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Slide 1 - Modern Baseball’s Antitrust Exemption: Commissioners, Collusion, and Contraction Artemus Ward Department of Political Science Northern Illinois University MLBPA head Donald Fehr (L) and MLB Commissioner Bud Selig.
Slide 2 - Introduction In this lecture we will review recent baseball labor disputes including the strike of 1994-1995 that led to the cancellation of the season including the World Series and how it was resolved with unprecedented political intervention. We examine the recent conflicting court cases at first limiting and then expanding baseball’s antitrust exemption and how they illustrate baseball’s special legal status and its resultant implications. Finally, collusion, prohibitions on municipal ownership, and threats of contraction are used to show how baseball’s unique monopoly power can be put to use.
Slide 3 - Finley v. Kuhn (1977) In the midst of the dispute over the reserve system, and after having won three World Series in a row, Charles Finley sought to sell a number of his star players to other teams for cash: OF Joe Rudi and future Hall of Fame relief pitcher Rollie Fingers to the Boston Red Sox for $2 million and ace starting pitcher Vida Blue to the New York Yankees for $1.5 million. But under the Major League Agreement, the commissioner must approve player transactions. Commissioner Kuhn conducted a hearing and denied the sales as “inconsistent with the best interests of baseball, the integrity of the game and the maintenance of public confidence in it.” Finley fled suit in federal court claiming that previous owners had done the same including former Philadelphia A’s owner Connie Mack who sold his star players with the approval of Commissioner Landis. Kuhn justified his decision based on “the present unsettled circumstances of baseball’s reserve system” and “the highly competitive circumstances we find in today’s sports and entertainment world.” 21 of 25 owners testified in trial court in favor of Kuhn and both the trial court and court of appeals decisions went for Kuhn with the latter explaining that baseball’s antitrust exemption was broad, the owners had granted the commissioner broad powers to act in the best interest of baseball, and as long as the decision was made without malice, the judiciary would not interfere. Kuhn’s sanction against Finley set an important guidepost for future owners: the commissioner would enforce the rules of the cartel against those who would profit at the expense of fellow owners. That is why most owners testified against Finley in court: they could not risk a victory for the renegade, even if it meant they themselves could not become profiteers. In 1980, two years after the court of appeals decision, Finley sold the A’s and retired from baseball. Rollie Fingers
Slide 4 - Professional Baseball Schools & Clubs v. Kuhn (1982) The owner of a minor league baseball team brought suit in federal court against the baseball commissioner for "monopolization of the business of professional baseball" through "the player assignment system and the franchise location system," as well as by virtue of "the Carolina League's rule requiring member teams to only play games with other teams that also belonged to the National Association.“ Offering very few facts and little analysis, the Eleventh Circuit affirmed the lower court's dismissal of the owner's antitrust complaint and summarily held that "[e]ach of the activities appellant alleges as violative of the antitrust laws plainly concerns matters that are an integral part of the business of baseball.“ Once again the courts accepted baseball’s antitrust exemption as gospel.
