Speaker 1: This is Bloomberg Law with June Brussel from Bloomberg Radio.
Speaker 1: After two historic bank failures, President Joe Biden sought to
Speaker 1: reassure jittery consumers and markets that the US financial system
Speaker 1: is on solid footing. Look, the bottom line is this,
Speaker 1: Americans can rest assured that our banking system is safe,
Speaker 1: your deposits are safe. Let me also assure you we
Speaker 1: will not stop at this, will do whatever is needed.
Speaker 1: He promised to hold responsible those behind the collapse of
Speaker 1: the two banks and said he'd call on Congress to
Speaker 1: strengthen regulation of the banking system. Joining me as business
Speaker 1: law expert, Eric Tallely, a professor at Columbia Law School,
Speaker 1: start with the basic question what happened to Silicon Valley
Speaker 1: Bank SEB basically fell prey to a pretty conventional bank run,
Speaker 1: and sort of odd to think, after so many years
Speaker 1: of knowing what can cause bank runs, that it happened
Speaker 1: again here, But I guess There are two critical insights
Speaker 1: from modern finance and banking that most people try to
Speaker 1: keep in mind. The first is that concentration of any
Speaker 1: type of investment or asset can be really hazardous in
Speaker 1: volatile markets, particularly if you don't try to diversify or
Speaker 1: heads that concentration. And then the second rule is that
Speaker 1: accounting tricks don't help you solve the first problem. So
Speaker 1: I think both of those managed to work their way
Speaker 1: into this SVB collapse. They managed sort of to ignore
Speaker 1: the insights that are served there, or at least ignore
Speaker 1: parts of them. And so there's a sense in which
Speaker 1: I think a lot of people think that although this
Speaker 1: was a conventional bank run, it also was one that
Speaker 1: on some level would not have been all that difficult
Speaker 1: to avoid, but it required sort of thinking through how
Speaker 1: some of these issues work. Explain how Silicon Valley Bank
Speaker 1: was in essence v bank for Silicon Valley. You know,
Speaker 1: the offense, Unless you were in the VC or startup community,
Speaker 1: you probably had never heard of Silicon Valley Bank. On
Speaker 1: the other hand, if you were a Silicon Valley startup
Speaker 1: or a VC fund, there's a chance you'd probably never
Speaker 1: heard of any other bank, or at least you were
Speaker 1: discouraged from doing any business with them, because that was
Speaker 1: the bank for venture finance and basically not anything else.
Speaker 1: There really were certain concentrated the venture capital funding and
Speaker 1: fundraising community, and that, you know, sort of is a
Speaker 1: big degree of concentration, and while having VC funds and
Speaker 1: startups all banking at the same place, that was sort
Speaker 1: of the bank where all the cool startups and the
Speaker 1: cool VC funds went. That has some advantages on day
Speaker 1: to day transactions and transferring balances and making payments and
Speaker 1: so forth. It really did suggest that SVB was susceptible
Speaker 1: to all kinds of boom and bust risks that might
Speaker 1: befall the sector of VC finances. Startups explain how the
Speaker 1: reasons slowed down in the economy played into this. In
Speaker 1: early twenty twenty one and twenty twenty two, I guess
Speaker 1: there was just a huge boom and so they managed
Speaker 1: to ride this boom in which scb's deposits grew astonishingly fast.
Speaker 1: But then when we hit the recent slowdown in the economy,
Speaker 1: startups faced a much injured environment, and that also kind
Speaker 1: of plamed Silicon Valley Bank. Now, even in that situation,
Speaker 1: you could still try to hedge some of those risks
Speaker 1: using various types of strategies, but that largely was going
Speaker 1: to be up to Silicon Valley Bank. It was not
Speaker 1: one of the big banks that you would be subject
Speaker 1: to Relatively stringent requirements that would effectively require them to
Speaker 1: have assets on hands to deal with the bank run.
