Major League Baseball

and

The Reserve Clause

Darin C. Yrigoyen
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The Industrial Revolution in the United States during the late 19th and early 20th centuries

gave rise to many of the nations first corporate superpowers. These companies experienced

exponential growth during this time with the influx of potential employees in the form of

immigrants coupled with the introduction of new technology. This business boom was so

profound, in fact, that many of these corporations began to dominate their individual markets,

forming pseudo-monopolies in the process. These monopolies or trusts were known for (1)

charging higher prices, (2) providing inferior goods and services and (3) suppressing innovation,

as compared with a competitive situation (i.e., the existence of numerous, competing suppliers of

the good or service) (Linfo). The decline in competition that was caused by this market

dominance presented a real issue for the U.S. economy, which had been founded on this idea of a

free market and capitalist ideals. In response to this issue, the U.S. legislature passed the

Sherman Antitrust Act of 1890 to help govern interstate commerce and prevent this trend toward

monopolization in the market. The passing of this has been cited as a milestone in the historical

development of the U.S. economy and has certainly shaped how we understand this idea of

competition in the present day.

However, not all industries were affected by this law because of its clause which allowed

the ability for the U.S. to grant special exemptions based on situation. After coming under fire

for possibly violating this Act, Major League Baseball was one of the organizations to receive

this special exemption for reasons which will be outlined going forward. To the modern-day

audience, it seems preposterous that a top-tier professional sports league which cites over $10

billion in annual revenue would be immune from this law, but further examination is required for

understanding (Forbes). Familiarity with the Act, of which the full legislative language is listed
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below, helps to set the stage for the Supreme Courts interpretation, as related to Major League

Baseball and its reserve clause.

Sherman Antitrust Act

"Section one of the act declares that contract or conspiracy that restrains trade or commerce

among U.S. states or with foreign nations is illegal. Any person who makes such a contract or

engages in such a conspiracy shall be deemed guilty of a misdemeanor and face the defined

consequences. Section two of the act declares that any person who monopolizes, or attempts to

monopolize, any part of trade or commerce between U.S. states or foreign nations shall be

deemed guilty of a misdemeanor. Section three extends this law to any U.S. territory and the

District of Columbia, section four invests circuit courts of the U.S. with the jurisdiction to

prevent and restrain violations of the act, and section five gives the court the authority to

summon involved parties from any state. (Sherman Antitrust Act)

Major League Baseballs Reserve Clause, which bound players to their drafted teams,

eventually became the rallying cry for those citing a violation to this anti-trust legislation.

Because of the bidding war that was created between clubs for new players in the early days of

the league, the Reserve Clause was originally put into place to help the leagues competitive

balance. The National League was especially struggling to make money, with these team-

oriented clubs being consistently out-bid for the best players by a more player-centered National

Association, which was willing to pay for top talent. The introduction of this Reserve Clause

concept made it so that clubs could initially protect up to five players, which would help with

profitability and roster consistency in the NL. Eventually, the Clause was amended to include the

teams entire roster and was added to each individual players contract during negotiation.

Outcry came early and often from the players who began to realize that this was forcing them to
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stay with their initial team, but a relatively weak counter-effort was defeated by the league in the

early 1900s, meaning the Reserve Clause was here to stay for the foreseeable future (Baseball

Reference).

In detail, the clause outlined that a player was initially free agent until he signed with a

professional team or one of its farm-system affiliates. The open market still existed for these

players, as each was bid on to sign their initial deal. However, the contractual competition

among clubs was halted after the initial signing, as each player was required to sign a uniform

contract. Upon adoption of the clause, each contract specifically outlined that the team had to

option renew the player's contract for the next season at a salary fixed by the club, but not less

than 75 per cent of the player's current salary. Thus, once a player was signed by a club, his

services became the sole property of that club for his entire stay in organized baseball, unless his

contract was sold or traded to another club. If sold or traded, the player's services then became

the property of his new club, and he was obligated to join the new team. (Hill, Spellmen)

This made it so that contracts were perpetually binding and up to the discretion of the

owners solely as far as movement was concerned. Also, even if a player was to get out of this

agreement and cut ties with his initial club, they would be forced to play a year unpaid for their

new team, of which they then after would be bound to. With little wiggle room for players,

greedy owners, of course, took advantage of their power position, and began to rake in the profits

of the expanding league without fairly compensating their players. Initially adopted to save and

grow the game, the Reserve Clause quickly became the number one point of contention among

players and nearly drove the league out of existence.