Slide 5 - Recent Commissioners After the owners ousted Bowie Kuhn, his successors tended to be short-lived. Peter Ueberroth (1984-1989) was an owner-friendly commissioner who forced the Cubs to install lights at Wrigley Field, negotiated product endorsements with large corporations, and colluded with the owners to prevent free-agent players from both signing equitable contracts and joining the teams of their choice—a scandal that forced his resignation. A. Bartlett “Bart” Giamatti (1989) agreed to the deal that terminated the Pete Rose betting scandal by permitting Rose to voluntarily withdraw from the sport, avoiding further punishment. Yet he died suddenly just 154 days into his term. Fay Vincent (1989-1992) was ousted by the owners after he was perceived as too favorable to the players, particularly after the 1990 lockout which Vincent quickly resolved. By removing Vincent, the owners cleared the way for taking on the players, unimpeded, in the 1990s. Alan H. “Bud” Selig (1992-present) owned the Milwaukee Brewers since 1970 and was appointed by the other owners to be the chairman of the Major League Executive Council, making him the de-facto “acting commissioner” from 1992-1998 while he still owned the Brewers. The owners finally made it official in 1998 and to avoid a conflict of interest, he transferred his ownership of the Brewers to his daughter. During his tenure, the Brewers moved from the AL to the NL, playoffs were expanded with wild-card teams, he started interleague play between the two leagues, he abolished the AL and NL offices so that they were no longer separate organizations and instead consolidated under the commissioner’s office, he presided over the 1994 labor dispute that led to the cancellation of the season and the World Series, he tried to contract two teams—Minnesota and Montreal—at the close of the 2001 season, he stopped the 2002 All-Star game after 11 innings and declared it a tie, he started the World Baseball Classic in 2006, and he presided over the so-called “steroid era” of unchecked player-use of performance-enhancing drugs. Fay Vincent Bud Selig
Slide 6 - Restrictions on Municipal Ownership San Diego Padres owner Ray Kroc died in 1984 and his wife Joan inherited the team. She sought to give the club to the city of San Diego but was blocked by MLB under their rule prohibiting municipal ownership. Other sports, however, have municipal ownership. For example, the NFL’s Green Bay Packers are community owned. The nonprofit Packers is financed through the issuance of stock, and more than 100,000 people own shares in the team. Packers stock cannot be resold, except back to the team for a fraction of the original price. Limited transfer—to heirs and relatives—is allowed. No dividends are paid. To prevent any one person from gaining control, no one is allowed to own more than 200,000 of the more than 4.7 million shares of stock. Green Bay shows that structures can be put in place that lead to effective management by a publicly or community-owned team. The Packers’ stockholders elect a board of directors, which elects an executive committee. That committee directs management, which handles the business of the team. With similar municipal or community ownership, an MLB team’s profits could be directed to paying off bonds floated to renovate an old stadium or pay for a new stadium, keep ticket prices low, and pay players and other employees. But MLB’s prohibition on municipal ownership prevents this from happening. It constitutes a restriction of trade in the market to buy and sell franchises and is protected by MLB’s presumed antitrust exemption. Local governments could also try to use their power of eminent domain to keep teams from moving and even “take” clubs. This was tried in professional football when Raiders owner Al Davis moved his team from Oakland to Los Angeles in 1982. Although Oakland’s eminent domain plan had some initial success under state law, the strategy ultimately failed to keep the team from leaving when the California Court of Appeals ruled that condemnation of a football franchise would violate the commerce clause of the U.S. Constitution. The city of Baltimore tried a similar approach when the Colts moved to Indianapolis in 1984. Initially Baltimore’s condemnation or “taking” of the franchise was upheld by the Maryland Circuit Court but when the case was removed to the U.S. District Court, that court ruled that Maryland no longer had jurisdiction since the Colts had moved out of state before the taking had occurred. So while eminent domain may provide a possible solution toward municipal ownership it is hardly a promising strategy.
Slide 7 - Collusion: Carlton Fisk & Co. The Major League Agreement has an anti-collusion clause which states: “Clubs shall not act in concert with other Clubs.” During the 1985-1987 off-seasons, players entering free-agency strangely found that there were no significant contract offers made to them. Even stars such as White Sox catcher Carlton Fisk did not receive competing offers from other clubs. Fisk was intimately familiar with the arbitration process. In 1981 he had used the system when his former team—the Boston Red Sox—offered him a contract one day later than the specified date under the collective bargaining agreement. Under the terms of the CBA, players not offered contracts by the specified date were automatic free agents and the arbitrator so-ruled in Fisk’s favor. He then signed with the Chicago White Sox. But in 1985 the future-Hall-of-Famer received no offers during his free agency. In response to this oddly depressed free-agent market, the MLBPA filed a class-action grievance with the MLB arbitrator. They charged collusion arguing that both Commissioner Ueberroth and team owners violated the collective bargaining agreement by colluding not to make offers to any free agent as long as that player’s prior club had an interest in re-signing him.
