accused of throwing the World Series against the Cincinnati Reds.” The eight players included such greats as “Shoeless” Joe Jackson, pitchers Eddie Cicotte, and Claude “Lefty” Williams. The owner, Charles Comisky, was not very popular among the players—he frequently made promises that he had no intention of keeping, ordered the manager to bench players to prevent them from reaching bonuses, and overall, underpaid his players. The players allegedly asked for $100,000 from a group of gamblers and, in return, would lose the World Series to the heavy underdog Cincinnati Reds. As rumors spread about a possible fix, and the undoubtedly poor performances by some of the key players on the team, a grand jury began an investigation into the incident. The case proceeded to trial and after a month of hearing testimony, the jury acquitted the players due to lack of evidence. However, the MLB owners became increasingly worried about the integrity of the sport and appointed the first commissioner in the history of professional sports.
Federal Judge Kenesaw Mountain Landis was appointed as the first commissioner of baseball. Immediately after the Black Sox players were acquitted of any criminal charges, Landis banned all eight players from the game. Landis said regardless of the verdict of the juries, no player who throws a ball game, no player who undertakes or promises to throw a ball game, no player who sits in confidence with a bunch of crooked players and does not promptly tell his club about it, will ever play professional baseball. The power of all leagues’ commissioners can be traced back to this scandal. Since the Black Sox scandal, the majority of gambling scandals have involved amateur athletics rather than professional sports. During the 1978-79 NCAA basketball season, Boston College University (BC) center, Rick Kuhn, shaved points in five games. Two small time gamblers, and high school friends of Kuhn, conspired to fix the outcome of five basketball games, in which BC was favored. Kuhn would be paid $2,500 if BC did not cover the spread. The scandal went unnoticed until reputed Mob affiliate, Henry Hill, was indicted on other unrelated charges and revealed the scheme.
In 1994, Northwestern University running back, Dennis Lundy, pled guilty to federal perjury charges, as a result of lying to investigators looking into a possible fix of Northwestern football games. Lundy bet on several Northwestern games, in one game particular, he fumbled on the University of Iowa’s one-yard line to avoid scoring a touchdown. He won $400 on the game and later admitted to betting on five games during his career. It was a sad end to Lundy’s career, who left Northwestern as their all-time career-rushing leader. Northwestern was again involved in controversy in 1998 when two former basketball players were indicted for “point-shaving.” Kenneth Dion Lee and Dewey Williams fixed the outcome of three college basketball games against the University of Michigan, Penn State University, and the University of Wisconsin. A math teacher who needed a way to pay off his own gambling debts to illegal bookies recruited the players. Even though the players failed to successfully fix two of the games, they were indicted and later pled guilty to conspiracy to commit sports bribery.
Finally, during the 1993-94 NCAA basketball season, point guard Stevin Smith needed a way out of his own gambling debts with illegal bookies. He recruited the teams best free throw shooter to assist him in the point shaving scheme. The scandal was exposed when Las Vegas casinos noticed irregular betting patterns and suspended all bets on the game against the University of Washington. Both players were charged and pled guilty to conspiracy to commit sports bribery.
The potential “evils of gambling” are much more significant to amateur athletes. NCAA student-athletes are not paid for their services, although some may argue that getting a free education is compensation for their services. But today, professional athletes are paid such exorbitant salaries that the incentive to make money on the side by point shaving hardly exists. Additionally, the scandals that have shocked the major professional sports world involved illegal bookmakers and illegal gambling, not the heavily regulated legalized gambling available in Las Vegas. In fact, since 1919, there has only been one major professional player betting scandal. MLB’s all-time hits leader Pete Rose was banned from baseball for life after Commissioner Giamatti determined he had wagered on baseball while he was player-manager of the Cincinnati Reds. Gambling on baseball by players and managers was outlawed in the MLB Constitution, previously the Major League Agreement; however, in 1987 Pete Rose used two runners, or associates, to place illegal bets for him on fifty two Cincinnati Reds games, at a minimum of $10,000 a day. After a Sports Illustrated article exposed Rose’s link to illegal gambling, the Commissioner began an investigation that lead to the Dowd Report, a 225 page document that concluded Rose had illegally bet on MLB games from 1985-1987. The Commissioner banned Pete Rose from baseball under an agreement between the two that stated: Major League Baseball would make no finding of fact regarding gambling allegations and cease their investigation; years later Pete Rose would eventually admit he bet on baseball. It should be noted that while gambling is against league rules, the Dowd report showed that of the fifty-two Cincinnati Reds games Rose bet on in 1987, he always bet on the Reds to win and never intentionally mismanaged a game to cause the Reds to lose in order to win a bet.
