MAJOR LEAGUE BASEBALL’S EXEMPTION FROM ANTITRUST LAWS AND ITS IMPACTS
Author: Jared S. Pippen, Associate Editor
Major League Baseball (“MLB”) has enjoyed an exemption from antitrust laws stemming back to Supreme Court decisions beginning in 1922.[i] Many antitrust advocates have called for the abolition of this exemption due to MLB’s resulting monopoly over professional baseball.[ii] The exemption can be seen as an aberration, especially since no other professional sports league has received the benefits of an antitrust exemption.[iii] While the MLB’s exemption privileges have resulted in territorial exclusivity for franchises, overcontrol of broadcasting rights, and labor impacts on minor league players, public pressure and congressional action can limit the negative impacts of the exemption rather than abolishing it altogether.[iv] This blog post briefly lays out the foundation of antitrust law, its relation to MLB, and the impacts that it has on the industry of professional baseball.
Antitrust is a policy that governs private markets in the United States to ensure competition without interfering with pricing or output decisions.[v] In the United States, antitrust laws are defined by the Sherman Act of 1890 (the “Act”).[vi] A business that holds a monopoly over products or services may be considered to have violated antitrust laws if it is found that it has abused its dominant position in a market.[vii] The purpose of antitrust laws is not necessarily to protect consumers, but instead to prohibit large business conglomerates from taking advantage of their position in the market.[viii] However, antitrust laws have been shown to give legal privileges to businesses that demonstrate a special interest in a particular industry.[ix] This contrasts with the businesses that operate under efficient practices that result in a monopoly on their own accord rather than a governmental grant.[x]
Professional sports leagues have been subjected to antitrust litigation for the better part of a century.[xi] However, MLB has received a singular exemption from federal antitrust laws, unlike other professional sports leagues such as the National Football League and National Basketball Association.[xii] The initial reasoning for allowing MLB to hold this exemption was that MLB was not “commerce,” but merely “entertainment” despite gross proceeds of the MLB exceeding $3.5 billion annually.[xiii]
MLB’s exemption from antitrust laws stems from Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, where the Supreme Court held that professional baseball was not fundamentally “interstate” or “commerce” since traveling was a mere incident of the game itself rather than a defining characteristic.[xiv] The Court continued to affirm MLB’s exemption and indicated that any deviation from it should come from the legislature rather than judicial action.[xv] However, the Court eventually admitted that professional baseball constituted commerce in its decision in Flood v. Kuhn, but the fact that Congress had failed to create legislation implied its approval of the exemption.[xvi] In response to the inability of the judicial branch of government to overturn MLB’s antitrust exemption, lower courts have attempted to limit the scope of the exemption.[xvii] Legislative reform has done the same, along with the unionization of professional baseball players.[xviii]
One of the effects of MLB’s exemption from antitrust laws is its ability to control both the relocation and creation of new teams.[xix] The league’s restrictions affecting such control ensure established teams' ability to avoid market competition in their geographical area, essentially creating monopolies for each team.[xx] An example of these challenges can be shown in the creation of the Washington Nationals professional baseball team.[xxi] The Baltimore Orioles were in strong opposition to creating the Washington Nationals because it would threaten their control of the geographic market surrounding Baltimore and Washington D.C.[xxii] The Washington Nationals team was ultimately created, but the owner of the Baltimore Orioles was able to successfully obtain broadcasting rights for the Nationals despite clear implications of antitrust violations.[xxiii] While these restrictions may seem to unfairly favor MLB, they also protect cities and ownership groups from being handled by teams that threaten to relocate.[xxiv] Since teams have strict requirements to relocate, this prohibits their ability to threaten relocation to unfairly coerce cities and ownership groups to provide additional funding. Additionally, it helps keep franchises in certain communities that otherwise would struggle to maintain a professional baseball franchise due to attractive alternative markets for franchises.
