Salary Cap and Anti Trust Exemptions – Why Baseball Needs to Face the Music

Not even this guy could buy a team if MLB wouldn’t let him

Major League Baseball remains one of the few industries unregulated by the antitrust regulation. The purpose of the statutes  according to the US Supreme Court, is “The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993). However, Baseball’s latitude in application allows it to function unfettered in the marketplace while creating an internal economy that stifles true competition.My issue with baseball is not the fact that it has an anti-trust exemption, but rather how it operates in dualistic principles. ”The business is giving exhibitions of base ball[sic], which are purely state affairs,” stated Chief Justice Oliver Wendell Holmes. Federal Baseball Club v. National League, 259 U.S. 200 (1922). However, in subsequent years Federal Courts have declined to extend that protection to other professional sports leagues. In fact, the Court has itself doubted the legitimacy of the exemption – “In view of all this, it seems appropriate now to say that: Professional baseball is a business and engaged in interstate commerce.” Flood v. Kuhn (407 U.S. 258). However, the court – in my admittedly weaker legal analysis – overly relied on the doctrine of stari decisis “Under these circumstances, there is merit in consistency even though some might claim that beneath that consistency is a layer of inconsistency” – see Flood at 269.

With these inherent contradictions, and the ruling that a $1 billion dollar industry is exempt from antitrust legislation, there is a burden on the league to show that it is a single organization. However, owners of teams are not shareholders, rather independent business entities. Operating under the practices of a monopolisitic industry, giving up inherently profitable propositions (moving to a different location, amongst others), the league has a duty to its teams to ensure all have a fair and equitable shot to gain the revenues garnered by playoff teams. But this is clearly not the case. 6 of the 8 playoff teams were in the top 10 in salary, with only the Rockies and Twins escaping from the bottom 2/3 of the table to make the playoffs. The odds, as per MLB tradition, are excessively skewed toward the big market teams. The  Supreme Court has changed their mind, especially when business conditions are changed. Conditions in the baseball marketplace were grossly different in the time of Floyd than they were when the initial exemption was granted, let alone now.

With baseball listing itself as 30 independent businesses, do the bigger teams have a monopolistic hold on talent?  ”It is not always necessary to find a specific intent to restrain trade or to build a monopoly in order to find that sections 1 and 2 of the Sherman Act have been violated. It is sufficient that a restraint of trade or monopoly results as the consequence of the defendants’ conduct or business arrangements.” United States v. Griffith, 334 U.S. 105 (1948). Unfortunately for the fan, the inexplicable use of stari decisis in a case where the economic circumstances say this case does not apply to Major League Baseball. However, again, taking all the teams individually as separate business entities, it can be argued that the monopolistic  practices of the larger market organizations provide a de-facto restraint of trade. To be quite honest, I’m not sure why a small market team hasn’t filed suit using this as a basis.

A salary cap would, while theoretically restricting labour,  actually bring the MLB into compliance with this case. No Supreme Court case has restricted the right of an industry to impose a salary cap, especially in a case where there are gross disparities between the financial status of the independent organizations.

The key issue in this is that Major League Baseball is representing itself as both a single business entity and as individual companies. Under this view, it’s tough to see how Baseball can argue that it deserves anti-trust exemption. With the value of the franchises, television contracts (both with the league and its independent clubs), and the monopoly of acquiring top talent (which lets them get more lucrative contracts), there is a restraint of trade, whether it is intentional or not.

A more radical solution, which never would happen but is interesting to contemplate, is the ownership groups of all 30 teams become owners of the shell corporation “MLB”, and get and share revenues on an equal basis, with each team receiving the same budget. They can choose to spend it on players, coaches, general managers, etc. Minor league franchises would than have to be divided up the same way. It would be interesting to hear out the rest of the pros and cons in this argument.

The restraint of trade requires intervention of some sort to restore competitive balance to baseball.  With baseball’s status exempted from anti-trust regulation,  salary cap is the simplest way to restore balance.

Tags: Baseball, first derivative, legal breakdown, salary cap
Categories: Daily Specials, Drunken Ramblings, Non-Alcoholic

This entry was posted on Monday, November 16th, 2009 at 2:00 pm and is filed under Daily Specials, Drunken Ramblings, Non-Alcoholic. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.