USFL v. NFL Case Analysis

free essayThe analyzed court case has a very interesting prehistory. Kogan (2008) considered the formation of both the National Football League (NFL) and the United States Football League (USFL). He made some conclusions as to why the USFL filed a lawsuit against the NFL in the Southern District of New York in 1986 for attempts of the last to monopolize the market (Kogan, 2008). The USFL was founded in 1982. At that time, “the NFL solidified its dominance as America’s top spectator sport and its important role in American culture” (Kogan, 2008 p. 4). It is important to note that the analyzed issue is often called the television conflict because both the USFL and NFL blamed one another for preventing television broadcasting of the game. Thus, conditions of the rising competition became obvious.

It is not easy to explain why a newly formed league could not occupy its independent niche. The USFL was established in order to initiate a spring football period because its founders thought that the fall game sessions of the NFL were not enough for football fans, who wanted to enjoy the games all year round (Kogan, 2008). However, Donald Trump, one of the former USFL owners and the current United States President, made an unpredictable decision to move to the fall schedule and corresponding TV-broadcasting. Everybody thought that this strategy was a hint at a merger with the NFL (Kogan, 2008). However, Trump just offered a new “perspective” strategy.

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Keeping in mind the existing financial problems for the USFL and its doubtful competition with the NFL, a new policy to move broadcasts to the fall was not successful. These attempts resulted in the fact that the USFL filed a lawsuit against the NFL in 1986. “Chief among the USFL’s arguments was that the NFL, which had contracts with ABC, NBC and CBS [TV companies] had pressured the networks to not televise the USFL in the fall.” (“Trial,” n. d., para. 2). Moreover, the NFL was blamed for making a conspiracy with the City of Oklahoma with the view to destroying the Oakland Invaders, a USFL team (“Trial,” n. d.). The trial had lasted for more than 48 days and produced more than 7,100 transcripts; “On July 29, 1986, the United States Football League won the battle but lost its war against the National Football League” (“Trial,” n. d., para. 5). The jury found the NFL guilty of the monopolization of the professional football, but all other claims of the USFL were recognized as not grounded, including the assertion that the NFL made some attempts to monopolize the television broadcasting. The USFL won only $1 in damages, which turned into $3, as an anti-trust reward (“Trial,” n. d.). The USFL ceased its existence and did not play any games in 1986 at all. Its players were recommended to look for the employment in the NFL and Canadian League of Football (“Trial,” n. d.). In this case, a single thoughtful decision resulted in a court case and a destruction of the USFL.

Analysis of the Case

The case of USFL v. NFL is definitely very contradictory. The decision of the court may also be argued by some people, but the NFL gave many strong arguments in order to prove that its activities were legal. These arguments included the following facts: (1) the NFL contracts with television companies were not exclusionary; (2) the USFL did not manage to secure its fall broadcasting with the media, and they considered its offers to be less important and the games inferior than the ones of the NFL; (3) the NFL had never put any pressure on the television channels by signing any contracts for unattractive games; (4) the company never used the strategy, which was outlined in the Porter presentation, prepared by a Harvard Professor in order  to show the NFL how to gain superiority over its competitor (“Trial,” n. d.); (5) the NFL had never thought to engage in any conspiracies in Oakland with the view to preventing their team from playing; (6) all financial losses of the USFL were conditioned by its inappropriate management (Kogan, 2008). The fact that the NFL prepared such answers for the court meant that the league was accused of all the corresponding actions by the USFL.

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It is important to note that the decision of the USFL to suit a law case was initially mistaken and logically led to the failure of the league. It is common to discuss that Trump was guilty of making a decision to move the spring schedule to the fall period. However, Markazi (2015) writes about the USFL, “Several teams were having financial difficulties at the time, and the league lacked the fall TV contracts that supported the NFL” (para. 5). Therefore, the USFL had some problems to be solved as soon as possible. Trump tried to offer some radical way of the quick development, but the current challenges were not given any attention by owners of these teams (Markazi, 2015). When the case was brought to court, the judge correctly found the NFL not guilty. Its monopolization activities developed as a result of its popularity and demand of the viewers. The USFL tried to controvert the jury’s decision, but this attempt was unsuccessful. The court stated that the USFL abandoned its initial aim of development, which was based on the loyalty of football fans and public competition and focused on spring games (Kogan, 2008). Thus, the analysis of the USFL v. NFL case demonstrates that the court’s decision was reasonable and correct. In such a manner, solving inner problems of the USFL should have been of the primary importance in the company’s strategy.