Speaker 1: This is a smaller bank, and in twenty eighteen, the
Speaker 1: Trump administration actually rolled back some of those stringent requirements
Speaker 1: for banks of this size, and so it was really
Speaker 1: up the Silicon Valley Bank to develop its own policies
Speaker 1: on how best to insulate itself against these sorts of
Speaker 1: bank runs, and therefore Silicon Valley had to kind of
Speaker 1: come up with its own approach. Now, the approach they
Speaker 1: came up with itself wasn't obviously super risky. A lot
Speaker 1: of banks, for example, might start lending money out to
Speaker 1: various of their customers and those borrowers could actually bring
Speaker 1: in even more risks to the bank, and Silicon Valley
Speaker 1: largely didn't do that because they were pretty much catering
Speaker 1: to the venture capital community, and there isn't a lot
Speaker 1: of debt that's floating around in the venture capital community,
Speaker 1: or at least long term debt. A few short term
Speaker 1: pet debt instruments, but it's pretty much a cash set industry,
Speaker 1: so they didn't really have customers that were in that
Speaker 1: industry that were demanding loans. So instead they parked that
Speaker 1: money in what looks to be relatively safe government or
Speaker 1: corporate bonds, but they were importantly long term corporate bond
Speaker 1: and that is one of the potential risks. Even though
Speaker 1: those investments look safe on their face, it's not like
Speaker 1: they're going to default or likely not going to default.
Speaker 1: It does sort of give rise to a standard problem
Speaker 1: that all banks face, which is that they have creditors
Speaker 1: who are basically their depositors, who have short term claims
Speaker 1: on the company. They can show up any time and
Speaker 1: ask for their money. And what the banks typically do
Speaker 1: is they have those funds parked in various types of
Speaker 1: longer term investments, and so they basically transform short term
Speaker 1: claims into long term claims. And when those two sorts
Speaker 1: of claims go crosswise with one another, like they did here,
Speaker 1: that can cause a bank run. And that's effectively what
Speaker 1: happened in this case. So you've got this sort of concentration.
Speaker 1: The bank buys the longer term bonds, which you know,
Speaker 1: when they bought them twenty twenty one. In early twenty
Speaker 1: twenty two, interest rates were really low, and so these
Speaker 1: bonds they bought a pretty low interest rates, and when
Speaker 1: interest rates suddenly start to spike in the latter half
Speaker 1: of twenty twenty two. In early twenty twenty three, the value,
Speaker 1: the fair market value if you wanted to sell one
Speaker 1: of those government bonds, or if you wanted to sell
Speaker 1: one of those Clipper bonds, it goes down. And the
Speaker 1: reason it goes down is because you've got to find
Speaker 1: someone to buy it from you. And then investors looking
Speaker 1: around and saying, well, interest rates has just gone up.
Speaker 1: I can invest in some of these high interest rates
Speaker 1: assets right now. Why should I buy your really low
Speaker 1: interest rate asset. The only way that you can make
Speaker 1: an attractive is to basically give people a price cut,
Speaker 1: and that's effectively what happened is the Silicon Valley Bank
Speaker 1: realized they were starting to get hit with a bunch
Speaker 1: of demands to withdraw the cash from the accounts because
Speaker 1: these startups were having to make payroll, and they will know,
Speaker 1: the venture capital funding it down a little bit. They
Speaker 1: had to sell some of these bonds, and when they did,
Speaker 1: they had to officially recognize in their accounting statements that yeah,
Speaker 1: they lost a bunch of money on these things, and
Speaker 1: then they had to sort of make up for that
Speaker 1: that amount of money. Now, in reality, they had already
Speaker 1: kind of lost that money. The fair market value of
Speaker 1: those government bonds had been going down because of the
Speaker 1: fact that interest rates were going up. But given the
Speaker 1: way that they treated these government and corporate bonds on
Speaker 1: their accounting statements, they didn't have to recognize those losses
Speaker 1: until they actually sold them where they in, which they did,
Speaker 1: and at that point the market is susceptible to freaking out.
Speaker 1: And that's exactly what happened. A bunch of these startups
Speaker 1: start trying to pull their money from the bank. In
Speaker 1: order to provide that money, you got to sell even
Speaker 1: more of these bonds, recognized even more of it had lost,
Speaker 1: and the whole thing can unravel. And that's effectively what happened.
Speaker 1: In a remarkably fast forty eight hours last week, two
Speaker 1: days after as Phoebes collapse, regulators close another crypto friendly bank,
Speaker 1: New York Signature Bank, and Barney Frank, the co sponsor
Speaker 1: of the Dot Frank Bill and also on the board
Speaker 1: of Signature Bank, said, I think that if we've been
Speaker 1: allowed to open tomorrow, that we could have continued. We
Speaker 1: have a solid book where the biggest lender in New
Speaker 1: York city under the low income housing tax credit. I
Speaker 1: think the bank could have been a going concern. Did
Speaker 1: the regulators act too quickly? Well, First of all, that statement,
Speaker 1: whether it comes from Barney Frank or anyone else, is
Speaker 1: not an uncommon statement from any manager of a bank
Speaker 1: or board member of a bank that has fallen into crisis.
