Transcript of Conference Call on the Re-Monopolization of the U.S. Sports Trading Card Industry

May 03, 2024

On April 30, The Capitol Forum’s Teddy Downey spoke with Marc Edelman, Nathaniel Grow and John Holden about their recent article “The Re-Monopolization of the U.S. Sports Trading Card Industry” on competitive implications of Fanatics’ consolidation efforts and sports leagues’ exclusive trademark licensing practices. The full transcript, which has been modified slightly for accuracy, can be found below.

TEDDY DOWNEY:  Good afternoon, and welcome to our Conference Call on “The Re‑Monopolization of the U.S. Sports Trading Card Industry”. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And our guests today will be talking with us about the recent paper on the U.S. sports trading card industry. In it, they describe the competitive implication of Fanatics’ consolidation efforts and sports leagues’ exclusive trademark licensing practices.

Marc Edelman is currently Professor of Law at the City University of New York. Nathaniel Grow is Professor of Business Law and Ethics at Indiana University, Kelley School of Business. John Holden is a Williams Spear Chair of Business Administration and Professor in the Department of Management in the Spears School of Business at Oklahoma State University. Thanks so much for doing this today. I really appreciate it.

JOHN HOLDEN:  Thanks for having us.

TEDDY DOWNEY:  And before we get started, just a couple notes or really one thing. If you have questions, please email us at Or you can use the questions pane in the control panel here on the app. And we’ll try to get to questions sort of midway through the call.

And so, I think what I would love to do, this paper for me was super interesting because it talks about — we get into the history of this industry, sort of business law, legal history, business history, legal history and then we get antitrust. I mean, it’s all my favorite topics. So maybe if we could talk a little bit, before we get into a conversation of Fanatics, which is like where we want to get to now, if we could talk about the history of the first round of monopolization, kind of the historical background of this market. I thought was a fascinating story. I would love to hear that.

JOHN HOLDEN:  Sure. So, I can start off with that if you want. And I’ll try to do a semi deep dive. I go into the weeds too much, feel free to move me along. But basically, what we talk about in the paper is the baseball card industry goes back in a lot of ways to just after the Civil War, around the 1870s, 1880s era. The tobacco industry, at the time, started to insert little, tiny cigarette cards that had a variety of different imagery, some of which were professional baseball players ‑‑ which was kind of an emerging popular hobby and pastime in the country at that time ‑‑ in their packages of cigarettes that caught on, particularly with the youth. There’s been some suggestion that that might have helped drive youth smoking rates and things in the late 1800s, early 1900s. But you kind of saw this ebb and flow where the tobacco industry would use it when they were in periods of competition. And then the American Tobacco Company, or the trust, was formed, in the 1890s. And then they kind of went away from advertising. And then when it became clear that under the Sherman Act, that was going to get broken up in the early 1900s, they go back to tobacco cards and making baseball cards and other types of things again.

So, it’s kind of got a long-rooted history of interweaving with the Sherman Act, which is kind of interesting. And then what you see is, starting around the 19 teens into the 20s, it kind of dries up. And then the tobacco industry moves onto other marketing practices. But what you then see take over, starting in the 1930s, is what we most associate it with today, which is the bubble gum industry. And so, there are a few different bubble gum companies during the depression era that started to produce baseball cards and include them with their sticks of gum and one cent packs to try to sell them to kids. It became really popular.

And then, after the second war, it starts up again. And that’s when kind of the modern industry begins. And so, in the early 50s, there was a back and forth between the Bowman company, which was like kind of a leader coming out of World War II, and this new upstart company, Topps, which wanted to enter that space. And they had a long, lengthy three- or four-year court battle where they were fighting over the balance and scope of the right of publicity. The first time that phrase was ever coined by Judge Frank was in the Second Circuit decision in the Bowman vs Topps case basically.

And so, out of all that litigation, Topps, in 1956, eventually buys up Bowman, and they start using exclusive contracts with players to tie up the entire industry in effect. So basically, they would have a contract with every major league player. They would sign players really early when they were just starting their careers in the minor leagues. And it was next to impossible for any other gum company to get in on that business because all those players had signed exclusive contracts saying that their images, names and images and likenesses, could only be used in baseball cards with gum if it was coming through Topps.

And so, that became frustrating to the other gum companies who saw that as a major source of profit and wanted to try to break in on that. Eventually, in the 1960s, one of those would‑be competitors, the Fleer Corporation, filed a complaint with the FTC trying to get them to launch an investigation. The FTC does investigate over a matter of a few years. Eventually, they decided that the baseball card gum industry was not a standalone, separate, relevant market in effect, that those gum companies competed with all sorts of other bubble gum, with other sorts of promotional materials or other sorts of marketing strategies. So, they decided not to weigh in on that.

Topps then continues to enjoy this monopoly up until about 1981. So, from 56 to 81, it was one company that had the exclusive rights to make baseball cards. And depending on who you believe, some of that time maybe the designs were really good. At other times we might say, yeah, the product kind of started to suffer from a lack of competition and lack of innovation and everything.

Come the late 70s, early 80s, Fleer, still not happy on being the outside of this, filed their own private antitrust suit against Topps and, interestingly, the Major League Baseball Players Association, who had been, for the last 10 or 15 years at that point, working with Topps, giving them the exclusive rights to all the major league baseball players in the country. That’s another long, lengthy court proceeding, as one would expect. At the end of it, the district court finds that Topps and the MLBPA, the union, have in effect illegally monopolized that relevant market. And so, they order the MLBPA to license to at least one or two more companies to start making trading cards. That then launches this new era where Fleer, Donruss, eventually Upper Deck, Score, all these new companies, start entering that space, and it kind of launches a new golden era of trading cards, at least for those of us of my generation.

