Under Penalty of Catapult

The Green Bay Packers are the only NFL franchise that operates without a single “majority” owner. Since the 1930s — long before the NFL adopted its current ownership rules — the Packers have been organized as a nonprofit stock corporation. The Packers periodically sell shares to the general public. These sales are not considered a public offering, however, so they’re not subject to federal securities regulations. Last year, the Packers’ board of directors authorized the sale of up to 280,000 new shares at $25 per share (plus a $25 handling fee for each order of one or more shares). No person may purchase more than 200 shares under the Packers’ bylaws. Including the current offering, there are about 5 million outstanding shares.

As many commentators have noted, the Packers’ shares are little more than a voluntary donation to the football team. Since the Packers are a nonprofit corporation, no dividends are ever paid to shareholders. If the Packers ever dissolve, their assets will be transferred to another nonprofit organization. Shares cannot be sold, only transferred to immediate family members. If anyone tries to sell their shares the Packers have the automatic right of repurchase at 2.5 cents per share. The only rights shareholders have are to elect the Packers’ board of directors and approve any future stock sales or amendments to the corporation’s bylaws.

Of course, despite lacking most of the traditional benefits of “ownership,” all shareholders must still consent to Roger Goodell’s universal jurisdiction:

The NFL Rules prohibit conduct by shareholders of NFL member clubs that is detrimental to the NFL, including, among other things, owning a financial interest in any other NFL member club or other professional football organization; loaning money to other NFL member clubs or any player, coach or employee thereof or any football official employed by the NFL; acting as an agent for any NFL player; publicly criticizing any NFL member club or its management, employees or coaches or any football official employed by the NFL; or paying an NFL player or coach. If the Commissioner of the NFL (the “Commissioner”) decides that a shareholder of an NFL member club has been guilty of conduct detrimental to the welfare of the NFL then, among other things, the Commissioner has the authority to fine such shareholder in an amount not in excess of $500,000 and/or require such shareholder to sell his or her stock. In addition, if the Commissioner determines that a shareholder has bet on the outcome or score of any game played in the NFL, among other things, then the Commissioner may fine such shareholder in an amount not in excess of $5,000 and/or require such shareholder to sell his or her stock. (Italics added)

So read literally, the Packers shareholders — all of whom are Packers fans, I’d assume — are not allowed to ever publicly criticize the team or the league. That means a negative Tweet or message board post could cost you your shares and up to $500,000.Now, I don’t think Goodell has ever fined a Packers shareholder, and I’d be somewhat surprised if he ever did. Still, it highlights the absurdity of the NFL bylaws, which give the commissioner a broad, non-reviewable power to fine the very owners who employ him.

On the other hand, I wonder if the Packers’ unique ownership structure might not be a working model for organizing a local government along more libertarian lines. Imagine a city where you sold shares to raise revenue for capital projects — building roads, fire stations, et al. — and limited the number of shares any one person could purchase at a time. Shareholders could vote for directors (city councilors) and for or against charter revisions (bylaws), but they could not sell the shares for profit or otherwise enjoy any special privileges. And when you needed to raise money for another capital project, you could just sell more shares. Operating expenses would then be paid through user fees — after all, Packers shareholders still have to buy tickets to actually attend games.

The Packers board of directors has about 40 members elected by approximately 112,000 individual shareholders. That’s far more representative than most city councils. The Packers board elects a CEO and an executive committee to oversee day-to-day operations, which isn’t substantially different than a city manager.

The eternal criticism of any form of voluntary government is, “What if people don’t support it and free-ride off the ones who do?” I think the Packers present a solid response. Thikn about it. Everyone knows the Packers shares don’t confer any substantial decision-making power over the team. The shares have no economic value. Yet people still line up to buy them every time there’s an offering. If you build and sustain a good product, be it a football team or local government services, people will support it. Call it civic or team pride, but clearly there’s a market for voluntarily pledging support to a community-based corporation.

I should add here when I speak of “local government services,” I mean only those common services that would otherwise exist in the market. I am not referring to regulatory schemes that cannot exist without the use of force, e.g. zoning. And I’m not suggesting a Packers-style model is the only one that could work. But we should also not be blinded into thinking that the for-profit, publicly traded stock corporation is the only valid method of aggregating capital and administering multiple-ownership property. One of my key criticisms of the NFL has been its strict adherence, the Packers notwithstanding, to an ownership model that promotes poor management and aggression against local taxpayers. Like government services, the NFL would benefit from competition among different governance models.

My latest at Saturday Down South takes on the media overreaction to Maryland football coach Randy Edsall’s decision to restrict the options of some transferring players.

DeSean Jackson’s contract with the Philadelphia Eagles expired at the end of the 2011 season. In any other industry, he’d be free to walk away from the Eagles and seek employment elsewhere. But this is the NFL, where guild socialism rules the day, as ESPN.com’s Howard Bryant noted yesterday:

[T]he Eagles get to have it both ways. They don’t have to think enough of Jackson to commit to him with a multiyear contract, while at the same time they think too much of him to allow him to leave town. So the club is expected to place the dreaded franchise tag on him, keeping him in Philadelphia for one more season.

Jackson will receive big money, probably about $10 million for the 2012 season. As a franchise player, he’ll be one of the highest-paid receivers in football. But the lack of an opportunity for him to be an unrestricted free agent is exactly what the players should have been fighting against during last year’s lockout. Unrestricted free agency should have been the line in the sand for them then, and they should still be after it like the holy grail now.

