Is it Strike 3 for MLB’s Antitrust Exemption? The Latest Sports Antitrust Cases at Bat

Audio Transcript
Diana Leiden: Welcome to Winston’s Women in Antitrust, a limited podcast series, tapping into the minds of the wonderful women partners at Winston & Strawn practicing antitrust law. I’m your host, Diana Leiden, partner in Winston’s Los Angeles office focusing on antitrust and intellectual property litigation. In today’s episode, we’ll dive into what’s new in the Sports sector with Jen Parsigian and Angela Smedley. So, I’ll introduce our guests today. 

Jen is a partner in the San Francisco office of Winston & Strawn. She concentrates her practice on antitrust and sports and has been recognized as one of Law360’s Sports & Betting “Rising Stars” of 2022. Jen has represented the U.S. Women’s National Soccer Team in its pursuit of equal pay, as well as college athletes against the NCAA, serving as counsel in the landmark Supreme Court case of Alston v. NCAA. Welcome, Jen.

Jeanifer Parsigian: Thank you so much, Diana.

Diana Leiden: And Angela Smedley is a partner in Winston’s New York office. She focuses her practice on complex commercial litigation as well as sports and antitrust litigation, and was recently named to Benchmark Litigation’s 2022 “40 & Under List” as well as Crain’s New York Business List of Notable Women in Sports 2022. Among her many cases, Angela has represented the NFL Players Association on behalf of athletes like Tom Brady and Ezekiel Elliott in high-profile litigation and arbitration. She currently represents a Nigerian monobob athlete before the Court of Arbitration for Sport in a gender-discrimination case, as well as soccer events and media company Relevent Sports in a federal antitrust lawsuit against FIFA and the U.S. Soccer Federation. Welcome, Angela.

Angela Smedley: Happy to be here.

Diana Leiden: Thank you both. I’ll do a little bit of an overview, and then I’m going to kick it to you guys to talk more in depth. Major League Baseball enjoys historic federal statutory exemption from the antitrust laws, which is unique among all other professional sports leagues, not to mention other industries. It has been particularly at the forefront of the news in recent weeks. So, we’d like to take this opportunity to get up to speed on where the exemption stems from, why it’s in the news today, and what we can expect in the near future. Many people are unfamiliar with the real-world implications of baseball’s exemption. So today, Jen and Angela are going to break it down for you.

Jen, can you please start by explaining a little bit about the background on the antitrust exemption?

Jeanifer Parsigian: Of course. Thank you so much, Diana for the intro. So, starting off, I think that context is useful to have. The nature of sports leagues is that you have teams in competition both on and off the field—for players, fans, sponsorship money—and then you know, directly in games against each other. To make the competition on the field happen, there has to be some coordination among entities that are essentially competitors, which can be something that can create antitrust concerns. The question becomes “When is the coordination procompetitive and when is it anticompetitive?”

We’ve seen antitrust cases in a lot of other sports, including going to the Supreme Court—American Needle v. NFL, NCAA v. Board of Regents, and then recently in Alston v. NCAA. Those cases have clearly communicated that these sports leagues and organizations are subject to federal antitrust scrutiny. 

However, baseball has been treated differently and the reason why begins with the century-old Supreme Court 1922 case of Federal Baseball Club of Baltimore v. National League Baseball. In that case, a baseball league called the Federal Baseball League tried to compete with the American and National Leagues (which are now collectively the entity known as Major League Baseball). In response, the American and National Leagues tried to buy out all of the Federal League teams. They were able to do so for all of the teams except one, and that was the Federal Club of Baltimore. That club filed a lawsuit claiming that the National and American League conspired to monopolize the baseball business by purchasing all the other teams and refusing to play against the Baltimore club.

The case got to the Supreme Court, and in deciding it, the Court held that professional baseball did not involve interstate commerce and was therefore outside the reach of antitrust laws. In other words, the Court held that even though the games crossed state lines and players traveled, that travel was “merely incidental” to the game, and therefore did not constitute interstate commerce.

Diana Leiden: Well, thanks, Jen. So, 100 years ago, that’s where we are going to start. Any other antitrust challenges that have made their way to the Supreme Court since then?

