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JAMSPORTS AND ENT., LLC v. PARADAMA PROD.

April 15, 2003

JAMSPORTS AND ENTERTAINMENT, LLC, PLAINTIFF,
v.
PARADAMA PRODUCTIONS, INC. D/B/A AMA PRO RACING, CLEAR CHANNEL COMMUNICATIONS INC., SFX ENTERTAINMENT, INC. D/B/A CLEAR CHANNEL COMMUNICATIONS INC., SFX MOTOR SPORTS, INC. D/B/A CLEAR CHANNEL ENTERTAINMENT — MOTOR SPORTS, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, United States District Judge

MEMORANDUM OPINION AND ORDER

This case is about "supercross": championship-level, dirt track stadium motorcycle racing. JamSports and Entertainment LLC, a sporting events promoter, has sued AMA Pro Racing, a motorcycle sports sanctioning body, for allegedly reneging on a deal that would have given JamSports the right to produce and promote the "AMA Supercross Series"*fn1 for the 2003-2009 racing seasons. JamSports has also sued Clear Channel Communications Inc. and two of its subsidiaries (which we will refer to collectively as "Clear Channel") for tortious interference with contract, alleging that they carried on illicit negotiations with AMA Pro and eventually wrested away from JamSports the Supercross promotion rights it claims to have acquired. JamSports has also sued Clear Channel for violations of §§ 1 and 2 of the Sherman Act. It alleges that Clear Channel enjoys monopoly control over the supercross promotion market and has leveraged its power in the concert promotion and media markets to exclude potential supercross promotion competitors like JamSports from securing deals with stadiums and sponsors essential to promoting the sport. The case is now before the court on the Clear Channel defendants' motion to dismiss.

Factual Background

The facts alleged in JamSports' amended complaint, which we regard as true for purposes of this motion, Thompson v. Illinois Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002), are as follows. AMA Pro holds itself out as the owner and sanctioning body for the AMA Supercross Series. Cmplt. 618. AMA Supercross is a valuable franchise, generating approximately $40 million in annual revenues, including gate receipts, ancillary revenues, sponsorships and television rights. Id. 619. From 1997 through 2002, Clear Channel (and companies that it subsequently acquired) promoted the series, but its contract with AMA Pro was set to expire at the conclusion of the 2002 racing season. Id. In the summer of 2001, AMA Pro began soliciting bids from other promoters, including JamSports, for the purpose of entering into an agreement to promote AMA Supercross for the 2003 season and beyond. Id. 620.

Contract Negotiations

On November 2, 2001, AMA Pro and JamSports entered into an agreement under which JamSports agreed to produce and promote AMA Supercross for the 2003-2009 seasons. Id. 621. This "First Agreement," essentially a letter of intent, laid out several terms and conditions for a later transaction that parties agreed to undertake, including: (1) a provision granting JamSports exclusive rights to produce and promote AMA Supercross in North America, (2) financial terms granting AMA Pro the greater of 8% of gross gate receipts or 30% of the net income from each Supercross event, and (3) an agreement to share revenues generated by event sponsorship, product merchandising, and media and marketing deals. Id. ¶¶ 23-25. The First Agreement also provided that JamSports would advance to AMA Pro a non-refundable amount of $3 million as general working capital to support the creation of a successful media and televison series. Id. ¶ 26; Pl's Ex. A (First Agreement) at 3. But none of these terms were immediately binding. Rather, JamSports and AMA Pro agreed to a ninety day period of exclusive negotiations during which the parties were obligated to use their best efforts to negotiate the remaining terms of the deal in good faith. Cmplt. ¶¶ 30-31, 33; Pl's Ex. A at 6. They also promised to protect the confidentiality of their business relationship, and to that end the First Agreement contained a binding obligation prohibiting either party from disclosing the terms of their proposed deal. Id.; Cmplt. ¶ 32.

On November 5, 2001, AMA Pro sent a letter to several motor sports venues announcing its partnership with JamSports and advising the venues that JamSports had exclusive authorization to negotiate with the venues on AMA Pro's behalf. Cmplt. ¶ 34; Pl's Ex. B. On November 6, AMA Pro issued a press release announcing that it selected JamSports as its new promotion partner for the AMA Supercross series. Cmplt. ¶ 35; Pl's Ex. C. In turn, JamSports began taking steps to promote AMA Supercross and to prepare for the 2003 season. In reliance upon AMA Pro's representations and its agreement to negotiate exclusively and in good faith with JamSports, JamSports carried out negotiations with the Indianapolis Motor Speedway for television coverage of AMA Supercross events, and on December 7, 2001 it announced a television partnership with Speedvision, a 24-hour cable network devoted to motor sports. Cmplt. ¶ 37; Pl's Ex. E. Further, JamSports alleges that it began negotiating with marketing, radio, merchandising, and sponsorship entities, incurring substantial expenses in the process. Cmplt. ¶ 38. JamSports also claims to have committed extensive resources to ensure that its infrastructure would be sufficient to support its partnership with AMA Pro, and it alleges that AMA Pro staff moved into office space that JamSports created for them. Id. ¶ 40.

