MLB's Territorial TV Rights Challenged
Sponsored by Snyder Gislason Frasier LLC
Baseball, bourbon, great legal minds and the end of TV blackout rules as we know them. If that sounds like a pretty good night, well, you missed it. I however, did not. So, let's recap....
The partners of Snyder Gislason Frasier (a.k.a. The Law Geeks) - Chad Snyder, Adam Gislason and Mike Frasier - invited me out to share the finer things in life and parse through the broader implications of two class-action lawsuits. The suits were brought by fans against Major League Baseball,[PRBREAK][/PRBREAK] the NHL, Comcast and DirectTV -- Garber et al v. Office of the Commissioner of Major League Baseball and Laumann et al v. National Hockey League -- which were consolidated in 2012. The plaintiffs (fans) claim that sports franchises, that should be in competition, conspire to establish territorial TV rights with television distributors. As a result, they can charge enormous fees for people who want to watch out-of-market games.
There is no debate about whether this really happens - even MLB admits it - although the distributors claim to be bystanders in this process. In fact, this has been a topic on Twins Daily forums. For instance, Cedar Rapids is about a four-hour drive from Target Field AND the home of the Twins Low-A minor league club, the Cedar Rapids Kernels. But local residents there can't get Fox Sports North on cable so they are not able to watch Twins games that way. They are ALSO officially within the blackout area of MLB.TV, so they can't get those games as an out-of-market option either. The Kernels can't tune into a Twins game, either as in in-market or out-of-market option, in their clubhouse.
(But it actually gets more ridiculous for Minnesota's southern neighbors. MLB.TV considers the entire state of Iowa to be "in-market" for SIX major league teams: the Twins, Brewers, Cubs, White Sox, Royals and Cardinals. Iowa residents are at the mercy of the few cable stations that want to extend that far.)
But just because it's true, doesn't mean it's legal or illegal.
Although the fans’ case against MLB is a unique one, in the past, MLB has killed suits brought against it before they got off the ground using a unique defense – the “baseball antitrust exemption” i.e., unlike most other businesses, federal and state antitrust laws don't apply to them. You may have heard that baseball is a legal monopoly, but that isn't entirely true. The truth is considerably more gray. In the 1920s, the Supreme Court ruled that MLB games were not subject to federal antitrust laws. This ruling was later affirmed in the 1950’s by the Supreme Court, which, to use a football term, punted the question to Congress. Since then, including the Flood case, courts have not shown a willingness to expand on that ruling. And both the NHL and NFL have been shot down when trying to get the Supreme Court to apply the same broad antitrust exemptions applied to them.
It looks like MLB didn't want to risk something similar befalling its exemption, because it didn't hide behind that standard defense when the suit was filed in 2012. That may have been because its lawyers aren't sure the courts, including the Supreme Court if it gets that far, will follow the prior Supreme Court decisions this time around the bases. "There are indications that the Supreme Court, as it's currently comprised, might not feel restricted by previous rulings," says Chad. Choosing not to claim antitrust exemption backfired, as it meant the suit was not dismissed and instead has been involved in two years of discovery. Recently, though, MLB claimed that the antitrust exemption "includes its territorial league structure and live video rules."
That opens the door for a much higher stakes game, one that could even include a trip back to the Supreme Court. Not that TV rights aren't high stakes all by themselves; between how local television contracts have recently changed the landscape of team revenues AND the rise in profits and valuation of MLB Advanced Media, this suit could radically change a multi-billion dollar revenue stream.
However, its effect could go even beyond that if MLB's nebulous antitrust exemption is further defined. One of the last times any official ruling was made on baseball's antitrust exemption, it led to the federal Curt Flood Act of 1998, which helped solidify free agency. The Curt Flood Act changed baseball's business forever, limited MLB's antitrust reach, but also recognized that there was at least some antitrust considerations upon which to reflect. If both sides get to the point where a ruling on the antitrust designation of MLB is challenged, far more than just TV revenues is jeopardized.
This is unlikely to happen. "Given what is at stake for both sides, the current class actions will likely end in a settlement," suggested Adam, a common conclusion for these types of suits. "But a settlement will likely include changing how the industry currently works," added Mike.
Just what those changes could look like is anyone's guess. Baseball fans in several regions have been victimized by the momentum of the current system. It's likely time for an overhaul. Perhaps this suit will encourage baseball to face the challenge head on.
Snyder Gislason Frasier LLC is a Minneapolis-based law firm committed to providing personalized service to their clients while cheering for the Minnesota Twins. Their talented lawyers can help you find innovative solutions to legal issues in many areas, including general business law, litigation, contracts, family law, employment law, and entertainment law.