By: Ashley Curran
Staff Editor for the Delaware Journal of Corporate Law
Introduction
In the complex ballpark of sports and corporate law, the Sherman Antitrust Act of 1890 (the “Act”) stands as a cornerstone to prevent anti-competitive practices and ensure a fair and competitive marketplace.[1] Against this backdrop, the recent settlement between several former Minor League Baseball (“MiLB”) teams and Major League Baseball (“MLB”) takes center stage here, challenging baseball’s long-standing antitrust exemption established in the Federal Baseball Club decision of 1922.[2]
Sherman Antitrust Act
Enacted by Congress in 1890, the Sherman Antitrust Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”[3] The Act aims to prevent anti-competitive practices and monopolies to maintain a competitive marketplace.[4] Regarding the recent settlement between several MiLB teams and the MLB, the Act plays a crucial role, underscoring its goal to ensure fair competition and prevent monopolistic endeavors in the ever-evolving business landscape.
History of the MLB Antitrust Exemption
In 1913, the Federal League created an independent league without the approval of the National Association of Professional Baseball Leagues.[5] The Federal League directly competed with the National League and the American League between 1914 and 1915.[6] Specifically, many former American and National League players favored the working conditions in the Federal League over the National and American leagues.[7] As a result, both the American and National leagues raised salaries to attract players who were offered more to play in the Federal League.[8] The ensuing legal battles culminated in the Federal League filing an antitrust lawsuit in the District Court in Chicago in 1915.[9]
In federal court, the Federal League alleged that the defendants, the National League, and the American League, conspired to monopolize the baseball business, which ultimately led to the fall of the Federal League.[10] Nonetheless, the court ultimately held that the defendants were not within the scope of the Sherman Act because a baseball exhibition, while made for money, was not a trade or commerce as the personal effort not related to production was “not a subject of commerce.”[11] The court also reasoned that transporting teams across state lines “[was] a mere incident, not the essential thing[,]” and thus, did not transform it into interstate commerce.[12] Furthermore, the United States Supreme Court affirmed the Court of Appeals of the District of Columbia’s decision.[13] Following the Federal Baseball Club ruling, several other cases ensued in attempts to reverse the decision, all of which were unsuccessful.[14]
Latest Challenge to MLB’s Antitrust Exemption
In 2021, the parent companies of the Staten Island Yankees, Tri-City ValleyCats, Salem-Keizer Volcanoes, and Norwich Sea Unicorns (“plaintiffs”) sued the MLB.[15] The teams alleged that the MLB violated § 1 of the Sherman Act by coordinating an agreement among its thirty MLB Clubs to exclude plaintiffs and thirty-six other MiLB teams from MLB’s new professional development league.[16] The MiLB teams argued the MLB’s plan “result[ed] in an actual adverse effect on competition in the market for minor league affiliations.”[17] Similarly, the plaintiffs argued that the MLB’s exclusion prevented the MiLB from attracting “top talent” and prohibited the MiLB from playing against affiliated minor league teams, as the plaintiffs lost their affiliations.[18]
The District Court in the Southern District of New York held that even though the plaintiffs had standing to bring suit, baseball’s long-standing antitrust exemption established in Federal Baseball Club prevented a favorable judgment for the plaintiffs.[19] As a result, the court affirmed the Federal Baseball Club decision.[20] The plaintiffs filed a petition for certiorari with the United States Supreme Court on September 18, 2023, which was denied.[21] In a home run for resolution, the MiLB settled their antitrust dispute with the MLB, wrapping up a legal game of ball.[22]
What’s Next in the Ninth Inning?
The recent settlement announced on November 2, 2023, brings a temporary halt to the debate surrounding baseball’s antitrust exemption.[23] Repealing this exemption could have had significant consequences, not just in the realm of MiLB affairs but also in MLB’s broader business decisions, including collective determinations on exclusive suppliers for merchandise.[24] In the context of Delaware corporate law, the settlement underscores the intricate intersections between sports law and business decisions within the framework of MLB’s legal structure, leaving room for potential future challenges and adjustments.
