Monopoly Money?

Tyler Reddick, driving for NBA legend Michael Jordan’s 23XI Racing team, just went from 3rd to 1st on the last lap to win at Homestead-Miami Speedway. It gave the NASCAR regular-season champion an automatic entry into the NASCAR Championship 4, and a shot at the 2024 season championship.

Amid the celebration, you wouldn’t know that the team is embroiled in an antitrust lawsuit filed against NASCAR this October. The lawsuit was filed by 23XI Racing, owned by Jordan, driver Denny Hamlin and their partner, and Front Row Motorsports, the only NASCAR teams that refused to sign the 2025 Charter Agreements with NASCAR. The allegations are taken from their Complaint.

History of disputes

To understand the lawsuit, you have to understand the history of the relations between NASCAR and its teams. Founded in 1948 by Bill France, and still controlled by the France family, NASCAR has always had a contentious relationship with its team owners. France had a reputation for ruling with an iron fist, and team owners had a tough time making money. Hall-of-famer Jimmie Johnson was famously quoted as saying, “The best thing to be is NASCAR, the second best a driver, and the last thing a team owner.”

Teams had to spend enormous amounts of money to field competitive cars, and then had to qualify to run in the races. Uncertain they would even be in every race, they had difficulty attracting sufficient sponsorship revenue to operate profitably. Purses were not enough to cover the bills. Meanwhile, NASCAR was able to use its phenomenal success to garner huge TV deals, making it incredibly profitable.

The disparity came to a head in 2015, when the teams formed the Race Team Alliance (RTA) and tried to negotiate a better arrangement with NASCAR. Brian France (the family member then in charge) initially refused to talks with the RTA, preferring to negotiate with each team individually. France eventually relented and the parties worked out a plan where they would enter into Charter Agreements with NASCAR. Under the Charter Agreements, the teams were afforded guaranteed entry into each of the NASCAR races, as well as a share of NASCAR media revenues; 19 team owners signed the initial Charter Agreements. Although the Charter Agreements were a big improvement, they did not solve all of the team owners’ financial problems. Only eight of these original teams remain in the sport.

The Charter Agreements expire at the end of this year, and negotiation for the 2025 Charter Agreements started earlier this year. The RTA wanted a number of changes, most importantly increasing the teams’ share of TV revenues. The negotiations were difficult, and NASCAR refused to budge. In March 2024, NASCAR told the RTA that it would no longer negotiate with it, and would instead do so individually with each of the teams. On September 6, 2024, NASCAR abruptly sent a 100-plus-page version of the 2025 Charter Agreement to the teams and told them they had until 6 p.m. to either accept it or race without a Charter Agreement in 2025. After an outcry, NASCAR extended the deadline until midnight. All of the teams except for 23XI  Racing and Front Row Motorsports accepted.

Monopolization

Under the Sherman Antitrust Act, the U.S. anti-monopoly law, it isn’t per se unlawful to be a monopoly. If you control the mousetrap business because you invented a better one than anyone else, there’s nothing wrong with that; you became a monopoly by legitimate means. That’s pretty much what NASCAR did. It professionalized stock-car racing and built it into an impressive force.

The antitrust violation arises when you use your economic power to prevent others from competing with you. The plaintiffs in this case allege that is exactly what NASCAR has done. They claim it did that in four ways:

1. Controlling Racetracks. NASCAR acquired International Speedway Corporation (ISC) in 2018, giving it complete control over 12 racetracks it uses for races, including Daytona, Talladega and others. As the owner of these tracks, it refuses to allow competing events. NASCAR also demanded exclusivity deals with other tracks that are used for NASCAR races, preventing them from allowing other race series to use them. By controlling these tracks, NASCAR prevents any competitive race series from gaining a foothold.

2. Buying Out the Competition. The Automobile Racing Club of America (ARCA), founded in 1953 as a regional stock-car-racing series in Ohio, eventually sanctioned the Menards Series. It was the only other race organization that stood any chance of developing into a NASCAR competitor. In 2020, NASCAR acquired complete control of ARCA and relegated the Menards Series into a feeder series for NASCAR, eliminating any competitive threat.

3. Noncompetition Covenants. The 2016 Charter Agreements contain noncompetition provisions that prevent the teams from competing in any other stock car series. That prevents the teams from forming a competitive series.

4. Next Gen Cars. NASCAR mandated the Next Gen car in 2022. Represented as a cost-saving development, the plaintiffs allege it actually has an anti-competitive effect. Teams are required to race the Next Gen car, which has to be built only with parts purchased from NASCAR’s approved vendors. All replacement parts also have to be purchased from these suppliers. But even though the teams have to pay for the cars and parts, they remain the property of NASCAR. As such, NASCAR limits their use to NASCAR events only and the teams are prohibited from using these cars or parts in other cars or race series. Given the high cost of fielding a NASCAR entry — estimated at $30 million per year per car, plus driver compensation — the teams are financially unable to race anywhere else.

The plaintiffs claim that all of these factors culminated in the 2024 power play in which the 2025 Charter Agreements were imposed upon the teams. Having improperly accumulated monopoly power over stock-car racing, NASCAR exercised that power to impose its will on the teams.

23XI Racing and Front Row Motorsports refused to cave, and instead filed the antitrust lawsuit. They believe this to be necessary because the 2025 Charter Agreements contain a release of claims provision that they think would have them release their antitrust claims against NASCAR.

Defining the market

In every antitrust case, one of the most critical things is how the relevant market is defined. The plaintiffs have defined the relevant market as professional stock-car racing. From that perspective, NASCAR pretty clearly has monopoly power. NASCAR has not yet offered its version of the relevant market but has criticized the plaintiffs’ view as “gerrymandering the market.” Expect NASCAR to argue that the relevant market should be something broader, like professional sports or automobile racing. With that broad of a market definition, NASCAR could not have monopoly power given the many other competitors.

At this writing, the plaintiffs have asked the court to issue a preliminary injunction that would require NASCAR to grant  each of them a 2025 Charter Agreement without the offensive release of claims. NASCAR has not yet fully responded to the complaint, but it paints the picture that the plaintiffs are just trying to get more from the courts than they were able to get in negotiations.

In NASCAR’s view, the parties had extensive negotiations, and NASCAR was simply unwilling to agree to what they were asking for. The plaintiffs negotiated the best deal they were able to, and the court should not force NASCAR to make additional contractual concessions. NASCAR’s attorneys point to the fact that the 2016 Charter Agreements contained the same release provision, which the plaintiffs agreed to without complaint, so they waived their antitrust claims. The plaintiffs never objected to the release until they filed the lawsuit. The plaintiffs are free to race without Charter Agreements — they just have to qualify each time, which they are easily capable of doing.

A level field?

With all due respect to NASCAR, the problem with their position is that it sort of proves the plaintiffs’ case. It is all well and good to claim that the parties freely negotiated, and this was the best they could do, but that presupposes that there is a relatively level playing field. The plaintiffs make the seemingly valid claim that their inability to negotiate a better deal was the result of NASCAR’s improperly obtained monopoly power.

You can see that just by looking at the “take it or leave it” ultimatum that gave the teams mere hours to sign a lengthy legal document they had not seen before. That ultimatum displays a certain level of arrogance that a negotiating party could only pull off if they had the power and leverage to force the other parties to capitulate. The kind of power that monopolies have. ♦

John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. His recently published book The Best of Legal Files can be purchased on our website. John can be contacted at john@draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.