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Title: Modern Baseball


1
Modern Baseballs Antitrust Exemption
Commissioners, Collusion, and Contraction
  • Artemus Ward
  • Department of Political Science
  • Northern Illinois University
  • aeward_at_niu.edu

MLBPA head Donald Fehr (L) and MLB Commissioner
Bud Selig.
2
Introduction
  • In this lecture we will review recent baseball
    labor disputes including the strike of 1994-1995
    that led to the cancellation of the season
    including the World Series and how it was
    resolved with unprecedented political
    intervention.
  • We examine the recent conflicting court cases at
    first limiting and then expanding baseballs
    antitrust exemption and how they illustrate
    baseballs special legal status and its resultant
    implications.
  • Finally, collusion, prohibitions on municipal
    ownership, and threats of contraction are used to
    show how baseballs unique monopoly power can be
    put to use.

3
Finley v. Kuhn (1977)
  • In the midst of the dispute over the reserve
    system, and after having won three World Series
    in a row, Charles Finley sought to sell a number
    of his star players to other teams for cash OF
    Joe Rudi and future Hall of Fame relief pitcher
    Rollie Fingers to the Boston Red Sox for 2
    million and ace starting pitcher Vida Blue to the
    New York Yankees for 1.5 million.
  • But under the Major League Agreement, the
    commissioner must approve player transactions.
    Commissioner Kuhn conducted a hearing and denied
    the sales as inconsistent with the best
    interests of baseball, the integrity of the game
    and the maintenance of public confidence in it.
  • Finley fled suit in federal court claiming that
    previous owners had done the same including
    former Philadelphia As owner Connie Mack who
    sold his star players with the approval of
    Commissioner Landis. Kuhn justified his decision
    based on the present unsettled circumstances of
    baseballs reserve system and the highly
    competitive circumstances we find in todays
    sports and entertainment world.
  • 21 of 25 owners testified in trial court in favor
    of Kuhn and both the trial court and court of
    appeals decisions went for Kuhn with the latter
    explaining that baseballs antitrust exemption
    was broad, the owners had granted the
    commissioner broad powers to act in the best
    interest of baseball, and as long as the decision
    was made without malice, the judiciary would not
    interfere.
  • Kuhns sanction against Finley set an important
    guidepost for future owners the commissioner
    would enforce the rules of the cartel against
    those who would profit at the expense of fellow
    owners. That is why most owners testified against
    Finley in court they could not risk a victory
    for the renegade, even if it meant they
    themselves could not become profiteers.
  • In 1980, two years after the court of appeals
    decision, Finley sold the As and retired from
    baseball.

Rollie Fingers
4
Professional Baseball Schools Clubs v. Kuhn
(1982)
  • The owner of a minor league baseball team brought
    suit in federal court against the baseball
    commissioner for "monopolization of the business
    of professional baseball" through "the player
    assignment system and the franchise location
    system," as well as by virtue of "the Carolina
    League's rule requiring member teams to only play
    games with other teams that also belonged to the
    National Association.
  • Offering very few facts and little analysis, the
    Eleventh Circuit affirmed the lower court's
    dismissal of the owner's antitrust complaint and
    summarily held that "each of the activities
    appellant alleges as violative of the antitrust
    laws plainly concerns matters that are an
    integral part of the business of baseball.
  • Once again the courts accepted baseballs
    antitrust exemption as gospel.

5
Recent Commissioners
  • After the owners ousted Bowie Kuhn, his
    successors tended to be short-lived.
  • Peter Ueberroth (1984-1989) was an owner-friendly
    commissioner who forced the Cubs to install
    lights at Wrigley Field, negotiated product
    endorsements with large corporations, and
    colluded with the owners to prevent free-agent
    players from both signing equitable contracts and
    joining the teams of their choicea scandal that
    forced his resignation.
  • A. Bartlett Bart Giamatti (1989) agreed to the
    deal that terminated the Pete Rose betting
    scandal by permitting Rose to voluntarily
    withdraw from the sport, avoiding further
    punishment. Yet he died suddenly just 154 days
    into his term.
  • Fay Vincent (1989-1992) was ousted by the owners
    after he was perceived as too favorable to the
    players, particularly after the 1990 lockout
    which Vincent quickly resolved. By removing
    Vincent, the owners cleared the way for taking on
    the players, unimpeded, in the 1990s.
  • Alan H. Bud Selig (1992-present) owned the
    Milwaukee Brewers since 1970 and was appointed by
    the other owners to be the chairman of the Major
    League Executive Council, making him the de-facto
    acting commissioner from 1992-1998 while he
    still owned the Brewers. The owners finally made
    it official in 1998 and to avoid a conflict of
    interest, he transferred his ownership of the
    Brewers to his daughter. During his tenure, the
    Brewers moved from the AL to the NL, playoffs
    were expanded with wild-card teams, he started
    interleague play between the two leagues, he
    abolished the AL and NL offices so that they were
    no longer separate organizations and instead
    consolidated under the commissioners office, he
    presided over the 1994 labor dispute that led to
    the cancellation of the season and the World
    Series, he tried to contract two teamsMinnesota
    and Montrealat the close of the 2001 season, he
    stopped the 2002 All-Star game after 11 innings
    and declared it a tie, he started the World
    Baseball Classic in 2006, and he presided over
    the so-called steroid era of unchecked
    player-use of performance-enhancing drugs.

