The Baseball Monopoly: How the National Pastime’s Immunity from Antitrust Regulation is Under Attack

Courtesy of Keith Allison
Courtesy of Keith Allison

By: James Gossmann

The city of San Jose filed an antitrust suit against Major League Baseball in the hopes of moving the Oakland A’s baseball team to San Jose. Under MLB rules, the San Francisco Giants possess the power to restrict the move, as the A’s would be moving into their designated territory. The San Francisco Giants, afraid of losing revenue by splitting its market share between itself and the A’s, refused to waive its right to territorial exclusivity. The District Court dismissed the suit, citing that Major League Baseball is exempt from antitrust litigation.

The Sherman Act of 1890 was the landmark legislation which attempted to curtail the creation of monopolies and anticompetitive practices. Followed shortly by the Federal Trade Commission Act and the Clayton Act, Congress strengthened the government’s power to regulate any interstate commerce which was in danger of becoming anti-competitive.

Professional sports and antitrust have always come into conflict. While the Sherman Act prohibits every contract, combination or conspiracy in restraint of trade, teams regularly come together to negotiate agreements between players and owners for rules governing the draft system and broadcasting rights in order to create a functioning league. Both of these practices are anticompetitive, but are permitted because such practices preserve the appeal of the various sports. The sport with the most leeway in terms of anti-competitive activity is baseball.

A 1922 Supreme Court case, Federal Baseball Club of Baltimore v. National League, created a unique exemption for baseball by refusing to call it interstate commerce, making baseball immune from antitrust regulation. By declaring “baseball only a game and not a business”, the Court ruled that baseball did not fall under the federal jurisdiction necessary for the Sherman Act to apply. While common sense dictates that this questionable reasoning would have been overturned over the years as the commercial reach of baseball grew to extend beyond state lines, the Supreme Court has refused to overrule the baseball exemption in Toolson v. New York and Flood v. Kuhn. Instead, the Court passed the buck and left it up to Congress to change the baseball exemption.

In recent years, the courts have come close to addressing this issue. A 1993 ruling in the Eastern District of Pennsylvania held that antitrust law does in fact apply to baseball, only for the lawsuit over a team’s relocation to be settled on the eve of the trial. The issue of antitrust application to deny relocation of a baseball team has not been litigated until the Oakland A’s.

Congress’s efforts to correct this Supreme Court mistake has been minimal, with the passing of a law that invalidated an MLB practice of preventing players from trading to competing teams. However, Congress has failed to address the MLB rules governing the relocation of teams.

Luckily however, courts have refused to extend this exemption to all sports, and baseball is the only sport with such an exemption. In other leagues, if an owner is denied the ability to move his team, the league is vulnerable to suit on antitrust grounds. This vulnerability to antitrust regulation was settled in Los Angeles Mem’l Coliseum v. NFL, where the Supreme Court held that the NFL could not prevent the Raiders from moving from Los Angeles to Oakland.

The San Francisco Giants are worth over $1 billion, while the Oakland A’s are valued at only $495 million. This valuation is greatly influenced by the market size where the baseball team lays claim to, as well as the stadium the team plays in. Major League Baseball’s efforts to restrain the A’s from leaving their outdated stadium and failing market constitutes an effort to divide sales territories, which has been held by the FTC to be “almost always illegal.”

Major League Baseball has come out to defend its long standing privilege. Claiming a “contractual and economic right to carefully evaluate team relocation proposals for the benefit of all major clubs.” The MLB convincingly argues that Congress and the Courts have had opportunities to revoke this antitrust exemption, and their silence on the matter makes MLB practices legal.

San Jose lost its initial round of litigation, but the federal appeals court is supposed to come down with a decision this summer. The district court brought up the central theme of the failure of the judiciary or legislative branch to correct the antitrust exemption by claiming it was an issue for Congress, not the courts. If courts continue to be so unyielding in its adherence to precedent, it will fall on lawmakers to once again scale back the Supreme Courts gift of immunity from antitrust regulations to baseball.

 

 

 

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