By Christopher R. Deubert, Senior Writer
In January 1972, Major League Baseball (MLB) submitted a brief to the Supreme Court in opposition to the appeal by player Curt Flood challenging baseball’s reserve clause. In that brief, MLB argued that the reserve clause, the system through which there was no free agency and clubs unilaterally decided player salaries, was essential to the public confidence in the game, and that without it, “baseball would certainly fail.” MLB won Flood, 407 U.S. 258, but its claim proved erroneous in short order. As a result of the Messersmith-McNally arbitration decision in 1975, and subsequent collective bargaining negotiations, the reserve clause was effectively nullified and players in MLB gained the right to limited free agency. Baseball did not fail. In fact, it thrived.
In a new article in the Harvard Journal of Sports & Entertainment Law, I explore the history of such hyperbolic arguments by MLB and the other major American sports leagues by examining the legal briefs filed in the twentieth century’s biggest cases. In defense of their highly restrictive player contract rules, MLB, the National Football League (NFL), National Basketball Association (NBA), and National Hockey League (NHL) all at one time or another argued that such rules were, in sum and substance, essential to the sport and that their elimination would seriously harm the leagues and risk their viability.
Again, these arguments proved wrong. Over time, with the assistance of the federal courts, players in all of the leagues gained free agency rights and greater compensation. Rather than fold, the leagues and the teams in them competed, improved their operations, and evolved into the multi-billion-dollar businesses that they are today.
Not coincidentally, the leagues’ business evolution matched their legal one. Having had their arguments for special treatment under the antitrust laws largely (but not entirely) rejected, the leagues shifted strategies, engaged in collective bargaining with their players, and found a path forward. The history of that path consists of four parts.
The Reserve Clause is “Absolutely Essential”
The argument MLB made in Flood was only the latest iteration of a claim it had previously made multiple times before the Supreme Court.
In the seminal Federal Baseball case, 259 U.S. 200 (1922), the entities today operating as MLB argued that the reserve clause was “absolutely necessary” to prevent “disastrous results to the sporting public.” Further, MLB said the reserve system was “absolutely essential to the existence of so obviously a wholesome and popular sporting event as the world’s series.” MLB’s arguments sound in a form of public policy but today can also be recognized as an early form of the rule of reason defense in antitrust cases. Nevertheless, the Supreme Court did not embrace the league’s arguments. Instead, the Supreme Court narrowly affirmed the lower court’s ruling in favor of baseball on the ground that the business of baseball was not engaged in interstate commerce and therefore subject to antitrust law.
When players challenged the reserve clause again in Toolson, 346 U.S. 356 (1953), MLB repeated its policy arguments. MLB argued that “the reserve clause and player regulations cannot be considered apart from the unique nature of baseball.” While MLB acknowledged that “[i]t would probably be an overstatement to assert that if the Federal Baseball case were reversed there would be no more professional baseball,” it argued that doing so “would undoubtedly result in the wrecking of the present organization of the game.” As in Federal Baseball, the Supreme Court did not address these arguments. Instead, the Court ruled in favor of MLB by declaring that the issue of its antitrust exemption was up to Congress to address (which was under consideration at that time).
In 1957, the NFL had its chance to argue before the Supreme Court that elimination of its reserve clause would result in disaster. In its brief in Radovich, 352 U.S. 445 (1957), the NFL claimed that “if the teams of the National Football League could not lawfully protect their property rights in their players, by the use of their uniform contract, the League might well be utterly destroyed since nothing but chaos would result to the entire organization, built upon the sanctity of player contracts for thirty-five years.” Ultimately, the Supreme Court was not persuaded by this argument or that the NFL should be entitled to the same antitrust exemption that MLB had received through Federal Baseball and Toolson.
The Leagues’ Rules Are Not Per Se Violations of Antitrust Law
By the early 1970s, it was clear that sports leagues other than MLB were subject to antitrust laws. Around the same time, the Supreme Court’s antitrust analysis was clarified and sharpened. Of most concern to sports leagues was the growing identification of certain practices by businesses as per se violations, i.e., violations “standing alone, without reference to additional facts” or requiring additional analysis. Price fixing, division of markets, group boycotts, and tying arrangements were identified as per se antitrust violations. Players believed that rules limiting player free agency and compensation fit this description.
In the first case to seriously consider these issues in the hockey world, Phila. World Hockey Club, 351 F. Supp. 462 (E.D. Pa. 1972), the court rejected the players’ argument that the NHL’s reserve clause was a per se violation. The court noted that “by the nature of a sports contest, there must always be an adversary.” Consequently, in order to maintain competitive balance, “some type of intraleague reserve clause or system may be desirable and in fact necessary.” The Supreme Court had in fact made the same comment in Flood earlier that year.
Multiple courts in the 1970s made similar comments and rulings. In Robertson v. NBA, 389 F. Supp. 867 (S.D.N.Y. 1975), the court said that “[s]ome degree of economic cooperation which is inherently anti-competitive may well be essential for the survival of ostensibly competitive professional sports leagues.” The next year, in Mackey v. NFL, 543 F.2d 606 (8th Cir. 1976), the Eighth Circuit noted that “[n]o one club is interested in driving another team out of business, since if the League fails, no one team can survive.” Consequently, the court concluded “that the unique nature of the business of professional football renders it inappropriate to mechanically apply per se illegality rules here.” Similar conclusions were reached in Kapp v. NFL, 390 F. Supp. 73 (N.D. Cal. 1974) and Smith v. Pro Football, 593 F.2d 1173 (D.C. Cir. 1978).
Nevertheless, the inapplicability of the per se doctrine did not save the leagues’ rules. Instead, it only meant that they would be evaluated under the rule of reason test. On this basis, the leagues were in trouble, having lost key rulings in all the above-identified cases.
