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Is It Strike 3 For MLB’s Antitrust Exemption? The Latest Sports Antitrust Cases At Bat – Antitrust, EU Competition



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Winston & Strawn’s Women in Antitrust limited podcast
series continues with a new episode focusing on the world of
sports. Partner and host Diana Leiden pitches some curve balls to
two other talented partners who have been involved in
groundbreaking sports antitrust decisions—Law360 Sports &
Betting Rising Star Jeanifer Parsigian and Crain’s New York
Business’s Notable Woman in Sports Angela Smedley—on the
MLB’s antitrust exemption, the impact of Alston v. NCAA, and
potential legislation challenging the status quo.


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Audio Transcript

Diana Leiden:  Welcome to Winston’s
Women in Antitrust, a limited podcast series, tapping into the
minds of the wonderful women partners at Winston & Strawn
practicing antitrust law. I’m your host, Diana Leiden, partner
in Winston’s Los Angeles office focusing on antitrust and
intellectual property litigation. In today’s episode, we’ll
dive into what’s new in the Sports sector with Jen Parsigian
and Angela Smedley. So, I’ll introduce our guests
today. 

Jen is a partner in the San Francisco office of
Winston & Strawn. She concentrates her practice on antitrust
and sports and has been recognized as one of Law360’s Sports
& Betting “Rising Stars” of 2022. Jen has represented
the U.S. Women’s National Soccer Team in its pursuit of equal
pay, as well as college athletes against the NCAA, serving as
counsel in the landmark Supreme Court case of Alston v.
NCAA
. Welcome, Jen.

Jeanifer Parsigian:  Thank you so much,
Diana.

Diana Leiden:  And Angela Smedley is a
partner in Winston’s New York office. She focuses her practice
on complex commercial litigation as well as sports and antitrust
litigation, and was recently named to Benchmark Litigation’s
2022 “40 & Under List” as well as Crain’s New
York Business List of Notable Women in Sports 2022. Among her many
cases, Angela has represented the NFL Players Association on behalf
of athletes like Tom Brady and Ezekiel Elliott in high-profile
litigation and arbitration. She currently represents a Nigerian
monobob athlete before the Court of Arbitration for Sport in a
gender-discrimination case, as well as soccer events and media
company Relevent Sports in a federal antitrust lawsuit against FIFA
and the U.S. Soccer Federation. Welcome, Angela.

Angela Smedley:  Happy to be here.

Diana Leiden:  Thank you both. I’ll do
a little bit of an overview, and then I’m going to kick it to
you guys to talk more in depth. Major League Baseball enjoys
historic federal statutory exemption from the antitrust laws, which
is unique among all other professional sports leagues, not to
mention other industries. It has been particularly at the forefront
of the news in recent weeks. So, we’d like to take this
opportunity to get up to speed on where the exemption stems from,
why it’s in the news today, and what we can expect in the near
future. Many people are unfamiliar with the real-world implications
of baseball’s exemption. So today, Jen and Angela are going to
break it down for you.

Jen, can you please start by explaining a little bit about the
background on the antitrust exemption?

Jeanifer Parsigian:  Of course. Thank you
so much, Diana for the intro. So, starting off, I think that
context is useful to have. The nature of sports leagues is that you
have teams in competition both on and off the field—for
players, fans, sponsorship money—and then you know, directly
in games against each other. To make the competition on the field
happen, there has to be some coordination among entities that are
essentially competitors, which can be something that can create
antitrust concerns. The question becomes “When is the
coordination procompetitive and when is it
anticompetitive?”

We’ve seen antitrust cases in a lot of other sports,
including going to the Supreme Court—American Needle v.
NFL
, NCAA v. Board of Regents, and then recently in
Alston v. NCAA. Those cases have clearly communicated that
these sports leagues and organizations are subject to federal
antitrust scrutiny. 

However, baseball has been treated differently and the reason
why begins with the century-old Supreme Court 1922 case of
Federal Baseball Club of Baltimore v. National League
Baseball
. In that case, a baseball league called the Federal
Baseball League tried to compete with the American and National
Leagues (which are now collectively the entity known as Major
League Baseball). In response, the American and National Leagues
tried to buy out all of the Federal League teams. They were able to
do so for all of the teams except one, and that was the Federal
Club of Baltimore. That club filed a lawsuit claiming that the
National and American League conspired to monopolize the baseball
business by purchasing all the other teams and refusing to play
against the Baltimore club.

The case got to the Supreme Court, and in deciding it, the Court
held that professional baseball did not involve interstate commerce
and was therefore outside the reach of antitrust laws. In other
words, the Court held that even though the games crossed state
lines and players traveled, that travel was “merely
incidental” to the game, and therefore did not constitute
interstate commerce.

