Undeniably Anticompetitive

It's Friday, April twenty fourth, and welcome to HigherIQ. Last night was the first round of the NFL Draft, the annual event where thirty two teams take turns selecting college football players. It's a spectacle. Millions of people watch. Families cry on camera. Commissioners get booed. Cities bid hundreds of millions to host it. But underneath the pageantry is a labor market mechanism that a federal judge once called "undeniably anticompetitive in both its purpose and in its effect." If any other industry operated this way, if tech companies held a draft where Google got to pick which engineers would work for them and the engineer had no choice, it would be an antitrust violation. In the NFL, it's tradition. The draft is ninety years old. The story of how it got here, why it's technically illegal, and why it survives anyway tells you something about sports, labor, and the strange rules Americans accept when entertainment is involved. The draft was invented because the Philadelphia Eagles were broke. In the early 1930s, the NFL had no mechanism to distribute talent evenly across teams. Wealthy franchises in big cities could sign the best college players by outbidding everyone else. The New York Giants and Chicago Bears dominated. Smaller teams like the Eagles couldn't compete for talent, couldn't win games, couldn't sell tickets, and were losing money. Bert Bell, co-owner of the Eagles, proposed a solution at a league meeting in 1935: let teams select players in reverse order of the previous season's standings. The worst team picks first. The best team picks last. Owners voted unanimously to adopt it. The first draft was held on February 8, 1936, at the Ritz-Carlton Hotel in Philadelphia. Ninety names were written on a blackboard. There were no scouting departments, no agents, no media coverage. The first player ever selected was Jay Berwanger, a Heisman Trophy winner from the University of Chicago. Bell couldn't afford to sign him. He traded Berwanger's rights to the Bears, and George Halas, the Bears' owner, couldn't sign him either. Berwanger never played a single down in the NFL. Only twenty four of the eighty one players selected in that first draft chose to play professionally. The draft was, from the beginning, less glamorous than it appeared. The system had a clear logic: if every team gets access to top talent, every team has a chance to improve, which keeps every fan base engaged, which keeps every stadium selling tickets. The NFL's competitive balance argument has been its shield for nine decades. And it works, to a point. The NFL has significantly more year-to-year parity than European soccer leagues, where the same handful of wealthy clubs win championships decade after decade. The salary cap, free agency, and revenue sharing all contribute to this, but the draft is the foundational mechanism. The problem is that the draft achieves parity by restricting the rights of the workers. In 1976, a federal appeals court ruled on the legality of the NFL draft in the case of James "Yazoo" Smith, a former player who challenged the system. Judge Malcolm Wilkey's opinion was blunt: the draft is "undeniably anticompetitive in both its purpose and in its effect" and "inescapably forces each seller of football services to deal with one, and only one buyer, robbing the seller, as in any monopsonistic market, of any real bargaining power." In plain English: the draft is a cartel arrangement where thirty two employers agree not to compete for the same workers. Under the Sherman Antitrust Act of 1890, that kind of collusion is illegal. If thirty two law firms agreed that each would draft specific law school graduates and no graduate could negotiate with any other firm, the Department of Justice would intervene within hours. If thirty two hospitals agreed to allocate medical residents through a draft where the resident had no say in which city they'd live in or which institution they'd work for, it would be challenged in court immediately. The NFL does exactly this, and it's legal, because of a single loophole. The loophole is called the non-statutory labor exemption. Supreme Court decisions in the 1960s and 1970s established that anticompetitive practices can be shielded from antitrust law if they're negotiated as part of a collective bargaining agreement between an employer and a union. The NFL Players Association, the union representing NFL players, agreed to the draft as part of its collective bargaining agreement with the league. That agreement immunizes the draft from antitrust challenge, even though the people most affected by it, the incoming rookies, aren't yet members of the union and had no vote on the agreement that governs their careers. Think about that for a moment. The union that supposedly represents these players' interests negotiated an agreement that strips incoming players of their bargaining power. The rookies are bound by a contract they never