MLB’s Antitrust Exemption: On Its Last Strike?

Photo by Jakob Rosen on Unsplash

BACKGROUND

In 1922 the United States Supreme Court made the unprecedented decision to grant Major League Baseball a unique exemption from the Sherman Antitrust Act, essentially allowing the organization to function as a monopoly. The purpose of the Sherman Antitrust act was to prevent anticompetitive behavior to protect against the possibility of organizations inflating prices and limiting competition. In 1922, in the case of Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, the court gave an exemption to the Sherman Act to the MLB. The court gave this exemption on the notion that the business of baseball does not involve interstate commerce. Even though teams travel from state to state, the actual game takes place in only one state and should be governed under state law not federal legislation. 

In 1953, the Supreme Court revisited the issue of the MLB’s antitrust exemption. In this case a minor leaguer, Toolson, challenged the reserve system that had been developed by the MLB in the three decades since the original exemption. The court upheld the original decision even though they did not agree with its reasoning. The court suggested that it was bound by precedent and thus had to uphold the original decision.  Had the legislature not intended to allow baseball to have an exemption, it would have had three decades to speak on the issue and to reverse the judicially granted exemption. 

The court revisited the issue one more time in 1972. In the case of Flood v. Kuhn, another challenge to the league's reserve system was again brought before the Supreme Court. In this case the majority noted that the MLB is engaged in interstate trade or commerce, acknowledging the decision in 1922 was “an anomaly” and “an aberration”. Even though they acknowledge that the basis for the 1922 decision was erroneous, they still upheld the exemption again relying on stare decisis to support its decision. 

Through these decisions, the courts placed the burden of reversing the antitrust exemption on Congress. About 25 years later, Congress finally acted and created the Curt Flood Act of 1998. However, the Curt Flood Act is criticized for not fully reversing the original exemption. The purpose of the legislation was to say that MLB players are covered by antitrust laws. However the players were unionized by this time and these agreements were shielded from antitrust challenges by the nonstatutory labor exemption. Also the act was specifically designed for MLB players while allowing all other aspects of the business to potentially remain exempt. The act also failed to protect minor league players and enumerates various other aspects of the MLB’s business as being beyond the scope of the act. This has allowed the MLB to pay minor league players small wages, fix prices, and essentially bar any competition in the world of baseball.

It is important to note that the MLB’s antitrust exemption is unique to baseball and has never been given to any other professional sport. In 1957, the Supreme Court declined to extend the antitrust exemption to the National Football League (NFL) in Radovich v. National Football League.  The court this time ruled the NFL was involved in interstate commerce, and in the same opinion, stated the MLB’s exemption was “at best, was of dubious validity" and stated that the court today would have ruled differently. In every other instance where other professional sporting organizations have tried to extend the MLB’s antitrust exemption, the court has denied it. This exemption also limits the ability for other leagues to exist. While the NFL does not really have another professional league that matches its popularity, other leagues like the XFL have been created and at least have an opportunity to compete with the NFL. The MLB is essentially able to limit competition from other leagues and participate in activities that would be deemed anticompetitive and illegal for other comparable sports leagues. They can do this by colluding with the individual clubs, fix prices, get exclusive broadcasting deals and essentially maintain its monopoly in professional baseball.

MODERN DAY

In Flood, Curt Flood challenged the legality of the reserve clause contained in all MLB players’ contracts, which prohibited them from negotiating contracts with anyone other than their current team, unlike in the modern free agency process. In response to the 1994 players’ strike, which caused the World Series to be canceled, Congress repealed the exemption in a very limited capacity through the 1998 Curt Flood Act. The act allows current MLB players to file antitrust suits against MLB for its employment practices. The Flood Act raises an interesting question–why would Congress only repeal the exemption in this single respect? Likely because it was the easiest way to appease the players’ demands.

Challenges to MLB’s exemption have continued over the last decade, notably in Nostalgiv Partners, LLC v. Officer of Commissioner of Baseball. MLB decided to cut down the number of minor league affiliate clubs in 2020. While some believe many clubs accepted settlement payments, the Staten Island Yankees fought MLB through litigation. The plaintiffs filed a petition for a writ of certiorari with the Supreme Court, but settled the case in 2023 before the Court decided whether to hear the case–and thus MLB’s exemption lives on.