Problems of the Case

The previous section of the paper mentions that the USFL had to face some challenges before it initiated the court case against the NFL. These problems are important in understanding that Trump’s decision was not the only factor, which led the USFL to collapse. The first and the major problem, which the USFL created for itself, was the unreasonable overspending by owners, “Owners overspent on talent and the league expanded at a rate that its audience could not justify.” (Horwitz, 2016, para. 5). The USFL could not find the balance between the sums, which they spent on salaries of players and choosing the best coaches and stadiums and the losses, which they experienced because of the decreased TV-rating (Horwitz, 2016). After the first significant financial loss of the USFL, one of the founders of the league stated that if they did not determine the salary cap for players, they would soon collapse. At the same time, the league continued to sign future contracts with players, who still played in the NFL, and offered them high salaries (Kogan, 2008). Therefore, the initial salary strategy of the USFL was problematic.

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There were other financial problems, which the USFL experienced, besides unreasonable salaries that were promised to its players. Owners of teams were not rich people, and some of them could not secure their prosperity. Abrams (2014) asserts that many of them went bankrupt and returned their franchise to the USFL, including the owner of L.A. Express. Additionally to this fact, the USFL chose a wrong competition strategy with the NFL, even though the established league did not plan any competition at all, “the USFL did something that was never part of the plan, they got into a talent war with the NFL, signing Steve Young, Reggie White, Doug Flutie and others.” (Abrams, 2014). The league could not afford such players.

As the case directly refers to the television scandal, it is reasonable to note other problems, which the USFL faced in terms of broadcasting. Abrams (2014) considers issuing the suit against the NFL the biggest mistake of the USFL. He states that the league owners were guilty of putting themselves into a miserable situation, because they focused on the unreasonable competition with the NFL but not the strategies to develop their league. It lost an opportunity to gain more profit before initiating the court case. “ABC [a television company] offered each USFL team $67 million per year to stick with playing in the spring. So, to summarize, each of the remaining eight USFL teams gave up $67 million for forty-seven cents.” (Abrams, 2014, para. 10). Thus, a wrong competition strategy, constantly changing members of the league, who did not know the situation in the organization well, and unreasonable overspending led to the collapse of the USFL.

The Key Issues of the Case

The previous section of the paper determined a range of problems, which the USFL faced when it filed the suit against the NFL. It is important to distinguish the key issues of the case in order to develop a complete understanding of it. Though the main accusations, which the USFL prepared for the NFL, were clear, a newer league additionally claimed that the NFL violated points one and two of the Sherman Act (Kogan, 2008). The courts commonly applied the Sherman Act to different types of sports disputes. The mentioned sections deal with the conspiracy and unlawful trade and harmful monopolization correspondingly. The Act could not help the USFL reach its aims because any conspiracies of the NFL or its attempt to establish a monopoly while violating the interests of the USFL were not proved. Nevertheless, the monopolization intentions of the NFL were recognized (Kogan, 2008). Thus, the USFL did not manage to receive any court support on the basis of the Sherman Act.

In terms of broadcasting disputes, besides the scope of the broadcasted matches of both leagues, the USFL had more comments to make on the NFL’s unlawful policy. The league, which had less experience in the football business, stated that the NFL focused on the dilution effect. This argument was based on the hypothesis that the NFL was afraid that if some TV channel actively broadcasted both the games of the USFL and the ones of the NFL, the price for advertising during the breaks would significantly decrease, and the NFL would earn less money (Kogan, 2008). All the arguments prepared by the UFSL were based on some suppositions and were developed due to a desire of the league to survive. The USFL did not prepare any documentary proof of the NFL’s violations; thus, it was not ready for such a serious court case.

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Provided facts and answers given by the NFL concerning all the charges of the USFL helped the court support its decision by the following issues: (1) the USFL did not suffer from any nominal damages, because of the NFL becoming a monopolist; (2) the NFL was not involved in any anti-competitive practices; (3) the entire scope of the USFL broadcasting claims was rejected, because the television contracts, which the NFL had with the channels, did not prevent them from broadcasting other games (Kogan, 2008). Kogan (2008) states that the jury’s verdict of 3 compensation confirmed that the USFL was not an economically stable and could not repay the NFL for any financial losses, which it had to face, because of the court proceedings. Therefore, some key issues of the USFL v. NFL case confirm that a newly formed league did not have enough ground for filing a suit against a successful competitor.

Alternative Solutions to the Problem

Considering the facts and issues of the case, it is possible to conclude that the USFL was only successful at the very beginning of its operations. When its initial business strategy was formulated, it was going to broadcast its matches during the fall season. However, Abrams (2014) stresses the fact that the USFL had some important achievements to be proud of, “They were the first football league to have instant replay and the two point conversion and they gave a lot of very good football players like Reggie White their first opportunity to play pro ball.” (para. 20). Moreover, even nowadays, some football TV shows use the USFL footage in order to present players, who do not want to play in the NFL (Abrams, 2014). This objective assessment of the USFL verifies the assumption that the league could have been successful if the right strategy had been chosen by its leaders.

