Precourt Sports Ventures v. Ohio
By Gabe Lezra
In late October, reports began to leak out of Columbus, Ohio that Anthony Precourt, the erstwhile owner of the Columbus Crew, one of Major League Soccer’s charter franchises, intended to to uproot the team and relocate it to Austin, Texas. This news came as a devastating blow to the Crew’s loyal fanbase. Not only were they losing their team, an entity to which they’d been hopelessly devoted since its inception, but for many Crew fans, this was the second time in their lives they’d endured such heartbreak. In 1995, Cleveland Browns owner Art Modell announced the relocation of Cleveland’s NFL franchise to Baltimore, sparking a controversy that broke the hearts of Ohio sports fans and made Modell’s name a curse. In Precourt, Crew fans see the Second Coming of Modell.
But perhaps this time might be different. After the Browns became the Baltimore Ravens (and, to make matters worse, won a Super Bowl only a few years later, throwing salt into still-gaping wounds) the state of Ohio passed what I have affectionately termed the “Modell Act”. Ohio Rev. Code § 9.67 prohibits an “owner of a professional sports team” that obtains tax benefits from the state or political subdivision from relocating a professional team without giving the political subdivision six months to find another purchaser. Here’s the rule, in all its glory:
9.67 Restrictions on owner of professional sports team that uses a tax-supported facility.
No owner of a professional sports team that uses a tax-supported facility for most of its home games and receives financial assistance from the state or a political subdivision thereof shall cease playing most of its home games at the facility and begin playing most of its home games elsewhere unless the owner either:
(A) Enters into an agreement with the political subdivision permitting the team to play most of its home games elsewhere;
(B) Gives the political subdivision in which the facility is located not less than six months' advance notice of the owner's intention to cease playing most of its home games at the facility and, during the six months after such notice, gives the political subdivision or any individual or group of individuals who reside in the area the opportunity to purchase the team.
The law, then, is pretty clear as to what Precourt would need to do to relocate the Crew—assuming, for the time being, that the Crew’s lease of state land at a below-market rate for its parking lots (from which it profits), the money the state has spent to improve the Crew’s facilities, and the tax-exemption bestowed on Mapfre Stadium constitute “use of a tax supported facility” and “financial assistance”.
However, there is a second, less-discussed area of the law where Ohio might run into problems should they attempt to enforce the Modell Act against Precourt and his venture capitalist ghouls: the so-called Dormant Commerce Clause. The Dormant Commerce Clause is a doctrine of American Constitutional law that prohibits states and municipalities from enacting laws that confer beneficial treatment upon in-state economic activities and a burden on out-of-state economic activities. The doctrine has its roots in Article 1, Section 8, Clause 3 of the Constitution, which bestows upon the federal government the right to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”
The commerce clause, then, has been interpreted to empower the federal government (and only the federal government) to place regulations and limitations on commerce (trade and other economic activity) that goes on between the states (you have probably heard people discuss “interstate commerce”). The understanding of a “dormant” commerce clause flows from this limitation.
For example, in a famous dormant commerce clause case, the city of Madison, Wisconsin was prohibited from enforcing a city ordinance that would have prevented the sale of milk in Madison that was bottled more than five miles from the city’s center. See Dean Milk Co. v. City of Madison, WI 340 U.S. 349 (1951). The test for determining whether a law discriminates against out- of- state commerce comes from the seminal case of Baldwin v. G. A. F. Seelig 294 U.S. 511 (1935), in which the Supreme Court invalidated a New York law prohibiting the sale in the state of New York of milk bought outside of New York, similar to the circumstances in Dean Milk Co., discussed above. Writing for the majority, Justice Cardozo reasoned that when a state “tries to isolate itself economically” it must demonstrate an important interest for doing so, and that it had no less discriminatory means for available to accomplish its goal. We call this the Baldwin test.
The Modell Act has yet to be litigated, making this a matter of first impression for which no real precedent is available. If the court finds that the Modell Act is facially discriminatory, it will almost certainly be invalidated. At first glance, the Modell Act does not appear to be as facially discriminatory as the ordinances in the milk-related cases that gave birth to the doctrine—but that alone would not save the law under the commerce clause.
I think there is a relatively strong argument, however, that the law is not discriminatory, but rather, advances the legitimate local objective of protecting the government’s investment in the sports franchise, made over several years. Going further, perhaps one could even argue that the law is not discriminatory per se, but rather that it imposes a burden on commercial activity only inasmuch as the merchant avails itself of the public purse in carrying on such activity. But it may not even be necessary to reach that second level determination.
Under the commerce clause, the Court has generally adopted a much more flexible approach when a law is “directed to legitimate local concerns, with effects upon interstate commerce that are only incidental.” See Pike v. Bruce Church Inc., 397 U.S. 137 (1970). In such cases, the Court will apply a balancing test: if the law only has “incidental” effects on interstate commerce, then the law will be upheld, unless “the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” See Pike, supra. As such, the Court will essentially question whether a rational basis exists for the law—a very permissive standard. See Bibb v. Navajo Freight Lines Inc., 359 U.S. 520 (1959).
It’s unclear at this juncture whether the Modell Act would be upheld under the dormant commerce clause. On one hand, the impact on interstate commerce is very minimal if the court interprets the word “opportunity” as simply giving the locality the right to place bids. However, if we see “opportunity” as requiring PSV to accept a fair offer for the team, then the impact on interstate commerce is arguably much higher. The entire suit could hinge on the interpretation of that word.
However, it’s possible that the Court could find another way out: because the Modell Act would give the subdivision itself the “opportunity” to purchase the team it is possible that the law could survive for the same reason as the law at issue in the recent case of United Haulers Assoc. v. Oneida-Herkimer Solid Waste Management Authority, 550 U.S. 330 (2007). In United Haulers, Justice Roberts wrote for the majority that the state law requiring trash haulers in a region to deliver their waste to a county-owned waste treatment facility was not discriminatory because it did not favor a private in-state trash facility, but rather a government-owned facility. Of course, the parallels are not perfect - the Modell Act also allows an “individual or group of individuals who reside in the area” the opportunity to purchase the team within the six month window, which would ostensibly favor a regional private interest.
Finally, Ohio could argue that it is simply acting as a “market participant”—an exception to the general commerce clause prohibitions. For example, in Reeves v Stake, 447 U.S. 429 (1980), the Court concluded that South Dakota’s preference for selling cement from its state-owned Dacotah Cement plant to customers in South Dakota was not a violation of the commerce clause, because South Dakota was acting as a market participant, rather than as a regulator of commerce. Following this precedent, Ohio could argue that its financial support to the Crew constitutes a quasi-ownership interest in the entity itself, and that this minor burden on relocating the entity should be sustained because Ohio has a right to act as a participant in the market for sports teams. It’s not a particularly strong argument, but it is at least worth mentioning.
As it stands today, no one knows how this suit would turn out – this would be the first time the Modell Act is subjected to judicial scrutiny. However, we all might be about to find out: on December 7th, Ohio Attorney General Mike DeWine released a statement declaring his intent to take legal action against the Crew should PSV declare an intent to relocate.
Stay tuned, folks.
Legal Disclaimer: The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between Ballon d'Order or our authors and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.