And so, you see this flood of competition entering the market, huge growth of the industry. And then over time, for various reasons, interests start to fade a little bit. And leagues, not just in baseball at this point, but football has become popular, basketball cards, hockey cards. The league starts to say maybe we’re licensing too many companies in this area. Maybe instead of having 20 different sets that collectors have to try to collect all within the same year, maybe it makes sense just to have one company releasing our cards to try to control that supply of inventory a little bit. And so, they start to sign exclusive licenses with different card manufacturers.

But what you saw was, and I’m about to wrap up here, is that in the early 2000s, up until a year or two ago, Topps would still have the baseball contract. Upper Deck would have the hockey contract. A company called Panini would have the basketball or the football contract. So, maybe there wasn’t inter‑firm competition within baseball cards, but within sports cards in general, you had three different companies that were still innovating and competing against each other in some respect between football and basketball cards as it might be. Most recently, Fanatics has now swooped up all of those rights to everything but the NHL. So, you’ve got basketball, football and baseball ‑‑ and presumably before too long, they’re going to come after hockey as well ‑‑ all under that same umbrella. And that raises different potential competitive considerations than even the environment of five, ten years ago.

TEDDY DOWNEY:  Yeah, I think that’s a great transition into how Fanatics has done this. What’s the playbook they’ve used? And how have they navigated kind of the antitrust laws to kind of put this monopoly back together?

NATHANIEL GROW:  Yeah. So, Fanatics has really kind of followed the quintessential American success story. I mean, I think for certain that we will be looking at a Fanatics movie one day sort of based around its founder and CEO, Michael Rubin. So, Michael Rubin, even before going to college, Villanova, where he eventually dropped out, he had started a successful ski and snowboarding business and sold that in 1998. And then later bought that back at a discount.

And so, one of the hallmarks of Fanatics has been effectively buying up brands that might have excess value in them. And so, one of the first mergers that they had was with a European company called Ryka, who made sneakers at one point. And so, this sort of followed Rubin’s trend. And as Fanatics has grown in the years since Rubin started, what we’ve seen is that basically, if there is a manufacturer or a supplier out there that is sort of in the market supplying professional sports merchandise or collegiate sports merchandise, a lot of them seem to end up under the umbrella of Fanatics.


So, this began with the purchase of Fans Edge back in 2012. And then it would later go into the acquisition of a company called Majestic, who was a longstanding supplier of Major League Baseball. They supplied Major League Baseball uniforms for a time. And by 2019, not only was Fanatics acquiring these producers, they were also becoming exclusive license suppliers, of chains like Walmart as well. So, they’re really going into various aspects of the distribution model.

So, this brings us sort of to, coming out of the pandemic in 2021, a lot of speculation is following around Fanatics and their growth and looking at sort of is Fanatics going to IPO? One valuation had them at around $18 billion in value. They’d attracted a lot of institutional investment as well as celebrity investments. And so, what sort of happened during the pandemic was there was this resurgence of interest in baseball cards. And I think a lot of it probably came from people cleaning out attics. My mom was cleaning out the basement at my parents’ house and said, I want you to take these baseball cards out of our house and put them in your house. So, I think this was happening a lot and people were just interested in baseball cards.

So, it really re‑sparked an interest. And it was an interest in the secondary market as well as sort of that primary market of reissuing cards. We saw sort of the rise of NFTs during this time. And so, there was a lot of interest. And that interest drove Topps to consider going public via a special purpose acquisition company. And that eventually fell apart. And it turns out the reason it fell apart, in part, is because Fanatics had signed long‑term, exclusive licensing arrangements with various leagues. So, you have Topps looking to go public at a certain valuation. Fanatics, all of a sudden, locks up these agreements with various entities. And that merger falls apart.

And so, everyone’s kind of wondering what happens now? You’ve got Topps, who’s one of the ‑‑ as Nathaniel mentioned ‑‑ one of the longest established trading card companies in the country and certainly has been the center of controversy for a long time at various periods. But you now have them and all of a sudden, these exclusive rights deals are being snapped up by this company who doesn’t have a card distributor.

And so, next thing you know, we see an announcement that Fanatics has actually acquired Topps for $500 million. And so, what you have now is you have the card distributor. You have Fanatics with these long-term exclusive licenses. And these other card companies like Panini are starting to look at the market and ask questions about what’s happening. And this leads us to Panini eventually filing a lawsuit against Topps over their acquisition of these licenses and some of the other practices that have surrounded what’s happening.

TEDDY DOWNEY:  I wanted to maybe go back a little bit. And maybe this transitions into an antitrust conversation as well. There was that FTC investigation. They said, look, this isn’t in an antitrust market because it’s just like ancillary to bubble gum sales, which I think you note in the paper did not age well. And that’d be interesting just to like ‑‑ I’m always fascinated by things that FTC says that don’t age well. And then you had litigation that broke up the industry. But that was actually competitor litigation that won at the district court and lost at the appellate court. I’d love to maybe talk about that story and then maybe transition to sort of how that history translates to today. But maybe we can talk about that history in maybe a little more detail first.

MARC EDELMAN:  Do you guys want to jump into the history? And then I’ll take over and discuss present day.

NATHANIEL GROW:  Yeah, I can do that. So, I’m glad you mentioned that, Teddy. Because I did realize when I was going through my spiel, I didn’t note that eventually. So, the district court case in the Fleer vs Topps lawsuit breaks up the monopoly. But then the irony is that a couple of years later, I think it was the Third Circuit, overturns that and says, oh, no. Actually, that was not an antitrust violation after all. But at that time, the cat had been let out of the bag, so to speak.

