Antitrust and Labor Disputes in the MLB, NFL, and NBA — Cornell Undergraduate Law & Society Review

By: Evan Hammer ‘24

Millions of people watch professional sports every day, and most take for granted the immense impact that antitrust legislation has had on each league. This paper will explore how various court decisions have altered the MLB, NFL, and NBA, as well as examine the ways in which labor disputes have played a role in progressing leagues into the modern era. But before examining the legislation that has taken place in each league, I am going to briefly cover the rich history of antitrust and labor law in the United States. Antitrust law is analogous to anti-competition law, designed to preserve economic liberty by promoting competition among firms. Within a market, more competition generally leads to lower prices for consumers, and Congress has passed three acts that prevent firms from conspiring to raise prices.

The first antitrust legislation was the Sherman Antitrust Act, adopted in 1890. The act outlawed restraint of trade and monopolization, and punished firms who conspired to exploit consumers in these ways. In the decades after its passing, the Supreme Court took the position that the language used in the act doesn’t prohibit all attempts to restrain trade or monopolize, only those that are “unreasonable.”1 This standard is known as the Rule of Reason and comes from Standard Oil Company of New Jersey v. US (1911).2 The holding can make it more difficult for plaintiffs to prove economic harm in certain instances, but when competing businesses attempt to fix market prices, segment markets, or rig bids, they have committed a ‘per se’ violation of the Sherman Act. To fall within the act’s jurisdiction, affected markets must involve interstate commerce.

In 1914, Congress added on to antitrust legislation, passing the Federal Trade Commission Act and the Clayton Act. The former bans “unfair methods of competition” and “unfair or deceptive acts or practices.”3 Intuitively, all violations of the Sherman Act also violate the FTC Act, which just allows the FTC to prohibit activities similar to what the Sherman Act prohibits. The Clayton Act addresses anti-competitive practices that the Sherman Act does not. Most notably, it prohibits mergers and acquisitions that lessen competition or create a monopoly and interlocking directorates, or when competing companies share a high-ranking official. The Act has been amended twice, by the Robinson-Patman Act in 1936 and the Hart-Scott-Rodino Antitrust Improvements Act in 1976. These additions ban certain discriminatory actions between merchants and require companies planning large mergers or acquisitions to notify the government in advance.4 It should be noted that these acts fall under both civil and criminal law, and the criminal punishments for violating any of the antitrust acts include up to ten years in jail and fines up to three the amount gained by the conspirators or lost by the victims of the crime, as amended.

While the focus of this paper is on antitrust legislation, we will see that such disputes in sports often go hand-in-hand with collective bargaining. Labor unions are designed to negotiate employment contracts as a group, and the resulting agreement is known as a collective bargaining agreement, or CBA. In professional sports leagues, labor unions are called players associations and often abbreviated similarly to the league itself, like the MLBPA or NBPA. Naturally, a league’s players association will advocate for its players when they want to change certain aspects of their contract or challenge certain precedents. Later in the paper we’ll discuss the Supreme Court’s eventual ruling that players can’t bring antitrust suits against provisions in CBAs, so unions must be very careful to address such issues when negotiating a new contract.

While all four major professional sports leagues in America have been involved in antitrust litigation, Major League Baseball is the only league with an antitrust exemption granted by the Supreme Court. The court made the decision that antitrust laws do not apply to MLB in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs in 1922. A few years earlier, the Federal League was founded by John T. Powers as a major league in competition with the American and National Leagues. However, the league folded in 1915, just two years after its establishment, causing them to bring antitrust action against Major League Baseball. As plaintiffs, the Federal Baseball Club alleged that the defendants conspired to monopolize the market for baseball players in violation of the Sherman Act.5 Specifically, the club charged that the other major leagues colluded to buy out the other Federal League teams or otherwise induce them to leave the league, resulting in a significant decrease in competition.

Although the trial court found in the plaintiff’s favor, the appellate court reversed, and the case was elevated to the Supreme Court. The unanimous decision was written by legendary Justice Oliver Wendell Holmes and held that baseball games had no discernible effect on interstate commerce, thus Major League Baseball was not in the jurisdiction of the Sherman Act.6 This decision came under scrutiny since baseball players traveled across state lines with their equipment for most away games. But Holmes and the court ruled that simply traveling to a different state does not constitute interstate commerce and they found that the defendants did not engage in any conduct that would otherwise restrict commerce among multiple states. This ruling formed the basis of Major League Baseball’s exemption from antitrust law in the United States, which would be reinforced and expanded with two subsequent cases.

