The Exemption of Baseball from Federal Antitrust Laws: A Legal History
Editor’s note: This article was published in SABR’s 1994 Baseball Research Journal (Vol. 23).
As major league baseball continues to deliver self-inflicted wounds to itself in the form of a players strike, the issue of baseball’s long-standing exemption from federal antitrust laws has resurfaced.
While today’s ballplayers and owners recently scrapped in conference rooms and hurled accusations instead of fastballs, Congress held hearings and heard testimony about the history of this curious anomaly, and why it may be time to repeal, either in whole or in part, the unprecedented antitrust exemption that baseball now enjoys.
The cornerstone of any examination of baseball’s exemption from federal antitrust laws is the Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs case of 1922. In it, the United States Supreme Court dealt for the first time with the issue of whether organized baseball was interstate commerce, or more accurately, whether the monopoly that organized baseball had established was a monopoly of any part of interstate commerce.
The plaintiff in this case was the Baltimore Terrapins Baseball Club, incorporated in Maryland, which with seven other teams was a member of the Federal League of Professional Baseball Clubs, which competed with the defendant American and National Leagues in 1914 and 1915. The Baltimore club alleged that the defendants had conspired to monopolize the business of baseball, and had attempted to destroy the Federal League by buying up some of the constituent clubs and inducing those clubs to leave the league. The plaintiff further alleged that even the President of the Federal League took part in this conspiracy, and he joined the American League of Professional Baseball Clubs and the National League of Professional Baseball Clubs as defendants in the case.
The Baltimore club initially won a judgment for treble damages under the Anti-Trust Acts in the Supreme Court of the District of Columbia, but a judgment of the Court of Appeals of the District of Columbia reversed that verdict.
The United States Supreme Court took the case on appeal, and noted that it was not concerned with whether the mere playing of baseball, that is the act of the individual player, was by itself interstate commerce. The Court added that “that act, it is true, is related to the business of the defendants, but it can no more be said to be the business than can any other single act in any other business forming a part of interstate commerce.” The Court indicated that “at the foundation of the business of one of these leagues … is a circuit embracing seven different States. No single club in that circuit could operate without the other members of the circuit, and accordingly … the matter of interstate relationship is not only important but predominant and indispensable.”
The Court also examined the business end of professional baseball, and observed that the defendants were not engaged in a sport; they were engaged in a money-making business enterprise in which all of the features of any large commercial undertaking were found. The Court added that “when the profit-making aspect of the business is examined, it will be found that the interstate element is still further magnified … Every club in the league earns its profit not only by the drawing capacity of its team at home, but also by that of the teams of the clubs which its team visits in the various cities in the league. The continuous interstate activity of each club is essential to all the others. The clubs of each league constitute a business unit embracing territorially a number of different States.”
Despite the overwhelming evidence of interstate activity by the defendants, the Supreme Court affirmed the judgment of the Court of Appeals of the District of Columbia, and held that Organized Baseball was not interstate commerce and did not constitute an attempt to monopolize within the Sherman Act. The Court reasoned that personal effort, not related to production, was not a subject of commerce, and the attempts by the defendants to sign players needed for baseball contests were not attempts to monopolize commerce or any part of it.
The Court further noted that the doing of an act essentially local was not converted into an interstate act merely because people came from another State to do it. Justice Holmes, who delivered the opinion of the Court, observed that “the business is giving exhibitions of baseball, which are purely state affairs … and the fact that in order to give the exhibitions the Leagues must induce free persons to cross state lines and must arrange and pay for their doing so is not enough to change the character of the business.”
The Court concluded by repeating an illustration given by a lower court, that a law firm which sent out a member to argue a case did not engage in commerce because the lawyer traveled to another State. Thus, the conduct charged by the Baltimore club against the defendants was deemed not an interference with commerce among the States.
The Federal Baseball Club decision met its first challenge in 1949 in the case of Gardella v. Chandler. Danny Gardella was an outfielder for the New York Giants, and a fairly talented player at that. In 1945, Gardella played in 121 games for New York, and batted .272 with 18 home runs and 71 runs batted in.
In 1946, Gardella signed to play with Vera Cruz of the Mexican League. Major league club owners had heard that the Mexican League would become a legitimate third league and would steal away players, and as a result in June, 1946, Commissioner Chandler announced that any American player who jumped to the Mexican League would be barred from American baseball for five years. Gardella consequently was barred from organized baseball upon his return from Mexico to the U.S. in 1947, and was therefore essentially deprived of his means of livelihood.
Gardella brought suit against Albert B. Chandler, individually and as the Commissioner of Baseball; Ford C. Frick, individually and as President of the National League of Professional Baseball Clubs; William Harridge, individually and as President of the American League of Professional Baseball Clubs; George M. Trautman, individually and as President of The National Association of Professional Baseball Leagues; and the National Exhibition Company, which owned the New York Giants.
Gardella alleged that the leagues and the clubs comprising them had entered into agreements, designed to control the manner in which organized baseball was conducted, and which required players to be bound to their respective clubs by a standard contract. Gardella further alleged that the standard player contract included a reserve clause which required a player who was under contract to play with any club to refrain, at the expiration of the period of his employment, from contracting to play for, or playing for, any other club other than the one to which he had been under contract or its assignee.
Gardella also argued that the club owners sold the right to broadcast play-by-play descriptions of the games on the radio and thus across state lines, and some were beginning to sell the right to broadcast the games on television. Some of those to whom the broadcast rights were sold used the opportunity to advertise goods which were sold and distributed nationally and internationally. The combination of operating baseball teams which traveled between states for the purpose of playing baseball games, and making contracts with radio broadcasting and television companies to send across state lines play-by-play narratives or moving pictures of the games, were alleged by Gardella to be sufficient to charge the defendants with being engaged in interstate commerce within the meaning of the Anti-Trust Acts.
In the initial trial, the United States District Court for the Southern District of New York ruled for the defendants in a judgment dismissing Gardella’s complaint because the court lacked the proper jurisdiction to hear the case.
On appeal to the United States Court of Appeals, Second Circuit, Gardella found a more sympathetic forum. The court held that it would be necessary to determine whether all the interstate activities of the defendants, in conjunction with broadcasting and television, together formed a large enough part of the business to impress upon it an interstate character. The court suggested that the traveling involved was but a means to the end of playing games which, because of radio and television, essentially were played interstate as well as intrastate. This, the court remarked, was substantial interstate commerce of a sort not considered by the United States Supreme Court in the Federal Baseball Club case.
The court called the reserve clause “something resembling peonage of the baseball players … all players in organized baseball must ‘accept’ it … and severe … penalties are imposed for violation. The most extreme of these penalties is the blacklisting of the player so that no club in organized baseball will hire him. In effect, this clause prevents a player from ever playing with any team other than his original employer, unless that employer consents.” The court further noted that such contracts were so opposed to the public policy of the United States that, if possible, they should be deemed within the prohibitions of the Sherman Act. Brooklyn Dodger executive Branch Rickey thundered back that anyone who opposed the reserve clause had “Communist tendencies.”
In distinguishing Gardella from the Federal Baseball Club case, the Court of Appeals emphasized that in Gardella the defendants had lucratively contracted for the interstate broadcasts, by radio and television, of the playing of the games. In the Federal Baseball Club case, that Court had held that the traveling across state lines was an incidental means of enabling games to be played locally — i.e., within particular states — and therefore was insufficient to constitute interstate commerce.
Here in Gardella, however, interstate radio and television broadcasts were not at all an incidental means of performing the intrastate activities — i.e., the local playings of the games. Thus, the Gardella Court reasoned that the Federal Baseball Club decision should have been deemed to hold no more than that the traveling of teams and their paraphernalia between states, as a means to the local playing of games, did not give rise to interstate commerce for Sherman Act purposes.
The court also rejected organized baseball’s argument that it supplied millions of Americans with “desirable diversion”, and would be unable to exist without the reserve clause. The court remarked that it could not predict whether that was true, but that in any event, the public’s pleasure did not authorize the courts to condone illegality, and that no court should strive to legalize a private (even if benevolent) dictatorship. As a result, the court reversed and remanded for trial.
Thus, it appeared that baseball was in dire jeopardy of losing its exemption from federal antitrust laws. Danny Gardella signed to play baseball for a semipro ballclub, the Gulf Oilers. Commissioner Chandler, sensing that baseball’s exemption hold was weakening, announced on June 5, 1949, that he would offer amnesty to any player who had defected to the Mexican League.
Gardella at first resisted the amnesty offer, and his suit commenced pre-trial hearings, as Commissioner Chandler testified concerning players’ eligibility and radio fees. Gardella, however, was not financially secure enough to withstand a long trial and large legal fees, and on October 7, 1949, just two days before the New York Yankees won the World Series over the Brooklyn Dodgers, Danny Gardella dropped his suit when he reached a $60,000 settlement with organized baseball and was assured that he would be reinstated into the game.