So, yeah, to your point, I think back in the 60s, I mean, I think it was fair under the time, right? Like was that there were so many different varieties of bubble gum being traded at that point. And a lot of this was seasonal., So that in the summer, baseball season, kids were really interested in baseball. So that’s what they bought. And then in the fall, it immediately shifted to football. And that’s kind of like where the demand went. So, there was some question of was this really like a separate standalone market? Or was it just kind of part and parcel of the bubble gum industry as a whole?

I mean, one thing I will say on the other side is that, even in the earlier 1950s litigation between Bowman and Topps, those attorneys basically acknowledged in open court that, yeah, a lot of times the kids just really want the cards. They don’t care about the bubble gum that much. So, there was some indication that this really kind of was about the cards, not about the gum. But I think reasonable minds could disagree on that. It wasn’t totally unreasonable for the FTC to reach the decision it did. But I think in hindsight now, we can clearly see that the value was with the cards, or at least increasingly over the last five or six decades.

And then like you said, eventually that case comes back up. So, the trial court in Fleer vs Topps case, it was an interesting monopolization claim. Because it was part and parcel with the union and the union teaming up with Topps and how complicit were they and working together and everything. And I think this kind of segues ‑‑ and I’m going to shut up here and segue to Marc. It’s a tough antitrust issue because, I mean, especially the union context is a little bit different than the league context. But in the league context, there is an argument to be made that the NFL or the MLB should be able to license their rights as they see fit. And if it just so happens that instead of themselves deciding to make their own baseball cards, they license that right to Fanatics and choosing to have one company to do it versus others, there’s a reasonable argument to be made there. But also, there’s other reasonable arguments as well. I’m sure Marc will want to jump in on that note.

MARC EDELMAN:  Thank you, Nathaniel. So just to segue in, the card trading industry has come a long way since 1953. And I know Nathaniel and John gave examples that went back into the 1800s. But if you look at 1953, when Haelan and Topps were both beginning to license players names, images and likenesses to use on baseball cards, they were competing in the market to sell gum, and the card was in the back. And then if you flash forward to when I began collecting cards in the late 80s, early 90s, at that point in time, still on the basis of the contract that Topps had with the Players Association, it was still making cards technically in conjunction with the sale or connection with the sale of gum.

So, if any listener were to go back and try to buy a package of baseball cards that purportedly were unopened by Topps from the late 1980s, they should be able to run their finger along the bottom of it. And if the package was truly unopened, there would still be a piece of gum and primarily cards. We’re long past that point of even trying to make an argument that sports trading cards are in conjunction with the sale of another product.

Today, the cards unequivocally all the product themselves. And in this reemerging marketplace, we have a single dominant competitor when it comes to making sports trading cards. And that dominant competitor in the marketplace today is Fanatics.

Now, John talked about Fanatics being a success story. And in some ways, they are. And simply being big in this country is not illegal. Having large market share or bringing in large revenues, in itself is not a violation of antitrust law. And we’ve seen a lot of cases brought over the past few years involving large companies. Being big is not enough.

The question we have is whether there is conduct that’s ongoing in the sports trading card industry that transcends size and includes some form of anti-competitive behavior. And we can spend the next several hours talking about the unusual or interesting practices in the card trading marketplace. But there are three in particular that necessarily give rise to scrutiny with respect to Fanatics’ emergence. And this is something that, to the best of my knowledge, at least publicly, has not been looked at by the DOJ or FTC to date. There has been private antitrust litigation that’s addressed some, but not all, of these matters. But I think it’s very possible that in the next few years, we could see, whether it be Fanatics or sub‑parties within the sports trading card industry, facing antitrust litigation.

Now, amongst these three areas, two of them would be the type of activities that technically would fall under Section 1 of the Sherman Act, which we’re talking about collusive behavior or the working together of various parties that arguably are not supposed to be acting in tandem.

And then the third, which probably is the strongest claim of wrongdoing involving Fanatics, would relate to exclusionary conduct under Section 2 of the Sherman Act, which would relate to monopolization.

So, to begin with, the Section 1 arguments, which are the notion that there is some type of perhaps impermissible collusive or combination that’s going on, which is helping to give rise to Fanatics, let’s start by thinking about the baseball card or the sports trading card itself.

Now, to make a card, you really don’t need many raw ingredients. But to make the ideal card, a card that is desirable to the purchaser, there are at least two different elements that are needed. One is going to be you’re going to need some type of an image of the player who you’re portraying on the card. And the second is going to be that you are going to probably want to have the player in a team jersey or have some other mark that identifies the team for which the player plays.

So, the first interesting issue that emerges under Section 1 of the Sherman Act is that the maker of sports trading cards is going. not to each individual team to get access to the team marks, but rather is going at the league level to try to get access to all of the team marks in a given sports league in one slot.

So, for example, I’m a New York Mets fan. Unfortunately, I can’t hear anyone feeling sorry for me right now, but they are my team. And I would probably be very happy to buy a collection of baseball cards that only included the Mets players on the Mets jerseys.

Now, theoretically, one might be able to, in a truly free market, go to the New York Mets and secure the rights to the Mets team logos. But what each of the sports leagues does is the teams in each of the leagues take the marks to use their intellectual property and agree to sell it exclusively at the league level. And these teams are joining together interests instead of selling them independently and selling collectively at the league level. So, I cannot go ahead and procure the Mets team marks to make baseball cards, including the Mets. I would have to go to Major League Baseball and procure those rights of all 30 teams together.