Diana Leiden:  Well, thanks, Jen. So, 100
years ago, that’s where we are going to start. Any other
antitrust challenges that have made their way to the Supreme Court
since then?

Jeanifer Parsigian:  There have been two
that have made their way to the Supreme Court since then. The first
one was in 1953; it was called Toolson v. New York
Yankees
. And the Court wrote a very short opinion in that
case, with dissenters, and said that even though the game of
baseball was now certainly interstate commerce, it would uphold
Federal Baseball in the interests of stare
decisis
because the business of baseball had relied on the
ruling. The Court interestingly added that Congress had had over 30
years to act after Federal Baseball if it disagreed with
the holding, but that it did nothing.

Then, moving up to 1972, there was another case—Flood
v. Kuhn
—where a player named Curt Flood challenged the
MLB’s “reserve clause,” which was a clause in MLB
player contracts that bound players to their teams even after the
term expired, and prevented players from becoming free agents. Now
Flood was a star player and he had been traded without his
knowledge or consent and eventually got to the Philadelphia
Phillies. He challenged the clause as a collusive measure that
reduced competition. He wanted to be a free agent and wanted to
negotiate his own contract with the team. But the Court, despite
acknowledging that baseball is interstate
commerce—held again that baseball’s economic system is
exempt from federal antitrust scrutiny. The Court explicitly said
that MLB is entitled to the benefit of stare decisis, even
though other sports are not exempt from antitrust law. The
Court again noted Congress’s decision not to do anything in
response to the prior cases in Federal Baseball and
Toolson, calling it Congress had engaged in “positive
inaction” on the issue. And said that Congress would continue
to have the opportunity to change this court-created exemption
through legislation if it disagreed.

Diana Leiden:  So that’s 1972. So, did
Congress take the ball and run with it?

Jeanifer Parsigian:  We’re mixing
sports metaphors. But Congress did eventually take the ball and run
with it. It took action in 1998. And it was a bit of a
half-measure, some people would say. It passed the Curt Flood
Act—referencing the case I just discussed—and it
codified baseball’s antitrust exemption into law but added a
few limitations where baseball would be subject to antitrust
scrutiny. Specifically, it said that Major League Baseball players
are covered under antitrust laws for matters “directly
relating to or affecting the employment of Major League Baseball
players.” So literally, those players in the MLB umbrella, it
gave them the ability to bring an antitrust claim essentially for
employment matters. But the Act made clear that it did not extend
such protection to any other person or entity and left the
exemption intact for business-related issues (like franchise
relocation, for example) and anything related to Minor League
Baseball. 

Diana Leiden:  Thanks, Jen. So, Angela,
with that context from Jen, why is the baseball exemption, which
has obviously been around for quite a while, popping up in the news
now?

Angela Smedley:  At the most basic level,
it’s because, despite the exemption, there have been recent
antitrust challenges directed at Major League Baseball, and courts
and legislators seem to be reconsidering whether it is appropriate.
Part of what got this ball rolling was last year’s Supreme
Court decision in Alston, where the Court made a point of
questioning the Major League Baseball antitrust exemption, and they
recognized that the Federal Baseball decision that Jen
discussed has been criticized for being “unrealistic,”
“inconsistent,” and “an aberration.” The Court
also warned that “when market realities change, so may the
legal analysis.” And we’ve seen a fair number of
challenges to the exemption over time, but this comment from the
Supreme Court suggests that the Court might now finally be ready to
reconsider and potentially overturn Federal Baseball if
provided the opportunity.

Then, more recently, there have been calls for
legislation to address the implications of the antitrust exemption,
and particularly its effect on Minor League Baseball. Over the past
two months, a bipartisan group of senators has been exchanging
public letters with Major League Baseball and a group called
Advocates for Minor Leaguers, which exists to provide a collective
voice for players in Minor League Baseball because Minor League
Baseball players are not unionized. But the Senate letters have
generally been sent in response to issues related to minor league
compensation and working conditions that have been getting a lot of
public attention. And they’ve signaled, essentially, the
Senate’s reconsideration of baseball’s century-old
antitrust exemption and the potential impacts of modifying or
eliminating it. Senator Richard Blumenthal has even announced that
the Senate Judiciary Committee is going to schedule public hearings
for this fall on the exemption issues, and they’re going to ask
Major League Baseball Commissioner Rob Manfred to testify.

And there’s one other reason this issue is so relevant right
now. Recently, some Minor League Baseball teams filed an antitrust
suit against Major League Baseball. And there’s also new
antitrust litigation related to other baseball leagues.

Diana Leiden:  Great. Thanks to both of
you. That’s really interesting and helps set the stage for
where we are today. Angela, what can you tell us about these recent
lawsuits that have been popping up?