Gardella signed with the St. Louis Cardinals for the 1950 baseball season, but only batted once for them (unsuccessfully) that year. It marked the end of Gardella’s playing career in organized baseball, and the major leagues avoided what could have been a damaging reversal of its exemption from federal antitrust laws.
George Earl Toolson
Baseball’s continued exemption from federal antitrust laws next was upheld by the United States Supreme Court in 1953 in the case of Toolson v. New York Yankees, Inc. George Earl Toolson was a minor league player in the New York Yankees farm system. While playing for the Newark Bears, his contract was assigned to Binghamton. Toolson refused to report to Binghamton, and he was placed on that club’s “ineligible list.” The Yankees refused to reassign him, trade him, or let him play professional ball for any other club, organization, or league.
Toolson alleged damages due to the reserve clause, pursuant to nationwide agreements by the Yankees. Toolson charged organized baseball, through its illegal monopoly and unreasonable restraints of trade, had exploited the players who attracted the profits for the benefit of its member clubs and leagues. Toolson also alleged that the Yankees and other clubs had entered into a conspiracy and monopoly of professional baseball in the United States to his substantial damage.
The Court, however, held that if there were any evils in this field which warranted application of the antitrust laws, it should be by Congress, not the Supreme Court that rectified them. The Court affirmed the judgment against Toolson, on the authority of Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, so far as those decisions determined that Congress had no intention of including baseball within the scope of the federal antitrust laws.
The Court’s vote was 7-2 against Toolson. The dissent, as authored by Justices Burton and Reed, was vigorous. It emphasized that in light of baseball’s capital investments used in conducting competitions between teams constantly traveling between states, its receipts and expenditures of large sums transmitted between states, its numerous purchases of materials in interstate commerce, the attendance at local exhibitions of large audiences often traveling across state lines, its radio and television activities which expand its audiences beyond state lines, its sponsorship of interstate advertising, its farm system of minor league baseball clubs, coupled with restrictive contracts and understandings between individuals and among clubs or leagues playing for profit throughout the United States, Canada, Mexico, and Cuba, it would be a contradiction in terms to say that the defendants were not engaged in interstate trade or commerce as the terms were used in the United States Constitution and in the Sherman Act.
The dissent in Toolson added that in 1952 the Subcommittee on Study of Monopoly Power, of the House of Representatives Committee on the Judiciary, issued a report dealing with organized baseball in relation to the Sherman Act. The report stated that organized baseball at that time was a combination of approximately 380 separate baseball clubs, operating in 42 different states, the District of Columbia, Canada, Cuba, and Mexico, so as to make organized baseball inherently intercity, intersectional, and interstate. The report further noted that of the 42 leagues associated within organized baseball in 1951, 39 were interstate in nature.
The dissent used the 1952 report findings to stress that exemption from federal antitrust laws was a matter within the discretion of Congress and Congress had enacted no express exemption of organized baseball from the Sherman Act. In the absence of such an exemption, the popularity of organized baseball increased, rather than diminished, the importance of its compliance with standards of reasonableness comparable with those required by law of interstate trade or commerce. Thus, the dissent concluded, organized baseball was interstate trade or commerce and, as such, it was subject to the Sherman Act until exempted. In spite of this forceful dissent, baseball retained its exemption from federal antitrust laws.
Nineteen years after the Toolson decision, the United States Supreme Court once again considered the issue of whether baseball was within reach of the federal antitrust laws, in the case of Flood v. Kuhn.
One of the most remarkable items about the Flood opinion, as delivered by Justice Blackmun, was the Court’s lengthy and romantic portrayal of the history of the game. For more than four pages, the Court waxed nostalgic about the game’s early days and bygone heroes. The Court noted the New York Nine’s defeat of the Knickerbockers, 23-1, in Hoboken, New Jersey, on June 19, 1846, as being a significant date in baseball’s dawn. The Court also hailed the 1871 establishment of the National Association of Professional Baseball Players; the formation of the National League in 1876; the formation of the American Association and the Union Association in the 1880s; the introduction of Sunday baseball; interleague warfare with cut-rate admission prices and player raiding; the 1885 emergence of the Brotherhood of Professional Baseball Players; the appearance of the American League in 1901; the first World Series in 1903; the short-lived Federal League during the World War I years; the 1919 Black Sox scandal; major league expansion; and the 1966 formation of the Major League Baseball Players Association.
The Court then proceeded to list a roll call of “names, celebrated for one reason or another, that have sparked the diamond and its environs and that have provided tinder for recaptured thrills, for reminiscence and comparisons, and for conversation and anticipation in-season and off-season … ” The Court included the likes of such legends as Ty Cobb, Babe Ruth, Walter Johnson, Lou Gehrig, Jackie Robinson, Honus Wagner, Christy Mathewson, Satchel Paige, Three-Finger Brown, Connie Mack, Cy Young, and Dizzy Dean in its list of 88 baseball greats worthy of inclusion in the Flood decision.