Slide 8 - The Rulings: Collusion I, II, and III In the midst of arbitrator Tom Roberts investigation, the owners fired him. But the new arbitrator—Richard Block—ruled that an arbitrator could not be fired in the middle of a case. Roberts returned to finish the matter and in “Collusion I” ruled in favor of the players on September 21, 1987. Like they had done after arbitrator Peter Seitz ruled against them in the Messersmith and McNally cases, the owners immediately fired Roberts after his ruling. Roberts had no direct proof of collusion. But he reasoned that clubs with potential free agents had acted in a way that showed they knew no other club would compete for their players’ services. Only when a club stated publicly that it was not interested in re-signing its player did other teams tender offers. He relied on voluminous circumstantial evidence including comparative data from the free-agent period prior to 1985 and testimony and memoranda that the owners discussed the escalating bidding war for free agents. During 1987, stars Andre Dawson and Jack Morris received no offers and were forced to re-sign with their previous teams. Indeed, Dawson’s agent was so disgusted by the owners’ collusion that he left a blank contract in the Chicago Cubs’ general offices with the message to fill it out as they saw fit. Then he told the press what he had done. After Cubs management berated the agent in the press, they filled out the contract lowering Dawson’s salary by 60% from his 1986 salary. Yet the players won again in “Collusion II” when arbitrator George Nicolau found collusion during 1986 and 1987 when he concluded that when owners did make some offers to free agents it was “for public relations purposes” only. In “Collusion III” in 1990 Nicolau again ruled for the players when he found that an “Information Bank” created by owners allowed them to quietly cooperate by telling each other what their bids were for players, thereby rigging the process to keep offers low. Hence, the MLBPA won each case, resulting in affected players being granted automatic free agency and over $280 million in owner fines. Union leader Marvin Miller later said that the collusion was “tantamount to fixing, not just games, but entire pennant races, including all post-season series” as owners agreed not to improve their teams. Former Commissioner Fay Vincent said: “The Union basically doesn’t trust the Ownership because collusion was a $280 million theft by Selig and [White Sox owner Jerry] Reinsdorf of that money from the players. I mean, they rigged the signing of free agents. They got caught. They paid $280 million to the players. And I think that's polluted labor relations in baseball ever since it happened. I think it's the reason [union chief Donald] Fehr has no trust in [Commissioner Bud] Selig.” When collusion ended, player salaries leaped once again, from an average annual salary of $430,000 in 1988 to more than $1 million by 1992. The owners, however, were the beneficiaries of a new television contract, negotiated by Ueberroth before he left office—a deal with CBS that produced $1.6 billion.
Slide 9 - Baseball Ownership as a Business Owners have generally cried poor, claimed they were losing money, and bemoaned the escalation of player salaries. Yet they all share equally in national broadcasting and licensing contracts. The all share in the fees charged to expansion teams such as the $150 million paid by both Tampa and Arizona in 1998. Still, disparities exist in local broadcast revenue, concessions, and ticket sales which each club keeps for themselves. Hence teams in large media markets such as New York, Los Angeles, and Chicago make far more money than clubs in small markets. But club ownership is little more than a tax shelter. Owners can deduct both the purchase price for their clubs as well as player salaries and signing bonuses as “expenses.” Furthermore, through “related-party transactions” team owners also own entities who do business with the team (such as TV, cable, and radio stations; facility management companies; concessions; and catering companies). When the owner does business with himself he can charge whatever price he likes—hence baseball franchise revenues are reduced substantially due to “related-party transactions.” Hence, when individual teams and MLB claim operating losses they are vastly underreporting, if not blatantly misrepresenting, their revenue and worth. The rapidly escalating franchise values limit ownership to extraordinarily wealthy individuals or corporations who, in addition to owning media entities, frequently own other businesses that have ties to the baseball team. These businesses include concessionaires, stadium management companies, real estate firms, consulting groups, financial entities, and transportation companies. These new owners value their ballplayers and the team itself not only for what is produced on the field, and what is saved through related-party transactions, but also for what it produces for their media networks and other investments off the field through publicity and cross-promotion. In sum, it is difficult to accept the sky-is-falling analysis of individual clubs and MLB. Baseball is a monopoly and its profitability is firmly intact.
