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Baseball’s Antitrust Exemption is Under Attack

Depending on how it changes, this could either help and hurt the A’s.

Minor league teams and players are at the center of the latest debate over MLB’s Antitrust Exemption.
Photo by Jeff Speer/Icon Sportswire via Getty Images

The 2022 theme of digging up controversial Supreme Court cases has found its way to baseball. This time, in question is the hundred-year-old unanimous decision in the Federal Baseball Club v. National League case, which found that the business of baseball did not constitute interstate commerce and was therefore not subject to the Sherman Antitrust Act.

A bit of history

In 1922, the owner of the Federal League Baltimore Terrapins, Ned Hanlon, brought a case, Federal Baseball Club v. National League, against the National League, arguing that monopolistic agreements between National and American League teams to buy out certain Federal League teams – allowing them to join with the National and American league – caused the Federal League to fold. Hanlon’s Terrapins was not offered such an agreement and the team collapsed.

Though Hanlon initially won a financial settlement against the National League in a lower court, the Court of Appeals reversed the decision and the Supreme Court later concurred. The reasoning for this decision was that the Sherman Antitrust Act was, at the time, largely thought to be limited to the production of goods, not labor. Additionally, justices argued that federal laws did not apply to the baseball, because the travel between states wasn’t thought of as meeting the Commerce Clause in the Constitution. For good or bad, the Commerce Clause has long since been used to greatly expand the influence of federal law, making this interpretation outdated.

Since the Federal Baseball ruling, MLB’s antitrust exemption has been challenged multiple times. The most important challenge has been the historic 1972 Flood v. Kuhn case, which specifically took aim at the league’s reserve clause – a league rule that prevented players from negotiation with other teams. Though the case did not overturn the Federal Baseball decision or side with Flood by removing the reserve clause, in a 5-3 decision, justices did explain that the Federal Baseball ruling was an anomaly in comparison to other industries, that the reserve clause could be subject to negotiation between players and teams, and that due largely to the concept of stare decisis, changes to Baseball’s antitrust exemption should go through congress.

So of course, Congress, given the green light to do the right thing and codify basic labor rights for baseball players, then took 26 years to pass the Curt Flood Act, which removed the antitrust exemption as it related to contract negations between players and owners. Or, to put it another way, it put into law the opinions of the Supreme Court Justices in Flood v. Kuhn and reenforced what MLB Players’ Association won in 1976 after two work stoppages – free agency after six years of team control.

However, the Curt Flood Act left intact the antitrust protections as they relate to other baseball operations, including team locations, expansion, club ownership and relationships with the Minor Leagues. The Courts have also since reenforced these protections in the City of San Jose v. Office of the Commissioner of Baseball, where they ruled against the City of San Jose in their effort to bring our very own Athletics to their city with a new stadium.

What’s happening now

Under dispute this time, however, is MLB’s control over Minor League teams.

In December of 2020, after no MiLB to speak of during the 2020 season, MLB removed 40 of the 180 MiLB’s affiliate status with major league teams. Now, each club is reduced to one team each at AAA, AA, high-A and low-A. Similar to the Federal Baseball case, four of these MiLB teams (the Staten Island Yankees, the Tri-City Valley Cats, the Salem-Keizer Volcanoes, and the Norwich Sea Unicorns — great name BTW, sad to see it gone) are not particularly happy about losing their affiliation, essentially being forcing them out of business, and in December of 2021 filed a complaint against the Office of the Commissioner of Baseball for an antitrust violation. The case will be reviewed first by the Southern District of New York Court.

The Department of Justice recently weighed in on this antitrust case brought by four former MiLB affiliate clubs. In a statement, the DOJ filed in the federal district court, they argue two basic points relating to the antitrust exemption: 1) That baseball’s antitrust exemption is “aberrational” and is founded on an outdated understanding of the Commerce Clause. 2) Lower courts should interpret the exemption “narrowly” and avoid extending the exemption beyond “conduct that is central to providing professional baseball games to the public.” Though that sounds somewhat cryptic (What is “is central to providing professional baseball games to the public” anyhow?), the DOJ explains in their statement this should be limited to essentially just league structure and the nature of these baseball exhibitions themselves.

