Antitrust Exemption for Baseball | The Regulatory Review

Baseball has a problem.

The 2023 Major League Baseball (MLB) World Series drew less than half the viewers of the 2016 World Series and the fewest viewers of any World Series in the past 50 years. Meanwhile, youth participation in baseball has declined year after year since the 1990s.

What’s causing this decline in interest in America’s national pastime?

Two scholars argue that MLB’s antitrust exemption — which frees MLB from complying with certain rules that limit market power — is at least partly to blame.

In a forthcoming paper, Marc Edelman of the City University of New York and John T. Holden of Oklahoma State University detail the history of MLB’s antitrust exemption and argue that it has harmed both the game and its fans by restricting team mobility and suppressing the number of players on teams in general. Edelman and Holden conclude that MLB’s antitrust exemption has outlived its usefulness, and by repealing the exemption, Congress could force MLB to operate in a competitive marketplace to the benefit of players and fans.

Baseball’s antitrust exemption stems from the U.S. Supreme Court ruling Federal Baseball Club vs. National League.

In Federal BaseballJudge Oliver Wendell Holmes called baseball games “purely matters of state.” Therefore, federal antitrust laws — including statutes like the Sherman Act, which prevent large companies from engaging in anticompetitive behavior — could not regulate the growing National and American Leagues, the Court reasoned. The Court concluded that taking advantage of local “human effort and skill” in sports did not constitute interstate commerce – or the movement of goods and services across state lines – and thus the federal government had no antitrust jurisdiction over baseball.

Several state supreme courts have since followed the Supreme Court’s lead and concluded that their state antitrust laws do not apply to baseball.

Despite the Supreme Court ruling in Radovich vs. National Football League that federal antitrust laws did apply to nationally organized football, the Supreme Court affirmed Federal Baseball‘ holds the case Flood vs. Kuhn in 1972. In this case, the Court argued that baseball’s unique position as an American institution set it apart from football and other sports. Congress should decide the fate of MLB’s antitrust exemption sooner, the Court reasoned.

Although Congress has imposed some pro-competitive restrictions on MLB regarding player labor negotiations through the Curt Flood Act, Congress has chosen to retain the antitrust exemption.

Edelman and Holden argue that the exemption has three lingering consequences.

First, they claim that MLB has used the antitrust exemption to maintain an inefficient geographic distribution of teams.

Under current MLB rules, 23 of the 30 teams in the MLB must approve a team’s petition to move to another city. Therefore, the antitrust exemption limits competition by preventing teams from relocating to optimize their fan base, Edelman and Holden said.

For example, the New York City metropolitan area has more than 19 million people with only two MLB teams. Meanwhile, cities like Pittsburgh, Cincinnati, Kansas City, Cleveland and Milwaukee with metropolitan populations of less than 2.5 million all have teams.

Edelman and Holden argue that this inefficient distribution of teams creates an undersupply of teams in major metropolitan areas, driving up ticket prices for fans in those areas.

Second, MLB’s antitrust exemption allows the league to limit the number of Major and Minor League teams, Edelman and Holden said.

In 2020, MLB reduced the number of minor league affiliates allowed for major league teams from six to four, unilaterally eliminating more than 40 minor league teams. This reduction not only affects the cities where these minor league teams were located, but Edelman and Holden argue that it affects the baseball market as a whole because it reduces the overall supply of live professional baseball available to fans.

However, they point out that the U.S. Court of Appeals for the Second Circuit has approved MLB’s elimination of these minor league teams under MLB’s antitrust exemption.

Finally, Edelman and Holden argue that MLB is using its antitrust exemption to engage in anticompetitive broadcast practices, such as blackout restrictions that limit fan access to nationally televised games in certain media markets.

Some scholars argue that MLB’s antitrust exemption may promote MLB’s competitive behavior as it strategically responds to congressional threats to repeal the antitrust exemption. These scholars argue that when MLB acts too anticompetitively, Congress threatens to revoke its antitrust exemption, and baseball responds to this threat.

However, according to Edelman and Holden, this argument ignores the fact that most recent threats from Congress to revoke MLB’s antitrust exemption have targeted the league’s support of left-leaning causes such as LGBTQ+ rights and voting reforms, rather than the anti-competitive behavior of the MLB.

Edelman and Holden conclude that MLB’s antitrust exemption has outlived any historical purpose and argue that the legal basis for MLB’s antitrust exemption has also disappeared.

The Interstate Commerce Clause gives Congress the authority to regulate economic activity across state lines and serves as the constitutional basis for federal antitrust law. In Federal BaseballAccording to Edelman and Holden, the Supreme Court relied on an outdated theory of the interstate commerce clause. The Court focused on the local nature of a baseball game, meaning that no economic activity crosses state lines.

However, Edelman and Holden point out that in Wickard v Filburnthe Supreme Court has ruled that Congress can regulate even inherently local economic activity because it has the potential to influence the national economy.

Edelman and Holden argue that the MLB, which has 30 teams in states across the country and generates billions of dollars annually, is complying with MLB’s demands. Wickard‘s definition of interstate commerce. Therefore, they argue that faithful application of the Court’s interstate commerce jurisprudence requires that professional baseball constitute interstate commerce and be subject to the jurisdiction of federal antitrust laws.

Edelman and Holden conclude that as MLB faces the twin crises of declining viewership and reduced youth participation, repealing the antitrust exemption will go a long way toward improving access to baseball for players and fans.