By William H. Gray, Esq. – Senior Associate Attorney at Segal McCambridge Singer & Mahoney Ltd.
Is competition throughout sports equal? Not exactly. Baseball has long enjoyed a unique legal status under federal antitrust law, coined the “Business of Baseball” exemption. However, this exemption has been a hot button topic since its inception and has once again come under fire in Cangrejeros de Santurce Baseball Club, LLC v Liga de Béisbol Profesional de Puerto Rico, Inc. 2025 LX 223948 [1st Cir July 21, 2025, No. 23-1589]. In this regard, Chief Judge David J. Barron’s decision revisits the intersection of federal antitrust law, franchise governance, and local politics in professional baseball.
By way of background, we note that the instant matter stems from an antitrust and fair competition cause of action asserted by the former investor-operators of the Cangrejeros de Santurce baseball franchise (hereinafter “the Franchise”). The Franchise is one of six baseball teams which make up the Liga de Beisbol Profesional de Puerto Rico, Inc. (hereinafter “the League”), a professional winter baseball league played strictly within Puerto Rico. The dispute giving rise to the instant matter involves the unsuitable condition of the Hiram Bithorn Stadium (hereinafter “Bithorn”) located in San Juan, Puerto Rico. The Bithorn is owned and administered by the Municipality of San Juan and hosts the Cangrejeros de Santurance baseball Franchise’s home games. Following a dispute with the Mayor of San Juan over his inability to effectuate the necessary stadium repairs, Thomas J. Axon, sole member and chairman of Cangrejeros LLC, threatened to relocate the Franchise to the Municipality of Humacao and distance the Franchise from San Juan, and Mayor Romero, as their prior relationship was deemed detrimental to player performance and fan experience as a whole.
In response to Axon’s threat of relocation, the League’s president, Juan A. Flores-Galarza (hereinafter “Flores”), sent Axon a letter, advising that Axon had engaged in conduct “detrimental to baseball” in violation of the Leage’s Constitution. Flores then ordered the Franchise to remove Axon from the League board, as well as shareholder of the Franchise, and threatened to revoke the investor-operator agreement between Cangrejeros LLC and the League. During a special meeting of the League Board, the Board voted to suspend Axon from all functions and participation in the Franchise and the League for a period of two (2) years. Axon was also fined $5,000 and placed on probation for a period of one (1) year after the expiration of his suspension. In response to the League’s decision, Axon sought a preliminary injunction and declaratory judgment in the Superior Court of San Juan to prevent his suspension from taking effect. On April 22, 2022, the Superior Court held a hearing on Axon’s motion and ultimately denied Axon’s request for a preliminary injunction.[1]
Following the Superior Court’s ruling, the League seized Cangrejeros LLC’s interests in the Franchise as, pursuant to section 3.06 of the League Constitution, Axon violated the investor-operator agreement by filing his request for a preliminary injunction. Such a violation allowed the League Board to permanently terminate the interests of Cangrejeros LLC in the Franchise. Soon thereafter, the League announced that Impulse Sports, who had only very recently incorporated within Puerto Rico, would assume the role of investor-operator over the Franchise. As part of their core initiatives, Impulse Sports announced their intention to strengthen the Franchise’s ties with the city of San Juan and Mayor Romero. In response, Mayor Romero issued an announcement that the Bithorn Stadium renovations would be completed in time for the upcoming baseball season.
Underlying Claim
In response to the League’s seizure of Cangrejeros LLC’s interests in the Franchise, Axon, Cangrejeros LLC, and Santurce Merchandising LLC filed a Complaint in the United States District Court for the District of Puerto Rico alleging several causes of action involving a conspiracy between the League, the League President, Impulse Sports, and Mayor Romero in violation of Sections 1 and 2 of the Sherman Antitrust Act and Puerto Rico’s antitrust and fair competition laws.