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Outside of the military, it is difficult to think of an industry other than professional football in which an individual is not afforded the right, after some reasonable amount of time, to change jobs within his or her given field. Being able to choose a place to live and work is a simple American concept — this isn’t Cuba … except in the NFL. There are a number of factors in Jackson’s situation that are particularly galling: a club’s immense power to control player movement, even for players it doesn’t seem to like very much; the public’s comfort level with that system; the owners’ false insistence that the league can’t thrive without it; and, worst of all, the players’ refusal to make true, unrestricted free agency the core issue of their union.

I maintain the labor system itself is the problem. Federal law allowed the NFL clubs to publicly breach their existing player contracts — i.e., the lockout — without any fear of legal reprisal. The law also coerced individual players into assigning their negotiating rights to a collective entity, the NFLPA, ran by a former federal prosecutor with his own agenda. Players like DeSean Jackson never had a meaningful voice in the collective bargaining talks — and the resulting “agreement” further restricted his rights to negotiate with individual teams. The entire labor regime is fraudulent.

More specifically, the “franchise tag” Bryant rails against so eloquently should be considered a textbook case of fraud. The word “fraud” is admittedly overused to condemn any business practice a person doesn’t like. So let’s narrow things down a bit. A good starting point is the argument made by libertarian legal scholar Stephan Kinsella, who places fraud in the context of contract theory:

The theory of contract espoused here demonstrates that fraud is properly viewed as a type of theft. Suppose Karen buys a bucket of apples from Ethan for $20. Ethan represents the things in the bucket as being apples, in fact, as apples of a certain nature, that is, as being fit for their normal purpose of being eaten. Karen conditions the transfer of title to her $20 on Ethan’s not knowingly engaging in ‘fraudulent’ activities, like pawning off rotten apples. If the apples are indeed rotten and Ethan knows this, then he knows that he does not
receive ownership of or permission to use the $20, because the condition ‘no fraud’ is not satisfied. He is knowingly in possession of Karen’s $20 without her consent, and is, therefore, a thief.

DeSean Jackson is not a bucket of apples, rotten or otherwise. He’s selling his labor (or his time, if you prefer). The Eagles agreed to pay a certain price for that labor over a stated period. But that period is now expired. Both sides have fulfilled the terms of their agreement.

But now the Eagles can point to Article 10 of the 2011 Collective Bargaining Agreement. Section 2 of that article says the Eagles may designate one player whose contract expired after the previous season as a “franchise player.” This designation grants the Eagles exclusive rights to contract with Jackson for the following season. He is no longer allowed to negotiate with other clubs without the Eagles’ permission. In exchange, the Eagles must offer him a one-year guaranteed contract at a certain minimum rate. And in theory, the Eagles could do this to Jackson again next year after the one-year contract expires.

We know the law permits this under the theory that collective bargaining agreements are sacrosanct. But taking a more objective, Kinsellan approach, is the “franchise tag” Kosher? I certainly think it’s debatable.

Let’s look at the procedural history. The Eagles drafted Jackson in 2008. At that time, the NFL clubs were governed under the 2006 Collective Bargaining Agreement between the NFL Players Association and the NFL Management Council. Jackson was not a party to this agreement, as he was not a professional player at the time. Nonetheless, federal law required him to abide by the CBA’s terms, which permitted the NFL to allocate new players via a draft. Jackson either had to sign a contract with the Eagles — the terms of which were further restricted by the 2006 CBA — or not play in the NFL at all in 2008. He signed a four-year contract that expired after the 2011 season.

After the 2010 season, the NFLMC terminated the 2006 CBA and “locked out” Jackson and the other players, ignoring the fact he remained under personal contract with the Eagles. The NFLMC’s actions were expressly designed to coerce the NFLPA into signing a new CBA more favorable to the NFLMC. The NFLPA initially responded by disclaiming its status as a federally recognized labor union. A group of players, in concert with NFLPA leaders, then filed an antitrust lawsuit, arguing the league’s business practices were no longer immune from the Sherman Act absent a collective bargaining process.

Despite the legal fiction the NFLPA no longer functioned as a union, lawyers working at their direction negotiated a “settlement” to the antitrust lawsuit that included a new CBA. The NFLMC then imposed the 2011 CBA terms on existing contracts, including Jackson’s, negotiated under the now-defunct 2006 CBA. That included the franchise tag (which also existed under the 2006 CBA).

At any point, it’s not clear how Jackson could have granted “consent” to the Eagles’ ability to unilaterally prevent him from seeking employment elsewhere after his contract expired. Even before he joined the NFL, the NFLPA assumed the “right” to negotiate on his behalf without his express consent. The Eagles and the NFL were allowed to blatantly ignore their own player contracts when they imposed a lockout after voluntarily and prematurely terminating the 2006 CBA. And there’s little reason to believe Jackson had any meaningful role in negotiating the 2011 CBA. The lawyers drafted the agreement and then quickly organized a mass player vote where a simple majority could legally bind any dissenters.

And most egregiously, the “franchise player” provision of the CBA is, by definition, selectively enforced. It’s not as if all players whose contracts expired after 2011 are subject to it. A club can only designate one such player each season. Even conceding the entire CBA process is legitimate, if the provisions don’t equally apply to every person covered, that’s inherently suspect from the standpoint of ascertaining consent.

It would be one thing if Jackson signed a player contract that expressly said there was a team option to extend the term for one year. That would demonstrate a clear “meeting of the minds” in the course of negotiations. But here, the contract provided for an express term that ended after 2011, and the Eagles are now claiming a right, that wasn’t directly negotiated with Jackson, to extend the agreement against his will. On the surface, that looks like fraud to me.

