Neither adversary in the fight for the new golf league commands much sympathy. On one side there is LIVGolf, which is largely financed by the sovereign wealth fund of Saudi Arabia, a nation with an abysmal human rights record. On the other hand, there is the PGA Tour, which is fighting hard to prevent its golfers from earning bigger salaries with LIV Golf, suspending 17 of them for participating in the LIV Golf Invitational Series. It is tempting to wish a plague on their two clubs.
From an economic perspective, however, there are some interesting things to say about this battle. More precisely, the restriction of trade – and this is what some lawyers accusing the PGA Tour of engaging in – is that always a good thing?
Even Louis Brandeis, the Supreme Court justice who was an ardent enemy of trusts, recognized that restrictions on trade could not be banned outright. “Any agreement regarding commerce, any regulation of restricted commerce,” Brandeis wrote on behalf of the court in a 1918 decision. “To bind, to restrict, that is their very essence. »
In the following sentence, Brandeis leaves the door open to consideration of positive restrictions: “The true test of legality is whether the restriction imposed is of a nature merely to regulate and perhaps thereby promote competition or whether it is to likely to suppress, or even destroy, competition. .”
What Brandeis laid out is a principle of antitrust analysis called the rule of reason. It is widely applied in restraint of trade cases, except for the worst behavior – naked agreements to fix prices, rig bids, organize boycotts or divide markets that are presumed illegal on their face.
Under the rule of reason, a manufacturer might be permitted to restrict the supply of a product in different geographic markets to existing retailers. This is clearly a restriction on trade, but it could allow retailers to make higher profits and have an incentive to advertise their products and provide better service to customers, according to the Organization economic cooperation and development. explain. Consumers might actually end up in a better situation.
In the view of some economists and lawyers, the seemingly anticompetitive behavior of sports leagues may also be legal under the rule of reason. “Professional sports is built around competition, but the industry would not exist without collusion,” writes lawyer Leah Farzin in a 2015 law review article.
Team owners have a financial incentive to help other team owners, Farzin wrote. “An economically monopolistic club will not succeed,” she concluded, “because if it effectively eliminates the existence of weaker teams, as a monopoly does, it will be left without competitors on the field.” And that would be embarrassing.
Sports leagues have even argued in court that a league is a single, unified entity and therefore its teams cannot get along, because only separate entities can get along (just like your right hand can’t get along with your left hand).
Major League Baseball enjoys an explicit exemption from U.S. antitrust law, although it has been reduced over the years. This is what allows the league to award exclusive territories to teams and pay pitifully low salaries to minor league players.
I asked Farzin what she thought of the PGA Tour’s stance on LIV Golf. She is now an assistant attorney general for the state of Alaska, but she commented on the dispute as a private citizen. In an email, she predicted that the PGA Tour could play the consumer defense card, arguing that allowing golfers to play in the LIV Series would cause the PGA Tour to lose value and eventually cease to exist, to the detriment of the public. .
“Ironically,” she wrote, the better the LIV Series does, the harder it will be to support an antitrust action against the PGA Tour: “I think it would be difficult for them to show that the PGA rules Tour are anti-competitive, given that they would have created a competitive league for top golfers.
Still, the PGA Tour has chinks in its legal armor, argued John Lauro, an attorney who once worked as a federal prosecutor in the Eastern District of New York. Lauro said the PGA Tour was essentially trying to impose non-compete agreements on its golfers without justification. A noncompete agreement is justifiable when an employee discovers valuable trade secrets whose disclosure to a competitor would be devastating to the employer, but that’s not the case for golfers, Lauro said.
I wrote last year about prank call to get fast food workers and other low-wage workers to sign non-compete agreements. Top golfers don’t induce as much sympathy as burger flippers, but their problems are the same, Lauro said.
Another weak point of the PGA Tour is that it said its mission is to “promote professional golf by sanctioning and administering golf tournaments and promoting the common interests of touring golf professionals.” Trying to stop rival tournaments does not seem consistent with the stated mission, according to a job on the fascinating Lying Four golf website.
You can see how this fight has far-reaching ramifications. Some say golf is life. I don’t know about that, but golf is definitely about economics.
Somewhere else
As we turn to the topic of antitrust and unsympathetic protagonists: there is an interesting new filing by plaintiffs against elite universities that coordinate their financial aid policies. Like I written in January, the plaintiffs argue that by agreeing to adhere to a detailed rubric on how families’ financial need is determined, elite universities can go a long way toward eliminating aid as a recruiting tool. This allows them to save money.
The new filing examines how much additional financial aid universities could provide if they increased it by 2 percent of their unrestricted endowments per year (an increase small enough that endowments would continue to rise, on average). . Even if the figures vary for the 17 universities defended, for nine of them, the file states, such an increase would be enough to completely wipe out remaining tuition costs for current aid recipients. This appears to weaken the universities’ argument that ending their antitrust exemption, which would result in increased financial aid offers, would be unaffordable for them.
Quote of the day
“We work / Collect our pay / Think we’re sliding down the highway / When in fact we’re running away.”
— Paul Simon, “Sliding while sliding” (1977)
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