How Different Types of Ownership Structures Could Save Major League Baseball Teams from Contraction Brad Smith
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Journal of International Business and Law Volume 2 | Issue 1 Article 6 2003 How Different Types of Ownership Structures Could Save Major League Baseball Teams from Contraction Brad Smith Follow this and additional works at: http://scholarlycommons.law.hofstra.edu/jibl Recommended Citation Smith, Brad (2003) "How Different Types of Ownership Structures Could Save Major League Baseball Teams from Contraction," Journal of International Business and Law: Vol. 2: Iss. 1, Article 6. Available at: http://scholarlycommons.law.hofstra.edu/jibl/vol2/iss1/6 This Note is brought to you for free and open access by Scholarly Commons at Hofstra Law. It has been accepted for inclusion in Journal of International Business and Law by an authorized administrator of Scholarly Commons at Hofstra Law. For more information, please contact [email protected]. Smith: How Different Types of Ownership Structures Could Save Major Leag HOW DIFFERENT TYPES OF OWNERSHIP STRUCTURES COULD SAVE MAJOR LEAGUE BASEBALL TEAMS FROM CONTRACTION by Brad Smith* I. INTRODUCTION Laws concerning ownership structures have played a key role in determining the success and growth of domestic and international professional sports leagues and their teams. There are four different types of ownership structures found throughout professional sports. These include public in the form of stock ownership, public in the form of community ownership, private, and single entity. When analyzing these different forms of ownership, there are several significant issues that leagues and their teams must face and deal with in the course of their operations to maintain their existence. These issues include antitrust laws, United States versus Canadian, British, and Japanese laws, league rules preventing public/community ownership, and league revenue-sharing plans.' Currently, some domestic (Florida Marlins, Minnesota Twins, and Tampa Bay Devil Rays) and international (Montreal Expos) Major League Baseball teams are dealing with the threat of contraction due in large part to problems with their ownership structures.2 By introducing community ownership, which is currently illegal in professional baseball, into the sport, these teams would likely stand a much better chance of surviving and remaining in the same city without the fears of contraction and the need to move to another city. Therefore, this Note advocates the introduction of community ownership combined with an effective revenue-sharing plan in Major League Baseball to assist in alleviating the financial difficulties plaguing some of its teams. Part II analyzes recent cases dealing with contraction in baseball and the long and short-term effects of contraction on the sport. Part III discusses public ownership, where marketable securities are sold on the stock market and public * Mr. Smith is a student at the Hofstra University School of Law. He wishes to thank Professor Grant Hayden for his assistance and guidance throughout the writing of this Note. 1 PAUL J. MUCH, 1997 INSIDE THE OWNERSHIP OF PROFESSIONAL SPORTS TEAMs 27-28, (Team Marketing Report, Inc., Chicago 1997). 2 Mark S. Rosentraub, BASEBALL IN THE GLOBAL ERA: ECONOMIC, LEGAL, AND CULTURAL PERSPECTIVE: Governing Sports in the GlobalEra: A PoliticalEconomy of Maor League Baseballand Its Stakeholders, 8 IND. J. GLOBAL LEG. STUD. 121, 142 (2000). Published by Scholarly Commons at Hofstra Law, 2003 1 Journal of International Business and Law, Vol. 2, Iss. 1 [2003], Art. 6 THE JOURNAL OF INTERNATIONAL BUSINESS & LAW companies own the teams, and outlines the advantages and disadvantages of such a structure in professional sports. Part IV explores private ownership, where private investors or privately-held corporations have majority stakes in a professional sports franchise. Part V explains the idea of public ownership in the form of community ownership, where the non-marketable securities are sold and the public (mainly the team's fans) owns the majority of the stock in the franchise. Part VI concludes this Note by demonstrating the importance of allowing for community ownership within Major League Baseball and how such a structure would benefit the sport. II. CONTRACTION IN MAJOR LEAGUE BASEBALL Without a doubt, contraction has recently posed a significant threat to some of Major League Baseball's (MLB's) franchises. In late 2001, rumors began circulating that MLB was considering the possibility of contracting at least two franchises prior to the 2002 season due to their financial problems.3 However, with their new Collective Bargaining Agreement, baseball has tabled contraction and put off further possibilities of it until 2007.4 However, contraction still poses a very real threat to these teams because they are not really improving financially and appear to continue facing major economic difficulties until 2007. Recently, two court decisions came about as a result of Major League Baseball's decision on November 6, 2001 to contract two teams - -MLB would go from 30 to 28 teams- - for the 2002 seasoni In response to the December 31, 2001 decision to move forward with contraction after negotiations with the Players Association failed and pursuant to his statutory authority to investigate possible violations of federal and state antitrust laws, the Attorney General of the State of Florida issued civil investigative demands to baseball, Commissioner Bud Selig, the Florida Marlins and Tampa Bay Devil Rays (collectively the "plaintiffs"). 