Not done yet, the Court also included references to the baseball poems “Casey At The Bat” by Ernest L. Thayer and “Tinker to Evers to Chance” by Franklin Pierce Adams, the latter of which was deemed worth to be printed in its entirely in the opinion.
The Court eventually arrived at the facts inherent to the dispute at hand: the petitioner, Curtis Charles (Curt) Flood, had begun his major league career in 1956 when he signed a contract with the Cincinnati Reds for a salary of $4,000 for the season. Flood was traded to the St. Louis Cardinals before the 1958 season, and he rose to fame as a center fielder with the Cardinals between 1958 and 1969. During those twelve seasons Flood hit .293, with his single best offensive campaign being 1967, when he hit .335. Flood played in the 1964, 1967, and 1968 World Series. He was awarded seven Gold Gloves. He was co-captain of the Cardinals from 1965 to 1969, and he ranked among the ten major league outfielders possessing the highest lifetime fielding averages.
Flood’s St. Louis compensation in 1961 was $13,500; in 1962, it was $16,000; in 1963, $17,500; in 1964, 23,000; in 1965, $35,000; in 1966, $45,000; in 1967, $50,000; in 1968, $72,500; in 1969, $90,000. These figures did not include any fringe benefits or World Series shares.
In October, 1969, at age thirty-one, Flood was traded by the Cardinals to the Philadelphia Phillies in a multi-player transaction. Flood was not consulted about the trade, but was informed of it by telephone and received formal notice only after the deal was consummated. In December 1969, Flood complained to the Commissioner of Baseball and asked that he be made a free agent, and that he be placed at liberty to strike his own deal with any other major league club. His request was denied.
Flood declined to play for Philadelphia in 1970, despite a salary offer of $100,000. He sat out the season and sued Commissioner Kuhn and the Presidents and clubs of the American and National Leagues. After the 1970 campaign concluded, Philadelphia sold its rights to Flood to the Washington Senators, and Washington and Flood were able to come to terms for 1971 at a salary of $110,000. Flood started with the Senators, but apparently dissatisfied with his performance and his outlaw status in the game, he left the Washington club on April 27 — less than a month into the season — and never played major league baseball again.
Flood’s suit charged professional baseball with violations of the federal antitrust laws and civil rights statutes; violation of state statutes and the common law; and the imposition of a form of peonage and involuntary servitude contrary to the Thirteenth Amendment.
The U.S. District Court for the Southern District of New York rendered judgment in favor of the defendants on August 12, 1970, holding the Federal Baseball Club and Toolson were controlling law. On appeal, the Court of Appeals for the Second Circuit upheld the District Court decision on April 4, 1971.
On further appeal by Flood, the United States Supreme Court heard the case and affirmed the judgment of the Court of Appeals on June 19, 1972. The Supreme Court acknowledged that professional baseball was a business and was engaged in interstate commerce, but stated that baseball was an exception and an anomaly. The Court reasoned that the aberration was an established one that had been recognized for half a century, and was an exception fully entitled to the recognition of legally-binding precedent.
The Court noted that the advent of radio and television, with their consequent increased coverage and additional revenues, had not occasioned an overruling of Federal Baseball Club and Toolson. The Court also emphasized that Congress as yet had not subjected baseball’s reserve system to the reach of the antitrust statutes and, as a result, if any change were to be made, it should come by legislative action. The remedy, if any were to be indicated, was for congressional, and not judicial, action.
Chief Justice Burger remarked that “courts are not the forum in which this tangled web ought to be unsnarled … it is time the Congress acted to solve this problem.”
Justice Douglas dissented from the Court’s majority decision, and observed that “this Court’s decision in Federal Baseball Club … is a derelict in the stream of the law that we, its creator, should remove. Only a romantic view of a rather dismal business account over the last fifty years would keep that derelict in midstream.” Justice Douglas noted that he had joined the Court’s opinion in Toolson, but had lived to regret it, and would now correct what he believed to be its fundamental error. Justice Douglas added that “the unbroken silence of Congress should not prevent us from correcting our own mistakes.”
Justice Marshall also vigorously dissented, and stressed that baseball should be covered by antitrust laws beginning with the Flood case, unless Congress decided otherwise. Nevertheless, the vigorous opposition of Justices Douglas and Marshall could not displace the decision of the majority of the Supreme Court.
