By: Will Long
Volume IX – Issue I – Fall 2023
I. Introduction and Background
In rural communities and small towns across America, minor league baseball is a cultural institution. For almost two centuries, minor league ballparks have been epicenters of American culture, uniting people around a shared love of baseball and preserving the rich tradition of our nation’s pastime. In return, these often rural communities have benefited from economic development and tourism brought in by minor league franchises. But abusing its antitrust immunity, in 2020, Major League Baseball (MLB) stripped many communities of their minor league teams, preventing 40 minor league franchises from affiliating with MLB organizations. [1] The decision works at a detriment to small-town economies, depriving small-town businesses, charities, and youth baseball leagues of revenue generated by the minor league franchises. [2]
In response, the Tri-City ValleyCats and Norwich Sea Unicorns, two teams stripped of their affiliation, alleged in a lawsuit that MLB’s conduct violated Section 1 of the Sherman Act, a subsection of U.S. antitrust law designed to promote market competition. But lower courts granted MLB’s motion to dismiss, ruling that MLB’s antitrust exemption protected it from the lawsuit. Earlier this year the ValleyCats and the Sea Unicorns filed a petition for certiorari, asking the Supreme Court to overturn the exemption. However, before the Court could hear the case, the two teams reached an undisclosed settlement with Major League Baseball, safeguarding MLB’s century-old immunity from U.S. antitrust law.
But the case for overturning baseball’s antitrust exemption is still alive. When the minor league teams filed a lawsuit in district court, the Department of Justice (DOJ) expressly criticized the exemption, filing a Statement of Interest on behalf of the petitioners, arguing the exemption “does not rest on any substantive policy interests that justify” tolerating MLB’s anti-competitive conduct. [3] Consistent with the Biden Administration’s initiative to protect workers by bringing antitrust action, the DOJ is seeking to protect professional athletes' wages, a consequence of increasing competition within professional leagues, and therefore increase the production quality for fans. To remain steadfast in its commitment to maximizing competition, this article advocates for the DOJ to bring antitrust action against Major League Baseball.
II. Applying Federal Antitrust Statute to Professional Sports
Passed in 1890, Section 1 of the Sherman Antitrust Act, 15 U.S.C. 1, provides that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” [4] On its face, the statute does not exempt specific industries or businesses from its coverage, as Section 1 applies to “every” contract, combination, or conspiracy, and to “[e]very person” who violates its terms. [5] But Congressional statute, if clearly and narrowly construed, can exempt industries from antitrust regulation. [6]
As established by the Court, Section 1 of the Sherman Act applies to professional and collegiate sports. This is documented in several cases. In NCAA v. Bd. of Regents of Univ. of Oklahoma (1984), the Court ruled that a NCAA restriction on televised football games was a horizontal restraint on price and output. [7] Similarly, in Nat’l Collegiate Athletic Association v. Alton (2021), universities are barred from engaging in horizontal price fixing by setting fixed education benefits for student-athletes. [8] Regarding professional sports, in Am. Needle, Inc. v. NFL (2010), the Court held that NFL teams could not collude to collectively license the intellectual property of the teams, violating Section 1 claims. [9] But unlike every other professional league, baseball remains the only sport with an exemption.