Jeanifer Parsigian: There have been two that have made their way to the Supreme Court since then. The first one was in 1953; it was called Toolson v. New York Yankees. And the Court wrote a very short opinion in that case, with dissenters, and said that even though the game of baseball was now certainly interstate commerce, it would uphold Federal Baseball in the interests of stare decisis because the business of baseball had relied on the ruling. The Court interestingly added that Congress had had over 30 years to act after Federal Baseball if it disagreed with the holding, but that it did nothing.

Then, moving up to 1972, there was another case—Flood v. Kuhn—where a player named Curt Flood challenged the MLB’s “reserve clause,” which was a clause in MLB player contracts that bound players to their teams even after the term expired, and prevented players from becoming free agents. Now Flood was a star player and he had been traded without his knowledge or consent and eventually got to the Philadelphia Phillies. He challenged the clause as a collusive measure that reduced competition. He wanted to be a free agent and wanted to negotiate his own contract with the team. But the Court, despite acknowledging that baseball is interstate commerce—held again that baseball’s economic system is exempt from federal antitrust scrutiny. The Court explicitly said that MLB is entitled to the benefit of stare decisis, even though other sports are not exempt from antitrust law. The Court again noted Congress’s decision not to do anything in response to the prior cases in Federal Baseball and Toolson, calling it Congress had engaged in “positive inaction” on the issue. And said that Congress would continue to have the opportunity to change this court-created exemption through legislation if it disagreed.

Diana Leiden: So that’s 1972. So, did Congress take the ball and run with it?

Jeanifer Parsigian: We’re mixing sports metaphors. But Congress did eventually take the ball and run with it. It took action in 1998. And it was a bit of a half-measure, some people would say. It passed the Curt Flood Act—referencing the case I just discussed—and it codified baseball’s antitrust exemption into law but added a few limitations where baseball would be subject to antitrust scrutiny. Specifically, it said that Major League Baseball players are covered under antitrust laws for matters “directly relating to or affecting the employment of Major League Baseball players.” So literally, those players in the MLB umbrella, it gave them the ability to bring an antitrust claim essentially for employment matters. But the Act made clear that it did not extend such protection to any other person or entity and left the exemption intact for business-related issues (like franchise relocation, for example) and anything related to Minor League Baseball. 

Diana Leiden: Thanks, Jen. So, Angela, with that context from Jen, why is the baseball exemption, which has obviously been around for quite a while, popping up in the news now?

Angela Smedley: At the most basic level, it’s because, despite the exemption, there have been recent antitrust challenges directed at Major League Baseball, and courts and legislators seem to be reconsidering whether it is appropriate. Part of what got this ball rolling was last year’s Supreme Court decision in Alston, where the Court made a point of questioning the Major League Baseball antitrust exemption, and they recognized that the Federal Baseball decision that Jen discussed has been criticized for being “unrealistic,” “inconsistent,” and “an aberration.” The Court also warned that “when market realities change, so may the legal analysis.” And we’ve seen a fair number of challenges to the exemption over time, but this comment from the Supreme Court suggests that the Court might now finally be ready to reconsider and potentially overturn Federal Baseball if provided the opportunity.

Then, more recently, there have been calls for legislation to address the implications of the antitrust exemption, and particularly its effect on Minor League Baseball. Over the past two months, a bipartisan group of senators has been exchanging public letters with Major League Baseball and a group called Advocates for Minor Leaguers, which exists to provide a collective voice for players in Minor League Baseball because Minor League Baseball players are not unionized. But the Senate letters have generally been sent in response to issues related to minor league compensation and working conditions that have been getting a lot of public attention. And they’ve signaled, essentially, the Senate’s reconsideration of baseball’s century-old antitrust exemption and the potential impacts of modifying or eliminating it. Senator Richard Blumenthal has even announced that the Senate Judiciary Committee is going to schedule public hearings for this fall on the exemption issues, and they’re going to ask Major League Baseball Commissioner Rob Manfred to testify.

And there’s one other reason this issue is so relevant right now. Recently, some Minor League Baseball teams filed an antitrust suit against Major League Baseball. And there’s also new antitrust litigation related to other baseball leagues.

Diana Leiden: Great. Thanks to both of you. That’s really interesting and helps set the stage for where we are today. Angela, what can you tell us about these recent lawsuits that have been popping up?