Fay Vincent
Bud Selig
6
Restrictions on Municipal Ownership
  • San Diego Padres owner Ray Kroc died in 1984 and
    his wife Joan inherited the team. She sought to
    give the club to the city of San Diego but was
    blocked by MLB under their rule prohibiting
    municipal ownership.
  • Other sports, however, have municipal ownership.
    For example, the NFLs Green Bay Packers are
    community owned. The nonprofit Packers is
    financed through the issuance of stock, and more
    than 100,000 people own shares in the team.
    Packers stock cannot be resold, except back to
    the team for a fraction of the original price.
    Limited transferto heirs and relativesis
    allowed. No dividends are paid. To prevent any
    one person from gaining control, no one is
    allowed to own more than 200,000 of the more than
    4.7 million shares of stock. Green Bay shows that
    structures can be put in place that lead to
    effective management by a publicly or
    community-owned team. The Packers stockholders
    elect a board of directors, which elects an
    executive committee. That committee directs
    management, which handles the business of the
    team.
  • With similar municipal or community ownership, an
    MLB teams profits could be directed to paying
    off bonds floated to renovate an old stadium or
    pay for a new stadium, keep ticket prices low,
    and pay players and other employees. But MLBs
    prohibition on municipal ownership prevents this
    from happening. It constitutes a restriction of
    trade in the market to buy and sell franchises
    and is protected by MLBs presumed antitrust
    exemption.
  • Local governments could also try to use their
    power of eminent domain to keep teams from moving
    and even take clubs. This was tried in
    professional football when Raiders owner Al Davis
    moved his team from Oakland to Los Angeles in
    1982. Although Oaklands eminent domain plan had
    some initial success under state law, the
    strategy ultimately failed to keep the team from
    leaving when the California Court of Appeals
    ruled that condemnation of a football franchise
    would violate the commerce clause of the U.S.
    Constitution. The city of Baltimore tried a
    similar approach when the Colts moved to
    Indianapolis in 1984. Initially Baltimores
    condemnation or taking of the franchise was
    upheld by the Maryland Circuit Court but when the
    case was removed to the U.S. District Court, that
    court ruled that Maryland no longer had
    jurisdiction since the Colts had moved out of
    state before the taking had occurred. So while
    eminent domain may provide a possible solution
    toward municipal ownership it is hardly a
    promising strategy.

7
Collusion Carlton Fisk Co.
  • The Major League Agreement has an anti-collusion
    clause which states Clubs shall not act in
    concert with other Clubs.
  • During the 1985-1987 off-seasons, players
    entering free-agency strangely found that there
    were no significant contract offers made to them.
    Even stars such as White Sox catcher Carlton Fisk
    did not receive competing offers from other
    clubs. Fisk was intimately familiar with the
    arbitration process. In 1981 he had used the
    system when his former teamthe Boston Red
    Soxoffered him a contract one day later than the
    specified date under the collective bargaining
    agreement. Under the terms of the CBA, players
    not offered contracts by the specified date were
    automatic free agents and the arbitrator so-ruled
    in Fisks favor. He then signed with the Chicago
    White Sox. But in 1985 the future-Hall-of-Famer
    received no offers during his free agency.
  • In response to this oddly depressed free-agent
    market, the MLBPA filed a class-action grievance
    with the MLB arbitrator. They charged collusion
    arguing that both Commissioner Ueberroth and team
    owners violated the collective bargaining
    agreement by colluding not to make offers to any
    free agent as long as that players prior club
    had an interest in re-signing him.