There is no democratic consensus for this immunity—neither the Sherman Act nor any subsequent statute exempted professional baseball from antitrust regulation. [10] As articulated in Flood v. Kuhn (1972), the common-law antitrust exemption is “anomalous” and “aberrational,” and per Justice Kavanaugh, “flatly illegal in almost any other industry in America.” [11]
III. Exemption History
Major League Baseball’s antitrust exemption was born out of a century-old decision. In 1920, the Federal Baseball Club of Baltimore filed a lawsuit against The National League of Professional Baseball Clubs, claiming the teams in the League were behaving anti-competitively by collectively agreeing to include a “reserve clause” in player contracts which prevented players from entering free agency and signing with other teams after their contract expired. [12] Though the club obtained a verdict for $80,000 in the trial court, Baltimore lost on appeal, as the Court ruled that the National League’s conduct fell outside the Sherman Act. [13] On appeal to the Supreme Court, the majority held that baseball was an intrastate affair that did not involve interstate commerce, barring Congress from regulating it. [14] Even though teams traveled between states to compete and earn revenues, the decision held that such travel was incidental to baseball competitions, rendering baseball immune from federal antitrust law. [15]
This decision, however, was based on the market realities of the time. [16] In 1920, baseball was a largely localized, state affair and certainly not a robust interstate business. But after Federal Baseball, the industry expanded immensely and the widespread adoption of interstate broadcasting clearly registered baseball as interstate commerce. [17] Factoring in the Court’s expansion of the Commerce Clause during this period, Federal Baseball stood on weak grounds. [18] But twenty years later, counterintuitively, the Court upheld the exemption in Toolson v. New York Yankees (1953). [19] In Toolson, the majority held that it should not retroactively subject a business to federal antitrust laws, as Congress, to date, had not enacted legislation to bring baseball within the scope of the Sherman Act. [20] To avoid undermining Congressional authority, the Court protected the status quo, establishing the “baseball exemption” as it is understood today. [21]
Since Toolson, baseball has remained the only professional league immune from antitrust action. In 1955, the Court reversed an appellate decision that boxing contest promotion fell outside the Sherman Act, holding that federal antitrust statute was still applicable, as the boxing industry involved interstate commerce and there was no statutory exemption. [22] Two years later, the same Court held that federal antitrust regulation covered professional football, granting relief to a litigant suing the NFL over a contractual boycott. [23] The majority acknowledged that Federal Baseball and Toolson rendered baseball outside the scope of antitrust law, but affirmed that the exemption was narrowly construed, and thus not authority for granting other industries similar exemptions. [24] Basketball soon followed suit when, in 1971, a player challenging a league boycott received relief on the grounds that basketball was not immune from the Sherman Act. [25]
Even after these rulings, the Court faithfully defended baseball’s antitrust exemption. In Flood v. Kuhn (1972), a plaintiff filed a lawsuit against MLB, claiming the “reserve clause,” which prevented players from entering free agency and signing with other teams after their contract expired, violated the Sherman Act. [26] But consistent with Toolson, the Court upheld the reserve system’s exemption, maintaining that overturning the exemption is a matter for Congress. [27] And, since Congress did not enact any legislation, the Court interpreted this inaction as a desire to uphold the exemption. [28] In the opinion, the Court stated that the reserve system served “unique characteristics and needs,” and accordingly, it sought to protect baseball from the harm produced by subjecting the reserve system to antitrust scrutiny. [29]
From Federal Baseball, throughout Toolson and Flood, the exemption “has metastasized into a sweeping immunity that permits MLB to engage in brazenly anticompetitive behavior.” [30] The antitrust immunity applied specifically to reserve clauses, but Toolson and Flood extended this to exempt the entire “business of baseball” from antitrust scrutiny. [31] This broad construction has left lower courts split. Some courts, ruling narrowly, hold that the exemption applies only to the reserve clauses at issue in Federal Baseball and Flood. However, other Courts broadly interpret this exemption to cover all baseball-related activities, with clear consensus on the industry’s scope. [32] Though some courts have attempted to forge a middle-ground interpretation that limits the exemption to “integral” or “central” parts of baseball’s business, the variance of these approaches has produced inconsistency around the country. Baseball’s jurisprudence requires a Supreme Court decision, or Congressional statute, to unify judicial interpretation of the antitrust exemption.
IV. The Valleycats and the Sea Unicorms Attack Baseball’s Exemption
The two disaffiliated teams filed an initial complaint in 2021 in the Southern District of New York. In 2022, the District Court granted MLB’s motion to dismiss on stare decisis grounds that Major League Baseball is exempt from antitrust regulation. Later in June 2023, the teams lost their appeal to the Second Circuit on similar grounds and appealed to the Supreme Court.