In response, the League moved to dismiss the Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), arguing: (1) that Plaintiffs are contractually bound to litigate claims in the local courts of Puerto Rico and (2) that the Plaintiffs’ action is barred by res judicata after Plaintiffs lost their prior case filed in the local court of Puerto Rico. Soon thereafter, Defendants moved under Federal Rule of Civil Procedure 12(b)(1) to dismiss the Complaint for lack of subject matter jurisdiction, arguing that the District Court lacked jurisdiction over federal antitrust claims as the alleged conduct fell within the “Business of Baseball” exemption.
The District Court granted the Defendants’ motion, dismissing the case for lack of jurisdiction over the federal antitrust claims as a result of the “Business of Baseball” exemption. In support of its decision, the District Court reasoned that:
“[T]he Plaintiffs’ claims involve an alleged conspiracy involving an owner of a professional franchise that was dismissed under the Leagues’ regulations. This involves the business of baseball . . . The Sherman Act baseball exemption applies to the [League] and the Cangrejeros [Franchise] since they are a professional baseball team, and the antitrust claims arise in the context of the business of baseball.”
Furthermore, after holding that the “Business of Baseball” exemption barred Plaintiff’s first two antitrust causes of action under the Sherman Antitrust Act, the Court further held that the Puerto Rico antitrust and fair competition claims are dismissed pursuant to the Supremacy Clause Doctrine. Thereafter, Plaintiffs timely appealed the District Court’s judgment.
The Appeal
Upon appeal, the First Circuit Court of Appeals granted review of the District Court’s grant of Defendant’s motion to dismiss for failure to state a claim under Rule 12(b)(6), as well as for lack of subject matter jurisdiction under Rule 12(b)(1). As an initial matter, the Court of Appeals sought to analyze the scope of the “Business of Baseball” exemption. Plaintiffs asserted that the District Court erred in dismissing the Sherman Antitrust Act causes of action under the “Business of Baseball” exemption as the exemption only applies to the MLB and MLB affiliates.
The Court began its analysis by turning to the exemption’s origin in Federal Baseball. In Federal Baseball, the Court was presented with the question of whether or not the business of professional baseball constituted interstate commerce and is, thus, subject to federal law. The Court noted that at its foundation, baseball exhibitions are “purely state affairs.” See Fed. Baseball Club, Inc. v Natl. League of Professional Baseball Clubs, 259 US 200 (1922). The Court further reasoned that in order to establish a nation-wide professional baseball league, “competitions must be arranged between clubs from different cities and States.” Id. In doing so, the Court acknowledged that an exhibition would induce people to “cross state lines and must arrange and pay for their doing so…” Id. Accordingly, this interstate travel to attend scheduled exhibitions was deemed merely incidental to the nature of the League and, in and of itself, did not constitute commerce. The Court reasoned that professional baseball exhibitions are not considered commerce and, therefore, are not bound by the regulations of federal antitrust law.
Notwithstanding, we note that since Federal Baseball no other case has interpreted the exemption to apply to entities not associated with the MLB. However, the Court noted that nowhere in Federal Baseball was it determined that the exemption only applies to the MLB or MLB affiliates. In further support of this notion, the Court referenced the holding in both Flood and Toolson where it was determined that the exemption protects the business of providing public baseball games for profit between clubs of professional baseball players, rather than a particular entity engaged in that business. See Flood v Kuhn, 407 US 258 (1972); Toolson v NY Yankees, Inc., 346 US 356 (1953). Plaintiffs pointed to language from Radovich indicating the Court “specifically limit[ed] the rule” of Federal Baseball” to the facts there involved.” See Radovich v NFL, 352 US 445 (1957). Plaintiffs argued that this language shows the exemption does not apply to a league that was not a party to Federal Baseball itself or a successor to such a party. However, as pointed out by the Court of Appeals, Plaintiffs failed to acknowledge that the Court in Radovich also held “the business of organized professional baseball” as being synonymous with “the facts there involved,” further defining the “business of baseball” by the terms of the nature of activity undertaken, rather than the identity of the entity engaged in that activity. Id. As such, the Court of Appeals gave no merit to Plaintiffs’ contention, holding the “Business of Baseball” exemption is not limited to the MLB and its affiliates alone, but rather applies to any entity engaged in the business of providing public baseball games for profit between clubs of professional baseball players.
