Yesterday, a federal court judge dismissed Kentucky Speedway's antitrust lawsuit claiming NASCAR and International Speedway Corp. (ISC) conspired to monopolize and restrain trade in auto racing at the premier racing circuit level. Kentucky Speedway alleges that the two entities, which are both controlled by the France family, conspired to preclude Kentucky Speedway and other tracks from hosting the Sprint Cup (formerly Nextel Cup) series despite their superior amenities. ISC owns 12 of the 22 tracks at which the Sprint Cup series is held. Kentucky Speedway asserted in its complaint violations of Sections 1 and 2 of the Sherman Act, and NASCAR's answer to the complaint is here. In November, NASCAR and ISC argued on summary judgment that Kentucky Speedway had insufficient evidence to prove NASCAR and ISC were working in concert to prevent the Kentucky track from obtaining a race in the Sprint Cup series.
Unfortunately, our blog has not given this pending case the attention that it deserves, and it is an important one for sports law attorneys and academics to digest and analyze. [Forewarning to students in my professional sports law class this semester, we will spend some quality time discussing this case and no time whatsoever discussing whether Clemens sticking out his tongue in an interview means that his butt was injected with steroids.]
In the linked press release, AP writer Bruce Schreiner noted:
The speedway, located about halfway between Louisville and Cincinnati, has drawn huge crowds to some of its other races. The NASCAR Busch race, now called the NASCAR Nationwide series, last year drew more than 70,000 people to the 1.5-mile tri-oval in northern Kentucky.... Its events also include a Craftsman Truck Series race and an IndyCar Series event. To improve traffic flow for the huge crowds, an interstate highway was widened near the track and a new exit was added. The track, with a capacity of just over 66,000, has said it's prepared to add 20,000 to 35,000 seats if it attracted a Sprint Cup race.
This case involves complex issues making it difficult to sufficiently address in a blog post, and I haven't been able to locate a copy of Judge William O. Bertelsman's ruling (please pass along the link if you find it). But it appears from the press release that the judge dismissed the case on the grounds that there was insufficient evidence to prove that NASCAR and ISC were acting in concert to exclude or prevent competition. Here are some of my initial reactions.
First, the court (not the jury) typically decides the issue of the existence of a conspiracy or mutual agreement or understanding for purposes of Section 1, unless the court determines that the plaintiff has presented evidence that tends to exclude the possibility of independent action. St. Louis Convention & Visitors Commission v. NFL, 154 F.3d 851 (8th Cir. 1998). Here, apparently the judge felt that Kentucky Speedway presented no evidence that tends to exclude the "possibility" that NASCAR acted independently from ISC. This is a unique case from a sport antitrust perspective, and in particular with respect to a Section 1 claim, because typically the existence of an "agreement" is not the issue -- the agreement is oftentimes established via a league rule or a league member vote, and then the issue becomes one of causation, i.e. was it in fact the agreement that precluded the plaintiff from competition or was the plaintiff's inability to compete the result of market forces. It can be argued that the mutual understanding arises each time NASCAR and ISC agree that an ISC owned track will hold a Sprint Cup series event, the combination of which results in ISC owned tracks holding a majority of these events (12 of 22). If it does constitute an agreement for Section 1 purposes, the issue is whether it passes muster under the rule of reason, i.e. whether there are sufficient procompetitive purposes that outweigh the anti-competitive effects. Perhaps the judge was persuaded that Kentucky Speedway was not prevented from competing with other tracks for the 10 Sprint Cup series events held by non-ISC owned tracks. If I'm the judge on this one, I'd probably punt it to the jury.
The Section 2 claim on summary judgment raises some interesting questions as well. There are two distinct claims that may be asserted under Section 2: Monopolization and attempt to monopolize. With the former, NASCAR arguably possesses monopoly power in the auto racing industry, but Kentucky Speedway must also establish that NASCAR undertook some course of action the consequence of which was to exclude competition or prevent competition (intent to exclude competition is not a required element for a monopolization claim). In other words, conduct of monopolies is more heavily scrutinized and they can't always get away with doing things that non-monopolies can. I'm not suggesting that NASCAR has violated Section 2 by any means, but I do think that there are factual issues that should preclude summary judgment.
Kentucky Speedway announced that it will be appealing the ruling, and it will be interesting to see how the federal court of appeals handles the issues. In the meantime, I look forward to reading Judge Bertelsman's opinion and I may blog on it later.
UPDATE: I received a copy of the judge's ruling. The decision is not very lengthy (14 pgs) for what appears to be a very complex case.
The first half of the opinion explains that Kentucky Speedway's expert testimony used to define the relevant product market failed the Daubert/Rule 702 criteria, which, according to the judge, was fatal to both Sherman Act claims because "it follows that Plaintiff is left without proof of any relevant product or geographic market." Defining the relevant market is the classic debate in sports antitrust cases because it's never clear how it should be defined -- the defendant always argues that the product market is large and includes other sports and forms of entertainment, and the plaintiff argues that the market is small and only includes the particular sport at issue. The court, however, agreed with NASCAR's/ISC's definition of the market to include other forms of entertainment: "The record reflects that the admission price to a NEXTEL race is approximately $85. Considering parking and the probable purchase of refreshments, the cost to a family of four would be about $400. Yet, no studies were done to determine whether such a family might patronize a Bengals or Reds game or some other sports event, instead of a NEXTEL race, if that cost were to be raised by $20 (5%)." Does anybody think that NASCAR competes with MLB or the NFL for fans?
Next, the judge referred to this situation as a classic "jilted distributor" case in which an agreement between a producer (NASCAR) and distributor (ISC) to prevent a competitor of the distributor (Kentucky) is per se legal because a producer has a right to select its customers and refuse to sell its goods to anyone for any reason. There's no question that an exclusive dealing relationship in and of itself does not violate antitrust laws. However, unrestrained market forces determine which distributor the producer selects based on quality, price, efficiency, etc. Conversely, Kentucky is claiming that market forces are not at work here because NASCAR has every incentive for ISC owned tracks to profit from the Sprint Cup series, which in turn does not provide racing fans with the best quality venue at competitive ticket prices. There are many factual issues (see the complaint attached above).
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