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Antitrust in Sports: Why MLB's Exemption Continues to be Challenged

Major League Baseball has been lucky enough to have a certain level of exemption from antitrust laws as America’s pastime. Other professional sports leagues, mainly the NFL, seek similar exemptions. Accordingly, the Supreme Court has not only had to clarify exactly what the MLB exemption is, but also why other sports do not have the same leniency. We will explore the origin of the exemption, and the differences between the leagues.

Why is the MLB the only professional sport that has an antitrust exemption?

Major League Baseball has been exempt from certain antitrust laws dating back to the unanimous 1922 decision from the Supreme Court stating that the transportation of players across state lines was “incidental . . . and did not affect interstate commerce.” At the time of this case, the National and American Leagues that we see in professional baseball today had already been formed and recognized one another as equals. There was also a league called the Federal League which was made up of teams like the Baltimore Terrapins. The owner of the Terrapins brought a suit against the National League, American League, their presidents, and the chairman of the National Commission for violation of Section 1 of the Sherman Act in what it saw as a conspiracy to monopolize and push the Federal League out of business. The Supreme Court’s decision in this case, Federal Baseball Club of Baltimore v. National League, established the MLB antitrust exemption.

Not only did the ruling of this case create the exemption, but it further explained why. Justice Holmes, in his unanimous opinion, distinguished the travel of players across state lines from the central component of the business of baseball as a whole. The Court then went on to hold that baseball was not interstate commerce or under the jurisdiction of the Sherman Act, but rather subject to the jurisdiction of individual states.

Since this ruling, there have been two additional opinions from the Supreme Court on baseball’s antitrust exemption. Both of the cases involved the reserve clause seen in players’ contracts. The opinions of both cases made mention of baseball’s place as America’s pastime and its interconnection with the culture and history of America. Congress has had decades since the decision in Federal Baseball to draw back on the MLB antitrust exemption. Congress has decided not to do so fully, but instead did so partially with the Curt Flood Act of 1998.

Currently, there is movement from both the MLB and the MLB Players Association for there to be a limited repeal of the exemption in order to give baseball players the same rights as those in other United States professional sports leagues. Until Congress decides to make a movement, the exemption remains largely intact. However, the exemption has changed as a result of these reserve clause cases. After the Flood ruling, the reserve clause became a heavy topic during union negotiations, ultimately leading to the modern free-agency we see today.

“Only Major League Baseball has an exemption from application of the federal antitrust laws and that is due to an odd and historically antiquated decision of the U.S. Supreme Court in 1922. The Supreme Court has consistently held that all other U.S. professional sports must adhere to the antitrust laws in their dealings with clubs and franchises, players, and communities that seek to host a professional team franchise. The major reason for these decisions is that professional sports are commercial enterprises, like both businesses and industries, and there is no reason to hold them to a looser standard of conduct. About 20% of the U.S. economy is exempt from the antitrust laws (like interstate power and utility companies, agricultural co-operatives, export associations, and most labor organizations. In those industries and businesses, a policy decision has been made that there is an overriding governmental interest in permitting collusion and cooperation among market participants (like workers—competitors in labor markets—who band together to demand higher wages or benefits) rather than permit anti-collusion antitrust norms.”

-Dean Emeritus and Professor of Law at Santa Clara University School of Law, Donald Polden

How the MLB’s exemption differs from the NFL’s

The NFL argued for an exemption similar to that of the MLB’s in Radovich v. National Football League. In Radovich, a former athlete filed suit against the NFL for unfair business practices in the form of a group boycott. At the time, the NFL was competing with the AAFC, a professional football league that Radovich played in. The court rejected the NFL’s argument that Toolson and Federal Baseball provide precedent for an NFL antitrust exemption similar to that of the MLB. The court came to this conclusion because Federal Baseball only determined the interstate impacts of that particular activity, baseball. According, the court in Radovich states Federal Baseball, “could not be relied upon as a basis of exemption for other segments of the entertainment business, athletic or otherwise . . . . The controlling consideration in Federal Baseball . . . was . . . the degree of interstate activity involved in the particular business under review.” Thus, the MLB’s exemption came as a result of a finding that baseball players traveling across state lines for away games did not show that the MLB was attempting to monopolize interstate commerce. “Personal effort, not related to production, is not a subject of commerce; and the attempt to secure all the skilled service needed for professional baseball contests is not an attempt to monopolize commerce or any part of it.