The counter-argument, of course, is that the 2011 CBA is the law of the land and it binds Jackson because he, at a minimum, implicitly agreed to its terms by supporting the union and returning to work. I don’t think that’s enough to overcome the presumption of fraud. Again, I’ll rely on Stephan Kinsella, who discusses the problem of relying solely on written rules in “one-click” and “shrink-wrap” terms of service agreements:

So one problem with click-wrap agreements, for example, is that there is (arguably) often no “meeting of the minds” on the fine print–and the vendor is fully aware of this. If the customers routinely just click the “I have read and agree to these terms” box but never do read it, and the vendor knows this, then it’s a sort of fiction to assume both sides have actually agreed on these terms. For example supposed buried in fine print for a contract for sale of a $20 software program is the provision, “Buyer agrees to give 50% of his income to Vendor for life.” Is this enforceable? Of course not. Why not? Because there was no agreement to this. So the “hidden” terms have to be in some sense reasonable, at the least. (Here, too, “inalienability” concerns may kick in–even if the party is fully aware he is signing away his life income, or his kidney, or life, say, this may not be enforceable for inalienability concerns–see, on this, the contract article noted above, plus my article Inalienability and Punishment.)

I am not saying that clickwrap and fine print is not enforceable–I’m just saying that the libertarian view on property rights and contracts does not require that we formalistically equate “the contract” with “the writing,” and it does not require we figure all this out from our armchairs. The libertarian view can recognize that contracts about consensual, intentional transfers of title; that manifesting such consent is a matter of communication; that making determinations about the nature of a contract, or title transfer, is necessarily a fact-specific, context-bound inquiry.

So to follow Kinsella’s thinking, the proper question is whether or not Jackson, when he signed his 2008 contract, granted meaningful consent to the “franchise tag” that may now involuntarily extend his employment with the Eagles. If he didn’t grant such consent, then I think the Eagles and the NFL are guilty of fraud, at least in the Kinsellan-libertarian sense.

Remember, the NFL player contract is a standard form created by the CBA. Aside from compensation and number of years, there’s no room for negotiating or altering the terms. It’s very much like the “clickwrap” agreements Kinsella talks about above. And it’s not as if Jackson could have asked the Eagles in 2008, “Do you plan to use the franchise tag on me in 2011?” He signed a contract that said one thing — this is a four-year agreement — but actually meant something else.

Our friend Maury Brown, president of the Business of Sports Network, points out in a Tweet that “The NFL is to be not for profit.” He adds, “Don’t hurt yourself laughing.”

In talking with others about the NFL, I have also found surprise when explaining the NFL’s “not-for-profit” status. Article 2.2 of the NFL’s Constitution states, “The League is not organized nor to be operated for profit.” This refers to the NFL itself and not the individual member clubs or other joint ventures owned by the clubs, such as the NFL Network. The NFL is nothing more than a trade association or “business league” recognized as a tax-exempt organization under Section 501(c)(6) of the Internal Revenue Code.

When we commonly think of non-profit organizations, we think of groups exempt under Section 501(c)(3), which covers educational, charitable and scientific organizations. (It also covers amateur sports organizations, like the NCAA, but not professional sports leagues.) Many 501(c)(3) groups are publicly supported charities, which means donors may contribute to these organizations and deduct the contributions from their personal income taxes.

A 501(c)(6) group, in contrast, is not a publicly supported charity. Here is how the IRS defines organizations under this section:

Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are business leagues. To be exempt, a business league’s activities must be devoted to improving business conditions of one or more lines of business as distinguished from performing particular services for individual persons. No part of a business league’s net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only enough income to be self-sustaining).  The term line of business generally refers either to an entire industry or to all components of an industry within a geographic area.  It does not include a group composed of businesses that market a particular brand within an industry.

So as far as the IRS is concerned, the NFL is a chamber of commerce. Individual member clubs are still for-profit businesses subject to normal corporate tax laws. And any business run directly by the NFL is still a for-profit business. But the league itself is not.

The only notable difference between a 501(c)(6) like the NFL and a public charity under 501(c)(3) is that a 501(c)(6) has greater freedom to engage in political activity. A public charity may only engage in “insubstantial” lobbying activity without risking its exemption. A business league can engage in all the lobbying it wants, provided it “furthers the exempt purpose” of the group. (The NFL still can’t engage in direct political activity, i.e. contributing to campaigns.)

And the one advantage, from the public’s standpoint, of 501(c)(6) status is that the NFL’s annual tax return, Form 990, must be made available for public inspection. However, unlike a 501(c)(3), a 501(c)(6) does not have to let the public see any returns filed for any “unrelated business income.” In other words, the NFL will show you its return for the trade association part of its operation, but not necessarily that of its for-profit subsidiaries.

So how much money are we talking here? According to the NFL’s 2008 return (the last one I have on file), the NFL reported over $204 million in program service revenue plus about another $2.5 million in investment income and $470,000 in miscellaneous revenue. That’s against over $240 million in expenses, meaning the league reported a loss in 2008 of just over $33 million. The NFL also reported about $994 million in assets against $1.1 billion in liabilities.

The biggest chunk of the NFL’s assets are “notes and loans receivable,” about $800 million, which is primarily loans to individual clubs for stadium construction. This is where the NFL skirts the traditional bounds of a tax-exempt organization. Remember, to obtain a tax exemption, an organization’s revenues must be used for the exempt purposes and not “inure” to the benefit of individual members. But the NFL is using its exempt revenues to finance stadium construction that directly benefits individual owners—that is, the for-profit companies that run the actual NFL teams. According to the NFL’s 2008 return, there’s over $700 million in “loans” at zero-percent interest outstanding for stadium construction. Yet somehow the NFL retains its tax-exempt status.

