In overtime this past weekend, the Illinois legislature passed SB 690, which mandates that to-be licensed sports betting operators use only “official league data” for in-play wagering. This comes one month after Tennessee lawmakers did the same.
This is part of the National Basketball Association and Major League Baseball-led strategy for dominating the market on sports betting data in the U.S.
Numerous industry observers, put simply, see the leagues forming a data monopoly.
But do hurdles stand in the way, namely a violation of the Sherman Anti-Trust Act, or state-level antitrust laws? To answer that, we brought in Marc Edelman, a professor of law at the City University of New York’s Baruch College, Zicklin School of Business. He is one of the leading voices on the gaming industry, and he actively consults on matters involving sports, gaming, antitrust, and intellectual property law.
Sports Handle (SH): Can you explain in lay terms the relevant portion of the Sherman Anti-Trust Act as it pertains to the (potential) antitrust situation at hand?
Marc Edelman (ME): There are two sections of antitrust law that seem to relate to league-wide attempts to control the market for the sale of use of game-related data. First, there is Section 1 of the Sherman Act, which states that “[e]very contract, combination … or conspiracy, in restraint of trade … is declared to be illegal.” Because the NBA is made up of 32 separate entity teams (and MLB, 30 entity teams), each league’s policy to allocate team-specific rights collectively on a league-wide level may give rise to a potential antitrust violation under Section 1 of the Sherman Act, as it prevents individual teams from selling their data to individual gaming companies on a free market.
Section 2 of the Sherman Act states that “[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize … shall be deemed guilty of a felony.” While merely having a monopoly in a given market does not amount to an antitrust violation, attempting to leverage a monopoly in one market (such as hosting events in a given sport) into a monopoly over a second market (such as the sale of game data) could very well violate Section 2. Even if a court were to find the league’s collectivization of its statistical data to be a reasonable action under Section 1, it is still possible that a league such as MLB or the NBA would be found to violate Section 2 under a monopoly leveraging theory.
SH: Can you explain Major League Baseball’s longstanding antitrust exemption, or monopoly power? What is the scope of it and how do you think it relates to control over data, in particular real-time data?
ME: Greatly oversimplified, Major League Baseball has historically enjoyed some level of an antitrust exemption based on a well-known trilogy of Supreme Court decisions culminating with the Court’s 1972 decision in Flood v. Kuhn and Congress’s attempt to memorialize this ruling in statute with the passing of the Curt Flood Act of 1998. However, there has always been some real ambiguity as to whether baseball’s purported antitrust exemption extends beyond the “reserve system” relationship between Major League and Minor League baseball clubs and into the realm of commercial business practices. Collective league practices related to game data, including its sale, fall under this latter category. Thus, it is less than certain that baseball’s historic antitrust exemption would insulate the league for conduct pertaining to this area.
SH: Do you think the nonexclusive grant of rights for data distribution to at least two entities — Sportradar and Genius Sports (NBA) and Sportradar and Perform Group (MLB) — provides any legal guardrail against claims of monopoly? What if they added a third authorized distributor or more?
ME: That is an interesting question. At first glance, a non-exclusive license would seem to afford end consumers more choice than an exclusive license, and thus the more partners that MLB and the NBA choose, the more “competition,” at least in a sense, would exist. However, I think the real antitrust problem, at least under Section 2 of the Sherman Act, seems to relate to these leagues’ efforts to prevent other companies from competing in the market to sell data that they have self-gathered. Thus, the attempts by MLB and the NBA to restrain non-licensed providers from self-gathering game data through either live attendance or watching television broadcasts lies at the crux of the problem. Even if these leagues were to choose 100 different non-exclusive license holders, the price these leagues would likely be able to charge prices above the free market to these companies for the data, and these costs would be passed onto end consumers. What a free market really needs is the opportunity for other companies, without restraint, to compete against the leagues and their licensed providers in the market to collect, organize, and resell game data.
SH: Obviously, many sportsbook operators are opposed to an official data mandate (some are not, namely, MGM). Who is the likely plaintiff in a potential case against the NBA and MLB? A licensed sportsbook? An attorney general? Does the plaintiff also sue the state for mandating a requirement? Tell me what the case docket looks like.
ME: If there is no state requirement mandating the use of official league data, this is simple, there are many parties who could file suit against these sports leagues. For example, potential plaintiffs could include the U.S. Department of Justice, one or more states attorney general, any licensed sportsbook, or perhaps even a company that otherwise would seek to self-collect and sell data in competition with the league-licensed providers.
This all changes, however, if a state were to pass a bill requiring the use of league-licensed data. As unseemly as it may seem, there is a complete antitrust exemption for companies that jointly petition Congress or a state government for more favorable terms, and, once a state mandates particular conduct, the harm is no longer clearly antitrust in nature. This is why it is so important for the casinos to fight against state bills that would mandate the use of league-licensed data at this precise point in time. It is also likely why MLB and the NBA seem to be fighting so hard for protections explicitly placed in new state law.
SH: Is there any distinguishable antitrust issue or sub-issue presented in all of this that you think makes it potentially a good candidate for establishment of some new legal precedent, perhaps in the Supreme Court?