Angela Smedley: The first lawsuit I’ll cover is called Nostalgic Partners v. Office of the Commissioner of Baseball. It was just filed in December 2021 in the Southern District of New York. And basically, back in 2020, Major League Baseball decided to reduce the number of its minor league teams from 160 to 120. This left 40 minor league teams without a major league affiliation anymore—essentially overnight. In response to this contraction of the minor league, former minor league teams affiliated with the NY Yankees, Houston Astros, San Francisco Giants, and my hometown Detroit Tigers filed an antitrust suit against Major League Baseball, claiming that the consolidation was actually a horizontal agreement between Major League Baseball and the 30 major league franchises to restrict competition in violation of Section 1 of the Sherman Act.

According to the minor leaguers’ complaint, Major League Baseball teams are meant to compete with one another for affiliations with minor league clubs. Among other things, the minor league clubs develop talent for the major league teams and serve as a place for rehabilitating injured major league players. So, the minor league teams alleged that the shutting down of these 40 minor league organizations effectively narrowed the competitive pool of minor league teams and imposed a boycott of those that lost their affiliations.

Now as you might expect given the topic of our discussion today, the first major hurdle that these plaintiffs may have to overcome is likely going to be the century-old Major League Baseball antitrust exemption. Plaintiffs addressed it head-on in their complaint by citing the Supreme Court’s criticism of the exemption in Alston. The minor league teams are urging the court to—and I’m quoting here—“cast the baseball exemption into the dustbin of antitrust history.”

Jeanifer Parsigian: So, I think you know that that’s a pretty big ask right there. But it could be something that the Court has an appetite for. It may be that relying on stare decisis for this is not something that is going to continue to be persuasive for MLB.

Angela Smedley: Yeah, I totally agree. And I think that one concern Major League Baseball must have with respect to the case by the minor league teams is that, in recent years, the tide does seem to be turning away from preferential antitrust treatment for sports leagues. I think the question, though is, for those who think the exemption should be eliminated, is this the right case for it? And we know Major League Baseball definitely does not think so. It moved to dismiss the former minor league teams’ complaint in April based on the antitrust exemption, calling their lawsuit “frivolous” when it did so. Now “frivolous” might be a bit of a stretch, since the minor league market did just experience sudden and pretty significant downsizing. But it’s possible the MLB, when it made that comment, was firing back at the plaintiffs because it’s really taken issue with them for—as Major League Baseball put it—for “publicly boasting” that they are using the case as a vehicle to challenge the exemption.

Diana Leiden: Wow! That’s interesting. That was back in April. So, what’s going on in that case now, Angela?

Angela Smedley: The most recent development in the case is that the U.S. Department of Justice actually filed a Statement of Interest in June. The DOJ didn’t take a position on Major League Baseball’s motion to dismiss, but they did say that the antitrust exemption does not rest on any substantive policy interests that would justify players and fans losing out on the benefits of competition.

Jeanifer Parsigian: They take the position that the Court needs to follow the binding Supreme Court precedent on this. They don’t directly say, you know “District court, you should get rid of this exemption,” the way that the plaintiffs are. They say instead the antitrust laws in general get narrow constructions, and for this baseball exemption specifically, it should be limited to conduct that is central to providing professional games to the public.

Angela Smedley: It seems clear that the endgame here is to eliminate baseball’s antitrust exemption and to try to bring baseball down to the same playing field as the other league sports. I’d say it’s probably worth keeping tabs on this one, if for no other reason than we could be watching a landmark case in the making.

Diana Leiden: I definitely agree with that. Thanks, Angela. Jen, Angela mentioned that there was a second case that had been recently filed. Can you tell us about that one?

Jeanifer Parsigian: The other case does not challenge the MLB exemption, but it does make reference to it in the complaint. And that case is Cangrejeros de Santurce Baseball Club v. Liga de Beisbol Profesional de Puerto Rico. I apologize if I have butchered that pronunciation. That case is in the District of Puerto Rico. It is in its early stages. It was just filed in mid-July. And I will note our position here—Winston & Strawn represents the plaintiff in this case, though Angela and I have not yet been involved there. The plaintiff is an owner of a Puerto Rican Baseball League that is not affiliated with MLB and does not have the same ownership structure as the MLB does. So the owner—among other things—wanted to make a $2M investment into badly needed stadium repairs for his team. But the Defendant owners, the League, and the Mayor of San Juan declined to allow that, and ultimately replaced the owner from the League.

So in response, the owner has sued the League and other league owners under Section 1 of the Sherman Act and Puerto Rican antitrust laws as well, alleging that they conspired with the Mayor to exclude him from the top-tier professional baseball market, and prevent him from investing the money in his team, and replacing him as an owner.