The first landmark case to bring this issue to the forefront came to the Supreme Court in

1922, which pitted the two sides of Federal Baseball Club of Baltimore vs. National League
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against one another. The Federal Baseball League was gaining steam quickly and had established

itself as another legitimate professional league in direct competition to the National League and

the MLB. To strengthen its status, the organizers of the Federal League devised a plan to

acquire any players in the National League whom were not bound by the reserve clause.

Although fair and legal in practice, the National League was outraged as their monopoly became

threatened by the emergence of this new league. Many NL clubs took a hardline stance on the

issue, saying any player to leave the NL in this type of negotiation would be banned from the

league for life.

For the Federal League, their argument of why they were forced to use this strategy was

that the National League continued to buy out their up and coming clubs and any legitimate

players. The Federal League asserted that this type of business negotiation was surely a violation

on the Sherman Antitrust Act, as the National League was monopolizing franchise and player

ownership. However, a ruling from the Supreme Court in the National Leagues favor set a

precedent for the leagues exemption, which would last for decades. Although commonly facing

off against clubs across state/regional lines, the Supreme Court ruled, based on individuality, that

baseball is not considered interstate commerce, of which the Act governs. Based on the

technicality of the required transportation to and from games, the courts ruled that baseball was

an intrastate business because the travel of persons across state lines was merely "incidental" to

business operations. (Justia)

Stuart Banners book, titled The Baseball Trust: A History of Baseballs Antitrust

Exemption, gives a detailed account of the impact which this case had for baseball going

forward. Regarding the effect of this, Banner states, The case would have important long-term

consequences: it is the origin of baseballs so-called antitrust exemption. Few court decisions
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have been so widely ridiculed. Most commentators thought the decision was wrong at the time

and now consider it ludicrous, simple and simplistic opinion. (Banner 63) As evidenced, the

ruling was surely controversial, but the courts had at least some ground to stand on based on the

relatively small-time business that was professional sports in the 20s. At that time, the MLB

was the only professional league which was turning a significant profit, but that still pales in

comparison to the profitability of professional sports leagues in the late 20th and 21st century.

The National Leagues attempt at survival with the Reserve Clause suddenly turned into a

vendetta against other clubs and professional leagues along with players in their own league.

This became the first real public exposure of the corruption that existed in the League at the

ownership level and further tied the hands of current and future players. Although the Federal

League was certainly reputable and comparable in competition, professional baseball players

didnt want to risk permanent banishment from the N.L., which was still the highest level of play.

Because of this, many of the marginal non-star players were held back from taking the best

opportunities for themselves and their family in the fear they would be jobless if jumping leagues

didnt work out. According to Associate Supreme Court Justice Samuel Alito, Players who did

defect risked blacklisting; those willing to take that risk were generally in the twilights of their

careers, with little to lose. As a result, the Federal League was forced to pay steep salaries to

secure mostly aging talent. Coupled with the leagues heavy capital expenditures (in only a

couple of years, it erected eight new stadiums), the salary wars put the Federal League in the

hole. Effectively, this ruling facilitated the demise of the Federal League, of which crumbled

shortly thereafter (SABR).

Along with the disbanding of the league, this ruling brought into question the dignity of

the Courts and its motives in decision-making. Both presiding judges in the initial and appeal
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cases, Illinois District Judge Kenesaw Mountain Landis and Supreme Court Justice Wendell

Holmes, were accused of siding with the MLB as fans, rather than ruling fairly on the antitrust

issue. Landis, who would go on to become the MLBs commissioner, was known as a trust-

buster in the local Illinois courts, yet clearly allowed himself to be swayed based on personal

desires. During the trial, he was quoted in saying, any blows at . . . baseball would be regarded

by this court as a blow to a national institution. In a similar fashion, Holmes let his personal

bias affect the decision-making process, with many detractors saying that the Courts simply

exempted baseball from the antitrust laws because it was the national pastime. (SABR) As

future cases on the subject indicate, the ruling did little to curtail this issue of monopolistic rule

among the players and other professional organizations. Instead, it served to complicate a

situation, of which the MLB and its players would continue to dispute for years to come.

Nearly thirty years later, this antitrust exemption would come to the forefront again in

another major case, this time centered around free agency in the same league and its relation to

the reserve clause. George Toolson, a AAA pitches in the New York Yankees organization,

brought his case to the Supreme Court in 1953, known as Toolson v. New York Yankees. Toolson,

who played for the powerhouse Yankees, asserted that he was talented enough to pitch in the

major leagues for almost any other organization besides New York. However, the binding

agreement in his contract outlined by the reserve clause made it so he was the sole property of

the Yankees and couldnt negotiate with other franchises. Toolsons argument in this case cited

the reserve clause as a restriction on trade, adding that baseballs growth surely made it interstate

commerce by this time, meaning it no longer warranted the antitrust exemption.

