Major League Baseball's antitrust exemption and its legal history

Economics

Major League Baseball's Antitrust Exemption

Major League Baseball has a history of antitrust exemption granted by Congress, despite obvious characteristics that would characterize another industry as dominated by a monopoly. Despite the rationale of the U.S. Government for this exemption, there have been challenges to the exemption intent on opening the baseball industry to greater competition. The purpose of this study is to examine the standing reasoning behind the antitrust exemption for Major League Baseball in the United States, analyze some of the major challenges to the exemption, and discuss the overall implications and ramifications for the industry (and, indeed, any industry).

Major League Baseball's Status

Though Major League Baseball's antitrust exemption isn't as relevant as it once was, with the absolution of the reserve clause and the rise of collective bargaining, it remains a strongly controversial component of the industry. But to understand the reasons why this exemption exists for Major League Baseball, we must look deep into the history of the game at the beginning of the 20th century. In January 1903, the early years of the game in the United States, two baseball leagues -- the American and National Leagues -- combined to form Major League Baseball (MLB) (Greenberg). As part of this union, the new league created a reserve clause in all contracts with players, effectively binding players to their first teams. The team, thus, held all the power to sell or trade athletes, leaving individual players with little power to control their own careers.

When a new baseball league, the Federal League, was unable to lure many players from MLB, they sued the league in 1915 for violating the Sherman Antitrust Act (Greenberg). Their argument was that MLB had unfairly cornered the market for players, largely through the reserve clause, and had made it impossible for other leagues to compete. Though the Federal League as a whole settled with MLB out of court, some of the owners in the Federal League took the case to the Supreme Court for arbitration.

Unfortunately, the case did not go as they had hoped. The Supreme Court ruled against the upstart Federal League owners and determined that MLB was not prosecutable under the Sherman Antitrust Act. The 1922 decision was built on the seemingly untenable position that baseball is 'just a game' and not a business or industry in the sense that steel manufacturing or mining is an industry (Belth; Greenberg). Justice Oliver Wendell Holmes articulated the position when he explained that baseball consisted of "personal effort, not related to production" and was thus not a form of commerce that could be regulated by the Court under the Sherman Antitrust Act (Greenberg). The end result of this decision was that MLB cannot be sued for antitrust violations, meaning that the League and its owners could make any decision regarding individual players and that those players had no legal recourse under the Antitrust Act (Belth).

To the modern eye, this decision is difficult to understand. Baseball is most certainly an industry. The industry produces hundreds of millions of dollars every year. The movement of teams across state lines can easily be characterized as interstate commerce, and should therefore be able to be regulated under the Sherman Antitrust Act. However, in 1922, the Supreme Court did not see the situation in these terms. Baseball, at the time, was still somewhat in its national infancy and did not operate on the industrial scale it does today. The core idea behind their decision was that baseball "was not the interstate travel to far flung cities, but rather the intrastate exposition of individual effort in the playing of a game" (Morrissey). Rather than negatively impact the game of baseball with the possibility of antitrust suits, the Supreme Court argued that the value of the game as a game and a national pastime outweighed any antitrust violations that might occur. In positing that Congress had only intended the Sherman Antitrust Act to apply to steel magnates and railroad tycoons, the Court removed MLB and the game of baseball from consideration as an industry open to regulation by the Act. In this way, baseball earned an antitrust exemption that permitted MLB and team owners to tightly control the game.

Industry Ramifications and Conclusions

Ultimately, then, baseball has retained most of its antitrust exemption since 1922 despite the anomalous nature of the initial ruling and despite the general understanding that baseball is, in fact, a form of interstate commerce and not 'just a game'. For baseball as an industry, this exemption has proved to be an incredible boon over the last eighty years, not least of which because the Supreme Court has consistently upheld MLB's right to retain the exemption. Generally free from legal challenges on antitrust ground, MLB has been able to control the fates of athletes and teams largely with impunity. Of course, in recent years, this power has been diluted somewhat thanks to the rise of collective bargaining. Nonetheless, the fact that for so many years baseball has been characterized as a game rather than interstate commerce worked to the benefit of the industry as a whole.

If the exemption were repealed, apparently only possible through act of Congress, players and teams could sue the league if their movements were restricted and limitations placed on their ability to conduct business for themselves (Rovell). MLB could still manage how teams and players moved, but the repeal of the exemption would eliminate their absolute control over these movements. Obviously, this would have a significant impact on the baseball industry, but would not be necessarily devastating. Other sports have persisted despite not having antitrust exemptions, so there is little reason to expect that baseball couldn't adapt as well.