Nathaniel Grow - Baseball on Trial: The Origin of Baseballs Antitrust Exemption

BASEBALL ON TRIAL

BASEBALL ON TRIAL

The Origin of Baseballs Antitrust Exemption

NATHANIEL GROW

UNIVERSITY OF ILLINOIS PRESS

Urbana, Chicago, and Springfield

2014 by the Board of Trustees
of the University of Illinois
All rights reserved
Manufactured in the United States of America
1 2 3 4 5 C P 5 4 3 2 1

This book is printed on acid-free paper.

Library of Congress Cataloging-in-Publication Data
Grow, Nathaniel.
Baseball on trial : the origin of baseballs antitrust exemption / Nathaniel Grow
pages cm
Includes bibliographical references and index.
ISBN 978-0-252-03819-8 (hardcover : alk. paper)
ISBN 978-0-252-07975-7 (pbk. : alk. paper)
ISBN 978-0-252-09599-3 (e-book)
1. BaseballLaw and legislationUnited StatesHistory. 2. Antitrust lawUnited StatesHistory. 3. Professional sports contractsUnited StatesHistory. 4. United States. Sherman Act. 5. National League of Professional Baseball ClubsTrials, litigation, etc. I. Title.
KF3989.G76 2014
343.7307'21dc23 2013023552

To Lara

CONTENTS

ACKNOWLEDGMENTS

I would not have been able to write this book without the assistance of a number of individuals. First and foremost, my wife, Lara Grow, and father, Michael Grow, dutifully reviewed drafts of each chapter as they were being written, providing invaluable substantive and editorial guidance. The book also benefited greatly from the feedback provided by Professors Ed Edmonds and Mitchell Nathanson, who both reviewed an initial manuscript for the University of Illinois Press. Daniel Levitt, author of the terrific history of the Federal League, The Battle That Forged Modern Baseball: The Federal League Challenge and Its Legacy, courteously shared an advanced copy of his book with me to facilitate my own research. My research assistant, Holt Coltharp, assisted me with the collection of articles from relevant baseball periodicals. Freddy Berowski and his colleagues at the National Baseball Hall of Fame Library aided my navigation of the librarys pertinent holdings, while the staffs of the National Archives facilities in Chicago, Kansas City, Philadelphia, and Washington, D.C., as well as the Cook County Circuit Court Archive in Chicago, helped me locate the original court documents from many of the lawsuits discussed in the book. Last but certainly not least, this project would not have been possible without the extremely generous financial support provided by my home institution, the University of Georgia. In particular, a Junior Faculty Research Grant from the Willson Center for Humanities and Arts facilitated my travel to all of the necessary research archives, while a Terry-Sanford Research Award from the Terry College of Business supported my writing efforts. To all of the above: thank you.

BASEBALL ON TRIAL

INTRODUCTION

The United States Supreme Courts 1922 decision in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs ranks among the most frequently criticized opinions in Supreme Court history. In a unanimous ruling authored by Justice Oliver Wendell Holmes Jr., the Court held that the business of base ball was not subject to the Sherman Antitrust Act because it did not constitute interstate commerce. Although the Supreme Court has subsequently acknowledged the anomalous nature of this ruling, it has nevertheless affirmed Federal Baseball on two separate occasions, first in 1953 and then again in 1972. As a result, Major League Baseball is not only the sole professional sports league to enjoy antitrust immunity, but is in fact the only industry in the country operating under a judicially created exemption from antitrust law.

When considering baseballs unique antitrust status, the obvious question to ask is: how could this be? Today, Major League Baseball is a multibillion-dollar venture, with its commercial operationsranging from its television and Internet broadcasts of games to its extensive merchandising effortsincreasingly conducted on not just a national but an international scale. How then could anyone, let alone a legendary Supreme Court Justice the caliber of Oliver Wendell Holmes, conclude that baseball was not interstate commerce and thus not subject to federal antitrust law?

To date, legal scholars have been unable to provide a fully satisfactory answer to this fundamental question due to the lack of a comprehensive account of the Federal Baseball litigation. Although baseballs unique antitrust status has been considered in several books and a number of law review articles, none of these works have thoroughly explored the exemptions origin, but instead have typically provided only a cursory account of the Federal Baseball case. most scholars have criticized the opinion as being wrongly decided and reflective of a fundamental misunderstanding of professional baseball. These critical analyses tend to judge the decision in light of the sports present-day commercial operations, however, rather than the state of the business in 1922, and frequently fail to fully consider the contours of the applicable law at the time. Moreover, because no thorough account of the litigation existed, these scholars were largely unaware of the many strategicand in some cases questionabledecisions by counsel that framed the legal issues on appeal and help explain the Supreme Courts ultimate ruling in the case.

The lack of a comprehensive history of the Federal Baseball case is particularly surprising given the colorful path the suit took to the Supreme Court. The origins of the litigation date back to the formation of the Federal League of Professional Base Ball Clubs in 1913. The Federal League sought to establish itself as a third major league by challenging the supremacy of the American and National Leagues. Following a lackluster first season, the Federals attempted to elevate their leagues profile by raiding the rosters of organized baseball during the 19131914 offseason, successfully convincing approximately fifty major league players to join the new circuit. The Federal League believed it could sign these players based on advice from its legal counsel, who asserted that the standard major league playing contract was legally unenforceable. Not surprisingly, the major leagues disagreed, and as a result thirteen different lawsuits were filed in 1914, with both organized baseball and the Federals seeking injunctions to prevent their players from jumping back and forth between the leagues. After an ill-fated attempt to negotiate a resolution to the dispute in November 1914, the Federal League turned to another legal strategy, filing an antitrust lawsuit against the American and National Leagues in federal district court in Chicago in January 1915. The litigants staged a four-day hearing before Judge Kenesaw Mountain Landiswho would later become the first commissioner of baseballin the process offering a preview of the legal arguments that would eventually be asserted before the Supreme Court. Following the hearing, Landis proceeded to withhold judgment in the case for a year in the hope that the two sides would amicably resolve their differences. With its financial losses mounting, the Federal League ultimately agreed to a settlement with organized baseball in December 1915, thereby dissolving its operations.

This detailed backdrop set the stage for the Federal Baseball case. Although seven of the eight Federal League clubs were satisfied with the peace agreement, the leagues Baltimore Terrapins refused to accept the settlement terms. The team instead opted to file its own antitrust lawsuit against organized baseball in 1916, alleging that the American and National Leagues had conspired to destroy the Federal League. After being presented with unfavorable evidence during an abbreviated trial in Philadelphia, however, Baltimore voluntarily withdrew its case in 1917, only to refile a broader antitrust lawsuit a few months later in Washington, D.C. This latter suit proceeded to trial in 1919, ultimately culminating in the Supreme Courts infamous 1922 decision.