While not mentioned in Holmes’ decision, a common subject of antitrust litigation in baseball and other leagues concerns the reserve clause. Simply put, this was a contract restriction that bound a player to the team they signed with for an extended period of time, even if their actual contract duration was short. They could renegotiate a contract with the same team but were forbidden to change teams unless given permission. The rule was essentially in effect from 1890 to the 1970s and lasted perpetually for most contracts.7

Many players felt that the reserve clause was unfair, and it was first formally challenged in 1953 in Toolson v. New York Yankees, Inc. The plaintiffs alleged the reserve clause unfairly restrained the trade of baseball players while exploiting them, thus violating the Sherman Act.8 Additionally, they alleged that organized baseball had colluded with the Mexican league since the reserve clause eliminated each league’s right to contract with certain players.9 The case was dismissed by the District and Appellate Courts, and the Supreme Court upheld these decisions. The court’s per curiam opinion refused to overrule Holmes in Federal Baseball Club of Baltimore, Inc as they believe that Congress’s repeated failure to pass legislation limiting baseball’s antitrust exemption should not be interfered with. This decision not only affirmed the 1922 decision but held that organized baseball in America could restrain trade through collusion with baseball leagues in other countries and still be exempt from antitrust laws in the United States.

The last seminal case concerning antitrust in organized baseball was brought to the courts in 1972, three years after the St. Louis Cardinals traded outfielder Curt Flood to the Philadelphia Phillies. Flood was a three time All-Star and two-time World Series Champion, and he refused to play for the Phillies due to their poor record, dilapidated stadium, and seemingly racist fans.10 He forfeited his $100,000 salary and wrote a letter to commissioner Bowie Kuhn insisting he be declared a free agent and not subject to the restrictions of the reserve clause, which he controversially likened to slavery. Kuhn denied this request and Flood subsequently filed a lawsuit against Kuhn and Major League Baseball again alleging that the reserve clause violated federal antitrust laws. His attorney argued that the reserve clause limited competition and thus unfairly lowered player’s wages by binding them to one team for life. I’ll return to this concept shortly, but the Supreme Court did not address it. Instead, in Flood v. Kuhn (1972), they again acted on stare decisis, refusing to overturn baseball’s antitrust exemption. Notably, they agreed that organized baseball was engaged in interstate commerce, and in-so-doing eliminated some of the effects of the 1922 exemption.11 But they continued to hold that the reserve clause was unable to be overturned by the Supreme Court, again leaving that decision up to Congress.

Today, some of the most exciting moments for fans in sports occur after the season ends, when some of the league's best players inevitably enter free agency and have a chance to sign with a different team. But for much of the 20th century, baseball’s antitrust exemptions limited player movement and free agency wasn’t allowed. But by the 1970s, many could see that the reserve clause limited competition by not allowing other teams to offer players new contracts. Without teams able to bid on players, salaries were heavily depressed and competition among different teams was limited. But it wasn't the Supreme Court that put an end to baseball’s antitrust violations. In fact, Major League Baseball still maintains its antitrust exemption in many respects. But in 1975, the relatively weak MLBPA supported two of its players in challenging the reserve clause, and a grievance arbitration was filed that same year. Fortunately, impartial arbitrator Peter Seitz ruled in favor of the players, holding that clubs have no right to reserve players' services beyond the duration of their contracts plus one year. Following this decision, players not under contract were free to talk with other teams and thus a cornerstone of modern sports was introduced into professional baseball. Player’s average salary went from $16,000 in 1975 to $143,756 in 1980, almost five times more than the increase due to inflation12. This result dramatically increased the strength of the MLBPA, who would be involved in many other labor disputes, arbitrations, CBAs, and strikes in the future.

