Someday, I’m going to write a book entitled “Yesterday’s Solutions,” giving truth to John Kennedy’s observation that today’s problems are the result of yesterday’s solutions. Whenever we act to fix the difficulties of today, we invariably set in motion factors that will create problems for the future. C’est la vie. Anyway, a prime example of this is how efforts to break market monopolies in the late nineteenth century ultimately led to an act of Congress granting free agency to baseball players.
In the days of the robber barons and industrial monopolies, men like Cornelius Vanderbilt, Andrew Carnegie, and John D. Rockefeller compiled great amounts of wealth and power by developing huge monopolies and driving the competition out of business. This is the necessary end of the free market. Collusion protects from competition. But, it also creates artificially high prices and reduced wages. In order to check the growth of monopolies, Congress passed the Sherman Anti-trust Act in 1890. In theory, it would encourage competition and limit the power of Rockefeller, J.P. Morgan, and others to control the American economy and influence the way people lived because of that.
At that time, baseball clubs were loose conglomerations locally owned. Some team owners organized to found the National League; others formed the American League. There were other, smaller leagues and independent teams all over the country then. Slowly, the NL and AL started forcing others out. Through purchase and influence, they brought many of these teams under their umbrellas as “farm teams” – what we now know as the minor leagues that feed the majors. There were still competing leagues at the time of the first World War, but these outsiders were dwindling and could little compete with the growing influence and money of the NL and the AL (which ultimately combined to form Major League Baseball [MLB]). In the early twenties, one of these competitor leagues, the Federal Baseball Club of Baltimore, Inc., sued the NL and AL, claiming that since they were engaged in interstate commerce – travelling back and forth between states to play games among the teams in the league – they were subject to the Sherman Anti-trust Act. In 1922, the U.S. Supreme Court ruled that Congress did not intend for the anti-trust legislation to cover baseball, and MLB was exempt from this. Baseball was legally a monopoly (Federal Baseball Club of Baltimore, Inc. v. National Baseball Clubs, 259 US 200 ). Justice Oliver Wendell Holmes wrote: “But the fact that in order to give the exhibitions the Leagues must induce free persons to cross state lines and must pay for their doing so is not enough to change the character of the business…the transport is a mere incident, not the essential thing. That to which it is incident, the exhibition, although made for money would not be called trade of commerce in the commonly accepted use of those words.” Or, to put it another way, when you said commerce back then, people thought of buying and selling goods – not paying for entertainment. Baseball was not commerce, then, and the Federal league, which could not compete with MLB in salaries in order to attract quality players, eventually folded. The baseball monopoly reigned.
Thereafter, professional baseball grew in popularity. The advent of radio and TV meant that the games could reach audiences at home. And, while ever-growing numbers of viewers tuned in to enjoy a game, advertisers pitched products to them. The public followed celebrity star players and trading cards allowed fans a commercial venue for their hero-worship. Popular sales of baseball caps, touting one’s team, established these as a ubiquitous part of American fashion.
Forcing other leagues out of business or co-opting them was not MLB’s only attempts to stave off competition during the early years, however. It also had taken steps to limit the wages of players and their bargaining power. The owners colluded to include a “reserve clause” in every player’s contract. This clause stated that once a player’s contract ended, the club for which he played retained rights to the player for another year. The club was not obliged to pay the player during that year unless he played for it, and he could not go play for anyone else during that time. Because players wanted to play and to earn money, they would end up signing a new contract with the same team (the clubs rarely allowed players the year off – mostly forcing them into new contracts in order to play). Thus, the teams could retain control of the players perpetually, and, since the players couldn’t go to another team, the club did not have to offer them fair wages. They could re-sign players at lower salaries than the players could get if the teams had to bid against one another for a player.
This practice continued for a long time, and in the early 1950’s a player sued, claiming, again, that the Sherman Anti-trust Act applied to MLB and the reserve clause was the fruit of that monopoly. The player, George Toolson, was stuck in the minor leagues under the Yankee organization. The Yankees wouldn’t move him up, but they wouldn’t let him go elsewhere either. He figured if he could get out of the reserve clause in his contract, he could go to another club that might play him in the majors. In 1953, the case ended up in the U.S. Supreme Court (Toolson v. New York Yankees, Inc., 346 US 356 ), where the Warren Court (under Chief Justice Earl Warren) reaffirmed that the Sherman Act did not apply to baseball. Perhaps the author of the court’s opinion was ashamed of his logical inconsistencies, for he didn’t even sign the decision. It said that the law was intended to target large corporations like U.S. Steel and Standard Oil – not baseball clubs. Further, it had been thirty years since the Court had first determined that baseball was exempt and Congress hadn’t taken steps to address any oversight during that time. This proved that Congress did not intend for the law to apply. In dissent, Justices Harold Burton and Stanley Reed noted that baseball was no longer local. It had become the national pastime – broadcast over radio and TV. The minor league system criss-crossed the country and clubs belonging to the league existed throughout the U.S., Canada, and even Mexico. National advertising was part of the sport and fed it. Undoubtedly, the clubs were engaged in interstate commerce and were therefore subject to the Sherman Act. Unfortunately, theirs was the minority opinion. Under the majority decision, baseball still wasn’t interstate commerce.
In 1972, the Court revisited the issue again and reaffirmed the previous decisions (Curt Flood v. Bowie Kuhn, et al., 407 US 258 ). Player Curt Flood wanted free of his reserve clause, but the courts were against him. In an unusual move, Flood was able to sit out a year – forgoing his $100,000 annual salary (which was a lot of money then) – and then sign with another team. Ironically, in the interim between the Supreme Court decision in 1953 and this one in 1972, football players had sued the National Football League, and the Court decided that football (and, ultimately, basketball, boxing, etc.) was interstate commerce and subject to the Sherman Anti-trust Act (Radovich v. National Football League, 352 US 445 ). Baseball, the Court said, was the only exception to the rule.
Baseball players ultimately got their “free agency” in 1975. In 1973, the National Labor Relations Board ruled that it had jurisdiction over disputes between ballplayers and owners (baseball players belong to a union) and would apply labor laws to such cases. Two years later, arbitrator Peter Seitz determined that the reserve clause only applied for one year – not in perpetuity. If a player remained with a team for a year after his contract expired, he was free to go to another team. Thereafter, negotiations between players whose contracts had expired or were expiring and competing clubs became de rigueur and public. Players could use these to negotiate better terms with their home team or to get better pay and benefits to move to another. Wages in the majors rose and competition replaced collusion among the clubs regarding players’ salaries. Finally, in 1998, Congress made the unnecessary and symbolic move of passing the Curt Flood Act of 1998, which simply stated that baseball players had the same rights as players in other sports (which were subject to the Sherman Act) in their relations to their teams. Congress did not go so far as to remove the exemption from the Sherman Act from baseball clubs completely. MLB still retained its monopoly in the market – so you won’t be seeing any new Federal Baseball Clubs popping up anytime soon. In the last year, there’s been some noise about removing the exemption so that franchisees can relocate teams without the permission of MLB and so that MLB cannot simply do away with a team at will. In hockey, basketball, and football, such powers do not belong to the leagues, but it remains to be seen whether or not baseball will ever be completely stripped of its monopoly status. Even in these days of deregulation and pro-competition, the sport seems stuck in an economic time warp.
(In the interest of full disclosure, I should tell you that my grandfather was a pitcher subject to the reserve clause, and he bounced around the minors and every farm team he could find to make a living during the days of artificially deflated wages.)