Slide 10 - Reverse Robin Hood: The Stadium Boondoggle Furthermore, owners do not have to bear the cost of modern-stadium construction. Public financing accounts for as much as 75% of all baseball stadium costs. Most of this financing comes by way of local government issues of federal-tax-exempt bonds which permit an interest rate roughly 33% lower than it would otherwise be. Hence a $100 million subsidy is paid for by federal taxpayers for a new $300 million ballpark for a local team. To date, federal subsidies for local ballparks total nearly $2 billion. Every independent economic analysis on the impact of stadiums has found no predictable positive effect on net operating income or employment. Some have characterized publicly financed stadiums as massive reverse Robin Hood schemes. The single largest source of public financing has been the sales tax. Since 1990 the sales tax accounted for nearly 1/3 of the public funds going to baseball stadium construction. The sale tax is regressive, falling disproportionately on lower-income families. New stadiums generate tens of millions of dollars for teams annually. More than half of this goes to players and most of the other half goes to the owners. That is, this extra revenue—which comes disproportionately from lower-income families—ends up in the pockets of millionaires, or in some cases billionaires. Further, new ballparks are gentrified. They cater especially to higher-income groups with their club seats, luxury suites, restaurants, and other amenities. Public money builds the parks, and the team, in turn, charges higher ticket prices to the public. It costs roughly $200 for a family of four to go to one ballgame which includes tickets, parking, food, and a souvenir. And new ballparks are only short-term revenue generators for clubs. First-year attendance is always up as the public comes out to see the spectacle of the new stadium but in years two, three, four and so on, reality sets in and attendance depends on other factors such as star players and team performance. Witness the dramatic attendance fall-off in yea two of new stadiums in Detroit, Pittsburgh, Milwaukee, and Washington D.C. Meanwhile, the sale of franchises dramatically escalates over time. For example, the Baltimore Orioles were sold for $12 million in 1979, for $70 million in 1989, and again for $173 million in 1993, when the franchise moved to the publically-funded “throwback” park Camden Yards. In another example, the Seattle Mariners were sold for $13 million in 1981, for $89.5 million in 1988, and again for $106 million in 1992. After the new owners threatened to move the team, in 1996 the people of Washington state paid $518 million for a new ballpark—Safeco Field. Hence, public financing of new ballparks are a short-term boondoggle for wealthy owners, players, and fans – subsidized by the public and the poor.
Slide 11 - The 1994-1995 Strike The legal text for the baseball labor wars of the 1990s was the National Labor Relations Act or Wagner Act of 1935. It set up a board to oversee labor disputes and required management and labor to bargain in “good faith” over “wages, hours, terms and conditions of employment.” But if an impasse was reached after bargaining in “good faith,” management was allowed to unilaterally implement its last offer to the union. In rare cases, the federal government could get involved by appointing a mediator to facilitate negotiation. But unlike arbitrators, mediators cannot impose settlements. They merely facilitate settlement. After the collective bargaining agreement expired at the end of 1993, small-market owners such as Bud Selig who owned the Milwaukee Brewers, sought to force the wealthier owners such as the New York Yankees George Steinbrenner to “share” their local broadcasting revenue. The wealthier owners agreed but only if the players would agree to a salary cap that would prohibit each team from spending more than a predetermined amount on total player salaries. In effect, the owners sought to pass on the cost of revenue sharing to the players—something the National Basketball Association had already done. On June 14, 2004 the owners made their proposal to the players: Players would receive half the industry’s revenue (substantially less than they were receiving under the expired contract), and team payrolls would be limited to 84 to 110 percent of the average team payroll. The proposal abolished salary arbitration and lowered free agency eligibility from six years of service to four with the players’ existing club able to match any rival club’s offer and keep the player. Later analysis showed that the owners’ new salary system would have reduced total player salaries and benefits by 11%. The players rejected the offer. They countered that the service eligibility requirements for salary arbitration be set back from three years to two as it was prior to 1985, eliminate the contract restriction on repeat free agency within five years, and raise the contract minimum salary to $175,000. The owners rejected the proposal. The MLBPA set the strike date at August 12 to maximize its effect on the owners who made most of their profits from late-season attendance and postseason television games. But the owners did not budge. The players went on strike and on September 14, Acting Commissioner Selig cancelled the remainder of the season including the World Series, which for the first time in nearly a century would not be played. Bud Selig George Steinbrenner
