U.S. Supreme Court should reconsider Major League Baseball's antitrust exemption, Stanford experts say

Stanford scholars offer perspective on Major League Baseball's antitrust exemption, which could come under review this spring if a San Jose lawsuit proceeds to the high court.

AT&T Park

Fans watch a baseball game between the San Francisco Giants and Minnesota Twins at AT&T Park on May 25, 2014. Major League Baseball’s exemption from antitrust laws is of interest to Stanford professors emeriti William Gould IV and Roger Noll. (Image credit: Jeff Chiu/AP)

The evidence calls for America’s high court to revisit Major League Baseball’s antitrust exemption, according to two Stanford scholars.

Baseball is unique among major American professional sports in that it enjoys an antitrust exemption that the others do not. Supporters of the exemption say MLB can prevent sudden franchise relocations, while critics say the exemption prevents team shifts when they are necessary.

MLB’s more than 90-year-old protection, however, may be at risk, due to a lawsuit winding its way through federal court.  And Stanford Professors Emeriti William Gould IV and Roger Noll say the U.S. Supreme Court should reconsider baseball’s antitrust exemption, which dates back to a 1922 case, the Federal Baseball Club v. National League, which found that baseball is not involved in interstate commerce or trade as defined by the Sherman Antitrust Act.

In an interview, Gould said, “I’m in favor of rolling it back. Baseball has never really made the case that it is different and unique from other professional sports.”

San Jose’s appeal

That view is reflected in the recent decision by the San Jose City Council to appeal a lower court ruling on its antitrust lawsuit against Major League Baseball to the U.S. Supreme Court. San Jose claims Major League Baseball violated antitrust laws by allegedly delaying and blocking a possible move by the Oakland Athletics to San Jose. MLB counters that its actions are protected by the antitrust exemption.

In a recent Daily Journal article, Gould wrote, “Developments over the first part of the 21st century make it clear as ever that Federal Baseball was wrongly decided. It is always possible for this recognition to dawn on the court.”

He noted that judges have referred to the Federal Baseball decision as an “enduring anomaly.” But the roadblocks to change include the judicial concept of stare decisis – which means “to stand by things decided” – congressional acquiescence, and an arguably pro-business Supreme Court.

Said Gould, who is a former chairman of the National Labor Relations Board: “Baseball is a part of big business, and this court seems unlikely to interfere with its undeserved privilege.”

The court had opportunities twice in the 20th century to change the antitrust exemption, but did not do so, Gould said. Baseball itself eventually compromised partially, opening up its labor process to collective bargaining.

From its point of view, Major League Baseball has always said the loss of the antitrust exemption would affect its minor league operations nationwide and create instability through team relocations, Gould said.

Today, Major League Baseball is the only sport that has a judicially created exemption from antitrust laws, Gould said, due to the Federal Baseball ruling that reflected the business and legal ethos of the time.

“This opinion, delivered by a great jurist (Oliver Wendell Holmes), who suffered, like all baseball players, from what most have perceived to be a bad day, was nonetheless in tune with pre-New Deal interpretations of the commerce clause by the Supreme Court,” he wrote.

But upon examination of the evidence, “it defies understanding.”

Economic consequences

Noll, a Stanford professor emeritus of economics at the Stanford Graduate School of Business, said that if the antitrust exemption were rolled back, it is highly unlikely that more competition would seriously harm or even change baseball very much.

“With the passage of the Curt Flood Act in 1998, baseball lost its most important antitrust exemption – monopolization of the player market, or labor. Notwithstanding dire forecasts to the contrary, free agency and competition for baseball players did not destroy baseball,” he said in an interview.

The Curt Flood Act established federal antitrust law protection for major league baseball players to the same extent as provided for other professional athletes.

Noll said another key exemption that MLB benefits from is the Sports Broadcasting Act of 1961, which granted all professional sports the ability to pool the sale of TV rights for their games. 

“Repeal of this act would make pro sports resemble college sports, with many more games televised in each local broadcast area. Total revenue to baseball from the sale of TV rights would fall,” he said.

But the effect would be minor compared with the rise in player salaries that occurred after baseball introduced free agency and salary arbitration. “And sports fans would be better off because they would have access to many more games,” according to Noll.

Like Gould, Noll says the reach of baseball’s antitrust exemption beyond TV and player markets (labor) is unclear.  The Supreme Court has not ruled definitively on territorial rights and team location, and lower courts have shown much disagreement on these issues.

For these issues, he points to the robust states of other pro sports. “The NBA, NFL and NHL do not have antitrust exemptions in these areas and have lost a few antitrust cases over team movements, yet they continue to operate highly successfully,” Noll said.

While baseball may not like having less control over where teams play and where they can televise their games, it would not be economically threatened if its antitrust exemption were to be weakened or even eliminated, Noll said.

But he said the issue of legislating this change is “entirely academic.” Congress, as he pointed out, did not pass the Curt Flood Act until 25 years after baseball players negotiated free agency and salary arbitration through collective bargaining.

“By that time not only had the horses escaped the barn, but the barn had been torn down to build a shopping center,” he said.