Some brief comments on reports that Roger Goodell’s recent contract extension will pay him upwards of $20 million annually:

1. This isn’t about Goodell’s subjective value as an executive. During the lockout, we learned Goodell’s value in that sense is $1. There’s no competition for Goodell’s services and he’s publicly maintained he’s never wanted to work anywhere but the NFL.

2. This contract is primarily about the owners’ validating their prior decision to elect Goodell commissioner.

3. This contract further proves my contention that the league isn’t about profitability, but maximizing consumption for its own sake. “Hey, we can spend $20 million on this guy who adds little to our product!” Think of Roger as a very tiny stadium.

4. Goodell does provide one valuable service to the league. He consistently sells fans on the idea that players aren’t valuable as individuals. He breeds resentment among the customers against the product, yet does so in a manner that (for now) hasn’t damaged demand for the product. He’s almost like a Super Skip Bayless—a troll that keeps you interested.

Value is subjective. This economic axiom is often lost when debating sports, where people tend to compare empirical data in an attempt to prove or disprove value. Let’s take one question that’s emerged in the wake of the Super Bowl: Is Eli Manning really a better quarterback than his brother, Peyton? The distilled argument is that while Peyton has the more impressive career numbers, Eli already has more championships. So what matters more in assessing a player’s value?

I suspect this debate will change over time. In the here and now, most observers continue to view Peyton as the more valuable quarterback. This is based not only on his statistical performance at a high level for a greater period than Eli, but also the Colts’ shockingly poor performance this past season when Peyton was unavailable. Empirically, the case for Peyton is overwhelming.

But as time passes, Eli will likely surpass his brother in perceived value. Call it the Namath Effect. Joe Namath was an average quarterback elevated to an elite perception based solely on the New York Jets’ victory in Super Bowl III. It wasn’t just that Namath’s team won the game. It was that he played for a team from the country’s largest media market and he beat a perceived juggernaut in the Baltimore Colts. Similarly, Eli has won two Super Bowls playing in the same media market, with both victories coming against the most successful team of the past 12 years.

By the numbers, Peyton will likely always be the better quarterback. But numbers tend to get lost in history. (They even get lost in the present; see Tebow, Tim). Time has a way of stripping historical events down to their mythological roots. And 20 years from now, we’re likely to see a mythology that regards Eli as the greater — that is, more valuable — quarterback.

My latest at Saturday Down South looks at the Virginia General Assembly’s efforts to pass a “Tebow Bill” that would require public high schools to permit home-schooled students to play on sports teams.

Josh Zerkle of Bleacher Report takes offense at comedian Bill Maher’s embrace of the NFL as a “socialist” model for the country as a whole to follow. I share Zerkle’s opposition to that idea, but I’m less convinced by his attempt to defend the NFL as a model capitalist enterprise:

Maher’s observations about the league’s salary cap and redistribution of revenue, generally speaking, aren’t inaccurate. But he makes a significant oversight: The NFL’s modus operandi is not a federally-implemented initiative. It’s a system that everyone agreed to implement and maintain.

“The NFL takes money from the rich teams and gives it to the poorer ones,” Maher quips.

That’s not exactly true.

The NFL doesn’t take anything; the New Englands and Washingtons of the league pony up that money freely, of their own volition, without the impending duress of state force. If they failed to do so for whatever reason, it’s not as if the NFL’s Internal Revenue Service would be throwing Daniel Snyder in jail, even though that visual image would please fans all over the league.

Zerkle seems to think a system isn’t socialist just because it’s superficially voluntary. That’s inaccurate. As the left-libertarian academics will tell you, voluntary socialism can and does exist. The absence of government coercion is a necessary precondition of a free market, but it is not the only condition.

And this is where Zerkle is on shaky ground. He tries to defend the league’s labor restrictions as “voluntary”:

As for the league’s obvious constraints on wages, those practices were agreed upon by owners and collectively bargained with the league’s workforce, the players. There was no imperialist kommissar that dictated terms to the populace.

So while these measures aren’t exactly market-friendly, they were achieved through a collective bargaining process in which all owners and players participated directly, with each group seeking opportunity to maximize its own benefit. And yes, the players entering the league have little say in what they’ll earn in their first (and often only) NFL contracts, but it’s still leaps and bounds above what they were getting paid in college—nothing.

While the state did not directly dictate the terms of the last collective bargaining agreement, government coercion played a major role. The U.S. imposes labor rules that made it possible for the owners to “lockout” players in an effort to coerce more favorable settlement terms. Let’s remember, even after the previous CBA expired, several hundred players remained under contract with their individual clubs. Thanks to federal labor rules, the NFL was allowed to breach these contracts for the duration of its lockout. I don’t consider that a free-market practice.

Nor is it accurate to say “all owners and players participated directly” in the process. Labor law forcibly strips individual employees of most bargaining rights, assigning them to a monopoly union that can coerce the participation of all employees if a simple majority agrees. Mob rule is not capitalist in my book.

(I’d also point out since the current CBA is a ten-year agreement, virtually all of the players who will eventually be covered by the deal — that is, players who enter the NFL after 2011 — had no say whatsoever in its terms.)

Instead of respecting individual rights to bargain, players were coerced by their lawyer, union leader De Smith, into pursuing a foolish antitrust strategy that cost them time and money. And the antitrust system, most assuredly, is not capitalist.

But all this is small potatoes. Zerkle deliberately ignores the most anti-free-market aspect of the NFL, namely its debt-and-subsidy-dependent stadium model. I mean, really. Holding up communities for millions in subsidies — as the NFL is now doing in Minnesota — is in no way, shape or form consistent with free market principles. Even the stadiums that were “privately” financed benefited from the government’s monetary policies, which artificially stimulated debt beyond what the market would otherwise bare. The NFL used cheap credit to build beyond the means of their owners. And then to pay for it, they used government rules to force employees to accept lower pay. Zerkle may think that’s a free market. I don’t.

