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MLB's monopolistic blackout rules and a lawsuit that could change everything
by Scott Butler 2/22/14

I recently did the unthinkable and…gasp…cancelled my cable. I watched my Comcast internet and cable bill drop $53 - now all I pay is 8 bucks for Netflix. For a cheap guy like me, there is no greater feeling. 

Of course, I will come crawling back to Comcast in April, begging them to accept my 53 dollars again. Why? Oh, that is simple. If I want to watch the Phillies I have no other choice.

Welcome to Major League Baseball’s blackout rules; a maddening display of how MLB chooses to run their business – preying on the very consumers who pay their bills. Not that this is a surprising revelation. Baseball has conducted business in this fashion all along, taking advantage of an absurd antitrust exemption which allows them to do…well…whatever they want.

Their multi-billion dollar (yes, billion with a ‘b’) TV deals show how easy it is to make money if you don’t need to worry about those burdensome things called ethics.

Baseball is making the kind of cash from their local TV deals to make Scrooge McDuck blush: $8.5 billion for the Dodgers, $3 billion for the Angels, $2.5 billion for the Phillies, and $1.2 billion for the Padres, just to name a few. Don’t mistake these deals as the result of incredible demand – baseball’s attendance, national ratings, and local ratings are actually flat or declining. Instead, these dramatic increases are a response to the reality that live sports are one of the last remaining vestiges in television with a near DVR immunity. The networks and cable companies know this and are trying to reel in the piles of cash while they still can.

Baseball could not reap such rewards without their exploitative broadcast policies which not only affect baseball fans, but every cable and satellite subscriber in America.

So this article is designed to do a few things. I will first give a little background on blackouts and explain how they work. Then I will show how Major League Baseball, with a little help from regional sports networks and cable/satellite providers, is exploiting everyone. Finally, I have the potentially great news of a lawsuit from a bunch of fans that could change everything.

MLB’s blackout rules

MLB’s blackouts are different from the NFL’s restrictions in which the NFL can black out locally games that are not sold out. Baseball does not black out games in that manner. They can’t, really, with 81 home games and few that are sold out. Baseball has their own uniquely manipulative version in which they black out fans by broadcast regions, an arcane set of territories which don’t seem to follow any particular logic. Good luck deciphering these TV regions.

MLB Blackout Map

How does it work? I will illustrate using my Philadelphia region as an example.

Comcast Sportsnet Philly is the regional sports network in the Philadelphia region and they have exclusive rights to the entire area. They cannot broadcast in other regions like Baltimore or New York, but none of those teams can broadcast in Philadelphia. It is a monopoly as far as I am concerned and lets CSN Philly charge the cable/satellite companies essentially whatever they want. Considering the exorbitant money they paid for the broadcast rights, you better believe that price is steep.

MLB’s slubberdegullion commissioner Bud Selig will say these regions exist to protect the smaller market clubs and that regional TV agreements are necessary to support the business of baseball. The argument here is that creating regions protects against teams like the Yankees becoming “America’s team” at the expense of the smaller market clubs. It is a valid argument and in many cases allows teams to be competitive in areas they never were before.

In reality, these regions exist for the sole purpose of producing regional monopolies which allow teams to raise their prices. It is classic Market Allocation and to me represents a direct violation of antitrust laws. Justin Bynum at investopedia.com used this analogy to describe Market Allocation: “Suppose my company operates in the Northeast and your company does business in the Southwest. If you agree to stay out of my territory, I won't enter yours, and because the costs of doing business are so high that startups have no chance of competing, we both have a de facto monopoly.”

MLB’s ability to behave as one group separates them from all other major sports and offers a huge advantage because it eliminates competition between teams which would inevitably lower prices. Four years ago, the NFL lost a Supreme Court case which ruled they must act as 32 individual teams, but baseball’s antitrust exemption allows them to continue operating as one collective group.

Not only does baseball take advantage of this luxury, but they dangle it in front of us in plain sight with MLB.TV. Baseball offers MLB.TV as a live streaming service which they claim allows fans to “watch every out-of-market regular season game LIVE”. Every game. Live. Pretty cool. But most of us know the slight-of-hand wordplay trick inherent in the service with three dirty words: out-of-market.