The most recent, and perhaps most shocking, gambling scandal was exposed in 2007 when the New York Post alleged that NBA referee Tim Donaghy, had amounted an extraordinary gambling debt with illegal bookies, and began fixing NBA games to repay his debt. He was approached by mob bosses and ordered to fix the outcome of games by influencing the amount of free-throw attempts a team would receive during the game. According to the Federal Bureau of Investigation (FBI) report Donaghy placed tens of thousands of dollars in bets on games during the 2005–06 and 2006–07 seasons. Donaghy eventually pled guilty to felony charges for his gambling on NBA games and Commissioner Stern called it a wake up call for stricter regulation of NBA officials. The scandal sent shockwaves through the sports world because, prior to Donaghy, “no referee, umpire, linesmen or other in-game official has ever been arrested or indicted for game or match-fixing in the history of the four major sports.”
IV. Legislature to the Rescue
In 1992, in response to the recent and frequent point-shaving incidents, President George H.W. Bush signed the Professional and Amateur Sports Protection Act (“PASPA”) into law. The power to regulate sports gambling falls under the umbrella of Congress’ Federal Commerce Clause power. Section 3702 of PASPA “prohibits betting on all competitive games in which amateur or professional athletes participate.” Section 3704 carves out an exception for Nevada because it had legalized sports gambling prior to 1991.
In Nevada, legal sports wagering is permitted in licensed casinos. The state legislature defers much of the rule making authority to the Nevada State Gaming Control Board, which helps monitor sports betting for any suspicious activity. Sports’ gambling is highly regulated by the Nevada Gaming Commission (Commission). The Commission’s statistics on sports gambling estimate that Nevada accounts for $4 billion—or one percent—of the total amount wagered on sports in a given year, and while impossible to measure it’s estimated that $400 billion is wagered illegally on sports every year. Currently the system requires that patrons be physically present in the state to place wagers, all wagers are recorded using video surveillance cameras, sports books are prohibited from accepting wagers from individuals in the “black book” or those known as “messenger bettors” betting on behalf of persons blacklisted from gambling in Las Vegas casinos, and if a person wishes to place a bet for more than $3,000 he must provide identifying information such as name, address, and social security number.
Through years of testing these regulations, the Commission has become extremely efficient and attentive to betting scandals. In fact it was the Commission that notified the FBI about the potential point-shaving scandal at Arizona State. While monitoring wagering activity, the Commission noticed dramatic changes to the betting line prior to an Arizona State and Washington University NCAA basketball game. The Commission notified the FBI, the PAC-10 Conference, and the NCAA of the unusual activity—the investigation later led to the arrest and prosecution of point guard Stevin Smith. The Commission’s ability to regulate gambling provided them with the freedom to experiment with regulations and decide whether such safeguards were necessary. At one time, the Commission passed regulation 22.120(1)(a)(b), which prohibited wagering on sporting events involving the University of Nevada-Reno and UNLV, the purpose of the prohibition, which was adopted in 1950, was to protect college athletes from predatory illegal bookmakers. However, in 2000, the Commission removed the prohibition, citing that the protection was rendered moot by technological and regulatory advancements, capable of monitoring wagering trends.
While Federal Legislation was enacted in good faith it has left a stigma on the city of Las Vegas and effectually prevented the city from obtaining a professional sports franchise. The real evils of sports gambling stem from illegal wagering, which cannot be monitored. It was an illegal unregulated gambling syndicate behind the Black Sox scandal, the Northwestern point-shaving incidents, the Arizona State point-shaving incident, and the Donaghy Scandal. Yet, in spite of this all four major sports have taken a public anti-gambling stance that has prevented Las Vegas from obtaining a professional sports franchise. In fact, other than Pete Rose no professional athlete in any of the four major American sports has been linked to any match fixing scandal since 1919. With the amount of money available today in the professional sports, there is no incentive to point shaving. In college athletics, on the other hand, there remains a danger, due to the fact these kids are essentially indentured servants, I can empathize with a kid trying to make some money on the side, after all the “adults” are profiting from your labor. But in the pros there is simply too much to lose.
The narrative around gambling is simply wrong, there is no need to protect the sanctity of some mythical idea of competitive balance. College sports are dirty enough that I wouldn’t worry about gambling affecting “amateurism.” Professional sports are in no danger of being corrupting by gambling either; in fact they probably owe much of their success to gambling. You know why nearly nine million people will tune in to Thursday Night Football and tolerate Phil Sims’ nonsensical ramblings for three hours during a meaningless Titans-Jaguars game in November? Because they are waiting to see if Jason Myers can put one through the uprights in the final two minutes to cover the 2.5-point spread. But if you must believe that sports live in some magical realm that must be protected from the real world than the Commission has the tools and experience to monitor and protect the integrity of sports, as shown by its intervention in the Arizona State point shaving scandal. There is no need to prohibit Las Vegas from obtaining a professional sports franchise merely because it allows legal sports gambling, when statistics show it only accounts for one percent of the total amount wagered each year in the United States.