8
The Rulings Collusion I, II, and III
  • In the midst of arbitrator Tom Roberts
    investigation, the owners fired him. But the new
    arbitratorRichard Blockruled that an arbitrator
    could not be fired in the middle of a case.
    Roberts returned to finish the matter and in
    Collusion I ruled in favor of the players on
    September 21, 1987. Like they had done after
    arbitrator Peter Seitz ruled against them in the
    Messersmith and McNally cases, the owners
    immediately fired Roberts after his ruling.
  • Roberts had no direct proof of collusion. But he
    reasoned that clubs with potential free agents
    had acted in a way that showed they knew no other
    club would compete for their players services.
    Only when a club stated publicly that it was not
    interested in re-signing its player did other
    teams tender offers. He relied on voluminous
    circumstantial evidence including comparative
    data from the free-agent period prior to 1985 and
    testimony and memoranda that the owners discussed
    the escalating bidding war for free agents.
  • During 1987, stars Andre Dawson and Jack Morris
    received no offers and were forced to re-sign
    with their previous teams. Indeed, Dawsons agent
    was so disgusted by the owners collusion that he
    left a blank contract in the Chicago Cubs
    general offices with the message to fill it out
    as they saw fit. Then he told the press what he
    had done. After Cubs management berated the agent
    in the press, they filled out the contract
    lowering Dawsons salary by 60 from his 1986
    salary.
  • Yet the players won again in Collusion II when
    arbitrator George Nicolau found collusion during
    1986 and 1987 when he concluded that when owners
    did make some offers to free agents it was for
    public relations purposes only. In Collusion
    III in 1990 Nicolau again ruled for the players
    when he found that an Information Bank created
    by owners allowed them to quietly cooperate by
    telling each other what their bids were for
    players, thereby rigging the process to keep
    offers low.
  • Hence, the MLBPA won each case, resulting in
    affected players being granted automatic free
    agency and over 280 million in owner fines.
    Union leader Marvin Miller later said that the
    collusion was tantamount to fixing, not just
    games, but entire pennant races, including all
    post-season series as owners agreed not to
    improve their teams. Former Commissioner Fay
    Vincent said The Union basically doesnt trust
    the Ownership because collusion was a 280
    million theft by Selig and White Sox owner
    Jerry Reinsdorf of that money from the players.
    I mean, they rigged the signing of free agents.
    They got caught. They paid 280 million to the
    players. And I think that's polluted labor
    relations in baseball ever since it happened. I
    think it's the reason union chief Donald Fehr
    has no trust in Commissioner Bud Selig.
  • When collusion ended, player salaries leaped once
    again, from an average annual salary of 430,000
    in 1988 to more than 1 million by 1992. The
    owners, however, were the beneficiaries of a new
    television contract, negotiated by Ueberroth
    before he left officea deal with CBS that
    produced 1.6 billion.

9
Baseball Ownership as a Business
  • Owners have generally cried poor, claimed they
    were losing money, and bemoaned the escalation of
    player salaries. Yet they all share equally in
    national broadcasting and licensing contracts.
    The all share in the fees charged to expansion
    teams such as the 150 million paid by both Tampa
    and Arizona in 1998. Still, disparities exist in
    local broadcast revenue, concessions, and ticket
    sales which each club keeps for themselves. Hence
    teams in large media markets such as New York,
    Los Angeles, and Chicago make far more money than
    clubs in small markets.
  • But club ownership is little more than a tax
    shelter. Owners can deduct both the purchase
    price for their clubs as well as player salaries
    and signing bonuses as expenses. Furthermore,
    through related-party transactions team owners
    also own entities who do business with the team
    (such as TV, cable, and radio stations facility
    management companies concessions and catering
    companies). When the owner does business with
    himself he can charge whatever price he
    likeshence baseball franchise revenues are
    reduced substantially due to related-party
    transactions. Hence, when individual teams and
    MLB claim operating losses they are vastly
    underreporting, if not blatantly misrepresenting,
    their revenue and worth.
  • The rapidly escalating franchise values limit
    ownership to extraordinarily wealthy individuals
    or corporations who, in addition to owning media
    entities, frequently own other businesses that
    have ties to the baseball team. These businesses
    include concessionaires, stadium management
    companies, real estate firms, consulting groups,
    financial entities, and transportation companies.
    These new owners value their ballplayers and the
    team itself not only for what is produced on the
    field, and what is saved through related-party
    transactions, but also for what it produces for
    their media networks and other investments off
    the field through publicity and cross-promotion.
  • In sum, it is difficult to accept the
    sky-is-falling analysis of individual clubs and
    MLB. Baseball is a monopoly and its profitability
    is firmly intact.

