MLB Faces Tough Legal Road to Restructure Minor League Baseball

It certainly won't be easy for MLB to completely reorganize Minor League Baseball like it wants to.

Major League Baseball’s controversial plan to re-organize Minor League Baseball faces headwinds in Congress and could potentially spark legal challenges.

On Tuesday, U.S. Congresswoman Lori Trahan of Massachusetts and U.S. Congressman David McKinley of West Virginia sent a letter to MLB commissioner Rob Manfred to express their “firm opposition” to MLB’s “radical proposal to eliminate numerous Minor League Baseball clubs.” The letter, which is co-signed by more than 100 members of the House of Representatives, reflects a bipartisan message. Trahan, a Democrat, and McKinley, a Republican, are joined by Congressional members from both parties. One of those members, U.S. Congressman Mark Walker (Republican-North Carolina), is the leading advocate in the House for college athletes gaining protection to license their names, images and likenesses.

The Trahan-McKinley letter highlights the ways minor league teams positively impact their fan bases and local economies. This is particularly true, the letter notes, for families who live far from big-league teams or who can’t afford major league ticket prices.

The letter also hints at potential repercussions for MLB if it moves forward with plans to shrink minor league baseball. “The abandonment of Minor League Clubs,” the letter stresses, “would devastate our communities, their bond purchasers, and other stakeholders affected by the potential loss of these clubs.” The letter implies that the “long-term support that Congress has always afforded our national pastime on a wide variety of legislative initiatives” could be jeopardized.

As explained below, these are not hollow threats: if Trahan, McKinley and their like-minded colleagues muster sufficient support in the House and Senate, and if President Donald Trump agreed, Congress could wreak serious havoc on MLB’s plan to reorganize minor league baseball. MLB enjoys an exemption from federal antitrust law that has lasted since the U.S. Supreme Court’s decision in the 1922 case Federal Baseball Club v. National League. The exemption, however, could be rescinded or constrained by federal law—an approach that a bipartisan Congress and President Bill Clinton utilized with the Curt Flood Act. The Act, which became law in 1998, narrowed the scope of baseball’s antitrust exemption to issues of franchise relocation, the amateur draft and the minor leagues. A further legislative narrowing is possible, as are other types of legislative actions that could disadvantage MLB and, potentially, other pro leagues.

Historical context is also important in assessing how Trahan, McKinley and colleagues can pressure MLB to change paths. While MLB is a powerful entity, it has previously “backed down” to members of Congress. Recall how the late U.S. Senator John McCain altered the baseball steroids controversy during the mid 2000s. He held contentious and high-profile hearings that exposed MLB and Major League Baseball Players’ Association officials as woefully passive in responding to obvious evidence that players were “juicing.” Senator McCain also introduced federal legislation that would have stripped the authority of leagues and their unions to negotiate drug testing policies. McCain sought to vest that authority in the White House’s Office of National Drug Control Policy. Fearful of the prospect of losing their self-governing power, MLB and MLBPA negotiated a new and tougher steroids policy.

Making sense of MLB’s minor league plan and why Congress cares about it

Complete details of MLB’s reorganization plan have not been made available. The plan is also subject to lengthy negotiation with Minor League Baseball (MILB), which oversees 176 teams in 15 different minor leagues. The current agreement between MLB and MILB is set to expire following the 2020 season. In comments to Baseball America, MILB president Pat O’Conner stresses that “it’s early in the negotiations.” Similarly, MLB deputy commissioner Dan Halem describes the negotiations as “in the very initial stages.”

As currently understood, MLB’s plan would feature a variety of elements that go beyond minor league club affiliation. Among them is moving the amateur draft from early June to some point after the College World Series ends in late June. Reducing the number of draft rounds from 40 to between 20 and 25 and capping the total number of minor league roster spots for MLB teams are also elements. In addition, the plan would promote and demote certain minor league teams—some would move from Single A to Triple A, while others would drop from Triple A to Single A, and so on. J.J. Cooper of Baseball America covers all of the details in this feature story.