Slide 12 - Presidential Intervention The public was furious and President Bill Clinton appointed former Labor Secretary William Usery to mediate the conflict. But Usery failed. On December 14, 2004 the owners declared that if one more week of negotiations failed they would unilaterally implement their salary cap plan. On December 22, the Players Association with its plan to ease the revenue disparity among clubs. It proposed a luxury tax on those teams with payrolls that dramatically exceeded the major-league average. Under the union’s system, there would be a 10% tax on clubs’ payrolls that exceeded the league’s average by 30%. The owners did not respond, declared an impasse the next day, unilaterally implemented their salary cap proposal, and began hiring “replacement” players for the coming season—mostly minor league players with no chance of ever making the major leagues and veterans who were retired from baseball. The union filed an unfair labor practice charge with the National Labor Relations Board and on January 26, 1995 President Clinton ordered mediator Usery to bring both sides back to negotiation and set a deadline. When talks resumed, the owners abandoned their salary cap idea and proposed a 75% luxury tax on medium payrolls and a 100% luxury tax on high payrolls. But when the owners learned that the National Labor Relations Board would issue an unfair labor practice complaint alleging that owners had illegally implemented the salary cap, on February 6 the owners rescinded their luxury tax plan and switched tactics. The owners now unilaterally revoked the authority of individual clubs to sign player contracts and eliminated salary arbitration and the anticollusion clause that had proved so troublesome to management. The day before, Usery announced that if the two sides could not agree on their own, he would propose a settlement to President Clinton the next day. On February 7, Clinton called both sides to the White House and personally attempted to mediate a settlement. Usery’s proposal to the president recommended a 50% tax on high payrolls, much closer to the owners’ position than the players’. Clinton asked both sides to accept binding arbitration; the union agreed but the owners refused. The players again filed an unfair labor charge with the Labor Board. They players again made a counterproposal but the owners refused. Bill Clinton William Usery
Slide 13 - Judge Sonia Sotomayor “Saves Baseball” Meanwhile in response to the latest unfair practice charge by the MLBPA, the Labor Board requested an injunction in federal court to restore the status quo that had existed before the owners made their Feb. 6th unilateral changes to the labor relations system. U.S. District Court Judge Sonia Sotomayor was selected at random by the court clerk to hear the case. Could the owners unilaterally change the agreement as they had done on Feb. 6th? Had the Labor Board demonstrated that irreparable injury would result to the players if the injunction was denied? Sotomayor had to apply the existing labor-law test of whether the issues were “mandatory” subjects of bargaining and therefore subject to “good faith” negotiation before unilateral action could take place or whether they were “permissive” subject that did not require “good faith” negotiation before unilateral owner action would be allowed. In Silverman v. Major League Baseball Player Relations Committee (1995), Sotomayor ruled in favor of the Board, issued the injunction, and ordered the parties back to the bargaining table. She said that the owner’s unilateral changes to the agreement prohibiting individual clubs from negotiating with individual players, lifting the owner anti-collusion provision, and their abolition of salary arbitration were “mandatory” subjects that affected wages and therefore violated the labor-law requirement that the owners first negotiate in “good faith” over these matters, which they had not done. Although Sotomayor did not order the players to return to work, the union offered to do so and the owners accepted. The 1995 season began about one month late on April 26. But the owners and players did not reach a final agreement until after the 1996 season ended. After 47 months and loss of more than a billion dollars to the players and the owners they agreed on the following: revenue sharing among the clubs, a luxury tax on a club’s total salary, and a payroll tax on the players. They also agreed that three-arbitrator panels would replace the single arbitrator in settling salary disputes. When President Barack Obama nominated Sotomayor to the U.S. Supreme Court in 2009, he introduced her as the judge who “saved baseball.”
