By Doug Fuglsang. Mr. Fuglsang is a licensed attorney in Illinois and Wisconsin with a Sports Law Certificate from the National Sports Law Institute. He can be reached at email@example.com.
This month marks the 6th anniversary that former MLB Commissioner Bud Selig announced he was creating his Blue Ribbon Committee with the goal of bringing the Oakland A’s stadium development dilemma to an end. To date, this Committee has produced absolutely nothing.
Due to MLB inaction, two years ago the City of San Jose unanimously voted to file two lawsuits against MLB. The most significant is an antitrust challenge to MLB relocation rules, which alleges, “MLB has unlawfully conspired to control the location and relocation of major league men’s professional baseball clubs.” If the Supreme Court grants cert it could signal the end for a ninety-three year old oddity — MLB’s judicially-crafted antitrust exemption.
It started innocently seven years ago when Oakland A’s owner, Lew Wolff, explored the idea of relocating his franchise 35 miles south to San Jose, California. The main obstacle to relocation boils down to a territorial rights dispute with the San Francisco Giants, as San Jose is located in Santa Clara County, an operating territory of San Francisco. It may seem odd to some that two teams, already sharing the Bay Area, can have a territorial rights dispute, but through Major League Constitution (“MLC”) Art. VIII § 8, MLB assigns each team territories, within which, each Major League Club has the right and obligation to play baseball games as the home club.
Under the MLC, the Oakland A’s are assigned the home territories of Alameda and Contra Costa Counties, while the San Francisco Giants are assigned Santa Clara County, among others. Notably, the Oakland A’s previously had the rights to Santa Clara. Depending on whom you ask, the A’s either gave up those rights contingent on the Giants actually moving to San Jose, or if they relinquished them completely (It’s a long story).
Regardless, the MLC clearly states those rights belong to the San Francisco Giants. The A’s are stuck in limbo because they signed a 10-year lease extension with the Coliseum—yeah that one—that runs through 2024. However, the A’s get an out clause after 2018 that makes it easy to leave, while the City has an escape clause if the Raiders get approval for a new stadium that requires demolition of the Coliseum. Oakland city council continues to prolong the process of stadium development and could be on the verge of losing both the A’s and Raiders. Meanwhile, San Jose was ready to build a stadium four years ago, but they are still waiting on Bud Selig’s “blue ribbon” committee to make a decision on the territorial rights issue.
How The Law Impacts The A’s Options
Before we look at how this crisis might have been averted, a quick primer about sports law for the uninitiated. MLB is a private association governed by the MLC. The relationship between an association and its members is contractual in nature, thus Courts will not relieve parties from the contractual conditions they accept upon joining the association, courts ONLY require the association comply with its own rules. Additionally, Courts defer a great deal of power to a private association’s governing document, in this case the MLC. Unless there is breach of fiduciary duty, or some other violation of applicable law, i.e. Federal Antitrust Law, courts will not intervene.
Congress enacted the Sherman Antitrust Act to prevent practices that harm competition. Normally, a sports league’s constitution and bylaws would automatically bring it under antitrust scrutiny because they are by definition horizontal agreements amongst competitors, directly affecting competition. Yet, the Supreme Court recognizes that in order to exist at all, professional sports leagues require these horizontal agreements even though they may have an adverse effect on competition.
A restriction on franchise relocation would normally be viewed as a per se violation of antitrust law—A per se violation is something like price-fixing, where it is so obviously anti-competitive a court will find it illegal. Instead courts treat professional sports leagues differently and examines these restraints under a rule of reason analysis — the plaintiff must show the challenged restraint on competition had an actual adverse impact on competition, and even if there is a pro-competitive justification for the challenged restraint, that there is in fact a ‘less restrictive alternative’ to achieving that pro-competitive justification.
A real life example of this occurred in 1979 when Al Davis, perpetual agitator, sought to relocate the Raiders to Los Angeles. The owners voted against the relocation and Al Davis sued claiming Rule 4.3 of the NFL Constitution, requiring unanimous owner approval of franchise relocations, was an antitrust violation. The Court conducted a rule of reason analysis and concluded it was an unreasonable restraint and Davis won.
