CHAPTER EIGHT ANTITRUST AND SPORTS: THE BASEBALL EXEMPTION This is the first antitrust Chapter following the antitrust primer, and it starts with the earliest cases involving both sports and antitrust. The introductory discussion between Casey Stengel and various United States Senators in 1958 is intended for the amusement of the reader. In addition, it should take the reader back to what it was like to be involved with professional baseball and the major and minor leagues in the first half of the twentieth century. The first four cases -- Federal Baseball, Toolson, Salerno, and Flood -- chronicle the history and development of the baseball exemption. The final three cases all post-date the Supreme Court's decision in Flood, and concern the scope of the exemption. The following text addresses Chapter 8 and the Baseball Exemption in two ways. The first part of the text is a hornbook description of the historical development of the baseball exemption, which discusses the cases in the Chapter as part of that development. The second part of the text goes case-by-case through the Chapter, discussing the significance of each case and the notes and questions that follow those cases. I. THE HISTORICAL DEVELOPMENT OF THE BASEBALL EXEMPTION The following is a hornbook description/analysis of the baseball exemption: In a series of cases, the Supreme Court has considered the application of the antitrust laws to professional sports. In Federal Base Ball Club of Baltimore, Inc. v. National League of Professional Base Ball Clubs, the Supreme Court first considered the issue and held that the "business [of] giving exhibitions of base ball" did not constitute interstate commerce, even though the competitions were "arranged between clubs from different cities and States" and the League had to induce and pay for players and other personnel to cross state lines.1 Accordingly, the Court did not reach the merits of the case, but affirmed the lower court's dismissal of the case.2 The Court expressed the view that "personal effort, not related to production, is not a subject of commerce," and the exhibitions were not interstate, so neither commerce nor interstate commerce were at issue.3 1 259 U.S. 200, 208-09 (1922). 2 The plaintiff, the only remaining team in baseball's Federal League, had secured an $240,000 verdict after trebling against the National and American Leagues for buying up Federal League teams and inducing teams to leave the Federal League in other ways. On appeal, the Court of Appeals in the District of Columbia had held the antitrust laws inapplicable and entered judgment for the defendants. See 259 U.S. at 208; National League of Professional Baseball Clubs v. Federal Baseball Club of Baltimore, 269 Fed. 681, 688, 50 App. D.C. 165 (D.C. Cir. 1921). 3 259 U.S. at 208-09. Teachers Manual -- Chapter Eight (Continued) Over the next thirty years, the analysis of the Federal Base Ball decision was undermined by holdings that the provision of personal services constituted commerce and that the required interstate nexus was much less than was present in baseball's professional leagues. The Supreme Court next considered the application of the antitrust laws to baseball in Toolson v. New York Yankees, Inc.,4 and dismissed several appeals that involved challenges by players against baseball's reserve system. Despite the express holding of Federal Base Ball having been that baseball exhibitions did not involve interstate commerce, the Toolson majority held that it was affirming based on the authority of the Federal Base Ball decision, "so far as that decision determines that Congress had no intention of including the business of baseball within the scope of the federal antitrust laws."5 The Toolson majority also stated that Congress had been aware that the Federal Base Ball decision by the Supreme Court had left professional baseball to develop "on the understanding that it was not subject to existing antitrust legislation," and Congress had considered possible responses to that decision; therefore, "if there are evils in this field which now warrant application to it of the antitrust laws it should be by legislation."6 The Supreme Court followed the Toolson decision with a series of rulings that the antitrust laws did apply to the production of theatrical attractions,7 championship boxing exhibitions,8 professional football,9 and professional basketball.10 The lower federal courts held that other professional sports were not exempt.11 Questions were raised about the continued vitality of baseball's exemption and the Federal Base Ball and Toolson decisions in light of the 4 346 U.S. 356 (1953) (per curiam). 5 346 U.S. at 357. 6 Id. 7 See United States v. Shubert, 348 U.S. 222 (1955). 8 See United States v. International Boxing Club, 348 U.S. 236 (1955). 