In 1993, Florida Senator Connie Mack — grandson of the legendary Philadelphia Athletics manager — and Ohio Senator Howard Metzenbaum forged an alliance and introduced into the United States Senate the “Professional Baseball Antitrust Reform Act of 1993.”
The bill was intended to rescind baseball’s exemption from federal antitrust laws, and the authors stated that “the business of organized professional baseball is in, or affects, interstate commerce; and the antitrust laws should be amended to reverse the result of the decisions of the Supreme Court … which exempted baseball from coverage under the antitrust laws.”
Senator Metzenbaum has stated:
” … [W]hile the game of baseball remains a simple pleasure, the business of baseball has become complicated and, at times, cut-throat. Major league baseball is not just a sport. It is also a billion-dollar big business. And, it is a big business which enjoys unique treatment under the law.
“Unlike any other big business in America, Major League Baseball is a legally-sanctioned unregulated cartel. The Supreme Court conferred that extraordinary privilege upon baseball seventy years ago, when it granted (baseball) a complete exemption from the antitrust laws … Although the soundness of this ruling has often been questioned — even by the Court itself — it has never been overturned. Instead, the Court has tossed the ball to Congress, which is why we are here today.
“Baseball’s antitrust exemption is a privilege that the baseball owners may be abusing. I am particularly concerned that their ouster of Fay Vincent and their plans to weaken the Commissioner’s powers invites more abuse of that privilege.
“Jerry Reinsdorf, the owner of the Chicago White Sox and one of the key participants in Vincent’s ouster has stated that the job of the next baseball commissioner will be to ‘run the business for the owners, not the players or the umpires or the fans.’
“It appears that the owners don’t want a strong and independent commissioner who can act in the best interests of the sport or act as a potential check against abuse of their monopoly power. Instead, they want a commissioner who will function as the cruise director for their cartel. If decisions about the direction and future of Major League Baseball are going to be dictated by the business interests of teams’ owners, then the owners should be required to play by the same antitrust rules that apply to any other business.”
At about the same time that Senators Mack and Metzenbaum introduced their bill, Vincent Piazza — father of Los Angeles Dodgers catcher Mike Piazza — and business partner Vincent Tirendi filed suit in federal court seeking to overturn Major League Baseball’s antitrust exemption and force the sale of the San Francisco Giants to investors in St. Petersburg, Florida.
Piazza and Tirendi, partners in a computer company, were prepared to invest $27 million as part of a $115 million deal to purchase the Giants and move the club to St. Petersburg, before Major League Baseball quashed the deal and maneuvered to keep the Giants in San Francisco.
The reaction of baseball’s owners to the Senate bill and the federal suit, however, appeared to be less than panic-stricken. Peter Gammons of the Boston Globe commented that “most baseball people aren’t overly concerned about threats to take away the antitrust exemption … [T]here are too many members of Congress from key states like Washington, Wisconsin, Pennsylvania, Ohio, Missouri and California who realize that if such a bill resulted in one of their teams walking to Florida, it would cost them their jobs. Second, Congress has a few more urgent items on the agenda … than giving Howard Metzenbaum and Connie Mack publicity. Finally, the reality is that for more than 40 states, the real result of such a bill would be the end of the minor leagues as they are now constituted.”
On August 5, 1993, U.S. District Court Judge John R. Padova rejected a motion by Major League Baseball to dismiss the suit of Vincent Piazza and Vincent Tirendi. Padova noted in his decision that baseball’s antitrust exemption applied only to its now-defunct reserve system, wherein a club held a player’s contract in perpetuity. The reserve system essentially has been replaced by the system of limited free agency. As a result, the Padova decision stripped away much of baseball’s protection from adherence to federal antitrust rules.
On the heels of this decision, it was reported that Vincent Piazza and Vincent Tirendi received feelers from Major League Baseball regarding whether they would be willing to drop their suit if they were awarded a Tampa Bay-St. Petersburg franchise the next time that baseball expands. Just over a year later, on September 28, 1994, it was announced that Piazza and Tirendi had settled their case with Major League Baseball out of court, and would receive a $6 million settlement as compensation.
In Congress, even though Major League Baseball once again held onto its coveted antitrust exemption, the sentiment in Washington was that if the players and owners have not reached an agreement to end the strike by early 1995, the legislation will be re-introduced in the next session of Congress.
“The real message should be a wake-up call to baseball,” Utah Senator Orrin Hatch commented. “If you do not want Congress to be involved, then settle this dispute yourself.”
STEPHEN D. GUSCHOV, Esq. is an attorney in Danvers, Massachusetts.