Major League Baseball (MLB) has a long-held exemption from antitrust law that has been described by the Supreme Court as “unrealistic,” “inconsistent,” and “aberrational.” Yet, the exemption continues, with MLB having recently dodged a potential Supreme Court review by settling a lawsuit brought by minor league clubs who lost their MLB affiliations. Now MLB is reportedly considering a new television model that is likely to raise the prospect of renewed antitrust challenges.
Baseball and Antitrust Law
Generally speaking, Section 1 of the Sherman Antitrust Act prohibits two or more parties agreeing to conduct which “unreasonably” restrains trade in a particular market. What restraints are unreasonable is often the subject of intense debate and economic analysis, but common complaints are agreements which raise prices or decrease output.
MLB benefits from two antitrust exemptions.
First, in the Federal Baseball case of 1922, the Supreme Court infamously ruled that baseball was not interstate commerce and therefore was exempt from antitrust scrutiny. The Supreme Court reluctantly upheld this exemption in cases in 1953 (Toolson) and 1972 (Flood), despite having previously refused to extend it to other sports and acknowledging the errors of Federal Baseball. In the Curt Flood Act of 1998, Congress repealed the exemption insofar as it concerned MLB players but left it alone with regard to other areas of baseball. The breadth of MLB’s antitrust exemption remains uncertain but numerous cases over the years have been brought by scouts, cities, prospective owners and others challenging the exemption, with minimal success. As a result, MLB has been able to exercise considerable control over the business of baseball, including most notably with regard to franchise locations and minor league operations (for a robust and recent analysis of MLB’s antitrust exemption, see this article by professors Marc Edelman and John Holden).
MLB’s antitrust exemption recently withstood a major legal challenge arising from its 2020 decision to reduce the number of minor league affiliates from 160 to 120. Four clubs that did not make the cut sued, alleging that MLB’s plan violated antitrust law. The plaintiffs – led by Nostalgic Partners, LLC, owner of the Staten Island Yankees – alleged that MLB’s plan constituted a horizontal agreement among competitors to artificially restrict the market for affiliation agreements between minor league clubs and MLB clubs. Moreover, the plaintiffs alleged that the MLB clubs had engaged in an unlawful group boycott by refusing to do business with the excluded clubs.
The plaintiffs knew that their claims ran head on into baseball’s antitrust exemption and, as expected and in fact requested, lost at the district court and appellate court levels. The plaintiffs’ goal was to have the case reviewed by the Supreme Court and they appeared to be on their way in the fall of 2023 when its petition for review was supported by a range of amicus briefs, including from respected academics and politicians from both parties. In November 2023, to avoid the prospect of losing its century-old and highly valuable antitrust exemption, MLB confidentially settled the case with the clubs.
Second, in 1961, at the behest of lobbying led by the NFL, Congress passed the Sports Broadcasting Act which exempts “football, baseball, basketball, or hockey” teams from antitrust law when they collectively sell their television rights for the “sponsored telecasting” of their games. Importantly, sponsored telecasting refers to broadcasts which are financed by business enterprises (the “sponsors”) in return for advertising time and are therefore provided free to the public. This definition historically covered broadcasts on channels that were part of basic cable, such as CBS, ABC, and NBC. Thus, the Sports Broadcasting Act does not exempt league contracts with cable (e.g., ESPN), satellite television services, or digital distribution platforms, for which subscribers are charged a fee, from antitrust liability.
MLB’s Current and Future (?) Television Structure
MLB teams play a lot of games – 162 to be exact. While MLB sells the rights for some of those games to be broadcast nationally on ESPN, FOX, and TBS, the vast majority of teams’ games are sold to and broadcast by local television networks, generally regional sports networks. Consequently, while MLB’s national television deals are worth $2.8 billion annually, the local television rights are worth almost as much at $2.5 billion. Moreover, according to Sportico, 21% of MLB clubs’ revenues are from local media rights, compared to 13% in the NBA, 12% in the NHL, and 1.8% in the NFL (which consists of preseason games and radio deals).
