Baseball’s Antitrust Exemption: Its Practical Effect

Back in 2015, FanGraphs ran the first two pieces in what was intended to be a three-part series examining baseball’s antitrust exemption. The first piece in the series looked at the historical evolution of the exemption, and in particular the U.S. Supreme Court’s evolving justification for baseball’s unusual antitrust immunity. The second piece then examined the various ways in which subsequent lower courts have applied and interpreted the scope of the exemption.

Then, as is so often the case, life got in the way. So the third and final installment of the series was never completed.

But with Wednesday’s news that several Republican senators were introducing legislation to strip MLB of its antitrust exemption – in response to the league’s decision to move this summer’s All-Star Game from Atlanta, following the recent passage of Georgia’s controversial voting bill – MLB’s unique status under the Sherman Antitrust Act is once again in the news.

While the latest effort to repeal the exemption faces uncertain odds of success, the proposed legislation nevertheless inspires us to consider an important question: What is the practical effect of MLB’s antitrust exemption, anyway?

Indeed, many baseball fans are often quick to blame the sport’s antitrust exemption whenever MLB does something they disagree with. If only baseball’s antitrust exemption were repealed, these fans contend, then MLB would be forced to [fill in the blank]. Lower its ticket prices. Compete with a rival league. Expand into new markets. Change its television blackout policy.

While not entirely unfounded, many of these criticisms are nevertheless often misplaced. Considering both the uncertain scope of baseball’s exemption, as well as the ways courts have applied antitrust law to the other, non-exempt major U.S. professional sports leagues, simply repealing the exemption alone is unlikely to cure many of the problems fans often believe result from the league’s antitrust immunity.

Importantly, even though the other major U.S. sports leagues all remain subject to the nation’s antitrust laws, their operations are nearly identical to MLB’s in most major respects. As with MLB, the NFL, NBA, and NHL each typically assign their teams the exclusive right to a particular geographic territory, and all four leagues require league approval before a team relocates to a new market. All four leagues also rely heavily on public subsidies when building new stadiums or arenas.

Similarly, the leagues each sign league-wide national television deals with various network and cable television stations, while selling league-wide pay-per-view television packages to allow their fans to watch out-of-market games. And like MLB, the NFL, NBA, and NHL have also historically imposed various television blackout restrictions on their fans (albeit often on a less extensive basis than MLB).

Meanwhile, none of the four major U.S. professional sports leagues have faced direct head-to-head competition from a legitimate rival in decades. The four leagues have also traditionally expanded their number of teams at approximately the same rate, with each currently featuring somewhere between 30 and 32 teams.

In fact, unlike what you’d typically expect to find from an unregulated monopoly, of the four major leagues, MLB actually provides its fans with by far the most games each season, while also charging ticket prices that are, on average, approximately half as low as those in the other three leagues.

All told, then, in many of the most important respects, MLB operates in exactly the same manner as the other U.S. professional sports leagues, despite being the only one of the four to enjoy widespread antitrust immunity. Part of the reason for this is that federal antitrust law has, arguably, failed to effectively regulate U.S. sports leagues. Sports leagues are relatively unusual economic entities, in which independently owned, competing businesses inherently must work together closely to ensure their own continued survival.

These traits have made it difficult for courts to apply antitrust law – which typically seeks to prevent competing firms from colluding together – to the sports industry. Indeed, courts have historically been reluctant to use antitrust law to meaningfully change any of the four leagues’ business models, such as by requiring them to expand their number of teams or substantially alter their television broadcasting practices.

As a result, even if baseball’s antitrust exemption were to be repealed, the loss of immunity would not have a significant effect on MLB’s operations in most respects.

That having been said, there are a couple areas where MLB does benefit from its antitrust exemption. MLB has, for instance, generally been able to exert greater control over its teams’ relocation decisions than have the other three U.S. sports leagues. While it is true that the other sports also require their teams to receive league-wide approval before moving to a new city, in cases against the NFL and NBA courts were willing to strike these restrictions down in order to allow a team to move against its league’s wishes.