V. Legal Obstacles to a Las Vegas Franchise
In addition to the so-called social ills of gambling, many other legal hurdles exist for Las Vegas to obtain an NFL franchise. The NFL has been careful to say that there is no prohibition on a move to Vegas because courts have held that agreements among member clubs of a sports league contain an implied reciprocal covenant of good faith and fair dealing. The NFL is a private entity governed by contract law and the law of private associations. The league constitution, bylaws, and rules create binding contractual responsibilities. The NFL has rules for approving franchise relocation, as well as, rules against gambling in their constitution. Under these rules there are two ways in which Las Vegas can land a professional sports franchise, league expansion or franchise relocation.
League expansion will not happen anytime soon, the NFL is looking to relocate teams rather than expand. But the point is pretty much moot because in Mid-South Grizzlies v. National Football League, a former World Football League (WFL) team sued the NFL in an attempt to gain entry into the league. The Grizzlies filed an antitrust suit and alleged that Memphis was highly desirable submarket for pro-football, refusal to consider it a home territory for the NFL was a result of conspiracy to punish WFL teams, there was no valid basis for rejecting the Grizzlies application, and the rejection amounted to an unreasonable restraint of trade. The court ruled in favor of the NFL finding that the exclusion was procompetitive, because it left the Memphis area with the infrastructure to another leagues franchise, therefore no antitrust violation had occurred.
Thus, an attempt to acquire a franchise by forcing league expansion is dubious; Las Vegas can obtain a franchise only through relocation and the Raiders seem like a prime target. First, Las Vegas needs to entice Mark Davis to move to the city. Subsequently, if the league refused to allow the move, the league would be subject to section 1 of the Sherman Act, which prohibits “every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States.” MLB is the only professional sports league with a judicially created antitrust exemption. The NFL therefore, is subject to antitrust scrutiny when attempting to place restrictions on franchise relocation.
Perhaps it’s fate that Mark Davis is in a position to bring a lawsuit against the NFL over franchise relocation again because in 1980, Al Davis, then owner of the Oakland Raiders, attempted to move the team to Los Angeles from Oakland. The NFL owners voted 22-0 against the relocation pursuant to NFL Rule 4.3: the league shall have exclusive control of the exhibition of football games by member clubs within the home territory of each member. No club member shall have the right to transfer its franchise or playing site to a different city, either within or outside its home territory, without prior approval by the affirmative vote of three-fourths of the existing member clubs.
Al Davis responded by filing an antitrust suit against the NFL. In L.A. Memorial Coliseum Comm’n v. Nat’l Football League (“Raiders I”) the court applied a “rule of reason” analysis rather than finding a per se violation, more on that later. The court found that the NFL made no showing that the transfer of the Raiders to Los Angeles would have any harmful effect on the league. Los Angeles is market large enough for two teams, there would be no scheduling conflicts, facilities at the Coliseum are more than adequate, and that no loss of future TV revenue was foreseen. The Raiders I ruling affirmed a jury’s verdict that found the NFL violated the Sherman Act, but more importantly it opens the door for Mark Davis to challenge the NFL relocation restrictions as an unreasonable restraint on trade in violation of the Sherman Act if the league owners vote not to allow his relocation to Las Vegas. In a general sense, what the court must determine is whether a group of businessmen can enforce an agreement with one of their co-contractors to the detriment of that co-contractor’s right to do business. It’s now understood that otherwise obvious antitrust violations, require a rule of reason analysis because sports leagues are unique and require some horizontal agreements that restrain trade in order to function. Under a rule of reason analysis the anticompetitive effects of Rule 4.3, which prohibits unrestricted movement of member clubs, in this case a move to Las Vegas, must outweigh the procompetitive effects of not allowing a professional sports franchise to move to a city that permits legal sports wagering.
The Raiders I ruling would later be affirmed in Raiders II, but left many things unsettled these questions would be later be highlighted in Nat’l Basketball Ass’n v. SDC Basketball Club Inc. In 1980 the, then San Diego Clippers, desired to move their franchise to Los Angeles. The Clippers later abandoned their effort after the NBA filed suit in the Southern District of California; the case was later resolved via a stipulation that any subsequent suits regarding a move must be brought in the Southern District. Then in 1984 Raiders I was decided, Donlad Sterling, then owner of the Clippers, saw this as an opportunity to move his team to Los Angeles. On May 14, 1984, Sterling gave the NBA notice of their impending move to Los Angeles. The move was to take place on the following day and asserted any action taken by the NBA to restrain the move would violate antitrust laws. To avoid potential liability, the NBA tapped and scheduled Clippers’ games in Los Angeles. Sterling reasoned that because NFL relocation rule 4.3 was found to be in violation of the Sherman Act, NBA Article 9, which governed franchise relocation, would likewise be a found to be a per se violation of the Sherman Act based on legal precedent.
