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Baseball's anti-trust exemption

Andrew Ratner provides a historical account of baseball's antitrust exemption in today's Baltimore Sun.

The exemption stems from Justice Holmes' quirky Supreme Court decision in Federal League Baseball Club of Baltimore v. National League (1922). Antitrust law literally applies to "interstate commerce." But Holmes found that baseball was an "exhibition" which "could not be called trade or commerce in the commonly accepted use of those words," and hence antitrust did not apply.

Ratner's is a useful account, though he errs by accepting the view of some historians, that baseball's historical stability in franchise location was due to monopoly. In the modern era of footloose franchises, there is an easy comparison between U.S. leagues, where relocation is common, and Europe, where relocation is a rare, if not unheard of event. U.S. leagues are monopolies which control entry, and keeping franchises artificially scarce maximizes their value. This scarcity leaves a ready pool of cities on the margin, seeking to acquire the rights to a team whose fortunes or favor are in decline elsewhere. Not so in Europe, where every town of any size already has one or more clubs, each with the opportunity to "play its way in" to the top league. Relocation rarely makes sense in the free-entry leagues of Europe.

America's MLS, a unitized monopoly in a fairly strict sense, adds to the case that franchise stability in early American sports had little to do with the presence or absence of monopoly. (The Miami and Tampa franchises were folded in 2001, with the league waiting until this year to replace them with teams in Salt Lake and L.A.) Locational instability is more convincingly tied to the tenuous profitability of promoting sports as a commercial enterprise in that era. Teams that failed in town A packed up and moved to town B. That this was done in monopoly baseball during the 50s - take the A's, Braves, and Browns, for starters - makes one wonder why historians are regarded as the gatekeepers of history's facts.

Despite this error, Ratner's piece is worth reading even if you know about Holmes' decision and the economics of monopoly sports leagues. Consider this:

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.

A minor league team beating a team from the majors? The upstart Terrapins drawing 30,000 patrons when Ruth was on the mound across town? Interesting.

I've long thought that the economic impact of Holmes' decision was limited to the distribution of rent between players and owners, the decision giving owners the upper hand. Perhaps I need to reconsider. Holmes' decision had to reinforce monopoly in all its aspects. The organization of American sport just might have evolved differently had the court ruled sensibly in the Federal League Case.