Despite Toolsons assertion and backing from the public, the Supreme Court shockingly

held up Holmes previous decision. In direct ignorance of other antitrust rulings which had
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rendered Holmes decision obsolete, the Courts wrote, Congress has had the ruling under

consideration, but has not seen fit to bring such business under these laws by legislation having

prospective effect. The business has thus been left for thirty years to develop, on the

understanding that it was not subject to existing antitrust legislation. The present cases ask us to

overrule the prior decision and, with retrospective effect, hold the legislation applicable. We

think that if there are evils in this field which now warrant application to it of the antitrust laws it

should be by legislation. Without re-examination of the underlying issues, the judgments below

are affirmed on the authority of Federal Baseball Club of Baltimore v. National League of

Professional Baseball Clubs, supra, so far as that decision determines that Congress had no

intention of including the business of baseball within the scope of the federal antitrust laws.

(Marquette Sports Law Review)

In upholding the anti-trust precedent set in the Baltimore case, the courts changed their

language, further complicating the situation. Previously, the courts had ruled that Congress was

powerless to act on this matter, however this ruling asserted Congress power to regulate baseball

from the beginning, of which it could still decline to use (New York Times). Clearly, litigation

had once again done little to solve this dispute and once again held up the standard that players

were at the mercy of their clubs and the reserve clause.

To the players credit, they continued to stay persistent in their quest to rid the MLB of

this imbalance. The next case to bring this issue to center stage came in 1972, in the form of

Flood v. Kuhn. Former MLB outfielder, Curt Flood, had played for the St. Louis Cardinals for

twelve years of his career, but then was traded to the Philadelphia Phillies in a shocking move.

Never consulted about this trade, an outraged Flood took the case to court, citing that he should

be released into free agency to explore the market and other teams he was interested in. Flood
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alleged that the MLB was guilty of, violations of the federal antitrust laws, civil rights laws,

state statutes, the common law, and the imposition of a form of peonage and involuntary

servitude in violation of the Thirteenth Amendment and several federal laws (Oyez).

Unfortunately, for Flood, the introduction of the Major League Baseball Players

Association in 1966 complicated the courts interpretation in this case. As the agreed-upon

collective bargaining entity for the players, team owners stated that the MLBPA had signed the

CBA, which included the reserve clause. Because of their fear of losing the advantageous

antitrust exemption, owners turned the issue to the National Labor Relations Board citing a

discrepancy between the MLBPA and Flood. However, the following response from Flood

proved that the players were strong-armed into another contractual agreement. The baseball

owners assumed that the players had agreed to accept the reserve clause when, in effect, it was

thrust upon them by the owners. Moreover, it was pointed out that there had been insufficient

time for the recently-created players' union to consider whether the reserve system should be

eliminated, modified or retained unchanged. (Martin 569)

Fearful of what was to come down from the courts, owners offered Flood a significant

contract raise to $100,000 in the hopes of dissipating the situation. Even with this enticing offer,

Flood sought to continue to case to its completion as a champion of former, current and future

MLB players. The final verdict had mixed results for Flood, but was surely a sign of progress

for the MLBPA and the professional sports landscape. The decision went as follows:

The Court realistically disagrees with Justice Holmes' 1922 pronouncement by

admitting that professional baseball is indeed a business engaged in interstate commerce.

Moreover, it is recognized that exempting baseball's reserve clause from antitrust regulation is an

aberration because other professional sports operating interstate are regulated. It is an aberration
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that has been with us now for half a century, one heretofore deemed fully entitled to the benefit

of stare decisis, and one that has survived the Court's expanding concept of interstate commerce.

It rests on a recognition and an acceptance of baseball's unique characteristics and needs.''

(Martin 569)

On the positive side, the courts finally acknowledged that Holmes decision regarding

baseballs nature as non-interstate commerce was incorrect. However, baseball still received the

special treatment in this decision that had plagued the players since the Baltimore case. History

was once again cited as the reasoning for this, showing complete ignorance for what had been

established as the legal standard for the NFL, NBA and NHL.

Flood v. Kuhn is another example of the lack of respect which ownership had for its

players, even those like Flood who had put in extensive time in the organization. Flood, a

twelve-year veteran and three-time all-star, has a legitimate claim to a violation of his rights as a

human and his dignity, being traded without cause or consultation. Despite the business side of

contract negotiation, the Cardinals clearly took advantage of the reserve clause in their dealings

with Flood. Furthermore, Flood couldnt even rely on the Supreme Court to come to his

assistance, as tradition got in the way of logic for both entities. Still, Flood v. Kuhn paved the

way for the changes which would come a short time later.

