The Baseball Exemption: an Anomaly Whose Time Has Run

• Publication year: 2015
• Author: Philip L. Gregory and Donald J. Polden

THE BASEBALL EXEMPTION: AN ANOMALY WHOSE TIME HAS RUN

Philip L. Gregory and Donald J. Polden¹

Both the United States District Court for the Northern District of California and the Ninth Circuit recently upheld the time-worn "baseball exemption" in a case filed by the City of San Jose² that concerned its efforts to attract the Oakland A's professional baseball team to a new stadium in downtown San Jose.³ Both decisions were fundamentally premised on the 1922 decision of the United States Supreme Court, Federal Baseball Club v. National League⁴ a decision decided on the now defunct argument that the business of baseball is an entirely intrastate affair. As Justice Oliver W. Holmes wrote, "the business is giving exhibitions of base ball, [sic] which are purely state affairs" and therefore not in interstate commerce notwithstanding "the fact that . . . the Leagues must induce free persons to cross state lines."⁵ A product of a bygone era, Federal Baseball is the most widely criticized of the Supreme Court's antitrust decisions. Justice Harry Blackmun referred to the baseball "exemption" as an "anomaly" and "aberration," writing that "[w]ith its reserve system enjoying exemption from the federal antitrust laws, baseball is, in a very distinct sense, an exception and an anomaly."⁶ Justice Douglas added that "[t]his Court's decision in Federal Baseball Club. . . is a derelict in the stream of the law that we, its creator, should remove."⁷

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The so-called "exemption"⁸ from the reach of the antitrust laws continues today even through it has been acknowledged by a majority of the Supreme Court justices in another opinion as "unrealistic, inconsistent, or illogical."⁹ "[W]ere we considering the question of baseball for the first time upon a clean slate, we would have no doubt[ ]" that professional baseball would be subject to the federal antitrust laws.¹⁰ In fact, professional baseball is the only sport—amateur, professional, collegiate—that is exempt from the reach of the nation's competition laws.¹¹

Federal Baseball, approaching its centennial anniversary, has not withstood the test of time. Other Commerce Clause decisions from that era have been updated in light of a keener awareness of real world business circumstances. As legal historian Stuart Banner writes in the introduction to this recent book, The Baseball Trust, "[s]carcely anyone believes that baseball's exemption makes any sense."¹² In this article, we will explore the lingering anomaly that is the baseball exemption and describe its impact on the City of San Jose as this local government entity seeks to attract a professional baseball team to strengthen its downtown area. The article describes the reasons why professional baseball will be better served if the U.S. Supreme Court abrogates the holding in its 1922 decision that spawned the exemption.

In the next section, we will provide the background of the current dispute between the Commissioner of Major League Baseball ("MLB") and the City of San Jose. The following section of this article provides a brief background on the precedential constraints that courts encounter when they have addressed the exemption, and contrasts

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the quality of competition in other professional sports that do not have immunity from the antitrust laws. The final section of the article describes several reasons why the United State Supreme Court can and should abrogate the exemption and clearly define the scope of the nation's competition policies and antitrust laws on the business of baseball.

I. THE FACTUAL BACKGROUND OF CITY OF SAN JOSE V. MAJOR LEAGUE OF BASEBALL13

On June 18, 2013, the City of San Jose filed its case against MLB, bringing both federal claims under the federal antitrust laws and California state law claims.¹⁴ On August 7, 2013, MLB filed a motion to dismiss.¹⁵ On October 11, 2013, the District Court denied the motion to dismiss as to the California state law interference claims for damages, but granted the motion to dismiss as to the federal and California antitrust and unfair competition claims under Federal Baseball.¹⁶ This section of the article describes the factual background of the City of San Jose case and how it pertains to the District Court's invocation of the "business of baseball exemption." The factual background provides a compelling set of reasons why the anticompetitive cartel activities of professional baseball club owners should not be permitted to thwart a demand for professional sports in San Jose, the 11^th largest city in the United States, and the efforts of City leaders to attract a professional team to their community.¹⁷

A. The MLB Constitution

The Office of the Commissioner of Baseball, doing business as Major League Baseball, is an unincorporated association of thirty Major League Baseball Clubs, organized into the American League and the National League. All thirty clubs are bound by the Major League Constitution and the rules adopted and promulgated by the Commissioner pursuant thereto. The territorial rights of each of the 30 Major League Clubs are contained in Article VIII, Section 8 of the MLB Constitution: "The Major League Clubs shall have assigned operating territories within which they have the right and obligation to play baseball games as the home Club."¹⁸ Under the MLB Constitution the vote of three-fourths of the Major