Most notable out of these was the 1994-95 player’s strike, the longest work stoppage in MLB history. It began on August 12, 1994 and resulted in the cancellation of the rest of the regular season and the postseason. In fact, it was the first time the World Series had not been played since 1904. The strike stemmed from the deterioration of the relationship between the players and the owners, who had proposed a salary cap. The league’s lack of an official commissioner made negotiations between the sides difficult. During the strike, Congress introduced five bills aimed at restarting the baseball season, and after 11 players were awarded $10 million in collusion damages as a result of the owner's actions in the past. The strike ended on March 31 when Judge Sonia Sotomayor issued a preliminary injunction against the owners. In 1998, Congress passed the Curt Flood Act, which took away baseball’s antitrust exemption for labor matters. However, due to Nonstatutory Labor Exemption, things like wages and conditions of employment receive an antitrust exemption as long as they are part of a collective bargaining agreement.13 Players are thus not able to sue MLB over things like free agency or the draft as long as the MLBPA exists, though we will see later that a union can decertify itself to give players the ability to pursue legal remedies if they desire.

Major League Baseball’s antitrust exemption was thus reluctantly upheld by the Supreme Court numerous times, but their exemption was unique in the professional sports world. To see why, we turn to the NFL, whose first antitrust issues began in 1946, when Detroit Lions player Bill Radovich asked to be traded to Los Angeles after leaving the team to serve in World War II. When Lions owner Fred Madel Jr. refused the request, Radovich signed with a team in the rival All-American Football Conference. Madel decided to blackball him from the league for five years, and when Radovich received an offer to sign with an NFL-affiliated team, Madel pressured the club to rescind their offer.14 A few years all of this happened, Radovich sued the NFL on antitrust grounds. But two lower courts dismissed the action, extending Federal Baseball and Toolson to the NFL. However, on certiorari review, the US Supreme Court concluded in Radovich v. NFL (1957) that baseball’s antitrust exemption was narrowly constructed and did not exempt other businesses from the antitrust laws, including professional football. Additionally, they noted that Radovich’s claim did not lack jurisdiction because the NFL broadcasted games across radio and television, constituting interstate commerce, and granted him relief based on the NFL’s violation of the Sherman Act.15 This decision established early on that other professional sports leagues would not be exempt from antitrust laws like MLB. As a result, there have not been many antitrust cases involving the NFL to make it to the supreme court, though some critical cases were decided in federal court.

The first of these cases followed a similar legal question to that of the Toolson case. Hall of Fame tight end John Mackey sued the NFL in 1976 alleging that the Rozelle Rule was a violation of antitrust law. The rule, named after commissioner Pete Rozelle, stated that when a player’s contract expired, he was free to sign with as new team so long as they compensated the former team for their loss.16 If compensation was not agreed on, Rozelle could award the former team money or players, so teams were wary of making high-profile signings as they didn’t want to lose a part of their roster. Mackey, backed by the weak NFLPA, also called for elimination of the option clause, which was the NFL’s form of the reserve clause. Clearly, these two rules severely limited player movement and in 1976 the courts ruled in favor of the players, finding that the Rozelle Rule constituted a refusal to deal, violating the Sherman Act17. But this decision alone did not result in free agency as there were other contractual provisions that deterred free movement.

The relationship between the NFL and the NFLPA from 1987 to 1993 was extremely tenuous and saw a union strike in 1987, several antitrust lawsuits, the decertification of the NFLPA to allow antitrust lawsuits, and the resignation of Rozelle as commissioner.18 This period also marked the beginning of federal judge David Doty’s involvement in NFL labor disputes, and he would become known for urging both sides to settle at the bargaining table rather than in court. Because of this, in 1988 he sided with the league, upholding the CBA and refusing to grant free agency to 300 NFL players. The next year, the NFL implemented a limited free agency system known as “Plan B,” which allowed teams to protect certain players while giving teams the right to match offers or receive compensation, like the Rozelle Rule. During this dark time in NFL history, Doty ruled that players could file antitrust cases against the NFL as individuals, and many players did so in 1990, challenging Plan B as it restricted their mobility. A jury trial in Minneapolis awarded damages to the players and Doty declared some other players eligible for free agency in 1992. This back-and-forth culminated in a class action lawsuit filed by Reggie White on behalf of all NFL players. The sides settled out of court and the resulting agreement included open free agency, a salary cap, and a salary floor. The NFLPA then re-established itself as a labor union and a new CBA was agreed upon in 1993, which was extended five times until the 2010 season.19 While most NFL fans at the time will remember the 1987 strike, the intense antitrust and labor disputes that took place resulted in three key aspects of the NFL that most young fans can’t imagine the league without. Even though the NFLPA had to decertify itself to file certain lawsuits, the NFL would have continued to violate antitrust law had the players and their labor union not fought for increased player mobility and competition.