Ultimately, as I wrote in a previous post about the NBA, what defines “socialism” here is the NFL’s attempts to circumvent the pricing system for stadiums and players. As I said about the NBA:

The collective bargaining agreement is nothing more than an attempt at economic planning. There’s a dazzling array of price controls. Newly hired players are subject to a “draft” — where the selection order is partially determined by random chance — and assigned to a given club and paid a predetermined wage. No player can earn more than a specified maximum wage. Every team is subject to a “cap” on total salaries that nonetheless contains a number of arbitrary exceptions. For example, teams over the official cap can still spend a fixed amount on one or more additional players.

The cumulative weight of all these rules and price controls minimizes, if not outright eliminates, the role of entrepreneurship. According to the planners, building a successful team doesn’t require weighing risk or reward. It’s simply a matter of “waiting your turn” for a star player and then using the bureaucracy to prevent him from leaving.

You could certainly attempt all this in a true free market where there was no government present. But absent state intervention, the likelihood of such a scheme succeeding would be minimal. The fact is, the NFL’s socialism does work because of the state’s existence.

My latest for Saturday Down South examines how Southeastern Conference athletic departments monitor and regulate the use of social media services by their student-athletes.

I’ve always said professional sports represents the unholy trinity of anti-free market values: Subsidies, bureaucracy and intellectual property. The latter is the subject of a welcome ruling yesterday from Justice Steven D. Rares of the Federal Court of Australia. Justice Rares ruled against Australia’s two principal football leagues in a copyright dispute with the operators of TV Now, a service that allows Australian consumers to record over-the-air television broadcasts and replay them on their computer or mobile device.

Optus Mobile Pty Ltd., TV Now’s owner, actually initiated litigation in response to threats made by the National Rugby League and the Australian Football League. The leagues previously sold their “exclusive” internet and mobile broadcasting rights to Telstra Corporation. They maintained TV Now’s service infringed on their copyrights in the broadcasts.

Justice Rares disagreed. The Australian parliament amended Section 111(1) of its copyright law in 2006 to permit recording of a broadcast “solely for private and domestic use by watching or listening to the material broadcast at a time more convenient than the time which the broadcast is made.” The Australian government noted the express reason for this amendment was to ensure individuals could record television programs on their personal devices without fear of being declared lawbreakers:

Many ordinary Australians do not believe that ‘format-shifting’ music they have purchased or ‘time-shifting’ a broadcast for personal use should be legally wrong with a risk of civil legal action, however unlikely. Failure to recognise such common practices diminishes respect for copyright and undermines the credibility of the Act.

The failure to recognise the reality of private copying is also unsatisfactory for industries investing in the delivery of digital devices and services. Eg, the supply of personal recording devices by broadcasters of subscription television services is proving to be important for the development of digital television. The availability of personal recording devices is also likely to be important for digital radio. (emphasis added by Justice Rares)

The specific issue Justice Rares had to decide here was whether the TV Now service crossed the line from simply providing users with the means to exercise their right, under statute, to copy a work for “private and domestic use” and instead constitute an infringement on the copyright of the football leagues and their licensee:

A person needs to employ technical equipment to make a film of a broadcast. Section 111(1) does not require the person who makes the film to have any particular relationship, such as ownership, to the equipment by which it is made. The Parliament must have contemplated that a variety of techniques and technical equipment could be used by a person to make a film of a broadcast. Since the 1980s households have had an evolving array of recording equipment capable of making a film, or in popular parlance “copying”, what is broadcast on television. Since the House of Lords* decided CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013, copyright legislation has had to balance the legitimate interests of the makers of original works and of ordinary citizens who use technological advances to copy those works for their own use in their private or domestic lives. In that case their Lordships refused to prohibit sales of blank tapes, recorders or similar electronic equipment that were capable of making copies of another’s copyright work merely because people might use these in their own homes to make copies of such work, rather than work not protected by copyright. Mere sale of articles that have lawful uses does not constitute authorisation of infringement of copyright, even if the manufacturer or vendor knows that there is a likelihood that the articles will be used for an infringing purpose, such as home recording, so long as the manufacturer or vendor has no control over the purchaser’s use of the article.

The key, Justice Rares said, was determining who makes the copy (or copies) of a given work.:

I am of opinion that the user of the TV Now service makes each of the films in the four formats when he or she clicks on the “record” button on the TV Now electronic program guide. This is because the user is solely responsible for the creation of those films. He or she decides whether or not to make the films and only he or she has the means of being able to view them. If the user does not click “record”, no films will be brought into existence that he or she can play back later. The service that TV Now offers the user is substantively no different from a VCR or DVR. Of course, TV Now may offer the user a greater range of playback environments than the means provided by a VCR or DVR, although this can depend on the technologies available to the user.

The fact that TV Now’s servers might actually store the data is legally irrelevant, according to Rares. The football leagues tried to argue that TV Now was really an illegal broadcaster because it stored and, in effect, retransmitted the games to individuals in different formats. But Rares said that so long as individual users decided when to record and watch the programs, their actions fell within the category of “private and domestic use.”

Justice Rares may not be the final word on this case. His ruling is the equivalent of a district court decision in the United States. The football leagues may still appeal to the Full Court (akin to our court of appeals) and ultimately the High Court of Australia. And of course, since this is a case of statutory construction, the leagues and their broadcast partners could always lobby Parliament to simply change the law again. Still, it’s a good sign when any court stands up to copyright bullying from professional sports leagues.

