Antitrust

Antitrust, in the context of baseball, refers to the exemption to antitrust laws granted to Major League Baseball as a result of the decision handed down by Supreme Court Justice Oliver Wendell Holmes in the case of Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Players on May 29, 1922.

The law at issue was the Sherman Antitrust Act of 1890, designed to prevent the constitution of monopolies that hamper commerce. The law made it illegal for businesses to set up monopolies, contracts, conspiracies or other combines, both domestically and internationally, in restraint of trade, in order to make the playing field fairer for smaller businesses. However, its language was too broad to be of much use, so it became the source of various court challenges. Because the Supreme Court was divided between judges who saw themselves as defenders of the rights of common Americans, and others, such as Holmes, who saw the Sherman Act's attempt to regulate the natural laws of business as counter-productive, rulings meant to clarify the execution of the Act were in fact more confusing than anything.

The Federal League started in 1913 as an independent league, but in 1914, under the leadership of new President James Gilmore, decided to expand from six to eight teams and to rival the established National League and American League as a third major league. It did so by offering better salaries to established stars from the two leagues, who reacted by pressuring players to refuse these offers. While most of the teams in the upstart league were owned by wealthy business tycoons, the Baltimore franchise, as well as that in Buffalo, were community-owned, with Baltimore having 600 investors. The Federal League managed to put a quality product on the field, and attendance in 1914 and 1915 was satisfactory, although the higher salaries which it paid compared to its two rivals meant that its business model was unsustainable over the longer term. By the end of 1915, Baltimore had lost $65,000, which was actually little compared to other franchises which were by then almost bankrupt. In December of 1915, Gilmore decided to call off the league's 1916 season and sued for peace with Organized Baseball. As a result of the peace agreement, a number of Federal League owners received financial compensation to dissolve their franchise, others were allowed to buy existing major league franchises, but the two community-owned teams were left with little: the other owners offered Baltimore $50,000 as a share of the league's remaining assets - much less than what they were receiving themselves. Baltimore's shareholders met and decided to reject the offer and take their case to court.

Ironically the Federal League itself had filed an antitrust suit in an Illinois court in 1914 against the National Commission, all sixteen existing teams and the two leagues, alleging they were harming the new league's attempts to establish itself as a rival business. The case sat on Judge Kenesaw Mountain Landis' docket for a time, but he did not rule on it before the 1915 settlement made it moot. Baltimore's case was filed in September 1917 in the Supreme Court of the District of Columbia. It named as defendants the National Commission and its President August Herrmann, both leagues, all 16 teams, the two league Presidents - Ban Johnson and John Tener - former Federal League President Gilmore, Chicago Whales owner Charles Weeghman and Newark Pepper owner Harry Sinclair. The Baltimore owners accused the defendants of conspiring to destroy their franchise by monopolizing the baseball business. A jury found in favor of the plaintiffs after Judge Wendell P. Stafford ruled that baseball was subject to the interstate commerce clause of the Constitution and awarded the Baltimore owners $80,000, which was automatically trebled to $240,000 thanks to a clause of the Clayton Act, a legislation passed in 1914 to clarify the Sherman Act, which is still extant.

Organized Baseball appealed Judge Stafford's decision to the United States Court of Appeals for the District of Columbia, claiming that the judge had been wrong in ruling that baseball constituted a form of commerce, and thus that the Sherman Act should not have applied. The Appeals Court overturned the lower court's ruling, stating that the Baltimore franchise was engaged in the purely intrastate business of baseball exhibitions: "(the game) is local in both its beginning and in its end". When the case was further appealed to the Supreme Court, Chief Justice William Howard Taft assigned the task of writing the ruling to Oliver Wendell Holmes, who agreed with the analysis provided by appellate Judge Constantine J. Smyth on this issue. As Holmes stated in his decision, "the decision of the Court of Appeals went to the root of the case and if correct makes it unnecessary to consider other serious difficulties in the way of the plaintiff's recovery". Judge Holmes' opinion has since been criticized quite consistently in legal circles, with most observers considering that he made his ruling simply to maintain a quaint and outdated vision of the national pastime as a game unsullied by the realities of modern business. However, the decision was twice challenged in subsequent cases, Toolson v. New York Yankees, Inc. in 1953 and Flood v. Kuhn in 1972, but was not overturned, even though the idea that a professional baseball game was a purely local concern was widely ridiculed, including by dissenting Supreme Court judges. As Judge Harry Blackmun put it in his ruling on the Curt Flood challenge, the ruling was "an aberration, albeit an established one".

Another challenge to the antitrust provision came with a suit filed in federal court by the city of San Jose, CA in 2013, claiming it had suffered significant losses because MLB had used its exemption to prevent the Oakland Athletics from moving to a new ballpark in the city. More recently, four minor league teams eliminated in the 2021 Minor League Reorganization sued MLB for damages. The case was dismissed on October 26, 2022, but the judge agreed the teams showed damage and violations that would have been actionable without the antitrust exemption. That provided grounds for an appeal which the clubs filed on January 9, 2023, asking the U.S. Second Circuit to send the case to the U.S. Supreme Court. That court dismissed the case on June 20th, but that only opened the possibility of an appeal to the Supreme Court, the only body habilitated to overturn its own decision, with these preliminary hurdles having been cleared. Of course, the Supreme Court could also refuse to hear the case, letting the exemption stand unchallenged.

The antitrust exemption granted by the 1922 ruling has allowed Major League Baseball to engage in practices that would likely have been unacceptable in other contexts, and it remains controversial to this day. It is a common talking point for politicians unhappy with a decision by MLB to state that they will work to pass a law to overturn the exemption. However, other professional sports leagues do not have such an exemption, and operate in a manner that is not very different from professional baseball, so it is difficult to pinpoint what exactly would change if the exemption did not exist. Even more so that it is understood that a serious challenge could well overturn a ruling that has few defenders, even within the legal profession.

Further reading

• Samuel A. Alito, Jr.: "The Origins of the Baseball Antitrust Exemption: Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Players", in The Baseball Research Journal, SABR, Volume 38, Number 2 (Fall 2009), pp. 86-93.
• Stuart Banner: The Baseball Trust: A History of Baseball's Antitrust Exemption, Oxford University Press, New York, NY, 2013. ISBN 978-0199930296
• Nathaniel Grow: Baseball On Trial: The Origin of Baseball's Antitrust Exemption, University of Illinois Press, Champaign, IL, 2014. ISBN 978-0252079757
• Gabe Lacques: "What is MLB's antitrust exemption? Ted Cruz, Josh Hawley using baseball's century-old golden goose as political cudgel", USA Today, April 13, 2021. [1]

Related Sites

• Baseball and the Supreme Court, by SABR's Centenary Committee