The Non-Statutory Labor Exemption Protects the League’s Rules
In 1965, the Supreme Court decided a pair of cases in tandem that would come to have a significant impact on the sports industry. In Jewel Tea and Pennington, 381 U.S. 676 (1965), the Court held that agreements between employers and unions are, in the right circumstances, exempt from antitrust law. This later-named “non-statutory labor exemption,” was intended to promote “the peaceful settlement of industrial disputes by subjecting labor-management controversies to the mediatory influence of negotiation.”
An industrious Yale law student, Michael S. Jacobs, picked up on these cases and their potential application to sports, particularly as to the then ongoing Flood case. In 1971, with professor and future Second Circuit judge Ralph Winter, Jacobs authored what would become an influential law review article arguing that the sports leagues’ restrictive rules should be exempt from antitrust scrutiny based on the non-statutory labor exemption. In their words, “in those sports where players’ unions are recognized, the reserve or option clause is not properly an antitrust issue when raised by a player in a unit with an exclusive collective bargaining representative.” The article would go on to be cited in numerous important decisions in sports, including at the Supreme Court.
MLB made the non-statutory labor exemption argument in Flood, declaring the case a “perversion of the antitrust laws” and asserting that “the goal of federal labor policy is the settlement of employer-employee disputes through the process of collective bargaining.” At each step of the case, the courts nevertheless declined to review the issue as “unnecessary” but the Supreme Court did cite the Jacobs and Winters article in a footnote. And in dissent, Justice Marshall quoted from the article in explaining that the issue merited further consideration.
Next, in both Phila. World Hockey Club and Robertson, the leagues lost arguments that the non-statutory labor exemption applied, as the courts were wrestling with the nascent doctrine and its availability as a defense by employers. The Supreme Court’s 1975 decision in a non-sports case, Connell Construction Co., 421 U.S. 616, helped clarify the purpose and scope of the exemption.
Subsequently, Mackey became the first case in which a Court of Appeals extensively analyzed the potential application of the non-statutory labor exemption to a sports league’s player restrictions. Setting out a three-factor test, the Court ultimately determined that the NFL’s Rozelle Rule restricting free agency was not protected by the non-statutory labor exemption because it had not been bargained with the players.
While adopting the Mackey standard, the Sixth Circuit reached the opposite conclusion concerning the NHL’s By-Law Section 9A in McCourt v. Cal. Sports, Inc., 600 F.2d 1193 (6th Cir. 1979). Thus, for the first time, a sports league had successfully argued that a player restriction was protected by the non-statutory labor exemption.
The Non-Statutory Labor Exemption Survives Impasse
With the existence of the non-statutory labor exemption settled, the next front became how long did the exemption last. On this issue, NFL litigation dominates. Following the expiration of the collective bargaining agreement in 1987, the players filed suit alleging that the NFL’s player restrictions, which still did not permit unrestricted free agency, were a violation of antitrust law. In Powell, 930 F.2d 1293 (8th Cir. 1989), the Eighth Circuit ruled that the exemption survived expiration of a collective bargaining agreement and suggested it continued so long as there was an “ongoing collective bargaining relationship.” Dissenting judges articulated that the players only choice was “to decertify the union.”
The players did exactly that five days later and initiated another antitrust suit. In McNeil, 790 F. Supp. 871 (D. Minn. 1992), the players eventually unshackled themselves from the non-statutory labor exemption, eventually resulting in a $195 million settlement and a new collective bargaining agreement as part of White, 836 F. Supp. 1458 (D. Minn. 1993).
The end point of the non-statutory labor exemption nevertheless remained elusive. In Williams v. NBA, 45 F.3d 684 (2d Cir. 1995), now Second Circuit Judge Winter wrote an opinion affirming the district court’s determination that the exemption continued to protect the NBA and its practices following the expiration of the collective bargaining agreement.
The Supreme Court was finally poised to address the issue in Brown, 518 U.S. 231 (1996), a case concerning the NFL’s unilateral salary restrictions on practice squad players. Nevertheless, while the Court clarified the elements of the non-statutory labor exemption, it declined to decide whether when the exemption ceased to apply, instead limiting its analysis to finding that it did apply to the facts in Brown.
Having lost at the Supreme Court in Brown, the NFL players were nonetheless substantially right in the prediction made in their brief as to what would be the result of the broad exemption the league was seeking: “labor relations in football may be relegated to a disruptive pattern of bargaining, impasse, decertification, antitrust litigation and settlement, repeated again and again with each contract cycle.” In 2011, amid stalled negotiations on a new collective bargaining agreement, both the NFLPA and NBPA decertified or disclaimed their status as the bargaining representative on behalf of their players and filed antitrust lawsuits. The next year, the NHLPA considered decertifying, before reaching a new collective bargaining agreement with the NHL.
Less successful were the leagues’ predictions that altering or eliminating their player-related restrictions would destroy the leagues. Lawyers, in the cause of their clients, are prone to hyperbole. And sports, with its emotional connections, might seem like a natural place to favor the heart over the mind. Nevertheless, after an egregious error in 1922, the courts determined that sports too must comply with antitrust law and have their claims scrutinized.
Once the leagues accepted this reality, they made substantial progress in the courtroom and on their respective fields of play. By accepting (or being forced to accept) the unionization of their players, the leagues eventually gained a durable exemption from the antitrust laws while also making the players partners in the leagues’ success. Whether causative or correlative, the leagues have since thrived, continuously breaking revenue and franchise-valuation records. In many respects, it is unfortunate that it took such a volume of litigation to get to the relationship under which the parties operate today. This Article provides the history of that litigation so that perhaps the parties can learn from it in considering future legal battles.
Deubert is Senior Counsel at Constangy, Brooks, Smith & Prophete LLP.