With several MLB teams signing multi-billion dollar television contracts, business is good for baseball owners. Despite plummeting national TV ratings and flatlining or declining local ratings last season, local TV money has gone berserk.
How is MLB able to do it? Part of the answer is not something the owners want publicized: it is baseball’s antitrust exemption.
Antitrust laws are statutes developed by the U.S. Government to protect consumers from monopolistic business practices and ensure fair competition exists. Or, as the Federal Trade Commission describes it, “These laws promote vigorous competition and protect consumers from anticompetitive mergers and business practices.” (2) These laws were made official by Congress through the Sherman Antitrust Act in 1890.
Major League Baseball is exempt from antitrust laws, meaning they cannot be sued for federal antitrust violations.
Federal League Case
Baseball’s antitrust exemption emerged from a case brought forth by the Federal League, a professional baseball league which competed with the established National and American Leagues from 1914 to 1915. (4) When the Federal League folded in 1915, they sued Major League Baseball for interfering with their attempts to hire players that were between contracts from the American and National Leagues, alleging violations of both Sections One and Two of the Sherman Act. (3)
The NL and AL avoided the suit by eventually buying out seven of the eight Federal League teams. The owner of the Federal League’s Baltimore Terrapins franchise refused to accept the buyout offer, however, and instead filed a new suit against both the AL and NL, again alleging that they had conspired to monopolize the business of baseball in violation of the Sherman Act. (3)
In April of 1919 a court found in favor of the Baltimore owners and awarded them $240,000 in damages. The case was appealed and eventually overturned in 1921 on the merit that that baseball “was not the kind of commerce” federal law was intended to regulate. (5)
On May 22, 1922, the U.S. Supreme Court upheld this decision in a landmark federal lawsuit, Federal Baseball Club v. National League, in which the Supreme Court ultimately ruled that the Sherman Antitrust Act did not apply to Major League Baseball. (5) (4)
Justice Oliver Wendell Holmes held that professional baseball was not within the scope of federal antitrust law, which governs only interstate commerce. (3) Since baseball games were “purely state affairs” taking place in only a single state and the only way to follow the action was by attending the game, he reasoned that the business was intrastate, rather than interstate, in nature. (3)
So there you have it. One Supreme Court decision 92 years ago exempted Major League Baseball from antitrust laws and, outside of one minor decision, have enjoyed their blank check ever since.
Toolson v. New York Yankees
The Supreme Court did not revisit its Federal Baseball decision until the 1953 case of Toolson v. New York Yankees. (3) In the case, a minor league player from the New York Yankees’ farm system filed suit after he was blacklisted in 1950 for failing to report to the Yankees’ minor league affiliate in Binghamton as he had been assigned. (3)
The Toolson Court affirmed the Federal Baseball decision, stating that “the business of providing public baseball games for profit . . . was not within the scope of the federal antitrust laws.” (3) Rather than making a judgment on the previous reasoning which claimed exhibitions of baseball were not interstate in nature, they avoided any official decisions and ruled that it was the duty of Congress to revoke baseball’s exemption and not the Court. (3)
Through several other intervening decisions, the lower courts limited the application of Federal Baseball and Toolson to only the business of baseball, refusing to extend the exemption to any other industries or sports. (3)
Flood v. Kuhn
Baseball’s exemption finally reached the Supreme Court again in 1972 in the case of Flood v. Kuhn. Curt Flood was an outfielder for the St. Louis Cardinals who was traded to the Philadelphia Phillies in 1969. (3) Flood refused to play for the Phillies, instead requesting that he be declared a free agent and allow him to sign with the team of his choice. (3) When the commissioner declined, citing the reserve clause in Flood’s contract, Flood filed suit against MLB. (3)
The Supreme Court let the old decision stand, but also criticized much of their exemption status. Justice Blackmun noted that “baseball is a business and it is engaged in interstate commerce,” a finding counter to the previous ruling. Justice Blackmun also admitted that the baseball exemption was “an exception and an anomaly,” but they were “loath . . . to overturn judicially” a decision which Congress failed to address, so they again left it up to Congress to handle. (3)
Although Flood lost in court, his suit helped enable MLB players to earn the right for free agency. Flood’s case educated players about the “fundamental inequity of the reserve system,” which binded a player to “one club for life, or until that club decided to get rid of the player.” (7) It helped develop, outside of any court rulings, the first-ever collective bargaining agreement in 1968, allowing players the right to arbitration to resolve grievances. In December 1975, the players also won the right to free agency. (8)
The Curt Flood Act
Congress finally addressed baseball’s antitrust status in 1998 by passing the Curt Flood Act, allowing MLB players to file antitrust suits, making official what had already been agreed upon through the collective bargaining agreement.
The result of the three Supreme Court cases, several lower court cases, and the Curt Flood Act was that baseball had a complete exemption from antitrust laws outside of the small non-exemption of the players’ ability to file antitrust suits. Major League Baseball, therefore, operated and continues to operate in a near monopoly.
Congress must pass legislation to completely remove Major League Baseball’s antitrust exemption status. Antitrust laws were designed to protect the consumer, but baseball’s exemption runs completely counter to that, protecting only the owners within MLB and not the consumers (in this case the fans) who allow baseball to operate in the first place.
One of the recurring themes for baseball’s exemption is that it is necessary for the “business of baseball.” I will now examine the reasons exemptions should not apply to any baseball functions.