Congress is of course also taking note, starting with Bernie Sanders, who stated after the lockout was ended in March, “We must prevent the greed of baseball’s oligarchs from destroying the game. The best way to do that is to end Major League Baseball’s antitrust exemption and I will be introducing legislation to do just that”. And so, the Save American Baseball Act currently sits in congress awaiting a vote. Despite general bipartisan support for removing this exemption, shown by Republicans introducing a similar bill last summer, Congress has never found the resolve to actually push these bills beyond a few moments of grandstanding.

However, things recently accelerated in the Summer. In June, the Senate Judiciary Committee sent a letter to Rob Manfred essentially asking, why does MLB need an antitrust exemption? This letter was only revealed due to a similar letter being sent to the Advocates for Minor Leaguers, who made the letter they received public. The Advocates for Minor Leaguers responded to this letter arguing that Minor League Ball Players need their own version of the Curt Flood Act to shield them from the antitrust exemption. And most recently, Manfred responded to this line of questioning stating publicly to the LA Times, “I can’t think of a place where the exemption is really meaningful, other than franchise relocation, right now.”

Where could it go from here?

First, a disclosure: I have zero law expertise. I only know what rather casually following baseball law for the last 20 years, the research I did for this piece and 4,287 podcasts since the Dobbs ruling have taught me.

OK, with that out of the way, I think there are four options available:

Option 1: The New York Court and/or higher courts eventually rule in favor of MLB.

The legal arguments can be more nuanced than simply allowing MLB’s antitrust exemption to continue or not and may only rule on issues specific to this case. If this ruling where to pass, however, it would require the court holding up the idea that MLB has central control over Minor League Baseball clubs’ locations and affiliations – not just who those affiliations are, but if they even exist. This could be considered a “narrow” interpretation of the antitrust exemption, and not an expansion of it, because it deals directly with MLB’s structure. Like it or not, MiLB baseball clubs’ affiliations are part of the overall MLB structure, it will just come down to if justices believe MLB structure and central control extends that far down the chain — beyond the parent clubs at the MLB level.

Option 2: The New York Court and/or eventually higher courts side with the MiLB clubs but leave Federal Baseball otherwise intact.

This would be somewhat analogous to letting Roe stand, but siding with Mississippi in the Dobbs case and be a nod to stare decisis – understanding the importance of precedent but making specific modifications to bring the rulings consistent with modern interpretations. In this case, courts may take a more literal interpretation of the “business of baseball” and limit the centralized actions of MLB to the structure of the top-level league only and more directly game-related activities. The implications of this could be profound. Though this specific case would not invalidate some of MLB’s monopolistic policies, such as TV blackouts, it would open the door to such challenges. It would also leave MLB clubs in a position where they could individually negotiate with MiLB clubs for affiliate status.

Option 3: The Supreme Court tosses out the Federal Baseball Clubs.

This would be a Dobbs-like bombshell and would likely similarly cause much confusion. MLB’s existing policies around TV contracts, territorial rights – like the ones that blocked the A’s from moving to San Jose – and more would get blown up immediately. MLB would have to rework its policies and rules to mirror what we see in the NFL or NBA. In fact, another Oakland team, the Raiders, highlights the power of the antitrust exemption. When the NFL attempted to stop the Raiders from relocating to Los Angeles in 1984, the Raiders joined a lawsuit against the NFL for violating the Sherman Antitrust Act. Despite the league voting 22-0 against allowing the move, The Raiders and the LA Memorial Coliseum won the case and the Raiders did move to LA. The justices in this case argued that the NFL was not considered a single entity, and instead individual clubs acted in cooperation in violation of the Sherman Act to block the Raider’s move.

Option 4: The courts do any of these things and Congress passes a law removing or limiting MLB’s antitrust exemption.

