Minor League Salaries Challenged in New Antitrust Lawsuit

In the latest in a series of legal challenges to the minor league salary structure, a new federal class-action lawsuit filed on Friday alleges that Major League Baseball’s treatment of minor league baseball players runs afoul of the Sherman Antitrust Act. In Miranda v. Office of the Commissioner of Baseball, four former minor league players (Sergio Miranda, Jeff Dominguez, Jorge Padilla and Cirilo Cruz) contend that MLB teams have violated federal antitrust law by illegally conspiring to fix minor league players’ salaries at below-market rates. Still, despite the merits of the players’ claims, the suit’s odds of success are relatively low.

The Miranda suit alleges that MLB unlawfully suppresses minor league players’ salaries in a variety of ways. By subjecting North American amateur players to the first-year player draft each June, Major League Baseball prevents draftees from selling their services to the highest bidder — instead forcing them to negotiate with only a single team. MLB then artificially reduces the size of the signing bonuses that entry level players receive through its domestic and international signing bonus pool restrictions.

Once players have entered the minor leagues, their annual salaries are then largely dictated on a take-it-or-leave-it basis by their teams in accordance with MLB-imposed, minor league salary “guidelines.” And because MLB teams retain the exclusive rights to their minor league players’ services for seven years, many players go their entire careers without ever being able to sell their services in a competitive market. As a result, the suit asserts that most minor league players earn as little as $3,000 to $7,500 per year.

The Miranda suit challenges the legality of each of these restraints, effectively launching a full-frontal attack on the contractual underpinnings of baseball’s player development system. Specifically, the suit contends that by agreeing to these practices collectively, the 30 MLB teams have illegally conspired to restrain trade and monopolize the industry, in violation of the Sherman Act.

One obvious issue any antitrust suit filed against MLB must overcome, however, is the fact that the United States Supreme Court has, on three separate occasions, ruled that MLB is not subject to federal antitrust law. Recognizing this impediment, the attorneys in the Miranda suit argue that baseball’s antitrust exemption no longer has any “basis in economic reality,” and therefore should not be followed. There are several problems with this argument.

First, lower courts are, not surprisingly, extremely reluctant to overturn binding Supreme Court precedent. Indeed, unlike some of the other recent antitrust lawsuits filed against Major League Baseball, which challenge aspects of MLB’s business that have never been directly addressed by the Supreme Court (including MLB’s franchise relocation and television broadcasting practices), the Supreme Court has already specifically considered and rejected a suit challenging MLB’s treatment of minor league players in its 1953 decision in Toolson v. New York Yankees.

Setting aside the issue of binding Supreme Court precedent, however, there is another hurdle that the Miranda plaintiffs will have to overcome: the fact Congress has also shielded baseball’s minor league system from antitrust challenge. In 1998, Congress passed the Curt Flood Act, legislation that partially repealed baseball’s antitrust exemption in order to allow current MLB players to file antitrust lawsuits against the league.

The law goes on to expressly state, though, that it “does not create, permit or imply a cause of action by which to challenge under the antitrust laws… any conduct, acts, practices, or agreement … affecting employment to play baseball at the minor league level.” In other words, the Curt Flood Act says minor league players cannot file antitrust lawsuits challenging the terms of their employment (which, of course, is exactly what the Miranda suit seeks to do). This language was inserted into the bill following a vigorous lobbying campaign by minor league baseball, which wanted to ensure it would never have to defend itself against an antitrust lawsuit.

Thus, even though the attorneys are presumably prepared to litigate the Miranda case all the way to the Supreme Court, their ultimate odds of success appear to be rather low. In light of the Toolson decision, both the trial court and court of appeals will likely dismiss the case under baseball’s antitrust exemption (a process that could, nevertheless, take several years to play out). And in light of the Curt Flood Act, the chances that the Supreme Court eventually takes the case are also relatively slim (overall, the Court grants less than 1% of appeals).

But should the Supreme Court overturn baseball’s antitrust exemption — either in the Miranda case or one of the other pending antitrust suits against MLB — then this new litigation could prove quite troublesome for Major League Baseball. In prior lawsuits against the other major U.S. professional sports leagues, courts have held that many of the practices challenged in the Miranda suit violate the Sherman Act. Indeed, the only reason the NFL or the NBA can legally have a draft today — or subject their players to a rookie salary scale — is the fact the players’ unions have agreed to the restrictions as part of their collective bargaining agreements (thus shielding the practices from antitrust law).

While the Major League Baseball Players Association has agreed to many of the practices challenged in the Miranda suit, the union does not actually represent minor league players (who have never unionized themselves). Therefore, it’s unclear whether MLB would benefit from the same labor-related antitrust immunity enjoyed by the other leagues. If it does not, then several of these practices would likely be struck down under the Sherman Act for the reasons asserted in the Miranda complaint.

Ultimately, though, the Miranda suit appears unlikely to gain traction in court due to baseball’s antitrust exemption. That having been said, even if the suit fails to succeed in the courtroom, it may nevertheless help place additional pressure on MLB to improve its treatment of minor league players. In fact, many of the same practices challenged in the Miranda case are also under attack in two minimum wage lawsuits filed against MLB earlier this year (Wendy Thurm previously discussed the first of these suits here).

Considering that MLB likely will spend several million dollars defending these cases — all while incurring negative PR along the way — at some point the owners may decide their current minor league pay practices are simply more trouble than they are worth.