If San Jose antitrust suit goes to Supreme Court, what would that mean for A’s?

The Wall Street Journal ran a long piece yesterday on San Jose’s antitrust suit against MLB for blocking the Oakland A’s from moving there, with the upshot being that while it’s still probably a longshot to overturn baseball’s 92-year-old blanket antitrust exemption, it’s not out of the question. And an appeals court could rule on the matter as soon as this summer, setting up a likely Supreme Court showdown soon after.

The really short background on this: Back in 1914, a bunch of businessmen set up a rival to the American and National leagues called the Federal League, which aggressively stole both players and fans from the existing leagues. (The Chicago Whales franchise played in a brand-new ballpark that later became known as Wrigley Field.) The AL and NL owners retaliated, first driving the new league to the brink of financial ruin, then buying out enough owners that the new league collapsed. The owners of the Baltimore Terrapins FL franchise, who hadn’t gotten a cut of the boodle, sued saying that this was a violation of the Sherman Antitrust Act barring monopolistic activities. But the Supreme Court ruled that baseball is exempt from antitrust laws because it’s not an interstate activity, a bizarre warping of logic that has nonetheless been reaffirmed through the years by other Supreme Court rulings.

Baseball’s special antitrust exemption — other sports leagues have limited exemptions, but none that allows full control over franchise movement like MLB’s — has been widely disparaged over the years, but the courts have repeatedly kicked things back to Congress, ruling that if politicians want to clear this up, they should just go an make a new law that explicitly says how antitrust applies to baseball. Congress has rattled this saber on occasion to get MLB’s attention (including for such things as forcing testimony over steroid use), but has never seriously considered revoking baseball’s exemption, largely because everybody powerful is pretty content with the current system, so why rock the boat just for a little matter like legal doctrine that makes a damn bit of sense?

Every time one of these cases comes up, though, there’s always the chance, slim though it may be, that the Supreme Court will actually overturn the 1922 ruling, which is why MLB usually tries to avoid letting things get to the Supreme Court. That hasn’t happened so far here, though, either because MLB is confident that the case will be dismissed (it was once already, by a lower federal court) or because it would rather roll the dice with the courts than figure out how to break open its 150-year-old territorial rights system.

The WSJ cites University of Georgia law professor and baseball antitrust expert Nathaniel Grow as saying if it gets to the Supreme Court, “I’d be surprised if baseball wins”; sports economist Roger Noll, who has testified in past challenges to the antitrust exemption, has similarly told me he thinks this suit may have legs. If so, though, it’s puzzling why MLB seems willing to risk going to the top court on this, rather than hashing out an agreement between the A’s and San Francisco Giants over San Jose, which seemingly could be handled just by an exchange of the right amount of money. (Though finding an amount that both sides could live with might be impossible, especially if A’s owner Lew Wolff is hoping that a court will give him San Jose for free.) We’ll probably need to wait to see what the appeals court says this summer — if San Jose pulls off a hail mary (I know, I know, wrong sport) and wins this round, things could certainly get interesting.

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21 comments on “If San Jose antitrust suit goes to Supreme Court, what would that mean for A’s?

  1. The thing that is warped is the idea that you can apply a law designed to prevent using monopoly power against business rivals (such as Federal League example) to how a business entity (MLB) conducts its internal operations. If the exemption is overturned, how does that have –anything– to do with the franchise business concept and the use of territorial rights? And if your goal is to somehow kill the territorial rights inherent in most franchise-based businesses I can think of a few major corporations that are gonna have a little problem with that.

  2. Note (as I should have in this post) that the courts could still overturn the blanket antitrust exemption, but then rule that MLB can control franchise movement just because they’re franchises. There are a lot of potential iterations here.

  3. Gotta love this Supreme Court. If the Court does rule against MLB you have to wonder if it’ll be too long before some rich guy sues the NFL to allow him to start up a franchise in LA.

  4. I’ll just make the observation that this particular SC is wildly unpredictable, and is capable of pretty much any decision you can think of, with, seemingly, no outcome any more or less likely than any other. Would not surprise me if they lose their antitrust exemption.

