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Home Pete Toms LWIB: MLB's Anti-Trust Exemption and Franchise Relocation

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LWIB: MLB's Anti-Trust Exemption and Franchise Relocation PDF Print E-mail
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Pete Toms Article Archive
Written by Pete Toms   
Monday, 04 January 2010 00:40

Last Week in Bizball by Pete Toms

2010 will probably be the pivotal year in determining whether the Oakland A’s relocate to San Jose. In March of last year, Commissioner Selig announced the formation of a three member committee which has been studying the options available to the A’s in their quest for a new baseball stadiium in northern California. The committee’s recommendations should be made public early this year. The latter part of 2009 saw an escalation in the rhetoric amongst the potentially affected parties in Oakland, San Francisco and San Jose over the fate of the A’s. In November LWIB reported on the stepped up media campaign of A’s owners John Fisher and Lewis Wolff to bring local attention to their courtship of San Jose. Grassroots groups either advocating for, or opposing, a move of the A’s to San Jose ramped up their campaigns as the year progressed (the Giants are the driving force behind one of the groups). Likewise, public officials in all three cities (and at the state level) raised their public profiles on the issue late in 2009 (amongst them, mayors Dellums (Oakland) and Reed (San Jose) plus SF City Attorney Dennis Herrera and CA Senator Barbara Boxer). As is always the case when franchise relocation in MLB is discussed, baseball’s antitrust exemption is an important part of the debate. Can the Giants prevent the A’s from moving into “their” territory (as defined by MLB)? Do the A’s need the “permission” of MLB to relocate? Does anybody know for certain?

LWIB Evan Weiner wrote for examiner.com:

To all those prognosticators, and you know who you are, who are trying to predict the top business sports stories of 2010, you have missed what is going to be the biggest fight. Oakland Athletics owner Lewis Wolff and the city of San Jose against the San Francisco Giants, the San Jose Giants, the city of San Francisco and Major League Baseball and the battle will center on the 1922 United States Supreme Court decision that gave the National League and the American League of baseball an antitrust exemption.

Wolff, whose lease with the Oakland Coliseum ends in 2013, would like to locate his baseball business in San Jose. Because of the 1922 Supreme Court decision that baseball was a game not a business, he has many hurdles to climb in his quest, hurdles that would not be there without the SCOTUS ruling.

AND

The stage is being set right now and a fierce territorial battle may shape the future of baseball and determine whether or not San Jose can become the home of Lewis Wolff’s baseball team. Wolff has to decide whether he really wants to fight this war and the implications may be felt far beyond the Bay Area.

AND

This could be a battle that extends to Congress but would the former San Francisco Mayor, Senator Diane Feinstein along with her colleague Barbara Boxer and the House Speaker, Nancy Pelosi of San Francisco want to get involved in the issue? Congress squawks about antitrust issues in sports but does nothing to correct inequities.

Last month, aforementioned SF City Attorney Dennis Herrera made public his threats to sue MLB should they allow the A’s to move to San Jose. The city of SF argues that the revenues they receive from the Giants would be threatened by the A’s move. The revenues received from the Giants are used to pay down debt on city issued bonds which financed infrastructure improvements around AT&T Park. Most pundits saw Mr. Herrera’s letter to MLB as nothing but sabre rattling given that MLB’s antitrust exemption allows them to control the location of “their” franchises. Last month, Nathaniel Grow wrote about Mr. Herrera’s threats at the Sports Law Blog. Mr. Grow points out that should the city of SF attempt to force MLB to enforce their territorial rights it would be a new twist on previous legal challenges.

On first impression, the threatened suit by the city of San Francisco seems problematic on several fronts. First, the city would have to convince a court that its interest in protecting its tax revenues from the Giants gives it sufficient standing to legally challenge MLB's approval of the relocation of another franchise into the Giants' assigned territory.

However, even if San Francisco is able to establish standing, such a suit would also place the city in the awkward position of effectively asking a court to enforce MLB's anticompetitive territory allocation system. While professional baseball's practice of granting franchises exclusive rights to certain geographic territories has previously been challenged by those seeking to enter a restricted market -- suits which have historically been dismissed pursuant to MLB's antitrust exemption (see, e.g., New Orleans Pelicans Baseball, Inc. v. National Association of Professional Baseball Leagues, Inc., Case No. 93-253, 1994 WL 631144 (E.D.La. March 1, 1994)) -- a suit by San Francisco would mark the first time that MLB has faced a lawsuit seeking to require the league to enforce this restriction. The optics of such a suit, being filed by a municipality no less, would be less than ideal. I suspect most courts would be uncomfortable issuing an order requiring baseball to enforce its territory restriction, especially in a case where MLB had already decided to set aside its long-standing anticompetitive policy.

Eighty seven years after the “federal baseball” decision by The Supreme Court created baseball’s antitrust exemption, do we know conclusively that it allows MLB to dictate franchise location? In November of last year, the aforementioned Nathaniel Grow published, Defining the 'Business of Baseball' - A Proposed Framework for Determining the Scope of Professional Baseball's Antitrust Exemption (read here in PDF).

No doubt due to the peculiarity of the exemption, as well as baseball’s standing as the “national pastime,” baseball’s antitrust exemption has generated substantial consideration over the years from both courts and commentators. Despite this voluminous analysis, no consensus has been reached regarding the extent to which baseball’s operations are protected under the antitrust exemption. The Supreme Court itself has never specifically addressed the scope of the baseball exemption, but instead has only generally held that the “business of baseball” is exempt from antitrust law. Based on this language, some lower courts have broadly interpreted the Supreme Court’s precedent as providing an exemption for the entire “business of baseball.” Meanwhile, other courts have concluded that the exemption is more limited, with some courts and commentators arguing that the exemption should be restricted solely to the facts of the Supreme Court’s most recent affirmance in Flood v. Kuhn.

Mr. Grow is not alone in his opinion that baseball’s ability to control franchise relocation as a result of it’s antitrust exemption is uncertain. Roger Noll, professor of economics emeritus at Stanford University told the Biz of Baseball in November, “The status of franchise location antitrust in MLB is uncertain – there has never been a case that was litigated to completion.” In his 2003 book, May the Best Team Win Baseball Economics and Public Policy, economist Andrew Zimbalist wrote that it is unclear if baseball’s antitrust exemption extends to control of franchise relocation. However, Mr. Zimbalist notes that MLB perhaps can control franchise relocation under a rule-of-reason defense. On Oakland Raiders owner Al Davis’s successful legal battle with the NFL over relocating his franchise to Los Angeles in the 1980’s Mr. Zimbalist wrote;

The courts did not rule that a sporting league could not exercise some controls over a team’s location; rather, they made it clear that such controls, when properly exercised , fall under a rule-of-reason defense. That is, there are good reasons why a league would want its teams to be both geographically stable and geographically dispersed. These reasons must be considered and offset against the negatives connected to prohibiting an owner from moving his or her team. The negatives include a reduction in an owner’s rights of free trade and the possible retention of a team in a city with less interest in the sport than a prospective host city.

AND

…..MLB’s presumed exemption may shield it from owner antitrust challenges and make it more difficult for teams to move. It should be noted, however, that where such moves are not in the public interest, team relocations could be prevented under a rule-of-reason defense even without an exemption.

2010 will tell us much, or all, about the eventual fate of the A’s franchise. Either San Jose or Oakland will make the most enticing offer to the A‘s owners. Should it be the former, the Giants will be “indemnified” for their territorial rights. But eventually, won’t somebody or some city challenge MLB over relocation and clarify exactly what the “exemption” really means?


Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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