The last case I will talk about concerning the National Football League involves the United States Football League (USFL), which formed in 1982 and played games in the spring. In 1985, they tried to move to a fall schedule but went out of business shortly after. The NFL played games in the fall, and it quickly expanded its roster size from 45 to 49 so that it could recruit more USFL players. As a result, the USFL brought a lawsuit claiming the NFL monopolized player markets and broadcasting rights, as most games aired on television in the fall were NFL teams.20 In 1987, the US Court of Appeals for the Second Circuit found that, although the NFL did violate the Sherman Act in the ways the USFL charged, the USFL caused their own demise by switching from a spring to a fall schedule. They symbolically awarded the USFL one dollar in damages, which got multiplied by three as per the antitrust laws awarding of damages. The league was officially dissolved in 1990 and bears no legal connection to the USFL that played its inaugural season in 2022.

Like the NFL’s eventual court proceedings, NBA players acquired free agency in a settlement rather than through the decision of a court. In the 1970s, the NBA and ABA were set to join until Hall of Famer and president of the NBPA Oscar Robertson filed to enjoin merger on the grounds that it inhibited competition, as the two leagues were conspiring to limit player movement.21 While the court initially denied this motion, another lawsuit was filed and the merger was enjoined until the league and the players agreed to a settlement in 1976 that eliminated the NBA’s reserve clause and opened the door to free agency in the NBA.

The NBA has also seen antitrust action related to players joining the league out of college. Prior to 1971, the NBA required a player to be four years removed from graduating high school before he is eligible for the draft, but Spencer Haywood turned pro just two years into his college career. He led the ABA in scoring and jumped to the NBA the following season, as the Seattle SuperSonics owner ignored the four-year rule to sign him. The NBA threatened to disallow the contract, so Haywood commenced an antitrust action claiming the “group boycott” violated the Sherman Act. In Haywood v. National Basketball Association (1971), a district court issued an injunction in Haywood’s favor, and the Supreme Court upheld the decision, marking the end of the four-year rule.22 Nowadays, many fans are familiar with the “one and done” rule, which required talented players to attend one year of college before being eligible for the draft. While the current commissioner may be looking to change it, it is unlikely that any antitrust action will be filed since the rule is part of the CBA.

All three leagues have seen additional antitrust regulations, and modern professional sports have developed into billion-dollar industries due in part to such legislation. It began with professional baseball leagues and players feeling that their rights were being violated and thus bringing antitrust suits against the MLB. While the league was granted an exemption, the need to improve player’s rights became more recognized, and players’ unions across all leagues would eventually develop meaningful collective bargaining relationships with their respective owners. Since the few antitrust cases involving other leagues resulted in decisions for the players, owners wanted to avoid antitrust litigation when possible. Thus, the MLB, NFL, and NBA gained free agency, the draft, and other exciting aspects of the sport because of threats to sue under the Sherman act, though no legal action was actually taken. If it weren’t for players alleging that the reserve clause (or clauses like it) violated the Sherman Antitrust Act, teams may still be allowed to control players rights beyond the expiration of their contracts and free agency would not exist as we know it.

Endnotes & Works Cited

1 The Premerger Notification Office, DPIP and CTO Staff. “The Antitrust Laws.” Federal Trade Commission

2 Standard Oil Co. v. United States, 221 U.S. 1

3 The Antitrust Laws.” Federal Trade Commission

4 Ibid

5 Federal Baseball Club, Inc. v. National League of Professional Baseball Clubs, 259 U.S. 200

6 Ibid

7 Reserve clause - BR Bullpen (baseball-reference.com)

8 Toolson v. New York Yankees, Inc., 346 U.S. 356

9 Bartee, Howard. “The Role of Antitrust Laws in the Professional Sports Industry from a Financial Perspective.”

10 US Legal, Inc. “Antitrust Labor Law Issues in Sports.” Sports Law

11 Flood v. Kuhn, 407 U.S. 258