April 12, 2005

HOLMES WAS PRONE TO BAD DAYS (via Robert Schwartz):

Orioles' run-ins with law historic: Institution: One of the stranger minglings of sports and politics is baseball's longstanding exemption from federal antitrust laws. (Andrew Ratner, April 3, 2005, Baltimore Sun)

One of the stranger intersections of sport and politics, baseball's waiver from the Sherman Anti-Trust Act of 1890 has long baffled legal scholars. The court decision that established the exemption has been described as "Not one of Oliver Wendell Holmes Jr.'s better days."

Like the Billy Goat Curse that bedevils the Cubs in Chicago or the ball that found its way between Bill Buckner's legs in a World Series, the exemption has practically become part of baseball lore -- an oddity taken for granted but one that no one seems able to explain.

The ruling has nevertheless shaped professional baseball as we know it. And the parallels between the 1922 case at its origin and baseball headlines today are so eerie that the old Twilight Zone theme music should swell in the background when they are discussed.

Peter G. Angelos, owner of the Baltimore Orioles, argued through the past year that this region can't support two pro baseball teams. He was boxed out by other owners, who decided to move the Montreal franchise to Washington. The new Washington Nationals throw their first pitch tomorrow, ending a roughly 30-year drought of pro baseball in Washington.

Some 90 years ago, the owner of the then-Baltimore Orioles, which had relocated from Montreal, also resisted when it had to share this region with a second team. Within a few years, both Baltimore teams were gone and Baltimore wandered in the desert without major-league baseball for more than 30 years. In 1953-54, the St. Louis Browns moved to Baltimore to become the Orioles, who begin their 52nd season tomorrow.

Before the Supreme Court's antitrust decision, baseball teams moved like gypsies. In the early 1900s, the original Baltimore Orioles relocated to New York, where they were renamed the Highlanders and later became the Yankees. Baltimore soon got a new team, again called the Orioles, in the minor International League, but it competed against major-league teams and often beat them.

In 1913, a new league formed to rival the National and American leagues. Baltimore was pleased to get a team in the new league, according to Robert W. Creamer's rich biography of Babe Ruth. The city and its newspapers were breathless about the arrival of the new Federal League Baltimore Terrapins. The House of Delegates voted to make their arrival a state holiday.

Orioles' owner Jack Dunn knew his team was in trouble when 1,500 fans showed up to watch the Orioles play the champion New York Giants, with local star Ruth pitching, while the Terrapins attracted 30,000 that same afternoon.

Financially hobbled, Dunn was forced to unload his stars. Ruth went for a reported $30,000 to the Boston Red Sox, who later couldn't afford him either and had to sell him to the Yankees. Dunn would have sold Ruth eventually because that was how minor league teams like his made money, before major league baseball created its own farm system. But Ruth presumably could have played in Baltimore years longer than he did, as Dunn was known for holding onto his stars. Disillusioned by the lack of support, Dunn moved his depleted squad temporarily to Richmond, Va.

After two years of battling with the established leagues, the Federals folded, too. All its teams except Baltimore reached a settlement with the established major leagues. Baseball owners sniffed that Baltimore was only "minor league" anyway -- not the last time the city would suffer some insult over the comings and goings of its pro sports teams.

Ned Hanlon, owner of the Terrapins and before that the Orioles, sued. He argued that the other owners colluded to destroy his league and his team.

Some think baseball's powers maneuvered to get the lawsuit heard in federal court in Chicago because a federal judge there, Kenesaw Mountain Landis, had a keen interest in baseball. Named for the Georgia battlefield where his surgeon father served the Confederacy, Landis would later become legendary as the first commissioner of major league baseball. The judge delayed a ruling long enough that the Federal Base Ball Club of Baltimore Inc. folded.

But the Court of Appeals in Washington later ruled Hanlon's group deserved $80,000. That award would actually be $240,000 because antitrust damages are tripled by law.

Baseball appealed to the U.S. Supreme Court, which heard the case on April 19, 1922. Six weeks later, the court ruled 9-0 in favor of the National League of Professional Base Ball Clubs.

The justices concluded that baseball wasn't subject to antitrust regulation. The law forbids businesses that engage in commerce across state lines from colluding to harm competitors. The court concluded that baseball exhibitions of the day weren't commerce and the state lines teams crossed were incidental to the actual playing of the games.

"Transport is a mere incident, not the essential thing," Holmes wrote in the justices' decision. "The exhibition, although made for money, would not be called trade or commerce in the commonly accepted use of those words."

The billion-dollar industry that baseball would become wasn't yet evident -- nor was the significance of the ruling.

The Sun ran the story about the decision on Page 20 on May 30, 1922.

What's the point of being allowed to collude if you aren't going to (or aren't able to) use it to hold down the players' salaries?

Posted by Orrin Judd at April 12, 2005 11:51 PM

oj - The players get to collude too, through their union, so MLB has no advantage.

Posted by: pj at April 13, 2005 9:18 AM

Holmes decision on anti-trust was correct and recognized the economic truth. Baseball is a single entity and as such cannot violate the sherman act which is is a law against combinations. The fact that teams compete on the field is irrelevant. Off the field they must and do co-opperate in a corporate joint venture and for anti-trust purposes should be treated as such.

The sherman act also proscribes monopolies (or more correctly the maintenance of monopolies). Baseball is a monopoly of Baseball, but even in 1920 Baseball was not a distinct market but is an entertainment and recreation that competes against other sports and forms of entertainment including boxing, horse racing, football, movies theater music and dance. For anti-trust purposes, there is no monopoly. Holmes opinion is a mess, but its OK, he was correct.

Ordinary commercial joint ventures are subject to the anti-trust laws. GM and Toyota own a plant in CA that produces small cars. That is a joint venture, and since the owners are in the same business and are otherwise competitors, it requires anti-trust analysis.

A sports leauge is a different beast all together. If the teams do not act together there is no product -- the championship season. If there is no management separation there is no competiton (Christopher Von der Ahe, the St. Louis Cardinals and the Cleveland Spiders) and the product will be unacceptable to the public.

Baseball is a joint venture but it must be regarded as a single entity. If someone sets up a separate leauge, the federal leauge, relations between those two leauges should be subject to anti-trust scrutiny. But not the internal actions of MLB itself.

Posted by: Robert Schwartz at April 13, 2005 11:22 AM