Baseball Prospectus - Ending Baseball's Antitrust Exemption

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November 26, 2001
Ending Baseball's Antitrust Exemption
What Would It Mean?

by Alex Belth

Baseball's exemption from antitrust laws--which prohibit actions that unreasonably restrain competition--stems from a 1922 Supreme Court decision in which the Court ruled that antitrust law did not apply to baseball. The rationale was that baseball games were local affairs, not interstate commerce. The Supreme Court upheld the antitrust exemption twice, first in 1953 and again in the famous 1972 case in which Curt Flood sued Bowie Kuhn in his attempt to have the reserve clause declared illegal and have himself declared a free agent.

After the 1975 Andy Messersmith arbitration ruling in which the reserve clause was deemed to cover one, and only one, season, Major League Baseball and the Players Association eventually agreed on a structure for free agency, but the antitrust exemption remained. The Supreme Court has made it clear that it would not overturn the exemption, insisting that only Congress could do so.

Baseball is the only major sport that has an exemption from antitrust law. Whenever Major League Baseball is involved in a major controversy, Congress starts talking about revoking the exemption. This talk reached a fever pitch during the 1994-95 players' strike, but nothing happened. After that labor war, MLB and the Players Association agreed to lobby Congress for a limited repeal of the exemption where labor matters are concerned.

In 1998, Congress passed the Curt Flood Act, which partially repealed the antitrust exemption to give the Players Association the same rights as the unions in the other major sports. Congress specifically stated that the exemption was still intact with respect to relocation, the reserve clause, the minor leagues, and broadcasting contracts. This Act also had the effect of writing the antitrust exemption into law, ensuring that a full repeal will only come from Congress, and not the Supreme Court.

The antitrust exemption prevents Major League Baseball from being sued for federal antitrust violations. Unless Congress removes the exemption, baseball owners make any decisions they want and they can't be sued for them on antitrust grounds. This last part is important. As we've all noticed, any time the owners try to do anything to change the game, the MLBPA jumps up and down screaming that they weren't consulted. While owners can do anything they want without regard to antitrust law, they can't do anything that violates the Collective Bargaining Agreement. The CBA calls for almost every dispute to be arbitrated, just as many labor agreements do. So that means that the decision on, say, contraction could come down to what arbitrator Shyam Das thinks, rather than a judge or jury.

If baseball's antitrust exemption were repealed, would baseball as we know it change? Probably not; baseball would just have to live by the same set of rules as the NBA, NHL, and NFL.

The NFL has been involved in most of the high-profile sports antitrust litigation, like its suits against Al Davis and the United States Football League. As those cases demonstrated, an antitrust suit is not necessarily fatal. While the NFL did lose both cases, sports leagues have won many antitrust suits in the past. In an antitrust lawsuit, the league has to show that it did not violate antitrust laws by showing that its actions, on the whole, did more to promote competition than to inhibit it. While Al Davis beat the NFL in court, the NFL might well have won if it had a clear set of rules and had followed them instead of acting out of their particular dislike for Al Davis. And while the USFL won its suit against the NFL, it was awarded a grand total of $3 in damages.

If Congress does completely repeal baseball's antitrust exemption, there could be some interesting long-term consequences. First, the minor leagues could be affected. 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. The NBA and NFL have no minor-league systems at all. Hockey does have minor-league teams, but these are negotiated into hockey's collective bargaining agreement with its players.

If baseball lost its antitrust exemption, the reserve clause would be subject to a legal challenge. If the clause were found to be a violation of antitrust law, baseball teams might have to forfeit the rights to some or even all of their minor-league players. Without an interest in developing the players to whom they held rights, big-league teams would have less incentive to support their minor-league affiliates by subsidizing their operations. Is it any wonder that the minor leagues have lobbied Congress to preserve baseball's antitrust exemption as it relates to them? Without the exemption, the minor leagues would have to change their operations, becoming more like the free minor leagues of the first half of the 20th century as opposed to subjects of MLB.

With no legal right to have a reserve clause, the owners would lose power in negotiating with the players. If the only thing that would make the reserve clause legitimate is the players' willingness to agree to it, there will probably be a lot of changes. If teams will lose their rights to players much faster, they will be a lot less willing to draft players out of high school and wait four or five years for them to develop, especially if they would have to spend much of that time on a major-league roster. That could mean a big boost for college baseball, and probably for international baseball leagues as well. Those would become the primary breeding grounds for MLB talent, the same way they have been for football and basketball.

If the antitrust exemption goes, the biggest change will be in the area of franchise relocation and, especially, contraction. It's been almost 30 years since a baseball team moved from one city to another. Since then, the other three sports have seen several moves each. That's because the antitrust exemption gives baseball's owners much more power to prevent teams from moving than the owners have in other sports. This power was particularly clear in 1992, when Bob Lurie wanted to sell the Giants to Vince Piazza's group in Tampa/St. Petersburg for $115 million. The owners refused to permit the sale, and subsequently forced Lurie to sell the team to Peter Magowan for $100 million. Piazza sued MLB and actually won the first round of the battle--the ruling court said the antitrust exemption did not apply to relocations--before the case settled. The Curt Flood Act now leaves no doubt that the exemption does apply to relocations.

Without an antitrust exemption, it would be much harder for MLB to stop a team from moving. If it tried to block a relocation, there would certainly be a lawsuit by the team or the city to which it was trying to move. The lawsuit would resemble Al Davis's suit against NFL. Baseball would have to show that preventing the move would be better for competition, and that the decision was based on a clear set of guidelines. No one knows whether Vince Piazza would have won the right to buy the Giants, but it would have been a close case. It would also become very difficult for MLB to prevent a team from moving to the Northern Virginia/Washington, D.C., area on the grounds that Peter Angelos has exclusive rights to the entire area.

If Congress were to repeal the exemption, the contraction battle would almost certainly not be fought on the issues of the labor agreement and the Twins' lease. The opponents of contraction would argue that the owners were trying to eliminate two of their competitors in order to raise their own profits, a classic antitrust violation. The owners would have to defend the move on the grounds that they were improving competition in the sport. It is not clear who would win the suit, but it would be a long, ugly trial. Like the Microsoft decision, it would be subject to an even longer appeals process. The court battles would take years, during which time MLB would be prohibited from contracting.

It is hard to tell whether the game or the country would be better off if baseball lost its antitrust exemption. The lawyers would certainly be better off, since there would be more lawsuits. Fortunately for the owners, Congress moves slowly, and MLB has successfully fought other efforts to repeal the exemption.

Jason Barkham is a judicial law clerk in New York. He can be reached at jason_barkham@yahoo.com.