How did Major League Baseball become a legal monopoly? : Planet Money : The Indicator from Planet Money Since last week, the MLB has been in a lockout due to ongoing labor negotiations between players and owners. Today on the show, how a 100-year-old court case gave the MLB an 'antitrust exemption' and how that set the stage for the labor unrest we see today.

Baseball's major league monopolies

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SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

ADRIAN MA, HOST:

Stacey, tell me if you know this song (vocalizing).

STACEY VANEK SMITH, HOST:

No.

MA: OK. What about this? (Vocalizing).

MA AND VANEK SMITH: (Vocalizing).

VANEK SMITH: Charge.

MA: Charge.

VANEK SMITH: (Laughter).

MA: I hope you enjoyed that because that is possibly the only baseball we're going to get for a while. We're talking about baseball today. And baseball might not be a game that you associate with wintertime. But this time of year, a lot is actually happening with the sport. Players are gearing up for spring training. Free agents are signing million-dollar deals.

VANEK SMITH: Except right now, none of that is happening because the players are in a conflict with team owners over - what else, Adrian? - money. And as a result, the owners have instituted a lockout.

MA: Jim Deshaies remembers the last time this happened about 30 years ago. That's because, at the time, he was a pitcher for the Houston Astros.

JIM DESHAIES: Typically, in the wintertime, I'd be going down to the Astrodome for workouts and getting ready for the season. Well, once they lock you out, that's not available.

VANEK SMITH: But, you know, elite athletes, they have to stay in shape. They have to go somewhere to practice. So they end up at the local batting cages.

DESHAIES: It was kind of surreal because we're in there doing our thing. And to the right, there's all these moms just pumping these quarters into the pitching machine while junior's in there. You know, here's these, like, 10-year-old kids that someday want to be big leaguers, and we're over to the left trying to get ready to play a major league season.

VANEK SMITH: I mean, obviously, this is a very sweet and comical but not an ideal situation if you're a professional baseball player. But, you know, sometimes, that is what happens when two monopolies collide.

This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.

MA: And I'm Adrian Ma. The law generally doesn't like a monopoly, but there are exceptions. And baseball is one of them. Today on the show - why that is and how a hundred-year-old case set the stage for baseball's labor unrest today.

(SOUNDBITE OF MUSIC)

MA: The root of the current dispute between Major League Baseball owners and players stems, in part, from the fact that MLB is a monopoly organization.

ANDREW ZIMBALIST: And what that fundamentally means is they're the only producer of their product. Nobody competes with them.

MA: Andrew Zimbalist is a sports economist at Smith College in Massachusetts. And what he means is, you know, for the MLB, there is no serious competition. There's no rival league out there threatening to steal its fan base. And you could say the same thing about, you know, the NBA and basketball, the NHL and hockey, NFL and football.

VANEK SMITH: Yes. But unlike those other sports, baseball's status as a monopoly has been kind of enshrined in legal history. To understand how, we have to go back to the very early days of American baseball.

ZIMBALIST: When baseball was first starting, as you can imagine, it didn't require a lot of resources to put a baseball team on the field. There was a lot of open urban area, for one, back in the 1870s and 1880s. They didn't require that the city build them a $1 billion stadium. You just went out, and you played. You organized competition. And there was lots of competition.

VANEK SMITH: And while all this competition was really good for the sport's popularity, it pretty quickly became really annoying for the owners of the National and American Leagues. Those are the two leagues that would later combine to become Major League Baseball.

MA: So the problem was, you know, to make money, they have to attract fans. But to do that, they have to attract the best players - or, you know, at least the best white players they were willing to hire in the context of a super segregated sport.

ZIMBALIST: And so the bidding war starts. And all of a sudden, the salaries which had been well-controlled, now they start getting out of control. And the leagues realized they're doing this to each other. They said, well, you know what? Rather than being enemies, let's just work together.

