Is the NRL salary cap an “illegal cartel”?

I can only assume that op-ed pundit/pop historian Peter FitzSimons must have been wrapping his trademark red vanity hijab too tightly around his head and cutting off the blood supply to the brain.  It is the only plausible explanation for this idiotic piece:

At the very same time the NRL announces that it has completed its mega-rich broadcasting deal worth more than $1.8 billion – meaning it has more money than ever before – it sends a please-explain to South Sydney, saying if you bastards pay Sam Burgess what you say you’re going to pay him, you will breach the salary cap rules. Imagine this in any other industry. Imagine a TV network, a steel production company, a radio station, a manufacturer, a film production company announcing a deal that demonstrates its mega-wealth, and at EXACTLY the same time, moving to limit the salary of its biggest star and surest provider of that wealth. It simply would not happen. But it does in rugby league, without the barest squeak out of the Players Association.

By what logic could FitzSimons conclude that the fact the National Rugby League just did a reasonably good 7 year deal on broadcast rights (although still nowhere near as good as the AFL’s 6 year deal) requires it instantly to abandon its salary cap rules and allow open slather to just a single team in South Sydney?

Why assist Sam Burgess to make $1.5 million a season out of rugby league shortly after he trousered a similar amount from Bath and the England Rugby Union before letting down his teammates by walking out on a lucrative deal within its first twelve months?

Why advocate that the Rabbitohs’ owners, wealthy Kiwi actor Russell Crowe and Australia’s richest man James Packer, should be allowed to flout the salary cap rules and buy whatever players they like for whatever price they want?

What FitzSimons chooses not to acknowledge is that NRL salary cap rules (like the AFL cap and draft) are designed to engineer a relatively even and exciting competition that will attract large numbers of fans and big broadcast rights dollars.  It is a system which ultimately benefits both club owners and players.  Does FitzSimons seriously think that the Nine Network, Foxtel and Telstra would be paying $1.8 billion for the right to broadcast games dominated by just a couple of wealthy clubs, where most games would be predictable whitewashes?  Not all NRL clubs are owned by tycoons with long pockets like James Packer and Rupert Murdoch.  Most clubs are still owned and controlled by their members/local fans and would have no chance of competing for the best talent with the tycoons if player payments were open slather.  As  JCU sports law academic Chris Davies observed in a 2006 journal article:

This objective of obtaining an even competition is based on the peculiar economics of the sports industry, which is why professional team sports have a tendency to be highly regulated and cooperative organisations with rules and restrictive product and labour market controls that both the clubs and the players have to obey. This is because the attractiveness of competition, it is argued, depends on a high degree of uncertainty about the result of any competition, and so the measures are seen as reducing the chances of a few teams dominating the competition through their economic power.

Perhaps the most remarkable aspect of FitzSimons’ article is this fearless legal proposition:

For the last time, let us call the salary cap what it is: an illegal cartel between employers to limit the earning capacity of its employees.

The Happy Ex-Hooker, who to the best of my knowledge has no legal qualifications, seems to think this is an unarguably correct proposition. But is that actually true?

Is the salary cap system an “illegal cartel”?

Following are some selected extracts from Davies’ 2006 article titled ‘The Use of Salary Caps in Professional Team Sports and the Restraint of Trade Doctrine’  in the Journal of Contract Law.

The test for a restraint of trade was developed by Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company (Nordenfelt) where his Lordship stated that:

It is a sufficient justification, and indeed it is the only justification, if the restraint is reasonable — reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.

Thus, the restraint must afford no more than adequate protection to the party in whose favour it is imposed, while in Adamson v New South Wales Rugby League Ltd (Adamson) it was also held that the restraint is to be tested ‘by reference to what the restraint entitles the parties to do rather than what they intend to do or have actually done’.