Speaker 1: That's sort of the standard point that bank runs, you know,
Speaker 1: in some respects are as much about psychology as they
Speaker 1: are about anything else, and so in principle, sure, if
Speaker 1: you can reverse the psychology that causes the bank run,
Speaker 1: then you're unlikely to have to pay the huge consequences
Speaker 1: of it. The problem is that to the extent that
Speaker 1: some of these bank failures or bank moments of distress
Speaker 1: are also contagious to other parts of the banking system,
Speaker 1: that's not going to be something that the manager of
Speaker 1: the bank in question is themselves going to internalize, right,
Speaker 1: They're just really hoping to turn things around in this
Speaker 1: particular instance, And the signature bank exposure in many ways
Speaker 1: was much more sort of akin to the already familiar
Speaker 1: tale of the sort of banks with a fair amount
Speaker 1: of crypto exposure having their own valuations undercut, and signature
Speaker 1: far more than Silicon Valley Bank in fact had that
Speaker 1: type of exposure. So you know, on some level, the
Speaker 1: decision to lump in the Signature with Silicon Valley Bank
Speaker 1: was really more of a macro decision. The two institutions
Speaker 1: faced a slightly different set of portfolio risks, but it's
Speaker 1: clearly the case that the federal government stepped in. Even
Speaker 1: though these were officially classified as all regional banks. The
Speaker 1: move over the weekend sees them ensure them up was
Speaker 1: you know, in many ways the type of move that
Speaker 1: is appropriate for a so called systemically significant bank, and
Speaker 1: that's effectively the exception that federal authorities kicked into play
Speaker 1: when they did this. So I think the move here
Speaker 1: is to say, Signature and Silicon Valley Bank, we don't
Speaker 1: want them to be the first threat of a sweater
Speaker 1: that unravels, and so it's important for the federal government
Speaker 1: to step in and assure depositors, even those that don't
Speaker 1: have insurance deposits, that they'll have access to their funds.
Speaker 1: But the challenge is to do so in a way
Speaker 1: that doesn't create any so called moral hazard problem of
Speaker 1: every bank realizing, oh, we've got this great backstop of
Speaker 1: the federal government writing to the rescue, So why do
Speaker 1: we have to engage in very much discipline ourselves? And
Speaker 1: so part of the structuring of both the STB and
Speaker 1: the Signature resolution plans was to try to figure out
Speaker 1: a way to do that that wouldn't sort of encourage
Speaker 1: other future banks and bank managers and owners to go
Speaker 1: down the same path and think that they're going to
Speaker 1: get bailed out or rescued by the federal government. Well,
Speaker 1: I think President Biden was attempting to convey that this morning.
Speaker 1: Biden also said they need to get a full accounting
Speaker 1: of what happened and promised to hold responsible those behind
Speaker 1: the collapse of the two banks. Do you have any
Speaker 1: idea what he means by that hold them responsible legally
Speaker 1: financially well, part of the issue, I think it really
Speaker 1: is trying to figure out how to structure one of
Speaker 1: these bank resolutions. I'm not going to call it a bailout,
Speaker 1: though some people are calling it that in a way
Speaker 1: that doesn't kind of reward the decision makers that put
Speaker 1: the bank into that position to begin with. And so
Speaker 1: I think there's been a fairly strong sense of kind
Speaker 1: of rules of thumb when one of these things is
Speaker 1: going on, and some of my own research is kind
Speaker 1: of you landed in this place as well, is that
Speaker 1: if you are going to step in from the government's
Speaker 1: perspective and do something that resembles a bailout of a
Speaker 1: bank or a big institution, you don't want to then
Speaker 1: sort of say oh, and don't worry about it. You know,
Speaker 1: shareholders and managers that put the bank into the spot,
Speaker 1: We'll just give you a second chance. That the more
Speaker 1: prudent roles to say no, you are now going to
Speaker 1: be moved out. You're going to be replaced by new
Speaker 1: shareholders and new managers. And therefore the you know, you're
Speaker 1: going to have to eat your own cooking, and the
Speaker 1: bank's going to go forward under new management with a
Speaker 1: new ownership structure, probably consisting of some of the lenders
Speaker 1: to the bank some of the creditors off the bank.