In this country, the National Football League maintains a similar copyright policy, decreeing that all games broadcast on free television are “are intended for the private use of our audience.” The NFL goes so far as to claim all “accounts and descriptions” of a game are also protected by copyright, which is absurd on its face. Even in the United States, you won’t find a judge who will argue that a group of guys talking about the Super Bowl somehow infringe the league’s vaunted copyright.

As I argued in an earlier post, I question the applicability of copyright at all to over-the-air television broadcasts. By definition you’re gifting the content to viewers for no consideration. It’s contradictory then to assert a distinction between “private” and “public” use with copyright attaching only to the latter.

Sports leagues always want to have it both ways, however. In the TV Now case, the Australian leagues want to reap the financial benefits not just of their television contracts, but also potential internet and mobile fees. TV Now is a direct competitor with the league-sanctioned internet/mobile provider. The leagues want copyright not only to eliminate this competitor, but also create a contractual relationship with consumers where none exists — by directing them on what technologies they are and are not permitted to use within their own homes. It’s yet another case where the worship of intangible, fake property rights threatens to undermine the exercise of natural property rights.

*The House of Lords of the United Kingdom served as that country’s highest court until recently. Until the 1960s, the Australian courts treated House of Lords precedents as binding on Australia.

Bill Parcells is the only coach among this year’s finalists for the Pro Football Hall of Fame. It’s fair to assume Parcells will be inducted, if not this year then within the next couple of years. Parcells remains an iconic figure to many of the same media personalities who monopolize the Hall of Fame voting. This despite his diminishing performance as he moved from the Giants to the Patriots to the Jets and finally to the Cowboys.

Parcells may be elected to the Hall on the same weekend Tom Coughlin could win his second Super Bowl as coach of the Giants, matching Parcells’ accomplishment with the team in the late 1980s and early 1990s. It’s too early to say if the media elites will induct Coughlin into the Hall of Fame when he becomes eligible, but it’s worth noting that his resume stacks up very favorably against Parcells. Especially if the Giants win this Super Bowl.

Coughlin is 65, the same age as Parcells was when he coached his final season with the Cowboys. Parcells was an NFL head coach for more seasons (six) and produced a career regular season record of 172-130-1, or a 57% winning percentage. Coughlin’s record through 2011 is 142-114, or 55.5%. Not a significant statistical difference. Parcells had ten playoff teams (for a combined 11-8) versus eight for Coughlin (8-7). Parcells had eight division champions, Coughlin seven. Both coached in four conference championship games. Both coaches had five losing seasons.

Both won their Super Bowls under a general manager in New York. In Jacksonville, Coughlin was the initial coach of the Jaguars and had full personnel authority. There was no general manager. Parcells operated with similar autonomy in his final three jobs. Coughlin was arguably more successful as an autonomous coach. He took an expansion team — literally nothing — and made the AFC Championship in his second season as a 9-7 wildcard. Parcells produced two notable teams outside of the Giants: his 1996 New England Patriots went 11-5 and lost the Super Bowl; and his 1999 New York Jets team finished 12-4 and lost the AFC Championship Game. Overall, however, Parcells produced average results at two of his post-Giants stops, 32-32 with New England and 34-30 with Dallas.

The big distinction between Parcells and Coughlin is the timing of their championships (again, assuming a Giants win next week). I would think it’s more impressive to win a Super Bowl closer to the end of your career than the start. People tend to remember and emphasize the last thing they saw. (Then again, I’m sure many pundits consider Mike Shanahan a surefire Hall of Fame coach based on two Super Bowl wins that occurred over a decade ago.) And for what it’s worth, if Coughlin wins his second Super Bowl, both will be against a coach with three Super Bowl victories, Bill Belichick, who like Coughlin started out as Parcells assistants with the Giants.

Two unrelated news items today led me to an odd thought. The first item comes from Maury Brown, president of the Business of Sports Network, who noted the combined total contracts of Major League Baseball players Alex Rodriguez, Prince Fielder and Albert Pujols actually exceed the annual GDP of 12 independent nations. The second item involves a corruption scandal in the Vatican government. Not the Roman Catholic Church, mind you, but the actual government of the Vatican city-state, which encompasses less than a quarter of a square mile of territory. (Tellingly, the Vatican was not one of the 12 nations on Brown’s list, which tells you how wealthy the Holy See remains after 2,012 years.)

This got me thinking. The NFL is the richest sports league in the United States. It has a sophisticated internal government with legislative, executive and judicial powers. It has clearly defined symbols, culture, holidays (Super Bowl Sunday, the NFL Draft, et al.), thousands of employees, communications network, and yes, territory in the form of stadiums. So why not just make it official and allow the NFL to declare itself a sovereign nation?

Admittedly, this would be a nation-state lacking in contiguous boundaries. The territory of NFL Nation would include the 30 existing NFL stadiums. The U.S. and its local governments would cede this territory freely, and in exchange NFL Nation would assume all debt, maintenance and future construction obligations as a sovereign power. No more local subsidies for teams. If NFL Nation wants to move or expand to other U.S. locations, it would need to negotiate a treaty directly with the U.S. government — which I’m guessing would be harder to steamroll than a state legislature or city council.

Where would the capitol of NFL Nation be? The league’s present headquarters are in an office building in Manhattan. That’s not a proper capitol. But since it makes sense to keep the government of NFL Nation near New York City, I’d propose ceding the entire Meadowlands Complex in New Jersey (including the Giants and Jets current stadium) and constructing a capitol building where the Meadowlands arena now stands.

