Baseball's Antitrust Exemption: Why It Still Matters

Major League Baseball has enjoyed a presumed, blanket exemption from the nation's antitrust laws since 1922. The other team sports have no such protection, and baseball's reserve clause has been in history's dustbin since 1976.¹ Does the exemption still matter? Yes, and here are some reasons why.

MLB has not faced a rival league since 1915. Its exemption has insulated the industry from legal challenges to its restrictive practices. When baseball abuses its power, the injured parties are not entitled to call for judicial review along with discovery of evidence.

Over time this circumstance has led to a management culture of laxity, inefficiency, and arrogance. Evidence of this culture still persists. For instance, home field advantage in the 2003 World Series was decided for the first time by the winner of the All-Star Game. Why? Not because it made any logical or competitive sense, but because baseball was desperately grasping for a way to boost its flagging television ratings for the midseason classic. The gambit, by the way, seems to have failed: 2003 All-Star Game ratings and share were identical to the record low ratings in 2002. Worse still, the ratings among the crucial eighteen- to thirty-four-year-old male demographic were down 9.7 percent relative to 2002.

The pattern here is well established. Grab for the proximate dollar and never mind about the long-term consequences.

Or consider the revealing message in Michael Lewis's new book Moneyball: The Art of Winning an Unfair Game. For decades baseball teams' front offices were run by good old boys who followed a dubious lore of player evaluation as if it were catechism. The enlightening statistical analyses of the game by innovators like Bill James went ignored until Sandy Alderson in Oakland decided that his team could benefit from James's insights in the mid-1990s. And benefit they did, creating a first-class team on a shoestring budget.²

Or take the absence of a Major League team in our nation's capital, the eighth largest media market. The NFL, NBA, and NHL, all without antitrust exemptions, have teams in Washington DC, but not baseball.

Over the years MLB has offered several arguments in defense of its league's presumed antitrust exemption. First, until 1977 MLB maintained that the player reserve system was essential to preserve competitive balance in baseball and that the exemption permitted the industry to maintain this labor market restriction. Yet the reserve system simply affected whether monopoly rents went to the owners or to the players. It did not equalize the distribution of player talent. In fact, with free agency it became more expensive to hold together a winning team and easier for a weak team to turn around its fortunes. Thus, after the reserve system was eliminated, competitive balance in baseball actually improved. So much for defense number one.

Commissioner's Power

Second, MLB asserted that it did not need to be regulated administratively or subjected to competitive pressure because, through its independent commissioner, it self-regulated effectively. The commissioner's power to act in the game's best interests, the argument went, was the only stewardship needed to prevent exploitation of the consumer or dynamic inefficiency. To be sure, commissioners had a small degree of wiggle room until the dismissal of Commissioner Fay Vincent in 1992. But it was only very modest wiggle room. The few commissioners who tried to exercise true independence were usually dispensed with in short order by unappreciative owners. Since 1992, however, the commissioner has been an owner. Any claim that Mr.Selig behaves as anything other than a CEO strains credulity.

No Profit Means No Monopoly

Third, the owners have claimed that MLB is not really a monopoly and that the absence of profitability proves it. Rather, this argument goes, baseball is one of many games in the sports industry and...