Angela Smedley:  The first lawsuit
I’ll cover is called Nostalgic Partners v. Office of the
Commissioner of Baseball
. It was just filed in December 2021
in the Southern District of New York. And basically, back in 2020,
Major League Baseball decided to reduce the number of its minor
league teams from 160 to 120. This left 40 minor league teams
without a major league affiliation anymore—essentially
overnight. In response to this contraction of the minor league,
former minor league teams affiliated with the NY Yankees, Houston
Astros, San Francisco Giants, and my hometown Detroit Tigers filed
an antitrust suit against Major League Baseball, claiming that the
consolidation was actually a horizontal agreement between Major
League Baseball and the 30 major league franchises to restrict
competition in violation of Section 1 of the Sherman Act.

According to the minor leaguers’ complaint, Major League
Baseball teams are meant to compete with one another for
affiliations with minor league clubs. Among other things, the minor
league clubs develop talent for the major league teams and serve as
a place for rehabilitating injured major league players. So, the
minor league teams alleged that the shutting down of these 40 minor
league organizations effectively narrowed the competitive pool of
minor league teams and imposed a boycott of those that lost their
affiliations.

Now as you might expect given the topic of our discussion today,
the first major hurdle that these plaintiffs may have to overcome
is likely going to be the century-old Major League Baseball
antitrust exemption. Plaintiffs addressed it head-on in their
complaint by citing the Supreme Court’s criticism of the
exemption in Alston. The minor league teams are urging the
court to—and I’m quoting here—”cast the
baseball exemption into the dustbin of antitrust history.”

Jeanifer Parsigian:  So, I think you know
that that’s a pretty big ask right there. But it could be
something that the Court has an appetite for. It may be that
relying on stare decisis for this is not something that is
going to continue to be persuasive for MLB.

Angela Smedley:  Yeah, I totally agree.
And I think that one concern Major League Baseball must have with
respect to the case by the minor league teams is that, in recent
years, the tide does seem to be turning away from preferential
antitrust treatment for sports leagues. I think the question,
though is, for those who think the exemption should be eliminated,
is this the right case for it? And we know Major League Baseball
definitely does not think so. It moved to dismiss the former minor
league teams’ complaint in April based on the antitrust
exemption, calling their lawsuit “frivolous” when it did
so. Now “frivolous” might be a bit of a stretch, since
the minor league market did just experience sudden and pretty
significant downsizing. But it’s possible the MLB, when it made
that comment, was firing back at the plaintiffs because it’s
really taken issue with them for—as Major League Baseball put
it—for “publicly boasting” that they are using the
case as a vehicle to challenge the exemption.

Diana Leiden:  Wow! That’s
interesting. That was back in April. So, what’s going on in
that case now, Angela?

Angela Smedley:  The most recent
development in the case is that the U.S. Department of Justice
actually filed a Statement of Interest in June. The DOJ didn’t
take a position on Major League Baseball’s motion to dismiss,
but they did say that the antitrust exemption does not
rest on any substantive policy interests that would justify players
and fans losing out on the benefits of competition.

Jeanifer Parsigian:  They take the
position that the Court needs to follow the binding Supreme Court
precedent on this. They don’t directly say, you know
“District court, you should get rid of this exemption,”
the way that the plaintiffs are. They say instead the antitrust
laws in general get narrow constructions, and for this baseball
exemption specifically, it should be limited to conduct that is
central to providing professional games to the public.

Angela Smedley:  It seems clear that the
endgame here is to eliminate baseball’s antitrust exemption and
to try to bring baseball down to the same playing field as the
other league sports. I’d say it’s probably worth keeping
tabs on this one, if for no other reason than we could be watching
a landmark case in the making.

Diana Leiden:  I definitely agree with
that. Thanks, Angela. Jen, Angela mentioned that there was a second
case that had been recently filed. Can you tell us about that
one?

Jeanifer Parsigian:  The other case does
not challenge the MLB exemption, but it does make reference to it
in the complaint. And that case is Cangrejeros de Santurce
Baseball Club v. Liga de Beisbol Profesional de Puerto Rico
. I
apologize if I have butchered that pronunciation. That case is in
the District of Puerto Rico. It is in its early stages. It was just
filed in mid-July. And I will note our position here—Winston
& Strawn represents the plaintiff in this case, though Angela
and I have not yet been involved there. The plaintiff is an owner
of a Puerto Rican Baseball League that is not affiliated with MLB
and does not have the same ownership structure as the MLB does. So
the owner—among other things—wanted to make a $2M
investment into badly needed stadium repairs for his team. But the
Defendant owners, the League, and the Mayor of San Juan declined to
allow that, and ultimately replaced the owner from the League.