Making matters somewhat worse in terms of free market competition is that each of the individual sports leagues have decided, instead of licensing the rights to team marks to multiple companies, they will only license their team marks to an exclusive company. Thus, in essence, granting a monopoly of the manufacturer of cards in a given sport with the team logos to a single company.

Now it doesn’t have to be that way. Theoretically, even when teams in the league join together interest and choose to license the rights exclusively at the league level, you could have a scenario where the league would give two, three, four, maybe an infinite number of companies, the right to purchase the license to use the logos, but none of them are doing that. And what we’re seeing in at least three of the four major leagues now is the teams are joining their interests at the league level, and then the league is only giving one company ‑‑ that company being Fanatics ‑‑ the right to use those logos, giving Fanatics a dominance in the marketplace.

That in some way, bears similarity to a case that made its way up to the U.S. Supreme Court in 2010, American needle versus National Football League, where all 32 of the NFL teams had joined together their interests and their logos for purposes of the sale of hats and apparel. And at that point in time had given the right exclusively to one provider, Reebok, which in essence froze out American Needle, from the marketplace.

Now, the U.S. Supreme Court found that was indeed a joining of interest that was subject to review under Section 1 of the Sherman Act and remanded that case back to a district court in Illinois for further review. Ultimately, that case settled without final adjudication. But there is at least strong reason to believe that the joining of interests in this way of teams in the sports league, when coupled together with an exclusive license, may be seen to run afoul to federal antitrust laws. At least as long as that there isn’t an offsetting pro-competitive reason.

So that’s the first of the three antitrust issues we see. The second also involves Section 1 of the Sherman Act. But it’s a joining of interests now, not at the team level, with respect to logos or trademark property, but rather the joining together of individual player’s interests and the players’ likenesses, their name, image and likeness being collectively sold instead of individually sold. And this is almost the exact duplicate of the initial Section 1 argument. But rather than it being the teams joining together their independent interests and selling their rights to use their intellectual property to a third-party or licensing the rights to one third-party in exclusivity, each of the players in each of the sports leagues are doing much the same thing.

So, for example, again, as a big New York Mets fan, I might theoretically want to procure the rights to make a baseball card of Francisco Lindor. But I cannot exclusively get the rights to Lindor’s likeness based upon the way the players choose to bring together their name, image and likeness, their NIL, the right of publicity, whatever you choose to call it, and sell it only to one party in exclusive basis, you would have to procure the rights to the name, image and likeness of every player in the league. And again, that’s being sold exclusively. And again, in three of the four major leagues, that’s being handed to Fanatics.

So those are the two Section 1 issues. Now, the Section 2 issue, Section 2 of the Sherman Act is about monopolization. And unlike Section 1, you don’t need to show collusive behavior. You don’t need to show a joining of interest. But you do need to show that there’s a company that has monopoly power, and that’s an even higher degree of power than market power, not like a third of a market. But you have to show, depending on who you talk to, somewhere between 70 and 90 percent of the market as a minimum threshold. And then you need to show that the company that already has near monopoly power is engaging in some type of behavior that’s either intended to strengthen its market monopoly power beyond a natural rate or otherwise meant to be uniquely exclusionary.

And what really stands out here is the behavior that’s taking place from the standpoint of Fanatics, which already controls a huge share of the market, not only signing these exclusive contracts with the players and the teams for an immediate period of time, but locking up the players and teams exclusively, locking up this intellectual property at some point for 25 year periods or more. Which is a distinct change from the historical behavior in the sports trading card marketplace, even where there have been exclusive licenses to use team logos or players names, image and likenesses. Historically, those have been for a much shorter period of time and not overlapping, where one company has three of the four major leagues.

Now, the reason why this exclusionary conduct is arguably so problematic is it creates a bottleneck where we’re looking maybe a full generation down the road before a new company reasonably could come in and even attempt to compete with Fanatics for these rights. So, in essence, not only does it create an incentive for companies like Panini and Topps to ultimately end up going out of business if they’re not able to make cards in the near term, but it gives them little reason to believe that they would be able to break back into the marketplace for a full generation.

And at the same time, for entrepreneurs, it’s going to have a chilling effect on entrepreneurs entering the marketplace to try to make cards, knowing that they might be waiting until about the year 2050 before they’re even able to bid for the manufacturer of cards in these primary sports leagues. I mean, perhaps a company could enter by trying to sell cards in a noncore and evolving sports league. Maybe there’s an opportunity to make WNBA cards. And based upon the belief of what’s happening with women’s basketball in the country, hoping that blows up in a positive way, maybe there might be an opportunity to make trading cards involving college athletes. But the overwhelming share of this market is now locked in the hands of Fanatics, not just for a short period of time, but for a very long period of time. And if free markets are supposed to support the manufacture of the best products, the highest quality products, at the lowest possible price, well, we’re going to be waiting close to a generation until there’s even a reckoning on whether Fanatics is innovating and making the best quality product.

And as a final point, because I know I’ve spoken for a while, we don’t have the answers at this point in time about the quality of Fanatics cards, and whether having a near monopoly on a marketplace is leading to a decline in quality. But just simply anecdotally, as of 2024, baseball season has begun, Fanatics and Nike were making team apparel., And there’s been a lot of questions about whether the apparel that has been made for the players that they’re wearing are of suitable quality. And one of the arguments one might make, whether it be in the apparel marketplace or the sports trading cart marketplace, is that when you have one dominant company that has what’s arguably a monopoly in some relevant market and has locked up exclusive rights for a long period of time, that company, once they’ve locked up the exclusive rights because they’ve precluded free market competition, might not have that incentive to innovate in the marketplace in the way that they would in a free market. And that, from the standpoint of the FTC or DOJ, which is supposed to care about consumer welfare, might in itself also be a reason for concern.

