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Wednesday, December 5, 2001
Updated: December 6, 9:17 PM ET
Baseball's antitrust exemption: Q & A

By Darren Rovell
ESPN.com

Q: What is the antitrust exemption and how did baseball get it?

A: Any business that operates across state borders -- and therefore participates in interstate commerce -- is subject to antitrust legislation. Attempts to control trade and monopolize may be deemed illegal by federal circuit courts under the Sherman and Clayton acts.

Baseball has been exempt from these antitrust laws since 1922, when the Supreme Court ruled in its favor in Federal Baseball Club of Baltimore, Inc. v. National Baseball Clubs. The Supreme Court determined even though there was scheduling of games across state lines, those games were intrastate events since the travel from one state to another was "not the essential thing," Justice Oliver Wendell Holmes wrote in the decision.

Baltimore, a member of the Federal League that operated as a major league in 1914-15, had sued the National and American Leagues, charging the Federal League's inability to sign players was due to antitrust violations.

At the time of the 1922 ruling, the National and American Leagues were merely umbrella organizations. They arranged the schedules and set the rules, but the business was entirely local in the sense that there was no revenue sharing, no radio or television and no national sponsors or licensing deals.

By virtue of the exemption, coupled with decades of reluctance of various courts to overrule, baseball is the only sport, or business for that matter, that has an exemption to the extent that it does.

Q: What does the exemption do?

A: There are several aspects to the exemption, but the primary issue right now is this means a team can't move unless MLB allows it to move.

Q: Things have changed since 1922. Why does the exemption still exist?

A: The exemption was not considered again by the Supreme Court until 1953 in Toolson v. New York Yankees, Inc. George Toolson, a Yankee minor leaguer, sued over the reserve clause (which binds a player to one organization), claiming it blocked his path to the major leagues. In the decision, the Supreme Court did not deny that baseball was not interstate commerce. Instead, the court ruled that when the Sherman Act was enacted in 1890, Congress didn't intend it to include baseball -- that the Sherman Act was more closely directed to the monopolies and trusts of the robber barons like John D. Rockefeller and Andrew Carnegie.

Q: Why don't other sports have the antitrust exemption?

A: For 18 years after Toolson, in case after case, judges admitted that the baseball exemption was flawed, but it was never overruled. Exemptions for boxing, football and basketball were denied in the higher courts, while hockey and golf antitrust exemptions were also denied in the lower courts.

In 1972, Curt Flood's case -- which also challenged baseball's reserve system -- reached the Supreme Court and although it was again acknowledged that baseball's antitrust exemption was "an anomaly," the Court ruled that it is up to Congress to change baseball's antitrust exemption. Bills were introduced before and after Flood v. Kuhn (1972), but none ever became a law. In 1998, Congress passed the Curt Flood Act of 1998, which said challenges to league rules that restrict player movement or compensation would be subject to antitrust laws. (Although the Supreme Court ruled two years earlier that unionized employees may not file antitrust suits.)

Q: What part of the exemption is now being threatened?

A: If enacted, a bill called the "Fairness in Antitrust in National Sports (FANS)" sponsored Rep. John Conyers, D-Mich., and Minnesota democratic senators Paul Wellstone and Mark Dayton, would strip the antitrust exemption only in regards to Major League Baseball's efforts to control relocation and contraction. It can be interpreted that baseball is allowed to restrict teams from moving to other cities and has the right to fold teams at will, even if another market is a viable one. However, antitrust experts say an antitrust challenge might actually reveal that baseball is not protected in this area, since it has never been explicitly challenged in court. If that is true, it's not necessary that the bill becomes a law, since court precedence would take its place.

In Piazza v. Major League Baseball (1993), Vince Piazza sued baseball after it blocked San Francisco Giants owner Bob Lurie from selling the team to Piazza, who planned to move it to St. Petersburg, Fla. MLB then approved a sale, for $15 million less, to Peter Magowan that kept the team in San Francisco. A federal judge ruled that baseball's restrictions on team relocation were not protected by the exemption. However, the judge then ordered a trial to further explore whether he was incorrect about the scope of baseball's exemption. On the eve of trial, Piazza reportedly received a $6 million settlement from MLB and the hearing never happened.

