Sports and the Antitrust Laws: Relevant Exemptions

• Pages: 1-16

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CHAPTER I

SPORTS AND THE ANTITRUST LAWS:

RELEVANT EXEMPTIONS

A. Introduction

Professional sports leagues (and many forms of amateur sports) in

the United States are organized essentially as joint ventures,

collaborations comprised of teams or individuals that collectively set

rules for competition among participants as well as the venture’s non-

sport activities. Because a single team (or person) cannot meaningfully

compete against itself, a sports league, federation or organization creates

and organizes a series of sporting events leading up to the determination

of a champion through a playoff. Sports teams also compete against each

other (and collectively against other sports and entertainment services)

for fans, advertisers, sponsors, and for other “sales,” such as team

apparel or gear. This tension between necessary collaboration and

inevitable competition creates the potential to precipitate antitrust

scrutiny any time venture members decide to create a rule or enact a

policy.

Nonetheless, while sports litigation often arises under the antitrust

laws, there are a number of antitrust exemptions that, irrespective of the

risks to competition, can bring a claim entirely outside of the antitrust

arena. This Chapter discusses those exemptions: the professional

baseball exemption, the nonstatutory labor exemption, the Sports

Broadcasting Act exemption, and the Amateur Sports Act exemption.

B. Professional Baseball Exemption

Baseball is the only sport that enjoys immunity from the antitrust

laws. The baseball exemption—for the “business of baseball”—was first

recognized in 1922 by the Supreme Court in Federal Baseball Club of

Baltimore, Inc. v. National League of P rofessional Baseball Clubs.

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In

this case, the remaining team in the Federal League brought an antitrust

action against the National and American Leagues, alleging that the

defendants destroyed the Federal League by buying up some of its teams

and inducing all the teams except the plaintiff to leave the league.

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The

1

. 259 U.S. 200 (1922).

2

. Id. at 207.

2 Sports and Antitrust Law

Supreme Court rejected the claim and held that baseball was a business

that did not involve interstate commerce and thus did not fall within the

reach of the antitrust laws.

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It explained that the “business” involved was

“giving exhibitions of baseball, which are purely state affairs.”

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Although

the Court recognized that in order to give exhibitions, the leagues “must

induce free persons to cross state lines,” it found that the transport “is a

mere incident, not the essential thing.”

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The Court also concluded that

“commerce” was not involved because “personal effort, not related to

production, is not a subject of commerce.”

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Although the Court’s reasoning today seems anachronistic, and

although many courts have questioned the analytical justification for the

common law baseball exemption,

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the Supreme Court has twice affirmed

the decision. In its 1953 decision Toolson v. New York Yankees, Inc.,

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the

Court reaffirmed its previous conclusion that “Congress had no intention

of including the business of baseball within the scope of the federal

antitrust laws.”

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Similarly, in its 1972 decision Flood v. Kuhn,

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the

Court once again upheld baseball’s antitrust exemption. In Flood,

outfielder Curt Flood objected to being traded to another team and

requested that he be assigned the status of a free agent. Major League

Baseball (MLB) refused because, subject to MLB rules, Flood’s player

contract contained a “reserve” clause that allowed the team to retain the

rights to a player for each successive season, unless the player opted out

of the contract and did not play for an MLB franchise the next year. The

court upheld the reserve clause, recognizing the fact that baseball is a

business engaged in interstate commerce, but concluding that the

baseball antitrust exemption is an anomaly that was entitled to stare

decisis.

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The court stated, “[i]t is an aberration that has been with us

3

. Id. at 208-09.

4

. Id. at 208.

5

. Id. at 209.

6

. Id.

7

. See Major League Baseball v. Crist, 331 F.3d 1177, 1179 & n.1 (11th Cir.

2003) (noting that the exemption exists “[f]or better or worse” and is

“premised upon dubious rationales,” but is nonetheless “established”);

Salerno v. Am. League of Prof’l Baseball Clubs, 429 F.2d 1003, 1005 (2d

Cir. 1970) (opining that “Federal Baseball was not one of Mr. Holmes’

happiest days”).

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. 346 U.S. 356 (1953).

9

. Id. at 357.

10

. 407 U.S. 258 (1972).

11

. Id. at 282.