Andy Messersmith of the Los Angeles Dodgers and Dave McNally of the Montreal

Expos challenge of the reserve clause in 1975 proved to be the case to change the landscape of

MLB contracts. Both players contracts were renewed by their teams due to the reserve clause

between the 74 and 75 seasons, even though they were technically in an option year. Owners

cited the reserve clause as the reason for this while the players insisted they should be able to
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freely move across franchises. After filing grievances, arbitration was necessary to review the

reserve system and decide whether the automatic renewal was mutual.

Faced with this daunting case, arbitrator Peter Seitz etched his name in MLB lore,

determining that the contract had not expressly stated that renewal was perpetual, as had always

been assumed. Instead, it was decided that players would be permitted to negotiate with other

clubs after one renewal of their initial contract. The Seitz Decision, as it has been tabbed,

created the first modern version of free agency in the MLB. Furious with what had come down

from Seitz, owners quickly tried to counter this verdict as they knew free agency meant more pay

and competition for players and less in their own pockets. Despite a challenge in the Kansas

City Royals Baseball Corp. v. Major League Baseball Players Association case, the judge upheld

the Seitz Decision, cementing free agency in the MLB. This decision allowed the MLBPA to

negotiate a more balanced CBA in 1976, which opened the doors for player mobility, free agency

and salary arbitration (SABR). In 1977, the average player salary rose from $51,501 to $76,349

during the first year of the new reserve system (Spellman, Hill).

Like Messersmith and McNally, Toolson and Flood would eventually get some justice on

their part, too, as the Curt Flood Act of 1998 reversed Toolson and Floods decision, finally

giving some relief to MLB players from the leagues antitrust exemption (Texas Review of

Entertainment and Sport Law). Still, issues exist with baseballs service time rules in the present

day. Marquee young players such as Bryce Harper, Jose Fernandez, and Kris Bryant have all

been required to serve time in the minor leagues with their respective organizations to delay their

eventual free agency. Essentially, there is a loophole in their contracts, which allows their team to

have rights over them and extend their deals if they play a minimum number of games in the

minors for a given season (USA Today). Going forward, it will be interesting to track this
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modern point of contention to see if it goes on a similar path as the reserve clause. The MLB

continues to grow in popularity and revenue and has increased its focus on player well-being, but

will surely face challenges with their own players union and contract negotiations in the future.
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Bibliography

Roger I. Abrams, Before the Flood: The History of Baseball's Antitrust Exemption, 9 Marq.
SportsL. J. 307 (1999)

Roger I. Abrams, Blackmuns List, 6 Va. Sports & Ent. L. J., 181, 183 (20067); see also
Roger I. Abrams, Legal Bases: Baseball and the Law, 60 (1998).

Abrams, Roger. SABR. Arbitrator Seitz Sets the Players Free. http://sabr.org/research/arbitrator-
seitz-sets-players-free

Alito, Samuel (n.d.). The Origin of the Baseball Antitrust Exemption SABR. Retrieved April 25,
2017.

Banner, S. (2013). The Baseball Trust: A History of Baseball's Antitrust Exemption. Oxford, NY:
Oxford University Press.

Baseball Reference. www.baseball-reference.com/bullpen/Reserve_clause

Brown, Maury (2016). MLB Sees Record Revenues Approaching $10 Billion for 2016. Forbes.
www.forbes.com/sites/maurybrown/2016/12/05/mlb-sees-record-revenues-approaching-10-
billion-for-2016/#24b423ac7088

Cornell Law. Toolson v. New York Yankees. U.S. Supreme Court.

https://www.law.cornell.edu/supremecourt/text/346/356

Hill, J. R., & Spellman, W. (1983). Professional Baseball: The Reserve Clause and Salary
Structure. Industrial Relations, 22(1), 1-19.

Justia. Federal Baseball Club of Baltimore vs. National League, no. 204.
supreme.justia.com/cases/federal/us/259/200/case.html

Liptak, Adam. "The Supreme Court, Throwing Curveballs." The New York Times. The New York
Times, 28 Mar. 2013. Web. 25 Apr. 2017.

Linfo. Sherman Antitrust Act. www.linfo.org/sherman.html

Martin, P. L. (1972). The Labor Controversy in Professional Baseball: The Flood Case. Labor
Law Journal, 23(9), 567-571.

Oyez. Flood v. Kuhn. March 20, 1972. www.oyez.org/cases/1971/71-32

Sherman Anti-Trust Act of 1890. (2009). Sherman Anti-Trust Act of 1890, 1.

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Texas Review of Entertainment & Sports Law. Volume 15, Number 1, Fall 2013.
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USA Today. http://ftw.usatoday.com/2015/03/chicago-cubs-kris-bryant-minor-leagues-opening-

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