Speaker 1: And so I think that's the idea, the good chunk
Speaker 1: of the idea behind these resolutions. And if you're going
Speaker 1: to do a type of a bank resolution like this,
Speaker 1: it makes a great deal of sense to play hardball
Speaker 1: on some level as a way to avoid some of
Speaker 1: these moral hazard problems. The risk in doing that is
Speaker 1: that if you can't find, say, bank managers who are
Speaker 1: as good as the ones you're getting rid of, then
Speaker 1: that could be problematic as well. And so it is
Speaker 1: a little bit of a kind of a hardball policy
Speaker 1: tactic is one that makes a great deal of sense.
Speaker 1: It might come with a little bit of risk, but
Speaker 1: I think for all intents and purposes, it's probably the
Speaker 1: prootive way to step in and back up some banks
Speaker 1: without it constituting what you know basically amounts to an
Speaker 1: invitation to all the other banks out there to go
Speaker 1: down the same road. I mean, is it going to stop?
Speaker 1: Do you think at these two or they're going to
Speaker 1: be spillover effects on other regional lenders or the broader economy. Well,
Speaker 1: I think that's the huge concern right now, and that is,
Speaker 1: in fact a very significant question. It's it's one of
Speaker 1: the reasons why a senior government officials worked feverishly all
Speaker 1: weekends to put this plan in place. You know, to
Speaker 1: the extent that things like bank runs are largely the
Speaker 1: artifacts of psychology and freaked out you know, depositors who
Speaker 1: are worried about losing their deposits to step in and
Speaker 1: say actually, no, we got your back on this depositors,
Speaker 1: even the ones who are above the two hundred and
Speaker 1: fifty thousand SEIIC assurance, We've got your backs on this.
Speaker 1: The hope is that that's going to cause depositors of
Speaker 1: other banks to be less concerned about it. Now, there
Speaker 1: are still several regional banks that I think are you know,
Speaker 1: kind of on that bubble themselves, and I think the
Speaker 1: hope is to increase confidence in the integrity of the
Speaker 1: deposits of those banks as well. And so there is
Speaker 1: you know, almost a sense of moving in aggressively and
Speaker 1: assertively early on, playing a little bit of hardball with
Speaker 1: the managers the banks that are being sailed out as
Speaker 1: a way to affect the psychology of depositors for future banks. Now,
Speaker 1: whether that work is in many ways itself a question
Speaker 1: of psychology, how credible is the governmental move, how credible
Speaker 1: is it going to be that they do it again
Speaker 1: if necessary. But I think the part of the structuring
Speaker 1: of this plan that was that was announced over the
Speaker 1: weekend was also meant to give people at least some
Speaker 1: degree of confidence that the government is not going to
Speaker 1: let contagion run amuck, even if some banks end up,
Speaker 1: you know, having to be liquidated or sold off like STP.
Speaker 1: So Biden said he's going to ask Congress and the
Speaker 1: banking regulators to strengthen the rules for banks to make
Speaker 1: it less likely this kind of bank failure would happen again,
Speaker 1: But no specifics. As you know, during the Trump administration,
Speaker 1: Congress row back some of the strictest post crisis regulations
Speaker 1: from midsize bank So what's your take on what would
Speaker 1: be best to put those regulations back into effect or
Speaker 1: to strengthen the regulations for all banks. Well, that's kind
Speaker 1: of the interesting question right now. You know, after the
Speaker 1: financial crisis and the wake of the financial crisis, fairly
Speaker 1: stringent regulations were in place that in fact would have
Speaker 1: covered many meet in size banks in this range. Those
Speaker 1: in mid twenty eighteen were rolled back, you know, rodly
Speaker 1: under the narrative of we're just you know, eliminating unnecessary
Speaker 1: regulation and opening up small regional banks to lend to
Speaker 1: small businesses and to grow the economy. And you know,
Speaker 1: the taglines are pretty easy to predict here. But what
Speaker 1: that did leave is this kind of open field for
Speaker 1: banks of that size to you know, decide what the
Speaker 1: best approach would be for trying to head their risks,
Speaker 1: and in both of these cases there was a fundamental
Speaker 1: miss calculation. So my sense is that the political winds
Speaker 1: may start to blow in President Biden's favor. Whether those
Speaker 1: winds are going to be strong enough to tip a
Speaker 1: Congress that is less friendly to regulatory interventions remains to
Speaker 1: be seen. But you know, the quaysie, you know, panic,
Speaker 1: I'd say more of a you know, kind of a
Speaker 1: systemic concern that that that really spawned what happened over
Speaker 1: the weekend is definitely going to have at least some
Speaker 1: implications in the political landscape and trying to understand how
Speaker 1: to go about reregulating some of these banks that look
Speaker 1: like they may be more systemically significance than they were
Speaker 1: given credit for. I mean, is a question of putting
Speaker 1: more of the banks under the stricter regulations of Dodd
Speaker 1: Frank or making all the Dodd Frank regulations if both
Speaker 1: are possible. I mean, I think probably the easiest thing
Speaker 1: would really just be to bring back down the threshold
Speaker 1: for the Dodd Frank rules. I don't think anyone is
Speaker 1: worried that some of these larger banks that have to
Speaker 1: undergo routine stress testing and pretty much have the stringent
Speaker 1: requirements that require them to wapp the assets to answer
Speaker 1: a bank run. I don't think anyone has any significant
Speaker 1: concern about the integrity or the solvency of those larger banks,
Speaker 1: So it may well be the case that the easiest
Speaker 1: thing to do would be basically bring that asset threshold
Speaker 1: back down so that it ended up effecting some of
Speaker 1: these more medium sized regional banks in the future. The
Speaker 1: other possibility, of course, is just to increase the regulatory
Speaker 1: oversight or demand of DoD Freak rules across the board.
Speaker 1: That one, you know, I think probably would face a
Speaker 1: fair amount of blowback for the same reason that I
Speaker 1: just noticed that the larger banks out there don't seem
Speaker 1: to be in this same situation. The Dodd Frank Acts
Speaker 1: rules are actually kind of working for them right now,
Speaker 1: and so to say, okay, we're going to ratchet them
Speaker 1: up may not be the you know, the street of
Speaker 1: shooting approach from a policy perspective compared to, you know,
Speaker 1: making sure that the banks that really are at the
Speaker 1: root of some of these problems, which are typically specialty
Speaker 1: concentrated in regional banks, that those have greater degrees of
Speaker 1: oversight in them. So if I were wagering on this,
Speaker 1: I would think that an overall enhancement of Dodd Frank
Speaker 1: requirements is less likely than maybe an extension of them
Speaker 1: to a larger population of banks, or you know, possibly
Speaker 1: you know, causing those those regional banks to you know,
Speaker 1: be more likely to have their assets transferred into some
Speaker 1: of the larger banks, and so that you know, you know,
Speaker 1: auctioning off the assets of a bank in its resolution period,
Speaker 1: you know, those assets may end up wandering to a
Speaker 1: larger bank that is subject to some of those more
Speaker 1: stringent requirements, and that might be in a mechanical way
Speaker 1: to do it. But I would see the more likely
Speaker 1: approach if there is going to be a regulatory response here,
Speaker 1: is to extend some of the Dodd Frank requirements back
Speaker 1: to in the direction that they were before twenty nineteen.
Speaker 1: Thanks so much, Eric, that's professor Eric Talley of Columbia
Speaker 1: Law School. New Life for Relevant Sports Groups plans to
Speaker 1: market foreign soccer teams regular season matches in the US.
Speaker 1: A federal appeals court in Manhattan has revived an antitrust
Speaker 1: suit brought against two of soccer's governing bodies. The Second
Speaker 1: Circuit found it was plausible that FIFA and the United
Speaker 1: States Soccer Federation are enforcing an anti competitive policy that
Speaker 1: divides geographic markets and restricts access to the game. Joining
Speaker 1: me is Stephen Bank, a professor at UCLA Law School.
Speaker 1: For those who don't know soccer, tell us about the
Speaker 1: alleged ban or why relevance efforts to host official season
Speaker 1: games between overseas teams in the US was denied. So
Speaker 1: US Soccer is a member the designated governing member of
Speaker 1: the United States Territory for the international sports governing body
Speaker 1: of soccer, which is FIFA, the Federation International Football Associations. Historically,
Speaker 1: the reason for FIFA is that soccer is such a
Speaker 1: international game gameplayed worldwide, unlike some American sports like American
Speaker 1: football for example, that they wanted to standardize the rules.