On its merits, the petitioners argued MLB exercises a naked horizontal restriction on trade, eliminating competition for Minor League affiliations. [33] In a competitive market, according to the minor league teams, MLB organizations could choose the number of affiliates and compete for the best minor league teams. This competition would benefit consumers, fans, and small-town economies, providing affordable games, and promoting economic development. [34] But, acting with antitrust immunity, MLB organized a horizontal agreement among its 30 clubs to limit affiliations with Minor League teams. The agreement fixed the number of affiliations at four per MLB club, with MLB choosing which minor league teams could remain. [35]
The petitioners and amici offer several arguments why the Court should’ve granted the petition. First, the case is a matter of national importance. [36] It enables MLB, a multibillion-dollar industry, to limit competition, which strains local economies, leaves workers unemployed, and restricts access for millions of fans. For instance, in this case, the ValleyCats generated roughly $55 million for Troy, New York, and created 763 local jobs. [37] Similarly, the Sea Unicorns have attracted over 700,000 fans in the last decade and raised more than $1.6 million for local charities. [38] Second, it also preempts state antitrust laws without clear guidance from Congress, disrupting the traditional federal-state balance. [39] The exemption subtracts from the significant degree of sovereignty that states are meant to retain under the Constitution. Third, the exemption has split lower courts, raising regulatory concerns as baseball seeks to expand into new markets. [40] Since jurisdictions approach baseball’s antitrust immunity with varied interpretations, the Court risks further fracturing judicial opinion by tolerating the broadly construed exemption.
V. Anticompetitive Effects of the Exemption
MLB’s horizontal restriction on trade is anti-competitive. This monopoly control works at a detriment to players and fans of baseball, violating the legal and economic rights of stakeholders in baseball. [41] This section details the exemption’s anti-competitive harms, as identified by antitrust, business, and sports law professors in an amicus brief on behalf of minor league baseball. [42]
i. Territorial Restraints
The MLB imposes territorial restraints that limit small-market teams from accessing larger markets. For example, New York City has historically proven it can accommodate a third MLB franchise. However, MLB’s geographic allocation of teams would prevent a small-market franchise from relocating to access a larger market. Many small-market teams, such as the Cincinnati Reds or the Kansas City Royals, cannot compete on the field because they make less revenue due to their assigned territories. By eliminating this exemption, small-market MLB teams could relocate to more profitable locations, increasing the quality of production and growing a fanbase.
ii. Buy-Outs
Second, MLB can buy teams out. In the past, the League has threatened to eliminate two small-market teams, reducing the total output of games available for consumers, and jobs for players, managers, umpires, and staff.
iii. Licensing and Merchandising
Third, MLB teams exercise monopoly control over licensing and merchandising, maintaining exclusive arrangements with third parties. This anti-competitive licensing practice threatens to drive non-licensees out of business. For instance, manufacturers who rely on professionally branded memorabilia to profit would lose significant market share to companies that enjoy exclusive rights to production. Rejecting this exemption would introduce more competition into the licensing and merchandising industry. In a similar vein, MLB requires prospective buyers seeking MLB data to purchase aggregate data from all 30 MLB teams. This type of restriction traditionally violates federal antitrust laws.
iv. Broadcast Rights
Fourth, MLB teams also exclusively license broadcast rights to cable networks or streaming services. Though the Sports Broadcasting Act exempts “sponsored telecasting” from federal antitrust regulation, the Congressional statute fails to insulate some collective broadcasting agreements from scrutiny. Rejecting baseball’s exemption might prevent MLB from collectively licensing broadcasting rights outside the scope of the Sports Broadcasting Act.
v. Boycotts
Fifth, Major League Baseball has a history of boycotting employees who provide services to competing baseball leagues. Although players are generally protected from anti-competitive conduct, it is not clear whether employees such as umpires or franchise personnel are included in this category. This behavior disincentivizes employees from engaging in pro-competitive behavior, such as joining other leagues. Furthermore, MLB’s exemption destroys rival professional leagues. Under no antitrust scrutiny, the League can easily buy out competitors or boycott employees. Removing the exemption would invite competitors to create new leagues, increasing competition within the market.