So in response, the owner has sued the League and other league
owners under Section 1 of the Sherman Act and Puerto Rican
antitrust laws as well, alleging that they conspired with the Mayor
to exclude him from the top-tier professional baseball market, and
prevent him from investing the money in his team, and replacing him
as an owner.

Notably, the complaint there makes a point of explaining that,
because Major League Baseball is the only baseball entity with an
antitrust exception—and it doesn’t apply to professional
baseball generally—the Puerto Rican league is not
protected under that federal antitrust exemption. This case could
be one of the few antitrust lawsuits related to baseball that
isn’t actually pre-empted by the judicial antitrust exemption.
So, it’ll be interesting to keep track of that over the next
weeks and months, and we encourage all our listeners to do
that.

Diana Leiden:  It sounds like there are a
lot of things moving in this area right now. Angela, can you tell
us more about some of the other notable issues in this area that
you see as being relevant moving forward, even if they are not
directly related to these specific antitrust lawsuits or the
proposed legislation?

Angela Smedley:  Yes, and you’re
absolutely right—there’s a lot happening right now in
this space, but I’m going to highlight two things in
particular. First, because Minor League Baseball has been so
prominent in today’s discussion, we’d be remiss if we
didn’t mention the recent class settlement in the case of
Senne v. Office of the Commissioner of MLB, which was a
lawsuit filed in the Northern District of California back in 2014,
alleging that minor league players were paid illegally low
wages—we’re talking figures as low as $1,100 per month
during a five-month season, and receiving little or nothing for the
postseason and off-season work that they put in that was considered
mandatory. The plaintiffs in that case argued that these wages
violated the Fair Labor Standards Act and several states’ labor
laws. On the eve of trial in July, however, Major League Baseball
and the class of minor leaguers agreed to settle the case for $185
million.

I think one interesting dynamic in the case was that, even
though it’s not an antitrust lawsuit in itself, the issues at
the heart of the case highlighted several ways in which Major
League Baseball’s antitrust exemption can have a practical
impact on the League and its players. Just as one example, the
class of plaintiffs alleged that the exemption enables the League
to “openly collude on the working conditions” for minor
league players and to “quickly quash[] any rival leagues”
that might undermine Major League Baseball’s “system of
artificially low salaries.”

Diana Leiden:  Wow. That’s
interesting. Angela, what else is going on at the minor league
level?

Angela Smedley:  Well, there are also
potential unionization efforts at the minor league level. Our
listeners may not know that, unlike their major league
counterparts, minor league players are not represented by
a union. What that means is that minor league players have no
protection under federal antitrust law (because of the antitrust
exemption), and they have no protection under a collective
bargaining agreement or labor law more broadly because they’re
not part of a union. And it’s this unique circumstance
that’s part of why the Major League Baseball antitrust
exemption disproportionately impacts minor league players, rather
than major league players.

Because minor league players have no union, they’re
particularly powerless against the actions of their employers. And
in recognition of this situation, there’s been a lot of recent
public support for the idea of potentially unionizing the minor
leagues, spearheaded by the advocacy organization I mentioned
earlier, Advocates for Minor Leaguers.

Even though neither Senne nor the potential
unionization efforts directly challenge the antitrust exemption,
they do show us just how broad of an impact the exemption
has on certain subsets of the baseball industry, like minor league
baseball.

Diana Leiden:  Thank you both for that
discussion. Jen, do you want to give us a brief recap or some
takeaways from what we’ve discussed today?

Jeanifer Parsigian:  Absolutely.

  1. First, although Major League Baseball has enjoyed an antitrust
    exemption for a century now, since Federal Baseball, the
    Alston v. NCAA case calls this exemption into
    question—and how the current Supreme Court would view it.
    Alston has been wielded in several other challenges since
    its decision in pursuit of striking down MLB’s exemption.

  2. The challenges have come, not only in the form of potential
    legislation, but in the form of the recent antitrust lawsuit filed
    in the Southern District of New York, the Nostalgic Partners v.
    Office of the Commissioner of Baseball
    , where they’re
    directly challenging the antitrust exemption and where the DOJ has
    weighed in. That case—along with the Cangrejeros
    case in Puerto Rico—are things for us to keep track of moving
    forward to see where MLB’s exemption might end up.

  3. Finally, although many of the upcoming developments are not
    directly related to MLB’s antitrust exemption, they stem from
    the exemption in one way or another, which truly shows how broad of
    an impact this unique exemption for America’s pastime, has had
    on the industry.

Diana Leiden:  Thank you to Angela Smedley
and Jen Parsigian for joining our second episode of Winston’s
Women in Antitrust Series and giving folks in the Sports sector a
lot to think about! Please be sure to subscribe to Winston’s
Competition Corner blog for antitrust updates delivered straight to
your inbox. Our next episode, focused on the Technology sector,
will be released in late September. Thanks for listening!

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