✩ 1922 ✩

Federal Baseball Club of Baltimore, Inc. v.
National League of Professional Baseball Clubs

Introduction

Heading into the 1914 season, the Federal League declared itself a third major league — on par with the American and National Leagues. Organized Baseball fought back ferociously, offering players more money to keep them from jumping to the new league, telling players the Federals were doomed to failure, and threatening to blacklist them if they switched. After battling for two seasons, the Feds gave up. A couple of franchises were bankrupt; those that weren’t received a buyout from the major league owners.

One FL franchise, however, held out. The Baltimore owners did not want a buyout; they wanted major league baseball in their city. When the major league owners ignored their pleas, the Baltimore shareholders sued Organized Baseball and their fellow FL owners. At the initial trial, the jury ruled in favor of Baltimore. Clearly, many of Organized Baseball’s actions violated antitrust laws; if the law applied to baseball, they were surely guilty. The jury awarded the Baltimore Federals $80,000 in damages; under the Sherman Antitrust Act provisions, the award was trebled and the plaintiffs awarded attorneys’ fees for a total of $254,000.

Organized Baseball appealed, and in 1920 the appellate court ruled in their favor. Now Baltimore appealed, this time to the US Supreme Court. In 1922, that Court, led by justice Oliver Wendell Holmes, upheld the appellate court’s decision, 9-0.

Baltimore’s Terrapin Park hosted Opening Day of the Federal League season on April 13, 1914. The Terrapins defeated visiting Buffalo, 3-2. (Courtesy of the Baltimore Orioles.)

Although the principal plaintiff in the suit was the Baltimore stockholders, the decision had a far-reaching effect on the course of sports business in general during the remainder of the twentieth century. Despite two further Supreme Court challenges, and occasional congressional attempts to place baseball under the antitrust statutes, baseball remained exempt.

The question remains, did it matter? Would baseball have evolved differently had the Court determined that baseball was subject to the antitrust laws?

In the wake of Justice Holmes’s opinion, professional football, basketball, and ice hockey conveniently presumed the antitrust exemption covered them as well. For example, all the leagues had rules in place that effectively prevented players from becoming free agents at the end of their contract. When the Supreme Court ruled in 1957, in Radovich v. National Football League, that the antitrust exemption for baseball was an anomaly and not transferable to other professional sports, it did little to free up the players in those other sports. The owners of professional football, basketball, and hockey teams quickly instituted other expedients to blunt the decision’s impact.

The players in these other sports did benefit indirectly, however, from the emergence of rival leagues, something that did not happen successfully in baseball. The antitrust laws found by the courts to apply to these other sports discouraged (or at least tempered) many of the more blatant tactics used by Organized Baseball to wreck the Federal League, and successful challengers emerged in all three sports. And while none of them lasted longer than ten years, several ended with a merger of some sort in which the established league accepted all — as in the case of the American Football League — or at least some of the competing league’s teams.  The existence of these rival leagues benefited the players as the competition for their services increased the number of jobs and drove up salaries.

With its 1922 antitrust exemption, baseball was effectively immune from competition from upstart leagues.  Since the demise of the Federals, no rival has ever emerged to challenge major league baseball on the field. Had the court ruled against Organized Baseball in 1922 and put them under the same antitrust statutes as other professional sports, they would almost surely have faced additional competitive threats and likely another on-field competitor. The outcome could very well have been major league teams in the South and West many years earlier and higher player salaries as rival leagues competed for their services.

The minor leagues, too, would have turned out differently. It’s hard to envision the farm system, in which major-league teams gained control of minor-league teams, developing as it did, unless (as happened) baseball was protected from antitrust laws. Rather than losing their independence in the 1930s and 1940s as the farm system arrangement evolved, the minor leagues might have remained self-sufficient and unallied with particular major-league teams.

With the end of the Federal League and the subsequent antitrust exemption, Organized Baseball was free to develop as it did. The reserve clause remained unchanged for more than 50 years. The evolution of the farm system, beginning in the 1920s and 1930s, and the ossification of the franchise landscape (no team would move until 1953, and expansion would have to wait until 1961) could occur without fear of antitrust challenges. After the 1922 Supreme Court ruling and subsequent affirmations, Organized Baseball gained immunity from outside competition for many years to come.

— Daniel R. Levitt