About the Author
Ashley is a third-year law student at Widener University Delaware Law School and is a Staff Editor on the Delaware Journal of Corporate Law. She earned her bachelor’s degree in history from the University of Delaware. During her time in law school, Ashley served as a Legal Methods I teaching assistant, a certified legal intern at Widener’s Veterans Law Clinic, a law clerk at Dalton & Associates in Wilmington, DE, and a legal assistant at Carr Law in Newark, DE. Additionally, she is a member of several organizations at Widener, including the Women’s Law Caucus and the First-Generation Law Students Association. Following graduation, Ashley plans to sit for the July 2024 Delaware bar exam and begin her career as a junior associate at Morris James in Wilmington, DE.
[1] See generally Sherman Antitrust Act, 15 U.S.C.A. §§ 1–7 (West 1890).
[2] See generally Fed. Baseball Club of Baltimore v. Nat’l League of Pro. Base Ball Clubs, 259 U.S. 200 (1922).
[3]The Antitrust Laws, FED. TRADE COMM’N, https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/antitrust-laws (last visited Mar. 14, 2024).
[4] Id.
[5] Emil H. Rothe, Was the Federal League a Major League? 10 BASEBALL RSCH. J. 1, 28 (1981).
[6] Andrew P. Osborn, Down to Their Last Strike: How the MLB Antitrust Exemption Has Hurt Minor League Players’ Salaries and Why It Is Up to Them to Fight Back, 47 J. CORP. L. 259, 264 (2021).
[7] Id.
[8] Id.
[9] Id.; see also Rothe, supra note 5.
[10] Fed. Baseball Club of Baltimore v. Nat’l League of Pro. Base Ball Clubs, 259 U.S. 200, 207 (1922).
[11] Id. at 209.
[12] Id.
[13] Nostalgic Partners, LLC v. Off. of Comm’r of Baseball, 637 F. Supp. 3d 45, 49 (S.D.N.Y. 2022), aff’d, 2023 WL 4072836 (2d Cir. June 20, 2023), cert. dismissed sub nom. Tri-City ValleyCats v. Off. of the Comm’r of Baseball, 144 S. Ct. 389 (2023); see also Fed. Baseball Club, 259 U.S. at 209.
[14] See Toolson v. N.Y. Yankees, Inc., 346 U.S. 356 (1953); Flood v. Kuhn, 407 U.S. 258 (1972); Miranda v. Selig, 860 F.3d 1237 (9th Cir. 2017).
[15] Ronald Blum, MLB Settles Lawsuits From Minor League Teams, Avoids Possible Antitrust Challenge at Supreme Court, AP NEWS (Nov. 2, 2023, 6:37 PM), https://apnews.com/article/mlb-antitrust-suit-settled-01ac3549586a7b98fce7361d00073062.
[16] Nostalgic Partners, 637 F. Supp. 3d at 48.
[17] Id. at 49.
[18] Id.
[19] Id. at 55.
[20] Nostalgic Partners, LLC v. Off. of Comm’r of Baseball, 2023 WL 4072836, at *1 (2d Cir. June 20, 2023), cert. dismissed sub nom. Tri-City ValleyCats v. Off. of the Comm’r of Baseball, 144 S. Ct. 389 (2023).
[21] Tri-City ValleyCats, 144 S. Ct. 389 (2023).
[22] Evan Drellich, MLB Settles Lawsuits with Former Minor League Teams, Avoids U.S. Supreme Court Challenge to Antitrust Exemption, THE ATHLETIC (Nov. 2, 2023), https://theathletic.com/5026563/2023/11/02/mlb-settlement-minor-league-teams/; see also Chris Deubert, Settlement Saves MLB Antitrust Exemption (For Now), LINKEDIN (Nov. 21, 2023), https://www.linkedin.com/pulse/settlement-saves-mlb-antitrust-exemption-now-chris-deubert-7dzoe/.
[23] Drellich, supra note 23.
[24] Tyler Markoff, Back to the Bullpen: Minor League Teams Settle with MLB Over Latest Challenge to Baseball’s Historic Antitrust Exemption, FORDHAM J. CORP. & FIN. L. (Jan. 5, 2024), https://news.law.fordham.edu/jcfl/2024/01/05/back-to-the-bullpen-minor-league-teams-settle-with-mlb-over-latest-challenge-to-baseballs-historic-antitrust-exemption/.