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Would Mark Cuban Challenge Baseball’s Antitrust Exemption?

posted by Shawn, on August 5th, 2008 at 09:41 pm, in category Uncategorized

Image via WikipediaI personally find this Mark Cuban situation fascinating. Here’s a guy who has been extraordinarily successful in a number of businesses (including as the owner of a professional sports team), and he is presumably the highest bidder for the Cubs. Yet despite all of that, there’s a pretty good chance he won’t be approved by the other 29 owners.

Now, that dynamic is interesting enough by itself. But here’s where I think it could get really interesting: if the Tribune Company does in fact choose Cuban’s bid, and Cuban fails to get the 23 votes needed for approval, will he be willing to challenge MLB’s antitrust exemption in the courts?

A lot of this will probably depend on how much he really values the asset. The exemption is the result of a Supreme Court ruling, and has been held up by that court twice since. Needless to say, it would be a terribly expensive battle, although I think Cuban would stand a very good chance at winning.

But then there’s the other side. The last thing Major League Baseball wants is for that exemption to come under judicial scrutiny. Could the threat of this be enough for them to approve Cuban as a member of their fraternity, even if many of them would be uncomfortable with it?

It’s a bit ridiculous that this discussion could even come up. Cuban may seem like a publicity whore, but he’s created that image in a way that’s made himself and his companies boatloads of money. He is a master evangelist and a new-media-billionaire, both of which make him a very enticing owner of a major entertainment brand like the Cubs.

The question is, will the other owners let their egos get in the way of common sense? It should be very interesting.

Feedback? Write a comment, or e-mail the author at shawn(AT)squawkingbaseball.com

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on August 6th at 09:26 am
Lou said:

It is a very interesting question, however, one clarification/question for you… I was under the impression (though I can’t find proof now) that the Supreme Court has only officially sanctioned the ATI of MLB when it comes to labor issues. Immunity on other issues like sales and relocations has never been tested in the court. I believe this is why we have the Tampa Bay Rays today… Florida was prepared to test the ATI after the San Fran Giants fiasco, and MLB caved rather than risk losing the ATI. If so (and again I am doing this from memory), it adds another wrinkle.
on August 6th at 10:13 am
Rodney Fort said:

To my understanding, the ATE coverage for labor contracts is dead with the passage of the Curt Flood Act in 1998. But there also is an additional “exemption” of sorts from the Sports Broadcasting Act 1961 (leagues can negotiate national contracts for its members).

And Lou is right that the location and number of teams hasn’t been challenged in MLB yet. But actions by other leagues about the location and number of teams has been challenged, repeatedly. I think the upshot is that, if they are careful about it (e.g., the NFL was not very careful with Al Davis, resulting in the famous Raiders Case), leagues still have complete control over the number and location of teams.

For the explicit question of owner approval, anybody can sue for anything, but I don’t see where the antitrust standing would come from in the case described in the blog posting. Where is the restraint of trade? Where is the harm to consumers in terms of price or access to sports?
on August 6th at 10:42 am
squawkingbaseball said:

Rod -

Wouldn’t this be comparable to the Davis case, from Zell’s standpoint, in that the league is telling him what to do with his asset (in this case, who he can or cannot sell to)?

As far as the Supreme Court, the initial ruling wasn’t a labor issue. The subsequent two (Toolson and Flood) were labor issues, but both times the court said it was Congress’s responsibility to overturn the ATE. So there’s that precedent, but I’m sure baseball never wants to see it challenged again, given that the other major sports leagues have lost antitrust cases (i.e. Davis).
on August 6th at 12:30 pm
Sweet Lou said:

Another question is - “Would the loss of the ATE lower the value of the franchise?” In other words, would Cuban have to diminish the value of the team in order to actually buy it?
on August 6th at 12:40 pm
Matt said:

Overturning the anti-trust exemption could also jeopardize the value of his NBA franchise, so it’s an expensive battle to fight and an expensive victory if he wins.
on August 6th at 07:19 pm
David said:

Cuban’s initial bid was reportedly $1.3 billion while the others have advanced were over $1 billion, but barely so. Basically, Cuban has bid about $300 million more than the other bidders. There is no way MLB owners decline Cuban’s ability to own the Cubs if his final offer that far exceeds the others. We’re talking about 29 owners who are seeing their franchise’s value increase and increase. It is in their best interest to take the highest bidder. If offers are comparable, maybe he doesn’t get approved, but I doubt the offers are comparable and no rational businessman is going to turn down the chance to see their franchise’s value tremendously increase.

A year and a half ago everybody said there was no way. 6 months ago he was still a longshot. Now he’s the leading candidate. Mark Cuban gets what he wants. He’ll be approved. And quickly. MLB owners aren’t going to walk away from the chance to increase their franchise’s value.
on August 7th at 12:24 pm
Andrew said:

I like your optimism David but I don’t think it will be that easy. There are certainly some owners in baseball, Ted Lerner for example, who really don’t want Cuban in baseball. They are old school and Cuban represents everything that is new. Of course, every indicator is that Cuban will be great baseball and raise the value and the ratings. However, I don’t share your optimism sadly.

I do think that is something that the fans can do. I started a campaign to urge the owners to accept Cuban into their exclusive club. We are raising money for the Jackie Robinson Foundation and if Cuban gets owner approval and he becomes the Cubs owner then everything we raised will be sent to the charity. However, if Selig or the owners don’t let him become the owner then that money is never sent. Hopefully, the fans can make a difference and this is our opportunity. Check it out here: http://www.thepoint.com/campaigns/bring-cuban-to-the-cubs . All we need now is to get the word out.
on August 8th at 11:14 am
Rodney Fort said:

Hi Squawking.

No, this would not be like the Raiders Case. There, it could be argued that there was an impact on fans (arguably, of course, that fan value was higher in Oakland than in LA) and that the behavior of the NFL was arbitrary and capricious (and beyond their bylaws). To my understanding, the antitrust laws are not about the value of franchises. They are about consumer protection and anybody suing must show harm to consumers.

In the Zell case, there is no harm to fans if MLB allows one owner over another; the Cubs will be in Chicago. Further, it is in their bylaws and their past behavior that many criteria matter for any given owner group, not just the highest bid.

Antitrust is not as easy to fling around as many think.