Alternatively, Plaintiffs argued that the nature of the specific conduct alleged would not constitute the “Business of Baseball” even if it was done by the MLB or an MLB affiliate. Defendants counter-argued that by simply existing as a professional baseball league, the exemption should apply. The Court of Appeals elected to analyze Defendants’ conduct under the “central to” test where the Court must determine whether or not the alleged conduct is “central to” organizing and operating a baseball league, and thus, constituting the “Business of Baseball.” In applying this test, the Court must determine whether an individual’s role is “central to,” or at least more than “incidental” to, the public display of baseball games when that individual’s role greatly influences the Franchise’s decisions about which players to hire and what teams to field. In this regard, the Court looked to Wyckoff where it was determined that baseball scouts were involved in the business of baseball due to the integral role they play in selecting talent that then participate on the field during the games. See Wyckoff v Off. of the Commr. of Baseball, 211 F Supp 3d 615 (SDNY 2016). Applying the same logic, the Court of Appeals held that owners of professional baseball franchises have been fundamental figures in the development of professional baseball precisely because of their decision about which players to hire and what team to field. As such, the Court reasoned that a professional baseball league’s rule, bylaws or decision regarding who may operate one of the teams in the League falls squarely within the scope of the “Business of Baseball” exemption. Thus, the Court of Appeals affirmed the District Court’s decision to dismiss Plaintiff’s federal antitrust claims under the Sherman Antitrust Act as the League’s decision regarding who the investor-operator of the Cangrejeros was clearly within the purview of the “Business of Baseball” exemption.
Furthermore, the Court of Appeals held that as the conduct alleged to violate Puerto Rico’s antitrust and fair competition laws constitutes the “Business of Baseball,” it follows that the claims under Puerto Rico antitrust and fair competition laws should be dismissed under the Supremacy Clause Doctrine. However, the question remains, whether the application of the Puerto Rico antitrust and fair competition laws would impermissibly burden interstate commerce. Notably, the statutes in question would be applied to a professional baseball league that, unlike the interstate nature of the MLB, has franchises located solely within Puerto Rico. It remains unclear whether a state antitrust regulation of a league operating within a single state or territory could be an impermissible burden on state commerce. The Court of Appeals vacated the portion of the District Court’s ruling dismissing the Puerto Rico law claims and remand so the District Court may consider whether those claims are precluded by the Commerce Clause.
In conclusion, the Court of Appeals affirmed the District Court’s grant of Defendant’s motion to dismiss regarding the federal antitrust claims and vacated the District Court’s dismissal with regard to the claims brought under Puerto Rico law. Furthermore, the Court reversed the District Court’s decision to dismiss Plaintiff’s 42 U.S.C.S. § 1983 claim under res judicata as the reasoning was based upon law which had since been repealed. This landmark decision stands in further support of Baseball’s exclusive exemption to federal antitrust regulation by expanding the scope of its application, marking yet another victory for America’s national pastime.
[1] As a preliminary matter, the Court noted that Axon inadvertently removed himself from the League Board when his personal counsel informed Flores, via letter, that two other Cangrejeros employees, Lino Rivera and Saul Suarez, would thereinafter be the Franchise’s representatives. Pursuant to section 3.01 of the League Constitution, “shareholders and official representatives must be accepted by the Board” to be members of the League. The Court interpreted this section to mean that only League members were entitled to the protections under the League Constitution. As a result, the Court held that Axon was not a member of the League and, therefore, not subject to the protections under the League Constitution.