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Still, the plan’s most controversial component involves severing affiliations between MLB clubs and 42 minor league teams. These teams and their major league counterparts are affiliated through two-year, or four-year, contracts known “player development contracts” or PDCs. Generally speaking, PDCs affirm a relationship between minor league teams and major league team affiliates whereby owners of minor league teams pay for non-personnel operations (for example, field, equipment, uniforms etc.) while their MLB affiliate pays the employment contracts of players and staff.

MLB claims to be motivated by desire to enhance employment conditions for minor league players, as some minor league teams feature inadequate playing surfaces and outdated ballparks. MLB also envisions a system of minor league baseball that features minor league teams geographically located closer to their major league affiliates. That would reduce travel, both for minor league players and for staff of major league teams who monitor minor league player development.

The loss of an MLB affiliation would not, by itself, terminate a minor league team. The team would still exist as an asset. It could conceivably play other unaffiliated or independent teams.

An unaffiliated team, however, would effectively be dispatched to baseball purgatory.

To that end, it’s unclear (1) who would play for an unaffiliated team; (2) which teams the unaffiliated team would play; (3) whether the ownership of an unaffiliated team would find it financially feasible to pay for salaries and accompanying workers’ comp insurance; (4) whether fans and season ticket holders would still pay to watch a team without any MLB prospects or MLB ties; and (5) whether sponsors would still pay for sponsorships with unaffiliated teams. MLB might offer to direct undrafted players to unaffiliated teams, and potentially subsidize some of the related costs. However, the financial value of a minor league team would drop substantially if it loses a major league affiliation. Its ownership would largely suffer that loss or attempt to pass it on to consumers in the form of higher ticket prices.

The 42 teams targeted are mostly in the lower levels of the minors. One is the Lowell (Massachusetts) Spinners, a Class A short-season affiliate of the Boston Red Sox. The Spinners play in the New York-Penn League and are located in Trahan’s congressional district. The Spinners are owned by Dave Heller, who owns four minor league teams—three of which, including the Spinners, are on the affiliation termination list.

Potential Congressional action: stripping MLB of its antitrust exemption for minor league baseball

As mentioned above, MLB enjoys a historical exemption from federal antitrust laws and the Curt Flood Act narrowed this exemption in 1998. Congress could explore additional legislation to narrow it further.

This is particularly relevant with respect MLB’s capacity to oversee minor league baseball. MLB can currently do so without worry of antitrust implications. Competing MLB teams can thus conspire in ways that would normally run afoul of federal antitrust law, specifically Section 1 of the Sherman Act.

Generally speaking, competing businesses—including privately owned teams in a professional sports league—can’t collude in ways that unreasonably restrict competition. Also, if restraints on competition adversely impact the wages, hours and other working conditions (such as privacy) of a unionized labor group, those restraints must be collectively bargained with that labor group.

The reason, for instance, why MLB can impose various restraints on MLB players becoming eligible for salary arbitration and free agency, and the reason why MLB can impose drug testing policies and punishments on MLB players, is because the MLBPA assented to those restraints in a collective bargaining agreement. In the absence of collective bargaining with the MLBPA, much of MLB’s economic system would be subject to antitrust litigation and possibly be deemed illegal.

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How does that point relate to MLB and its minor league teams? MLB’s antitrust exemption remains in place for minor league baseball. This means MLB need not worry about minor league players filing antitrust claims over very low salaries or steep punishments for positive drug tests. It also means that minor league teams adversely impacted by MLB’s plan to reorganize minor league baseball would be deprived of the opportunity to challenge the plan in court under federal antitrust law.

Congress and President Trump could, if so inclined, radically alter that dynamic by stripping baseball of its exemption under antitrust law with respect to minor league baseball. Such a move would create a pathway for minor league team owners and other affected parties to file antitrust lawsuits over MLB’s reorganization plan. The plaintiffs would argue that the plan, by effectively reducing the number of teams in minor league baseball, damages national competition for minor league baseball. A reduction of competition is often a powerful argument in antitrust cases.