    If that happened, though, I think MLB would owe the Giants a lot of money. Relocation fees seem to be legal. The A’s themselves could STILL move from the Bay Area because those costs would be so high (Think: Well north of $100M).

  5. @Neil-The WSJ article stated “Major League Baseball, which hasn’t given the A’s permission to move, says that the land offered by San Jose isn’t enough to build a stadium and notes that the city hasn’t offered to help fund construction.”

    The last piece is the key, “help fund construction”. MLB and notably Selig wants a “handout” from either San Jose, Oakland, or any other city for that matter a la Washington DC. That is the reason why MLB is willing to fight this lawsuit. They do not want teams going into debt, they punished the Giants for 7 years not getting an All-Star game because of building privately.

    If San Jose or Oakland were offering a decent chunk to pay for construction, Selig could then barter a deal between the two teams and this ends today. But San Jose is smart enough to see they have the corporate base (SVLG letter says it all) and affluent fan base (Sharks tix are more $$ than Warriors tix except for courtside seats) that a privately financed ballpark pencils out for the A’s.

    Lew Wolff sees this clearly too and unlike other owners isn’t asking for a handout. This is big with Selig who believes baseball is “holy” and the people should pony up public money to watch it. Your book and website “Field of Schemes” is all about the public handout and how it goes awry.

    San Jose refuses to fall into that category even though the SAP Center turned out to be a good public investment. Levi’s Stadium a few miles down the road was privately financed 95% as well for a much larger amount than a baseball stadium would cost in Downtown San Jose, the Earthquakes new stadium same thing……Privately done.

    MLB cannot argue in court they want a “free handout” from San Jose or anyone else. That is anti-competitive behavior to block a business from relocating. This would not pass a “Rule of Reason Analysis”. Most of MLB’s case would not and it is now up to the 9th Circuit to open this up to discovery and force MLB to come out of the dark and explain themselves.

    If that happens it is over real fast and the A’s will get into San Jose as part of a settlement, plus SJ will get a boatload of money from MLB as well like Piazza did.

  6. I don’t doubt that Selig and MLB would like to see the A’s getting money from San Jose, but that’s not what this dispute is about at heart. I have an email in to the WSJ reporter asking where and when “MLB” (does that mean Selig?) said that it was concerned about city funding, but he hasn’t responded yet.

    And again, a court could overturn the blanket antitrust exemption and still maintain that the league has an ability to control franchise movement. Other sports leagues don’t have the antitrust exemption, after all, and yet they still get to vote on who gets to move where.

  7. I agree with Keith – my understanding is that the A’s and Giants have an agreement that SJ belongs to the Giants. To add more intrigue, Tim Kawakami of the SJ Mercury News is reporting that Joe Lacob, owner of the Golden State Warriors, continues to make overtures to John Fisher to purchase the A’s. Here’s the link: http://blogs.mercurynews.com/kawakami/2014/04/08/when-and-if-john-fisher-puts-the-as-up-for-sale-there-will-be-a-line-of-potential-buyers-probably-including-joe-lacob/

  8. “That is anti-competitive behavior to block a business from relocating”

    No, MLB can’t engage in anti-competitive behavior against itself. There is no competitor here, so no anti-trust issues – in a sane world.

  9. Just to clarify, my thoughts regarding San Jose’s prospects before the Supreme Court were truncated a bit in the WSJ article. In fact, I think it is a long-shot that the Court would take the case, as the Curt Flood Act of 1998 arguably evidences Congressional intent to maintain baseball’s exemption for everything but labor disputes. Therefore, I’d be relatively surprised if the Court accepts the case after the Ninth Circuit issues its ruling.

    However, if the Court does take the case, then I think San Jose would very likely prevail. The reason for this goes beyond the merits of the case, and lies in the fact that the Court is unlikely to wade into this issue unless a majority of the justices are determined to overrule baseball’s exemption. Otherwise, there would be no reason to grant the appeal only to issue what is sure to be a highly controversial opinion reaffirming what is already–rightly or wrongly–a frequently criticized doctrine. Thus, I suspect the Court either denies the appeal (~70% likely) or else reverses baseball’s antitrust exemption.