TEDDY DOWNEY:  Yeah, actually, that’s where I wanted to take this. I know you talk in the piece about broader implications than just the trading card market. And obviously, Fanatics seems to have much bigger ambitions. I would love to talk about those other markets. We already talked about apparel. I know from my experience playing video games, especially when I was younger, and played basketball, football games, there used to be very intense competition. There were two licenses, at least, I think maybe three sometimes, for basketball and football in the NFL and the NBA. And you had these dueling ‑‑ every year, it was like are you going to get the Madden? Or are you going to get this other? I don’t even remember the name of it. It’s been so long since Madden, I think, has not had any competition.

But the games were always trying to one up each other. And they each kind of had their position for selling. And I think it was, as a video game player, great. Because you had this choice and they were always kind of improving the games. And then you sort of got in this mode where it was like they could just do whatever they want. The games never really got any better.

What are the implications here? And also, does it feel like the Supreme Court case or any of the other cases are threatening these exclusive agreements? Or is nothing being done about it, kind of condoning this and sort of permitting it? And like kind of what needs to be done here? And also, I know I’m throwing a lot of questions out, were there any mergers in particular that put Fanatics kind of over the top? Or have they been just really good at negotiating these exclusive agreements? There’s so much going on. It’s kind of hard to pinpoint exactly how they’ve been able to pull this off, both at the trading card level and at these exclusive licensing agreements.

JOHN HOLDEN:  I’ll sort of jump in here and I’ll answer the first question backwards. Then I’ll let the other guys hop in. When we’re looking at sort of what is happening in the trading card market, Fanatics has two acquisitions that I think sort of raise questions about what’s happening to the market. One of them was their acquisition of a company called PWCC, and they are a memorabilia company, secondary market, company. And the other is an actual trading card producer that they acquired. And so, what we’re ending up seeing is total vertical integration of the market now being acquired by Fanatics.

So, when you’re looking at that, it’s not just sort of the end distributor of the cards they’re buying, the people who are making the cards, they own the rights, as well as if you then want to sell that card that you acquired years ago, they’ve got a marketplace for that too. So, to me, that’s kind of the main area to watch in terms of what’s happening in the trading card market with Fanatics. And I’ll sort of let one of the other guys jump in on the other aspects there with the courts.

MARC EDELMAN:  I’ll make a couple of quick points, and maybe hit one or two of the questions and then punt it over to Nathaniel, who I know is going to have several points as well. The one acquisition that went through ‑‑ and I don’t even know if it was investigated. If it was, there was certainly no second request that bothered me ‑‑ with Fanatics’ acquisition of Topps. And we see this happen sometimes with the agencies when you deal with a noncore industry, an emerging industry, where something might get through because the red flags are not going off for the people who work in the agency. And then years later, they realize, well, perhaps that was a mistake.

I mean, the one that stands out to me in a different industry was, frankly, when Facebook had engaged in its earlier acquisition of what was Instagram. It wasn’t challenged initially. And then years later, it was, oh, maybe if we fully understood this marketplace, we would have been concerned.

Even though Topps only had a single exclusive contract that was expiring, I do think the value of the Topps brand name was strong. And allowing that to end up in the hands of Fanatics without a serious look at what company would be most likely to be able to compete with Fanatics down the line was problematic. Perhaps even there, there was an opportunity to look at breaking up certain contracts that Fanatics that exclusively. And if that was investigated by one of the agencies, there was no second request. So that wasn’t made public. So that’s one of my two points.

My other point is why we don’t see the video game competition anymore? And I think the same thing that gave rise to the American Needle case is very much what gave rise here. And a lot of this goes back to the early 2000. And it goes back to a very well-known management consulting company known as McKinsey & Company. In the early 2000s, the National Football League hired McKinsey. And typically, one of the things that McKinsey does as a management consulting company is tries to help entities or companies maximize revenue. And one of the questions that the NFL was looking at was, how do we maximize the revenues that we can get from licenses?

And up until that point in time, the sports leagues were primarily giving non-exclusive licenses in various categories. My understanding is coming out of this consulting engagement, there was a shift first at the NFL, but almost immediately amongst all the sports leagues. That the league owners had realized that the price that they could get by selling an exclusive license to their markets in categories was greater than the sum of the parts that they could get from selling or licensing various non-exclusive licenses. Meaning that, by being able to hand a monopoly in a given category, presuming it’s legal to do so, to a single company, that company would then be able to have the lack of competition within that marketplace, will pay the value of what all of the non-exclusive licenses would have paid, plus some.

So that was really a period of time across many categories where we saw sports leagues moving away from the non-exclusive license, even the non-exclusive license of collective rights amongst all the teams together and movement to the exclusive license. So, whether it be American Needle that we looked at ten years ago or the theoretical baseball card cases we’re looking at 14 years later, it’s been probably a few generations, really going back to the 1950s, that you’ve seen teams and leagues aggregating their intellectual property at the league level.

The reason why we’re seeing so much pushback of this aggregation today is it was the transfer of aggregating rights at the league level and then giving non‑exclusive licenses. And then, post‑McKinsey and the NFL, we’ve seen leagues aggregating at the league level and then giving exclusive licenses. And that seems to be more profitable for the teams. But also, more concerning for the consumer, from an antitrust perspective, or from a competition perspective on the back end.

TEDDY DOWNEY:  It doesn’t actually make sense to me. Because I can’t imagine ‑‑ I mean, maybe they do make more money. But when there was that competition, so many more games were being sold and the games were way better. So that has like brand implications, I would imagine. But it doesn’t really make sense intellectually that they would make more money that way. I assume it’s possible. And I’m not surprised at all that McKinsey is behind some kind of anti-competitive pressure on these entities.

NATHANIEL GROW:  I think it comes down to like it’s the level that you’re looking at it from. So, like the American Needle case that Marc was talking about, when Reebok had that exclusive license, Reebok paid more than whatever – let’s say that the NFL previously had ten different hat manufacturers. Reebok, for the exclusive rights, paid more to the NFL for the exclusive rights than the ten collective hat manufacturers had previously done. Because from an economic standpoint, they had to anticipate when it’s a non-exclusive license, the margins are smaller and all that. We’ve got to whittle the license price down where it’s from. So, if you’re looking at it from the NFL’s perspective, they get that check in terms of what are we making for the license rights? And firms in the marketplace, at least in some instances, are prioritizing the monopoly rights and the exclusive rights, in effect, at a greater dollar value.

TEDDY DOWNEY:  Do they not get royalties or anything on the sales? They just negotiated these licenses and didn’t have any kind of sales driven revenues also?

NATHANIEL GROW:  I think it depends on the product market, as I understand it, maybe a little bit. And I think that there’s also a difference — to kind of getting your point, and I didn’t mean that as a criticism of what you were saying. Because I think the video game market almost is different than the hat market. I mean, I guess some people are going to be picky about the style of hat and everything. But the video game market is (a)  probably more susceptible to innovation at some level than the hat market is. It’s still an emerging technology and all that. And that is one that might generate more future fandom than necessarily the hat, which is kind of reflective more of people who are already fans. I’ll shut up in a second. Two other quick things, just to add onto what John and Marc have already said.

One other fact, I don’t think we’ve talked about it here, and I don’t know if it totally makes or breaks it from an antitrust perspective. But I think it’s interesting to note that part of the Fanatics phenomenon too is that the leagues and the players unions have invested in Fanatics like they’ve identified this as a business model that’s upending and kind of revolutionizing, modernizing, depending on your perspective, the sports licensing industry. And they’ve said we are going to invest in this company. And so, at some level, there is some level of self-dealing here, which you might not have seen in prior years. So that might be driving some of the decision making in this area.

And then the last thing I’ll say, just kind of not to disagree with Marc, but I do think that, just speaking personally, I think that the competition is you have to view it differently depending on what market we’re talking about. We kind of talked about video games might be a little bit different than hats. And I think one thing that if you talked to at least some collectors, back in the late 90s, early 2000s, when literally it seemed like there was a new baseball card set coming out every week, is it did get overwhelming at some point. In this industry, like a collectibles market, there’s at least an argument to be made that you can’t have too much competition.

And so, I’m not saying Marc said it was totally unreasonable. But I do think from just like a maximizing the brand perspective, that there was some reasoning beyond just monopoly rights, power and profit, for the leagues to say maybe we need to scale back in the card realm. A lot of the fascination is I want such and such player’s rookie card. And if there’s 20 different rookie cards, that has less weight, less importance, than it does if there’s only one or two options out there. And so, we kind of ‑‑ not coined the term. We borrowed the term. You know, arguably maybe this is more my perspective on my coauthors at some level. But I think it’s almost a natural oligopoly that you don’t want to have one company running everything. But if you have 20 different card companies out there, that might be a little bit too much too. And so, there’s some kind of balance there that I think you might need to look at it individually for, again, hats, video games, cards, being different levels of competitive consideration.

TEDDY DOWNEY:  If we go back and look at the remedy that was proposed by that district court on Topps, they didn’t say, hey, you need ‑‑ they didn’t create a market really. They just said you need to license to one other person. And then the league said, all right, we’ll license to two other people. They got three companies involved. But that ostensibly led to a pretty good market structure. You had good competition. Now, you could say, well, they over supplied. But the answer is clearly not one, right? Like to your point. The court said, well, it can’t be one. It has to at least be two. And I think it’s kind of interesting that that was the solution, that even though it got overturned. And maybe it’s worth getting into. Do you remember why the Third Circuit disagreed? What did that decision ultimately get overturned on? Or is it kind of lost to history because it didn’t end up mattering?

NATHANIEL GROW:  No. So, it’s a good question. I might have spoken too loosely when I set it up the first time. So technically, as I recall, the District Court decision was a Section 1 case if I remember. So, the argument was it was collusion, illegal collusion, and maybe it was a Section 2 of an attempt to monopolize. But basically, the argument was that the MLBPA, the players union, by granting Topps the exclusive rights, that that was an anti‑competitive agreement with an intent to monopolize. And the trial court said, yes, that’s right. You need to license to more than one card manufacturer. The appellate court reversed on the grounds that all that Topps and the MLBPA had done was enter into an exclusive license agreement. That in and of itself was not violative of the Sherman Act. And therefore, there’s no conspiracy or collusion beyond just an arm’s length business contract. And so, if I’m getting it right, they overturned it on those grounds. If that makes sense.

TEDDY DOWNEY:  Yes, it wasn’t a smoke-filled room. And so, therefore it’s not an antitrust violation.

NATHANIEL GROW:  Exactly. And there was some debate about that, to be fair, because the MLBPA viewed itself as benefiting from having one company hold those monopoly rights, kind of like for the reasons we talked about a minute ago. Although, I think in time, they realized, to your point, more competition actually was more profitable for them after they got a taste of it.