Another relevant factor is the concept of protectable interests, for as Carter and Harland point out this concept lies at the heart of the justification of restraint of trade, as a covenantee is entitled to protect certain interests. However, if there are no protectable interests then the covenant in question will be regarded as being unreasonable.  …

The High Court in Buckley v Tutty, although declaring the NSWRL’s retain and transfer system to be an unreasonable restraint of trade, also acknowledged that it was a legitimate objective of the league to ensure that the teams in the competition be as strong and as well matched as possible. Henry J in Kemp v New Zealand Rugby Football League Inc meanwhile accepted that the league had a legitimate and relevant interest in maintaining the strength of the game in New Zealand. …

Salary caps involve restricting player payments, not by limiting the amounts that can be paid to an individual player, but by limiting the overall amount that each club can spend on player payments, with the clubs then being left to decide how much to pay each individual player. Its aims can be summarised by a NSWRL discussion paper on salary caps, namely that:

(1) To ensure individual clubs remain solvent there must be a limit on the payment to the players.
(2) To ensure a successful and financially viable league, there needs to be an even competition to enhance spectator appeal.

A salary cap can come in one of two forms: an even salary where the same limit applies to each club, and an uneven salary cap where a different amount exists for each club, depending on the governing body’s view of the club’s specific financial situation. It is suggested that an uneven salary cap is less likely to represent a reasonable restraint of trade as it is less likely an even competition will be created if some clubs are permitted to spend considerably more on player salaries than other clubs, an opinion also expressed by Buti. …

While salary caps have not yet been the subject of litigation, as Buti suggests, if the salary cap fails to satisfy the Lord Macnaghten test in Nordenfelt, the salary cap would appear to be subject to legal challenge. It is also suggested that what needs to be addressed when looking at the validity of the salary cap and the potential legal problems associated with its use are the following:

(1) whether it is an even or uneven salary cap because, as mentioned, the latter is less likely to be considered a reasonable restraint of trade;
(2) whether it interferes with a player’s choice of employer;
(3) whether it involves players being deliberately underpaid;
(4) the problems enforcing the salary cap;
(5) whether there is empirical evidence to support that salary caps produce sporting equality, and that, in turn, this creates a financially more viable competition. …

Thus, there has been a perceived need to implement a salary cap in a large market like the United States, or introduce one into another large market, like European soccer. It is suggested that the argument that one is needed in a smaller market like Australia, where the revenue that can be generated is considerably smaller, is perhaps even more compelling than it is for larger markets.

Conclusion

Creating and maintaining an even competition constitutes a protectable interest for a sporting league. In Australia the AFL, NRL and the A-League all seek to justify the implementation of a salary cap on the basis that it creates a more even and financially more viable competition. It is suggested that the case examples presented in this paper indicate that the salary caps in these competitions are working well. The amount of money that some players have had to take in pay cuts due to the salary cap has been relatively small. At the same time, while there are examples of players who could not choose the club, that is, the employer, of their choice, these represent a very small minority, given the hundreds of players that are employed each year by the clubs in these competitions.

It should be noted that the NRL salary cap is actually more likely to withstand challenge than when Davies wrote about it in 2006.  The current system does involve an even salary cap, unlike earlier arrangements when some teams were given advantageous caps to encourage club mergers in the wake of the Super League “war”.  And in terms of Davies’ factor 4, the experiences of Melbourne Storm and some other clubs over the last few years clearly demonstrate that the salary cap system is enforceable, something South Sydney will also discover unless it either jettisons a couple more players or reduces the salary it is offering Burgess.

Of course I can’t argue conclusively that the NRL salary cap would not be ruled an unreasonable restraint of trade by a court, because no player has ever challenged it.  The same is true for the AFL’s even more stringent version.  However, if FitzSimons’ analytical capabilities weren’t impaired by that red hijab it might have occurred to him that the most likely reason no player has challenged the salary cap in court is that the legal advisers of any who have been tempted have assessed that it is lawful and they would lose.  In other words, it is almost certainly neither an “illegal cartel” nor an unreasonable restraint of trade.  Instead it has resulted in the even, exciting competition we enjoyed in 2015, which in turn has no doubt contributed mightily to major corporations being willing to pay $1.8 billion to broadcast games.  Ditto for AFL.