Court Upholds Minor League Baseball Antitrust Exemption

BaseballThe Ninth Circuit Court of Appeals has confirmed that the minor league baseball farm system doesn't violate US antitrust laws.

Major League Baseball (MLB) has thirty franchises (teams).  Each team employs about 40 players.

In addition, each franchise also employs about 150 to 250 players as part of the minor league "farm system."

The Farm System

MLB requires all franchises to use its Uniform Player Contract for minor league players.  MLB teams have exclusive rights to their minor league players for seven seasons.  However, MLB teams can trade the minor league players at the end of each season.

As Bloomberg reported, a group of minor league players alleged that MLB conspired to keep their salaries low, in violation of antitrust laws.

The case of Miranda v. Selig was filed by four minor league players on behalf of all minor league players.

Fair Competition

As Bloomberg notes,

Antitrust laws are designed to encourage fair competition and prevent unfair business practices like monopolies or price fixing. The antitrust exemption is a big part of Major League Baseball’s business model. The exemption underlies the “farm system,” wherein MLB teams hire a high number of prospects in the hopes of developing them into major league players. The MLB can set minor leaguer’s first-season contracts, after which the players have to negotiate a monthly salary independently—unlike other major sports leagues that have players’ unions.

The players claimed that most minor league players earn less than $7,500 per year, and some earn less than $3,000.  Players receive no pay during spring training.

A number of minor league baseball players have sued over the years, claiming that the farm system violated wage and hour laws.

Players work (playing baseball) an average of 50 to 60 hours per week.

Professional baseball players, of course, can earn millions of dollars per year.  According to Forbes, the highest-paid player in 2017 is Aroldis Chapman, who has an $86 million, five-year contract playing for the Yankees.  Chapman holds the record for the fastest recorded pitch speed — 105.1 miles per hour.

In 1890, the U.S. Congress passed the Sherman Act "to protect trade and commerce against unlawful restraints and monopolies."

Under the Sherman Act,  "[e]very contract . . . in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."

Monopolizing trade and commerce can also be a felony.

In 1998, the US Congress passed the Curt Flood Act, named for a player who successfully challenged MLB's trade rules as contrary to antitrust law.

The Flood Act eliminated the antirust exemption for Major League Baseball, but kept it for minor league baseball.

Supreme Court Precedent

In 1922, the US Supreme Court, in the case of Federal Baseball Club of Baltimore v. National League of Baseball Clubs, ruled that professional baseball was not covered by federal anti-monopoly laws.

According to the Court,  the business of baseball does not constitute "trade or commerce among the several States," because it involves the "business is giving exhibitions of baseball, which are purely state affairs."

The Supreme Court reaffirmed that position in 1952 and 1972 cases.

The players have announced their intent to seek Supreme Court review of the Ninth Circuit decision, in hopes that the Court will overturn its own previous rulings.

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