    As for the question of why MLB would risk letting this case get to the Supreme Court, I think the answer lies in the fact that control over relocation is probably the biggest benefit MLB derives from its antitrust exemption. In most respects, MLB’s business operations are roughly identical to those of the other leagues despite its antitrust immunity. (The reason for that, in my opinion, is that antitrust law just is generally ineffective at regulating professional sports leagues.) Regardless, relocation decisions are one of the few areas in which MLB enjoys some protection vis-a-vis the other leagues, which have had their relocation policies successfully challenged on several occasions.

    So if there was ever going to be a case in which MLB decides to litigate the issue all the way to the Supreme Court, this would be it. Otherwise, MLB would derive relatively little benefit from its antitrust exemption. That having been said, if the Supreme Court does take the case, I wouldn’t be shocked if MLB resolves this in San Jose’s favor sometime before a final decision is issued in order to moot the city’s appeal and thereby salvage the antitrust exemption.

    Finally, as an aside, I actually think the Supreme Court got it right in 1922 in light of the prevailing law in place at the time. At the risk of engaging in a little shameless self-promotion, I have a new book out documenting the 1922 litigation and explaining why I think Justice Holmes’ opinion in the Federal Baseball suit has been unfairly criticized: http://www.amazon.com/Baseball-Trial-Baseballs-Antitrust-Exemption/dp/0252079752/ref=sr_1_10?ie=UTF8&qid=1390429522&sr=8-10&keywords=baseball+on+trial

  10. @ng- I would be surprised that MLB would allow even a remote possibility- you put it at 30%- that the sc takes the case with a fairly certain victory for SJ- sure they can still negotiate a settlement with SJ before a decision is rendered but they will have zero leverage. This is the same group who appears to agree that there is no feasible site in their existing territory- makes no sense

  11. Thanks, Nathaniel — if I understand what you’re saying, MLB is confident that the Supreme Court will reject the case, but if it accepts it, it’s a signal that it will overturn the antitrust exemption and then it will move quickly to settle with SJ?

    If that’s the case, then it doesn’t matter that MLB would have no leverage, SJA’s, because the league would be happy to give SJ anything it wanted, since it would be that or risk losing the antitrust exemption altogether. It would mean having to cobble together a deal with the Giants super-fast, but I can see Selig & Co. thinking better that than offering a compromise deal that requires bending on territorial rights when full victory is still likely even if not certain.

  12. Yes, exactly Neil. This is all just speculation on my part, of course, but it makes some sense for MLB to say let’s see how far we can ride the antitrust exemption in this case, and if it looks like we might lose it, then we’ll cut a deal. If anything, placing the exemption in direct peril at the Supreme Court may finally be enough to get the Giants to lower their demands, or be enough to get 3/4th of the rest of the teams to approve the move over SF’s objections. That having been said, there is of course some potential risk to that strategy, as it would potentially set a precedent for future cities to follow when they want to attract a team to their market.

  13. @neil- 30% is more than near certain from a risk perspective and those are the odds given by someone who continues to advocate retaining the at exemption. I pay insurance on my home to manage my risk-and it’s a lot less than paying out of pocket to replace the house after it is damaged. Similarly, MLB could require the gints to settle (bs has this capability) rather than risk losing its ATE and having yo pay damages to SJ. Btw- Other attorney’s, including cotchett, place the odds higher for success for SJ- and to ng’s credit he recently provided a link to a umass article that agreed ATE should be eliminated. At this point all of the attorney pundits have been wrong as it relates to 9th district and their agreement to expedite the case- given the national attention that has been garnered already I’m sure it will be a fascinating decision by August-

  14. “Similarly, MLB could require the gints to settle (bs has this capability) rather than risk losing its ATE and having yo pay damages to SJ.”

    $6 million as settlement of damages, which is what Piazza got, is trivial in the grand scheme of things. And if MLB is going to force the Giants to accept the A’s in SJ, which is the only way to settle, then they can just as easily (if not more easily) do it after the Supreme Court decides whether to accept the case, as Nathaniel says.