The parties' business relationship, however, did not develop as planned. On January 30, 2002, two days before the expiration of the agreed period of exclusive negotiations, AMA Pro contacted JamSports and proposed certain modifications to the deal that the parties had outlined up to that point. Id. ¶ 42. According to JamSports, AMA Pro indicated that it would accept the "form and content" of the promotion agreement once those final modifications were included. Id. In response, JamSports prepared a revised draft of the agreement reflecting AMA Pro's requested changes and forwarded the draft to AMA Pro for its review. Id. ¶ 43. But, JamSports alleges, AMA Pro delayed concluding the transaction. By a separate agreement dated February 1, 2002, the parties agreed to extend the period of exclusive negotiations until February 5, 2002. Id. ¶ 44. At the end of that period JamSports still had not received word from AMA Pro regarding the revised draft. On February 5, 2002, and again on February 8, 2002, JamSports sent letters to AMA Pro "confirming its acceptance" of all of AMA Pro's modifications and notifying AMA Pro that it was "ready willing and able to sign the Promotion Agreement." Id. ¶¶ 45-46; Pl's Exs. H, I. JamSports alleges that as of the time it accepted AMA Pro's proposed modifications, there were no outstanding issues between the parties with respect to the promotion agreement. Id. ¶ 47.

According to JamSports, on February 14, 2002, AMA Pro finally approved the promotion agreement. Id. ¶ 48. But the two parties never signed a written contract. To the contrary, AMA Pro eventually signed a deal with Clear Channel, granting it the right to promote the AMA Supercross Series for the 2003-2009 seasons. By JamSports' account, AMA Pro had been negotiating with Clear Channel all along, in breach of its obligation to negotiate exclusively and in good faith with JamSports. JamSports alleges malfeasance on Clear Channel's part as well. JamSports contends that Clear Channel knew of JamSports' exclusive negotiating rights, yet made numerous improper contacts with AMA Pro, including written and oral proposals regarding the 2003 Supercross season. Id. ¶ 52. As a result of this alleged interference, JamSports maintains that it was deprived of the Supercross promotion rights that it believed it had been promised.

Antitrust Allegations

At the same time that the parties were battling over the contract to promote the AMA Supercross Series, JamSports alleges, Clear Channel was using anticompetitive tactics to exclude JamSports from entering the supercross promotion market altogether. According to JamSports, presenting a successful supercross series requires a promoter to secure key stadiums in certain metropolitan areas where the sport has an established fan base. Id. ¶ 57. With this in mind, JamSports alleges, Clear Channel set out to prevent potential competitors, including JamSports, from obtaining access to these essential facilities. Id. Specifically, JamSports alleges that Clear Channel was able to use its power in other markets-the markets for promoting concerts and specialty motor sports events, along with radio, television and outdoor advertising markets-as leverage to coerce stadiums into exclusive deals for promoting supercross. Id. ¶ 60. As a result of Clear Channel's allegedly anticompetitive conduct, JamSports was unable to schedule supercross events in 12 key metropolitan arenas: Edison Field (Anaheim), Texas Stadium (Dallas), the Silverdome (Detroit), Ford Field (Detroit), Reliant Stadium (Houston), Sam Boyd Stadium (Las Vegas), Pro Player Stadium (Miami), the Metrodome (Minneapolis), Bank One Ballpark (Phoenix), Rice-Eccles Stadium (Salt Lake City), Qualcomm Stadium (San Diego), and America's Center (St. Louis). Id. ¶ 61. JamSports alleges that many of these stadiums expressly cited Clear Channel as their reason for rejecting JamSports' promotion proposals. Id.

JamSports maintains that its inability to secure these key venues contributed to its failure to finalize a deal with AMA Pro to promote the AMA Supercross Series. Though JamSports was able to put together a supercross event schedule by securing contracts with alternate arenas, and stadiums in other cities, Clear Channel's exclusive rights to promote supercross in the Series' established venues proved decisive. JamSports alleges that Clear Channel used its dominance over these stadiums to threaten AMA Pro with the prospect of a competing supercross series-without AMA Pro's sanction-and that AMA Pro renounced its deal with JamSports to prevent that possibility. Id. ¶¶ 62-65.

