In name only: how Major League Baseball's reliance on its antitrust exemption is hurting the game.

TABLE OF CONTENTS INTRODUCTION I. THE HISTORY AND EVOLUTION OF BASEBALL'S ANTITRUST EXEMPTION A. Federal Baseball B. Toolson C. Flood D. The Exemption Applied II. THE FUNDAMENTAL IRRELEVANCE OF THE EXEMPTION A. The Impact of Labor Law B. Nature of Professional Sports C. MLB Does Not Assert or Take Advantage of Its Exemption III. How THE EXEMPTION HURTS BASEBALL A. Cumbersome and Uncertain Nature of the Exemption B. Fear of Congressional and Judicial Intervention IV. THE IMPLICATIONS OF A POTENTIAL POLICY CHANGE A. Application of Antitrust Law 1. Per Se vs. Rule of Reason B. Analysis Under Rule of Reason 1. Factors Suggesting MLB's Practices Might Pass Rule of Reason Analysis 2. Franchise Relocation a. L.A. Coliseum and Other Non-Baseball Cases b. Defining the Applicable Market c. Procompetitive Aspects d. Consumer Welfare 3. Expansion 4. The Minor League System C. Counterarguments as to How MLB Would Be Hurt by a Revocation Fail CONCLUSION INTRODUCTION

Major League Baseball (MLB) is exempt from federal antitrust regulation, an oddity that has earned it the title of a "true monopoly." (1) Baseball's status in the eyes of the law is puzzling in a number of ways. First, its exemption is a judicial creation that the Court has never extended to any other professional sport or industry. (2) Second, the Supreme Court, despite having created the exemption in 1922, has never ruled directly on its scope. (3) Finally, lower courts have applied the exemption inconsistently, leaving many commentators to openly wonder whether the exemption even still exists, and if it does, in what form. (4) Despite repeated attempts by the courts, the legislature, and the legal community to clarify the precise nature of baseball's antitrust exemption, the interaction of baseball and antitrust law remains very unsettled.

Although there has been significant disagreement as to both the breadth and validity of MLB's antitrust exemption, those debates are beyond the scope of this Note. The more interesting question, as yet unanswered, is what effect the exemption has had on MLB's operations, and whether that effect is worth the costs of maintaining the exemption. This Note asserts that MLB's exemption is counterproductive and bad for business, contrary to the belief of even those who run MLB. The exemption, as currently applied and utilized, exposes MLB to intervention from both Congress and the courts. (5) MLB, in its zeal to protect its exemption, has unwittingly exposed itself to pressures that no other professional sports league faces.

At the same time, the impact of a policy change, initiated by either Congress or the courts, is unlikely to have a material effect on MLB's structure or day-to-day business operations. Despite the argument that revoking MLB's exemption would leave it exposed to antitrust violations, (6) a thorough analysis of antitrust law, combined with the standing precedent implicating professional sports, indicates that almost all of MLB's practices would survive such scrutiny. (7) This Note concludes that the exemption is largely, if not completely, irrelevant to MLB's operations. Prior arguments that the exemption is irrelevant have based that conclusion on an overly narrow reading of the trilogy of Supreme Court baseball cases. (8) Instead, it is not the origins of the exemption that render it irrelevant, but rather its application and practical consequences. Other scholarship has identified the implications of removing the exemption as to particular areas of MLB's operation, such as franchise relocation, (9) but no commentator has examined how and why MLB derives no benefit from its exemption.

This Note briefly summarizes in Part I the history and development of MLB's exemption through an examination of the Supreme Court's trilogy of cases. Part II illustrates how the exemption is largely irrelevant, in that MLB operates in the same manner as other professional sports leagues by using collective bargaining to sanction anticompetitive restraints. Part III discusses how the exemption adversely affects MLB's operations as a result of the uncertainty and political pressures that accompany threats to revoke its exemption. Part IV explores the implications of a potential policy change by applying antitrust regulation to the business of baseball, specifically in terms of policies and structures most likely to be deemed anticompetitive. Although a proper application of antitrust regulation is unlikely to invalidate any of its operations, this examination highlights the tenuous nature of antitrust scrutiny and the difficulties that MLB faces from a legal standpoint.