In the case of the NFL, the decision for an exception to be made came as a result of negotiations surrounding television rights. Prior to the granting of an exception to antitrust liability, each NFL organization had to negotiate and execute their own broadcasting and distribution agreements. However, In 1961, Congress granted the NFL and other professional sports leagues and antitrust exemption by making an exception to the Sherman Antitrust Act which permitted the NFL to negotiate distribution contracts as a uniform body. This was done in the form of the Sports Broadcasting Act (SBA), a solution specifically tailored for the NFL.

While the SBA provides an exemption to other professional sports leagues, the same does not apply to the NCAA. “The NCAA, a coalition of 361 (Division 1 only) colleges and universities who compete against each other in sports contests, for TV contracts, for fans, for athletes, doesn't have a statutory exemption from the antitrust laws, although the Association has repeatedly lobbied for an exemption. They do enjoy a more limited standard of antitrust review (essentially a reasonableness standard by which their collusive activities—like banning student athletes from being compensated as employees—are reviewed and judged). Another important distinction concerns the NCAA vs. professional sports leagues treatment of athletes. In professional sports, all the athletes are members of a collective bargaining unit that negotiates with the leagues for many things (like compensation, disciplinary actions, health benefits, etc.). Those athletes are legally speaking, employees and are permitted under U.S. labor laws to form unions and collectively bargain. On the other hand, the NCAA forbids its colleges and universities from treating student athletes as employees so they cannot form unions and force collective bargaining. There is currently an active movement among college athletes to be re-classified as employees so they can be compensated for their labors and to form collective bargaining units.”

-Dean Emeritus and Professor of Law at Santa Clara University School of Law, Donald Polden

How Far Does Antitrust Exemption Go?

While Congress has expressed a willingness to exempt some monopolistic practices with these major sports associations, courts are more hesitant. For instance, see Shaw v. Dallas Cowboys Football Club, in which the court stated that despite Congress not considering the future of broadcasting services, the intended reading of the SBA, as directed by the Supreme Court, would not extend to subscription-based providers. As for the MLB’s more extensive exemption, Congress has also provided limitations. Following a strike in 1994 by baseball players, they passed the Curt Flood Act of 1998, which opened up an avenue for players to sue the MLB for alleged antitrust violations as players of the NFL, NBA, and NHL could. The Act amends the Clayton Act so that “antitrust laws apply to the conduct, acts, practices, or agreements (conduct) of persons in the business of organized professional major league baseball relating to or affecting employment of major league baseball players to play baseball at the major league level . . . .” Currently the MLB’s exemption continues to face scrutiny in the form of lawsuits.

What comes next for the MLB and their exemption?

The MLB is currently facing three suits that challenge its antitrust exemption. The largest challenge comes from four minor league baseball teams that allege an “anticompetitive horizontal agreement to reduce output and boycott unaffiliated teams.” These four teams come from a group of forty that the MLB eliminated during the 2020 reorganization of the minor league system, reducing 160 teams to 120. This case was later dismissed with the same reference as the original MLB challengers faced: until the Supreme Court or Congress takes action, the exemption remains. There is also a case alleging “a conspiracy by the MLB to fix minor league wages below the minimum wage.” This case was dismissed for the lack of jurisdiction; it has been appealed. The third case alleges that the “MLB’s merchandising practices constitute an illegal exclusive dealing arrangement.” This case has yet to be decided. There is a chance the Supreme Court could be called to decide this case; ultimately deciding if the MLB exemption will remain as it has over the last 100 years.

Baseball and its popularity are changing, with other professional sports becoming more popular than at the time of these rulings. The question then becomes: will Congress eliminate the exemption completely? Some argue that baseball “no longer enjoys the monolithic presence that it once did in American culture.”

*The views expressed in this article do not represent the views of Santa Clara University.


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