  15. Right- assuming SJ is willing to deal at that point- lots of leverage for SJ to negotiate a significant settlement or if not…allow the SC to take away mlb’s precious ATE…. Which ng asserts is pretty much a given if it reaches that stage. Not to mention MLB would have pretty much established the strategy for anyone else who wants to go after their ATE…even if SJ settles…realizing the SC is open to hearing the case-

  16. If the SC takes the case — assuming that the SC taking the case is tantamount to ruling against MLB — it’s DEFCON 1, and MLB can start buying people off and ask questions later. But settling now is going to require pretty much the same thing as settling later (it’s not like San Jose would accept half a team), so why rush into things?

    Anyway, it’s silly for us to be arguing this, because as we can see, MLB is in no hurry to settle, negotiate, or anything. We don’t need to guess at what MLB’s strategy is, because that’s patently obvious; we just need to explain why the league is taking this approach, and Nathaniel’s theory seems as good as any.

  17. Ok- don’t quite get your last point- I do agree by August when 9th district rules we will have a much better idea on next steps. One last point- MLB wants the A’s to have a new stadium- and has pretty much agreed over the past 5 year analysis that Oakland doesn’t have a site that makes sense. So the win win is getting them to SJ – 40 miles further away from their competition and where a privately financed stadium can be built- which is a requirement in the Bay Area as evidenced by the ‘9ers and Earthquakes new stadiums- all of which are privately financed including 1 by none other than LW/JF

  18. Mr. Grow:

    I agree that it is unlikely that the SC would choose to hear an appeal on this issue. However, since we are already making the assumption that the appeal court will rule in SJ’s favour, I am interested to know what you believe their reasons for electing to hear this might be?

  19. @Keith- MLB is not one entity, they are 30 separate franchises who compete for fans, revenue, and marketing. The A’s and Giants are competitors, MLB is just an unincorporated entity to manage the league itself. Things like marketing, scheduling of games, rule changes etc…. essentially all the owners of the franchises. It is “anti-competitive” for MLB to lock out a city or restrict franchise movement unless it passes a “rule of reason” test.

    @Neil- Nathaniel is correct that MLB will litigate this short of the Supreme Court as they did with Piazza. It was Piazza winning in the 9th Circuit that prompted MLB to settle the case on the door of the Supreme Court.

    San Jose won the moment the lower court allowed them to “piece meal” the lawsuit into California State Court and the 9th Circuit.

    Two scenarios occur here in the 9th Circuit (lets forget about the state case for arguments sake)

    1. San Jose wins their appeal and a full blown trial with discovery is granted forcing MLB to prove by “rule of reason” analysis their logic for locking out San Jose….Not good. We all know their logic would not stand in court as Piazza holds precedence here.

    2. San Jose loses in the 9th Circuit but appeals to the Supreme Court. Would MLB risk this after the NFL lost so miserably going for a de facto ATE vs. American Needle?? The NFL won on every lower level court and went for the jugular and lost bad, when you lose 9-0 in the Supreme Court it says something pretty distinct.

    Forget the fact they are fighting in LA County the torturous interference claims that is independent of the anti-trust piece. The State case will be tough to win as the option agreement San Jose has with Wolff.

    I believe MLB knows they are going to lose but are delaying as much as possible. Selig does not want to deal with this before he leaves office and that is painfully obvious. Meanwhile MLB’s lawyers are simply raking in the cash in the meantime.

  20. SBSJ wrote: @Keith- MLB is not one entity, they are 30 separate franchises who compete for fans, revenue, and marketing.

    Not true. Prior to 1995, most sports leagues operated more like independent businesses. They do not do so anymore. In fact, their location agreements effectively prevent them from competing for the same fans and marketing opportunities.

    People keep making this false comparison… that a sports league is like a McDonalds, Burger King, Jack in the Box, White Castle, Carl’s Jr etc all competing for the hamburger buyer’s dollar.

    They aren’t. Any given sports league operates like EITHER McDonalds, Burger King or one of the other franchise businesses. They are one business, not 24, 30, or 32. Their member businesses may or may not be individually owned (depending on the league), and they may (or may not) pay tax as an individual corporation. But they are not independent businesses in the true sense.

    The Burger King/JitB/WC/Carl’s analogy only works if you believe there are other viable “major leagues” out there besides MLB. I wish there were… but MLB’s extirpation of the Pacific Coast league in the middle part of the last century took care of that.

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