Even then, however, these courts recognized that there could be legitimate reasons why a league might lawfully seek to prevent one of its teams from moving (such as to preserve a traditional rivalry or maintain a league presence in a major league market). As long as a sports league’s relocation decisions are based on these sort of reasonable factors, then its refusal to allow a team to move likely would not violate antitrust law. So while MLB has undoubtedly gained some benefit from its antitrust immunity with regards to its franchise relocation restrictions, the ultimate impact of the exemption even in this area is probably not significant as one might think.

Nevertheless, the exemption helps to explain why only one major league team has relocated in the last 49 years, by far the fewest of the four major leagues. Admittedly, for fans living in an area currently without a major league team, this may not be beneficial. But for those with allegiance to a city with an existing club, MLB’s antitrust exemption actually reduces the chances that your favorite team will move to a new market.

While MLB has thus derived some modest benefit from its exemption in the area of relocation, the doctrine’s most significant effect has probably been shielding the minor leagues from antitrust scrutiny. If MLB were subject to antitrust law, then potentially any number of aspects of the minor league system could be challenged under the Sherman Act. While no one knows for sure exactly how such a lawsuit would play out, it seems likely that the repeal of baseball’s antitrust exemption would result in some degree of change to the current minor league structure.

For example, one aspect of the minor league system that would surely be challenged if the exemption were repealed is MLB’s standard minor league pay scale. As has been highlighted in recent years via the on-going minor league wage litigation, MLB teams generally impose a rigid, uniform salary scale on their minor league prospects. Absent baseball’s exemption, this uniform salary scale would almost certainly be declared illegal under antitrust law, as it reflects an agreement between the 30 MLB teams to artificially reduce their employees’ wages that has not been agreed to via collective bargaining (since minor league players are not currently unionized).

Similarly, it is also possible that some of the terms of MLB’s agreement with the minor league teams themselves would be held in violation of the law as well. For instance, but for the antitrust exemption, a lawsuit could theoretically challenge the significant degree of control that parent clubs currently have over their minor league affiliates. Without its antitrust immunity, a court might conclude that the association between major league teams and their minor league affiliates – clubs which are themselves typically individually owned businesses – runs afoul of the Sherman Act. For better or for worse, such a suit could theoretically result in a return to the more independent minor league system of the pre-1930s, in which minor league franchises were much more loosely affiliated with the major leagues than they are today.

Again, because the minor league system has never been subjected to antitrust scrutiny, no one knows for sure what would happen if baseball’s antitrust exemption were repealed. But it would appear likely that the repeal of baseball’s immunity would result in some sort of change to the structure of the minor leagues.

Finally, one last – but often overlooked – implication of baseball’s antitrust exemption is the extent to which it gives Congress some unique leverage over MLB. Because baseball’s exemption could be legislatively repealed at any time, Congress has frequently used this threat to extract various concessions from MLB over the years.

Perhaps most notably, on several different occasions, Congress has used the threat of repealing baseball’s exemption to help persuade MLB to expand, giving rise to the San Diego Padres, Seattle Mariners, Toronto Blue Jays, Colorado Rockies, and Miami Marlins, among other franchises. Similarly, Congress used the threat of revoking the baseball exemption to help pressure the league to enact more stringent steroid testing requirements in the mid-2000s.

So if the current effort to repeal the exemption were to succeed, Congress may actually paradoxically lose much of its leverage over the sport in the future.

All in all, however, the practical effect of baseball’s antitrust exemption is often overstated. While MLB does certainly gain some benefit from the doctrine – with regards to franchise relocation and the minor leagues, in particular – in most respects the league’s operations would not necessarily change appreciably even if they were exposed to antitrust law. Consequently, fans should not expect to see as many radical changes in the sport as they might expect should the current effort to repeal the exemption be successful.