The Impending Battle Over the Future of Televised Baseball

Next week, in a federal courtroom in New York City, the future of televised baseball will be at stake. On one side, attorneys representing baseball fans at-large will contend that MLB’s existing broadcast policies violate the Sherman Antitrust Act by illegally limiting competition and consumer choice, ultimately increasing the price we pay for televised baseball. On the other side, lawyers for Major League Baseball will seek to preserve the status quo by arguing that the league’s restrictions increase both the quantity and quality of games aired on television, to the benefit of fans.

The case — Garber v. Office of the Commissioner of Baseball — may not be the highest-profile lawsuit currently proceeding against MLB. But from the league’s perspective, it’s almost certainly the most important.

Long-time Fangraphs readers are probably already familiar with the Garber suit, as we’ve previously covered the case on a number of different occasions. By way of a brief recap, though, the lawsuit essentially alleges that MLB violates federal antitrust law by assigning its teams exclusive local broadcast territories (the same rules that also give rise to MLB’s infamous blackout policy).

Not only do the plaintiffs allege that the creation of these exclusive territories illegally prevents MLB teams from competing for television revenue in each others’ home markets, but they also contend the rules restrict teams from competing with the league itself in the national broadcast marketplace (preventing teams from signing their own national television contracts, for instance, or offering their own out-of-market pay-per-view services in competition with MLB Extra Innings and MLB.TV).

Thus, the Garber suit presents a direct challenge to MLB’s existing television business model, one that could revolutionize the way in which baseball is broadcast in the future.

The Garber case was originally filed in 2012. Since that time, the plaintiffs have survived a series of attempts by MLB to have the lawsuit thrown out of court. In 2014, for instance, presiding Judge Shira A. Scheindlin ruled that baseball’s historic antitrust exemption did not apply to the case, allowing the plaintiffs to move forward with their suit.

Then in May 2015, Judge Scheindlin certified the Garber suit as a class action, meaning that any outcome in the case will now cover all MLB fans adversely affected by MLB’s television practices, rather than only those specific individuals named as plaintiffs in the suit. At the same time, however, Judge Scheindlin ruled that the plaintiffs may only seek injunctive relief — i.e., a court order forcing MLB to change its broadcasting policies — rather than monetary damages.

That ruling set the stage for the lawsuit to go to trial this month, beginning on Tuesday Jan. 19th, proceedings that are expected to last at least two weeks.

Because only injunctive relief remains on the table in the suit, the case will be tried as a “bench trial,” meaning that the parties will present their evidence straight to Judge Scheindlin herself, without a jury present. Ultimately, Judge Scheindlin will apply antitrust law’s so-called “rule of reason” to the case, deciding whether the harms of MLB’s current broadcasting practices outweigh the benefits that have resulted from the existing system.

If Judge Scheindlin determines that the current policy is more harmful to consumers than beneficial (or, alternatively, that the benefits of the system could be better obtained via less harmful means), then she will rule that the league’s restrictions are illegal under the Sherman Act. On the other hand, should Judge Scheindlin find that the asserted benefits of MLB’s television policies outweigh their harmful effects, then the existing system would be affirmed as lawful under federal antitrust law.

During the trial, the parties will thus focus their arguments on whether MLB’s broadcasting rules have, on the whole, harmed or benefited fans. The plaintiffs, for example, will argue that MLB’s exclusive local broadcast territories have effectively given each team a monopoly over its local television market. Absent these restrictions, the plaintiffs will contend that teams would directly compete with one another by televising their games in each others’ home markets.

In other words, the plaintiffs envision a world in which the Boston Red Sox would be free to televise their games in, say, Pittsburgh, giving fans in western Pennsylvania direct access to Red Sox games on their local cable package. This could occur in one of two ways, with the Red Sox either signing a local broadcasting agreement with a Pittsburgh television station, or alternatively allowing the New England Sports Network (NESN) to directly broadcast the team’s games in Pennsylvania. Either way, the plaintiffs believe that the resulting competition would not only increase the number of games available on local television stations, but also by eliminating the existing local monopolies decrease the price that teams are able to charge for their local broadcast rights, thereby lowering all of our cable bills.

Similarly, with respect to nationwide broadcasting, the plaintiffs will contend that by eliminating the exclusive broadcast territories, individual MLB teams will be free to sign their own national television agreements — picture a Chicago Cubs deal with the NBC Sports Network, for instance — or sell their own out-of-market pay-per-view packages, competition that would once again increase the amount of baseball on television, while at the same time lowering the price we pay for it.

MLB, on the other hand, will argue that its current broadcasting practices have benefited fans in a variety of ways. The league believes that by guaranteeing its teams the exclusive rights to their home television markets, MLB’s rules have actually increased the total number of games that are broadcast, providing the necessary incentive for local stations in the league’s smallest markets to televise all of their teams’ games. At the same time, the league contends that this exclusivity has increased the quality of these broadcasts, incentivizing teams and networks to produce the highest quality telecasts possible.

