Antitrust Exemption Holds Baseball Back a Century
Some think Major League Baseball is stuck in the past, from its resistance to using in-game technology such as instant replay to its ever-aging fan base. Yet the most obsolete aspects of the national pastime are the antitrust exemptions that continue to prop up the league more than 90 years after they ceased to be relevant.
And that's actually a quite generous assessment, as many would argue that such exemptions were illogical and incongruous with the baseball and legal climate even back in 1922, when the Supreme Court upheld MLB's exemption. In the decision in Federal Baseball Club of Baltimore v. National League, the court ruled that the sport was not subject to laws such as the Sherman Antitrust Act by emphasizing the supposed distinction of baseball as a game, not a business, while stating that having players travel to different stadiums did not constitute interstate commerce and thus did not fall under federal jurisdiction.
Justice Oliver Wendell Holmes wrote:
The business is giving exhibitions of baseball, which are purely state affairs. It is true that ... competitions must be arranged between clubs from different cities and states. But the fact that, in order to give the exhibitions, the Leagues must induce free persons to cross state lines and must arrange and pay for their doing so is not enough to change the character of the business. ... The transport is a mere incident, not the essential thing. That to which it is incident, the exhibition, although made for money, would not be called trade of commerce in the commonly accepted use of those words. ... Personal effort not related to production is not a subject of commerce.
Nine decades later, the notion that professional baseball wouldn't be considered commerce seems rather quaint. Not only is the "personal effort" of Major Leaguers an $8 billion product in and of itself, the lucrative national broadcast deals and growing audience for online streaming clearly place a significant chunk of business operations across state lines. Professional baseball can no longer be considered a local business, if it really ever could have been.
Yet the exemption persists. In 1953, the Supreme Court revisited its decision in Toolson v. New York Yankees, in which minor leaguer George Toolson challenged baseball's reserve clause as violating antitrust laws. In a refrain that would become all too familiar to the common-sense crowd, the court ruled that the precedent set in 1922 trumped new legal and business realities and passed the buck to Congress. "If there are evils in this field which now warrant application of it to the antitrust laws, it should be by legislation," the unsigned majority opinion stated.
The city of San Jose, California, isn't so keen on waiting for Congress to act, however. Last year, city officials filed an antitrust suit against MLB as part of its longstanding campaign to relocate the Oakland A's. After San Jose lost the initial round of litigation, a U.S. appeals court fast-tracked the case, with a ruling expected to come down this summer. Should it lose again, "San Jose is prepared to take its case to the Supreme Court," a lawyer representing the city told the Wall Street Journal.
The San Jose case illustrates how MLB's sanctioned monopoly protects owner interests above all others, especially when it comes to big- versus small-market teams. Despite the considerable financial disadvantages of their location, the A's have managed to consistently put together respectable teams, winning their division the past two years. It's even more impressive when you consider the awful conditions in Oakland Coliseum, which the A's share with the NFL's Oakland Raiders and have been trying to flee for years now. Last summer, MLB Commissioner Bud Selig rejected a proposal by the A's to relocate to San Jose -- a power afforded him by the league's antitrust exemption. Selig's desire to keep the team away from San Jose directly protects the interests of the nearby San Francisco Giants, who lay territorial claim to South Bay.
The disparities in home markets directly translate to the balance sheets, if not the field. According to Forbes, the $1 billion Giants are MLB's fifth-most valuable team, while the $495 million A's rank 28th of 30 teams. The value of the Giants' city and market size is $456 million, compared to the A's market-added value of $137 million.
This should surprise no one -- for all its recent advancements in revenue sharing and parity, baseball remains a sport of the Haves and Have Nots. Despite the recent success of the Tampa Bay Rays and Baltimore Orioles and rising, young stars such as the Pittsburgh Pirates' Andrew McCutchen, the big money, ratings and brand recognition still lie in the likes of the New York Yankees and Los Angeles Dodgers, whose television revenue and luxury tax dollars ultimately help fund the smaller-market teams. Relocating to San Jose won't magically transform the A's into the Giants, but it would go a long way in narrowing the gap and reducing their dependency on the league's cash cows.
It would also likely require ending MLB's status as the only sports league and industry that enjoys a complete antitrust exemption. Last week, the Supreme Court demonstrated its willingness to defy longstanding precedent when it eliminated limits on private campaign contributions. Let's see if it's willing to be just as maverick when it comes to the national pastime.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the author on this story:
Kavitha A Davidson at firstname.lastname@example.org
To contact the editor on this story:
Toby Harshaw at email@example.com