Only offering out-of-market games means fans can watch every team except the one in their home town. I can gorge on Rays and Marlins games, but I cannot watch my home town Phillies - I will be blacked out. Baseball is so eager to protect their regional TV agreements that they will openly deny fans who will gladly fork over the $109.99 per season for the standard or $129.99 for the premium service. So while baseball is busy drooling over themselves about their wonderful product, they slam the door on the home fans.

Blacking out home games and monopolizing sports regions gives regional sports networks (RSN) the ultimate control. With no competition, RSN’s hike up their rates and leave the cable/satellite companies with two choices. They either accept the crazy monthly rate, which is passed on to all of their customers, or they can choose not to carry the RSN at all.

Fans in Houston and San Diego understand this process all too well.

Three of Houston’s cable and satellite companies have refused to pay the $3.40 carriage fees CSN Houston wants to charge per customer. That leaves 60% of people in the Houston area without access to Astros games. Baseball, of course, will not allow them to watch the Astros on MLB.TV, so they are left in the dark. In San Diego, 40% of cable and satellite customers don’t have access to Padres games because Time Warner Cable has refused to pay the carriage fee Fox Sports San Diego charges. (1)

It is not just Houston and San Diego. These regions claim millions more victims…

If you live in Iowa, you are considered part of the region for the Brewers, Cardinals, Cubs, Royals, Twins, and White Sox. It makes little sense for the cable/satellite providers to carry those games, so fans are unable to watch those teams on television and live too far away to attend the games, yet they are still blacked out by MLB.TV.

The same is true in Vegas, where you cannot watch the A's, Angels, Diamondbacks, Dodgers, Giants, or Padres. Or in Hawaii, 2,563 miles from the closest MLB team, where you won’t see the Giants, A's, Dodgers, Angels, Mariners, or Padres. The largest blackout region belongs to the Seattle Mariners, who black out games in the entire states of Washington and Montana as well as sizable chunks in Oregon, Idaho, and…Alaska. Their region covers roughly 1,500 miles in diameter, not including Alaska. (3)

These policies don’t just hurt the local sports fans; they heavy the pockets of all cable and satellite customers. Which brings us to another topic: bundling.

Bundling

Cable’s bundling practices are not exclusive to baseball, or sports in general, but they are a problem nonetheless. The word bundle can be applied in two different ways. One type of bundling is network bundling, in which companies who own several stations bundle their channels together. An example of that is the Disney Corporation, who owns ABC, Disney Network, and ESPN. If a cable or satellite operator wants to offer ESPN to its customers, it must purchase all Disney-related programming. The cable or satellite company then has no choice but to offer ESPN and Disney Network as a bundle, even if some customers only want ESPN and others only want Disney. (2)

This type of bundling forces the cable providers to either take the bundle and force everyone to pay for channels they don’t want or not offer it altogether – and no provider would dare dropping ESPN. With a carriage fee of around $5 a month for ESPN, this becomes a real cost to everyone.

Cable and satellite providers do a bundling of their own by packaging their stations together in tiers so that if a channel you want like CNN is in a higher tier, customers must purchase the entire package in order to watch that one channel. The same is true with ESPN and the RSN's. Not only are certain people forced to upgrade, but the rest of the customers are all forced to pay for ESPN.

"Here is a little old lady who wants to watch CNN," said Ralph Morrow, owner of Catalina Cable TV. "But I can't give it to her without $21 a month in sports." (4)

The entire system is getting out of hand, and many feel the sports bubble is about to burst.

Bursting the sports bubble?

“The cable industry has done everything it can to bundle programming and force consumers to buy things they don’t want,” said Gene Kimmelman, a former Justice Department antitrust lawyer. “Finally, one piece of their bundle (namely ESPN and the RSN’s) has become so expensive that it may finally force the cable industry to shift gears and split the bundle out of fear of pricing its own customers out of the market.” (5)

The bubble might burst sooner than you think.