9 See Radovich v. National Football League, 352 U.S. 445 (1957). 10 See Haywood v. National Basketball Ass'n, 401 U.S. 1204 (1971). 11 See, e.g., Deesen v. Professional Golfers' Ass'n, 358 F.2d 165 (9th Cir.), cert. denied, 385 U.S. 846 (1966) (golf); Peto v. Madison Square Garden Corp., 1958 Trade Cas. ¶ 69,106 (S.D.N.Y. 1958) (hockey). - 2 - Teachers Manual -- Chapter Eight (Continued) decisions consistently holding that other sports and exhibition businesses were not exempt from antitrust scrutiny.12 The Supreme Court considered the baseball exemption for the third time in 1972, when a major league player, Curt Flood, challenged baseball's reserve system, in particular the requirement that he move from the St. Louis Cardinals to play for the Philadelphia Phillies as a result of an inter-team trade, without any opportunity to review or approve the transfer and assignment of his contract. In Flood v. Kuhn, Justice Blackmun authored the majority opinion, which held that the two lower courts that had considered Flood's case had correctly determined that the baseball exemption precluded judicial application of the antitrust laws, both state and federal, to assess the merits of Flood's claims.13 The Flood decision made it clear that "professional baseball is a business and it is engaged in interstate commerce" and acknowledged that the affording of an antitrust exemption only to baseball and not to other professional sports is "an anomaly."14 Nevertheless, the Court held that the exemption remains confined to baseball.15 The Flood majority held that even though baseball's exemption from the antitrust laws might be regarded by some as an aberration, "[i]t is an aberration that has been with us now for half a century, one heretofore deemed fully entitled to the benefit of stare decisis, and one that has survived the Court's expanding concept of interstate commerce. It rests on a recognition and an acceptance of baseball's unique characteristics and needs."16 12 See, e.g., Salerno v. American League of Professional Baseball Clubs, 429 F.2d 1003, 1005 (2d Cir. 1970), cert. denied, 400 U.S. 1001 (1971) (Friendly, J.) ("We freely acknowledge our belief that Federal Baseball was not one of Justice Holmes' happiest days, that the rationale of Toolson is extremely dubious and that, to use the Supreme Court's own adjectives, the distinction between baseball and other professional sports is 'unrealistic,' 'inconsistent' and 'illogical.' . While we should not fall out of our chairs with surprise at the news that Federal Baseball and Toolson had been overruled, we are not at all certain the Court is ready to give them a happy d[i]spatch.") 13 407 U.S. 258 (1972), aff'g, 443 F.2d 264 (2d Cir. 1971), aff'g, 316 F. Supp. 271 (S.D.N.Y. 1970). 14 407 U.S. at 282. 15 Id. 16 Id. - 3 - Teachers Manual -- Chapter Eight (Continued) The Court held that the baseball exemption remains viable for several reasons. First, for fifty years Congress has allowed professional baseball to develop and expand, and although "[r]emedial legislation has been introduced repeatedly in Congress, . none has ever been enacted," thereby evidencing, by "positive inaction," a Congressional intent that the exemption should continue.17 Second, the majority expressed concern that a "judicial overturning of Federal Baseball" could cause confusion and retroactivity problems.18 The Court stated that if the exemption is to be changed, it should be by legislative action that "by its nature, is only prospective in operation."19 The lower courts in Flood had held that Flood's state antitrust laws were preempted by the federal policy embodied in the baseball exemption and were barred by the dormant Commerce Clause as an undue interference with interstate commerce.20 The majority cited those portions of the lower court opinions and, on the basis of those statements, affirmed the dismissal of the state antitrust claims.21 Since Flood, the reported decisions focusing on the baseball exemption have all confirmed the existence of an exemption, but have focused on defining its scope. In Charles O. Finley & Co., Inc. v. Kuhn,22 the court interpreted the Supreme Court trilogy (Federal Base Ball, 17 Id. at 283. The Court distinguished its decision issued one year earlier in Boys Markets, Inc. v. Retail Clerks Union, 398 U.S. 235, 241-42 (1970), which had held that when Congress was urged to modify a Supreme Court decision and responded with congressional silence and inactivity, that was an insufficient reason for the Supreme Court to refuse subsequently to reconsider the decision. 18 407 U.S. at 283. 19 Id. ("If there is any inconsistency or illogic in all this, it is an inconsistency and illogic of long standing that is to be remedied by the Congress and not by this Court").