MLB has reasons to be confident about retaining antitrust immunity, but could still experience turmoil

MLB might not have a grave fear of this outcome. In 2018, Congress passed and President Trump signed the Save America’s Pastime Act into Law. The Act attempts to exempt minor league players from protections under the Fair Labor Standards Act or FLSA. This issue is discussed in detail below, but for now, MLB might reason that the President would not be inclined to strip MLB of its antitrust protection.

Also, even if MLB lost antitrust protection for minor league baseball, MLB would be able to raise legal defenses to an antitrust lawsuit. For instance, MLB would assert that the reorganization plan would enhance the efficiency and product quality of minor league baseball by improving ballparks and crafting a more sensible geographic alignment of minor league teams with their MLB partners. MLB would also be poised to argue that there are too many teams in minor league baseball and that it’s inefficient to have so many of them.

The eventual winner and loser of the litigation isn’t necessarily the point—antitrust litigation can take years to play out and is often among the most expensive and disruptive types of litigation in our legal system. MLB would be less likely to pursue, as Trahan and McKinley put it, “radical” changes to minor league baseball if the prospect of antitrust litigation awaited.

This connects to minor league player pay and their litigation

Stripping MLB of its antitrust exemption for minor league baseball would be problematic to MLB on another front. Over the last five years, a group of more than 40 former minor league players have pursued a federal lawsuit—Senne v. Kansas City Royals—in the U.S. District Court for the Northern District of California and the U.S. Court of Appeals for the Ninth Circuit. The players claim that MLB and its teams have violated the FLSA and state laws guaranteeing minimum wage and overtime pay.

The gist of the players’ legal argument is that they work between 60 and 70 hours per week and aren’t paid enough for it. They estimate their work hours by including play in six or seven games a week as well as travel, practices, conditioning sessions and participation in the instructional league and extended spring training. While the Save America’s Pastime Act and other FLSA worker exemption classification could eventually undermine the players in court, the FLSA generally makes it unlawful for employers to pay employees less than the federal minimum wage ($7.25/hour) and less than overtime pay of one-and-a-half times.

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The players insist that while the minimum salary for major league players is $563,500, many minor league players earn less than $7,500 and significantly less than the federal poverty level, which is $12,490 for a single person and $25,750 for a family of four.

The litigation is currently under review for class certification status. In August, the Ninth Circuit partially certified the class structure proposed by the players. If the players ultimately prevail in the litigation the financial damages to baseball could be massive: the court could order that MLB pay many millions of dollars in back pay and other damages.

Back to the potential aftermath of the Trahan-McKinley letter. If MLB were to lose its antitrust exemption for minor league baseball, attorneys representing minor league players would immediately add antitrust claims to the litigation. The attorneys would insist that MLB and its competing teams have unlawfully conspired to adopt anti-competitive wage rules that stifle minor league players’ opportunities to negotiate market-based compensation.

Other possible Congressional punishments: Sports Broadcasting Act and A La Carte Programing

Congress could also revisit the Sports Broadcasting Act as a means of applying pressure on MLB.

In 1961, President John F. Kennedy signed the Sports Broadcasting Act into law. It overruled an injunction ordered by a federal judge, Allan Grim, at the behest of the U.S. Justice Department. The Justice Department persuaded Judge Grim that the NFL and its teams had violated Section I of the Sherman Act. They conspired to deny opportunities for self-competition: NFL teams couldn’t compete with each other over broadcasting rights even if they wanted to. For example, in a competitive market, the New York Giants should be able to broadcast games to areas of Connecticut and Rhode Island that are relatively close to Foxborough, Mass., where the New England Patriots play. The NFL, however, gave teams exclusive broadcasting territories that deprived teams of the opportunity to compete and thus prevented some fans from seeing their preferred team.

This presented an antirust problem for the NFL: its teams, like MLB teams, are competing businesses. Antitrust law expects them to compete, not conspire. However, the Sports Broadcast Act overruled Judge Grim’s injunction and dictated that the NFL, MLB, NBA and NHL and their respective teams are exempt from Section I of the Sherman Act when they negotiate a national TV contract with a network that provides “sponsored telecasting” (meaning broadcasts that are free to watch because viewers watch commercials).