ME: The Section 1 issue, as to whether leagues have a per se exemption to collective intellectual property rights, is almost certainly not going back to the Supreme Court. It is very similar to the case regarding the NFL’s collectivization of intellectual property rights that the Supreme Court heard in American Needle v. National Football League back in 2010. The court there ruled 9-0 for the plaintiffs, meaning that such collectivization of rights is subject to antitrust scrutiny under a full Rule of Reason analysis and not per se legal. I also doubt whether a monopolization case based on leveraging goes all the way to the Supreme Court.
The high court can choose to not hear a case for any reason at all, and even for no reason. Less than 3% of all petitions for certiorari are granted. There again does not seem to be anything special here. However, the question of the scope of Major League Baseball’s historic antitrust exemption is definitely ripe for Supreme Court review as there is already a clear split among the circuits on this issue, and, if the same exact data practices were found by a court to violate antitrust law in the context of the NBA but be permissible when enacted by Major League Baseball, I think there would be a very compelling movement for the high court to reconsider that outcome.
SH: As you may have read in our so-far two-part story, the MLB and NBA’s new approach on the “integrity fee” or” royalty” getting tied to access to official data is requiring a direct commercial agreement with the league (unspecified terms) on top of an agreement with the authorized data provider. How does this factor into an antitrust analysis?
ME: Similar to my remarks above, absent a state law that requires users of sports data to enter into an agreement of this nature, I believe the league’s attempt to make data available only at a centralized level and not on an individual team basis is susceptible to legal challenge under Section 1 of the Sherman Act. I also believe the attempt to mandate use of league-licensed data operators, and not companies that self-gather data, could serve as the crux to a reasonably strong claim under Section 2 for attempting to leverage an already existing monopoly in hosting games within a given sport.
If, however, such a requirement becomes mandated by a state statute, a casino that operates within such a state probably would not have an antitrust claim against any league. Their best attempt at remedy might be suing the state and seeking to invalidate the statute on the grounds that the statute violates some principle of law or equity by serving to benefit pro sports leagues rather than the people of the state. But such a lawsuit would not be antitrust in nature, and would seem to amount to a long shot.
SH: OK, so suppose a court found the leagues and/or its authorized data providers in violation of antitrust laws. But in Tennessee, Illinois, and whatever other states to come, the league data is mandated for certain types of wagering, per state law. How would an antitrust ruling apply?
ME: In short, I think there’s still a violation if there would otherwise be one based on the conduct in other states.
SH: What conduct, if any, by the authorized data providers themselves (not the leagues) may give them legal exposure?
ME: In jurisdictions where state statutes do not exist to mandate the use of authorized data, I think the authorized data providers including Sportradar are walking down a dangerous road. These data providers could find themselves as plaintiff co-conspirators in both Section 1 and Section 2 antitrust lawsuits, as well as potential defendants in breach-of-contract lawsuits depending on how their service agreements are written if they cut off providing their service in violation of their contractual agreements. But, coming back again to what seems like a consistent theme, if a state mandates to use of league-licensed data providers, these companies may have a plausible defense in that they are just following state law.
SH: What legal precedent do you think is pertinent with respect to the legal issues here? How about Morris vs. PGA?
ME: Motorola v. NBA, which I mentioned before, is the case that seems most closely on point regarding intellectual property rights. Morris vs. PGA is a red herring. The leagues like to talk about this case to defend their conduct because on the real surface it tends to lend some support. But Morris is entirely different because it does not relate to a self-gatherer of data being boycotted from the marketplace. Rather, in Morris, a company wanted to purchase data that somebody else collected subject to a contract entitling non-commercial use and then use that data for commercial purposes.
Of course, leagues like MLB and the NBA have the right to limit others’ use of data which they themselves gather. What they don’t have the right to do, absent new and special state laws, is prevent third parties from investing their own efforts into collecting game data and then to use and resell the data that they themselves collect. This distinction here is more an issue of intellectual property law rather than labor law, but from an academic perspective, I believe my view here is generally in strong acceptance.
SH: The NFL does not yet have an “official feed” and does not publicly favor data mandates (or an “integrity fee”) that would require sportsbooks to purchase official league data. If the NFL stands pat, are they in the clear from potential legal exposure?
ME: The NFL is being incredibly smart here by taking a wait-and-see approach. Their restraint to see how all of these issues play out is admirable, and at the end of the day they may prove to be the big winners by not jumping the gun.
SH: Look into your crystal ball — how do you see this whole thing playing out?
ME: The simple and fair result would be for states to stay away from granting integrity fees or any special rights or control to the leagues over game data, and to let MLB and the NBA attempt to gain control of the data resale market by developing a superior product that is available to consumers at a lower cost. Like any antitrust professor, I truly do like the free market solution!
But, sadly, the U.S. professional sports leagues have incredibly strong lobbying power, and one could point to many examples of the leagues being able to successfully lobby for special legislation that benefits them to the detriment of consumers. I would be naïve to discount the very strong possibility that the MLB and NBA commissioners’ offices will be able to get what they want, even if these type of deals are not in the public interest.