Celebrity authors and pro golfers provide a test case for the labour market

Even the 1 per cent deserves the protection of antitrust laws, says the Biden administration. Under way in a federal courthouse in Washington is a highly anticipated trial in which the US Department of Justice is seeking to block the tie-up of two prestigious book publishers, Bertelsmann’s Penguin Random House and Simon & Schuster.

Simon’s owner, the former ViacomCBS now known as Paramount, announced the $2bn sale to PRH in late 2020. The deal, if completed, would shrink the so-called Big Five of US publishing houses to four.

The DoJ’s theory of market harm is intriguing. It does not argue that book prices will go up. Rather, with one less buyer of books, prospective authors selling manuscript ideas will have that much more difficulty getting the highest possible book advance.

What is more, the DoJ universe of victims is extremely constrained: it says those very rarefied authors who command more than $250k in book advances — celebrities and prizewinning authors — will end up getting perhaps a few hundred thousand dollars less than they would have should the Big Five remain in tact.

Simon and PRH reject that view. In their court filings and in trial they say the DoJ’s definition of a market is contrived and bears no resemblance to the practical market for authors. Moreover, they say the deal will be a benefit for the literary ecosystem with a player fortified enough to challenge the likes of Amazon and pay bigger advances to authors.

Antitrust enforcement has typically centred on the idea of preventing monopolies where consumers face higher prices from concentrated sellers. But US policymakers are increasingly worried about labour market distortions and the resulting widening of income inequality.

As such, so-called “monopsony” scenarios where purchasers, in this case of labour, consolidate and allegedly increase their power to push down wages are being forced to defend such arrangements even when the alleged victims are already privileged.

On the surface, the DoJ has collected some intriguing evidence against the deal. In early 2020 during the Trump administration, a top executive at Simon wrote to an author just after the sale process had been announced, saying, “I’m pretty sure that the Department of Justice wouldn’t allow Penguin Random House to buy us, but that’s assuming we still have a Department of Justice”.

The DoJ also cites multiple instances where previously Simon and PRH had engaged in direct bidding wars over A-list authors. In one case, an advance hit $775k, $300k above where the back-and-forth started. PRH and Simon argue that, at worst, $1bn in annual advances in this market might shrink by $30mn.

“We’re not dealing with bushels of wheat,” said Daniel Petrocelli, an attorney for the publishers in his opening statement last week. “Every book is a new product that has never existed before, and the competition to win that book is zealous, because if you don’t win that book, you have nothing to sell.”

The US government’s first witness was Stephen King, the horror author, testifying that he believed the merger would be bad for writers such as him. Each side also has economists who will duel over esoteric definitions of the market for book advances. Additionally, the witness roster is packed with so many publishing executives and literary agents that the trial could more conveniently be held in Brooklyn.

As the publisher dispute was just getting under way, another elite group was claiming their rights to make a fortune were being curtailed by a dominant employer. Several golfers, including superstar Phil Mickelson, sued the PGA Tour after leaving the elite circuit earlier this year for the LIV Golf series.

The PGA Tour subsequently suspended those who quit saying the players could not participate in both leagues at the same time. The players wrote in their lawsuit that such an exclusionary standard maintained the “PGA Tour’s monopsony power over the purchase of services from professional golfers to participate in elite golf events”.

The alleged harm the golfers faced ultimately might be tricky to determine given the Saudi-backed LIV golf had dedicated hundreds of millions of dollars to tournament purses and signing bonuses. Still, even as politicians have worried about factory workers and fast-food employees, “antitrust laws still apply to workers who make a lot of money”, said James Fishkin, a partner at law firm, Dechert.

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