Antitrust Challenge to TV Sports Deals Allowed to Move Forward

Major League Baseball MLB Logo - H 2012

Major League Baseball MLB Logo - H 2012

A class-action lawsuit challenging the way Major League Baseball and the National Hockey League have carved up TV rights became a much bigger deal Wednesday after a New York federal judge refused to dismiss the antitrust allegations.

In May, several baseball fans filed a lawsuit against the leagues, as well as certain broadcast partners including Comcast and DirecTV, alleging the defendants were conspiring to make consumers pay a lot for "out of market" games and blacking out "in market" telecasts on MLB's digital service.

In reaction to the lawsuit, the leagues offered several reasons why the claims should fail. Among their arguments for dismissal was that the activities are the "very core of what professional sports league ventures do -- sell their jointly created product" to broadcasters.

The state of the multibillion-dollar sports TV industry is widely regarded as a given, but U.S. District Court Judge Shira Scheindlin's 53-page decision could rattle this belief to the core.

"The notion that 'the exhibition of league games on television and the Internet' is clearly a 'league issue' is contrary to longstanding precedent that agreements limiting the telecasting of professional sports games are subject to antitrust scrutiny, and analyzed under the rule of reason," the judge wrote. "Even if certain agreements by sports leagues with respect to telecasting games may be 'essential if the product [is] to be available at all,' this does not give league agreements regarding television rights blanket immunity from antitrust scrutiny."

The named plaintiffs in this case are cable and satellite TV customers who have been forced to pay out-of-market package fees to see their favorite teams. MLB reportedly makes $620 million per year from its digital division that streams games via MLB.TV and additional money from "Extra Innings" subscription package on cable and satellite services, but the plaintiffs say the fees are too high.

These fans allege that league activity on the TV and Internet front had "adversely affected and substantially lessened competition" by reducing output of live MLB and NHL game presentations, raising prices, and rendering output "unresponsive to consumer preference to view live [MLB and NHL] games, including local games, through both Internet and television media."

STORY: Meet the Baseball Fans Suing to Change the Business of Televising Games

In response, the leagues argued for dismissal on six grounds: that the plaintiffs hadn't sufficiently alleged harm to competition, that they lacked standing, that the allegations against Comcast and DirecTV only related to their vertical distribution of games, that the alleged activities were "lawful on their face," that the plaintiffs had failed to define the relevant market and that the plaintiffs had failed to allege necessary elements of a monopolization claim.

For the most part, Scheindlin rejected the defendants' reasoning. She dismissed two of the named plaintiffs from the class action as lacking standing and only will allow the plaintiffs to pursue certain antitrust allegations against the cable and satellite defendants, but otherwise she saw enough in an amended complaint to allow the case to go forward.

The judge referred to an important U.S. Supreme Court ruling in 2010 -- American Needle, which dealt with the NFL's merchandising deals -- as establishing that when teams compete against each other in a relevant market, their concerted action as a league may "deprive the marketplace of independent centers of decisionmaking and therefore of actual or potential competition."

According to the Wednesday ruling:

"The fact that the NHL and MLB are lawful joint ventures does not preclude plaintiffs from challenging the leagues' particular policies under the rule of reason. Defendants' argument that the teams cannot unlawfully conspire with respect to out-of-market games because only the leagues can own those games assumes the legality of the very agreements challenged here. There is no distinction between in-market and out-of-market games other than that the clubs have agreed to cede to the leagues the right to market the games, to which they have initial rights, outside their local territories. American Needle conclusively established that these kinds of arrangements are subject to Section 1 scrutiny."

Scheindlin added that the RSN and MVPD defendants including Comcast and DirecTV can't evade scrutiny either.

"While plaintiffs have not alleged horizontal agreements among the MVPDs, they have plausibly alleged vertical agreements that not only facilitate but are essential to the horizontal market divisions," she wrote.

And the judge believes that the plaintiffs have adequately pled allegations of how centralizing rights instead of allowing individual teams within a league to each pursue out-of-market rights deals can be harmful. Scheindlin wrote:

"Making all games available as part of a package, while it may increase output overall, does not, as a matter of law, eliminate the harm to competition wrought by preventing the individual teams from competing to sell their games outside their home territories in the first place. And plaintiffs in this case -- the consumers -- have plausibly alleged that they are the direct victims of this harm to competition."

The full decision is below.

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