This is normally how things operate, however, MLB plays by a different set of rules thanks to a series of cases known as the Baseball Trilogy. First, in 1922 there was the landmark case Federal Baseball Club v. National League of Prof’l Baseball Club. In 1915 the Federal League folded and some of those teams were absorbed into MLB, while others were not. The owner of the Baltimore Club was pissed off his club wasn’t and sued on antitrust grounds. The Supreme Court held the business of baseball games was purely a state affair and not interstate commerce thus falling outside the Sherman Antitrust Act.
Thirty years later in Toolson v. New York Yankees, the Court heard its first challenge to the reserve clause that prevented players from becoming free agents. In a weird decision the Court basically shrugged its shoulders and said that because MLB was allowed to develop for thirty years on the understanding it was exempt from antitrust laws, then if the law needed to change it should be left to Congress. Lastly, in 1972 Flood v. Kuhn, All-Star Curt Flood challenged the reserve system hoping to open the door to free agency. The Court’s decision to affirm MLB’s antitrust exemption is unique in that it undercuts the rationale for Federal Baseball Club, acknowledging baseball is indeed interstate activity, yet denied application of the antitrust laws on the basis of stare decisis, or precedent, and once again punted it back Congress.
Essentially, the law of the land after the Baseball Trilogy was a rule everyone thought was wrong and needed to be changed, but no one actually did anything about it. Congress eventually did something bold; in 1998 Congress passed the Curt Flood Act in his memory, giving MLB players standing to sue on antitrust grounds, thus opening the door for free agency. A noble gesture, but a relatively moot point considering in 1975 the players finally won the right to free agency, when an arbitrator ruled that the reserve clause only granted a team one additional year of service from a player, rather than a perpetual right of renewal the clubs had claimed for so long. Further compounding the issue, Congress makes it clear that the Curt Flood Act is neutral with respect to the state of antitrust laws between entities in all circumstances other than in the area of employment between MLB owners and players. So basically Congress wasted tax dollars, time, and energy solving a problem that had already been solved 23 years earlier, while neglecting to provide any guidance on baseball’s exemption for any further antitrust issues.
Anyway, the Supreme Court will likely have an opportunity here to provide some clarity to the lower courts that have inconsistently applied the antitrust exemption to MLB. Whether they take the case remains to be seen, and in all likelihood the Court won’t. Another possibility is they take the case and uphold based on stare decisis. This is very unlikely; I doubt the Court would take this case just to punt the issue back to Congress again, when denying cert would provide the same outcome without taking a spot on the docket better served for more pressing issues than the business of baseball. Lastly, the Court can take the case to correct an almost century old mistake and subject MLB to the same rules as everyone else. In my opinion, it’s an easy fix, simply limit the exemption in the Baseball Trilogy to the reserve clause, which has already been overturned by the Curt Flood Act, and the problem is solved.
I wish I could say I was the one who thought of this simple solution but the credit goes to U.S District Court Judge John Padova in Piazza v. Major League Baseball. In 1992, a group of investors wanted to purchase the San Francisco Giants and move them to Tampa Bay. MLB solicited an offer from a North Carolina group instead because they intended to keep the Giants in San Francisco. Even though the North Carolina group offered $15 million less than the Piazza group, MLB rejected the Piazza proposal in favor of the North Carolina group. The District Court refused to grant MLB’s motion to dismiss citing the antitrust exemption. However, Padova concluded that the Supreme Court’s opinion in Flood had undercut the precedential value of Toolson and Federal Baseball Club, and therefore the exemption should be narrowly applied to the reserve clause. If you are interested you should read the opinion, it’s a nice clean fix that allows for stare decisis, while at the same time corrects an anomaly in the system. Even though San Jose would likely lose on the merits of an antitrust case against MLB, that’s not really the point of the case.