Slide 14 - Recent Labor Deals: The Golden Era? After eight work stoppages between 1972 and 1995, baseball has operated continuously without a strike or lockout. For example, in August 2002, with the players set to strike, a deal was reached. A new collective bargaining agreement was reached again in October 2006 that runs through the 2011 season. The basic structure of the contract has not changed since the agreement reached after 1994-1995 strike, the heart of which are the luxury tax and revenue sharing provisions. The irony of the tax/revenue sharing system is that while it was supposed to reduce the gap between large and small-market clubs and therefore increase competitive balance, it has had the opposite effect. Rather than investing in making their teams better, small-market teams simply pocket their share of the money they receive from the large-market teams. Hence competitive imbalance has only increased. Baseball analyst Peter Gammons commented on the new agreement: “There is little that is earth-shattering about the deal except that it was accomplished so discreetly, without threats or cries of poverty, press conferences or games missed. That's because the baseball business is awash in cash.” Detroit manager Jim Leyland said: "I think you always have a better relationship when both sides are making money. That kind of always seems to work out in the end -- doesn't it? -- for whatever reason, when the owner's happy and putting a little in his pocket, and the player is happy and putting a little in his pocket. In our case, I guess in our game, a lot in both pockets.“ Commissioner Bud Selig said: “This is the golden era in every way. The economics of our sport have improved dramatically, and that's good. That, after all, made for a more wholesome atmosphere. We didn't have to quarrel about a lot of things. The [negotiations] were without the usual rancor. They were without the usual dueling press conferences. They were without the usual leaks. In other words, these negotiations were conducted professionally, with dignity and with results. These negotiations were emblematic of the new spirit of cooperation and trust that now exists between the clubs and the players."
Slide 15 - Collective Bargaining Timeline 1968 -- Baseball's first labor contract agreed to on Feb. 28, a two-season deal. 1970 -- Sides reach preliminary agreement on three-year contract on May 23. 1972 -- Players strike April 1 over pension plan, reach agreement on April 13. 86 regular season games are lost. 1973 -- Owners lock out players during spring training on Feb. 14, and sides reach tentative agreement Feb. 25 on a three-year contract establishing salary arbitration. 86 spring training games are canceled. 1976 -- Owners lock out players during spring training from March 1-17, and sides reach tentative agreement on July 12 on four-year contract establishing free agency. 1980 -- Players strike final eight days of spring training, and the sides reach preliminary four-year agreement on May 23, allowing the issue of free agency to be reopened the following season. 1981 -- Players strike June 12, and sides reach agreement July 31 on contract through 1984. There are 712 games canceled and the season is split into a first and second half with the winners of each half in each division meeting in a one-game playoff before the regular playoffs for each league begins. 1985 -- Players strike Aug. 6, and sides reach agreement late on Aug. 7 on contract through 1989. 1990 -- Owners lock out players during spring training on Feb. 15, and sides reach agreement March 18 on contract through 1993. 1994 -- Players strike Aug. 12 until owners accept their April 2, 1995, unconditional offer to return to work, made March 31 after U.S. District Judge Sonia Sotomayor issued an injunction restoring terms and conditions of the expired agreement. The 1994 World Series was not played. The sides agree on March 14, 1997, to a contract through the 2000 season with a union option to extend it through 2001. In total, 938 regular season games were lost. 2002 -- Hours before players were set to strike on Aug. 30, the sides agree to a contract through Dec. 19, 2006. 2006 -- The sides reach tentative agreement on Oct. 21 on a five-year contract through 2011 season.
Slide 16 - Limiting Antitrust in the Aftermath of Flood In a number of federal court decisions since the somewhat ambiguous Flood decision, courts have ruled that baseball’s antitrust exemption is only limited to activities that are central to the “unique characteristics and needs” of baseball. Hence, other areas are not protected. In Henderson v. Houston Sports Assn. (1982), a radio broadcaster claimed violations of the federal Sherman Antitrust Act because the Houston Sports Association canceled its contract to broadcast Astros baseball games. The federal trial court found that radio broadcasts of baseball games were not central to the "unique characteristics and needs" of baseball which the exemption was created to protect. Accordingly, the court denied the defendants' motion to dismiss the antitrust claims. In dicta, however, the court more broadly noted: “With all due respect, . . . Federal Baseball was not one of Mr. Justice Holmes' happiest days, . . . [T]he rationale of Toolson is extremely dubious and, . . . to use the Supreme Court's own adjectives, the distinction between baseball and other professional sports is ‘unrealistic,’ ‘inconsistent,’ and ‘illogical.’” In Postema v. National League (1992), a federal trial court determined that the exemption did not apply to labor relations between the league and its umpires. The court reasoned: “Baseball's relations with non-players are not a unique characteristic or need of the game. Anti-competitive conduct toward umpires is not an essential part of baseball and in no way enhances its vitality or viability.” The Postema court ironically cited Henderson Broadcasting for the proposition that umpires are subject to anti-trust laws because "baseball may be subject to anti-trust liability for conduct unrelated to the reserve system or league structure." Yet Henderson Broadcasting expressly came to the opposite conclusion, holding that "[r]adio broadcasting is not part of the sport in the way in which players, umpires, the league structure and the reserve system are." Nonetheless, the Postema court denied the NL’s motion to dismiss.