More recently, Cangrejeros de Santurce Baseball Club, LLC v. Liga de Beisbol Profesional de Puerto Rico, Inc. has challenged the exemption with support from Congress. However, after the district court dismissed the case, the First Circuit affirmed in part, again relying on Federal Baseball’s precedent. 

There are members of Congress who urge the Supreme Court to reverse its now century old decision to exempt the MLB. Senators Mike Lee and Cory Booker filed a friend-of-the-court brief which urged the Supreme Court to overturn its precedent. Senator Lee has stated that baseball has enjoyed the exemption from competition laws that apply to every other professional sport and business in the country, and introduced legislation in 2023 to end the exemption. Senator Bernie Sanders proposed similar legislation with his “Save American Baseball Act”.  This act is designed to strip the MLB of its protections and expand competition among professional baseball organizations. The ultimate goal for Sanders is to return the sport to individuals and families, many of whom have been priced-out of seeing games by the MLB’s practices. 

While MLB’s antitrust exemption has continued to be affirmed in court, support among the legal community has waned. Numerous law reviews have criticized MLBs exemption including the University of Florida, Boston College, the University of Houston, and the University of Cincinnati. Even Justice Alito, a sitting member of the Supreme Court, has discussed baseball’s odd exemption. While sympathetic to Justice Holmes’ opinion in Federal Baseball, he was critical of Toolson and Flood, and suggests that the real losers of the exemption are local fans. 

The exemption allows local networks to exclusively air the game viewings. MLB has created “blackout restrictions”, which essentially prevent fans from watching games. In an attempt to reach a greater audience, the MLB began streaming games on its own platform, MLB.tv, back in 2003. However, the exemption allows the MLB to contract with local and national television networks to ensure that the networks have exclusive rights to broadcast certain games. However, the national blackout restrictions makes using the streaming service inconvenient. National blackout restrictions apply for games licensed to national networks like ESPN. Since they give exclusive rights to these networks viewers using the streaming service will not have access to these games and are forced to also subscribe to these national networks streaming service or pay for the cable tv they may be playing on. 

POTENTIAL IMPACTS OF CHANGE

Eliminating the exemption today would have the biggest impact on the minor leagues and fans. The Flood Act only applies to MLB players, leaving the minor leagues to suffer. The exemption allows the MLB and its owners to set the pay scale for minor league players and the number of minor league teams. Before the 2021 season, the MLB decided to cut 40 minor league teams from its affiliate system, leaving the affected players and organizations with no path for recourse. And minor league players have no chance to negotiate their salaries. While top draft picks can survive off signing bonuses before making it to the majors, career minor league players make as little as $20,000 a year with no opportunity to negotiate their contracts. While minor league pay has improved somewhat over the past few years, repealing the exemption would allow players to negotiate their contracts, instead of being forced to abide by the pay scale agreed upon by the owners.

Baseball fans would also see an impactful benefit from eliminating the exemption. Currently, fans are subject to tv blackouts and restrictions on team relocation and expansion. Territory rights make it so that many fans cannot watch their local team on television if they do not subscribe to a specific tv provider or channel, even if they subscribe to MLB.tv, baseball’s streaming service. Similarly, teams can choose whether to allow other teams to relocate near them, a phenomenon only possible through the antitrust exemption. Before deciding to move to Las Vegas, the Oakland Athletics wanted to move to San Jose, but the San Francisco Giants controlled the territorial rights to San Jose and blocked the relocation. The Athletics’ relocation to Las Vegas has left many Bay Area fans heartbroken and without the team they have been loyal to. But for MLB’s antitrust exemption, the A’s would have been able to remain in the Bay Area and would not have left their fans behind.

 As time goes on, it seems more and more likely that the MLB will eventually be stripped of its exemption. The question now is will the Supreme Court overturn its over 100-year-old precedent, or will Congress step in to finally create an act expressly stripping the MLB of its exemption? Currently, bills proposed by Senators like Lee and Sanders have not seemed to gain any significant traction inside either house of Congress. Without congressional intervention it is unlikely the Supreme Court will rule on future cases any differently than it has in the past. However, the current makeup of the court has been more open to reversals of precedent, and if the right case makes its way before the court, things could change drastically. Unless Congress passes legislation removing baseball's exemption, the court is unlikely to depart from such a longstanding precedent, especially on an issue that gets little political attention. Whether the MLB’s exemption will survive into the future is something only time will tell. 

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