What Bud Selig Could Have Done Differently
MLB made a mistake allowing a territorial rights issue to escalate into a lawsuit that threatens one of the greatest possible legal defenses you can have, an antitrust exemption. It’s pretty to easy to blame Bud Selig considering the majority of these events occurred on his watch and he had over twenty years to settle the issue, the last six of which his “blue ribbon” committee has been tirelessly working towards a resolution doing something? Many like to point to the Commissioner’s “best interest” power and assert he could have used it to easily solve the issue but its not quite that simple.
MLB’s Commissioner gets the powers set forth in Article II of the MLC. The broadest power given to the Commissioner, is the “best interest clause,” which basically gives him the right to fix any problem that is not in the best interest of the national game of baseball. In Finley v. Kuhn, the Court affirmed these rights and general rule of non-review-ability of private associations, carving out two exceptions: 1) if the Commissioner does not follow baseball’s own rules and by-laws or 2) if baseball has failed to follow the basic rudiments of due process of law. Basically, the only limitations on this power outside of the Court’s two created exceptions are the ones listed in the MLC.
Within the MLC the owners have limited that Commissioner’s “best interest” powers in a few cases. First, MLC Art. II § 5 prohibits the use of the power for anything relating to the process of collective bargaining between the Clubs and Players Association. Most important to the issue at hand is MLC Art. II § 4, which prohibits the Commissioner from taking any action in the best interests of baseball that requires a vote by the Major League Clubs set forth in Article II, Section 9 or in Article V, Section 2(a) or (b), which in relevant part requires the vote of three-fourths of the Major League Clubs for approval of franchise relocation or the involuntary termination of rights, like for instance losing Santa Clara County as an operating territory. Therefore, the Commissioner’s power is somewhat limited in respect to territorial rights and franchise relocation.
The rumor was that Selig didn’t want to call for the vote on the territorial rights issue unless he had unanimous support. This was never a likely outcome. It is obvious why no owners want to vote in favor of taking away another club’s territorial rights, because it would set an awful precedent.
This doesn’t let Selig off the hook though; there is a caveat in the rule prohibiting the “best interest clause” on territorial rights that he could have used as leverage. The rule states “nothing in Section 4 shall limit the Commissioner’s authority to act on any matter that involves the integrity of, or public confidence in, the national game of Baseball.” Integrity, as determined by the Commissioner, includes the ability of, and the public perception that, players and Clubs perform and compete at all times to the best of their abilities. Public confidence includes the public perception, as determined by the Commissioner, that there is an appropriate level of long-term competitive balance among Clubs. Now what this means exactly I’m not quite sure, but it can mean basically whatever the Commissioner wants it to, because he is the one in charge of interpreting the MLC.
Alas, this is what I thought “blue ribbon” committee was commissioned for, to find a way to lawyerly frame the territorial rights issue into a public confidence issue or competitive balance issue. But that doesn’t appear to be the case. Six years is an awfully long time. You would assume they would have thought of that by now. It’s possible the Committee proposed this idea to Selig and he declined. That is understandable considering he would lose his job in a minute if he unilaterally used the “best interest clause” to not only strip a club of territorial rights but then move another franchise into that team’s territory.
But Selig was a lame duck commissioner anyway. Instead of leaving Rob Manfred a turd sandwich, he could have at least threatened to use the power and maybe help mediate a solution. The most plausible outcome is this “blue-ribbon” committee was nothing more than a façade, intended to provide the City of Oakland enough time to eventually secure a stadium deal to keep the team in Oakland.
The blueprint for mediating such a problem was laid out ten years ago during the Washington Nationals relocation, but for whatever reason MLB neglected to address the issue. The Orioles owned the broadcasting rights to the Washington D.C. territory. In 2005, the two clubs reached a deal that created the Nationals and guaranteed the Orioles at least $130 million a year in revenues and a sale price of at least $360 million. The A’s/Giants conflict, in some ways, should be easier to resolve — the A’s already exist in the Bay Area, while the Nationals did not exist in Washington. Even though this situation was different, because it dealt with broadcasting rights and not constitutional granted territorial rights, under MLC the principal is the same — Owners value money more than anything. And that right there will always trump logic and at times, the law.