August 09, 2014 9:04am PT by Eriq Gardner
Judge Rules MLB's Antitrust Exemption Doesn't Apply to Television Broadcast Rights
Friday was a momentous day in the world of sports broadcasting. What got most of the headlines was a California federal judge's landmark ruling holding that the NCAA violated antitrust law by restraining athletes from licensing their names and images in TV game telecasts. Over in New York, another federal judge weighing an antitrust lawsuit involving broadcasting in professional sports issued a decision that could have huge consequences.
The dispute involves fans of Major League Baseball and the National Hockey League who contend that they are forced to pay high out-of-market package fees to watch their favored teams and that leagues' teams are an "illegal cartel" that make "agreements to eliminate competition in the distribution of games over the Internet and television." The lawsuit looks at how clubs contract with regional sports networks (RSNs), who then provide telecasts to the league free of charge for out-of-market packages with in-market online territorial restrictions.
On Friday, U.S. District Judge Shira Scheindlin rejected summary judgment motions brought by MLB, NHL, Comcast and DirecTV. And in the process, the judge decided that MLB's nearly century-old 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 — namely, baseball’s contracts for television broadcasting rights."
The antitrust exemption dates back to a 1922 Supreme Court ruling, Federal Baseball Club of Baltimore v. National League, that dealt with a former competitor to the American and National Leagues. The high court's opinion held that baseball was "purely state affairs" and not interstate commerce, even if players traveled, which was "not the essential thing." The Supreme Court got more opportunities to address the antitrust exemption in 1953, Toolson v. New York Yankees, and 1972, Flood v. Kuhn, which dealt with the restriction on player movement and compensation.
Since then, there's been debate about the scope of the exemption — whether it covers labor matters or more — and faced with a challenge to its television territory rights system, MLB invoked the antitrust exemption to bar the plaintiffs' claims.
In Judge Scheindlin's opinion issued on Friday (read here), she rejects MLB's arguments.
She then moves onto an analysis of whether territorial divisions of markets in the broadcasting of baseball and hockey games can rise to antitrust violations, and she applies the rule of reason as the appropriate standard.
"Plaintiffs have carried their initial burden of showing an actual impact on competition," she writes. "The clubs in each League have entered an express agreement to limit competition between the clubs — and their broadcaster affiliates — based on geographic territories. There is also evidence of a negative impact on the output, price and perhaps even quality of sports programming."
The defendants highlighted "procompetitive effects" of the territorial broadcast restrictions. The judge says that the argument that clubs would “free ride” on the popularity and publicity of the leagues if they were permitted to license their games nationally is "unclear and unpersuasive." The judge says leagues can't evade antitrust law by arguing they have an unassailable right to prevent the clubs from competing with the “joint venture.”
The judge also isn't yet swayed by arguments that the restrictions encourage RSNs to invest in higher-quality telecasts or that the restrictions foster competitive balance between the teams. "It is not immediately clear whether the restrictions help or harm competitive balance overall," she writes.
The leagues and the broadcasters believe that the system guarantees that games are available to customers in at least some format and that national broadcasters would refuse to enter into contracts without the assurance of exclusivity.
"These arguments are far from compelling," the judge responds. "Just because plaintiffs do not directly challenge the legality of the [Out of Market] packages and national broadcasts does not mean that preserving them is sufficient justification for the territorial rules. Even the complete disappearance of OOM packages would not necessarily cause consumer harm if the same content could be distributed in another form (such as by RSNs nationwide) … Moreover, it is certainly conceivable that the OOMs would continue to exist absent the territorial restrictions …"
The judge says that the fans who are challenging the system have raised a "genuine issue of material fact regarding the overall competitive impact of the territorial rules," which could pave the way to a trial with a verdict that might change the game of blackouts, fees and how the telecasts are distributed at large.