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League Clubs is required for the "relocation of any of the Clubs."¹⁹ Similarly a three-fourths vote is required to amend the Constitution (which would be necessary to change the territorial rights specified in Article VIII, Section 8 of the MLB Constitution). A three-fourths vote is also required for there to be expansion by the addition of a new Club or Clubs.²⁰ Notably under Article VI, Sections 1-2, the Clubs agree that any disputes between the Clubs are to be decided solely by the Commissioner as arbitrator, and the Clubs agree not to engage in litigation between the Clubs.

Of the four two-team markets in MLB, only the San Francisco Giants and the Oakland Athletics do not share the exact same geographic boundaries. The following Clubs all share the same operating territories: the Los Angeles Dodgers and the Los Angeles Angels of Anaheim (Orange, Ventura, and Los Angeles Counties); the New York Mets and the New York Yankees (City of New York, Naussau, Suffolk, Rockland, and Westchester Counties in New York; Bergen, Hudson, Essex, and Union Counties in New Jersey; and a portion of Fairfield County in Connecticut); the Chicago White Sox and the Chicago Cubs (Cook, Lake, DuPage, Will, Kendall, McHenry and Grundy Counties in Illinois; and Lake and Porter Counties in Indiana). The relevant operating territories in the Bay Area are:

San Francisco Giants: San Francisco, San Mateo, Santa Clara, Santa Cruz, Monterey and Marin Counties in California.
Oakland Athletics: Alameda and Contra Costa Counties in California.²¹

B. Relevant History of the Athletics

Based in Oakland, the Athletics are popularly known as "the A's" and are a member of the Western Division of MLB's American League. While the Athletics have often been playoff contenders, they have not returned to the World Series since 1990. The Athletics are one of the most economically disadvantaged MLB teams. Because of the economic structure of baseball, which does not split team revenues as evenly as other sports, there is wide disparity between rich and poor teams, and the Athletics are a poor team in revenues. The Athletics are heavily dependent on revenue sharing from other Clubs.

The Oakland Athletics are housed in the fourth-oldest ballpark in the majors, commonly known as the Oakland Coliseum. The Oakland Coliseum is the only remaining multi-purpose stadium in the United States, serving as a full-time home to both an MLB Club (the A's) and a National Football League team (the Raiders).

Since the 1990's, attendance at A's games has plummeted and average attendance at the A's home games is the 25th of the 30 MLB Clubs. In 2014, the A's drew 2,003,628 for their home games (25,045 per game), ranking 25 of 30 Clubs; the Giants drew 3,368,697 for their home games (41,588 per game), ranking 4 of 30 Clubs.

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C. Relevant History of the Cross Bay Rival—The Giants

The San Francisco Giants are a Major League Baseball Club based in San Francisco, California, playing in the National League West Division. The Giants are currently the reigning World Series champion. The current home of the Giants is AT&T Park, located at the edge of downtown San Francisco and the San Francisco Bay. AT&T Park is widely-acclaimed as one of the best ballparks in the league with its state-of-the-art design and breathtaking views. However, before moving to AT&T Park in 2000, the Giants played their home games in Candlestick Park (from 1960—2000).

D. The Territorial Dispute Between the A's and Giants

In the late 1980's, the Giants were hoping to build a stadium in the South Bay Area and the Giants then requested that MLB approve expansion of their territory into Santa Clara and Monterey Counties. Giants then-owner Bob Lurie had declared Candlestick Park "unfit for baseball" and engaged in what proved to be a failed campaign for a new ball park in San Francisco. After considering new stadium sites on the Peninsula and in the South Bay, the Giants sponsored a ballot measure to build a new stadium in Santa Clara. The Santa Clara voters summarily rejected that measure.

In 1990, in a final effort to keep the Giants in the Bay Area, Giants owner Bob Lurie pursued a new stadium in San Jose. However, the Giants faced territorial restrictions under MLB's Constitution, which expressly limited the Giants to San Francisco and San Mateo Counties. In order to overcome these restrictions, the Giants requested that MLB approve expansion of their territory into Santa Clara and Monterey Counties. As part of his request, Mr. Lurie reached out to then-A's owner Walter Haas. Over a handshake, Mr. Haas consented to the Giants' relocation...