John Malone, who helped create the modern-day cable system, raised eyebrows when he said in November that “runaway sports rights” costs amounted to “a high tax on a lot of households that don’t have a lot of interest in sports.” The only short-term fix, he said, was government intervention. (5)

Michael Powell, a former chairman of the Federal Communications Commission and now the cable industry's top lobbyist, agrees. "We all ought to wake up and be careful ... so we don't blow this into smithereens at some point and invite the government to do it for you, which I think nobody would be a winner in," Powell said. (6)

The government has already intervened in a small way through the FANS Act of 2013. On Nov 12, Senators Richard Blumenthal and John McCain introduced the Furthering Access and Networks for Sports (FANS) Act of 2013. The FANS Act aims to “decrease the frequency of sports blackouts by requiring leagues to meet basic obligations to fans if they wish to continue receiving substantial benefits from the public.” (7)

Here’s what the authors of the bill had to say:

Blumenthal said, “This legislation would protect fans who now get the short end of the stick from leagues that treat the public with contempt while continuing to enjoy public benefits. Fans deserve to be put first – or at least treated fairly.”

McCain said, “The FANS Act would return the focus to the fans, consumers, and taxpayers who make these leagues as successful as they are.”

Don’t jump up and down yet, baseball fans, because the FANS Act is aimed mainly at the NFL and would likely cause only ripple effects for baseball. Since baseball does not follow the NFL’s blackout rules, they will feel a limited effect, if at all, from this bill.

While the FANS Act may not amount to much for baseball fans, all hope is not lost. One lawsuit from several fans could actually force baseball to adjust their policies.

MLB blackout lawsuit

Filed on May 9, 2012, two consolidated class-action antitrust suits, Garber et al v. Office of the Commissioner of Major League Baseball  and Laumann et al v. National Hockey League, aim to end the blackout rules. Eight fans sued the NHL, MLB, various clubs within the leagues, regional sports networks, Comcast, and DirecTV for violating anti-trust laws.

The basis of the argument is simple: by dividing up territories, packaging their out-of-market games together through MLB.TV, and creating blackouts, MLB is in violation of the Sherman Antitrust Act. (3) Baseball has filed several motions to dismiss and/or delay, but all were denied by the court. (2)

On Dec 5, 2012, the suit passed its first major hurdle when U.S. District Judge Shira Scheindlin agreed to hear the trial. While she did dismiss parts of the complaint, including dismissal of three fans for “lack of antitrust standing,” she allowed the core of the case to move forward. (8) (9)

If you are keeping score at home, that makes it 1-0 good guys. 

In order to win, the plaintiffs must convince that MLB acted in restraint of trade, meaning their actions harm competition rather than encourage it.

MLB, through their antitrust exemption, has been allowed to act as one entity rather than 30 teams, enabling MLB to blackout games by region and preventing teams from competing with each other. This may hurt individual teams, but it allows baseball to eliminate competition among teams and, in theory, raise prices.

Judge Scheindlin is questioning if this represents restraint of trade. She supported the 2010 ruling by the Supreme Court in American Needle, Inc. v. National Football League that the league can't band together as one business instead of 30 separate companies. “American Needle conclusively established that these kinds of arrangements are subject to Section 1 (of the Sherman Act) scrutiny,” Scheindlin wrote in a 53-page decision. (8)

MLB contends that blackout rules do not equal restraint of trade. (10) "Their argument is they're not trying to do this to hurt fans," said Gabe Feldman, a law professor and director of Tulane Sports Law Program. "They're not doing this to hurt individual teams. They're doing this for the better of the sport and fans." (10)

Judge Scheindlin said MLB's policy raises prices, reduces competition among teams, and uses "monopoly power" to restrict fans' ability to watch games. (11)

An “agreement that allocates a market between competitors and restricts each company’s ability to compete for the other’s business may injure competition,” Scheindlin wrote. (8) "Making all games available as part of a package, while it may increase output overall, does not, as a matter of law, eliminate the harm to competition wrought by preventing the individual teams from competing to sell their games outside their home territories in the first place." (11)

Her decision includes the regional sports networks. “Plaintiffs have therefore adequately alleged participation on the part of the RSNs in the conspiracy to geographically divide the market for professional hockey and baseball games.” (8)

Discovery phase puts blackout policy in serious danger

Now that Scheindlin agreed to take on the case, MLB has now moved to the dangerous stage of “discovery.” During the discovery phase, parties exchange documents and depose key witnesses under oath, in preparation for trial. Discovery is a slow, laborious process which could expose baseball’s internal discussions to the public. (2)

It is difficult to determine how it plays out from here. MLB could fight the entire way and hope for a favorable ruling. Or, as is the case with many antitrust lawsuits that hit discovery, they can settle and adjust their policy. (11) "It's action like this that often causes the rules to change or causes leagues to soften them," Gabe Feldman said. (10)

Could this mean ripping up the existing local television contracts? Maybe.

