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February 13, 2004
Econ 357, Whitney
Court Opinion
The question presented is whether “professional baseball’s reserve system is within the
reach of the federal antitrust laws.” The case entails two major suits filed by Curtis Charles
Flood charging the Commissioner of Baseball, the presidents of the two major leagues, and the
24 major league clubs with a violation of antitrust laws, civil rights statues, common law, and
state laws, and “the imposition of a form of peonage and involuntary servitude contrary to the
Thirteenth Amendment.”
The Court found that “Baseball has been the national pastime for over one hundred years
and enjoys a unique place in American heritage,” and that “[t]he game is on higher ground; it
behooves every one to keep it there.” The Court thus exempted baseball and its executives from
the charges presented.
The District Court concluded, “the preponderance of credible proof does not favor
elimination of the reserve clause.” It later held that Federal Baseball Club v. National league
and Toolson v. New York Yankees “were controlling; that it was not necessary to reach the issue
whether exemption from the antitrust laws would result because aspects of baseball now are a
subject of statute, were to be denied because baseball was not ‘a matter which admits of diversity
of treatment.’” It further emphasized that “the involuntary servitude claim failed because of the
absence of ‘the essential element of this cause of action, a showing of compulsory service.’”
The Second Circuit Court of Appeals “felt ‘compelled to affirm.’” The Court “regarded
the issue of state law as one of first impression, but concluded that the Commerce Clause
precluded its application.”
The Supreme Court agreed to consider the case “in order to look once again at this
troublesome and unusual situation.” In view of the facts and the legal precedents, the Supreme
Court stated that “Professional baseball is a business and it is engaged in interstate commerce.”
Furthermore, given the legal precedents set in Federal Baseball and Toolson, the Court found
that “baseball is, in a very distinct sense, an exception, and an anomaly.” This “rests on a
recognition and an acceptance of baseball’s unique characteristics and needs.” Additionally, the
Court found that baseball’s relationship to federal antitrust laws should be the purview of the
United States Congress and “that if any change is to be made, it [should] come by legislative
action.” The Court concluded that “what the Court said in Federal Baseball in 1922 and what it
said in Toolson in 1953, we say again here in 1972: the remedy, if any is indicated, is for
congressional, and not judicial, action.”
In his dissent, Mr. Justice Douglas stated that there could be no doubt “‘that were we
considering the question of baseball for the first time upon a clean slate’ we would hold it to be
subject to federal antitrust regulation.” He continued that “the unbroken silence of Congress
should not prevent us from correcting our own mistakes.”
Economic Analysis
When the Supreme Court arrived at its decision in Flood v. Kuhn (1972), the justices
cited several precedent cases before delivering their opinion.
Of these, none was more
substantial than their examination of Federal Baseball Club of Baltimore Inc. (FBCB) v.
National League of Professional Baseball Clubs (NLPBC), Et Al. (1922) and Toolson v. New
York Yankees, Inc. Et Al. (1953). These cases served as stare decisis for their ruling; however, if
the Court had been able to “consider the question of baseball for the first time upon a clean
slate,” their ruling may have been significantly different.
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When the Supreme Court delivered its opinion in FBCB v. NLPBC (1922), it ruled that
professional baseball organizations were not in violation of the Sherman Act. As evidence, it
presented the fact that “the business of providing public baseball games for profit between clubs
of professional baseball players was not within the scope of the federal antitrust laws.” This
exemption became the major precedent for any future cases that alleged that professional
baseball was operating as a monopolistic entity. In addition, the Court cited the fact that
“Congress has had the ruling under consideration but has not seen fit to bring such business
under these laws by legislation have prospective effect.” The Court believed that Congress had
no intention of including professional baseball within the scope of antitrust laws, and offered this
reasoning as a precedent for the Court’s decision in the matter of Toolson v. New York Yankees,
Inc. Et Al. (1953). In this suit, the Court ruled, “Without re-examination of the underlying
issues, the judgement below is affirmed on the authority of that the precedent case of Federal
Baseball Club of Baltimore Inc. v. National League of Professional Baseball Clubs, Et Al.
(1922) FBCB v. NLPBC (1922), supra, so far as that decision determines that Congress had not
intention of including the business of baseball within the scope of the federal antitrust laws.”
The Court upheld the precedent case, and ruled that professional baseball was not in violation of
the Sherman Act.
In the absence of these precedents, the Court’s ruling may have taken a more active
approach in arriving at its decision in Flood v. Kuhn (1972). Had the Court been ruling on
baseball and its exemption from the Sherman Act on a “clean slate”, it may not have relied on
much of the reasoning cited in the actual opinion. Rather, the Court may have ruled that
professional baseball was within the scope of the Sherman Act, thus making teams subject to
federal antitrust regulations. By making such a ruling, the Court would have placed professional
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baseball within the parameters similar to other monopolistic corporations rather than businesses
engaged in interstate commerce. Similarly, the Court would have acted on the reserve clause as
it related to labor and antitrust statutes, and sought to find a balance. The court would have
included in its ruling the removal of the “reserve clause,” allowing players to negotiate freely
between teams as opposed to being permanently contractually bound to a single club. The effect
of this ruling would be monumental, as teams would no longer have indefinite monopolistic
rights to a player’s services or exemption from federal antitrust regulations.
When making the ruling in regard to the Flood case, the Supreme Court had two options
available to them. Option 1 is what currently exists with the reserve clause, and Option 2 would
open up the rights of the players. Thus, as the case concerns property rights to players’ contracts,
the trade-offs that are at stake are the right to negotiate one’s own contract and decide where a
player wants to play, and the benefits available to team owners in order to keep expenses under
control for players.
The “competitive balance” might not be affected adversely were the players allowed to
negotiate their own rights to contracts. Under option 1, one would imagine that since the team
owners have the right to decide the fate of the players and their contracts, they would always try
to come up with the winning combination. This means that each team owner would try to get the
best players at the lowest cost. All the while, each team owner is trying to bargain to a
competitive league and an allocatively efficient outcome. The only fault with this theory might
be that certain teams will keep their good players at the lowest rate and try to acquire more good
players to keep under the reserve clause. This is unlikely to happen, though, as each team owner
would be facing the same situation and would try to protect his/her best interests.
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Furthermore, with option 2, the benefits of this option are that players could freely choose
where they want to play and what kind of a contract they will receive.
Under these
circumstances, the free spending team owners with cash to burn would try to pick up the
absolutely best players in order to win, and this might potentially lead to a situation where the
“competitive balance” is such that the teams with more money and better revenue generating
operations might be winning all of the time. This is very likely to occur, and it would lead to a
few main competitors and then the rest of the team owners who try to pick “the best of the rest.”
This would reduce the overall competitiveness of the league. The only problem with the idea of
higher and higher bidding for players is that at some point the outrageous salaries and the
expenses incurred as a result should not make sense to a rational team owner. The team owners
should understand the fundamental tradeoff between paying a player who is slightly better and
one who may be slightly worse but is cheaper. It would also be very likely that the amount of
available talent would allow teams that cannot afford the top players to find players at cheaper
prices and still be competitive. Accordingly, the wealthier teams may be willing to spend more
for these players in order to reap the benefits of the player’s success. Overall we think the
“competitive balance” would not exist under the situation if players had the right to their own
contracts, because those who are willing to spend excessive amounts of money on them will get
the best players and likely be the most competitive teams. Compared with option 1, it might be
better that the reserve clause be kept in order to ensure that all teams are allowed to remain
equally competitive, and so that the talent is efficiently allocated between teams to maintain the
“competitive balance.”
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