Slide 17 - Further Limiting Antitrust in the Aftermath of Flood In Piazza v. Major League Baseball (1993), a federal trial judge held that baseball’s exemption was limited to its player reserve system. Hence MLB’s could not block the sale of the San Francisco Giants to a group led by star catcher Mike Piazza’s father who intended to move the team to Tampa Bay. While the case was on appeal, MLB settled with Piazza and his group for $10 million. In Butterworth v. National League (1994), the Florida Supreme Court again ruled that baseball’s exemption was limited to its player reserve system. Coming on the heels of Piazza, the Florida Attorney General brought a state antitrust claim against the NL for blocking the Giants sale. When the AG requested financial documents from MLB, baseball brought a lawsuit to quash the request. Ultimately, the dispute ended when MLB agreed to admit Tampa Bay as an expansion team to begin play in 1998. In 1998, Congress passed, and President Bill Clinton signed into law, the Curt Flood Act which expressly applied antitrust laws to baseball labor arrangements. The rationale for the bipartisan bill was that it would reduce the likelihood that baseball labor disputes would end in a work stoppage and increase the likelihood that they would end up in court where they could be speedily resolved. Yet the bill consisted almost entirely of practices not subject to antitrust laws such as franchise expansion, location, or relocation; franchise ownership and ownership transfers; MLB’s control over the minor leagues; and the marketing and sales of the entertainment product; and the relationship between the owners and the commissioner. Between the limiting decisions of Piazza and Butterworth and the Curt Flood Act of 1998, it seemed that baseball’s presumed antitrust exemption had been only eliminated for labor issues. As the Curt Flood Act’s list of exceptions demonstrates, there are numerous areas where baseball continues to enjoy exemption from antitrust law. Curt Flood died in 1997
Slide 18 - Expanding Baseball’s Antitrust Exemption Despite the trend to limit baseball’s antitrust exemption, MLB finally succeeded in fending off a state antitrust investigation. Minnesota Twins owner Carl Pohlad sought to sell his team to a group of North Carolina investors who would then move the team. Commissioner Selig said that MLB owners would approve the sale and move. But Minnesota Attorney General Michael Hatch brought a state antitrust suit to prevent the sale. Hatch issued a demand for information and MLB petitioned to have the demands quashed. The trial court denied MLB’s petition and the appeals court declined to hear the case. In Minnesota Twins v. State (1999), the Minnesota Supreme Court held that baseball’s antitrust exemption applied broadly to the whole business of baseball. The Court said that “the Flood opinion is not clear about the extent of the conduct that is exempt from antitrust laws.” Furthermore, other lower-court decisions criticized the limiting trend of Piazza and Butterworth: Morsani v. Major League Baseball (1999), McCoy v. Major League Baseball (1995), and New Orleans Pelicans Baseball, Inc. v. Nat’l Ass’n of Prof’l Baseball Leagues, Inc., (1994). Carl Pohlad Mike Hatch
Slide 19 - Contraction In addition to creating market scarcity by refusing to expand to new markets unless concessions are made by cities through new ballpark funding, MLB used threatened contraction as a new tool to maintain their monopoly power and weaken the MLBPA. Throughout the 2001 season, stories abounded about how many clubs were losing money. At the end of the season, Commissioner Selig reported that only five teams made a profit, that the industry as a whole lost $500 million that year, and that even the World Series champion Arizona Diamondbacks lost $44 million. On November 6, 2001 the owners voted 28 to 2 to contract the league by eliminating two clubs. Though no teams were named, speculation abounded about who would go. The MLBPA is against contraction in principle because if two teams were eliminated, for example, union membership would be reduced by 80 players and the demand for players would be lowered by 80 relative to supply, putting downward pressure on salaries. Florida Attorney General Bob Butterworth was worried that his state’s two teams—the Tampa Bay Rays and the Florida Marlins—could