MiLB Contraction and Its Legal Implications

Dec 6, 2019

By Gil Fried, Professor/Chair Sport Management Department, University of New Haven
On November 19, 2019 a group of 104 US Congressmen and Congresswomen co-signed a letter sent to Major League Baseball (MLB) urging the league to reconsider their “radical proposal” to overhaul their minor league network. The letter seemed to threaten an erosion of congress’ historical legislative support for baseball.
The letter was sent to MLB Commissioner Rob Manfred and called the league’s bid to eliminate 42 clubs an “abandonment” that “would devastate our communities, their bond purchasers, and other stakeholders,” The letter went on to explore some of the potential implications such as impacting employment opportunities and harming charitable involvement by local teams.
MLB is examining overhauling its minor league system (through downsizing predominantly lower tier teams) in part to improve the overall quality of facilities, as well as a geographic realignment to reduce team travel. The proposed downsizing would allow those eliminated teams the option to join a future “lower-quality dream league.” Since these smaller clubs often operate at a loss (estimated on average costing the MLB teams around $600,000 annually), they might not have the funds to keep stadiums compliant with MLB stadium requirements. The proposed plan would also create a franchise limit of 150 players in a minor league system and shorten the MLB draft to 20 rounds.
The letter did not address any specific regulatory efforts that might be taken against MLB. However, there could be congressional examination of baseball’s long standing judicial antitrust exemption. Since the Federal Baseball case (Federal Baseball Club v. National League, 259 U.S. 200 (1922)) there have been attacks on MLB’s antitrust exemption. In the Toolson case, the Supreme Court concluded they made a mistake giving MLB the antitrust exemption, but it would be up to congress to remove the exemption (Toolson v. New York Yankees, Inc., 346 U.S. 356 (1953)). There have been numerous attempts over the years to remove the exemption, but they have all failed. With over 100 signees, this might be the best opportunity for congress to leverage its power and threaten MLB with revoking the antitrust exemption if the teams are shuttered. 
Baseball has one of the oldest fan bases in all professional sport. The long games (around three hours) are pushing baseball to find ways to speed up the games in order to attract younger fans. Yes, MLB is making money, but there are possible problems on the horizon and MLB need to rein in costs and ensure a quality experience for its fans. It should also be noted that an appeals court ruled earlier this year that Minor League Baseball players could move forward with a class-action lawsuit in an effort to obtain higher wages.
Outside of the passionate debate about the role of minor league teams in the fabric of America, there are numerous legal issues that could be explored. The first deals with contract law. These contracts often focus on agreements between minor league teams and local municipalities who own the stadiums. Contractual language needs to be explored to see whether MLB teams have the right to move a franchise or cancel a contract without breaching the lease terms. Careful analysis would need to be undertaken to see if eliminating a team is a legitimate reason for a team not complying with the lease terms. Furthermore, a team being “demoted” to a lower level league might result in a breached contract if the team is no longer affiliated with MLB or does not produce a certain quality/caliber of games.
Another issue could be bond covenant breaches by the stadium owners. If the stadium’s primary tenant leaves and money is still owed on the bonds, what does that do for the public or private entities that underwrote the bonds? For example, there could be certain taxes (such as a ticket surcharge/tax) based on attendance at the stadium and if a team is no longer playing at the stadium those revenues would end. Ending such revenue streams could be an explicit breach of bond requirements. If a municipality breaches their bond covenants, what would happen to the debt, the municipalities’ bond rating, and to the stadium?
In addition, several communities that were considering stadium projects, have since put those discussions on hold (or scrapped them) for fear MLB will use contraction as leverage when the Professional Baseball Agreement expires. There could be claims raised by various entities for breach of contract or other claims if they undertook work on these stadiums and now have lost on business opportunities (possible third-party interference with contracts claims).
Other legal issues can revolve around employment law. There could be several union contracts which could be upended if employees are not needed for running/maintaining a facility. There could also be a number of claims by third party vendors who might now have a worthless contract. For example, a concessionaire might have a long-term contract with a stadium and if the team leaves it might render that contract worthless.
These represent just some legal issues that might arise. These issues should encourage a detailed analysis by all parties of the significant legal challenges that might arise from dropping these teams.


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