Professional baseball in the U.S. has enjoyed exponential growth since Justice Oliver Wendall Holmes’ flawed decision in Federal Baseball Club of Baltimore v. National League of Professional Base Ball Clubs, 259 U.S. 200, 42 S. Ct. 465, 66 L. Ed. 898, 26 A.L.R. 357 (1922) (the “FBC decision”). In that case, Justice Holmes, upholding a federal appeals court decision, held that Baseball * was exempt from the Sherman Act and allowed Baseball’s restrictive trade and monopoly practices to remain in place, as they have now for over 100 years.

The key premise laid out in the unanimous FBC decision is that “exhibitions of baseball” are “purely state affairs,” and that while league play entailed interstate travel, “the transport is a mere incident, not the essential thing,” and “exhibitions of baseball” are not commerce. Those holdings, questionable in 1922, seem particularly out of place now, when teams are worth as much as $6 billion and play half of their season, 81 games, on the road both internationally and throughout the Continental United States. (When the FBC decision was decided, there was no team in Canada.)

For more than 50 years, the most consequential effect of the antitrust exemption (the “exemption”) was the survival of baseball’s reserve clause, which barred players from selling their services to a new team when a contract expired, unless the player’s current team released him from his contract. While the reserve clause withstood court challenges in Toolson v. New York Yankees (1953) and Flood v. Kuhn (1972), it was nullified by negotiation in a collective bargaining agreement in 1976 between Major League Baseball (“MLB”) and the players association. The Curt Flood Act of 1998 ended the exemption as it relates to ownerplayer relations.

But the exemption still shapes the business of MLB, which encompasses the National and American Leagues, in important ways, allowing MLB to continue to act outside the scope of the Sherman Act. Most recently, MLB activity enabled by the exemption has had a profound effect on the ecosystem of minor league teams that develop talent and provide entertainment in smaller cities and towns throughout the country.

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