Ending Baseball’s Antitrust Exemption: What Would It Mean?

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In 1998, Congress passed the Curt Flood Act, which partially repealed the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.