For that matter, a number of teams have office complexes that are in different locations than their stadiums (for example, the Redskins have a stadium in Prince George’s County, Maryland, but its offices in Loudon County, Virginia.) These offices would not be ceded to NFL Nation proper, but reclassified as embassies or consulates. The same would go for the NFL’s current Park Avenue offices. That can be their United Nations consulate.

For the NFL, sovereignty would have a number of benefits. Free from U.S. drug laws, NFL Nation could establish its own controlled substance policies and pharmacies (Vatican City has its own pharmacy; good luck getting birth control there). NFL Nation wouldn’t have to follow U.S. labor or antitrust laws. Economically, sovereignty means the NFL can raise even more money by marketing its own coins, postage stamps and top-level internet domain (I’d propose .fb for “football”). NFL Nation could even field its own Olympic team in non-football sports!

NFL Nation could also establish its own bank, but for practical purposes, it would likely continue to use the U.S. dollar, just as Vatican City uses the Euro. NFL Nation would establish and maintain its own internal police force — stadium security — but obviously, it would enter into an agreement with the U.S. for military protection against foreign aggressors.

Citizenship of NFL Nation would mirror Vatican City’s practice of granting passports iure officii, that is by virtue of employment. In other words, a person would hold NFL Nation citizenship while actually employed by the NFL. Citizenship would also extend to spouses and minor children during that time. The U.S. would agree to allow NFL Nation passport holder to retain dual U.S. citizenship. In practice, NFL Nation would have tens of thousands of citizens, including players, front office employees and their families. Incidentally, there’s no reason NFL fans would need a passport to enter a stadium in NFL Nation. You don’t have to show a passport when you visit the Vatican.

So while sovereignty would be a great deal for the NFL, what’s in it for the United States? Well, as noted above, my proposal requires the NFL to assume all outstanding and future obligations related to stadiums. No more bilking off of U.S. taxpayers for stadium construction. But the larger picture is that free of U.S. regulation and bureaucracy, NFL Nation could build a thriving economy that will draw even more people to the surrounding cities. Instead of stadiums that are used less than a dozen times a year, NFL Nation could repurpose those buildings without restriction the rest of the year, say as casinos or  medical marijuana dispensaries.

Come to think of it, sovereignty sounds like a great idea for everyone, not just the NFL. If only we get the U.S. government to sign off on that.

Greg Schiano is reportedly leaving Rutgers and the Big East Conference to take over as head coach of the Tampa Bay Buccaneers. Media and public reaction seems mixed. Schiano supporters cite his ability to turn a cellar-dwelling program into a mediocre program. Schiano is also highly thought of by Bill Belichick, according to Belichick’s media handlers. Given how well Belichick’s own former assistants have fared as head coaches, I’m not sure what that means for Schiano’s chances in Tampa.

In reality, the majority of NFL head coaching hires end in failure. Few coaches retire after winning a Super Bowl. Dick Vermeil did, then promptly changed his mind and had a muddling three-year run in Kansas City. Tom Coughlin was proclaimed dead man coaching a month ago, now he’s on the cusp of a second Super Bowl (which ought to propel his future Hall of Fame candidacy, but that’s another post).

I haven’t got a clue how Schiano will do in Tampa, and neither does anyone else. Schiano is no riskier a hire than an anonymous assistant like Joe Philbin or Dennis Allen, both of whom are newly hired head coaches. And from Schiano’s standpoint, the move makes perfect sense. Even if he gets fired after two or three bad seasons, plenty of colleges will line up to offer him a job. Just ask Bobby Petrino, Steve Spurrier and Nick Saban.

The real story here, I think, is that Schiano is abandoning the Rutgers ship as it’s in the process of sinking. Nowhere is the Sports Bubble more visible than Rutgers, as one local newspaper noted just a few weeks ago:

Despite winning on the field this year, Rutgers football and its broader athletic program are among the biggest money losers in the nation, a Star-Ledger analysis shows, and the situation may be getting worse. The shortfall last year forced the university to divert millions of dollars from student fees, tuition and state tax dollars to cover the $64.2 million it spent to run its 24-sport athletic program, records reveal.

Schiano is credited with building Rutgers into a marginal Big East power. But the truth is, Rutgers shouldn’t even be playing football at the top level. It’s a FCS school struggling to fit into FBS-sized pants. The fact that Rutgers spent this much money and still couldn’t win a single Big East title under Schiano should tell you all you need to know. That’s a black mark on the university, not Schiano.

Joe Schad of ESPN said Schiano was “also concerned about perceived uncertainty of the future direction the Big East.” It’s a perfectly valid concern. As I said in my Joe Paterno obituary for Saturday Down South, “University leaders no longer view coaches as the most important decision with respect to football, but conference affiliation.” Rutgers hasn’t even been a factor in conference realignment, and now it’s stuck in an unstable Big East that’s gambling everything on a national expansion including the likes of Boise State. Without a strong conference, Rutgers is doomed to irrelevancy regardless of Schiano’s recruiting abilities or in-game management.

The National Football League’s owner-operators extended Commissioner Roger Goodell’s contract through 2018, it was announced yesterday. That seems fair. Back during the lockout, I opined that if things went South — that is, if some or all of the regular season was cancelled — the media and public backlash would put Goodell in jeopardy. The owners would need a scapegoat. But since things worked out, Goodell is now rewarded for sitting there and looking pretty the entire time.

In looking back at Goodell’s nearly six years as commissioner, it’s hard to find a signature accomplishment. His media enablers will cite the ten-year agreement that ended the lockout. But the owners did that, not Goodell. If anything, the commissioner put labor peace at risk with his comical and reckless disciplinary policies that needless antagonized the players.