MLB’s business model was thrown into flux recently by the 2023 bankruptcy of Diamond Sports Group, which operated regional sports networks under the Bally Sports banner. Diamond had the local television rights to 13 clubs, at a total annual value of approximately $800 million. Diamond has recently emerged from bankruptcy after restructuring its debt and operations, including jettisoning its partnerships with several MLB clubs. As a result of Diamond’s collapse, MLB was forced to take control over the production and distribution of local broadcasts for several MLB clubs.
MLB is now considering overhauling its historic television rights structure. Instead of most of its games being broadcast by a multitude of local broadcasters, MLB would like to sell all clubs’ television rights to a single network or distribution platform. Such an arrangement would come together in 2028, when MLB is coordinating the expiration of its national television deals and clubs’ local broadcast deals. MLB Commissioner Rob Manfred has said that having “more games on national outlets is an important key to maximizing your revenue.”
Major League Soccer (MLS) recently made this exact transition. MLS required clubs’ local broadcast deals (which were generally worth nothing or close to it) to expire after the 2022 season. MLS then sold the rights to all MLS games to Apple TV as part of ten-year $2.5 billion deal. The deal put all of MLS’ games behind a paywall, a questionable decision for a league short on casual fan interest. Additionally, by failing to hit certain subscription metrics, MLS has not maximized the value of the deal.
Antitrust at the Plate
MLB’s plan presents typical antitrust concerns – it would roughly consolidate 31 products for sale (each team’s local rights plus the league’s national rights) into a single product. The plan would then permit that product to be purchased by one broadcaster or a select few, whereas before many more were involved in the distribution of MLB games on television. As Manfred himself said, consolidating the rights should make them more expensive. Then there is the question of price. Many fans can currently watch their local team via a regular cable package. MLB’s proposal suggests that in the future, MLB games will be behind an additional paywall and/or require fans to be subscribers to a new online service.
While it may depend on the details of any actual agreement, MLB’s proposed plan would not likely be protected by the Sports Broadcasting Act. That law permitted sports teams to maximize their broadcast rights revenue through collective sale so long as games were available to fans generally free of charge. Instead, MLB seems to be contemplating a more direct-to-consumer approach whereby fans can access more MLB games in more ways for a fee.
There is then the question of whether MLB’s antitrust exemption would protect the plan. The history of the exemption suggests MLB would be on strong footing to argue that it does. However, the Nostalgic Partners case put forth a variety of strong arguments for the exemption to be curtailed or abolished entirely, if and when the Supreme Court ever wishes to take up the issue. A person or party looking to challenge MLB’s antitrust exemption the next time around thus already has the first draft of legal briefs written for them.
Even without the exemption, MLB’s plan may nevertheless pass antitrust muster. In August 2024, after a jury awarded fans and bar owners $4.7 billion in damages against the NFL arising out of the NFL’s requirement that fans purchase “Sunday Ticket” to watch most out-of-market games, the judge threw out the verdict after finding that the plaintiffs had failed to put forth a cognizable case that they had been financially damaged by the NFL’s packages. That case demonstrates the difficulties in establishing that sports leagues’ complex broadcast agreements either increase prices or restrict output in illegal ways, particularly given the leagues’ interest in maximizing viewership.
Instead, MLB’s plan may run into problems closer to home. The New York Yankees receive a reported $143 million annually for their local rights from the YES Network, accounting for approximately 20% of the club’s annual revenue. The Yankees have thus understandably already expressed skepticism at a proposal that would see them give up their rights or perhaps put them on the same footing as those of much smaller and less lucrative clubs.
The Yankees’ potential plight is reminiscent of the Dallas Cowboys in the 1990s. The Cowboys filed an antitrust lawsuit against the NFL concerning the league’s desire that all clubs collectively and exclusively license their intellectual property for sale on merchandise. The case settled with the Cowboys permitted to sell merchandise outside the NFL licensing framework, a fact which has contributed to the Cowboys’ astronomical valuations.
While much about MLB’s contemplated television broadcast structure is uncertain, it seems probable that should it come to fruition, affected parties will consider their rights under antitrust law.