Originally Published: September 10, 2014 6:01 a.m.
History can be dry and boring. After all, it's so "yesterday" and most of us prefer to live in the moment. But if you're a sports fan, the following bit of history is important to you so bear with me.
This history lesson begins in 1922. A Supreme Court decision that didn't have much of an impact at the time, today affects all sports fans. The Court ruled that baseball games were local affairs, not interstate commerce. As a result, the antitrust laws, which are designed to prohibit actions that unreasonably restrain competition, did not apply to the sport of baseball.
Viewed through the prism of 2014, the Court's decision seems absurd on its face. However, using hindsight to question the sanity of the Supreme Court Justices is neither fair nor realistic. In 1922 the mean player salary was $5,000, average ticket prices were $1 and the average franchise value was less than $800,000. The 16 MLB teams drew fewer than 9 million fans and grossed less than $10 million combined. There were no national radio broadcasts and it would be another 17 years before the first MLB game was televised. It wasn't until 1954 that an MLB club was located west of St. Louis. Given those facts, the Court's decision was arguably correct at the time.
But times changed and baseball, like other sports, evolved into big business. The Supreme Court had the opportunity to overturn baseball's antitrust exemption twice, first in 1953 and again in the famous 1972 Curt Flood case challenging baseball's reserve clause, which effectively bound players to one team forever. In both cases the Court affirmed its original decision and threw the ball to Congress, saying if it felt they had ruled in error in 1922, the proper remedy was to pass legislation to override the antitrust exemption. Congress accepted the challenge, sort of, in 1998 when it passed the Curt Flood Act, which partially repealed the antitrust exemption. The law eliminates the antitrust exemption with regard to the relationship between management and the players but left the exemption intact in virtually all other respects.
Which brings us to 2012. A group of fans brought a lawsuit against MLB complaining that they were being denied access to games because of MLB's longstanding blackout rules (the lawsuit was consolidated with a similar lawsuit against the NHL). Specifically, they allege that MLB AM - baseball's media arm - refuses to include television and Internet access to broadcasts of local teams in their league-wide subscription packages and argue that the omission constitutes an anti-competitive practice that violates federal antitrust laws. MLB countered with a motion to dismiss relying on its antitrust exemption. In a ruling last month, U.S. District Judge Shira Scheindlin rejected that argument.
In her opinion the judge said that MLB's antitrust exemption doesn't apply "to a subject that is not central to the business of baseball, and that Congress did not intend to exempt ... baseball's contracts for television broadcasting rights." Her ruling allows the plaintiffs to pursue their antitrust claims against MLB and its media partners, Comcast and DirecTV. To no one's surprise, MLB appealed the decision to the 2nd U.S. Circuit Court of Appeals.
It can be argued that the blackout rules actually harm MLB in two respects. First, the lack of access to local broadcasts may result in fewer league-wide subscriptions. Second, the effect of the rules is to generate revenue for the team-owned RSN. That revenue is not subject to the 34 percent revenue-sharing tab that applies to local team revenues, which are then distributed among all 30 MLB teams.
So how does this affect you? First, it should be noted that this legal battle is far from over. In the meantime, when we purchase a league-wide package we won't get access to local game broadcasts. Those broadcasts are only available if we purchase a cable or satellite TV subscription to the team's Regional Sports Network (RSN) such as Yankees' YES Network and the Red Sox' NESN.
If MLB wins, the status quo will continue, subject to the impact of the changing Internet. If the plaintiffs win, sports fans that purchase a league-wide subscription would get access to their local team broadcasts, RSN's may become less profitable and the entire sport may benefit. Stay tuned. History may be rewritten.
Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner. He is a Professor in the Sport Management Department at SUNY Cortland and maintains the blog http://sportsbeyondthelines.com. Jordan can be reached at email@example.com.