There have been a number of questionable initiatives spearheaded by Goodell: Expanding the draft to three days, lobbying for an 18-game regular season, exporting one regular season game per year to London. There also hasn’t been any real growth in the quality of the NFL product. The NFL Network remains largely an afterthought. There’s still no team in Los Angeles and one in Jacksonville. The Vikings remain frustrated in their efforts to steal hundreds of millions of dollars from Minnesota taxpayers to build a new stadium. Al Davis is dead, so I guess that’s something.

The most positive thing I can say about the NFL during Goodell’s tenure is that the political climate surrounding the league remains stable. I’m not talking about stadiums here. I’m talking about gambling. The fact that the federal government remains committed to persecuting non-state-sanctioned gambling must be a major relief to Goodell and the owners. Legalized gambling might cripple the league. Not because legal wagering on football would corrupt the sports, but because if people could legally gamble on other stuff — be it non-football sports or just plain old blackjack — it would reduce the incentive to gamble on the NFL through quasi-legal means like fantasy football.

I don’t think you can understate the importance of gambling to customer demand for the NFL. A large portion, if not a majority, of NFL customers consume the product via fantasy. It gives them a reason to follow the league on television and the Internet during the weekend. But if all of a sudden, the feds and every state legalized other forms of gambling, suddenly there’d be competition. And the NFL doesn’t fare all that well when there’s competition. That’s why the owners tend to demand subsidies for their less popular stadiums.

Gambling, of course, is not the biggest threat to the league. The biggest threat is the c-word: concussions. It’s been a buzzword for the last couple of seasons, prompting Goodell to adopt his selective punishment strategy to make it appear like he’s concerned with player safety. Only a league apologist — and there are many — know Goodell isn’t serious. American football can not be played “safely.” Eventually, support for the sport at the high school and college level will degrade to the point where the NFL won’t be able to field its product anymore. That won’t happen overnight. But 50 years from now, there probably won’t be a Super Bowl as we know it now.

But what about the RATINGS?! NFL writers are like the NASA executives in that Simpsons episode who obsess over television ratings. The ratings have never been better, so what’s the problem? Well, as I just discussed above, the league has all sorts of unresolved issues. High TV ratings don’t build new stadiums. Ratings are not a measure of profitability.

Furthermore, high ratings expose one of the league’s key fault lines. The NFL’s popularity is due to the fact it’s largely free to consume via television. The league spent like drunken sailors on new stadiums and a host of other luxuries based on the ratings. Now with the stadium model in decline, Goodell and his friends are looking to recoup their losses by slowly eroding the free-television model. That was the whole reason for building the NFL Network in the first place, to siphon games off of free television. That’s why the league maintains its idiotic blackout rule.

The television money won’t last forever either. ESPN is overpaying for NFL rights in an effort to justify its high subscriber fees to cable operators. The cable operators are getting tired of subsidizing ESPN on basic cable. That gravy train will be dead within five years. If “a la carte” cable — long a dream of consumer advocates — comes to pass, ESPN will be dead in the water, taking with it a significant chunk of the NFL’s revenue.

Still, doesn’t the league have lucrative deals with NBC, CBS and Fox? Sure. But what happens if one of those networks goes under? The market for network television hasn’t improved. As television distribution via the Internet continues to grow, it’s likely one of the networks will go down before the decade is out. Take CBS out of the NFL equation and there’s another billion or so down the tubes.

Remember, player compensation in the NFL is tied to a percentage of revenues. If and when those revenues decline, so will player salaries. Add to that the increasing awareness of the adverse long-term health consequences, and ten years from now, the NFL may well be facing a sudden drop in the quantity and quality of college students willing to risk their lives for dwindling paychecks. The NFL has no developmental system. It remains entirely dependent on a monopoly supplier, the NCAA, for its talent. The NCAA is on even shakier ground than the NFL. Half the Division I colleges now fielding football teams could easily be broke and out of business within 20 years.

While the NFL appears invincible to the naked eyes of today, it’s no different than any other large bureaucratic entity dependent on its own legacy. Goodell is a symbol of complacency. He’s a man without aspiration or ambition. He has the job he’s always wanted, and as long as the owners don’t need a scapegoat, he’ll remain secure in that job until he chooses to retire. The next guy will be stuck with presiding over the league’s decline and likely fall.

Indianapolis Colts owner Jim Irsay invited fans to guess who he’ll hire as the team’s next coach. On Twitter, Irsay wrote:

Predict new Indianapolis Colts Head Coach,win 2 Super Bowl Tics! 1 guess only,u must guess by midnight tonight EST,Abby’s hatpick! GOOD LUCK

On a lark, I went through the NFL bylaws, wondering if this sort of thing might be a problem. Lo and behold I stumbled onto Article IX, Section 9.1(C)(6), which states no owner or team employee may

[p]ermit or state in any game program, or by means of its public address system or otherwise, that it, he, or they, offer or agree, either directly or indirectly, to pay or give money or any other thing of value to any member of the public; neither shall any club or other person referred to in this Section 9.1 be permitted to participate at any time, directly or indirectly, in any lottery of any kind…

The rule goes on to exempt clubs that accept advertising from state lotteries and off-track-betting. But on its face, it would seem this rule prohibits Irsay from announcing a lottery for Super Bowl tickets. Having his assistant pick a name out of hat is a lottery, I would think, and the rule bans any non-state-sanctioned lottery.

I’d also point out this section of the NFL bylaws is labelled “PROHIBITED CONDUCT.” And for a league that takes perverse joy in enforcing the minutiae of its rules against mere players, it’d be funny if a high-profile owner just pissed all over what the bylaws consider a major rule.