Antitrust » It’s Time to End Baseball’s Antitrust Exemption

It’s Time to End Baseball’s Antitrust Exemption

By Jeffery M. Cross

April 28, 2024

baseball in grass of baseball stadium

Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group of Smith, Gambrell & Russell, LLP and a member of the firm’s Antitrust and Trade Regulation Group.

This story originally appeared in Today’s General Counsel.

In October, I was part of a legal team that filed an amicus brief in the Supreme Court supporting a petition for certiorari seeking to overturn baseball’s antitrust exemption. The case, in which a minor league team lost its affiliation with a major league team as the result of an alleged horizontal conspiracy among the 30 major league teams, appeared to be the best opportunity to overturn the exemption.

Major League Baseball must have thought so too, because it settled the case, rendering our brief academic. Now Congress is considering overturning the exemption by legislation. Consequently, it would be valuable to examine the exemption, and some of the arguments against it.

Baseball’s antitrust exemption was created by the Supreme Court and upheld in two subsequent decisions. In 1922, in opinion by Associate Justice Oliver Wendell Holmes Jr., it held that baseball was an intrastate business and therefore not subject to the Sherman Act. In 1953, the Court ruled that Congress did not want baseball to be subject to the antitrust laws, although Congress had not spoken. Finally, the Court held in 1972 that stare decisis prevented the Court from overturning the exemption.

Those decisions dealt with the so-called “reserve clause,” which prohibited a player from negotiating a contract with a new team without permission from his old team. However, MLB has since dropped the reserve clause.

The Case for Overturning the Exemption

The case in which we filed our amicus brief involved MLB’s efforts to restructure its relationship with minor league teams. In 1960, Major League Baseball and an organization of minor league teams entered into an agreement under which each MLB team would contract directly with minor league teams.

The key provision was that each MLB team was free to affiliate with minor league teams of its choosing. The result was competition among both the MLB teams and the minor league teams for affiliations. By 2020 there were 160 minor league teams affiliated with major league teams.

In 2020, the MLB agreed to restrict the number of minor league teams each major league team could affiliate with. This resulted in 40 minor league teams losing their affiliations. Moreover, the agreement effectively prohibited the major league teams from considering those teams for future affiliations.

The ValleyCats Case: A Closer Look

Our amicus brief was filed on behalf of the Rensselaer County Regional Chamber of Commerce, the principal business, civic, and economic development alliance for Rensselaer County, New York. Rensselaer County is home to one of the teams that lost its affiliation with a major league team, the Tri-City ValleyCats.

The allegation made by the ValleyCats, both in the Supreme Court and the courts below, was that the 2020 agreement was a horizontal conspiracy among the 30 major league teams to reduce the “output” of the minor league teams. Output is a term used in antitrust to mean consumers have fewer choices.

Although a single major league team can independently decide who to deal with, the allegation is that they cannot collude and impose on each other a limitation on how many minor league teams they can affiliate with.

The Importance of Competition

Our amicus brief focused on the fact that the restraint eliminated competition among minor league teams to affiliate with major league teams. Competition-for-the-contract is a form of competition that the antitrust laws protect. It keeps the parties innovating and creating efficiencies to win an affiliation contract in the future, benefitting both teams and consumers.

It is well established that a minor league team’s affiliation with a major league team has a significant positive effect on local per capita income. But perhaps most importantly, teams and their communities would compete for affiliations. Competition often results in improvements to the minor league baseball experience, up to and including the construction and renovation of stadiums. It benefits fans, stadium vendors, and other interested parties.

The Tri-City ValleyCats team is a good example. The ValleyCats built a new 4,500 seat stadium. They invested in a new scoreboard, concession equipment, video equipment, a pavilion, picnic areas, and a video board. Before the ValleyCats team was stripped of its affiliation, it planned to spend an additional $1.8 million for other capital expenditures. This is competition-for-the-contract, and clearly benefits consumers.

Major League Baseball’s antitrust exemption has had a long run, but it keeps bumping into bedrock antitrust principle, then settling cases to avoid a Supreme Court decision. It is time for Congress to act.

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