Why Packers' owners should sue NFL

Reuters

Seattle Seahawks wide receiver Golden Tate (bottom, obscured) catches the 14-12, game-winning touchdown in the endzone while he is swarmed by Green Bay Packers' Jarrett Bush (24) and Tramon Williams (38) during the final eight seconds of the fourth quarter of their Monday night NFL football game at Centurylink Field in Seattle, Washington, September 24, 2012.

Article Highlights

  • The shareholders of the Green Bay Packers should take the NFL to court.

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  • The NFL marred the 2012 season by hiring a horrendously incompetent group of replacement referees.

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  • The gross incompetence of the replacement refs is indicative of a more insidious problem – the NFL’s gross negligence.

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  • Shareholders should protect their corporations, even if their corporations don’t share their profits.

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  • A lawsuit, whatever the outcome, would be good for the NFL, the players and fans.

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The shareholders of the Green Bay Packers should take the NFL to court.

The Packers were organized as a nonprofit corporation in 1919, and currently, the organization has nearly 375,000 shareholders. While shares of Packers’ stock pay no dividend, owners are allowed to vote each year on various aspects of the organization’s operation, and they are empowered by certain rights and responsibilities.

The NFL marred the 2012 season by hiring a horrendously incompetent bunch of replacement referees. Throughout the first three weeks of play, blown calls were routine, and repeated stories of bias, incompetence, and under-qualification were the norm. One replacement official, for instance, was fired for incompetence from the satirically bad Lingerie Football League.

In Week 3 of the NFL regular season, the Packers lost to the Seahawks in Seattle on a bad call that the NFL still refused to admit was incorrect. Initially, the refs ruled Green Bay had lost on a last-second touchdown by Seattle receiver Golden Tate. The field captain for the Gang that Couldn’t Shoot Straight – replacement referee Wayne Elliot – upheld side judge Lance Easley’s errant call after video review. The call cost the Packers the game and, when they finished 11-5, a first-round playoff bye and a divisional home game.

The Green Bay call – which was twice ruled incorrectly by under-qualified referees - was the straw that broke the camel’s back, and the real NFL refs were back at work three days later.

The gross incompetence of the replacement refs is indicative of a more insidious problem – the gross negligence of the NFL. As courts have repeatedly held, sports leagues are responsible both to provide a fair playing field for its competitors in accordance with its rules and to provide a safe occupational environment for its employees. By using replacement refs, the NFL did neither. It put player safety at risk and biased games in meaningful ways. Derivative damage from the first three weeks of the season includes hundreds of millions of dollars in betting losses, injured players, and endorsement drops.

But Green Bay Packers’ shareholders have the biggest cause for complaint.

Shareholders should protect their corporations, even if their corporations don’t share their profits. By losing to Seattle because of the NFL’s negligence, the Packers unfairly lost standing in their quest for a Super Bowl. The loss of revenue for organization is difficult to calculate with precision, but it is surely immense. The Packers have lost all of the revenue associated with hosting a second playoff game. While the NFL shares most revenue amongst its franchises, so-called local revenues flow back to the local franchises. Based on legal filings from Green Bay’s last expansion, the team stands to lose about $2.2 million in parking and concessions, and millions more in gate revenue, merchandising, and other proceeds.

This foregone cash stream is more important when framed in light of the Packers’ investment portfolio. Like most NFL teams, the Packers invest most immediate earnings and then liquidate holdings to cover non-salary operating expenses. These investments pay dividends, and by reducing the initial earnings of Green Bay’s investment, less will be earned long-term.

Shareholders should sue to recoup these losses, and they should sue as a by-product of their social responsibility. Under Section 5 of the Federal Trade Commission Act, the FTC obliges commercial entities to do their best to deal fairly with consumers. In the case of the replacement referees, the NFL presented incapable employees as competent and professional, willfully duping the public into thinking the quality of the game would not be impaired. In so doing, they made liars of themselves and, by extension, their franchise owners. This criminal negligence on the part of the league has created liability for the franchises, and while Packers’ shareholders are shielded from direct losses, they should take steps to indemnify their organization.

Packers’ shareholders also must adhere to both the duty of care and the duty of loyalty. In a basic legal sense, shareholders are obligated to make sure the reputation of an organization is protected to a reasonable extent. For an NFL team, losing out on a first-round bye and home-field advantage for a playoff game both constitute diminished prestige, and for shareholders to ignore the negligence displayed by the NFL in the Week 3 game would be to ignore a basic shareholder duty.

Not all bad calls are cause for lawsuits and retribution. The NFL needs only to demonstrate that it has made a reasonable effort to conduct itself in accordance with its own rules, and it will shield itself from legal reprisal. The NFL is an IRS 501(c)6 organization that is legally and philosophically responsible to serve the general public. But in the case of the replacement refs, the NFL acted irresponsibly because its greed compelled it to wage an unnecessary war against the NFL Referees Association over a pittance.

The league has become exceptionally good at protecting its image and glossing over trouble in part because most of its constituents are powerless. Thanks to U.S. law, Green Bay’s shareholders have legal resources available to them that can humble the league and force it back toward doing what it should have been doing all along – serving its fans and players. A lawsuit, whatever the outcome, would be good for the league, the players and fans.

Daniel Hanson is an economics researcher at the American Enterprise Institute.

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