"I don't think they're going to agree to radically change things," said Michael McCann, director of the Vermont School of Law's Sports Law Institute and a legal analyst for Sports Illustrated. "I don't think they're going to be intimidated by this – yet. But that's one benefit of filing a lawsuit. It sometimes encourages 'voluntary' responses." (10)

The discovery period has already passed the one-year mark and it still has a ways to go. Jeff Passan of Yahoo! Sports has written several articles on this topic. When I asked Passan for an update on Feb 2, he tweeted, “Depositions happening right now. Ruling/settlement could be in place for 2015 season. Hopefully, it's one that's good for fans.”

The end is in sight

Baseball has enjoyed a life of luxury to this point. Their antitrust exemption has given them the ability to monopolize the sport and take advantage of fans for a long time. But the days of collusion between baseball and the television industry might be numbered. As the 2014 season soon approaches, I will fork over hundreds of wasted dollars to watch the Phillies, fans in Houston and San Diego cannot watch their home teams, and millions more throughout the nation are blacked out from watching teams hundreds and sometimes thousands of miles away. But we finally have our own trick hiding up our sleeves, as eight fans with the guts to fight for us all might end this whole charade by this time next year.

Works Cited

(1) Thurm, Wendy. "Dodgers Could Be Last Team To Strike Gold With Local TV Deal."Dodgers Could Be Last Team To Strike Gold With Local TV Deal | FanGraphs Baseball. Fangraphs, 26 July 2013. Web. 22 Feb. 2014.
(2) Thurm, Wendy. "McCain Introduces Bill To Ban NFL Blackouts, MLB Blackouts Untouched." McCain Introduces Bill To Ban NFL Blackouts, MLB Blackouts Untouched | FanGraphs Baseball. FanGraphs Baseball, 14 May 2013. Web. 22 Feb. 2014.
(3) Passan, Jeff. "MLB's Blackout Problem Keeps Sport in Dark Ages." Yahoo Sports. N.p., 22 June 2012. Web. 22 Feb. 2014.
(4) Fernandez, Bob. "About Half of Cable-TV Bills Go to Sports." Philly.com. N.p., 19 Nov. 2012. Web. 22 Feb. 2014.
(5) Stelter, Brian. "Rising TV Fees Mean All Viewers Pay to Keep Sports Fans Happy." The New York Times. The New York Times, 25 Jan. 2013. Web. 22 Feb. 2014.
(6) Flint, Joe. "Powell Says Rising Sports Fees Could Lead to Government Intervention." Los Angeles Times. Los Angeles Times, 07 Dec. 2012. Web. 22 Feb. 2014.
(7) Zembik, Josh, and Brian Rogers. "Blumenthal, Mccain Introduce Bill To End Sports Blackouts." US Senator Richard Blumenthals. N.p., 12 Nov. 2013. Web. 22 Feb. 2014.
(8) Garber Et Al v. Office of the Commissioner of Major League Baseball and Laumann Et Al v. National Hockey League. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK. 05 Dec. 2012. N.p., 05 Dec. 2012. Web. 22 Feb. 2014.
(9) Owens, Fred. "Blackouts Be Gone: An €“Update." Call to the Pen. Si.com, 04 Apr. 2013. Web. 22 Feb. 2014.
(10) Passan, Jeff. "TV Blackouts Case against MLB at Critical Point." Yahoo Sports. N.p., 21 Sept. 2012. Web. 22 Feb. 2014.
(11) Passan, Jeff. "Lawsuit Targeting MLB's Blackout Policy to Proceed." Yahoo Sports. N.p., 05 Dec. 2012. Web. 22 Feb. 2014.

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