Speaker 1: They wanted to create opportunities for teams in different countries
Speaker 1: to compete against each other. So in creating the worldwide game,
Speaker 1: one of the things that they have done is given
Speaker 1: each federation, each governing body in the country jurisdiction control
Speaker 1: over the soccer played in that country. Historically, that's just
Speaker 1: meant that at most you'd have international tournaments like the
Speaker 1: World Cup you'd have some friendlies what they call friendlies,
Speaker 1: we would call scrimmages played in the offseason. So sometimes
Speaker 1: you have tours buy teams from in Europe or elsewhere
Speaker 1: in the world in the US where they're doing kind
Speaker 1: of a preseason training camp, and they'll play some games
Speaker 1: in the US, and so those were all games that
Speaker 1: you have to seek permission from the governing body in
Speaker 1: the local jurisdiction to play in those games. And it's
Speaker 1: only recently with the expansion of fans outside of a
Speaker 1: home country that there's demand and for people to watch
Speaker 1: a team from another country play. So people are watching
Speaker 1: games in other leagues. So it used to be you
Speaker 1: just watched your home league, that's all you did. So
Speaker 1: there's a lot of interest in for example La Liga,
Speaker 1: which is the Spanish first division league. So that has
Speaker 1: generated demand from those leagues to expand their base. They
Speaker 1: don't have to just rely on the fans within their
Speaker 1: within Spain. They can go outside of Spain, and so
Speaker 1: they'd like to mine what is viewed as a relatively
Speaker 1: untapped market at the United States. The rule came about
Speaker 1: because Relevant Sports, which is a soccer promoter. They were
Speaker 1: contacted by La Liga to try to arrange for games
Speaker 1: in the US. Now, that'd be fine, except that they
Speaker 1: were going to have league games in the US. The
Speaker 1: concern in that situation is that if you're trying to
Speaker 1: grow domestic league, especially one that's relatively new and in
Speaker 1: the case the United States, that demand for that league
Speaker 1: would get reduced potentially if a better league and more
Speaker 1: established league, more historical league Black LA Liga was playing
Speaker 1: its games to the US. This is not unique to
Speaker 1: the United States necessarily. This is a concern in lots
Speaker 1: of jurisdictions around the world that there's a few top
Speaker 1: leagues that will kind of dominate the domestic leagues, and
Speaker 1: the only protection the domestic leagues have is that they
Speaker 1: can control what's played in their country. So that led
Speaker 1: the attempt to play a game in the US, which
Speaker 1: when US Soccer is talking about this, originally they were
Speaker 1: kind of slowballing it. They were saying, I don't know
Speaker 1: if we're allowed to do that. This is not a
Speaker 1: preseason game, this is not a scrimmage. This is a
Speaker 1: league game. And FIFA eventually stepped in and issued a
Speaker 1: rule that said you can't play out domestic league match
Speaker 1: outside of your home jurisdiction, and that is the rule
Speaker 1: that is under challenge here in the relevant sports case
Speaker 1: against the United State Soccer Federation and FIFA, that that
Speaker 1: restricts competition in the US. And so in July of
Speaker 1: twenty twenty one, Federal Judge Valerie Caproni found no evidence
Speaker 1: to prove there was illegal conspiracy to ban foreign matches.
Speaker 1: How did she come to that decision? So, just to
Speaker 1: back up a second, there are two requirements really to
Speaker 1: establish a violation under Section one of the Sherman and
Speaker 1: I Trust Act. The first is there's concerted action, so
Speaker 1: there's a conspiracy among people involved, and then and the
Speaker 1: action unreasonably restrains trade. So on the first question of
Speaker 1: concerted action, the issue, which is a much broader issue
Speaker 1: than Soccer or FIFA United State Soccer Federation, is does
Speaker 1: being a member of a trade association mean that you
Speaker 1: are acting in concert on all rules adopted by that association. Right,
Speaker 1: That's the broadest principle that is at issue here. It's
Speaker 1: the reason why the Department of Justice intervened in this case,
Speaker 1: the reason why there's amicus brief filed by a variety
Speaker 1: of essentially non soccer related interests, is that that's a
Speaker 1: broad issue. What does it mean to be in a
Speaker 1: conspiracy or act in concert if you're just a member
Speaker 1: of an association and they have a rule and you
Speaker 1: follow the rule, is that acting in concert? And judgment
Speaker 1: Prony in the lower court concluded that you need to
Speaker 1: allege in your complaint an agreement to agree. That is
Speaker 1: some kind of evidence that the parties agreed before they
Speaker 1: voted on the rule, that hey, we should all vote
Speaker 1: this way because we don't want this competition something like that.