MA: So they agreed to stay out of each other's turf and not poach each other's players. And this sort of scratch my back, I scratch yours approach worked for a little while, until another rival showed up on the scene - something called the Federal League. And the National and American Leagues saw this, and they moved to snuff it out. They offered buyouts to a lot of the federal league owners to, you know, make them go away.

VANEK SMITH: Except there was this one team that did not want to play ball. It was the Baltimore Terrapins, and it brought a lawsuit under the Sherman Antitrust Act, which prohibits monopolies in interstate commerce. And when the case eventually reached the U.S. Supreme Court in 1922, the justices unanimously kind of kicked dirt in the Terrapins' face.

ZIMBALIST: The Supreme Court decides that baseball is not subject to the antitrust laws. It doesn't engage in interstate commerce. All of those decisions were nonsensical.

MA: So they said this business is not a business.

ZIMBALIST: This business is not a business. They're doing it for fun. They don't engage in interstate commerce.

VANEK SMITH: The court says yes, OK, these teams do travel around the country playing games for money. But somehow, that is not technically commerce. And ipso ergo, antitrust law does not apply.

MA: What do you think was going on in their heads that made them arrive at that conclusion?

ZIMBALIST: Baseball itself was the national pastime. It was the obsession of large numbers of people in the United States. You know, this was a rival league that was trying to stir things up, and the justices saw this as something that was threatening the stability of this cultural iconic activity.

MA: This decision a hundred years ago gave Major League Baseball essentially an antitrust exemption - a green light to continue anti-competitive practices. And in later years, MLB would actually be sued two more times on antitrust grounds. And both times, the Supreme Court said, look, that first decision, maybe it was a bad decision. But it's precedent, so we're not going to mess with it. And then when other sports leagues have tried to claim a similar exemption, courts have said, no way. So baseball has kind of remained this weird exception.

VANEK SMITH: But then in the 1960s, there was a fundamental shift in the economics of baseball. The players got together and formed a union. And suddenly, pro baseball went from a sport with one monopoly to essentially a sport with two monopolies.

J C BRADBURY: On the players' side, that is labor, we have players who have banded together to form a union, to form a monopoly, to sell major league talent to major league owners.

VANEK SMITH: This is Kennesaw State University economist and baseball nerd J.C. Bradbury. And he says this is what is called a bilateral monopoly.

BRADBURY: You have a single buyer and a single seller, and each party needs the other one. This is a very strange economic model.

MA: Strange, he says, because there is no natural equilibrium outcome, right? Like, when the market for a product is competitive, you expect the price to go down. And if the market is a monopoly, prices should go up. But in a bilateral monopoly...

BRADBURY: We have no idea where that ending point is because it's what the owners think it is and what the players think it is. And that's why this becomes such a brutal bargaining game right now.

VANEK SMITH: What we do know is that since players formed their own monopoly and bargained for the right to free agency, salaries have gone way up for the players. The minimum wage for MLB players is currently more than a half million dollars a year.

MA: And if you're like me, you're probably thinking at this point...

Well, it seems to be a duel between some billionaires versus some millionaires. Like, why should people care?

BRADBURY: Right. In fact, they probably shouldn't care at all. But I think the thing that is important to remember is that that money is going to be earned by someone, whether it's by a millionaire player or a billionaire owner. The neat thing about markets is that we don't have to sort of judge necessarily who's right. It's a bargaining process.

MA: Yeah. Try telling that to the fans, right? If these sides cannot get together with some sort of agreement, there won't be any baseball to watch.

VANEK SMITH: People will just have to keep listening to us sing, Adrian. And that is a very difficult situation for everyone.

MA: Hey.

VANEK SMITH: Nobody wants to see that happen.

MA: Speak for yourself.

VANEK SMITH: (Laughter).

This episode of THE INDICATOR was produced by Brittany Cronin with help from Isaac Rodrigues. It was fact-checked by Taylor Washington. Viet Le is our senior producer, and Kate Concannon edits the show. THE INDICATOR is a production of NPR.

(SOUNDBITE OF MUSIC)

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