Professional sports teams create massive revenue streams by selling the rights to broadcast their games not only on a national level, but also locally.[xxv] Local broadcasting rights for professional baseball teams are sold without being subject to competition from other MLB teams since most markets only have one team.[xxvi] Teams argue that restrictive broadcasting practices are essential to their ability to generate revenues to support their operations, but their ability to charge exorbitant prices to media outlets poses hardships on consumers who wish to watch all their team's games.[xxvii]
Although professional baseball organizations in the MLB use vertical integration-related business practices, this seemingly anti-competitive behavior tends to have manifested positive results.[xxviii] Vertical integration is present when a monopoly “performs multiple stages of production” rather than hiring outside, competing entities.[xxix] While Minor League Baseball has seen forty minor league professional baseball teams cease affiliation with MLB franchises, the ones that remain have increased player salaries as well as club valuation.[xxx] Additionally, this control has resulted in more efficient operation of minor league teams, such as requiring less travel, which gives franchises more ability to properly compensate players as well as provide them with better facilities.[xxxi]
While anti-competitive processes in many industries have been proven to have negative impacts on consumers and affected businesses, MLB has demonstrated that their exemption from the laws governing these policies has allowed professional baseball to improve its ability to protect geographical markets, consumers of the sport, and the players themselves. Anti-competitive control over relocation protects the economies of cities by restricting franchises’ abilities to coerce cities and ownership groups by threatening relocation. Disallowing teams to compete with other markets’ broadcasting rights also protects against unequal revenue streams amongst franchises by keeping franchises with more dominant revenue streams tied to local broadcasting from interfering with other markets’ broadcasting rights. Finally, MLB’s ability to control minor league operations allows for more efficient business outcomes for minor league teams as well as better compensation and facilities for players. Any negative impacts of this exemption may be effectively restricted through legislation and public pressure for franchises to act in the better interest of teams and consumers. For the reasons stated above, MLB’s exemption from antitrust laws, although an aberration, is integral in allowing professional baseball to flourish in the United States and operate in the most productive manner possible.
[i] Fed. Baseball Club of Balt., Inc. v. Nat’l League of Pro. Baseball Clubs, 259 U.S. 200 (1922); Toolson v. N.Y. Yankees, Inc., 346 U.S. 356 (1953); Flood v. Kuhn, 407 U.S. 258 (1972).
[ii] Nathaniel Grow, In Defense of Baseball's Antitrust Exemption, 29 AM. BUS. L.J. 211 (2012).
[iii] Emily Parker, The Inevitability of Major League Baseball’s Antitrust Exemption, 11 Ariz. St. Sports & Ent. L.J. 23, 26 (2022).
[iv] Id. at 24.
[v] Animesh Ballabh, Antitrust Law: An Overview, 88 J. Pat. & Trademark Off. Soc'y 877, 878 (2006).
[vi] Parker, supra note iii at 26.
[vii] Ballabh, supra note v at 878.
[viii] Id. at 885.
[ix] Parker, supra note iii at 29; Ballabh, supra note v at 903-04.
[x] Parker, supra note iii at 29; Ballabh, supra note v at 908.
[xi] Parker, supra note iii at 29.
[xii] Id.
[xiii] Id. at 31.
[xiv] Fed. Baseball Club of Balt., Inc. v. Nat’l League of Pro. Baseball Clubs, 259 U.S. 200 (1922).
[xv] Toolson v. N.Y. Yankees, Inc., 346 U.S. 356 (1953).
[xvi] Flood v. Kuhn, 407 U.S. 258 (1972).
[xvii] Parker, supra note iii at 36.
[xviii] Id. at 37.
[xix] Id. at 37-38.
[xx] Id. at 38.
[xxi] Id. at 38-39.
[xxii] Id. at 38.
[xxiii] Parker, supra note iii at 39.
[xxiv] Id. at 40.
[xxv] Id. at 42.
[xxvi] Id. at 43.
[xxvii] Id.
[xxviii] Id. at 47.
[xxix] Parker, supra note iii at 47.
[xxx] Id.
[xxxi] Chelsea Janes, What a Restructured Minor League System Could Mean for Teams Lost in the Shuffle, WASH. POST (Feb. 27, 2021), https://www.washingtonpost.com/sports/2021/02/27/minor-league-baseball-restructuring/.