Business of Baseball

Introduction

For almost 90 years, professional baseball has had the unique distinction of being the only professional sport to enjoy a judicially created exemption from federal antitrust law. Under the exemption, the activities of both Major League Baseball (MLB) – baseball’s highest ranking professional league – as well as the lower ranked, so-called “minor leagues” are generally shielded from antitrust law. Originally created by the United States Supreme Court in its 1922 opinion in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs,¹ baseball’s antitrust exemption has been affirmed by the Court on two subsequent occasions, once in the 1953 case of Toolson v. New York Yankees,² and again in the 1972 case of Flood v. Kuhn.³ The Court affirmed the baseball exemption on the basis of both stare decisis concerns and Congressional inaction,⁴ despite itself acknowledging that the exemption is an “aberration” and an “anomaly.”⁵

No doubt due to the peculiarity of the exemption, as well as baseball’s standing as the “national pastime,”⁶ baseball’s antitrust exemption has generated substantial consideration over the years from both courts⁷ and commentators.⁸ Despite this voluminous analysis, no consensus has been reached regarding the extent to which baseball’s operations are protected under the antitrust exemption. Some courts have broadly interpreted the Supreme Court’s precedent as providing a generally exemption for the entire “business of baseball.”⁹ Meanwhile, others have concluded that the exemption is more limited,¹⁰ with some courts and commentators arguing that the exemption should be restricted solely to the facts of the Supreme Court’s most recent affirmance in Flood v. Kuhn.¹¹ In Flood, the Court reconsidered baseball’s antitrust exemption in the context of the so-called “reserve clause,” a provision included at the time in all baseball player contracts that precluded players from negotiating future contracts with anyone but their current employer.¹² Because MLB players subsequently rid themselves of the constraints of the reserve clause through arbitration,¹³ the implication of this subset of decisions and articles is that baseball’s antitrust exemption is now effectively obsolete.

Faced with these conflicting analyses, some commentators have gone so far as to conclude that “the scope of baseball’s antitrust exemption has become whatever the reviewing court says it is.”¹⁴ This uncertainty is undesirable and runs contrary to the public interest,¹⁵ as the inability to reliably gauge the antitrust risks for various baseball-related business arrangements – such as proposed franchise relocations, or broadcast and licensing agreements – discourages both current and potential MLB owners from fully investing in baseball teams.¹⁶ The conflicting judicial precedents also create undesirable opportunities for forum shopping, allowing enterprising plaintiffs to file antitrust suits in the jurisdiction most likely to rule that baseball’s exemption does not apply to the particular claim at issue.¹⁷ Accordingly, a consistent standard establishing the scope of baseball’s antitrust protection is sorely needed.

This article asserts that future courts considering the scope of the baseball exemption should hold that only those activities directly related to the business of providing baseball entertainment to the public are exempt from antitrust law. This uniform standard is drawn from the often-overlooked focus of the Supreme Court’s opinions in Federal Baseball and Toolson, which both explicitly exempted the business of supplying baseball exhibitions to the public.¹⁸ Under the proposed standard, exempt activities related to providing baseball entertainment would include baseball’s official rules, league structure, broadcasting, minor league operations, and most labor disputes.¹⁹ Meanwhile, commercial activities unnecessary for supplying baseball entertainment, such as merchandise licensing, concessions, and sponsorship agreements, would not be exempt.²⁰

Admittedly, the proposed standard is unlikely to satisfy those who advocate the severe restriction or outright revocation of the baseball exemption on policy grounds.²¹ While the policy arguments advanced by these commentators may ultimately convince the Supreme Court or Congress to restrict or revoke baseball’s antitrust exemption, until that time comes a uniform standard for the baseball exemption is needed. Therefore, this article sets aside the general policy concerns advanced by opponents of baseball’s antitrust exemption, and instead attempts to provide a much needed, workable standard consistent with the Supreme Court’s existing precedent to be used by future courts applying the exemption.

This article thus argues that future courts considering baseball’s antitrust exemption should hold that only those league functions related to the business of delivering baseball entertainment to the public are exempt from federal antitrust law. Specifically, Part I reviews the relevant Supreme Court precedent, as well as Congress’ single limited attempt to constrain the baseball exemption, namely the Curt Flood Act of 1998, and asserts that baseball’s antitrust exemption should be construed to protect the business of providing baseball exhibitions to the public. Part II reviews the subsequent, conflicting lower court opinions considering the scope of baseball’s exemption, while Part III argues that these courts have provided flawed or imprecise standards. Finally, Part IV applies the proposed standard to a variety of different aspects of the baseball business, in the process differentiating between properly exempt and non-exempt activities.