Amanda Gramlich

On June 18, 2013, the City of San José (“the City”) filed a complaint in the Northern District of California alleging that Major League Baseball’s refusal to permit the Oakland Athletics (“the A’s”) move to San José violates federal and state antitrust laws.[1] To succeed, the City must prove that its relationship with the A’s would have resulted in economic benefit and that the MLB’s act of prevention constituted wrongful behavior; the City’s antitrust claims are governed by the Sherman Act (“the Act”).[2]  The Act was introduced to prevent anticompetitive behavior within interstate commerce and is divided into three sections. The City’s complaint claims that MLB violated the first two sections of the Act: Section 1 violations require a showing of collusion and anticompetitive harm whereas a Section 2 violation requires that the ends results be anticompetitive in nature (i.e. conspiracy to form a monopoly).[3]

Specifically, the City takes issue with Article 4.3 of the MLB Constitution that gives all teams “absolute veto power over the relocation of a competitive team within its ‘operating territory.’”[4] The City asserts that Section 1 of the Sherman Act was violated as a result of MLB’s alleged unlawful interference with the City’s option contract with the A’s to build a stadium.[5] The City also contends that the effect of Article 4.3 is to “create regional monopolies that protect the clubs from competition in their respective local areas”[6] in violation of Section 2 of the Sherman Act. The City concludes that the combination of these allegedly anticompetitive restraints has purportedly caused the City to incur millions in lost revenue, jobs, and economic output that might have been generated had MLB approved the team’s relocation.[7]

In response, the MLB has countered with a Motion to Dismiss claiming that it is fully protected under the league’s antitrust exemption stemming from the Supreme Court’s 1922 ruling in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs.[8]  In Federal Baseball Club of Baltimore, the Court found that professional baseball games were intrastate rather than interstate in nature, and therefore did not trigger the federal Sherman Act antitrust protections.[9] The MLB also claims the City lacks standing because their option contract with the A’s has not been breached and its injuries are too tenuous to pass muster under state and federal antitrust law.[10] The MLB explains that lifting baseball’s antitrust exemption will lead to absurd results because “[e]very time a franchise contemplated relocation, MLB would be subjected to suits from any city that desires a team and from any city that does not want to lose its team.”[11]

When interpreting the extent of the league’s exemption, courts tend to focus on the historical significance of the sport and the league’s reliance on the exemption instead of articulating a consistent standard regarding the scope of the exemption.[12] The MLB is the sole professional sports league remaining with such an expansive antitrust exemption; despite several challenges, the exemption has been upheld three times by the Supreme Court.[13] The Court has since rescinded its original intrastate commerce argument in Flood v. Kuhn[14] by admitting that the “business of baseball” does constitute interstate commerce.  Notwithstanding this revelation, the Court in Flood declined to further define the scope of MLB’s antitrust exemption and decided that the league’s antitrust exemption is better suited for resolution by Congress.[15] The Court voiced concerns that the retroactive effects of limiting MLB’s antitrust exemption would overwhelm the league and lead to a massive restructuring of its timeless rules.[16]

After nearly a century of stare decisis exempting the business of baseball from antitrust regulation, it is possible that the court in the present matter will grant MLB’s Motion to Dismiss. The fact that federal law could preempt certain elements of state antitrust claims is in favor of the MLB must also be taken into account by the court when considering the City’s state antitrust claims. Accordingly, if the court grants the motion in favor of MLB, the franchise will continue to rely upon its antitrust exemption to the detriment of subsequent teams that aspire to move to cities with more sustainable fan bases.[17] Furthermore, a MLB victory may solidify Supreme Court precedent and act as a deterrent to future litigation.

On the other hand, if the court rejects MLB’s Motion to Dismiss, then MLB risks losing its broad antitrust exemption in California. Without its antitrust exemption, it will be harder for the MLB to regulate moving teams. Despite dramatically changing MLB’s ability to control the movement of its teams, a change to the antitrust policy may not have greater implications on professional sports in the United States because MLB will just have to follow the same set of rules as the NBA, NFL, and NHL.

Other U.S. professional sports leagues are subject to the Sherman Act[18] where anything from franchise relocation to trade agreements to labor disputes and more (i.e., player drafts, age, eligibility, free agency, salary caps, etc.) are scrutinized. For example, all other professional sports teams have a salary cap, whereas the MLB has what is often referred to as a “soft cap” or “luxury tax.” The difference is that with a salary cap in place a team is strictly forbidden to pay their players over a certain amount but with a luxury tax, a team is permitted to pay their players in excess of the amount established by the league, provided that they pay tax on that amount. The result is that teams with higher payrolls (i.e., the Yankees) increase their chances of making the playoffs.[19] Another difference between the MLB and other professional leagues is their manner of securing broadcasting deals: in the NHL, NBA, and NFL the leagues collectively negotiate a broadcasting deal and split the revenues equally amongst the teams, however, in the MLB each team has the ability to negotiate their own broadcasting deals and therefore each team reaps disparate broadcasting benefits. In effect, MLB teams with substantially lower payrolls like the Houston Astros with a team salary of $22 million are expected to compete with teams like the New York Yankees with a team salary of over ten times that.[20] A minor breakthrough was had in 1975 when the MLB and the Players Association negotiated for free agency, but the antitrust exemption still remains.

Regardless of the District Court’s decision, this case has cast the MLB into the spotlight, and may be seen as a political maneuver by the City to recapture the attention of Congress to re-consider the MLB’s status as an anomaly to antitrust regulation.[21] The last time Congress addressed the MLB’s antitrust status was in 1998 when it passed the Curt Flood Act[22] granting individual players the right to file antitrust suits against the franchise regarding labor issues. A Hearing on the Merits is set for early October.