MLB’s Antitrust Exemption Explained as Revocation Bill Looms

·7 min read

In response to Major League Baseball moving the 2021 All-Star Game from Atlanta to Denver on account of a new election law in Georgia, several members of Congress have talked of punishing baseball. Their preferred instrument of pain: rescinding MLB’s historical exemption from federal antitrust law. The politics of such a plan are dubious, but if the rescission came to pass, MLB would take on new legal risks and see longstanding business relationships altered. This is particularly true in regard to minor league baseball, franchise relocation, intellectual property and several other topics central to upcoming negotiations over a new collective bargaining agreement. Baseball’s immunity from antitrust scrutiny would be confined to certain types of TV deals, a benefit that NFL, NBA and NHL already enjoy.

MLB’s All-Star Game move has attracted praise in some parts, but derision in others.

“In light of @MLB’s stance to undermine election integrity laws,” Congressman Jeff Duncan (R-South Carolina) tweeted hours after MLB’s announcement, “I have instructed my staff to begin drafting legislation to remove Major League Baseball’s federal antitrust exception.” Senators Mike Lee (R-Utah) and Ted Cruz (R-Texas) tweeted similar sentiments. “Why does @MLB still have antitrust immunity?” Lee asked. “It’s time for the federal government to stop granting special privileges to specific, favored corporations—especially those that punish their political opponents.”

Sportico has learned from Rep. Duncan’s office that formal introduction of the bill, titled the “Teddy Roosevelt Fair Competition and Public Trust Act of 2021,” is expected early next week. The bill will expressly dictate that baseball qualifies as interstate commerce and is therefore subject to federal antitrust law. The bill is named in honor of President Theodore Roosevelt, who was hailed a “trust buster” in the early 20th century for his aggressive use of antitrust law to spur economic competition. Rep. Duncan’s office relays that the bill has already gained 18 co-sponsors and a companion Senate bill, led by Senators Cruz, Lee, Marco Rubio (R-Florida) and Josh Hawley (R-Missouri), is in the works.

Where We Are and How We Got There

MLB’s antitrust exemption empowers the league and its clubs to conspire in ways that might otherwise run afoul of antitrust law. The current version of the exemption allows caps on minor league players’ salaries (also known as wage fixing), denial of clubs opportunities to move to larger markets, and pooling of intellectual property rights, all without worry of antitrust litigation.

MLB has long guarded its exemption, which originated in the 1922 U.S. Supreme Court case Federal Baseball Club v. National League. Writing for the Court, Justice Oliver Wendell Holmes held that baseball games are purely matters of the states where they are played and thus outside the scope of federal antitrust law. Application of such law requires disputes involving interstate commercial activity.

Justice Holmes’ reasoning would attract rebuke. While baseball games are only played in one state, they involve numerous business-related activities that cross state lines. Even in the 1920s, players, coaches and equipment traveled across distant regions for purposes of games. Over the years, radio broadcasts, TV broadcasts and eventually Internet streams would journey long and far beyond ballparks. But in 1922, the Court adopted a constrained conception of interstate commerce.

MLB would prevail in subsequent antitrust cases—including Curt Flood’s 1969 challenge to the reserve clause (which denied players free agency opportunities)—on account of “stare decisis.” This principle refers to courts honoring precedent. Since the Supreme Court had already exempted MLB from federal antitrust law, courts would honor the exemption.

The Partial Demise of MLB’s Exemption

The impact and scope of MLB’s exemption has narrowed over the last 50 years. While Flood lost his case, his underlying position was affirmed a handful of years later when MLB arbitrator Peter Seitz issued a historic ruling in favor of pitchers Andy Messersmith and Dave McNally. Seitz reasoned that MLB teams’ renewal rights in player contracts were not perpetual. Previously, teams could renew players contracts on a year-to-year basis with modest raises. As arbitration is a private system for dispute resolution, Seitz’s ruling didn’t conflict with stare decisis. It paved the way for free agency rights as collectively bargained by the MLB and MLBPA.

MLB’s antitrust exemption suffered another setback when Congress passed, and President Bill Clinton signed, the Curt Flood Act of 1998. The Act expressly declared that “MLB players are covered under the antitrust laws [and] have the same rights under the antitrust laws as do other professional athletes.” The act reaffirmed that MLB and its teams can’t conspire to suppress wages of MLB players.

Yet the act explicitly preserved other aspects of the exemption—namely, issues related to minor league baseball, the amateur draft, franchise relocation, ownership sales, umpire-league matters and the licensing of intellectual property rights. In other words, MLB and its teams can generally still conspire in ways that would otherwise run afoul of antitrust law so long as such anticompetitive conduct doesn’t harm MLB players.

What Would Happen if Congress Fully Repeals MLB’s Exemption?

A complete repeal of the exemption would effectively transform MLB’s vulnerability to antitrust scrutiny compared to to that experienced by the NBA, NFL and NHL.

Those leagues enjoy a far slimmer immunity, concerning only certain types of sports broadcasting contracts. Pursuant to the Sports Broadcasting Act of 1961, football, basketball, baseball and hockey leagues are exempt from Section 1 of the Sherman Act when they sign national TV deals—so long as those deals concern “sponsored broadcasting” meaning free, over-air-games (i.e., not on cable or paid satellite services). Despite not possessing the broader antitrust exemption enjoyed by MLB, those leagues have obviously grown dramatically over the years, making both owners and players wealthy along the way.

MLB would nonetheless prefer to maintain the exemption, particularly with regard to minor league baseball. As detailed by Sportico, minor league players led by attorney (and retired MiLB pitcher) Garrett Broshuis have sued MLB alleging violations of the Fair Labor Standards Act and state laws guaranteeing minimum wage and overtime pay. If MLB’s antitrust exemption didn’t exist, those players could add claims under Section I of the Sherman Act. They would argue MLB and its teams have joined hands to illegally price fix minor league baseball salaries. Successful Section I claims entail trebled (three times actual) monetary damages. Antitrust law would also empower minor league teams adversely impacted by MLB’s minor league reorganization to explore antitrust claims.

The exemption also benefits MLB in the area of franchise relocation. MLB can block the movement of franchises to cities that would compete with another MLB club. Other leagues have similar policies, but only MLB’s is immune from the prospect of antitrust scrutiny. MLB has seen the benefit. In 2013, San Jose sued MLB on grounds it had engaged in an illegal conspiracy to deny the city of a big league team (namely, the A’s). MLB prevailed in part because it was exempt from antitrust claims. In a world without the exemption, MLB would lose a powerful defense should team eye a new home.

This isn’t the first time MLB has faced a threat by both Democratic and Republican members of Congress. In 2001, Rep. John Conyers (D-Michigan) and Sen. Paul Wellstone (D-Minnesota) introduced a bill to eliminate MLB’s exemption. It didn’t advance, perhaps in small part because President George W. Bush was former owner of the Texas Rangers and likely wouldn’t sign it. A few years later, Sen. John McCain (R-Arizona) questioned the merits of MLB’s exemption while criticizing MLB and MLBPA for steroids. In 2015, McCain and Sen. Richard Blumenthal (D-Connecticut) teamed up to propose legislation that would have limited the exemption in response to concerns about pro games being blacked out. More recently, Rep. Lori Trahan (D-Massachusetts) and the bipartisan Save Minor League Baseball Task Force signaled a desire to review MLB’s legal protections in light of treatment of minor league teams.

Will MLB lose the exemption this time around? The odds seem slim, especially given how this latest effort is tied to a politically divisive topic. But MLB has to play legal defense on each attempt. Even the best fielders sometimes err.

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