Q: So, other leagues are subject to antitrust lawsuits?

A:. Yes. If an owner wants to move a team to another city and the league stops him from doing so, the owner can bring an antitrust claim. Raiders owner Al Davis won an antitrust lawsuit in 1982 after the league wouldn't allow him to move from Oakland to Los Angeles. The NFL lost and Davis moved. The threat, and in some cases the actual filing, of antitrust lawsuits led to more movement among NFL teams, such as the Los Angeles Rams to St. Louis and the Cleveland Browns to Baltimore. Since the last MLB team moved in 1971 (the Washington Senators became the Texas Rangers), there have been seven NFL moves, seven NBA moves and nine NHL moves.

Q: Why does MLB want to keep the exemption?

A: If the exemption is repealed, teams can sue if they are not granted the right to move at will. Like other leagues, Major League Baseball might still charge a relocation fee, either to compensate another owner in a nearby market or to compensate the league for moving into a potential expansion market.

Commissioner Bud Selig said baseball will open its books at Thursday's hearing in order to convince Congress that the game is in bad economic shape and needs to keep the exemption. Therefore, baseball could go forward with contraction without an antitrust challenge.

Rep. Conyers has asked Selig to show in detail the financial records of the Florida Marlins, Kansas City Royals, Minnesota Twins, Montreal Expos and Tampa Bay Devil Rays.

Q: Speaking of the Twins and Expos, what part of the exemption deals with contraction?

A: By eliminating teams, the owners would eventually be sharing their revenues among fewer partners. While contraction might be a violation of the Collective Bargaining Agreement -- baseball's permanent arbitrator Shyam Das is currently hearing the Players' Association grievance on this issue -- and perhaps even labor law, the exemption makes it impossible for such a move to be considered an antitrust violation.

If the exemption is removed and there is a challenge, the owners -- as in every antitrust case -- will have to prove that their action to eliminate teams is somehow better for the competitive business of the sport. A plaintiff challenging contraction, in an antitrust suit, would allege that contraction constitutes an agreement among all the teams in the league to limit output (two fewer teams to watch) and limit competition (28 instead of 30 teams competing for the same players). And the plaintiff would argue that the anticompetitive effects exceed any positive effects on competition. If they are successful, the agreement would violate the Sherman Act that prohibits unreasonable restraint of trade.

Q: Who would benefit if this part of the exemption is taken away?

A: Any owner who believes that he can move to another market and increase the value of his franchise. Expos owner Jeffrey Loria could simply sue if he wasn't allowed to move his team to Washington D.C. That move would likely increase the value of his franchise by at least $100 million.

(Loria's case is complicated. He would have to have a stadium lease in the U.S. in order to go through with a suit, because he can't sue under U.S. antitrust laws in a Canadian court. Consider as well Loria's rumored purchase of the Marlins. If he could freely move the Expos -- to a more viable market than South Florida -- why would he want the Marlins?)

Another example is if current Twins owner Carl Pohlad wanted to sell his team, he could get a higher price, since a new ownership group would have the ability to move to another market.

Also, using the threat of a possible antitrust suit could also provide leverage for negotiating a new ballpark in a team's existing market.

Q: How long until this legislation could actually be enacted?

A: It's not going to happen in the next couple months. If the Das hearing or the Minnesota Court of Appeals can't stop contraction from occurring, it is possible that Congress might speed up the process.

Q: If this legislation passes, what other parts of the antitrust exemption could be taken away and what would that do?

A: While it's unlikely that other aspects would be challenged any time soon, it's worth noting the exemption allows baseball to exert ultimate authority on terms of minor league contracts and the reserve clause and the amateur draft.

If the exemption didn't apply to the minor leagues, it's possible baseball could revert to the free minor league system that existed in the first few decades of the 20th century. This would mean minor league teams would exist independent of affiliation with major league franchises. Major league teams would have to purchase or trade for their players from minor league teams or directly from college programs.

The amateur draft could also be abolished, because an amateur player could sue for his right to freedom of movement or that the draft artificially holds down signing bonuses. This would potentially increase the size of bonus payments for the top prospects since bidding wars would develop.

Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.rovell@espn.com.