MARC EDELMAN:  And there was some interesting questions there as well, which I believe remain open as a matter of law, about what players in a union may do collectively. We know there’s an exemption from federal antitrust law called the non-statutory labor exemption. And we know that exemption allows for ‑‑ well, the statutory labor exemption allows for the union to avoid antitrust law when acting in the function of a union. And the non-statutory labor exemption allows for the sports teams and the league and the players union to come together and collectively bargain over hours, wages and working conditions. Once again, overriding antitrust.

Now the interesting question ‑‑ which there are a few cases kind of on the lower level that address, but nothing that seems to be on point, and definitely nothing at the Supreme Court level ‑‑ is what we see happening in sports. And really in no other industry, maybe on the fringes of entertainment, but primarily on sports, is the players union is serving this dual function, which is in addition to serving in the labor function of negotiating hours, wages and working conditions, the union is doubling as this property arm that is collecting the rights to what I guess is now being called the NIL, what we used to call the rights of publicity of individual athletes and collectively selling them.

And one of the things that one of these days perhaps the Supreme Court will look at, at a minimum we’ll see more federal appellate courts looking at, is when individual players come together and join their interests. Not for labor negotiation with an employer, but rather for purposes of joint licensing. Is that type of agreement at least subject to antitrust scrutiny, where the collection of players together have market power? And again, my view is, outside of a few one-off cases, this is an issue that hasn’t been sufficiently addressed by the courts.

TEDDY DOWNEY:  It seems like the labor exemption would make it a lot harder for DOJ or FTC to sue the Players Association than it would the leagues. I mean, just the leagues don’t have that to hide behind or at least protect them. But you’re also seeing — and I think we follow this pretty closely. Commissioner Bedoya at the FTC has gone to great lengths to sort of map out the history behind the labor exemption and the right of workers to sort of collectively sort of negotiate.

But one of the things that is happening right now, and I think you saw this at the NFL draft the other day, which is the NIL rights of the players at the college level are they’re not necessarily agreeing right away to those collective agreements. So, I think one of the NFL players, or a handful, have already not agreed to license their likeness to one of the video game companies or something. And that brings me to a question which is you see this development of the law at the NCAA level, the college level. Does that have any impact on is it just make it like more, okay, you do have to go get these people individually. Make that more likely. I mean, we’re sort of starting to see that. Or are there any other implications from any of those cases that the Supreme Court, otherwise, as we’re seeing the college level response?

JOHN HOLDEN:  We’ve certainly seen historically players opt out of these licensing agreements. Barry Bonds was perhaps the most famous example in baseball. And if you are of a certain age and you remember MVP baseball, I think it was 04, 05, Barry Bonds was represented by a generic character with statistics very much like Barry Bonds, but was not Barry Bonds.

And so, there’s been a history of players of a certain stature, with perhaps above average marketability, who do opt out of those leaguewide agreements. In terms of your question of whether I think this is more likely going forward now that college athletes are able to monetize some of those rights, I’m not sure. I’m not sure that we see more than a handful of college athletes reaching such a level that that would be sufficient value to them. It’s something to watch as we sort of get more data on the college publicity rights moving forward. I think right now it’s still something really new, and it’s probably a little premature to extrapolate too far out what that will mean.

MARC EDELMAN:  Of a union, at the college level, has precluded the level of organization, for better and worse, to engage in the joint licensing, which is a big part of why we don’t see it there. While I spoke about the possibility of joint licensing at the player level violating Section 1 of the Sherman Act in certain circumstances, and not necessarily falling within the non-statutory labor exemption, there is nevertheless a very real defense of that behavior when the members of a union or the players come together for group licensing. And even that same argument can be made when the teams come together for certain types of group licensing, at least outside of the exclusive conduct. And that would be the argument of an economy of scale.

And we haven’t spoken about that before. This might get into some of a few of Nathaniel’s earlier papers. But the argument is, if, for example, if sports want to make a college sports video game, and they wanted to use the likenesses of all of the college football players. Now, that would mean, absent some form of collective negotiation, the video game maker would need to get thousands of signatures. That would take time. That would take money. That would take cost. You’ll probably have some holdouts for players seeking more. You’ll probably have some people that just simply don’t respond. So, leaving aside the question of whether there’s an antitrust exemption for group licensing, group licensing creates certain forms of efficiency.

Now, on the pro-level, and I love John’s example with Barry Bonds who was put in there as John Dowd in that video game. But being a little bit older than John, the one that stands out to me, was right around 1990. When the NFL players decertified their union, leading up to the Freeman McNeil vs NFL case where they thought would be more favorable to them to exercise antitrust rights instead of labor rights.

And during the first period of time in which the NFL players decertified their union, they also, for a period of time, seem to have voluntarily walked away from group licensing on behalf of the players. And some of the quarterbacks in the league created their own group licensing arm, the Quarterbacks Club. And in that case, there was this famous football game from the late 80s, Techno Ball. And for those of us that are old enough to remember Techno Ball, you wouldn’t find Bernie Kosar in there. You would find QB Browns. Or you wouldn’t find one of my personal favorites. You wouldn’t find Randall Cunningham. You would find QB Eagles. And the reason why many of the star quarterbacks had opted out was, absent group licensing, these players actually became the title sponsors of competitive games. So, it’s actually Bernie Kosar football. There was a Randall Cunningham football. So that period of time might perhaps shed some light with respect to your broader question.