Similarly, the league will argue that most individual teams would lack the financial incentive and ability to create their own Internet streaming services, meaning that centralizing the control over national broadcasting activity in MLB’s central league office was essential to supporting the creation of a streaming service like MLB.TV.

MLB can also be expected to emphasize the issue of competitive balance, contending that allowing individual teams to compete with one another in the local and national television marketplaces would drive an even greater percentage of broadcasting revenue to the largest market teams, ultimately impacting the quality of the competition on the playing field. Not only would allowing the New York Yankees to sign their own broadcasting agreements with television stations in Cincinnati or Milwaukee increase the Yankees’ team revenue, for instance, but it would also decrease the amount of local television revenue received by the Reds and Brewers, further exacerbating the existing revenue disparities between the teams.

In response, the plaintiffs will contend that eliminating exclusive broadcast territories would also give small market teams the ability to directly broadcast their games in larger, more lucrative markets, helping offset any revenue gains enjoyed by the biggest market clubs. Regardless, the plaintiffs will also argue that even if larger revenue disparities result from increased competition between large and small market teams, that problem can be better addressed through enhanced revenue sharing, thereby providing fans with the benefits of greater television competition, without sacrificing the level of competitive balance on the playing field.

Given the various economic arguments that will be asserted by the parties, the most important evidence presented during the trial will come from the economic experts that each side has retained. The highest-profile testimony, though, is likely to come from the various MLB executives currently slated to appear on the witness stand, including Commissioner Rob Manfred, former Commissioner Bud Selig, Robert Nutting (owner of the Pittsburgh Pirates), Laurence Baer (President & CEO of the San Francisco Giants), and Bob Bowman (President and CEO of MLB Advanced Media).

All in all, it’s difficult to predict who will ultimately prevail in the Garber case before all of the evidence has been presented. That having been said, the fact that Judge Scheindlin has refused to dismiss the case at several points over the past few years may suggest that she believes there is some merit in the plaintiff’s arguments. Of course, even if the judge is predisposed to favor the plaintiff’s side of the case today, that doesn’t necessarily mean that she will still feel the the same way once all of the testimony has been presented at trial.

But considering that Judge Scheindlin has appeared skeptical of most of MLB’s defenses in the past as well as the fact that the plaintiffs must merely establish that any benefits imparted by the existing rules could be obtained through less harmful means it is certainly quite possible that at least some part of MLB’s current broadcasting policies will ultimately be held unlawful. Indeed, the National Hockey League decided to settle a similar case earlier this year one filed by the same attorneys that are bringing the Garber suit rather than risk losing at trial.

If the plaintiffs do prevail in the Garber case, Judge Scheindlin will issue an order detailing the extent to which MLB may permissibly continue to restrict its teams’ broadcasting activities in the future. Such an order could alter MLB’s existing broadcasting rules in any number of ways, with potentially significant ramifications for the baseball industry.

For instance, Judge Scheindlin could rule that the very concept of exclusive local broadcast territories is inconsistent with antitrust law, and thus throw out MLB’s current restrictions in their entirety. This would not only force the league to allow its teams to directly compete with one another locally, but also permit teams to directly compete with the league itself in the national broadcast marketplace. At the same time, an order along these lines would presumably spell the end of MLB’s blackout rules.

Alternatively, Judge Scheindlin could determine that it is generally appropriate for MLB to provide its teams with some protection in their local markets, but that the league’s current broadcast territories are nevertheless much larger than necessary, and therefore should be reduced in size. Such an order would increase competition in areas outside of a team’s immediate metropolitan area, and would help to alleviate some of the current frustration over MLB’s blackout provisions by substantially reducing the number of fans that are subjected to blackouts on MLB.TV.

Of course, it’s also possible that Judge Scheindlin could find that all of MLB’s current broadcasting practices are, on the whole, beneficial for consumers, and thus perfectly legal under the Sherman Act.

Regardless of the specific outcome, it is probably unrealistic to expect that the Garber case will result in any substantial modifications to MLB’s broadcasting policies in time for the 2016 season. If the plaintiffs win the case, MLB will undoubtedly appeal, and in the process ask the court to allow it to continue enforce its current rules pending the outcome of the appellate process.

But if MLB does in fact lose the case, and that outcome is ultimately affirmed on appeal, then the long-term ramifications for MLB’s television business model could be enormous.

All in all, then, the Garber lawsuit is probably the most significant under-the-radar story in the baseball industry today. Depending on the outcome, this is a case that could dramatically alter the way we watch the game in the future, making the suit one that certainly bears watching.

Nathaniel Grow is an Associate Professor of Business Law and Ethics and the Yormark Family Director of the Sports Industry Workshop at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.

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8 years ago

If the plantiffs are to prevail, would it be logical to assume the other pro sports leagues will face similar fates?