Speaker 1: And the Planets Relevant Sports argued that that was a
Speaker 1: very high burden to show that there was an agreement
Speaker 1: to agree at the complaint stage. So what they're simply
Speaker 1: saying is, hey, there's a rule. All the rule is
Speaker 1: anti competitive, and they remember the association and they all
Speaker 1: they agreed to be bound by this rule that was
Speaker 1: adopted by the association in this case, FIFA, and therefore
Speaker 1: that was enough to allege concerted action. What Judge Caproni
Speaker 1: was doing was establishing a fairly high bar for any
Speaker 1: kind of an anti trust case involving a trade association.
Speaker 1: That's why the Department of Justice intervened in the case,
Speaker 1: not because they cared dramatically about FIFA or US soccer
Speaker 1: or this thick or issue. But they didn't want that
Speaker 1: high a bar to be set on anti trust actions.
Speaker 1: And so that's really where we get to. The second
Speaker 1: circuit is is do you need an agreement to agree
Speaker 1: or is it enough to establish that there is a rule,
Speaker 1: the rule is anti competitive, and the parties are members
Speaker 1: of the association that has the rule. The second Circuit
Speaker 1: disagreed with Judge Caproni. Tell us why they disagreed, what
Speaker 1: their ruling was. Yeah, the second Circuit, their major observation
Speaker 1: was that you shouldn't be able to avoid antitrust liability
Speaker 1: by acting through some kind of a third party intermediary
Speaker 1: like a trade association. That if by being a member
Speaker 1: of a trade association, you agree to be bound by
Speaker 1: the rules of the association, whether you've voted for them
Speaker 1: or not, and the rules are anti competitive, then that
Speaker 1: should be enough to provide direct evidence of concerted action
Speaker 1: and sort of get you in the door. It doesn't
Speaker 1: mean it's an antitrust violation, doesn't mean it's ultimately it
Speaker 1: would be found to be unreasonable restraint on trade, but
Speaker 1: it means that you can't simply say look, I just
Speaker 1: a member. I'm just following the rules. You know, I'm not.
Speaker 1: I didn't actually agree to vote in a certain way.
Speaker 1: I didn't talk to anybody ahead of time. I made
Speaker 1: my decision independently, all the kinds of things Judge Caproni
Speaker 1: was talking about that you don't need to allege that
Speaker 1: you simply need to allege you agree to be a
Speaker 1: member of association where you were going to be bound
Speaker 1: by any rule they had, whether you liked it or not,
Speaker 1: or whether you discussed it with anyone at We're in
Speaker 1: or not, and that that was enough to establish this.
Speaker 1: So that's really the upshot of the Second Circuit ruling
Speaker 1: is that you don't need to allege or establish in
Speaker 1: the complaint in an agreement to agree. If the rule
Speaker 1: itself is the violation, that's enough to establish a concerted action.
Speaker 1: So does this now go back to Judge Caproni for trial?
Speaker 1: What happens next? So it does go back to Judge Caproni.
Speaker 1: Since this was a motion to dismiss, it goes back
Speaker 1: to that stage. So now they vacated the motion to dismiss,
Speaker 1: and it doesn't mean there couldn't be further proceedings before
Speaker 1: you got to a trial, so you can have a
Speaker 1: summary judgment, motion or something else. There might be additional emotions,
Speaker 1: but it means that the case is going to proceed
Speaker 1: and might ultimately end up in trial. At least this
Speaker 1: part of the question unconcerted action. The Second Circuit has ruled.
Speaker 1: There could be other issues there, and there could be
Speaker 1: issues relating to whether it's an unreasonable restraint on trade,
Speaker 1: and then ultimately it could go to trial. So FIFA
Speaker 1: said that it had taken note of today's decision and
Speaker 1: would review it before deciding on its next steps. What
Speaker 1: next steps could it take outside of going back to
Speaker 1: Judge Caproni and having a trial. Well, FIFA could rescind
Speaker 1: the rule. It's actually a policy that they adopted, so
Speaker 1: certainly could rescind the policy. They could revise a policy
Speaker 1: in a way that would cause relevant sports to drop
Speaker 1: the claim. So it could be some kind of a
Speaker 1: compromise measure that you know, there'd be some limits on
Speaker 1: how many games you could play abroad or something like
Speaker 1: that that relevant sports would find reasonable and that FIFA
Speaker 1: could defend. So there could be some kind of a
Speaker 1: settlement there. There There could be a settlement of course, financial settlement.