The NBA brought suit seeking a declaratory judgment from the court that it could, as a league, consider the Clippers’ move to Los Angeles and sanction the Clippers for failing to seek league approval without violating the antitrust laws. Sterling counterclaimed against the NBA for declaratory judgment that consideration by the NBA of the Clippers’ move would violate the antitrust laws. The district court granted Sterling summary judgment, concluding the NBA could not possibly win its case under the guidelines established in Raiders I. On appeal, Sterling maintained his argument the NBA rule requiring three-quarters vote for relocation was on its face invalid because of the Raiders I decision, while the NBA argued there were several legitimate reasons for Rule 9. The Ninth Circuit agreed with the NBA, the Court went on to explain Raiders I merely held that a reasonable jury could have found that the NFL’s application of its franchise movement rule was an unreasonable restraint of trade; neither the jury’s verdict, nor the court’s affirmance of that verdict, held that a franchise movement rule, in and of itself, was invalid under the antitrust laws. The mere existence of Article 9 cannot violate antitrust law alone, the plaintiff still must prove the antitrust elements: (1) An agreement among two or more persons or distinct business entities; (2) Which is intended to harm or unreasonably restrain competition; (3) And which actually causes injury to competition. Raiders I panel carefully examined the structure of professional football and determined “teams are not true competitors, nor can they be,” they determined a relevant market for professional football, and concluded the lack of justification for the relocation rule under the ancillary-restraint doctrine all supported the jury’s verdict. The Court emphasized there was no absolute rule for sports leagues rather a professional sports league’s club relocation rule must undergo rule of reason scrutiny and incorporate objective standards and criteria such as population, economic projections, playing facilities, regional balance, and television revenues. I’ve gone through these criteria and Las Vegas is a satisfactory market, so the only other reason owners have to oppose the relocation is the city’s association with gambling.
The main argument against the move will always be about gambling, the NFL has been embroiled in litigation with Delaware and New Jersey over same exemptions from PASPA, allowing parlay bets. The NFL’s main argument against Delaware’s decision is their concern over the integrity of the game. An NFL spokesman claims “if sports betting becomes more prevalent through state-promoted schemes, it will inevitably lead those gambling fans to question whether an erroneous officiating call or dropped pass resulted from an honest mistake or an intentional act by a corrupt player or referee.” While the integrity argument is very important for amateur athletics, and a justifiable pro-competitive justification for an antitrust violation, this argument loses its power when applied to the professional leagues for several reasons.
First, a total of $4 billion was wagered in Las Vegas last year, while an estimated $400 billion was wagered at offshore casinos and illegal bookies. As previously discussed, it is this illegal stream of gambling that created the Donaghy and collegiate gambling scandals. Not a single instance of a professional sports player point-shaving or match-fixing to win a bet a Las Vegas casino has ever occurred. The reason is that regulated legalized gambling works in Nevada. The Commission has been able to adopt and change policies, as it has grown comfortable with its monitoring procedures.
Second, each league has at some point made an exception to its gambling policy for owners. Tim Mara, one of the NFL’s founding fathers, was a legal bookmaker, his son John owns the New York Giants. Art Rooney purchased the Pittsburgh Steelers with gambling winnings and his family still owns racetracks. The Maloof family, who previously owned the Sacramento Kings, also owned several Las Vegas Casinos—upon purchasing the Kings they agreed not to accept any wagering on the Kings in any of their Casinos. The Connecticut Sun of the WNBA play their home games at Mohegan Sun Casino. The Llitch family, who own the Detroit Redwings of the NHL and the Detroit Tigers of MLB, also own several Detroit Casinos. The fact that so many exceptions have been made, and the lack of strict liability may provide enough evidence for a court to rule there is a less restrictive alternative for not allowing an owner to move his business. For example, the Commission has once before enacted legislation to prevent gambling on teams within Nevada as it did with UNLV. The agreement between the NBA and the Maloof’s preventing the Palms Casino from accepting any wagers on Kings games is an example of a much less restrictive alternative that has functioned without issue over the years.
Mark Davis should take a gamble on Las Vegas. I know Goodell really doesn’t want him to do so, because the NFL would be put in a bind. On one hand, the NFL must maintain, an often hypocritical, anti-gambling public persona, while on the other hand a franchise in Las Vegas is what’s best for business. There is no certainty that Davis would win against the NFL, but this is one area the Shield is vulnerable.