The complaint further states that Clear Channel leveraged its dominance over the concert, specialty motor sports, and media markets, along with its exclusive deals with key stadiums, to discourage the motorcycle manufacturers who routinely sponsor supercross teams from doing business with JamSports. Moreover, JamSports alleges that Honda, Kawasaki, Suzuki, and other motorcycle manufacturers have representatives on the board of directors of the American Motorcyclist Association (AMA Pro's not-for-profit parent company) and that Clear Channel was able to leverage its influence over these companies, through the AMA, to pressure AMA Pro out of its deal with JamSports. Id.

Finally, JamSports characterizes Clear Channel's final deal with AMA Pro as an anticompetitive pact, designed with the intent to exclude any other promoter or any other sanctioning body from producing a supercross series capable of competing with AMA Supercross. It alleges that, facing the possibility of JamSports' entry into the market and the prospect of JamSports' gaining AMA Pro's sanction, Clear Channel leveraged all of its influence to obtain a deal with AMA Pro that guaranteed each party's continuing monopoly power over supercross. Id. ¶ 66-70.

Based on its factual allegations, JamSports asserts two counts of tortious interference with contract against Clear Channel (counts 3 and 4). In addition, JamSports asserts twelve separate violations of the Sherman Act (counts 5-16). Clear Channel moves to dismiss each of these claims.*fn2 JamSports' breach of contract claims (counts 1 and 2) are not at issue in Clear Channel's motion.

Analysis

In considering Clear Channel's motion to dismiss, we accept as true the amended complaint's well pleaded factual allegations and draw all reasonable inferences from those allegations in favor of JamSports. Thompson, 300 F.3d 750, 753 (7th Cir. 2002). We will dismiss a claim only if it appears beyond doubt that JamSports can prove no set of facts in support of its claim which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); MCM Partners, Inc. v. Andrews-Bartlett & Associates, Inc., 62 F.3d 967, 972 (7th Cir. 1995). We first address the sufficiency of JamSports' antitrust allegations.

I. Antitrust Claims (counts 5-16)

JamSports asserts 12 separate claims under the Sherman Act: four counts of monopolization (counts 5, 11, 15, and 16), two counts of attempted monopolization (counts 6 and 12), and two counts of conspiracy to monopolize (counts 7 and 13) under 15 U.S.C. § 2, along with four counts based on § 1 of the Act (counts 8, 9, 10, and 14). Most of these claims are based on a few overlapping antitrust theories: leveraging of monopoly power (counts 5-7), exclusion from essential facilities (counts 11-14), exclusive dealing (count 8), and market allocation (counts 9-10).*fn3 Clear Channel disputes some of the labels that JamSports has applied to describe and distinguish its antitrust claims. The parties agree that counts 9 and 10 allege a market allocation scheme in violation of § 1. But Clear Channel characterizes each of the claims alleged in counts 5-8 and 11-16 as "essential facilities" claims, and argues that JamSports has failed to allege facts sufficient to establish that any of stadiums that Clear Channel allegedly dominates are essential to promoting supercross. With respect to all of JamSports' antitrust claims, Clear Channel argues that JamSports has failed to allege a legally sufficient relevant product market. It contends that the alleged "market for the promotion of supercross" is implausibly narrow, and that JamSports' proposed alternative, the "market for the promotion of specialty motor sports presented in stadiums and arenas" is artificial and incoherent. Because it affects every antitrust issue currently before the Court, we begin our analysis with JamSports' relevant market allegations.

A. Relevant Market

In order to state a claim for monopolization under § 2 of the Sherman Act, JamSports needs to allege "`(1) the existence of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident."' Elliot v. United Center, 126 F.3d 1003, 1004-05 (7th Cir. 1997) (quoting United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)). To state a claim under section 1 of the Sherman Act JamSports must allege: (1) a contract, combination or conspiracy and (2) a resultant unreasonable restraint of trade in the relevant market. MCM, 62 F.3d at 972 n. 7. Both types of claims require JamSports to identify the relevant market in which Clear Channel is alleged to have engaged in anticompetitive conduct. In its complaint, JamSports advances three possible definitions of the relevant market in this case: (1) a national market for the promotion of supercross, (2) geographic submarkets for the promotion of supercross in each of 11 ...


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