MLB Antitrust Scrutiny Heats Up as Teams Cap Draftees’ Cash

·5 min read

As MLB teams negotiate with newly drafted players, they’re restrained by MLB’s bonus pool system. The 30 clubs have agreed to cap how much each can spend on new labor. If that sounds potentially illegal, it is, except for MLB’s antitrust exemption—the same exemption that’s the focus of a U.S. Senate Judiciary Committee investigation and an issue in a federal lawsuit in New York.

Salaries for players selected in rounds 1 to 10 are slotted. The first overall pick, high school outfielder Jackson Holliday, is assigned $8,842,200, while the final pick in the 10th round, Notre Dame pitcher John Michael Bertrand, is pegged at $149,400. Teams can go over or under slots in signing picks, but if their net is over, they face financial and draft pick penalties.

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This system adds cost certainty for teams about to spend on unproven players. Many draft picks are straight out of high school. The vast majority won’t ever reach the big leagues.

But it also means that some drafted players will sign for less than they would in a more competitive framework (i.e., one without slots). That is potentially problematic under antitrust law, which forbids competing businesses—including teams in a pro league—from conspiring to restrain competition.

Yet antitrust law doesn’t apply to MLB’s draft or where drafted players go next, the minors. The U.S. Supreme Court crafted MLB’s exemption in the 1922 decision Federal Baseball Club v. National League. The Court reasoned that because games are only played in one state, federal antitrust law, which necessitates interstate activity, is inapplicable. In following decades, that reasoning would be rejected in other interstate commerce cases and rejected by courts asked to extend the exemption to other pro leagues. The Supreme Court nonetheless upheld MLB’s exemption 50 years later, in Curt Flood v. Bowie Kuhn. The Court underscored stare decisis, the legal principle that courts will honor precedent.

Congress and President Bill Clinton narrowed MLB’s exemption through the Curt Flood Act of 1998. The Act deemed MLB players’ salaries outside the exemption’s scope. MLB can only avoid antitrust scrutiny for major league players’ pay if it collectively bargains with the MLBPA. The Act preserved the exemption for the draft, minor league baseball, umpire-league matters, ownership sales, franchise relocation and the licensing of intellectual property.

The most controversial consequence of MLB’s exemption concerns minor league players’ salaries. Those players are neither members of the MLBPA nor unionized. For years, their pay has been very low, often in the ballpark of fast food workers and in line with the working poor. The exemption has preempted potential antitrust challenges, wherein minor leaguers would insist that MLB teams have conspired to pay them low salaries. MLB recently raised minor league players’ salaries, though it also severed major league affiliations with more than 40 teams. MLB has also settled a class action Fair Labor Standards Act lawsuit with minor league players that will lead to $185 million paid to more than 20,000 players (on average, about $5,000 to $5,500 per player).

Pro leagues slotting compensation for drafted players is not unique to MLB. The NFL and NBA do the same.

But there’s a key difference.

Players picked in the NFL and NBA will sign contracts with teams in those leagues and become members of the NFLPA and NBPA, respectively. Those unions negotiated rookie wage scales in CBAs. While NFL and NBA players charged with negotiating CBAs might be more inclined to protect the pay of fellow veterans than of new ones, the scales were nonetheless bargained by the drafted players’ unions. Players picked in the MLB draft, in contrast, do not become MLBPA members, even after signing contracts. They become minor leaguers. In fact, most won’t ever join MLBPA since they’d need to advance to a club’s 40-man roster.

That distinction could prove important under antitrust law. Courts are generally okay with unions and management agreeing on pay scales, even ones that could be described as unfair, so long as they concern union members. Wage scales are exempt from antitrust scrutiny under the labor exemption, which insulates agreements negotiated by management and a union. Whether the labor exemption ought to apply to the pay of players excluded from a union is debatable, as is whether MLB’s pay scale would withstand antitrust scrutiny.

That debate is only academic so long as MLB enjoys an antitrust exemption. This is where ongoing efforts to eliminate the exemption matter.

On Monday, the chair and ranking member of the Senate Judiciary Committee wrote a letter to MLB commissioner Rob Manfred, asking him to justify the exemption. Whether Congress moves to introduce and pass legislation stripping MLB of the exemption is a different calculus. This is not the first time members of Congress have aggressively questioned the exemption. There’s been more talk than action. Still, it’s notable that both Democratic and Republican members are skeptical of the exemption’s necessity and are at least forcing MLB to justify it.

Meanwhile, the exemption is at the heart of a federal lawsuit brought by the now-defunct Staten Island Yankees and three other minor league teams. They argue that MLB and its teams violated antitrust law in reorganizing the minors. The teams draw on Justice Neil Gorsuch’s critical commentary of MLB’s antitrust exemption in NCAA v. Alston, wherein Gorsuch surmised the Court illogically granted the exemption in 1922. MLB teams, he wrote, “regularly crossed state lines (as they do today) to make money and enhance their commercial success.”

The lawsuit is a long way from resolution, but it represents another way MLB could potentially lose its exemption—thus setting the table for potential antitrust litigation over the draft and the minors.

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