10
Reverse Robin Hood The Stadium Boondoggle
  • Furthermore, owners do not have to bear the cost
    of modern-stadium construction. Public financing
    accounts for as much as 75 of all baseball
    stadium costs.
  • Most of this financing comes by way of local
    government issues of federal-tax-exempt bonds
    which permit an interest rate roughly 33 lower
    than it would otherwise be. Hence a 100 million
    subsidy is paid for by federal taxpayers for a
    new 300 million ballpark for a local team. To
    date, federal subsidies for local ballparks total
    nearly 2 billion. Every independent economic
    analysis on the impact of stadiums has found no
    predictable positive effect on net operating
    income or employment.
  • Some have characterized publicly financed
    stadiums as massive reverse Robin Hood schemes.
    The single largest source of public financing has
    been the sales tax. Since 1990 the sales tax
    accounted for nearly 1/3 of the public funds
    going to baseball stadium construction. The sale
    tax is regressive, falling disproportionately on
    lower-income families.
  • New stadiums generate tens of millions of dollars
    for teams annually. More than half of this goes
    to players and most of the other half goes to the
    owners. That is, this extra revenuewhich comes
    disproportionately from lower-income
    familiesends up in the pockets of millionaires,
    or in some cases billionaires.
  • Further, new ballparks are gentrified. They cater
    especially to higher-income groups with their
    club seats, luxury suites, restaurants, and other
    amenities. Public money builds the parks, and the
    team, in turn, charges higher ticket prices to
    the public. It costs roughly 200 for a family of
    four to go to one ballgame which includes
    tickets, parking, food, and a souvenir.
  • And new ballparks are only short-term revenue
    generators for clubs. First-year attendance is
    always up as the public comes out to see the
    spectacle of the new stadium but in years two,
    three, four and so on, reality sets in and
    attendance depends on other factors such as star
    players and team performance. Witness the
    dramatic attendance fall-off in yea two of new
    stadiums in Detroit, Pittsburgh, Milwaukee, and
    Washington D.C.
  • Meanwhile, the sale of franchises dramatically
    escalates over time. For example, the Baltimore
    Orioles were sold for 12 million in 1979, for
    70 million in 1989, and again for 173 million
    in 1993, when the franchise moved to the
    publically-funded throwback park Camden Yards.
    In another example, the Seattle Mariners were
    sold for 13 million in 1981, for 89.5 million
    in 1988, and again for 106 million in 1992.
    After the new owners threatened to move the team,
    in 1996 the people of Washington state paid 518
    million for a new ballparkSafeco Field.
  • Hence, public financing of new ballparks are a
    short-term boondoggle for wealthy owners,
    players, and fans subsidized by the public and
    the poor.

11
The 1994-1995 Strike
  • The legal text for the baseball labor wars of the
    1990s was the National Labor Relations Act or
    Wagner Act of 1935. It set up a board to oversee
    labor disputes and required management and labor
    to bargain in good faith over wages, hours,
    terms and conditions of employment. But if an
    impasse was reached after bargaining in good
    faith, management was allowed to unilaterally
    implement its last offer to the union. In rare
    cases, the federal government could get involved
    by appointing a mediator to facilitate
    negotiation. But unlike arbitrators, mediators
    cannot impose settlements. They merely facilitate
    settlement.
  • After the collective bargaining agreement expired
    at the end of 1993, small-market owners such as
    Bud Selig who owned the Milwaukee Brewers, sought
    to force the wealthier owners such as the New
    York Yankees George Steinbrenner to share their
    local broadcasting revenue. The wealthier owners
    agreed but only if the players would agree to a
    salary cap that would prohibit each team from
    spending more than a predetermined amount on
    total player salaries. In effect, the owners
    sought to pass on the cost of revenue sharing to
    the playerssomething the National Basketball
    Association had already done.
  • On June 14, 2004 the owners made their proposal
    to the players Players would receive half the
    industrys revenue (substantially less than they
    were receiving under the expired contract), and
    team payrolls would be limited to 84 to 110
    percent of the average team payroll. The proposal
    abolished salary arbitration and lowered free
    agency eligibility from six years of service to
    four with the players existing club able to
    match any rival clubs offer and keep the player.
  • Later analysis showed that the owners new salary
    system would have reduced total player salaries
    and benefits by 11. The players rejected the
    offer. They countered that the service
    eligibility requirements for salary arbitration
    be set back from three years to two as it was
    prior to 1985, eliminate the contract restriction
    on repeat free agency within five years, and
    raise the contract minimum salary to 175,000.
    The owners rejected the proposal.
  • The MLBPA set the strike date at August 12 to
    maximize its effect on the owners who made most
    of their profits from late-season attendance and
    postseason television games. But the owners did
    not budge. The players went on strike and on
    September 14, Acting Commissioner Selig cancelled
    the remainder of the season including the World
    Series, which for the first time in nearly a
    century would not be played.