It is possible to distinguish some alternative solutions to be applied to a complicated situation, in which the USFL found itself. These approaches could have saved the league from the collapse. First of all, a widely discussed decision of Trump to move to the fall schedule was persistently offered by him to other league members. The businessman was not the only owner of the league, though he was recognized as the richest one (Markazi, 2015). After the third session of games, Trump’s offer was accepted by everybody. Owners recognized that they faced some serious problems and financial losses and thought that a change of a strategy could have helped to solve the problem (Markazi, 2015). However, later, they started to blame Trump for the failure. An alternative solution in the discussed situation could have been not to vote for the change but to focus on the existing challenges and gradually overcome them.

The mentioned problems of the USFL were formed on the basis of erroneous decisions, which the league made. When the USFL collapsed, the analytics commonly recognized that the initial strategy of Dixon, which was formulated for the league’s activities, was reasonable. If the organization had followed it, it could have survived (Kogan, 2008). If the USFL had made some attempts to control salaries of players and to assess objectively the losses, which the changing mood of the TV viewers brought, it could have become a professionally developed and successful football league in the United States. A primary clue of its success was reducing the existing competition with the NFL and choosing the way of independent development. This strategy could have been the second alternative solution, which existed for the USFL. Kogan (2008) states that if the USFL had managed to survive for 10-15 years, the current media coverage could have ensured the regular coverage, which the organization desired. Therefore, an idea to create an alternative football league and to have own fans, players, and broadcasting was not a failure at all. It could have brought significant profits to its owners if they had been wise enough to make the right decisions.

Possible Strengths and Weaknesses

The offered alternative solutions have a number of strengths, which make them much more perspective than the erroneous decisions that were taken by members of the USFL. Horwitz (2016) writes that when the league accepted Trump’s decision, it was already exhausted. It was not on the verge of solving the existing issues and, actually, did not recognize them at all. The strength of the first alternative solution not to accept Trump’s offer lies in the fact that if the USFL had chosen an alternative way, it could have solved its financial problems and developed further. Moreover, it could have accepted the named contract with ABC before filing a suit and have been a winner. At the same time, an obvious weakness of accepting the strategy to stay in the position, in which the league was and not to accept Trump’s decision could lead to the continuous unreasonable spending and lawsuits filed against the USFL by players for not being able to pay their salaries or for changing them.

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The second alternative solution of correcting all unreasonable financial strategies, which the USFL pursued, also has certain strengths and weaknesses. First of all, if the USFL had better controlled its payments as it had initially planned and had not organized this talent game with the NFL, it could have saved significant sums of money in order to improve its broadcasting situation and develop new talents. Secondly, they would have stayed with their permanent team of fans, which would have supported only one favorite league without a necessity to change their preferences. Thirdly, owners of teams would not have returned their team franchises so often. However, this decision also has some weaknesses. When the USFL signed contracts with football stars, the TV-rating of the league immediately grew. Fans saw the best coaches, who worked with the team, and their interest aroused. These facts were the reason as to why the first two-three years of the USFL’s activities were considered successful (Kogan, 2008). Therefore, regardless of the decision that a business person makes or a solution, which he accepts in a certain situation, it is important for him or her to evaluate some long-term consequences, which an approach may have for the business.

Recommendations to Be Applied in Similar Situations

This paper describes a complicated situation of the USFL and the circumstances, which made the league cease its existence. On the basis of the analysis of some erroneous decisions that were made by the USFL, it is possible to give some valuable recommendations to the newly formed sports leagues in order to help them avoid similar challenges. These recommendations are as follows: (1) an analysis of the industry and an initial business strategy are very important for any organization. A primary approach to leading the business should be followed. It is definitely subject to some corrections, but it should not be radically changed in order to create additional problems; (2) all owners and directors of an organization should work in a team. There are not very poor or very rich members of the same company or league. In terms of the business, their shares should be as equal as possible, and they should help each other to avoid giving franchises back; (3) the competition is definitely very important to any business and contributes to its development. However, if a newly formed league wants to compete equally with the existing market players, it should occupy a strong and a stable niche in the market and wisely distribute its expenses without focusing on the one-competition issue only. These recommendations are valid for the current situation in the football market and will be useful in the future.

In order to conclude, it is important to note that the USFL v. NFL case can be a good lesson to all young businesspeople, who want to start their business in sports. It is very complicated to satisfy football fans, especially if they are fans of a certain team, it is almost impossible to make them fans of another one. The founders of the USFL had enough courage to prove that it is possible to create an alternative league in the monopolistic market. However, they did not work as a team and were too much focused on the existing competition, instead of the own independent development. Starting a new football or basketball league requires enough finances and wise leaders, who would apply their strategic and analytical thinking. Hopefully, some recommendations, given in this paper, will be valuable for newcomers in the sports business.