VI. Conclusion
The doctrine of stare decisis serves to accommodate only “legitimate reliance interest[s]”. [43] When the public sphere relies on precedent, it should be upheld. But baseball does not rely on its exemption—baseball needs more competition. When the National Football League (NFL) lost its exemption in 2010, the NFL soon grew to become the most profitable professional league in the U.S., earning roughly $18 billion in 2022, the highest revenue ever recorded by an American professional sports league. Baseball should follow suit. [44]
But this requires federal action. Private plaintiffs, as rational actors, will consistently settle with Major League Baseball. And MLB, as the only professional league in the U.S. exempt from antitrust scrutiny, has every interest in protecting its exemption. In the interest of baseball fans, small towns, and professional organizations, the DOJ must step in and challenge baseball’s antitrust exemption.
Endnotes
[1] Tri-City ValleyCats and Oneota Athletic Corporation v. The Of ice of the Commissioner of Baseball, 23 U.S. 283, (2d Cir. 2023), cert. pending (U.S. 2023).
[2] Seiner Jake, “After Losing Their Minor League Teams, Cities are Finding Ways Forward”, Associated Press, June 24, 2021.
[3] Id. at 1.
[4] 15 U.S.C. 1, Sherman Antitrust Act.
[5] Goldfarb v. Va. State Bar, 421 U.S. 773, 787 (1975).
[6] Union Lab. Life Ins. Co. v. Pireno, 458 U.S. 119, 126 (1982); Nat’l Gerimedical Hosp. & Gerontology Ctr. v. Blue Cross of Kansas City, 452 U.S. 378, 388-89 (1981).
[7] NCAA v. Bd. of Regents of Univ. of Oklahoma 468 U.S. 85. 120 (1984).
[8] Nat’l Collegiate Athletic Association v. Alton, 594 U.S. (2021)
[9] Am. Needle, Inc. v. NFL, 560 U.S. 183 (2010).
[10] Id. at 1.
[11] NCAA v. Alston, 141 S. Ct. 2141, 2159 (2021).
[12] Id. at 13.
[13] Federal Baseball Club v. National League, 259 U.S. 200 (1922).
[14] Id.; U.S. Constitution.
[15] Id. at 16.
[16] Id. at 1.
[17] Id. at 1.
[18] Wickard v. Filburn, 317 U.S. 111 (1942); Id. at 1.
[19] Toolson v. New York Yankees, 346 U.S. at 357 (1953).
[20] Id. at 20.
[21] Id. at 1.
[22] United States v. International Boxing Club, 348 U.S. 236 (1955).
[23] Radovich v. NFL, 352 U.S. 445 (1957).
[24] Id. at 24.
[25] Haywood v. National Basketball Ass’n, 401 U.S. 1204 (1971).
[26] Flood v. Kuhn, 407 U.S. 258 (1972)
[27] Id. at 27.
[28] Id. at 1.
[29] Id. at 1.
[30] Brief for Antitrust, Business, and Sports Law Professors Amicus Curiae, Tri-City ValleyCats and Oneota Athletic Corporation v. The Office of the Commissioner of Baseball, 23 U.S. 283 (2023).
[31] Id. at 10.
[32] Id. at 10..; City of San Jose v. Of . of the Comm’r of Baseball, 776 F.3d 686, 691-92 (9th Cir. 2015).
[33] Id. at 1.
[34] Id. at 1.
[35] Id. at 1.
[36] Id. at 1.
[37] Id. at 1.
[38] Id. at 1.
[39] Brief for the State of Connecticut Amicus Curiae, Tri-City ValleyCats and Oneota Athletic Corporation v. The Office of the Commissioner of Baseball, 23 U.S. 283 (2023).
[40] Id. at 1.
[41] Id. at 10.
[42] Id. at 30.
[43] Id. at 1.
[44] Statista, “Major League Baseball Total League Revenue From 2001 to 2022 “, Sep. 14, 2023.; Statista, “Total revenue of all National Football League (NFL) teams from 2001 to 2022”, Sep 5., 2023.