George Steinbrenner
Bud Selig
12
Presidential Intervention
  • The public was furious and President Bill Clinton
    appointed former Labor Secretary William Usery to
    mediate the conflict. But Usery failed. On
    December 14, 2004 the owners declared that if one
    more week of negotiations failed they would
    unilaterally implement their salary cap plan. On
    December 22, the Players Association with its
    plan to ease the revenue disparity among clubs.
    It proposed a luxury tax on those teams with
    payrolls that dramatically exceeded the
    major-league average. Under the unions system,
    there would be a 10 tax on clubs payrolls that
    exceeded the leagues average by 30. The owners
    did not respond, declared an impasse the next
    day, unilaterally implemented their salary cap
    proposal, and began hiring replacement players
    for the coming seasonmostly minor league players
    with no chance of ever making the major leagues
    and veterans who were retired from baseball.
  • The union filed an unfair labor practice charge
    with the National Labor Relations Board and on
    January 26, 1995 President Clinton ordered
    mediator Usery to bring both sides back to
    negotiation and set a deadline. When talks
    resumed, the owners abandoned their salary cap
    idea and proposed a 75 luxury tax on medium
    payrolls and a 100 luxury tax on high payrolls.
    But when the owners learned that the National
    Labor Relations Board would issue an unfair labor
    practice complaint alleging that owners had
    illegally implemented the salary cap, on February
    6 the owners rescinded their luxury tax plan and
    switched tactics. The owners now unilaterally
    revoked the authority of individual clubs to sign
    player contracts and eliminated salary
    arbitration and the anticollusion clause that had
    proved so troublesome to management.
  • The day before, Usery announced that if the two
    sides could not agree on their own, he would
    propose a settlement to President Clinton the
    next day. On February 7, Clinton called both
    sides to the White House and personally attempted
    to mediate a settlement. Userys proposal to the
    president recommended a 50 tax on high payrolls,
    much closer to the owners position than the
    players. Clinton asked both sides to accept
    binding arbitration the union agreed but the
    owners refused. The players again filed an unfair
    labor charge with the Labor Board. They players
    again made a counterproposal but the owners
    refused.

William Usery
Bill Clinton
13
Judge Sonia SotomayorSaves Baseball
  • Meanwhile in response to the latest unfair
    practice charge by the MLBPA, the Labor Board
    requested an injunction in federal court to
    restore the status quo that had existed before
    the owners made their Feb. 6th unilateral changes
    to the labor relations system.
  • U.S. District Court Judge Sonia Sotomayor was
    selected at random by the court clerk to hear the
    case. Could the owners unilaterally change the
    agreement as they had done on Feb. 6th? Had the
    Labor Board demonstrated that irreparable injury
    would result to the players if the injunction was
    denied? Sotomayor had to apply the existing
    labor-law test of whether the issues were
    mandatory subjects of bargaining and therefore
    subject to good faith negotiation before
    unilateral action could take place or whether
    they were permissive subject that did not
    require good faith negotiation before
    unilateral owner action would be allowed.
  • In Silverman v. Major League Baseball Player
    Relations Committee (1995), Sotomayor ruled in
    favor of the Board, issued the injunction, and
    ordered the parties back to the bargaining table.
    She said that the owners unilateral changes to
    the agreement prohibiting individual clubs from
    negotiating with individual players, lifting the
    owner anti-collusion provision, and their
    abolition of salary arbitration were mandatory
    subjects that affected wages and therefore
    violated the labor-law requirement that the
    owners first negotiate in good faith over these
    matters, which they had not done.
  • Although Sotomayor did not order the players to
    return to work, the union offered to do so and
    the owners accepted. The 1995 season began about
    one month late on April 26. But the owners and
    players did not reach a final agreement until
    after the 1996 season ended. After 47 months and
    loss of more than a billion dollars to the
    players and the owners they agreed on the
    following revenue sharing among the clubs, a
    luxury tax on a clubs total salary, and a
    payroll tax on the players. They also agreed that
    three-arbitrator panels would replace the single
    arbitrator in settling salary disputes.
  • When President Barack Obama nominated Sotomayor
    to the U.S. Supreme Court in 2009, he introduced
    her as the judge who saved baseball.