Number of Teams
As noted by the court in Major League Baseball v. Butterworth, it is “difficult to conceive of a decision more integral to the business of major league baseball than the number of clubs that will be allowed to compete.” (6) That is a valid point. If baseball was forced to add teams, they would risk overexposure and a diluted product, while also potentially having poorly financed franchises disband.
Without their exemption, prospective owners of teams would have the ability to file suits against MLB if they choose to deny their entry. That, in my mind, is the entire point - the reason antitrust laws exist in the first place is to promote competition and prevent unfair business practices. Therefore, in order to block a suit, baseball would have to prove that preventing an additional team would be better for competition, based on a clear set of guidelines. (7) If they are unable to prove that, they probably are indeed violating antitrust laws. It is unlikely baseball would lose any such case, because they have already diluted the product with too many teams on their own.
Baseball’s strongest case is perhaps against the relocation of teams. Using their exempt status, baseball owners have the ability to block the sale of a franchise. One example is when the owners blocked the potential sale of the Giants in 1992 which would have relocated the team to Tampa/St. Petersburg. (1) Without an antitrust exemption, it would be much harder for MLB to stop a team from moving. But, again, if baseball cannot prove a move would hinder competition, they probably have no basis for denial.
Where it gets really interesting is in the impact on the minor leagues in a post-exemption world.
As explained on Baseball Prospectus, “Minor-league baseball today depends on the continuing existence of the reserve clause, which allows a major-league team to retain the rights to a player even after the player's contract expires. The reserve clause allows baseball to have deep minor-league systems by allowing the teams to retain the rights to many players who are not on their major-league rosters.” (7)
As strange as it might sound, the minor leagues generally enjoy this relationship and have even lobbied Congress to preserve MLB’s exemption because of it. (7) Without the reserve clause, baseball teams might have to forfeit the rights to some or even all of their minor-league players and decide to no longer subsidize affiliate clubs. (7) While this would likely completely change the landscape of the minor leagues, it is also possible that independently operated minor league clubs would be good for the game.
In all likelihood, the players’ association and Major League Baseball would modify the collective bargaining agreement to benefit both players and owners, similar to how the NHL operates.
The Curt Flood Act of 1998 made it possible for MLB players to bring antitrust suits against baseball owners, but that is not the case for umpires, managers, coaches, and minor league players. This goes completely against the spirit of the Sherman Act and must be changed.
Language throughout the Supreme Court cases mentions baseball’s exemption applying to “the business of baseball.” Clearly those personnel are integral to the business of baseball, which is exactly the reason their exemption should not apply. If these personnel are so important, baseball has no basis to restrict their opportunities.
And we finally arrive to the reason I began this crusade in the first place: broadcasting of games. I will get into this in MUCH more detail in my next post, so for now I will keep it very brief.
When baseball was first given their exemption in the Federal League case, the Court concluded that "the business of professional baseball was not interstate in nature.” (3) Specifically, Justice Holmes focused on the precise business activity at issue in the case as “giving exhibitions of baseball,” events that he concluded were “purely state affairs.”
Clearly, television, radio, and Internet broadcasts cross state lines, placing broadcasts outside the realm of the initial exemption. With fans following teams from across the globe from hundreds, if not thousands of miles away from their rooting interest, baseball’s exemption should not apply to broadcasts.
Licensing, concessions, and sponsorships
Finally, baseball’s licensing, concessions, and sponsorships are not directly related to the business of providing exhibitions of baseball and should not fall under the exemption umbrella. They are not unique to baseball and they should therefore be treated no differently than any other businesses. They do not affect the experience of a fan watching a baseball game, nor does it help deliver baseball entertainment to the public. (3)
As you have seen, there are many layers to baseball’s antitrust exemption, but I find very little evidence to support the idea that Major League Baseball should enjoy blanket antitrust exemptions which no other professional sports league and very few businesses have.
The Supreme Court has made it clear on numerous occasions that it is up to Congress to remove their exemption from antitrust laws. Unwilling to wait for Congress to act, several fans filed a lawsuit (which I will discuss in my next article) with the potential to take baseball’s exemption to its knees.
For now, though, understanding baseball's exemption exposes the fact that our national pastime is not quite as American as they want you to believe.Tweet
(1) Bynum, Justin. "What Is an Antitrust Law?" Investopedia. N.p., 27 Apr. 2011. Web. 09 Feb. 2014.
(2) "Guide to Antitrust Laws." Federal Trade Commission. N.p., n.d. Web. 08 Feb. 2014.
(3) Grow, Nathaniel, Defining the 'Business of Baseball': A Proposed Framework for Determining the Scope of Professional Baseball's Antitrust Exemption (January 6, 2010). UC Davis Law Review, Vol. 44, No. 2, p. 557, 2010. Available at SSRN: http://ssrn.com/abstract=1579150
(4) "Federal League." Wikipedia. Wikimedia Foundation, 19 Jan. 2014. Web. 09 Feb. 2014.
(5) Bendix, Peter. "The History of Baseball's Antitrust Exemption - Beyond the Box Score." Beyond the Box Score. SB Nation, 03 Dec. 2008. Web. 09 Feb. 2014.
(6) Grow, Nathaniel. "Sports Law Blog." Sports Law Blog. N.p., 30 Mar. 2010. Web. 09 Feb. 2014.
(7) Belth, Alex. "Ending Baseball's Antitrust Exemption." Baseball Prospectus. N.p., 26 Nov. 2001. Web. 09 Feb. 2014.
(8) "Major League Baseball Players Association: MLBPA History." Major League Baseball Players Association: MLBPA History. MLBPlayers.com, n.d. Web. 06 Feb. 2014.
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