be on the chopping block. As he had done in 1994, he initiated an antitrust investigation and requested MLB documents on contraction and its financial affairs. This time MLB filed suit in federal court to quash the investigation. In Major League Baseball v. Butterworth (2001), the federal trial court sided with MLB and, as in the Minnesota Twins case, held that baseball’s antitrust exemption applied to the whole business and not just the reserve system. Butterworth appealed but while the case was pending, the landscape changed. In the new labor agreement, MLB agreed not to contract for 4 years, The Florida Marlins were bought by new owners and expressed hope for a new stadium in Miami. Finally, Butterworth’s term came to an end. The new Florida AG was Charlie Crist who had once served as general counsel to Minor League Baseball. The Eleventh Circuit Court of Appeals decision in Major League Baseball v. Crist (2003) upheld the lower-court ruling. They explained that under the U.S. Constitution’s Supremacy Clause, baseball’s federal antitrust exemption (regardless of whether it was congressionally granted or judge-made as in this instance) “preempted” any state antitrust proceeding or investigation against baseball. In effect, only the federal government could deal with the issue. The Court held: “Federal antitrust law exempts the contraction issue from judicial scrutiny, and no inquiry into MLB’s motives or desires could possibly change the fact that contraction implicates the heart of the ‘business of baseball.’” The court did seem to hint that the only area outside the “business of baseball”—and therefore possibly subject to state antitrust laws—would be matters directly involving third parties (i.e. non-baseball parties). It is argued that as a monopoly, baseball should not be able to reduce output, via contraction, in order to increase the profits of cartel members, especially when the cartel’s revenues have been growing at 17% annually since 1994. If MLB’s presumed antitrust exemption were determined (either judicially or legislatively) to apply to all aspects of its business then MLB would be insulated from such antitrust challenges to any proposed contraction. The current collective bargaining agreement between MLB and the MLBPA, which runs through the 2011 season, prohibits contraction.
Slide 20 - Conclusion The 1994-1995 strike was the worst work stoppage in baseball history. Yet the parties were ultimately able to reach agreement on a luxury tax and revenue sharing—a system that remains in place today. As a result, baseball has operated without a work stoppage since the strike. The conflicting court cases at first limiting and then expanding baseball’s antitrust exemption continue to demonstrate how baseball enjoys special consideration, unlike any other business, when it comes to non-labor issues. Collusion, prohibitions on municipal ownership, and threats of contraction further demonstrate baseball’s unique monopoly power.
Slide 21 - Bibliography Abrams, Roger I. 1998. Legal Bases: Baseball and the Law. Philadelphia, PA: Temple University Press. Butterworth v. National League, 644 So. 2d 1021 (Fla. 1994). Finley v. Kuhn, 569 F2d 527 (7th Cir 1977), cert. denied 439 U.S. 876 1978). Flood v. Kuhn, 407 U.S. 258 (1972). Goldman, Robert M. 2008. One Man Out: Curt Flood versus Baseball. Lawrence, KS: University Press of Kansas. Henderson v. Houston Sports Assn., 541 F. Supp. 263 (S.D. Tx. 1982). Major League Baseball v. Butterworth, 181 F. Supp. 2d 1316 (N.D. Fla. 2001). Major League Baseball v. Crist, 331 F.3d 1177 (11th Cir. 2003). Minnesota Twins v. State ex rel. Hatch, 592 N.W.2d 847 (Minn. 1999). “MLB Players, Owners Announce Five-Year Labor Deal,” Associated Press, October 25, 2006. Nader, Ralph. 2005. “Green Bay on the Potomac: Why D.C. Should Own the Nationals.” Washington Post. January 9. Postema v. National League, 799 F. Supp. 1475 (S.D.N.Y. 1992). Professional Baseball Schools & Clubs v. Kuhn, 693 F.2d 1085 (11th Cir. 1982). Ross, Michael E. and Sashe D. Dimitroff. 1997. “Whose Field of Dreams: Antitrust Relief Against Restrictions on the Sale or Relocation of Major League Baseball Teams.” Antitrust Bulletin (Fall). Silverman v. Major League Baseball Player Relations Committee, 880 F. Supp. 246 (1995). “Timeline of Baseball’s Labor Troubles,” Associated Press, October 23, 2006.