1. THE HISTORY AND EVOLUTION OF BASEBALL'S ANTITRUST EXEMPTION

   Baseball's exemption from antitrust regulation is a judicially created rule that Congress has never expressly codified or rejected. (10) For that reason, any discussion regarding the subject must begin with the three pivotal Supreme Court decisions that established and affirmed the exemption.

   1. Federal Baseball

      Professional baseball in the United States began in earnest in the nineteenth century. In the early years, there were a number of leagues and associations, but as the game evolved, the two most stable, dominant leagues were the National League and the American League. (11) Though they started as competitors, the leagues merged in 1903 in an agreement that created the World Series, as well as an array of other rules and regulations. (12) This merged entity, the precursor to MLB, agreed to insert a "reserve clause" into the contract of every player, effectively allowing the franchise that originally signed him to own that player's rights indefinitely. (13) The Federal League, another fledgling baseball league, tired of competing with MLB and its reserve clause, suggested a merger. (14) After seeing its merger attempt fail, the Federal League filed an antitrust suit alleging MLB was in violation of the Sherman Antitrust Act. (15) The parties came to a settlement agreement, but the Baltimore franchise refused to sell and subsequently filed its own antitrust suit. (16) The trial court awarded the Baltimore franchise $80,000 plus treble damages in the trial court, but the D.C. Circuit reversed and the Supreme Court granted certiorari. (17) In a brief opinion, Justice Holmes reasoned that offering baseball exhibitions was a purely state affair and thus exempt from antitrust regulation, as it was not commerce among the states. (18)

      Although this decision is often criticized, (19) it was actually a sound analysis based on that Court's understanding of the Commerce Clause. (20) Professional sports are undoubtedly interstate commerce by today's standards, and even by the standards set in the New Deal Era, but in 1922 hosting baseball games was understood to be a purely intrastate activity. (21) It follows, then, that if this case were simply from a different era of Commerce Clause analysis, the Court would have changed course at its next opportunity. Perhaps surprisingly, that opportunity was not taken. (22)

   2. Toolson

      The next baseball case to reach the Supreme Court involved a much more direct challenge to the reserve clause. Toolson v. New York Yankees, Inc. was one of three challenges heard by the Court, each made by minor league players asserting that the reserve clause was an antitrust violation. (23) In a per curiam, one paragraph opinion, the Court affirmed the judgment below on the basis of Federal Baseball, while also noting that "Congress had no intention of including the business of baseball within the scope of the federal antitrust laws." (24) Despite its brevity, in many ways, Toolson is the most significant baseball case for two reasons. First, it passed on the opportunity to reevaluate the Commerce Clause analysis of Federal Baseball for the sake of stare decisis. (25) More significantly, it explicitly stated that baseball was exempt from antitrust law on the basis of congressional intent. (26)

      Both justifications given by Toolson require further examination. As part of its reasoning for upholding Federal Baseball, the Court explained that MLB had relied on the exemption for over thirty years. (27) Yet that rationale is not very compelling when compared to other Commerce Clause jurisprudence, as nearly every ruling of the era overturned an earlier case on which the industry in question had relied. (28) The Court's theory on the intent of Congress is similarly unconvincing. As Justice Burton stated in his dissent, neither the Sherman Act nor its legislative history illustrate any intention of Congress to exempt baseball or any similar activity. (29) Despite this flawed reasoning, Toolson retained, and probably strengthened, the exemption. Further, the Court's opinion demonstrated that the exemption applied to the entire industry of professional baseball, not solely to the reserve clause. (30)

   3. Flood

      The Court's most recent treatment of MLB's antitrust exemption, Flood v. Kuhn, followed Toolson by upholding MLB's exemption on the strength of stare decisis and congressional inaction. (31) Justice Blackmun's opinion referred to the exemption as an established "aberration confined to baseball." (32) The opinion acknowledged the criticisms of the exemption--namely that MLB is clearly engaged in interstate commerce--but resolved to let Congress deal with the inconsistency, further citing failed legislation as justification for why the Court should not step in and overrule precedent. (33) Although Justice Blackmun's opinion seems clear on its face, the facts that gave rise to the dispute in Flood have caused difficulty for lower courts when asked to apply the exemption. Flood, like Toolson, dealt directly with MLB's reserve clause. (34) Curt Flood, an all-star outfielder, was traded from the St. Louis Cardinals to the Philadelphia Phillies. (35) Flood protested the trade and asked to be made a free agent; the request was denied. (36) He then instituted an antitrust suit, challenging...