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The Baseball Trust: A History of Baseball?s Antitrust Exemption

Author(s):Banner, Stuart
Reviewer(s):Bradbury, John Charles

Published by EH.Net (June 2013)

Stuart Banner, The Baseball Trust: A History of Baseball?s Antitrust Exemption. New York: Oxford University Press, 2013. xv + 276 pp. $30 (hardcover), ISBN: 978-0-199-93029-6.

Reviewed for EH.Net by John Charles Bradbury, Kennesaw State University.?

It would be hard to select a subtitle more apt for this book than ?a history of baseball?s antitrust exemption,? because that is exactly what it is.? The difficult task is writing a book on this subject that is both highly informative and entertaining, which Stuart Banner has done.

Baseball?s antitrust exemption is so well-known that even the most casual sports fan knows that baseball holds some type of preferential legal status. For every controversy baseball endures ? franchise relocation threats, steroids, the lack of instant replay, etc. ? there is a sportswriter demanding that Congress should take its antitrust exemption away.? Though it is very real, the famed antitrust exemption has become more like a batter advancing to first base on a third-strike wild pitch: a tradition that baseball fans accept, but few of them understand its origins or question why it remains.? From the precursors of Federal Baseball to the aftermath of Flood, Banner takes the reader down an organized timeline of disputes between players, owners, and rival leagues to demonstrate how well-intentioned judicial decisions would set ridiculous legal precedents that protect baseball from antitrust scrutiny to this day.? While courts stumbled upon the law and begged Congress for help, generations of congressmen feigned interest with meaningless hearings and empty demands for action that unsurprisingly led nowhere.

The early days of baseball were not profitable for teams; therefore, owners came up with a solution to cut their human capital costs: reserve players to their existing teams.? The reserve clause gave teams the right to unilaterally renew their players? contracts for the following season, granting de facto lifetime employment rights to their owning team.? Teams were free to transfer their ownership rights to any other club regardless of the wishes of the player.? The goal of this policy was to prevent competition between teams, in order to keep player salaries down.? While antitrust disputes often focused on other issues, it was the reserve clause that drew most of the attention, both before the antitrust exemption existed and after the courts refused to step in and remove it.

Despite the obvious financial damage the reserve clause inflicted on players due to Major League Baseball?s monopsony on baseball talent, congressmen, judges, and even players were convinced it was absolutely necessary for the game to survive.? It was believed that without reserve rights, the best players would all be bought up by big-market teams, thus destroying competitive balance.? No one seemed to notice that the best players invariably ended up in big markets anyway, as big-market teams like the New York Yankees routinely purchased young stars from small-market clubs like the Kansas City Athletics, with the clubs reaping the fortunes while the players remained poorly paid.? The reason for this was elucidated by economist Simon Rottenberg in 1956.[1]? Rottenberg?s Invariance Principle ? anticipating the soon-to-be-famous Coase Theorem ? correctly hypothesized that players should end up on teams where their returns are the highest regardless of who owns the rights to players.? The only difference is who gets the rents.? If the playing rights are owned by the team, as they were under the reserve clause, then the rents of the player accrue to the team; if the rights are owned by the player, then the player will capture his own rents.? Rottenberg was later proven correct when the reserve clause fell, as player salaries rose with free agency and competitive balance remained relatively unchanged.

Banner?s history and explanation are thorough, making this book an important source not just of baseball?s antitrust history, but also the antitrust history of all American professional sports.? Much of baseball?s exemption arises from cases involving other popular sports such as football (Radovich) and boxing (International Boxing Club), where judicial explanations for differences from baseball led to its unique antitrust exemption among American professional sports.

In the Introduction, Banner states, ?baseball?s cultural status is neither the primary reason it originally gained its exemption nor the primary reason the exemption has persisted for nearly a century. … It is a story in which a sophisticated business organization has been able to work the levers of the legal system to achieve a result favored by almost no one else.?? However, Banner documents many instances of congressional inaction or judicial opinions in which these supposedly objective public servants always seemed to find a way to make an exception for baseball.? From reading Banner?s history, I am inclined to believe sports-law specialist Paul Weiler that ?whatever the legal the reasons for the Supreme Court?s decision to preserve baseball?s unique exemption from antitrust law, a crucial motivating factor was the special place that baseball has long occupied in American life.?? Yes, Federal Baseball was understandable at the time, though the decision is difficult to understand now, and no cultural bias is needed to justify the decision the justices made.? But from Kenesaw Mountain Landis?s open refusal to rule against baseball for the love of the game to Justice Harry Blackman?s ode to baseball introduction in Flood v. Kuhn, I believe culture did play an important, if not primary, role in the jurisprudence and legislation that preserved the antitrust exemption. Similar cases fell, legislators and judges openly disagreed with decisions, yet often they found stare decisis as a convenient excuse for their fears that a childhood game would be ruined.? It took an arbitrator at the lowest end of the judicial hierarchy to do what judges at the courts? highest levels lacked the courage to do.? Independent arbitrator Peter Seitz, who cast the deciding vote that struck down baseball?s reserve clause, stated ?The [arbitration] Panel?s sole duty is to interpret and apply the agreements and the undertakings of the parties.?? To Seitz, as Banner describes it, ?the consequences of the decision were none of his business.?

The irony of baseball?s fight to preserve its special status is that it appears to have gained very little from its courtroom victories relative to its not-so-special professional sports counterparts.? Its reserve clause withstood court challenges, but fell to collective bargaining and the wiles of union leader Marvin Miller.? All American professional sports leagues now operate coordinated, player drafts, maintain territorial rights restrictions, and enter into national broadcast contracts.? Compared to baseball, football, basketball, and hockey have far greater restrictions on player wages, play fewer games, and charge similar prices.? Baseball has not been able to use its antitrust immunity to garner any additional market power advantages relative to the big-four sports leagues that lack similar protections.? While baseball no doubt gains some legal shelter from a particular class of lawsuits, the incoherent legal reasoning behind the exemption has not fully deterred legal challenges.? So, like reaching base on a wild-pitch strikeout, baseball?s antitrust exemption remains an odd vestige of baseball history that owes itself to a peculiar old tradition that we have come to accept.? The good news is that despite its nonsense justification, its practical damage has been minimal.

Note:
1. Simon Rottenberg (1956), ?The Baseball Players? Labor Market,? Journal of Political Economy, 64: 242-258.

John Charles Bradbury is Professor of Sport Management and Economics at Kennesaw State University.? He has published two books on baseball economics and statistics, The Baseball Economist (2007) and Hot Stove Economics (2010).? E-mail: jcbradbury@kennesaw.edu

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Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII