Revenue Sharing in Major League Baseball: Are Cuba's Political Managers on Their Way Over Too?

Vanderbilt Journal of Entertainment & Technology Law

Volume 7 Issue 3 Issue 3 - Summer 2005 Article 8

2005

Revenue Sharing in Major League Baseball: Are Cuba's Political Managers on Their Way over Too?

Matthew R. McCarthy

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Part of the Antitrust and Trade Regulation Commons

Recommended Citation Matthew R. McCarthy, Revenue Sharing in Major League Baseball: Are Cuba's Political Managers on Their Way over Too?, 7 Vanderbilt Journal of Entertainment and Technology Law 555 (2020) Available at: https://scholarship.law.vanderbilt.edu/jetlaw/vol7/iss3/8

This Note is brought to you for free and open access by Scholarship@Vanderbilt Law. It has been accepted for inclusion in Vanderbilt Journal of Entertainment & Technology Law by an authorized editor of Scholarship@Vanderbilt Law. For more information, please contact [email protected]. R,:evenue Sharing in Major League Baseball: Are Cuba's Political Managers on Their Way over Too?

[By Matthew Ryan McCarthy* ]

ery cap following the tragic events of Sep- Baseball ("MLB") season marked tember 11, 2001. 4 The patch honored the the end of a dramatic era, both memory of the victims and heroes who died for the he close ofsport the 2001and Majorthe nation.League in the attacks.' Moreover, the flag also rep- T Louis Gonzalez's ninth inning resented the ideals and principles of a nation single drove in the winning run, threatened by terrorist forces on that tragic closing the 2001 World Series be- day.6 "[The Flag is] a symbol of a living thing tween the New York Yankees and the nascent ...[a] 225-year experiment in liberty and the Arizona Diamondbacks, who were an expan- people, the values and institutions that have "The smaller market teams claim that they cannot compete because they have less revenue than the bigger teams, and less revenue translates to an inability to pay for high priced players and state-of-the-art facilities.

1 sion team only four years earlier. The 2001 ...made it work."7 The disappearance of this World Series was notable for many reasons, important symbol of American ideology from including the fact that 2001 was the last time the players' uniforms eerily coincides with a the American flag adorned the uniform of rising threat to the economic ideals and prin- 2 major league ballplayers. The flag's brief ap- ciples that govern our national pastime-a pearance only lasted for the balance of the threat greater than the designated hitter, baseball season marred by the tragic events Astroturf, or inter-league play. of the terrorist attacks.3 Old Glory appeared as a patch on the back of every uniform and on the side of ev- SPORTS

L Introduction willing to make into a team. Finally, MLB In response to a growing disparity should expand the postseason, allowing six amongst the league's best and worst teams, fans, teams from each league to reach the playoffs reporters, and even some players have pro- and adding a first round bye for the top two posed various plans designed to share revenues teams from each league. amongst owners and level the economic playing field.8 The smaller market teams claim they cannot compete because they have less revenue II. Labor, Management, and the than the bigger teams, which translates to an Collective Bargaining Agreement inability to pay for high priced players and state-of-the-art facilities.9 In response to this A. Baseball's Antitrust Ex- perceived problem, owners have proposed and emption: A Fragile House of Cards implemented some limited forms of revenue Beginning next season, the Montreal sharing and a competitive balance tax.10 The Expos will no longer play in Montreal. 14 Ateam competitive balance tax collects revenue from that was on the verge of extinction just a few MLB's wealthiest teams and redistributes it years ago 15 is hoping to start a new life in Wash- evenly to poorer teams in smaller markets for ington.16 Team relocation and contraction are their expenses and development." Owners issues beyond the scope of this Note, but the remain free to either reinvest the money re- Expos' exodus from Montreal for greener pas- ceived from the competitive balance tax in the tures is illustrative of MLB's control over the team and stadium or to pocket the money as market for professional baseball. The federal profit.12 As such, the redistribution may not courts and federal legislature created MLB's have the desired effect on competition, if it has market and the thriving cartel of MLB owners any effect at all.' 3 In addition, there are a num- that oversees it. The twenty-nine major league ber of antitrust issues to consider under any owners' ability to collectively purchase one of proposed expansion of the competitive balance their existing competitors and relocate the team tax or other form of revenue sharing plan agreed from its home stems from MLB's operation to by players and owners in a MLB Collective outside traditional federal and state antitrust Bargaining Agreement ("CBA"). law. Essentially, MLB's antitrust exemption al- Part II of this Note examines the history lows cooperation and collusion amongst its 7 of professional baseball's exemption from tra- owner members. ditional antitrust regulations and the struggle Traditionally, "[e]very contract combi- between the players and owners to reach labor nation in form of trust or otherwise, or con- agreements that encourage competition among spiracy, in restraint of trade or teams and fairly compensates players. It de- commerce.. .is... declared to be illegal." 8 Con- tails the history of the various CBAs between gress passed the Antitrust Act of July 2, 1890 players and owners and considers what rem- ("Sherman Antitrust Act") 19 to stem a tide of edy owners opposed to sharing revenue might unfair cooperation amongst trusts formed in have in federal court against revenue sharing industries such as oil, steel, and the railroads, plans implemented through a CBA. and to encourage fair trade through competi- Part III analyzes the current controversy tion in the free market. 20 Since the passage of over the level of competition in MLB. It criti- the Sherman Antitrust Act, the predominant cizes the owners' solutions and examines the form of antitrust enforcement against busi- difficulties these solutions faced. Finally, Part nesses that harm others through price fixing, IV proposes that MLB should encourage parity and other forms of anticompetitive cooperation, in the traditional way: the free market. The has been the private antitrust suit.2' The United league should create incentives to return own- States Supreme Court and Congress have taken ership of every team's minor league teams to steps to exempt professional baseball from the the owners of the big club. In the alternative, if reach of private antitrust suits. 22 This anomaly MLB implements another revenue sharing plan, in antitrust regulation is the result of Congres- free of antitrust concerns, shared funds should sional inaction, the effect of which is the pres- match the degree of investment an owner is ervation of three United States Supreme Court

Summer 2005 556 Revenue Sharing in Major League Baseball decisions that considered antitrust challenges The final case in baseball's infamous antitrust to professional baseball's operations creating the trilogy, Flood v. Kuhn,31 involved a challenge of exemption. professional baseball's reserve system.3 2 The Professional baseball's infamous anti- Supreme Court reaffirmed baseball's exemp- trust trilogy 23 begins with Federal Baseball Club tion from federal and state antitrust law.33 The v. National League, which considered a treble Supreme Court's decision relied upon the opin- damages suit filed by the Federal Baseball Club ions of Federal Baseball Club and Toolson, tak- alleging antitrust violations. 24 In Federal Base- ing judicial notice of Congress' acquiescence to ball Club, the plaintiff alleged unfair coopera- the Court's rulings by its silence on the subject, tion amongst the individual clubs in the Na- and an explicit Congressional refusal to extend tional and American Leagues to share gate re- baseball's exemption to other organized profes- ceipts and establish a monopoly through inter- sional sports. 4 The Flood Court observed, "the state commerce, which was an alleged viola- orderly way to eliminate error or discrimina- tion of federal antitrust law.25 Justice Holmes, tion [from the existing exemption], if any there 3 5 writing for the majority, opined that profes- be, is by legislation and not by court decision." sional baseball is immune from federal antitrust Congress finally took action to limit the regulations.26 He reasoned that the federal law scope of baseball's antitrust exemption when it did not apply to the baseball teams, and held passed the 1998 Curt Flood Act.36 Although it that players playing games for their respective was a dramatic step, the legislative effect of the teams outside their home states is not unlike a Curt Flood Act was not a complete repeal of 3 firm of lawyers sending attorneys outside its baseball's exemption. 1 Instead, the Curt Flood

r "Thelegislature federal created courts MLB's and market,federal L and the thriving cartel of MLB owners that oversees it."

home state's boundaries to argue a case, or a Act was a rather small strike against it, remov- lecturer traveling the lecture circuit, and thus ing labor agreements between players and own- not interstate commerce.27 ers from coverage by baseball's infamous anti- The Supreme Court confronted the trust exemption. 8 Arguably, the Curt Flood question of professional baseball and antitrust Act may cause a long-standing exemption for again in 1953 in Toolson v. New York Yankees, MLB from federal and state antitrust challenges Inc. when it considered allegations that profes- to come tumbling down. The exemption has sional baseball deprived the plaintiff of his live- been the subject of numerous legal challenges, lihood through unfair cooperation.28 In all seeking a similar exemption.3 9 So far, the Toolson, the plaintiff alleged that the league delicate house of cards that protects MLB's op- "blacklisted" him and essentially barred him erations from antitrust attacks in federal court from playing on other teams.29 The Toolson remains intact and unique to baseball. Court, based chiefly upon the precedent in Jus- tice Holmes' opinion in Federal Baseball Club, B. The Future of the Collective held that professional baseball was exempt Bargaining Agreement in the Wake from the ordinary reaches of federal or state of the 1998 Curt Flood Act antitrust law, and denied the plaintiff's claim. 0 To date, neither Congress nor the Su-

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preme Court is willing to change the status quo. merce and subject to the provisions of the In the future, however, it is possible that law- NLRA allowed the players to organize and suits challenging MLB labor agreements strike.49 Initially the players organized simply reached through collective bargaining will be as a creature of convenience to communicate vulnerable to antitrust litigation. This is true their grievances to owners.50 Eventually this because of the Sherman Antitrust Act's unde- fledgling organization of players became the sirable effect on organized labor.40 In Loewe v. MLB Players' Association ("MLBPA"), 51 an or- Lawlor, the Supreme Court determined that ganization that has grown stronger over time. cooperation amongst unionized laborers vio- The MLBPA's transformation from a lated the Sherman Antitrust Act as an illegal creature of convenience to a real players' union restraint of trade;41 this is a decision in conflict began in 1966 with the hiring of a new execu- with legislation aimed at reducing unfair com- tive director, Marvin Miller.52 Miller encour- petition that gave industry a stranglehold over aged players to flex their combined muscle its customers and laborers. against owners who were unwilling to make Congress responded to the Court's in- concessions to their demands. Miller's hiring, terpretation of its oversight by passing legisla- which coincided with the seminal 1969 NLRB tion to specifically remove organized labor from ruling, allowed the MLBPA to take advantage coverage by the Sherman Antitrust Act and in- of the players' basic labor rights under the stituting a federal policy favoring organized la- NLRA, which included a right to self-organiza- bor.42 Inaddition, Congress passed the National tion, a right to bargain collectively through cho- Labor Relations Act ("NLRA") in 1953, which sen representatives, and a right to participate 53 established a federal policy that favored a col- in concerted activities against MLB owners. lective bargaining process between labor and The 1973 CBA, which was reached management. 43 Shortly thereafter, the NLRA shortly after Miller's installment as executive established the National Labor Relations Board director, was a major victory for the MLBPA ("NLRB") to review questions on whether la- over the MLB owners.54 The 1973 CBA limited bor-management issues fell under the collec- the effects of the reserve system and allowed tive bargaining laws of the NLRA.44 Although players to submit salary disputes to an inde- MLB labor agreements were only recently for- pendent arbitrator.55 Baseball's reserve system mally exempted from antitrust challenges in did not disappear because of an antitrust suit, state and federal courts, 45 a ruling by the NLRB such as the one against MLB in 1972.56 In other in 1969, holding that baseball falls under inter- industries, consumers harmed by price fixing state commerce and is subject to the provisions may levy private antitrust suits against owners of the NLRA,46 paved the way for the modern engaged in similar unfair cooperative prac- collective bargaining process between players tices.5 7 Baseball avoids such private suits be- and MLB owners. cause of its antitrust exemption. The reserve system allowed owners to unilaterally renego- 1. Baseball's Labor Woes: tiate an individual player's contract at the A History of its CBAs and player's existing salary if there was not a new the ML PA contract in place before the commencement of 5 The most recent labor agreement be- the following season. 1 It prevented players tween players and MLB owners was the first from holding out for more money by becom- CBA reached without a work stoppage.47 By ing free agents, essentially foreclosing a player's avoiding another devastating players' strike like ability to profit from superior play on the field. the one in 1994, which caused the World Se- Limiting MLB owners' unilateral control over ries to be cancelled for the first time in history, players' salaries and movement was a major 48 the most recent CBA came at a relatively low victory for Miller and the MLBPA in 1973. cost to all concerned. Arguably, a CBA reached The reserve clause disappeared in 1976, without a strike or lockout has taken this long following another work stoppage and a hard- to come about because of professional baseball's fought CBA.59 Building off the success of the exemption from antitrust litigation. The 1969 1973 agreement and the bargaining strength NLRB ruling that baseball is interstate com- of Miller and the MLBPA, the players gained

Summer 2005 Revenue Sharing in Major League Baseball

7 ...... , , 4 i? ...... the ability to become free agents following six that the MLBPA had gained a significant foot- 60 years of play under their original contracts. hold against the powerful cartel of MLB own- The owners conceded to raise the minimum ers.68 The 1981 agreement included a new player salaries and increased pensions; however, method for compensating major league clubs the owners also used a seventeen day lockout that lost players to free agency.69 In essence, 61 during the talks to force the players' hand. players were divided into two pools, a pool of The necessity of a lockout in 1976 and the re- "A" players and a pool of "B" players, depend- sulting CBA were both indicative of MLB own- ing upon their performance during the previ- 6 2 ers losing ground to the MLBPA. ous two years. A team losing an "A" player re- The final blow to the reserve system ceived an extra player in the subsequent year's came in 1976 in a court challenge by two play- amateur draft, as well as a player from the com- ers upset with their treatment from their former pensation pool of players.7 Teams losing a "B" teams. In Kansas City Royals Baseball Corp. v. player received two extra selections in the next MLBPA, the Eighth Circuit considered griev- year's amateur draft. 1 In 1981, MLB owners ances filed by the MLBPA on behalf of Andy aimed the pooling plan for compensating teams Messersmith and Dave McNally (two MLB at improving the level of competitiveness pitchers), alleging that MLB owners denied amongst the various MLB clubs. 72 The goal of them their rights to deal with other teams for the 1981 strike was to improve the balance of their services after their year on reserve. 63 The bargaining strength between players and own- MLBPA requested that the owners be ordered ers. to treat these players as free agents and to com- In 1985, players and owners were once pensate them for any financial detriment in- again at odds, this time over a proposed salary curred due to their delay in doing so, as previ- cap and revenue sharing plan, both of which ously directed to under the 1973 CBA. 64 The were attempted to limit salary growth.73 An Kansas City court held that the players were free MLBPA strike that lasted two days forced the agents.65 Further, the Kansas City court held salary cap off the table.74 In return for limiting that, while players and owners agreed that there a player's opportunity to seek independent sal- is a year reserved for an owners' renewal, the ary arbitration after three years of his existing agreement did not allow owners to force a player contract, the owners conceded the salary cap, into a perpetual agreement to play for their re- but agreed to an increase in the players' mini- spective clubs at the existing contract rate.66 mum salary requirements and granted players The 1981 strike was more severe than a portion of revenue profits.75 Unfortunately, "The reserve system allowed owners to unilaterally renegotiate an individual player's contract at the player's existing salary if there was not a new contract in place before the commencement of the following season.

the 1976 lockout since it lasted fifty days and this was not the end of the labor trouble for cost the league a considerable amount of rev- players or owners. In response to the CBA, MLB enue. 67 While each side would argue that it owners colluded and agreed that no club would gained from the resulting CBA, it seems clear hire free agents in 1985, forcing players to re- to most commentators that the 1981 work stop- main with their current teams and effectively page sent unambiguous signals to the industry disrupting any individual player's bargaining

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position.76 The MLBPA took its grievances be- equal basis, a reduction from the players' then fore an independent arbitrator,77 stating that the existing share (closer to 56%), while phasing in 8 6 owners had conspired against the players and a salary cap and eliminating salary arbitration. were implementing unfair labor practices in Donald Fehr, the new MLBPA executive conflict with the provisions of the NLRA. The director, estimated the costs of the owners' pro- arbitrator sided with the players and awarded posal to the players to be around $1.5 billion $280 million in damages. 8 over the life of the proposed CBA1 7 Accord- In 1990 came another lockout, this time ingly, the MLBPA relied on its perceived bar- lasting thirty-two days.79 Owners proposed a gaining position, rejected the owners' proposal, massive restructuring of the expiring CBA, and elected to strike.88 Some commentators seeking revenue sharing amongst clubs and a observed that the 1994 strike was the result of salary cap. 0 The players and owners success- the bargaining structure between players and fully negotiated a new CBA, leaving revenue owners, changing from one of paternalism to sharing and the imposition of a salary cap on more of an adversarial system.89 The end re- the table, and pushing the start of the sult of the 1994 players' strike was appalling to postseason back in order to appease television fans and disastrous to professional baseball, but networks suffering from the rescheduling of the the 1998 baseball season, which was filled with seventy-eight missed games.81 The players con- historic achievements and broken records, ceded, however, that after three years, talks somewhat renewed fan interest in the game.90 would resume regarding free agency, arbitra- Although the 1998 season may have renewed tion, and minimum salaries.82 Arguably, by interest in the game for some fans, the relation- "... the 1994 strilke was the result of the bargai ning structure between playe rs and owners, I changing from o ie of paternalism to an adversarial system."

leaving the door open during these talks, the ship between players and owners has been players set the stage for the devastating 1994 slower to recover. players' strike. The 1996 CBA included concessions In 1994, there was no World Series from both sides and a peaceful settlement after champion for the first time in the history of a disruptive break in the baseball action in MLB.83 During the 1993 and 1994 MLB sea- 1994.91 The players received an increase in their sons, MLB owners took an opportunity to walk minimum salaries, as well as a time-in-service through the door left open by players in 1990, credit for the seventy-five playing days they and reopened discussions with players concern- missed during the strike in 1994.92 The 1996 ing issues of free agency, salary arbitration, and CBA also saw the birth of the competitive bal- minimum salary.8 4 Despite efforts by both sides ance tax, which is the present version of rev- to reach an agreement, the 1990 CBA expired enue sharing in MLB.9 3 Under the current on December 31, 1993, and a players' strike structure, the five teams with the biggest ag- began on August 12 of the following year that gregate payrolls pay the competitive balance ended any hope of a World Series.8 5 Prior to tax. 94 MLB pools the revenues from these the 1994 strike, the owners had proposed to sources and divides them among smaller rev- share incoming revenues with players on an enue and payroll teams. 95 Presumably, the tax

Summer 2005 560 Revenue Sharing in Major League Baseball helps smaller revenue clubs compete and cor- ommended that MLB should develop new ways rects an environment currently favoring player to increase revenues, and treat more revenue mobility amongst the leagues varied clubs.96 as industry revenues, which would force com- On September 9, 2002, MLB reached petition that focused on the skill of the players its most recent CBA between players and own- and the baseball acumen of the team's man- ers, with the owners voting 29-1 in favor of the agement.107 CBA's final provisions.97 Not surprisingly, the Yankees were the lone holdout.9 8 The parties 2. Despite the 1998 Curt reached an agreement for the first time in his- Flood Act, a Private Anti- tory without resulting in either a strike or lock- trust Suit Challenging a out.99 Avoiding a work stoppage is indicative MLB Labor Agreement of improving relations between the two fac- Remains Unlikely tions; however, the agreement currently in place The 2002 CBA, which sought greater may have left some owners feeling unsatisfied."°0 competitive balance in MLB, is a threat to the The 2002 CBA, other than a few minor position of the Yankees and other wealthy teams. modifications, generally leaves the 1996 agree- The Yankees, owned by George Steinbrenner, ment intact. The league's newest agreement did were the only MLB club to vote against the 2002 not change the language governing salary arbi- CBA.10 This position was likely due to the in- tration.10 1 MLB owners increased players' mini- creases in revenue sharing and the imposition mum salaries, tabled contraction until the end of a substantial competitive balance tax. In light of the present four-year agreement, and in- of the 1998 Curt Flood Act, an individual cluded provisions to discuss a worldwide draft owner, like Steinbrenner, may respond to the and drug testing for "Schedule III" anabolic unfavorable effects of the 2002 CBA by filing 1 2 androgenic steroids through the agreement. an antitrust suit alleging anticompetitive coop- The most dramatic changes to the 1996 eration in federal court. The legislative effect CBA agreement were those made in the areas of the 1998 Curt Flood Act was not a repeal of of revenue sharing and the competitive balance MLB's antitrust exemption. 10 9 Instead, it re- tax. There is a growing trend in MLB to share moved labor agreements (such as the 2002 revenues and penalize wealthy teams, which CBA) from coverage by baseball's infamous introduces a strong form of socialism into MLB. antitrust exemption, potentially bringing play- Specifically, the 2002 CBA calls for the disburse- ers and owners into federal court.110 ment of $175 billion to the teams, or $258 mil- Generally, cooperation and collusion by lion per team, phased in over four years on a labor unions is exempt from the provisions of straight pooling basis.10 3 Over the same four- antitrust law, such as the Sherman Antitrust year period, the competitive balance tax will Act. Congress views collective boycotts and increase in thresholds, above which a team will strikes, although they amount to restraints of pay a penalty to the league, from $117 million trade, as a necessary allowance to limit the to $136.5 million in 2006.14 stranglehold management might otherwise The changes made in these areas coin- have on its laborers."1 Congress made this clear cide with the recommendations made in The by passing the NLRA in 1953, which established Report of the Independent Members of the a federal policy that favored a collective bar- Commissioner's Blue Ribbon Panel on Baseball gaining process between labor and manage- Economics ("Blue Ribbon Report"), authored by ment. 1 2 If an individual owner or player elects Richard C. Levin, et al., and completed in July to file an antitrust suit, however, allegations of 2000.105 MLB commissioned the Blue Ribbon alleged misconduct must not apply to issues Report to study whether revenue disparities covered by the current MLB CBA. 113 The among clubs are seriously damaging to the Eighth Circuit first considered the implications competitive balance of MLB, and to recom- of such a challenge from professional football mend structural reforms to ameliorate the prob- players in the National Football League ("NFL") lem.10 6 The Blue Ribbon Report offered sev- in Mackey v. National Football League. 1'4 The eral suggestions to level the economic playing players alleged that the so-called "Rozelle Rule" field. Specifically, the Blue Ribbon Report rec- was "an illegal combination and conspiracy in

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restraint of trade.""15 to foster competition and parity. In Mackey, the Eighth Circuit held that before a court will consider a suit challenging a league's action with respect to labor, the plain- III. Analysis: The Delicate Bal- tiff must first demonstrate that the labor policy ancing Act between Players and in question is outside the scope of the current Owners Trying to Improve the CBA.116 Second, the plaintiff must allege that Level of Competition in MLB the labor agreement concerns a mandatory sub- In 1999, Rick Reilly's weekly Sports Il- ject of collective bargaining, and lastly that the lustrated column suggested in jest that MLB labor agreement was not the result of arm's create a MLB "Junior Varsity League" to prop- 117 length bargaining. erly account for the fact that "[o]nly four or five An antitrust challenge in federal court teams have a shot at the World Series ... (and to a MLB labor agreement must conform to the that,) [b]aseball has become as predictable as a foregoing requirements. As such, the 2002 CBA Havana City Council election." 123 Reilly's forecloses some of the most controversial issues tongue-in-cheek suggestion may not be out of from the fight until the CBA's expiration in 2006. left field considering the current state of the The threat of an antitrust suit may force MLB game. owners to reconsider their position on competitive balance in the league and the appropriate A. A Tale of Two Cities: New remedy; however, any immediate attack by York City, Montreal, and the Fail- MLB players or owners must conform to the ure of Revenue Sharing in MLB requirements of the federal courts for antitrust In light of its colored past and ineffec- suits affecting labor agreements. tiveness, the league should avoid expanding For example, in National Basketball As- revenue sharing in MLB. There is a sizable gap sociation v. Williams,"8 and Brown v. Pro Foot- in the size of MLB teams' incoming revenues ball, Inc.,119 the federal courts required that in- that exists in large part because of the amount dividuals levying antitrust challenges do so only of revenue an individual team earns selling the at the appropriate time. 2 0 The Williams and rights to broadcast baseball games on television Brown courts held that they would not hear an and radio stations locally.1 24 MLB implemented antitrust suit that challenged the provisions of revenue sharing to redistribute a small percent- an expired CBA, even if owners and players age of these local revenues more evenly to level reached an impasse during the ensuing nego- the economic playing field. 25 Some felt that if tiations.'2' A further limitation on the players' revenues were redistributed, poor teams would ability to file suit is the Eighth Circuit's require- have more money to spend and could become ment that players and owners not be currently more competitive. 26 engaged in the collective bargaining process, The Yankees, for example, owe a large thus requiring the MLBPA to be de-certified part of its incoming revenue stream to the sale 22 before a suit may be filed. of the rights to broadcast games locally in New Mounting a legal attack against owners York City, the nation's largest television and ra- in MLP and the MLBPA is ill advised in light of dio market.127 At the other end of the spec- the owners and players who are opposed to any trum, the Expos bring in a very small amount expansion of MLB revenue sharing and the of revenue from selling rights to broadcast imposition of a salary cap. As an alternative to games in its much smaller local market of this difficult road, the remainder of this Note Montreal. 128 The principle differences between endeavors to propose a cooperative solution for cities such as Montreal and New York are geo- fixing baseball's competitive imbalance. The graphic, demographic, and economic, all of solution it proposes makes use of the cartel, which guarantee that teams such as the Yan- which MLB, the federal courts, and Congress kees take in enormous amounts of local rev- have all created over time. It takes advantage enues from cities such as New York City, while of MLB's immunity from traditional antitrust teams playing in San Francisco, Kansas City, suits and operation immune to most outside Minneapolis and Montreal get whatever they market forces, by creating internal incentives can from considerably smaller populations of

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1 29 people and baseball fans. the Yankees or Boston Red Sox), more of the Some commentators believe that teams first quartile teams from MLB's Blue Ribbon 141 in small markets are less competitive on the Report 140 earned a place in the World Series. field because there is a smaller pool of potential At the bottom, however, teams remained fans from which to draw revenue. 130 When one uncompetitive and out of the postseason and examines the effect that the sale of local broad- out of the World Series. 142 In Montreal, own- cast rights has on the gap in revenues, the avail- ers improved their own position by paying able data is difficult to refute.1 31 The Commis- down debt with the revenues pouring in from sion responsible for MLB's Blue Ribbon Report around the league, and not spending money 143 concluded that a team's local television revenue on new players or facilities. was a good predictor of a team's appearances The Florida Marlins are the obvious ex- and success in the MLB postseason.1 32 The sale ception to the rule and best counterargument of local broadcast rights for regular season base- to the position that MLB should not expand its ball games is almost exclusively a function of current revenue sharing programs. Much like the local population that advertisers can expect their World Series appearance in 2001, the Yan- to reach; however, MLB is most definitely not a kees' most recent turn in the fall classic ended locally produced product. 33 To remedy the with the Bronx Bombers on the losing end.144 inherent differences, MLB redistributes funds The Marlins' World Series victory in 2003 is sig- from teams earning local revenues to poorer nificant because the team's payroll ranked 25th 1 34 teams. Thus, a poor team, such as the Expos, amongst MLB teams, unlike their first cham- 1 35 receives funds through revenue sharing. pionship in 1997, when the team's payroll 1 45 Teams like the Expos remain free to ranked fifth amongst MLB teams. "There is a growing trend in MLB to share

which introduces revenues and penalizea strong wealthy form of teams, social- Lrr0 ism into MLB, an economic system that calls into sharp relief whether Cuba's political managers are coming over with foreign players too" spend their profits on players, parks, and/or The Marlins are the first World Series 1 36 146 improving the Expos owners' rate of return. Champions from the fourth quartile of MLB. A refusal to reinvest funds in players and facili- Bud Selig, current MLB Commissioner believes ties leaves wealthy teams and their fans won- that revenue sharing is having the intended ef- dering why they share revenue if the result re- fect of increasing parity in MLB, despite own- mains the same year to year.137 The shared rev- ers' tendencies to pay down debt and increase enue allows owners to pay down outstanding their return on investment, recently stating debts and increase individual owners' rates of that, "[t]here's no question that the new eco- return. 138 nomic system ... is producing parity."147 Oth- Sharing local revenues has failed be- ers feel, however, that the recent success of small cause the money has not improved teams' com- market teams like the Marlins, Minnesota petitiveness or increased attendance.1 39 At best, Twins and Oakland Athletics, all of whom re- the plan only marginally increased parity, and ceive revenue under the revenue sharing plan, then only did so at the top of the heap. Argu- has more to do with a new management style ably, because of more revenue sharing (e.g., used by MLB owners and managers.1 48 The cropping available revenues of teams such as Marlins, Twins, and Athletics are small market

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teams with small payrolls, but they are success- because of Marvin Miller's legacy of leadership ful because of a renewed interest in baseball and negotiating prowess.'55 Miller revolution- statistics. 49 ized the economic structure of MLB by seri- Athletics' General Manager Billy Beane ously upsetting the balance of power between spends the majority of his available revenue on players and owners. 56 players who get on base frequently, pouring over The notion of placing a cap on players' statistics to find such players in other clubs' fire salaries did not originate in MLB.157 The Na- sales and in amateur drafts.150 By acquiring tional Basketball Association ("NBA") placed undervalued young players and underrated caps on the percentage of revenues that an in- veteran players, both looking to make fresh dividual team could spend on players' salaries starts and play under lucrative one-year con- in 1983.18 The league instituted a range of per- tracts, small market teams such as the Athlet- centages for the individual teams to keep their ics are successful despite their very small pay- salary spending within it. 5 9 "The years under 51 rolls. the cap have been the most successful in NBA Beane and other General Managers that history with league revenues, profits and player have adopted Beane's system are beginning to salaries skyrocketing." 160 The NFL experienced achieve the standard of competitiveness ex- similar prosperity under its own salary cap;

r "...competitive teams in smallon the markets field because are less L there is a smaller pool of potential fans from which to draw revenue."

pected by most baseball fans. 2 Teams should however, players in MLB and the National therefore seek efficient solutions to their com- Hockey League ("NHL") remain resistant to the petitive deficiencies, rather than larger amounts institution of a salary cap. 6' The resistance by of revenue from those teams already produc- MLB players led to a devastating players' strike ing winners . 153 The Marlins' success is due to in 1994,162 and has left the NHL embroiled in efficient management (wise spending of the an owners' lockout in 2004 that threatens the revenue received as a reinvestment in under- end of professional hockey in the U.S. valued players), not baseball's attempt to fix the The NBA salary cap, however, remains inequalities that exist by resorting to social- imperfect. Much like the revenue sharing plan 15 ism. 4 Thus, the success of teams like the Mar- implemented by MLB, there are problems. lins and Athletics demonstrates that fans should According to James Quirk and Rodney Fort, be waiting for efficient management in the fu- the NBA currently faces difficulties stemming ture rather than handouts from Commissioner from innocuous language in the original salary Selig. cap agreement.1 63 The original NBA agreement allowed a NBA team to match another team's B. The Improbable Salary Cap offer to one of its departing free agents, regard- Solution andthe Strength of the less of salary cap restrictions. 164 Allowing NBA MLBPA teams a last shot at keeping their free agents Unlike revenue sharing, the owners' may keep teams together; however, this largely proposed salary cap remains on the negotiat- emaciates the salary cap to the point that it is ing table and has yet to be implemented, chiefly non-existent. 165 Thus, the salary cap acts as

Summer 2005 Revenue Sharing in Major League Baseball nothing more than an artificial barrier if a team ing in an amateur draft. may exceed its limitations to prevent a star In addition to drastic changes to the 166 player from departing their ranks. draft approved by the MLBPA, the union took The MLBPA effectively keeps the salary a number of steps to ensure that player mobil- cap out of baseball by making concessions to ity and the competitive balance tax, rather than owners in other areas. For example, the MLBPA the salary cap, induce competition amongst agreed to eliminate the player compensation MLB clubs.180 Although limited today in Kan- picks that first appeared in 1981.167 Although sas City Royals Baseball Corp. v. MLBPA, the this was effective in preventing owners from Eighth Circuit held that the players in question imposing a salary cap on players, compensa- were free agents and entitled to formal salary tion picks remain a better method for main- arbitration, which formally enabled greater taining and improving competitive balance in player mobility through free agency. 8' The MLB.1 68 The 1981 CBA agreement included a arbitration decision ensured the more direct method for compensating major league clubs passage of incoming revenues to players, rather that lost players to free agency.16 9 In 1981, MLB than owners' pockets. 8 2 Owners argued that owners implemented the pooling plan for com- enabling players to become free agents and in- pensating teams in the hopes of improving par- creasing player mobility would hurt competi- 83 ity.170 MLB no longer uses this method of com- tive balance in the league. 17 pensation. The owners were wrong. 81 4 Lifting the The MLBPA conceded to the demands restrictions on player movement and upsetting of owners in 2002 when it signed the most re- the reserve clause slightly improved the level cent CBA. 172 Portions of that agreement found of competitive balance. 8 5 The owners are prob- their basis in recommendations of the MLB Blue ably also wrong about the salary cap. There Ribbon Report.173 In addition to the request will be no increased parity if MLB introduces a that the league drop the 1981 compensation cap on the amount of revenues available for picks, the report requested that baseball alter players' salaries. Teams with higher revenue eligibility standards for incoming draft picks. 174 will still have more revenue, which they can The practice of enticing incoming draft picks offer to incoming players, offer to players in to hold out and wait to sign with a high rev- arbitration, and pay penalties imposed by MLB enue club making its selections in later rounds for violating the salary cap. or a year or two after the players' original selections and offering a large signing bonus upset C. The Failure of the Competi- the competitive balance.175 As such, the rookie tive Balance Tax drafts of collegiate players yielded very few good Cooperation and collusion in profes- players to lower revenue clubs; the resulting sional sports is unavoidable and is the nature draft order of the selections was based upon of the beast.8 6 In a memorable episode of the available revenue, rather than performance. 176 National Broadcasting Corporation's popular This is in direct contradiction to the reasons for television show, "The West Wing," Richard having an available talent draft in MLB.'7 Schiff's character, Toby Zeigler, jokes that people To avoid the salary cap, the MLBPA bother him and, as such, everyone should be makes concessions in areas that do not directly killed,8 7 everyone that is, except for his beloved affect the current crop of players or the MLB New York Knicks and Yankees.1 88 Of course, players' pension plan. 78 In its infancy, the keeping the teams around requires keeping the MLBPA's main concern was the protection of sporting arenas to play in, people to operate the players' pension plan. 79 As in any other them, and someone for the teams to play industry, the MLB players' union seeks to pro- against, and as such, the Los Angeles Lakers 189 tect the interests of its current members by and Boston Red Sox stay too. erecting barriers to entry, serving the interests Zeigler's rant illustrates the need for of the whole over those of its individual mem- competitors and cooperation in professional bers, and effectively using whatever advantage sports. The reality is that sports teams do not available to the union as a whole, even to the function in a truly free market. 90 Nor are sports detriment of future members like those enter- teams successful through the physical elimina-

05 Vanderbilt Journal of Entertainment Law & Practice SPORTS

tion of their competitors.' 9' Unlike other in- pushing teams above the competitive balance dustries, where firms strive for dominance in tax.2 1 Like the NBA's regime, the tax amounts

LiLC . LULiy y Su amr, ca y JtLyULUt u 6tio -Llp LU dl llLtlicl Udli when it exists w itnout

"... the players union took a number of steps to ensure that player mobility and the competitive balance tax, rather than the salary cap, induce I competition amongst MLB clubs."

selves as monopolies, sports leagues require proper incentives to deter exceeding the limit. mutual competition and cooperation and the The competitive balance tax failed to preservation of healthy competitors to play induce more parity in baseball for the same rea- against.192 Smaller markets, such as Kansas City, sons that revenue sharing failed, and there is San Francisco, Oakland, and Anaheim would still resistance to the imposition of a salary not survive the profitability of markets like Los cap.20 2 Owners receiving funds from revenue Angeles, New York or Chicago, leaving the sharing and from the competitive balance tax Dodgers, Yankees, Mets, Cubs, and White Sox paid by wealthy clubs spent the money they 193 to play against one another. received on items other than increasing player The competitive balance tax first ap- salaries.203 MLB operates as an independent peared during the 1997 MLB season.194 Its pur- cartel, free from outside interference from an- pose was to increase parity in baseball by hold- titrust suits or competition from rival baseball ing down salaries. 95 If teams elect to exceed a leagues.20 4 The MLB Blue Ribbon Report rec- set spending limit on salaries, so the theory goes, ognized this fact and advised the league to use they must pay a tax to the league on the funds its operation as a cartel to induce more parity spent in excess of that limit. It is thought that amongst its various members by increasing rev- the tax will discourage such spending and teams enue sharing and taxing spending above the will voluntarily concede to a self-enforcing sal- current competitive balance levels at even 25 ary cap. 196 Secondly, if the league redistributes higher rates. funds earned through this tax to poorer, less MLB's Blue Ribbon Report recognized 20 6 competitive teams, the incoming revenue will the need for a MLB minimum payroll level. likely enable small market teams to spend more To increase parity in MLB, small market teams 97 on salaries and increase competitiveness.1 receiving funds from revenue sharing and the The competitive balance tax failed the competitive balance tax, must spend a mini- league in both respects. 98 "Free agent salaries mum amount of their total revenue on players' rise for one reason: an owner believes that he/ salaries in order to be successful against teams she will be more profitable by upping the bid spending much more. 2 7 Enforcement of the to sign a player than by allowing the individual current revenue sharing and competitive bal- to sign for another team ... owners have a pow- ance tax plans without the imposition of a mini- erful incentive to circumvent the rules that con- mum payroll on all MLB teams makes it un- 20 8 strain their profits."'199 Innocuous language was likely the league will ever see more parity. the cause of the NBA salary cap agreement's To date, there is no minimum payroll failure to prevent teams from exceeding its strict in MLB and teams are free to allocate any per- 200 limits. Likewise, the incentive to capture and centage of their available funds to players' sala- retain the most qualified talent in baseball keeps ries.29 Owners have incentives to continue cir-

Summer 2005 566 Revenue Sharing in Major League Baseball cumventing the spending limits at the high end, IV. Solution: Creating New Eco- exceeding the luxury tax and simply paying nomic Incentives and -Expanding more in penalties to increase profitability.21 An the Postseason Will Increase Par- individual owner valuing a players' worth in- ity among MLB Clubs cludes the amount he will have to pay by ex- MLB should encourage parity via the tra- 211 ceeding the competitive balance tax. ditional way: the free market. It should create Small market clubs that feel they are incentives to return ownership of every team's receiving too small an amount from revenue minor league teams to the owners of the big club. sharing and the competitive balance tax to be Generally, minor league franchises serve as competitive will continue to expend funds on training grounds for major-league players. 221 As anything other than player salaries; therefore, such, clubs either contract with or own four to competition in MLB will remain stagnant.212 It six minor league teams, and each minor league is unlikely that a wealthy MLB club disap- team plays at a separate level of talent and ex- pointed with the failure of revenue sharing and perience.222 Major league clubs have separate the competitive balance tax to increase parity contracts with each of their affiliates, which es- in baseball will bring an antitrust suit challeng- sentially create a market for minor league teams' ing the provisions of the 2002 MLB CBA.213 This allegiances to the various big clubs.223 Each mi- is an odd result, despite the fact that teams such nor league team signs and develops its minor as the Pittsburgh Pirates and Montreal Expos league players at standard contract rates for its arguably squander their windfalls, "replacing respective affiliated major league club.224 Base- quality players with cheaper, inexperienced ball operates on thin ice, basing much of its busi- players once quality players begin to earn mar- ness model on an antiquated exemption from ket-level salaries." 214 According to Marburger, antitrust litigation. the Pirates and Expos act in their own best in- The 1998 Curt Flood Act removes labor 225 terests by carrying out just such a failing busi- agreements from the exemption's coverage. ness model on the field, in favor of the positive It threatens the relationship between MLB and effect it has on the books.21 Increasing profit- the minor leagues. The belief is that the ex- ability is the bottom line for any firm, includ- emption remains intact for the minor ing every one of the MLB clubs, and as such, leagues. 226 MLB teams could better develop "[tihe result (is) an increase in the number of talent in their own ranks in a vertically inte- mid-season cost-cutting trades as teams with grated enterprise. Developing new talent is in- losing records jockey to position themselves for tegral to parity in the league.227 If MLB is thirty more postseason subsidies."216 vertically integrated clubs from Rookie ball Baseball needs a new solution for in- through to the major league teams, it can ar- creasing parity. Smarter management, not rev- gue labor agreements with minor league play- enue sharing, increased parity in MLB. 217 Like- ers should remain exempt from antitrust liti- wise, a salary cap in MLB is unlikely because it gation. Baseball colludes in any number of ar- will not have the owners' anticipated effects of eas, because every successful baseball team diminished player salaries or increased parity needs at least one other healthy competitor, and 228 in postseason play.218 The competitive balance greater parity in the league. tax failed because baseball fails to improve low Under another revenue sharing plan, revenue teams' chances of reaching the shared funds should match the investment an postseason.21 9 The competitive balance tax does owner makes in the team. Teams receiving rev- not include safeguards (i.e., in the form of the enue remain resistant to investing more funds minimum payroll) to ensure that the money in the size of their payrolls.229 The failures of reaches its intended destination, increasing the teams like the Expos and the Pirates leave many 220 payrolls of the teams receiving the funds. baseball fans and owners wondering whether there is any value in a revenue sharing plan implemented without a league minimum for payrolls and incentives to put revenue received back on the field and in the stands.230 Pres- ently, the league's incentive structure is com-

57 Vanderbilt Journal of Entertainment Law & Practice SPORTS

pletely backwards. 231 of, only the World Series.235 As the leagues ex- Any plan to cooperate and share local panded, they introduced divisions into MLB's revenues or to tax teams that spend more than makeup and allowed each of the four division a threshold amount must include the imposi- winners to take a place in the postseason and 236 tion of a league minimum payroll and economic an opportunity to vie for the ultimate prize. incentives for teams that exceed the minimum The more dramatic change for baseball payroll. Bringing team payrolls closer together was the introduction of a wild card team from requires temperance at both ends of the spend- each league.2 37 In the past, baseball expanded ing spectrum. High revenue clubs will inevita- its postseason to give more teams a realistic bly exceed any artificial limit created by a com- chance to reach the World Series and increase petitive balance tax, including the payment of interest in pennant races at the end of the regu- any penalties imposed by such a tax in a player's lar season.238 MLB succeeded. 239 Baseball's valuation.23 2 If a low revenue club feels that it popularity increases over the progression of the cannot be competitive with the funds they re- baseball season, and during the evolution of the ceive, absent a minimum payroll they must postseason, because teams stay in the hunt 233 meet, owners will direct the funds elsewhere. longer as there are four spots currently avail- Teams that meet and exceed the league able in both leagues. 240 minimum payroll ought to receive larger shares It is time for baseball to expand again, of available league revenues. In addition, teams this time allowing twelve teams to reach the that reach the postseason in years after increas- postseason and rewarding the regular season ing their payrolls should receive a bonus. The champions and second place teams in each bonus should be unavailable to those teams league a bye during the first round of the play-

"Baseball operates on thin ice, basing much of its business model on an antiquated exemption from antitrust litigatio n:'

that already exceed the competitive balance tax. offs. Such a plan would be essentially the same By realigning the current incentives with the as the playoff system as that used by the NFL. leagues desired results, MLB will observe a 241 Neither the MLB postseason or NFL playoffs fairer distribution of wealth in the league and is nearly as expansive as the NHL or NBA "sec- increased parity. If improving a firm's bottom ond seasons." 242 Expanding baseball's line requires improving its competitiveness on postseason will increase interest in the game and the field, it will take the necessary steps to do inspire more teams to compete for a chance to both. play in the World Series.243 Coupled with new Finally, MLB should expand the incentives to return ownership of minor league postseason, allowing six teams from each league teams to the big clubs, and rewarding teams to reach the playoffs and adding a first round committed to making investments in competi- bye for the top two teams in each league. "Eight tiveness will increase parity in MLB and avoid teams, one champion" is the current tagline for any further expansion of socialism in the game. MLB's postseason.234 Before the imposition of the league championship in 1969, and division series in 1995, there were no playoffs to speak

Summer 2005 568 Revenue Sharing in Major League Baseball

Glory, Major League Baseball, at http:// V. Conclusion: Can Old Glory mlb.mlb.com/NASApp/mlb/mlb/news/ Come from Behind and Win? mib_new.js0-pmd=2iY909&wntent id=124582&vkey MLB owners implemented various plans =newsmlb&fext=.jsp (Sept. 9, 2002). to share local revenues, to institute a salary cap, and imposed a competitive balance tax on 3 Id. wealthy clubs all in hopes of leveling the economic playing field.244 All owners remain free, 4Id. however, to either reinvest the money received in the team and stadium or pocket the money as 5 Jim Molony, For the Record; A Summary of How profit.245 As such, the redistribution does not the Sports World Responded to the Sept. 11 Trag- have the desired effect on improving parity.246 edy, SPORTS ILLUSTRATED, Sept. 24, 2001, MLB attempted to improve the level of compe- at 26. tition through collective bargaining. 247 The suggested solutions failed because MLB failed to 6 Eric Zorn, Flag Displays Are True to Heart, If enforce spending limits on low revenue clubs Not Up to Code, CHI. TRIB., Sept. 18, 2001, at and correctly incentivize teams to perform on N1. 248 the field. MLB should encourage increased par- 7 Id. ity in the traditional way: the free market. The league should create incentives to return own- 8 James Traub, Take Me Out to the Picket Line, ership of every team's minor league teams to WALL ST. J., Aug. 22, 2002, at A12. the owners of the big club.249 In the alternative, if MLB implements 9 Stefan Fatsis, It's a Whole Old Ballgame - La- another revenue sharing plan, then the shared bor Deal Won't Solve Small-Market Labor Woes, funds should match the degree of investment WALL ST. J., Dec. 6, 1996, at Bll. an owner is willing to make into a team. Fi- 25° nally, MLB should expand the postseason. "0Traub, supra note 8 (discussing the history of Baseball's failures to improve parity are a real the luxury tax, but noting the league's failed threat to the popularity and thereby financial attempts at implementing a salary cap in 1994, viability of MLB. The failures threaten the in- arguably the cause of the players' strike that troduction of more socialism into the game's year); see also Stephen Baker, Baseball's Losers 251 management. MLB needs new incentives. Still Lose, BUS. WK., Dec. 16, 1996, at 42 (de- Who knows? If MLB can improve parity while scribing the revenue sharing plan implemented preserving a more traditional market approach, on December 3, 1996 in the form of a luxury one day MLB may bring the American flag back tax paid by wealthier clubs to the league's poor- too. est clubs).

11 Baker, supra note 10. ENDNOTES 12 Traub, supra note 8. 'J.D. Candidate, Vanderbilt University Law School, 2006: B.S.B.A., University of Arizona, 13 Id. 2003. Matthew would like to thank his edi- tors, particularly Robert Leclerc for his edito- 14 Dave Sheinin, For Fans, It's Time To Say rial insight, and his parents and friends for their Goodbye, WASH. POST, Sept. 30, 2004, at D15. support and inspiration. 15 Scott Boeck, Expos Relocation Timeline, USA I Tom Verducci, Desert Classic, SPORTS ILLUS- TODAY, Sept. 30, 2004, at 2C. TRATED, Nov. 12, 2001, at 36, 38. 16 Sheinin, supra note 14; Joseph White, Base- 2 Jim Molony, 9/11 Brought the Return of Old ball Takes Root in Nation's Capital, VANDERBILT HUSTLER, Oct. 1, 2004, at 15.

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17 See generallyFlood v. Kuhn, 407 U.S. 258 (1972); 30 Id. at 94-95. Toolson v. New York Yankees, Inc., 346 U.S. 356 (1953); Fed. Baseball Club v. Nat'l League, 259 31 Flood, 407 U.S. at 259. U.S. 200 (1922). See also Curt Flood Act of 1998, 15 U.S.C. § 26b (2004) (originally classified as 15 32 Id. Professional baseball's reserve system al- U.S.C. § 27a) (removing labor agreements be- lowed owners to unilaterally renegotiate a tween players and owners from coverage by player's contract at the player's existing salary baseball's antitrust exemption). The statute is upon his current contract's expiration, if the named for Curt Flood, a St. Louis Cardinals out- player and his owners did not reach an agree- fielder who challenged MLB's reserve clause. ment before the commencement of the next season. Id. 18 Anti-trust Act of July 2, 1890, 15 U.S.C. §§ 1, et seq. (2005) (Sherman Antitrust 33 Id. at 284-85. Act)(effectively eliminating unfair competition and restraint of trade by imposing stiff penal- 34 Id. at 285. ties on individuals and corporations engaged in such acts). 31 Id. at 279 (quoting Radovich v. Nat'l Football League, 352 U.S. 445, 452 (1957)). 19 Id. 36 15 U.S.C. § 26b(a). 20 Id.; Clayton Act of 1993 § 27, 15 U.S.C. § 17 (2004) (removing labor from the scope of the 37 15 U.S.C. § 26b(b) ("No court shall rely on Sherman Antitrust Act); W. Kip VIscusI ET AL., the enactment of this section as a basis for ECONOMICS OF REGULATION AND ANTI- changing the application of the antitrust laws TRUST 65-66 (3d ed. 2001). to any conduct, acts, practices, or agreements other than those set forth in subsection (a)"). 21 VIscusI ET AL., supra note 20, at 67. 38 15 U.S.C. § 26b(a) 22 See generally Flood, 407 U.S. 258; Toolson, 346 [Aigreements of persons in the business of or- U.S. 356; Fed. Baseball Club, 259 U.S. 200. See ganized professional major league baseball di- also 15 U.S.C. § 26b (removing labor agree- rectly relating to or affecting employment of ments between players and major league baseball players to play baseball owners from coverage by baseball's antitrust at the major league level are subject to the anti- exemption). trust laws to the same extent [as] agreements would be subject to the antitrust laws if engaged 23 See generally Flood, 407 U.S. 258; Toolson, 346 in by persons in any other professional sports U.S. 356; Fed. Baseball Club, 259 U.S. 200 (to- business affecting interstate commerce. gether creating an exemption for professional Id. baseball from federal and state antitrust law). 39 See generally, Radovich, 352 U.S. 445; United 24 Fed. Baseball Club, 259 U.S. 200, 207. States v. Int'l Boxing Club, 348 U.S. 236 (1955); United States v. Shubert, 348 U.S. 222 (1955) 25 Id. (involving theatre groups seeking an exemption to traditional antitrust law under a theory 26 Id. at 207-08. that the operation of a theatre production is similar to those of organized professional 27 Id. at 208. baseball's counterparts in football and boxing).

28 Toolson, 346 U.S. 356. 40 Loewe v. Lawlor, 208 U.S. 274, 295-96 (1908).

29 Id. 41 Id. at 309.

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42 15 U.S.C. § 26b; Norris LaGuardia Act, 29 U.S.C. §§ 101-108 (2004)(creating a federal policy 54 Philip R. Bautista, Congress Says, "Yooou're favoring organized labor). Out!!!" to the Antitrust Exemption of Professional Baseball: A Discussion of the Current State of 41 National Labor Relations Act, 29 U.S.C. §§ Player-Owner Collective Bargaining and the Im- 151-169 (2004). pact of the Curt Flood Act of 1998, 15 OHIO ST. J.ON DISP. RESOL. 445, 457 (2000). 44 29 U.S.C. §§ 153, 159-168 (2004). -" Staudohar, supra note 47, at 50. 45 15 U.S.C. § 26b. 56 See generally Flood v. Kuhn, 407 U.S. 258 (1972). 46 Robert A. McCormick, Baseball's Third Strike: The Triumph of Collective Bargaining in Profes- 57 VIscusI ET AL., supra note 20, at 67. sional Baseball, 35 VAND. L. REV. 1131, 1152 (1982) (citing American League of Prof'l Base- 58 Uniform Player's Contract, clause 10(a) re- ball Clubs & Ass'ns of Nat'l Baseball League printed in Flood, 407 U.S. at 260. Umpires, 180 NLRB 190, 190-91 (1969)). 59 McCormick, supra note 46, at 1158 (citing 41 Paul D. Staudohar, The Baseball Strike of 1994- 1976 Baseball Basic Agreement, Art. XVII, B(2), 95, in DIAMOND MINES 48, 50 (Paul D. reprinted in Comment, Nearly a Century in Staudohar ed., 2000); Barry M. Bloom, Owners Reserve: Organized Baseball, Collective Bargain- Approve New CBA, 29-1, at http:// ing and the Antitrust Exemption Enter the '80's, 8 mlb.mlb .com/NASApp/mlb/mlb/news/ PEPP. L. REV. 313, 338 (1981)). mlb_newsjspymd=2f-2O5&mntent id=121870&vl'ay= newsmlb&fext=.jsp (Sept. 5, 2002). 60 Id.

6 41 William W. Wright & Mick Cochrane, The 1Staudohar, supra, note 47, at 50-51. Uses of History in Labor Disputes, in DIAMOND MINES, supra note 49, at 62, 71 (citing Claire 62 Staudohar, supra note 47, at 51; Bautista, su- Smith, Take 700 Players and 28 Owners and it pra note 54, at 458. Winds Up to 0 Solution, N.Y. TIMES, Sept. 15, 1994, at B13 ("Labor discord managed to do 63 Kan. City Royals Baseball Corp. v. Major what the Kaiser, Hitler and the Great Depres- League Baseball Players Ass'n, 532 F.2d 615, 618 sion could not: bring the national pastime to (8th Cir. 1976). the ground in ignominious defeat and disgrace")). 64 Id.

49 McCormick, supra note 46, at 1153 (citing J. 65 Id. at 632. WEISTART & C. LOWELL, THE LAW OF SPORTS 523 (1979)). 66 Id.

50 McCormick, supra note 46, at 1152. 67 Staudohar, supra note 47, at 51.

51 Id. 68 Id. at 50; Bautista, supra note 54, at 460 (citing Jane Leavy, Strike is Off, Study Set on Com- 52 Wright & Cochrane, supra note 48, at 65. pensation, WASH. POST, May 24, 1980, at Cl); Miller was a former chief economic advisor to McCormick, supra note 46, at 1135-36. the President of the United Steelworkers of America and a formidable negotiator for the 69 Bautista, supra note 54, at 460 (citing Leavy, MLBPA. Id. supra note 68).

53 29 U.S.C. § 157 (1994). 70 Id. at 464.

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known as 'Fehr and Loathing,' and their hostile 71 Id. relationship was a key factor in causing and pro- longing the strike."). 72 Id. 90 Bautista, supra note 54, at 445. 73Bautista, supra note 54, at 460 (citing Anthony Sica, Baseball's Antitrust Exemption: Out of the 91Id. at 465. Pennant Race Since 1972, 7 FORDHAM INTELL. PROP. MEDIA & ENT. L. J. 295, 338 (1996) (cit- 92 Id. (citing Stephan Fatsis, Baseball Pact is ing Ross Newhan, Players Set the Strike Date: Ratified by Owners, WALL. ST. J., Nov. 27, 1996, August 6, L.A. TIMES, July 16, 1985, at 3-1)). at A3).

4 Bautista, supra note 54, at 460. 13 Id. In reality, the luxury tax is not revenue sharing in the traditional sense. Strict revenue 75 Staudohar, supra note 47, at 51. sharing would require owners with more incoming revenue to write checks to those clubs 76 Bautista, supra note 54, at 461-62. earning less. Under the luxury tax, it is techni- cally up to each individual owner whether his 77 Id. (citing JERRY GORMAN & KIRK CALHOUN, THE club will spend over the luxury tax's limit and NAME OF THE GAME 153 (1994)). incur the penalty. As such, if no team spends above the limit then revenue will not move 78 Id. at 462. from team to team. Economically, a team should not spend differently under either plan; 79 Staudohar, supra note 47, at 51. however, the subtle difference should be ac- counted for. Id. 80 Id.

94 Id. 81 Id. at 51-52. 95 Id. at 465. 82 Bautista, supra note 54, at 463 (citing Sica, supra note 73, at 343 (citing Murray Chass, 96 Id. Baseball Negotiations Cleaning up Loose Ends, N.Y. TIMES, Mar. 20, 1990, at Bli)). 97 Bloom, supra note 47.

83 Wright & Cochrane, supra note 48, at 71 (cit- 98 See id. ("The New York Yankees, the team ing Smith, supra note 48 ("Labor discord man- that will pay the most into the system under aged to do what the Kaiser, Hitler and the Great the agreement because it has the highest player Depression could not: bring the national pas- payroll and greatest local revenue, cast the only time to the ground in ignominious defeat and negative vote."). disgrace.")). 99 Staudohar, supra note 47, at 50; Bloom, supra 84 Staudohar, supra note 47, at 52. note 47; see supra text accompanying notes 49- 51. 85 Id. at 55-56. 100 Scott McCartney, Leveling the Field: Money 86 Id. at 53-54. Still Counts in Baseball, but with Revenue Shar- ing, Small-Budget Teams Are in the Game, WALL 87 Id. at 54. ST. J., Oct. 18, 2004, at R1 ("In a ... TV com- mercial... Steinbrenner is hampered by a ban- 88 Id. at 54-55. daged arm, apparently from signing so many large checks to his players.... What has really 89 Id. at 55 ("The two chief negotiators became hurt . . . Steinbrenner isn't the checks he has

Summer 2005 572 Revenue Sharing in Major League Baseball written for his players. Rather, it is the checks the Commissioner's office the final decision over he has written to other [MLB] teams."). how teams that lost players to free agency were to be compensated. Id. 101 Tom Singer, Deal in Place, Games Go On, at http://mlb.mlb.com/NASApp/mlb/mlb/news/ 116 Id. at 614. mlb rmwsjsp .Tnd=20(8gR1 nam id=116907&vkey= newsmlb&fext=-.jsp (Aug. 30, 2002). 117 Id.

102 See id. 118 45 F.3d 684 (2d Cir. 1995).

103 See id. 119 518 U.S. 231 (1996).

104 See id. 120 See generally, Brown, 518 U.S. 231; Williams, 45 F.3d 684. 105See generally, Richard C. Levin et al., THE REPORT OF THE INDEPENDENT MEMBERS 121 Bautista, supra note 54, at 477 (citing Brown, OF THE COMMISSIONER'S BLUE RIBBON 518 U.S. at 230-31; Williams, 45 F.3d at 693). PANEL ON BASEBALL ECONOMICS, available at http://www.mlb.com/mlb/downloads/ 122 Id. at 477 (citing Picher, supra note 116, at blueribbon.pdf (July 2000). 34).

106 See id. at 1. 123 Rick Reilly, A Low-Rent League of Their Own, SPORTS ILLUSTRATED, Mar. 15, 1999, at 138. 107 See id. at 6, 8. The Blue Ribbon Report recommended that MLB share at least 40% of all 124 McCartney, supra note 100. member clubs' local revenue, levy a 50% competitive balance tax on club payrolls above a 125 Id. MLB teams currently receive an equal fixed threshold, institute a competitive balance share of 34% of local revenues, taken from ev- draft, and implement reforms to its Rule 4 draft, ery MLB team, rich and poor. Id. the existing source of new talent, and allow fran- chise relocation. Id. at 14-15. 126 Id. at R1, R3.

108 Bloom, supra note 47. 127 Levin et. al, supra note 105, at 17 ("In 1999, the range of local revenues was enormous from 109 15 U.S.C. § 26b(b). $12 million for Montreal to $176 for the New York Yankees."). 110 15 U.S.C. § 26b. 128 Id. 1 29 U.S.C. §§ 151-168. 29 1 Id. 112 Id. 130 Id. at 5 ("[T]oo many clubs know in spring 113 Bautista, supra note 54, at 478 (citing Tho- training that they have no realistic prospect of mas C. Picher, Baseball's Antitrust Exemption reaching postseason play."); Fatsis, supra note Repealed: An Analysis of the Effect on Salary Cap 9. and Salary Taxation Provisions, 7 SETON HALL J. SPORT L. 5, 37 (1997)). 131 Levin et al., supra note 105, at 4.

114 543 F.2d 606 (8th Cir. 1976). 132 Id. at 6.

115 Id. at 609. The rule was named for Pete 133 Id. ("It takes two clubs to have a game and Rozelle, Commissioner of the NFL, and granted 30 to have today's divisional races.").

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Billy Beane's system, immortalized in Lewis' 134 McCartney, supra note 100. book, MONEYBALL, supra note 148).

135 Darren Rovell, Follow the Money, at http:// 151 LEWIS, supra note 148, at 119-20. espn.go.com/mlb/s/2003/0320/1526812.html 152 (Mar. 20, 2004). Levin et al., supra note 105, at 13, 19 ( "Awell- managed club that demonstrates baseball acu- 36 1 8ee generally id. men should allow its fans a reasonable hope that their club will be able to play and win in the 137 Bloom, supra note 47. postseason.").

138 Rovell, supra note 135. 153 LEWIS, supra note 148, at 123.

139 Id. 154 Id.; St. John, supra note 148.

140 Levin et al., supra note 105, at 4 (the teams 155 LEWIS, supra note 148, at 64 ("Owners still talk in the first quartile represent the top 25% of about the need for a salary cap to 'preserve' com- MLB teams in terms of both revenue and pay- petitive balance, but the experience of baseball roll). under free agency makes it hard to keep argu- ing this with a straight face. Instead, there is 141 In the American League, however, the Yan- more talk about the need for a cap on payrolls kees have been quite dominant-almost exclu- to keep teams profitable, especially small mar- sively representing the first quartile in the AL ket ones."). (the Yankees played in the '98, '99, '00, '01, and '03 World Series, winning in '98, '99, and '00). 1-6 Wright & Cochrane, supra note 48, at 65; see supra text accompanying notes 54-57. When 142 Rovell, supra note 135; Levin et al., supra note Miller took over as executive director of the 105, at 4 ("With the exception of 1998, even MLBPA in the early 1970's, the players' union the World Series loser has been from payroll was little more than a company union taking quartile I. (The 1998 loser, San Diego, was from direction from MLB owners. JAMES QUIRK Quartile II and lost in four games.)"). & RODNEY FORT, HARD BALL 51 (1999).

143 Rovell, supra note 135. 157 QunuK & FORT, supra note 156, at 64.

144 McCartney, supra note 100. 158 Id. at 65.

145 Levin et al., supra note 105, at 70. 159 Id. The original cap prevented teams from spending less than 47% of total league revenues 146 McCartney, supra note 100. divided by the number of teams in the NBA and more than 53% of total league revenues 147 Id. (quoting MLB Commissioner Bud Selig). divided by the same number. Id.

148 See generally MICHAEL LEWIS, 160 Id. MONEYBALL (2003); McCartney, supra note 100; Allen St. John, Side Entrance: Why Have 161 Id. Wild-Card Teams Fared So Well in the World Series?, WALL ST. J., Oct. 18, 2004, at R5. 162 Id. at 65-66.

149 McCartney, supra note 100; St John, supra 163 Id. at 67-68. note 148. 164 Id. 150 See McCartney, supra note 100 (refering to

Summer 2005 574 Revenue Sharing in Major League Baseball

165 See id. 179 QUIRK & FORT, supra note 156, at 51. 166 See id. 0 Bloom, supra note 47.

167 See generally Bloom, supra note 47. I" Kansas City Royals Baseball Corp. v. MLBPA, 168 Id.; Levin et al., supra note 105, at 41-42. 532 F.2d 615, 632 (8th Cir. 1976). An indepen-

169 dent arbitrator considered grievances filed by Bautista, supra note 54, at 464. In essence, play- the MLBPA on behalf of Andy Messersmith and ers were separated into two pools, a pool of "A" Dave McNally (two MLB pitchers), alleging players and a pool of "B" players depending that MLB owners denied them their rights to upon their performance during the previous two deal with other teams for their services after years. A team losing an "A" player received an their year on reserve. The MLBPA requested extra player in the subsequent year's amateur that the owners be ordered to treat these play- draft, as well as a player from the compensation ers as free agents and to compensate them for pool of players. Teams losing a "B" player re- any financial detriment incurred due to their ceived two extra selections in the next year's delay in doing so, as previously directed to un- amateur draft. Id. der the 1973 CBA. Id.

182 QUIRK & FORT, supra note 156, at 62-63.

171 See generally Bloom, supra note 47. 183 Id. at 62.

172 Idl. 184 Id. at 63.

173 Id.; Levin et al., supra note 105, at 41-42. 185 Id. 174 Levin et al., supra note 105, at 41-42. 186 See generally Daniel R. Marburger, Baseball's 175 Id. The Blue Ribbon Report recommended New Collective BargainingAgreement: How Will that the rule should change to a scenario where, It Affect the National Pastime?, in SPORTS ECO- amateur players forfeit all future collegiate eli- NOMICS 191 (John Fizel et al. eds. 1999). gibility by declaring themselves eligible for the draft. The adoption of this rule, which is addi- 187 The West Wing: Isaac and Ishmael (NBC tele- tionally justified as an incentive to education vision broadcast, Oct. 3, 2001) Isaac and by the NCAA, would alter the leverage of ama- Ishmael aired shortly after the terrorist attacks teur players and allow lower revenue clubs to on New York City and Washington D.C. on draft and sign the best available players. Id. September 11, 2001. The episode was aired in response to the tragedy, offering a somber com- 176 Id. Under normal circumstances, draft or- mentary on the state of the world and remem- der is determined by the previous year's finish- bering the lives lost in the attacks. Id. ing order in hopes that less successful teams may acquire the best available talent and be 188 Id. more successful in the coming year. Teams with larger amounts of revenue encourage hold outs 189 Id. Zeigler threw in the Lakers girls too, by young players and upset the order, finish- eventually allowing everyone to live. Id. ing high and still acquiring the best available talent further entrenching themselves as peren- 190 QUIRK & FORT, supra note 156, at 182-83. nial leaders. Id. 191 Id. at 183 (discounting the argument that 177 Id. MLB and sports leagues like it are 'natural monopolies'). 178 Id.

Vanderbilt Journal of Entertainment Law & Practice SPORTS

on the time and place, and distribution of rev- supra note 100. enues."). 209 See generally Bloom, supra note 47 (revealing 193 This would hardly be an attractive sporting no provisions for a league minimum salary in season for any fan to follow, especially to fans the most recent MLB CBA, an agreement outside these large television and radio markets. reached after the Blue Ribbon Reports and pub- lished findings in 2000). 194 Marburger, supra note 186, at 193 210 Marburger, supra note 186, at 193.

195 Id. 211 Id. at 194. 196 See id. 212 McCartney, supra note 100; Levin et al., su- 197 See id. at 196-97. pra note 105, at 1.

198 Levin et al., supra note 105, at 1. A summary 213 See Bautista, supra note 54, at 478; see also of the Blue Ribbon Report's findings and con- supra Part IJ.B.2. clusions included the following finding: [t]he limited revenue sharing and payroll tax 214 Marburger, supra note 186, at 196. that were approved as part of MLB's 1996 (CBA) with the (MLBPA) have produced neither the in- 215 Id. at 196-97. tended moderating of payroll disparities nor improved competitive balance. Some low-revenue 216 Id. at 197. clubs, believing the amount of their proceeds from revenue sharing insufficient to enable 217 LEWIS, supra note 148, at 123; St. John, supra them to become competitive, used these pro- note 148; see supra text accompanying notes ceeds to become modestly profitable. 152-54. Id. 218 QuIRK & FORT, supra note 156, at 62-63. Fur- 199 Marburger, supra note 186, at 193. ther, "player salaries instead simply reflect the value of players to teams. The value of players 200 QUIRK & FORT, supra note 156, at 67-68. is high today because pro team sports is so popular with the public and because the mo- 201 Marburger, supra note 186, at 193. nopoly power of leagues and teams allows them to maximize their share of the high levels of 202 Levin et al., supra note 105, at 1. revenue from ticket sales, TV contracts, stadium deals and the like." Id. at 92. 2 03 Id. 219 Levin et al., supra note 105, at 5. 204 Id. at 5. 220 See id. at 8. 205 Id. at 6-8; see supra text accompanying notes 105-07. 221 MARKHAM & TELPLITZ, supra note 192, at 40.

206 Levin et al., supra note 105, at 8. 222 See id. This "farm system ordinarily includes a team in each level: Rookie, class A, class AA, 207 See id. and class AAA." Id.

208 Id. As of 2003, the gap between the team 223 See id. The current system allows a fran- spending the most on players' salaries (the Yan- chise to affiliate with another parent major kees) and the team spending the least (the league club and switch rosters without upset- Expos) had grown to $157 million. McCartney, ting the development of individual players. Id.

Summer 2005 576 Revenue Sharing in Major League Baseball

224 Stanley M. Brand & Andrew J. Giorgione, VIEW, available at mlb.mlb.com/NASApp/mlb/ Symposium 6-4-3 (Double Play)! Two Teams Out: mlb/history/postseason/mlb-ds.jsp (last visited Contractionin Baseball the Effect of Baseball'sAnti- Apr. 3, 2005). trust Exemption and Contraction on its Minor League Baseball System: A Case Study of the Har- 236 St. John, supra note 148. risburg Senators, 10 VILL. SPORTS & ENT. L. F. 49, 57-58 (2003) [hereinafter Double Play]. 237 See id.

225 Id. at 58. 238 See id.

226 See generally Jeff Friedman, Antitrust Exemp- 239 See id. tion Vital for Minor League Survival: MLB & Parent Clubs Must Put Money Behind 1991 Sta- 240 See id. dium Standards, 1 DEPAUL J. SPORTS L. CONTEMP. PROBS. 118, 119 (2003); Double 241 See id. (generally discussing the downsides Play, supra note 224, at 57-58. of being a wildcard team in the NFL).

227 See generally Levin et al., supra note 105, at 242 The NBA and NHL each allow eight teams 13, 41-42. It is more difficult to achieve a fair from their eastern and western conferences to distribution of new talent without standard reach the postseason; 16 teams to pare down to contracts of service available across the board. one champion. Id. 243 St. John, supra note 148. 228 QUIRK & FORT, supra note 156, at 125-26; MARKHAM & TEPLITZ, supra note 192, at 19. 244 Traub, supra note 8.

229 McCartney, supra note 100; Levin et al., su- 245 Id. pra note 105, at 1, 38-39. 246 Id. 230 Marburger, supra note 186, at 196-97. 247 See generally supra Part II.B. 231 Id. at 197; see supra text accompanying notes 209-16. 248 McCartney, supra note 100; Levin et al., supra note 105, at 1, 38-39. 232 Marburger, supra note 186, at 194. 249 If MLB is thirty vertically integrated clubs 233 McCartney, supra note 100; Levin et al., supra from Rookie ball all the way through to the note 105, at 1, 38-39. major league teams, it has a better argument that labor agreements with minor league play- 234 Brian Steinberg, New and Improved!, WALL ers should remain exempt from antitrust liti- ST. J., Oct. 18, 2004, at R4. gation.

235 See LCS OVERVIEW, available at http:// 250 Baseball should expand the postseason by www.mlb.com/NASApp/mlb/mlb/history/ allowing six teams from each league to reach postseason/mlb-lcs.jsp (last visited Apr. 3, the playoffs and adding a first round bye for 2005); see also MARKHAM & TEPLITZ, supra note the top two teams from each league. 192, at 37 (explaining that in 1978 each league maintained two divisions, each of which pro- 251 Baseball needs to return ownership of mi- duced a division champion to contend in the nor league teams to the big clubs, reward teams league's respective league championship series committed to making an investment in competi- and that the winners of these series then con- tiveness, and expand the postseason. tended in the World Series to determine the World Champion); DIVISION SERIES OVER-

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