signed, negotiated by a union they don't yet belong to, in a system that a federal judge already ruled was anticompetitive. The league's lawyers found a way to make it legal. Whether it's fair is a different question. The rookie wage scale, introduced in 2011, added another layer. Before 2011, top draft picks could negotiate enormous contracts. Sam Bradford signed a six-year, seventy eight million dollar deal as the first overall pick in 2010, before playing a single professional snap. That was the last straw for owners. The new CBA imposed predetermined salary slots for every draft position. The number one pick this year will sign a four-year deal worth roughly fifty four million dollars. That's a lot of money by any normal standard. It's also significantly less than what the pick would command in a free market where thirty two teams were bidding against each other for the most talented player available. The wage scale suppresses salaries at the top of the draft by eliminating competition for the player's services. The honest counterargument deserves space, because it's more than just "competitive balance is good." Without the draft, the NFL would likely resemble European soccer, where the richest clubs in the biggest markets sign the best players every year. Manchester City, Real Madrid, and Bayern Munich win most championships. Smaller clubs occasionally compete but rarely sustain it. American fans in Green Bay, Kansas City, and Jacksonville would watch their teams become permanent also-rans, unable to attract top talent to small markets. The draft, combined with the salary cap and revenue sharing, is the reason a team in Green Bay, Wisconsin, population one hundred and seven thousand, can win a Super Bowl. No European soccer league has an equivalent. The draft also protects young players from themselves and from exploitative situations, though this argument has weakened considerably. Before the rookie wage scale, agents and teams engaged in brutal holdouts that sometimes cost players entire seasons. The slotted system eliminated that dysfunction. And the three-year college requirement ensures players get some education and physical maturity before entering a violent professional sport, though critics note that the real beneficiary of this rule is the NCAA, which gets three years of free labor from athletes who generate billions in revenue. NIL, name, image, and likeness compensation for college athletes, has disrupted this entire structure. Since the NCAA began allowing NIL deals in 2021, college athletes can earn significant money before ever entering the draft. Quinn Ewers reportedly had NIL offers worth more than his projected rookie contract, creating a financial incentive to stay in college. Fernando Mendoza, who went first overall to the Raiders last night, already had endorsement deals with Adidas and Hugo Boss before his name was ever called. NFL general managers are noting that rookies are entering the league older, at twenty four or twenty five instead of twenty one, because college has become financially competitive with the pros. The draft's implicit promise, endure years of unpaid labor and we'll reward you with a professional contract, is weakening because the "unpaid" part is no longer true. The NFL generates over twenty billion dollars in annual revenue. The average franchise is worth over six billion. The league's television contracts alone are worth over a hundred billion dollars over their current terms. The players receive roughly forty eight percent of total revenue through the salary cap. Whether the draft is the right mechanism to distribute those earnings, or whether it's an anticompetitive relic that persists because fans enjoy watching it and owners benefit from suppressed labor costs, depends on which side of the blackboard you're standing on. So if this comes up in conversation, here's how to think about it. The NFL Draft was invented in 1936 because the Philadelphia Eagles were too broke to compete for talent. A federal judge ruled it "undeniably anticompetitive" in 1976, but the league found a legal shield through collective bargaining. The players most affected by the draft, the incoming rookies, aren't members of the union that agreed to it. The rookie wage scale caps what top picks can earn at levels well below what a free market would produce. The system creates genuine competitive balance, which is why Green Bay can beat New York, but it does so by restricting the labor rights of the workers who generate the product. NIL is now disrupting the entire structure by making college financially competitive with the pros. Last night, millions of people watched young men hear their names called and cry with their families. It was a genuinely moving spectacle. It's also a labor market that would be illegal in any other American industry. Both of those things are true at the same time. Have a good weekend. Stay informed, stay curious, and we'll see you tomorrow.