Over the years, the Sports Broadcasting Act has been used by pro leagues to defend against antitrust lawsuits over how those leagues distribute broadcasting rights and charge customers. I recently discussed that topic in the context of federal litigation over DirecTV’s NFL Sunday Ticket. As worded, the Sports Broadcasting Act would not immunize leagues from cable and pay-for-satellite broadcasts of games since the Act contemplates broadcasting technologies that existed in 1961—long before cable and satellite TVs. Also, the Act is more valuable to the NFL, NBA and NHL than to MLB, which, unlike those three other leagues, enjoys the broader historical exemption from antitrust law.

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Still, all of the leagues lobby on Capitol Hill to keep the Sports Broadcasting Act in place, if for no other reason than as evidence that the federal government sees pro sports leagues as deserving of favorable treatment. To the extent members of Congress wish to tie MLB’s reorganization of minor league baseball to existing federal protections, those members revisiting the wisdom of relying on a law passed in 1961 to regulate sports broadcasts in the 2020s would certainly attract the leagues’ notice.

Alternatively, Congress could consider legislation that would force cable providers into providing subscribers more choice when selecting channels. Instead of buying channels in bundled packages, subscribers could select the channels they want and only buy those. This type of legislation refers to “a la carte programing”, which is now law in Canada. Leagues have historically opposed a la carte programing, since subscribers could drop sports channels, including ESPN and MLB Network, that they buy in bundled packages. One fear for leagues is that if ESPN takes in diminished subscriber revenue because some subscribers de-select it, ESPN would have less money to offer to pay for broadcasting rights.

Minor league owners and cities could sue MLB and ask for state investigations

Whether or not Congress takes action against MLB, owners of minor league teams who would suffer financial losses as a result of MLB’s plan to reorganize minor league baseball could ask regulators in their states to investigate and potentially take action against MLB. They could also bring litigation against MLB. Such litigation would likely seek court-ordered injunctions to stop the plan from going into effect.

Unless MLB’s antitrust exemption is rescinded or narrowed, claims under federal antitrust law would not be available to minor league owners. But there are other areas of law that they could invoke.

Owners, for instance, could request that states' attorneys general investigate whether MLB’s reorganization plan runs afoul of state antitrust and consumer protection laws. There is debate as to whether MLB’s exemption from federal antitrust law extends to state antitrust claims—the U.S. Supreme Court’s ruling in the Curt Flood case indicates that state antitrust claims are barred, but the Curt Flood Act of 1998 raises ambiguities. Even if the exemption does preempt state claims, it would not deny claims that arise under state consumer protection laws. To that point, Massachusetts has one of the most robust consumer protection laws in the country. The state’s attorney general, Maura Healey, could conceivably explore whether MLB’s reorganization plan adversely impacts consumers in Lowell and its surrounding communities.

Minor league team owners could also explore the feasibility of litigation. To the extent the reorganization plan leads to breaches of contracts and possibly unlawful disruptions to their businesses, the owners could file claims for breach, unfair and deceptive trade practices, constructive fraud and, possibly, state antitrust violations. There is no shortage of possible claims. Owners would also have financial incentives to exhaust every measure to stop the reorganization plan from going into effect.

Also, to the extent that cities financed the construction of minor league ballparks, they too could explore potential litigation. The cities could argue that they were deceived when offering taxpayer dollars for projects that would supposedly lead to decades of entertainment for their communities. Season ticket holders and corporate sponsors might also have claims that they were fraudulently induced into buying tickets or paying for signage.

To be sure, MLB would have defenses ready for these and similar legal arguments. MLB would insist that it has a right to conduct business as it sees fit, even if that leads to disappointment for some. MLB would also repeatedly stress that a team losing its MLB affiliation does not automatically put that team out of business.

One thing is certain: if MLB believes it can easily redesign the minor leagues, it is guessing on the wrong pitch.

Michael McCann is SI’s Legal Analyst. He is also an attorney and the Director of the Sports and Entertainment Law Institute at the University of New Hampshire Franklin Pierce School of Law.