Based on the communications we’ve seen between the Senate Judiciary Committee, Manfred and the Advocates for Minor Leaguers, the battle ground seems clearly marked out. Manfred doesn’t want to lose anything, of course, but he especially doesn’t want to lose the ability to control team locations, likely including Minor League team affiliates. But another issue is that MLB still controls is Minor League pay and the Curt Flood Act does not cover Minor League players. Minor League players recently won a settlement related to minimum wage laws and over-time that will pay a little over $120M out to certain Minor League players. This is a huge win considering a previous act of Congress, the Save America’s Pastime Act, exempted Minor League players from minimum wage laws by classifying their role as a “short-term seasonal apprenticeship”. Yes, you got that right, Congress is going to have to undo their own mistakes from just four years ago if they want to fix Minor League pay.

Congress’ options then could be to remove any combination of or all of the most notable antitrust protections. From Minor League pay, to MLB club location and territories, to MiLB affiliations. All of these could be on the table and new laws passed by Congress would effectively overrule any Court rulings on older laws, at least until the new laws are reviewed by the Courts.

How could this impact the A’s?

The A’s, as a smaller revenue club on the new ballpark hunt, are likely in a unique situation regarding the possible changes to MLB’s antitrust laws. First, if MLB suddenly lost antitrust exemptions relating to team location, the A’s could theoretically move anywhere almost immediately. Given that they have so much invested in Howard Terminal, the option to move wherever they wanted – San Jose might reenter this discussion – would likely remain a plan B. Now, it would just be a plan B that doesn’t require league approval. On the other hand, doing something without approval doesn’t necessarily mean doing it quickly. If the league approved of the Las Vegas move, for example, but the A’s wanted to move to San Jose, the league could of course try to challenge the move in court and delay the process.

The changes to the minor league system and player pay could also have drastic implications for the A’s. In the early days of Major League Baseball, rich clubs had prolific minor league systems, while poor clubs had few or no Minor League teams. This allowed rich clubs to stash high quality players in their minor league systems and pay them well compared to other MLB teams — pay was terrible back then, so this was relatively easy to do. In 1939, for example, the St. Louis Cardinals had 28 (!) minor league clubs, while the Philadelphia Athletics had 4!

It is hard to see how establishing a more capitalistic, free-market approach to Minor League affiliations and player pay would help the A’s. Minor League clubs, if given the choice who to affiliate with, may scoff at the A’s because they wouldn’t receive much monetary support. Minor League players, if given a Curt Flood Act, could become more mobile and demand higher pay. Good minor league players could then accumulate through free-market forces in successful MiLB clubs that tend to affiliate with rich MLB clubs. Collectively, this almost certainly would erode the A’s minor league system.

Other, less predictable changes could occur to help the A’s, however. First, removing antitrust exemptions could allow the A’s to market themselves more broadly. I know the A’s don’t have a great track record here, but embracing a non-territory-based TV or streaming modality could get them a small slice of a very big pie, which could end up being bigger than the small slice of the small pie they currently have. Additionally, MLB’s own territory-based TV deals set MLB clubs back across the board. Without these territories and clubs having individual deals inside them with broadcasters, MLB could nationally market all baseball games themselves and collect revenue from that similar to the NFL. This would allow MLB to distribute more national TV revenues across all the clubs, leading to a higher degree of parity in total revenues between clubs than we see today.

There is so much that could change here, that we could speculate on how just how each possible change impacts the game or the A’s specifically indefinitely — and feel free to do so in the comments! But, hopefully some of these changes do happen. Minor League players need to be paid more. MLB clubs should also be given more freedom to get themselves in a good financial position through relocation and carving out their own TV deals. And just on principle, limiting freedoms for both individuals and corporations due to antiquated interpretations of the law and the Constitution is unfair and has contributed to a lot of problems we see in baseball. Hopefully, we’ll see some these changes soon, for both the players – at all levels – and low revenue clubs stuck in a system that doesn’t work for them, like our own Athletics.