TEDDY DOWNEY:  We got a couple questions from the audience. I want to get to this. I know we’re running out of time, but here’s a question. What is the financial impact of Fanatics’ consolidation efforts on consumers who are not avid collectors, but just passive buyers of cards? I don’t know if you’ve thought about that, but was there a worse impact from the consolidation on avid collectors or passive buyers? Have you guys thought about that at all?

NATHANIEL GROW:  So, I think it’s a good question. So, I guess one thing we should probably clarify too is like these contracts are all staggered. So, am I right that Panini is still making football and basketball this year? And so, I think the first time you’ve really seen Fanatics was maybe last year, but this year would be with Topps in baseball, would be the first Fanatics issued set. So, some of these effects are still down the road. So, it’s still a little bit speculative.

I’ll admit I don’t buy like 2024 baseball cards. So, I don’t know exactly if there’s been a significant uptick in price necessarily. I do know that there’s been some concerns. I saw a story yesterday. So, there’s a variety of different potential concerns. And one is that Fanatics, kind of to John’s point, in order to help drive interest and profitability of some of these tangential ancillary, like the PWCC, the marketplace stuff, are they driving the most valuable cards? Or are they basically salting packs so that the best cards are going to their preferred buyers or their preferred partners?

So, there’s kind of considerations and concerns like that. They had an auditing firm do an audit that showed that, according to Fanatics, everything was random and that they weren’t specifically sending the best cards to certain buyers. But you might also see issues like that emerge, kind of given the vertical nature of it. Does that make sense?

TEDDY DOWNEY:  And then two other questions here. One is, does McKinsey have any liability potentially for coming up with this scheme to monopolize these various markets?

MARC EDELMAN:  First, since I was the one referencing McKinsey, to be clear, I have not seen McKinsey’s study. I cannot see McKinsey having any form of antitrust liability whatsoever. It simply was a presentation or a recommendation. I certainly would hope that any consulting firm would recognize that things need to be vetted through legal. And every single one of our professional sports leagues out there has a very large team of attorneys, including attorneys with expertise in antitrust and expertise in trademark and other forms of intellectual property.

I began my career not with McKinsey. I began my career with New England Consulting before I went to law school. Consulting firms make recommendations on how to grow revenue. At the end of the day, I think the burden lies with the company ‑‑ and here the company being the teams of the leagues ‑‑ to vet proposals that are made to them, and to have their own attorneys assess whether any proposals that may build revenue would have legal risk in any form.

TEDDY DOWNEY:  And then last question here. Sorry to go over. You mentioned conflicts of interest before. Does that have any implication from a legal standpoint that there’s self-dealing, these conflicts of interest? Does that make an antitrust case easier? Does it make it more complicated? It seems like a novel kind of fact in facilitating a rollout, which is kind of what Fanatics is.

NATHANIEL GROW:  Yeah, I brought it up. So, I’ll say I think it’s a good question. I’ll defer to John and Marc. I mean, I could see it. Yeah, I think it gets messier, right? I think it helps explain maybe that this was not just a decision based simply on the bids for who’s going to be the best producer of baseball cards for us, right? There are other factors at play there. Yeah, I don’t know. What do you think, Marc? Do you think that makes it a harder case or an easier case?

MARC EDELMAN:  It’s not just a question now. If you are talking about one company ‑‑ and I don’t look at a sports league as being one company. I look at it as being a collection of 30 or 32 separate teams. If it were one company, they’d be able to vertically integrate without there being much legal challenge. I mean, the whole world of vertical antitrust has been shrunk pretty much to a peanut of the law over the past 50 years. Because of the fact that you still have coming together of various parties because the teams are technically distinct entities, or at least that’s what the U.S. Supreme Court said, and coupled with the fact that they’re not vertically integrating, but they’re coming together to bring in a party, I certainly don’t think the interest helps them. But I’m not sure it hurts them.

NATHANIEL GROW: I mean, I guess one last thought too on that is ‑‑ it’s all interesting. But part of what’s interesting about that dynamic is MLB, Major League Baseball, the owners have invested in Fanatics. But the union, the Major League Baseball Players Association, has invested in Fanatics too. So, go back five years ago. Topps was the exclusive licensee of Major League Baseball. But the MLBPA, the player side, they would license the players’ rights to a second card company as well.

So, kind of to Marc’s point earlier, you wouldn’t have the Yankees iconic logo on the front of the card, and you couldn’t even show them in like the real jersey. You’d have to be airbrushed or something. But you did at least have some level of competition maybe then. But now, the MLBPA, it’s in their best financial interest to give Fanatics a monopoly. And you’ve got MLB. Now those rights are kind of intersecting.

So, I mean, I don’t know if it’s like that alone gets you a Section 1 or Section 2 violation. But atmospherically, I would ‑‑ I’m not a DOJ or FTC litigator. I don’t know. But my guess would be that the atmospherics you could probably work in your favor on that if you’re coming at it from the prosecution side.

TEDDY DOWNEY:  I wonder if it also kind of compromises these associations. Because, to the point earlier, if you’re just representing the workers, you’ve got this exemption. But like if you own a stake, I mean, that you’re doing something different. You’re not just representing. I mean, you have some kind of ownership. I mean, it changes the dynamic a little bit potentially from a legal standpoint. But Marc, Nathaniel, Jonathan, thank you so much. This is a super interesting paper. I hope our audience gets a chance to read it and dig into it. I think it’s a big deal. I think this is a really interesting area of law with billions of dollars of implications. All the stories were great. Thank you so much for doing this.

MARC, NATHANIEL, AND JOHN:  Thanks for having us.

TEDDY DOWNEY:  All right. And thanks to everyone for joining us this afternoon. This concludes the call. Bye‑bye.