Baseball’s Monopoly

Major League Baseball (MLB), has been exempt from antitrust laws since 1922. Throughout the years, many have tried to repeal that exemption but have struck out. Most recently, the Supreme Court has denied to hear the City of San Jose v. Office of the Commissioner of Baseball case, stopping all recent progress to having the exemption removed.

Major League Baseball’s dominance on this issue stems from the Federal Baseball Club of Baltimore, Inc. v. National Baseball Clubs case. The Supreme Court held that the American and National Leagues could not be held legally liable for monopolizing the industry as the industry did not engage in “interstate commerce” therefore, did not fall within the scope of the Sherman Act. The Supreme Court determined, even though there was scheduling of games across state lines, those games were intrastate events since the travel from one state to another was “not the essential thing.”

Before we get into the thick of MLB’s legal precedent, lets clarify some legal lingo we will come across. Antitrust laws are also referred to as “competition laws.” They are statutes developed by the U.S. Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy. In other words, antitrust laws are the referee/umpire to the open market and attempts to allow equal and fair distribution of control within a specific industry.

One landmark statute in antitrust is the Sherman Act. This Act requires that there be an affect on interstate or foreign trade or commerce. Interstate commerce is ordinarily satisfied by demonstrating the following:

  • Products involved in the case were shipped across state lines
  • That services involved interstate activities
  • Or significant federal funding was involved

With that out of the way, lets get back to the case law that has set up MLB to be the only professional league in sports to be exempt from antitrust laws. In the Federal Baseball case, the main point of criticism in the Supreme Court’s ruling, was that professional baseball did not engage in interstate commerce. However, baseball teams travel across state lines all the time, is that not interstate commerce? Not necessarily. During that time period, National and American Leagues were merely umbrella organizations. They arranged the schedules and set the rules, but the business was entirely local in the sense that there was no revenue sharing, no radio or television and no national sponsors or licensing deals.

Further, back in the 1920s, federal courts typically interpreted “interstate commerce” quite narrowly. In particular, courts typically limited the term to apply to only those activities related to the production or distribution of physical goods. Therefore, because MLB teams produced no physical products, but only played games in a single state, the court could reasonably determine that baseball was not engaged in interstate commerce.

Subsequent to Federal Baseball, MLB has faced several other lawsuits pertaining to antitrust issues, i.e., Toolson v. New York Yankees, Flood v. Kuhn, and most recently City of San Jose v. Office of the Commissioner of Baseball. Despite the additional lawsuits, MLB has remained on top. Courts are reluctant to overturn a Supreme Court decision and are concerned with retroactive lawsuits being filed that could bring MLB to financial ruin. As stated in the Toolson case, “any change to baseball’s antitrust exemption should come from the legislature not the judiciary.” The rationale behind this is reasonable. Congress can enact legislation that would apply strictly on a going-forward basis. Thus, unlike the judiciary, Congress could remove the baseball exemption without triggering concerns about holding MLB retroactively liable.

So what exactly does it mean for MLB to have this exemption? Well, the main benefit to MLB is the exclusive control of the relocation of the teams. MLB is allowed to restrict teams from moving to other cities and has the right to fold teams at will, even if another market is a viable one. One example of this is the Piazza v. Major League Baseball case in 1993. Piazza sued MLB after it blocked the San Francisco Giants owner from selling the team to Piazza, who planned to move the team to St. Petersburg, FL. Piazza lost that battle and MLB later approved a sale for $15 million less, to another buyer who would keep the team in San Francisco.

To put this in perspective, other leagues like the National Football League (NFL), the National Basketball Association (NBA), and the National Hockey League (NHL), are subject to antirust laws. Therefore, the threat, and in some cases the actual filing of antitrust lawsuits led to movement among NFL teams, such as the LA Rams to St. Louis and now back to LA, and the Cleveland Browns to Baltimore. Since 1971 when the Washington Senators became the Texas Rangers, there have been seven NFL moves, seven NBA moves, and nine NHL moves.

While judges have admitted that baseball’s exemption is an anomaly and flawed, they have yet to overrule it. It appears the only way for MLB to join the rest of the leagues will be by a legislative act. Until then, MLB will continue to “pass Go and collect $200”.

 

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