What is Michael Jordan’s Lawsuit against NASCAR about?
In 2024, a NASCAR race team owned by basketball great Michael Jordan, along with another race team, and a well-known NASCAR driver sued NASCAR for violating Section 2 of the Sherman Antitrust Act. In their federal lawsuit, Jordan and company accused NASCAR of slamming the brakes on competition by preventing teams from competing in the NASCAR series unless they accepted NASCAR terms, which they label anti-competitive.
What is allegedly anti-competitive about NASCAR?
According to the lawsuit, teams have to agree to these charter agreements to race. No agreement, no participation, no discussion. The plaintiffs sought $364.7M in damages, claiming the agreement shorted teams of over $1B in revenue participation from 2021 through 2024. . Proceedings raced to a start December 1, but the trial came to a screeching halt nine days later when the case settled.
What We Learned About NASCAR
I will be discussing the terms of the settlement a little later in this article. But I think what is most interesting about this lawsuit, is the spotlight it has shined on the amount of control that professional car racing sanctioning bodies, such as NASCAR, can legally exert against the racing teams that want to participate in their racing series. To fully appreciate this, I need to give you a bit of background about the evolution of professional car racing in America..
Professional Racing: Then and Now
American professional racing has gone from a truly competitive activity to one that is oriented more as entertainment, focusing on maximizing the economic return to the sanctioning bodies, such as NASCAR (and IndyCar). In prior times, there was a great deal of freedom in race car design, engineering, choice of engines, etc. That is not the case now.
From Rum Running to Entertainment
NASCAR, evolved from the rum runners who drove souped-up cars during the Prohibition, carrying illicit liquor. Back then, drivers modified the cars so they could outrun police vehicles. Eventually, these back wood escapes from the long arm of the law morphed into organized racing. Originally, the race cars were actual stock cars you could buy from a dealer and modified for performance and safety. They’ve transformed into tube framed, somewhat look alike bodies that are mere replicas of the real cars. Graphics suggest headlights and taillights of the cars they purport to be, but little else. And over time, NASCAR has become far more focused on putting on a good “show” to keep the spectators coming and spending money, than about the quality of the competition.
Safety, yes. Innovation? No
While the provisions for both driver and spectator safety has evolved very substantially in American professional racing, the place for ingenuity and experimentation has been largely throttled. Why? For the sake of drawing spectators and extracting maximum revenue. NASCAR shares income only to a limited extent with its participating teams – just enough to keep them paying their very expensive charter fees to participate.
NASCAR’s Tighter Controls
Over time, NASCAR has exerted increasingly tighter controls on car specifications and team conduct. NASCAR has methodically limited experimentation. It has placed strict controls on cars’ profiles,,, their ground clearances, what engines can be used and how they can be modified. That’s along with all sorts of other measures to ensure the cars are closely competitive. Even now, NASCAR controls what vendors of components a team can use to build their race cars. Until this case, there has never been much of an antitrust challenge made. This case arose because the Plaintiffs believed that NASCAR, had gone too far. But lofty principles of antitrust law were not what this lawsuit was about. It was always about money.
Rev your engines: the Lawsuit
Without getting too deep into the weeds, the Plaintiffs claimed that NASCAR unlawfully acquired and maintained monopoly power over premier stock car racing in violation of section 2 of the Sherman Antitrust Act, through a web of restrictive and exclusivity provisions in their individual charter agreements with NASCAR which had varied durations. This occurred after NASCAR offered the race teams a uniform seven-year charter agreement at a price increase from $5 Million to $8.5 Million, and contained other controlling and onerous provisions. The new charters were offered on a “take it or leave it” basis. Although none of the teams liked them, all but two signed the new charter agreements; the two holdouts being the Plaintiffs.
How was the NASCAR Lawsuit Settled?
NASCAR smartly settled before verdict, avoiding a potential damages award of $364.7 million, which would have been trebled under the Sherman Act, (not counting attorney’s fees). The settlement grants all teams a permanent (or “evergreen”) charter rather than expiring at the end of a set term, grants the teams a greater voice in governance of the series, and a larger percentage of various NASCAR income streams.
Practical Considerations
While the NASCAR suit settlement ended the immediate dispute, it should serve as a reminder for all sports organizations and teams to carefully consider the competitive implications of contractual arrangements and exclusivity provisions.
- Exclusive Agreements Require Careful Antitrust Review: Sports organizations should evaluate whether exclusivity, sourcing and noncompete provisions are narrowly tailored and supported by procompetitive considerations.
- Revenue Allocation Can Raise Competition Concerns: Disparities in revenue sharing, when tied to mandatory participation terms, should attract heightened scrutiny.
- Control Over Market Access as an Antitrust Risk: Conditioning access to an economically dominant platform only upon acceptance of overly restrictive terms may be viewed as reinforcing or creating monopoly power rather than promoting competition.
