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Sunday, August 07, 2011
 
In Defense of Baseball's Antitrust Exemption

A draft of my latest law review article, In Defense of Baseball's Antitrust Exemption, which may be of interest to some readers, is now available to be downloaded for free from SSRN. Here is the article's abstract:

This Article challenges the overwhelming scholarly consensus opposing baseball’s historic antitrust exemption on policy grounds by providing the first comprehensive defense of the exemption. The Article does so by advancing two primary arguments: first, it argues that the common criticisms of the baseball exemption are largely without merit. Specifically, given the treatment of the other major professional sports leagues under antitrust law, simply exposing baseball to antitrust liability alone will not yield the benefits that the exemption’s critics believe, and in some cases would actually harm the public interest.

Second, and perhaps more importantly, the Article argues that the existing literature has overlooked significant pro-competitive benefits that result from baseball’s antitrust exemption. Specifically, because baseball is loath to lose its exemption legislatively, Congress has been able to use threats of revocation to help extract a variety of valuable concessions from Major League Baseball (MLB). These concessions provide pro-competitive benefits that would not have been directly obtained through antitrust litigation alone. Perhaps most notably, every single round of league expansion in MLB history has been directly preceded by a Congressional threat to revoke the sport’s antitrust exemption. Therefore, baseball’s antitrust exemption provides Congress with considerable leverage over the sport, ultimately leading to significant, but heretofore overlooked, pro-competitive benefits for the public.

Thus, this Article rejects the existing scholarly consensus, and concludes that baseball’s antitrust exemption ultimately has a net pro-competitive effect.
The draft article can be accessed here. Any comments or feedback on the draft would be much appreciated.





5 Comments:

You would do better to read Alice in Wonderland.

Anonymous Anonymous -- 8/07/2011 3:32 PM  


Nathaniel,

I don't disagree with you that the threat of legislation has brought change, but I think that's an odd argument to make.

You are essentially saying that an unjust system is good if the perpetrators will make concessions in order to protect it. I would say that the fact that they will make these concessions proves that they value the unfair system (in this case, the labor exemption) more than the things they are giving up. (Imagine segregationists, pre-Brown, improving schools for blacks to stave off the threat of integration.)

Clearly baseball owners put great value on it because they will go so far to protect it. (Of course, it's possible that the exemption isn't that important, as you say, and they're simply poor businessmen.)

I haven't read your whole article yet -- just the summary you've included. Maybe you answer this. Either way, you've given us something to think about.

Blogger Jimmy Golen -- 8/07/2011 8:57 PM  


Thanks for your thoughts, Jimmy. I'd say a couple things in response. First, to be clear, I'm not arguing that the present system is ideal. Rather, my argument is that the common criticisms of the exemption found in the academic literature are unfounded, while also arguing that the existing literature has largely overlooked pro-competitive benefits that have flowed (albeit indirectly) from the exemption (in the form of providing Congress with leverage over the sport).

More to your point, though, I disagree that the baseball exemption is unjust. While MLB's antitrust status is certainly anamolous, I don't believe it harms the public interest. MLB's operations are substantially similar to those of the other major professional sports leagues, despite its antitrust immunity. As I argue in the article, I believe that any anticompetitive conduct by MLB is largely endemic to all professional sports leagues. Even in labor disputes, the Curt Flood Act of 1998 has essentially placed MLB on the same footing as the other leagues, as MLB players can now sue the league under antitrust law despite the exemption.

That having been said, there are two primary areas where MLB continues to derive some benefit from the exemption: (i) relocation and (ii) the minor leagues. However, I believe that the exemption actually benefits the public in both respects.

In the case of relocation, the exemption provides MLB with some leeway to reject a team's proposed move, without fear of the team suing the league under antitrust law in response (such as the Raiders' suit against the NFL in the 1980s). I argue that this arrangement actually benefits the public interest. Specifically, when MLB has blocked a proposed relocation (such as the Giants' proposed move to Tampa Bay in the early-90s), it has generally been pressured by Congress to provide the rejected suitor with an expansion franchise. I believe this is fairer than the manner in which relocation tends to be handled by the other leagues (who generally decline to protect the interests of long-time host cities by blocking the proposed relocation, and instead occassionally offer the departed municipality a replacement expansion franchise a few years later).