14
Recent Labor Deals The Golden Era?
  • After eight work stoppages between 1972 and 1995,
    baseball has operated continuously without a
    strike or lockout. For example, in August 2002,
    with the players set to strike, a deal was
    reached.
  • A new collective bargaining agreement was reached
    again in October 2006 that runs through the 2011
    season. The basic structure of the contract has
    not changed since the agreement reached after
    1994-1995 strike, the heart of which are the
    luxury tax and revenue sharing provisions. The
    irony of the tax/revenue sharing system is that
    while it was supposed to reduce the gap between
    large and small-market clubs and therefore
    increase competitive balance, it has had the
    opposite effect. Rather than investing in making
    their teams better, small-market teams simply
    pocket their share of the money they receive from
    the large-market teams. Hence competitive
    imbalance has only increased.
  • Baseball analyst Peter Gammons commented on the
    new agreement There is little that is
    earth-shattering about the deal except that it
    was accomplished so discreetly, without threats
    or cries of poverty, press conferences or games
    missed. That's because the baseball business is
    awash in cash.
  • Detroit manager Jim Leyland said "I think you
    always have a better relationship when both sides
    are making money. That kind of always seems to
    work out in the end -- doesn't it? -- for
    whatever reason, when the owner's happy and
    putting a little in his pocket, and the player is
    happy and putting a little in his pocket. In our
    case, I guess in our game, a lot in both
    pockets.
  • Commissioner Bud Selig said This is the golden
    era in every way. The economics of our sport have
    improved dramatically, and that's good. That,
    after all, made for a more wholesome atmosphere.
    We didn't have to quarrel about a lot of things.
    The negotiations were without the usual rancor.
    They were without the usual dueling press
    conferences. They were without the usual leaks.
    In other words, these negotiations were conducted
    professionally, with dignity and with results.
    These negotiations were emblematic of the new
    spirit of cooperation and trust that now exists
    between the clubs and the players."

15
Collective Bargaining Timeline
  • 1968 -- Baseball's first labor contract agreed to
    on Feb. 28, a two-season deal.
  • 1970 -- Sides reach preliminary agreement on
    three-year contract on May 23.
  • 1972 -- Players strike April 1 over pension plan,
    reach agreement on April 13. 86 regular season
    games are lost.
  • 1973 -- Owners lock out players during spring
    training on Feb. 14, and sides reach tentative
    agreement Feb. 25 on a three-year contract
    establishing salary arbitration. 86 spring
    training games are canceled.
  • 1976 -- Owners lock out players during spring
    training from March 1-17, and sides reach
    tentative agreement on July 12 on four-year
    contract establishing free agency.
  • 1980 -- Players strike final eight days of spring
    training, and the sides reach preliminary
    four-year agreement on May 23, allowing the issue
    of free agency to be reopened the following
    season.
  • 1981 -- Players strike June 12, and sides reach
    agreement July 31 on contract through 1984. There
    are 712 games canceled and the season is split
    into a first and second half with the winners of
    each half in each division meeting in a one-game
    playoff before the regular playoffs for each
    league begins.
  • 1985 -- Players strike Aug. 6, and sides reach
    agreement late on Aug. 7 on contract through
    1989.
  • 1990 -- Owners lock out players during spring
    training on Feb. 15, and sides reach agreement
    March 18 on contract through 1993.
  • 1994 -- Players strike Aug. 12 until owners
    accept their April 2, 1995, unconditional offer
    to return to work, made March 31 after U.S.
    District Judge Sonia Sotomayor issued an
    injunction restoring terms and conditions of the
    expired agreement. The 1994 World Series was not
    played. The sides agree on March 14, 1997, to a
    contract through the 2000 season with a union
    option to extend it through 2001. In total, 938
    regular season games were lost.
  • 2002 -- Hours before players were set to strike
    on Aug. 30, the sides agree to a contract through
    Dec. 19, 2006.
  • 2006 -- The sides reach tentative agreement on
    Oct. 21 on a five-year contract through 2011
    season.

16
Limiting Antitrust in the Aftermath of Flood
  • In a number of federal court decisions since the
    somewhat ambiguous Flood decision, courts have
    ruled that baseballs antitrust exemption is only
    limited to activities that are central to the
    unique characteristics and needs of baseball.
    Hence, other areas are not protected.
  • In Henderson v. Houston Sports Assn. (1982), a
    radio broadcaster claimed violations of the
    federal Sherman Antitrust Act because the Houston
    Sports Association canceled its contract to
    broadcast Astros baseball games. The federal
    trial court found that radio broadcasts of
    baseball games were not central to the "unique
    characteristics and needs" of baseball which the
    exemption was created to protect. Accordingly,
    the court denied the defendants' motion to
    dismiss the antitrust claims. In dicta, however,
    the court more broadly noted With all due
    respect, . . . Federal Baseball was not one of
    Mr. Justice Holmes' happiest days, . . . The
    rationale of Toolson is extremely dubious and, .
    . . to use the Supreme Court's own adjectives,
    the distinction between baseball and other
    professional sports is unrealistic,
    inconsistent, and illogical.
  • In Postema v. National League (1992), a federal
    trial court determined that the exemption did not
    apply to labor relations between the league and
    its umpires. The court reasoned Baseball's
    relations with non-players are not a unique
    characteristic or need of the game.
    Anti-competitive conduct toward umpires is not an
    essential part of baseball and in no way enhances
    its vitality or viability. The Postema court
    ironically cited Henderson Broadcasting for the
    proposition that umpires are subject to
    anti-trust laws because "baseball may be subject
    to anti-trust liability for conduct unrelated to
    the reserve system or league structure." Yet
    Henderson Broadcasting expressly came to the
    opposite conclusion, holding that "radio
    broadcasting is not part of the sport in the way
    in which players, umpires, the league structure
    and the reserve system are." Nonetheless, the
    Postema court denied the NLs motion to dismiss.

17
Further Limiting Antitrust in the Aftermath of
Flood
  • In Piazza v. Major League Baseball (1993), a
    federal trial judge held that baseballs
    exemption was limited to its player reserve
    system. Hence MLBs could not block the sale of
    the San Francisco Giants to a group led by star
    catcher Mike Piazzas father who intended to move
    the team to Tampa Bay. While the case was on
    appeal, MLB settled with Piazza and his group for
    10 million.
  • In Butterworth v. National League (1994), the
    Florida Supreme Court again ruled that baseballs
    exemption was limited to its player reserve
    system. Coming on the heels of Piazza, the
    Florida Attorney General brought a state
    antitrust claim against the NL for blocking the
    Giants sale. When the AG requested financial
    documents from MLB, baseball brought a lawsuit to
    quash the request. Ultimately, the dispute ended
    when MLB agreed to admit Tampa Bay as an
    expansion team to begin play in 1998.
  • In 1998, Congress passed, and President Bill
    Clinton signed into law, the Curt Flood Act which
    expressly applied antitrust laws to baseball
    labor arrangements. The rationale for the
    bipartisan bill was that it would reduce the
    likelihood that baseball labor disputes would end
    in a work stoppage and increase the likelihood
    that they would end up in court where they could
    be speedily resolved. Yet the bill consisted
    almost entirely of practices not subject to
    antitrust laws such as franchise expansion,
    location, or relocation franchise ownership and
    ownership transfers MLBs control over the minor
    leagues and the marketing and sales of the
    entertainment product and the relationship
    between the owners and the commissioner.
  • Between the limiting decisions of Piazza and
    Butterworth and the Curt Flood Act of 1998, it
    seemed that baseballs presumed antitrust
    exemption had been only eliminated for labor
    issues. As the Curt Flood Acts list of
    exceptions demonstrates, there are numerous areas
    where baseball continues to enjoy exemption from
    antitrust law.

Curt Flood died in 1997
18
Expanding Baseballs Antitrust Exemption
  • Despite the trend to limit baseballs antitrust
    exemption, MLB finally succeeded in fending off a
    state antitrust investigation. Minnesota Twins
    owner Carl Pohlad sought to sell his team to a
    group of North Carolina investors who would then
    move the team. Commissioner Selig said that MLB
    owners would approve the sale and move. But
    Minnesota Attorney General Michael Hatch brought
    a state antitrust suit to prevent the sale. Hatch
    issued a demand for information and MLB
    petitioned to have the demands quashed. The trial
    court denied MLBs petition and the appeals court
    declined to hear the case. In Minnesota Twins v.
    State (1999), the Minnesota Supreme Court held
    that baseballs antitrust exemption applied
    broadly to the whole business of baseball. The
    Court said that the Flood opinion is not clear
    about the extent of the conduct that is exempt
    from antitrust laws.
  • Furthermore, other lower-court decisions
    criticized the limiting trend of Piazza and
    Butterworth Morsani v. Major League Baseball
    (1999), McCoy v. Major League Baseball (1995),
    and New Orleans Pelicans Baseball, Inc. v. Natl
    Assn of Profl Baseball Leagues, Inc., (1994).