Speaker 1: It could also go back to its membership and decide
Speaker 1: whether the membership wants to proceed. Typically, we'll go through
Speaker 1: the FIFA Council, which is the kind of executive committee
Speaker 1: of the group, and they could decide how strongly do
Speaker 1: we believe in this, But it's definitely a question of,
Speaker 1: you know, our the litigation costs worth the benefits of
Speaker 1: the policy. One challenge here is is that this is
Speaker 1: a US ruling. That doesn't mean other countries feel the
Speaker 1: same way. So this is one of the challenges for
Speaker 1: an international sports organization which is dealing with multiple jurisdictions,
Speaker 1: and in other countries this may be perfectly fine. So
Speaker 1: they could decide to keep the rule. Why would let
Speaker 1: the United States dictate this. We don't want anyone, for example,
Speaker 1: in the Bundesligue and Germany to play games in Austria
Speaker 1: because we want the Austrian league to have primacy there.
Speaker 1: Otherwise the Austrian league. Why would anyone in Austria watch
Speaker 1: the Austrian League when they could watch the German league,
Speaker 1: you know. So that's there are plenty of other countries
Speaker 1: where this could be an issue. So the idea that
Speaker 1: they would change this dramatically seems somewhat unlikely, although it
Speaker 1: maybe they make an exception in the US alone because
Speaker 1: of this rule. So it could be that they would say,
Speaker 1: we're restricting the ability to stay gain in countries other
Speaker 1: than the US, so that that would be a way
Speaker 1: that okay is the US, it's okay, and the US
Speaker 1: doesn't care about the anti competitive policies in other countries,
Speaker 1: So that might be one possibility. It's more likely since
Speaker 1: that the Uscccer Federation in FIFA will be concerned about
Speaker 1: FIFA member leagues, and it's also more likely that other
Speaker 1: leagues and football players in those leagues might be concerned
Speaker 1: about the additional cost and travel of playing in the US.
Speaker 1: So it may be one of those issues where it's
Speaker 1: not going to be a very frequent thing anyways, but
Speaker 1: that's certainly possible. I do think that this is only
Speaker 1: one piece of the question in the case concerted action,
Speaker 1: So I think they could feel like there's strong pro
Speaker 1: competitive reasons for the rule, and that might be enough
Speaker 1: to survive the nitrust challenge. So, for example, they could argue,
Speaker 1: you know, the case ever came to trial, they could
Speaker 1: argue that by allowing La Lagua to play home games
Speaker 1: or play games in the United States. That would destroy
Speaker 1: not just Major League Soccer, but the United Soccer League
Speaker 1: and the National Independent Soccer Association NISSA, which is a
Speaker 1: third division league, and in those situations there'd be less
Speaker 1: soccer in the US. Then if you had not played
Speaker 1: law league games here, and if you did this, if
Speaker 1: you can imagine this worldwide, there'll be five leagues maybe worldwide,
Speaker 1: and no domestic league would would be able to survive.
Speaker 1: And if that's the case, then we'd have less overall
Speaker 1: soccer games for people to watch, which is bad for
Speaker 1: competition because they can raise ticket prices and lower wages
Speaker 1: because there's not alternative employers, all sorts of the pro
Speaker 1: competitive arguments. And so in that sense, if FIFA really
Speaker 1: wants to stick to its guns and US Soccer, you know,
Speaker 1: they have some arguments they could make for why this
Speaker 1: rule should be allowed. So this is not a victory
Speaker 1: like final victory for relevant sports. It's probably more it's
Speaker 1: a victory for the Department Justice and some of these
Speaker 1: amicust filings that you can file an anti trust lawsuit
Speaker 1: against the trade association, and there are a lot of those.
Speaker 1: The NCUBA is a trade Association, other sports organizations, but
Speaker 1: not just for sports organizations, professional societies, all that. It's
Speaker 1: a really a victory for that. Thanks for being on
Speaker 1: the show. That's Professor Stephen Banks of us LA Law School.
Speaker 1: And that's it for this edition of the Bloomberg Laws Show.
Speaker 1: I'm June Grosso and you're listening to Bloomberg