Baseball's Antitrust Exemption no Help to Small-Market Teams

Major League Baseball is called "America's pastime."  It is, however, quickly becoming America's big-market pastime, and antitrust law limits the ability of small-market teams to stem this trend.  The Cincinnati Reds, our local team, recently lost its lead-off hitter from last season, Shin-Soo Choo, to an exorbitant deal with the Texas Rangers, negotiated by Choo's agent Scott Boras.

Boras is notorious for wringing every last cent out of teams.  If baseball teams wanted to keep player salaries down, in the interest of helping small-market teams compete, could they simply agree not to negotiate with Boras anymore?

The law says no.  Each team is a separate, competing business.  American Needle, Inc. v. National Football League, 560 U.S. 183 (2010) (finding the 32 NFL teams to be separate economic actors and not a single entity).  Only one team can hoist the World Series trophy every year, and that team gets there by beating the others.  Therefore, any such pact between the owners would likely violate the antitrust laws, as an illegal restraint on trade.


The Sherman Antitrust Act prohibits certain anticompetitive business activities.  The most suspicious of these activities are known as "horizontal" restraints.  These restraints involve agreements between direct competitors.  For example, if Verizon and T-Mobile agreed that Verizon would serve only the western half of the United States and T-Mobile would serve only the eastern half, then this would be a horizontal restraint.  Verizon and T-Mobile might view competition as an unnecessary headache, but the law requires them to compete.

The most obvious horizontal restraint is a price-fixing agreement, in which competitors agree that they will all charge the same price, or at least they will not charge below a certain price.  These agreements impose significant costs on consumers, who would otherwise benefit from companies cutting prices to win their business, and are usually per se illegal.

Other restraints are subject to the "rule of reason" analysis, meaning the courts will look at the purpose of the restraint and whether the restraint unduly burdens commerce before finding a violation.  In the NFL, for example, teams join together to sign television or merchandise deals that cover every team collectively.  This collective action is a horizontal restraint, because it prevents companies like Nike from negotiating with only those teams whose property it wants to license, but it is likely not illegal.  (Without this group deal, there would be no market at all for some teams' merchandise—the Jacksonville Jaguars come to mind.)

There are two potential approaches owners could take to shut out Boras, and both are likely to be considered per se violations.  Most obviously, any kind of price ceiling on Boras's clients would be horizontal price fixing, and automatically illegal (think of player salaries as the "price").  Less obviously, a blanket refusal to deal with Boras would probably also be a per se violation, even though such restraints often are analyzed under the rule of reason.  In Northwest Stationers v. Pacific Stationery, the Supreme Court held that a blanket refusal to deal is analyzed under the rule of reason, unless the boycotted party is substantially foreclosed from participating in the market.  472 U.S. 284 (1985).  Here, there is only one Major League Baseball; if every team refused to deal with Scott Boras, he would be barred from representing professional baseball players at all.


If we were talking about basketball or football, the conversation would be over; it would be obvious that any blacklist would be illegal.  Baseball, however, enjoys one advantage that the other professional leagues do not—a judicially created exemption from the antitrust laws.

In 1922, the Supreme Court held that baseball is exempt from antitrust laws, because it was not considered "interstate commerce" under the Sherman Act.  Federal Baseball Club v. National League, 259 U.S. 200 (1922).  Today, anyone who argued that Major League Baseball is not "interstate commerce" would be laughed out of the room and publicly ridiculed, but the issue is not simply that in the 1920s they played baseball just for the "love of the game."  Rather, at that time the Court had a much narrower definition of interstate commerce, which has since been overruled.

In 1953, years after the Court had developed the modern definition of interstate commerce, the Court nevertheless reiterated that baseball remained exempt from the antitrust laws.  Toolson v. New York Yankees, 346 U.S. 356 (1953) (per curiam).  Finally, the Court again upheld the antitrust exemption again in 1972, but with reservations; the Court stated that the exemption was an "anomaly" based on tenuous grounds, but left the exemption undisturbed out of respect for precedent.  Flood v. Kuhn, 407 U.S. 258 (1972).  Each of these cases arose from challenges to the "reserve clause," which allowed teams to keep the rights to a player even after the expiration of the player's contract.  The reserve clause is now extinct, thanks to baseball's Collective Bargaining Agreement.

Since Flood, courts have disagreed about the extent of the antitrust exemption.  One court said, unequivocally, that the antitrust exemption is limited to the reserve clause.  Piazza v. Major League Baseball, 831 F. Supp. 420, 422 (E.D. Pa. 1993) ("I hold that the exemption created by Federal Baseball is inapplicable here because [the exemption] is limited to baseball's 'reserve system.'").  Other courts have held that baseball's exemption is not so limited, but also not unlimited.  San Jose v. Office of the Comm'r of Baseball, 2013 U.S. Dist. LEXIS 147543, *5 (N.D. Cal. Oct. 11, 2013) (noting that although the antitrust exemption is not limited to the reserve system, courts have applied antitrust laws to situations not "integral" to the business of baseball).  Interestingly, a court held that the antitrust laws apply to baseball's employment relations with umpires.  Postema v. Nat'l League of Prof'l Baseball Clubs, 799 F. Supp. 1475, 1489 (S.D.N.Y. 1992) ("[T]he exemption does not provide baseball with blanket immunity for anti-competitive behavior in every context in which it operates.") overruled on other grounds by 998 F.2d 60 (2d Cir. 1993).

Perhaps recognizing the weak foundation on which its exemption is built, baseball has not attempted to take significant advantage of the exemption outside of certain contexts, such as the ability to move teams from one city to another.  In addition, Congress frequently threatens to remove the exemption, unless baseball complies with certain requirements—such as, recently, banning steroids.  It is likely that a bold move, such as boycotting an agent or that agent's players, would either be held to be outside the scope of baseball's antitrust exemption (as not "integral" to the business of baseball), or would incur the wrath of Congress.  A group boycott of a single player has already been reversed in other sports leagues.  Haywood v. National Basketball Ass'n, 401 U.S. 1204 (1971) (reinstating injunction in case where player alleged a group boycott in violation of the Sherman Act; "Basketball . . . does not enjoy exemption from the antitrust laws.").


There are other reasons why a group refusal to deal with Scott Boras, or any other player agent, would be impermissible or unworkable, such as restrictions included in the collective bargaining agreement or the incentive of bigger market teams to cheat on the agreement.  So as hard as it is for us Reds fans to admit, the Shin-Soo Choos of the world will always end up signing with teams like the Texas Rangers.  Which leads to one final piece of advice to Reds fans: Enjoy Johnny Cueto while he lasts.

About The Author

Jason Palmer | Faruki Attorney