6 The plaintiffs sought declaratory and injunctive relief against the Attorney General with their claim that the decision to contract was exempt from federal and state antitrust laws.7 The district court began analyzing the dispute by noting "the business of baseball is, as it is sometimes phrased, exempt from antitrust laws." g The district court disagreed with the Attorney General's argument that the exemption only applied to the reserve clause and discussed the United States Supreme Court cases upholding MLB's exemption, including Federal Baseball Club v. 3 Paul Anderson, Recent Major League BaseballContraction Cases, at http://www.marquette.eduIaw/sports/sfr/mlbcases.sfr31.html (last visited Jan. 7, 2003). 4 ALLAN SIMPSON, BASEBALL AMERICA ALMANAC 2003 8 (Baseball America, Inc., 2003). 5 See Anderson, supra note 3. 6 See id. 7 See id. 8 Major League Baseball v. Butterworth, 181 F. Supp.2d 1316, 1322 (2001) http://scholarlycommons.law.hofstra.edu/jibl/vol2/iss1/6 2 Smith: How Different Types of Ownership Structures Could Save Major Leag National League and Flood v. Kuhn.9 The district court explained that, according to these cases, the business of baseball and the reserve clause were both exempt from antitrust laws since 1922, and the Supreme Court has "repeatedly stated that it is up to Congress to overrule this exemption and not the courts."' 0 The court also said that contraction is part of the business of baseball and that "the basic league structure, including the number of teams, remains an essential feature of the business of baseball, exempt from the antitrust laws."" The court added that because the Florida Antitrust Act explicitly exempts the same subjects as are exempt under the federal antitrust laws, the decision to contract was exempt from all federal and state antitrust laws.12 In the end, the court granted the plaintiffs motion for a preliminary injunction barring the Attorney General from issuing any civil legislative demands. 3 In another contraction case, the plaintiff, the Metropolitan Sports Facilities Commission (a Minnesota governmental entity operating the Metrodome, home to the Minnesota Twins) sued the defendant, the Minnesota Twins Major League Baseball Club, seeking a declaratory judgment requiring the Twins to fulfill its one-year use agreement with the Commission.' 4 The Commission alleged "that the Twins sought to circumvent their contractual obligations by selling their franchise to Major League Baseball for $250 million and that the league would then terminate the franchise."' 15 In September 2001, the Twins exercised their lease option with the Commission through the 2002 season.16 According to their lease with the Commission, the Twins could opt out of their lease "only if theforce majeure clause applied and they were unable to play a home game for a reason beyond the Team's and the Commission's17 control, including strikes, an act of God, a natural casualty, or a court order."' The Commission feared that a decision to contract the Twins from MLB would cause the team to break its one year lease agreement.18 As a result, on November 6, 2001, the Commission filed a declaratory judgment action seeking "specific performance of the use agreement and an injunction preventing Major League Baseball from interfering with the Commission's contractual relationships with the Twins."' 19 On November 16, 2001, the district court granted the Commission's motion for a temporary injunction.20 9 See Anderson, supra note 3. FederalBaseball Club v. NationalLeague, 259 U.S. 200 (1922), Floodv. Kuhn, 407 U.S. 258 (1972) 1oSee id. 1 See Butterworth, supra note 8, at 1332. 12 See Anderson, supra note 3. 13 See id. 14See id. 15 Metro. Sports Facilities Comm'n v. Minnesota Twins P'ship, 638 N.W.2d 214, 220 (Ct. App. Minn., 2002). 16 See Anderson, supranote 3. 17See Metro. Sports Facilities Comm'n, supra note 15, at 219. is See Anderson, supra note 3. 19See Metro. Sports Facilities Comm'n, supra note 15, at 219-220. 20 See Anderson, supranote 3. Published by Scholarly Commons at Hofstra Law, 2003 3 Journal of International Business and Law, Vol. 2, Iss. 1 [2003], Art. 6 THE JOURNAL OF INTERNATIONAL BUSINESS & LAW On appeal by the Twins and MLB, the Minnesota Court Of Appeals affirmed the district court's decision to grant the temporary injunction and made several specific findings.21 Among the Court of Appeals' conclusions was their determination that it was unlikely that monetary damages would fully compensate the Commission if the Twins breach the lease agreement since there are a number of intangible benefits that communities receive by hosting professional sports franchises, such as community goodwill and a source of family entertainment.