Carl Pohlad
Mike Hatch
19
Contraction
  • In addition to creating market scarcity by
    refusing to expand to new markets unless
    concessions are made by cities through new
    ballpark funding, MLB used threatened contraction
    as a new tool to maintain their monopoly power
    and weaken the MLBPA.
  • Throughout the 2001 season, stories abounded
    about how many clubs were losing money. At the
    end of the season, Commissioner Selig reported
    that only five teams made a profit, that the
    industry as a whole lost 500 million that year,
    and that even the World Series champion Arizona
    Diamondbacks lost 44 million. On November 6,
    2001 the owners voted 28 to 2 to contract the
    league by eliminating two clubs. Though no teams
    were named, speculation abounded about who would
    go.
  • The MLBPA is against contraction in principle
    because if two teams were eliminated, for
    example, union membership would be reduced by 80
    players and the demand for players would be
    lowered by 80 relative to supply, putting
    downward pressure on salaries.
  • Florida Attorney General Bob Butterworth was
    worried that his states two teamsthe Tampa Bay
    Rays and the Florida Marlinscould be on the
    chopping block. As he had done in 1994, he
    initiated an antitrust investigation and
    requested MLB documents on contraction and its
    financial affairs. This time MLB filed suit in
    federal court to quash the investigation. In
    Major League Baseball v. Butterworth (2001), the
    federal trial court sided with MLB and, as in the
    Minnesota Twins case, held that baseballs
    antitrust exemption applied to the whole business
    and not just the reserve system.
  • Butterworth appealed but while the case was
    pending, the landscape changed. In the new labor
    agreement, MLB agreed not to contract for 4
    years, The Florida Marlins were bought by new
    owners and expressed hope for a new stadium in
    Miami. Finally, Butterworths term came to an
    end. The new Florida AG was Charlie Crist who had
    once served as general counsel to Minor League
    Baseball.
  • The Eleventh Circuit Court of Appeals decision in
    Major League Baseball v. Crist (2003) upheld the
    lower-court ruling. They explained that under the
    U.S. Constitutions Supremacy Clause, baseballs
    federal antitrust exemption (regardless of
    whether it was congressionally granted or
    judge-made as in this instance) preempted any
    state antitrust proceeding or investigation
    against baseball. In effect, only the federal
    government could deal with the issue. The Court
    held Federal antitrust law exempts the
    contraction issue from judicial scrutiny, and no
    inquiry into MLBs motives or desires could
    possibly change the fact that contraction
    implicates the heart of the business of
    baseball. The court did seem to hint that the
    only area outside the business of baseballand
    therefore possibly subject to state antitrust
    lawswould be matters directly involving third
    parties (i.e. non-baseball parties).
  • It is argued that as a monopoly, baseball should
    not be able to reduce output, via contraction, in
    order to increase the profits of cartel members,
    especially when the cartels revenues have been
    growing at 17 annually since 1994. If MLBs
    presumed antitrust exemption were determined
    (either judicially or legislatively) to apply to
    all aspects of its business then MLB would be
    insulated from such antitrust challenges to any
    proposed contraction. The current collective
    bargaining agreement between MLB and the MLBPA,
    which runs through the 2011 season, prohibits
    contraction.

20
Conclusion
  • The 1994-1995 strike was the worst work stoppage
    in baseball history. Yet the parties were
    ultimately able to reach agreement on a luxury
    tax and revenue sharinga system that remains in
    place today. As a result, baseball has operated
    without a work stoppage since the strike.
  • The conflicting court cases at first limiting and
    then expanding baseballs antitrust exemption
    continue to demonstrate how baseball enjoys
    special consideration, unlike any other business,
    when it comes to non-labor issues.
  • Collusion, prohibitions on municipal ownership,
    and threats of contraction further demonstrate
    baseballs unique monopoly power.

21
Bibliography
  • Abrams, Roger I. 1998. Legal Bases Baseball and
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    Press.
  • Butterworth v. National League, 644 So. 2d 1021
    (Fla. 1994).
  • Finley v. Kuhn, 569 F2d 527 (7th Cir 1977), cert.
    denied 439 U.S. 876 1978).
  • Flood v. Kuhn, 407 U.S. 258 (1972).
  • Goldman, Robert M. 2008. One Man Out Curt Flood
    versus Baseball. Lawrence, KS University Press
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  • Henderson v. Houston Sports Assn., 541 F. Supp.
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  • Major League Baseball v. Butterworth, 181 F.
    Supp. 2d 1316 (N.D. Fla. 2001).
  • Major League Baseball v. Crist, 331 F.3d 1177
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  • Minnesota Twins v. State ex rel. Hatch, 592
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  • MLB Players, Owners Announce Five-Year Labor
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  • Nader, Ralph. 2005. Green Bay on the Potomac
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    (S.D.N.Y. 1992).
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    693 F.2d 1085 (11th Cir. 1982).
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