Notably, the complaint there makes a point of explaining that, because Major League Baseball is the only baseball entity with an antitrust exception—and it doesn’t apply to professional baseball generally—the Puerto Rican league is not protected under that federal antitrust exemption. This case could be one of the few antitrust lawsuits related to baseball that isn’t actually pre-empted by the judicial antitrust exemption. So, it’ll be interesting to keep track of that over the next weeks and months, and we encourage all our listeners to do that.

Diana Leiden: It sounds like there are a lot of things moving in this area right now. Angela, can you tell us more about some of the other notable issues in this area that you see as being relevant moving forward, even if they are not directly related to these specific antitrust lawsuits or the proposed legislation?

Angela Smedley: Yes, and you’re absolutely right—there’s a lot happening right now in this space, but I’m going to highlight two things in particular. First, because Minor League Baseball has been so prominent in today’s discussion, we’d be remiss if we didn’t mention the recent class settlement in the case of Senne v. Office of the Commissioner of MLB, which was a lawsuit filed in the Northern District of California back in 2014, alleging that minor league players were paid illegally low wages—we’re talking figures as low as $1,100 per month during a five-month season, and receiving little or nothing for the postseason and off-season work that they put in that was considered mandatory. The plaintiffs in that case argued that these wages violated the Fair Labor Standards Act and several states’ labor laws. On the eve of trial in July, however, Major League Baseball and the class of minor leaguers agreed to settle the case for $185 million.

I think one interesting dynamic in the case was that, even though it’s not an antitrust lawsuit in itself, the issues at the heart of the case highlighted several ways in which Major League Baseball’s antitrust exemption can have a practical impact on the League and its players. Just as one example, the class of plaintiffs alleged that the exemption enables the League to “openly collude on the working conditions” for minor league players and to “quickly quash[] any rival leagues” that might undermine Major League Baseball’s “system of artificially low salaries.”

Diana Leiden: Wow. That’s interesting. Angela, what else is going on at the minor league level?

Angela Smedley: Well, there are also potential unionization efforts at the minor league level. Our listeners may not know that, unlike their major league counterparts, minor league players are not represented by a union. What that means is that minor league players have no protection under federal antitrust law (because of the antitrust exemption), and they have no protection under a collective bargaining agreement or labor law more broadly because they’re not part of a union. And it’s this unique circumstance that’s part of why the Major League Baseball antitrust exemption disproportionately impacts minor league players, rather than major league players.

Because minor league players have no union, they’re particularly powerless against the actions of their employers. And in recognition of this situation, there’s been a lot of recent public support for the idea of potentially unionizing the minor leagues, spearheaded by the advocacy organization I mentioned earlier, Advocates for Minor Leaguers.

Even though neither Senne nor the potential unionization efforts directly challenge the antitrust exemption, they do show us just how broad of an impact the exemption has on certain subsets of the baseball industry, like minor league baseball.

Diana Leiden: Thank you both for that discussion. Jen, do you want to give us a brief recap or some takeaways from what we’ve discussed today?

Jeanifer Parsigian: Absolutely.

1. First, although Major League Baseball has enjoyed an antitrust exemption for a century now, since Federal Baseball, the Alston v. NCAA case calls this exemption into question—and how the current Supreme Court would view it. Alston has been wielded in several other challenges since its decision in pursuit of striking down MLB’s exemption.
2. The challenges have come, not only in the form of potential legislation, but in the form of the recent antitrust lawsuit filed in the Southern District of New York, the Nostalgic Partners v. Office of the Commissioner of Baseball, where they’re directly challenging the antitrust exemption and where the DOJ has weighed in. That case—along with the Cangrejeros case in Puerto Rico—are things for us to keep track of moving forward to see where MLB’s exemption might end up.
3. Finally, although many of the upcoming developments are not directly related to MLB’s antitrust exemption, they stem from the exemption in one way or another, which truly shows how broad of an impact this unique exemption for America’s pastime, has had on the industry.

Diana Leiden: Thank you to Angela Smedley and Jen Parsigian for joining our second episode of Winston’s Women in Antitrust Series and giving folks in the Sports sector a lot to think about! Please be sure to subscribe to Winston’s Competition Corner blog for antitrust updates delivered straight to your inbox. Our next episode, focused on the Technology sector, will be released in late September. Thanks for listening!