With respect to the minor leagues, while reasonable minds can certainly differ as to the effect that a repeal of the baseball exemption would have on the minor league system, the general scholarly consensus has been that the minors would change (perhaps significantly) if baseball's immunity were revoked. This is because MLB and the minors leagues have entered into a series of important agreements that would be subject to attack absent the antitrust exemption. As a result, I argue in the article that the revocation of the exemption would actually harm the public interest to the extent it would decrease the amount of minor league baseball offered to the public (with many of the smallest minor league communities likely to be hit the hardest).

So, in short, I agree with you that MLB owners are willing to make concessions to Congress because they value the exemption. But I believe they value the exemption predominately for reasons that actually benefit the public (insofar as the exemption protects the minors and gives MLB greater control over relocation). Add in the fact that Congress has used its leverage to extract other valuable benefits for the public from the league (benefits that would not be obtained via antitrust litigation), and I conclude that the exemption is ultimately net pro-competitive, even if the current approach is not an ideal regulatory scheme.

Blogger Nathaniel Grow -- 8/07/2011 10:39 PM  


Nathaniel,
You talk about the restrictions on teams moving to new cities, but you neglect to mention that baseball teams are never allowed to move to an existing city, because those territorial rights have previously been apportioned by the major leagues. I do not believe this would stand up to court scrutiny were it not for the exemption, and I do think this has a large anticompetitive effect. (I do not know why struggling teams in other leagues do not attempt this. It may be that, outside of Al Davis, owners are too afraid to anger their brethren.)
Imagine a baeball team in southern Connecticut, one in northern New Jersey and another in Manhattan. True, the Yankees would still be the Yankees, but this would go a long way toward leveling the revenue imbalance in baseball and force teams like the Yankees and Red Sox to compete honestly. (I also disagree with your contention that baseball's monopoly doesn't lead to incompetent management: the Yankees produced spectacularly incompetent management for decades _ and still succeeded _ because of their monopolistic hold on the largest market in the nation, the Mets notwithstanding, gave them double or triple the revenue to start with.)
In European soccer, where teams move up and down as necessary, fans get the best competition, and it is no coincidence that these are the most successful leagues in the world. (For contrast, look at the MLS and WNBA, which have not been able to fool fans into ignoring the lack of quality that the leagues' single-entity structure has produced.) Like you said, eliminating the antitrust exemption would not create this kind of structure. But that is a lukewarm endorsement for a system that is anticompetitive at its root. (I also question whether, by forcing baseball to expand in Tampa Bay a decade or more after teams first attempted to move there, the threat of Congressional action is really a sufficient remedy.)


Jimmy

Blogger Jimmy Golen -- 8/15/2011 6:20 PM  


Jimmy,

I agree that absent the antitrust exemption, existing teams in smaller markets could theoretically more easily move into NYC. However, I believe that each of the other leagues maintains a similar policy in their constitutions prohibiting teams from moving into existing markets, despite their potential antitrust liability. And, as you acknowledge, aside from the exception of Al Davis, teams in the other leagues have not challenged this restraint. So I'm not sure it is realistic to expect small-market MLB owners to act differently.

Moreover, while I don't dispute the potential competitive balance benefits that would accompany moving a struggling small market MLB team to NYC, it is arguable whether such a move would really enhance overall consumer welfare, which after all is the goal of antitrust law. The reason I say this is that fans in NYC already have two potential MLB teams to follow, so such a move would provide a minimal increase in welfare to these fans, while at the same time decimating the fan base in the departed, small market city.

Lastly, I'd also note that several courts have provided significant limitations to the baseball exemption (as I discuss in much greater detail in an earlier paper available here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1579150), so if an MLB team were really intent on moving to an existing MLB market, it is unclear just how much of an impediment the exemption actually provides as a practical matter. In other words, if a team really wanted to move to NYC, and was barred from doing so, it could file an antitrust suit in a district that has previously limited the scope of the exemption. By doing so, the team would mount a considerable threat to the exemption, giving it significant leverage against MLB for settlement purposes.

As for incompetent management practices, I still just don't see the impact of the antitrust exemption here. Lifting the exemption would do little to help increase the prevalence of competition from rival leagues (for the reasons I detail in my article), and wouldn't guarantee existing teams moving into existing markets to challenge incompetently run teams (for the reasons discussed above). Moreover, you can point to similar examples of incompetent management in the other major sports leagues (the Clippers and Lions being the two foremost examples in my mind), despite those leagues not being immune from antitrust law. So I really don't believe this as an antitrust exemption issue. Rather, incompetent management is just endemic to a system of monopoly sports leagues, which as we all know exist in the other sports despite the availability of antitrust remedies.

Blogger Nathaniel Grow -- 8/17/2011 3:21 PM  


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