MLB’s Manfred Defends Antitrust Exemption, Cites Minor League Costs

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In a 17-page letter sent to the chair and ranking member of the U.S. Senate Judiciary Committee last Friday, MLB commissioner Rob Manfred vigorously defended baseball’s antitrust exemption. He warned a repeal of the exemption, which enables MLB to centralize minor-league operations without risk of antitrust litigation, would likely result in minor-league baseball shrinking, with fewer affiliated teams and fewer games, and most minor-league players earning less and experiencing diminished job security.

That letter could spark Congressional hearings and follow-up demands.

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It was written after the committee requested that Manfred answer a series of questions regarding minor league baseball. Arguably the most important was why MLB has, as the committee put it, “a general exemption from the antitrust laws” whereas other pro leagues do not. The U.S. Supreme Court created baseball’s exemption 100 years ago in Federal Baseball Club v. National League. Over the last century, courts have refused to extend it to other leagues.

Manfred critiqued the premise of the question, emphasizing that MLB hasn’t enjoyed a “general exemption” since 1998. That year President Bill Clinton signed the Curt Flood Act into law. The Act explicitly ended the exemption for purposes of MLB players’ salaries and other working conditions—in other words, topics that come up during MLB-MLBPA negotiations for a CBA—while preserving it for the draft, minor league baseball and franchise relocation. Manfred also pointed out that all four major leagues benefit from the Sports Broadcasting Act of 1961, which supplies a limited antitrust exemption for national TV deals via “sponsored broadcasting,” meaning free, over-the-air games.

Manfred then insisted that minor-league baseball is qualitatively different. “Other major sports leagues,” he noted, “rely primarily on colleges and universities to identify and cultivate talent, at no cost to those leagues.” Manfred underscored that college football provides a free minor league for the NFL, which has no developmental league, and which requires players be three years out of high school before becoming eligible.

At several points, the letter asserted that MLB pays much more into minor-league baseball than it gets back. In a footnote, Manfred wrote that “MLB will spend at least $1.03 billion in 2022 to operate the Minor League system”—about $750 million of which is spent on salaries and benefits—while only receiving “approximately $25 million in revenue from Minor League operators each year.” Minor-league revenue, the letter claimed, constitutes just one-fifth of 1% of total league revenue and is “insufficient” to pay minor leaguers’ salaries and benefits. Per MLB mandate, minor leaguers also receive housing, health insurance, pension and other employment benefits not required by federal or state laws.

Manfred described this unfavorable exchange not as a loss but rather a “net subsidy.” But he warned the exemption’s elimination would change the calculus. MLB might no longer be able to require MLB teams to carry four minor-league affiliates. Some might opt for fewer teams that play fewer games. Others could rely more heavily on player development complexes in Arizona and Florida.

While Manfred conceded “free market principles” might make “top prospects” better off financially, “the much larger number of non-prospect players likely would do worse.” He urged the committee to look at basic supply and demand: There are far more minor leaguers than there are MLB jobs, and minor-league baseball doesn’t generate much revenue. A free market could result in lower salaries and diminished benefits for most minor leaguers, who would be competing for fewer slots.

The letter also ventured into more disputable territory, contending that MLB’s draft doesn’t rely on the exemption since MLB and MLBPA negotiate terms of the draft. Generally, when a league and players’ association collectively bargain a rule pertaining to wages, hours and other working conditions, it is exempt from scrutiny under a different ruling, the non-statutory labor exemption, which reflects a series of Supreme Court decisions. The letter cites, for example, Maurice Clarett’s unsuccessful challenge against the NFL’s age eligibility rule, to which the NFLPA had acquiesced (as a disclosure, I was an attorney on Clarett’s legal team).

But unlike the NFLPA, which represents drafted players, MLBPA doesn’t represent players selected in the MLB draft. In fact, MLBPA eligibility is contingent on a minor leaguer advancing to the 40-man roster of an MLB team. The vast majority of minor leaguers fail to advance that far. “Nearly 95% of players drafted after the 10th round . . . are never promoted to the Major Leagues,” according to the letter. Should the non-statutory labor exemption extend to MLBPA’s negotiations on behalf of a class of workers, most of whom will never join the MLBPA? It’s a debatable question.

The letter also tackled the exemption’s relationship to franchise relocation. Manfred stressed that while only one MLB club has relocated to another market in the last 50 years (the Montreal Expos becoming the Washington Nationals), 14 NBA, 10 NFL and nine NHL franchises have moved during that time. He attributed MLB franchise stability in part to the inability of MLB owners to threaten and pursue antitrust litigation should they be denied a chance to move a team.

Manfred’s letter drew rebuke from Harry Marino, executive director of Advocates for Minor Leaguers. In a statement, Marino insisted that “MLB continues to pay most minor-league players poverty-level wages.” Manfred’s letter claimed that MLB spends about $108,000 on a per capita basis on minor-league player compensation/benefits and that 58% of players drafted get a signing bonus of at least $100,000.

Whether Manfred has persuaded the committee remains to be seen. A hearing would be a logical next step. Committee members could ask the commissioner follow-up questions, including:

  • Given that minor league baseball is so unprofitable, why does MLB continue to incur the losses?

Presumably MLB owners aren’t spending out of charitable instinct or for the sake of nostalgia or tradition. More likely, while minor-league baseball loses money, the accompanying player development outweighs the losses. That would put a different spin on minor-league baseball’s troubled economics.

  • If MLB’s analysis is correct, wouldn’t MLB defeat antitrust lawsuits?

Antitrust lawsuits weigh whether removal of an economic restraint—here, MLB’s control over minor-league baseball—would produce a more competitive or less competitive market. Manfred’s letter suggests that without MLB’s subsidy, minor-league baseball would feature fewer teams and fewer games for fans to watch. There would also be fewer players, many of whom would be paid less. In other words, an inferior market. MLB would obviously prefer not to litigate and incur legal expenses, but MLB seems well positioned to defend its practices.

  • Why don’t MLB owners demand a more efficient system?

A reader of Manfred’s letter might wonder why MLB protects a system that, Manfred concedes, would be structured differently if MLB teams had their wishes. The letter mentions that the NBA’s G League, which has 30 teams, features only a fourth of the number of MLB-affiliated minor league teams. The G League also features the Ignite team, which is for elite prospects (some of whom earn more than $500,000). The G League caters to the developmental needs of NBA teams and is streamlined for that purpose. Even if a streamlined minor league baseball means fewer teams and fewer players, wouldn’t that benefit MLB in the long run?

  • Would MLB prefer that MLBPA represent minor leaguers?

As discussed above, MLB’s relationship with MLBPA is different from those between other major leagues and their players’ unions. MLB negotiates draft rules with MLBPA despite drafted players not joining the MLBPA and despite the fact most never will join. It would be interesting to hear Manfred discuss whether the league would prefer to negotiate employment rules with an MLBPA that represents minor leaguers or with another labor organization that does. Those rules would be indisputably immune from antitrust scrutiny and difficult to challenge on other grounds, be they legal or political.

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