Major League Baseball's exemption from federal antitrust law may not be secure as we thought.


A federal appeals court in California ruled two weeks ago that MLB's antitrust exemption was alive and well, and broad enough to protect the league from charges by San Jose, Calif., that it violated federal antitrust law by refusing to allow the Oakland A's to move to San Jose.

But across the country, a federal appeals court in New York has left in place a district court decision rejecting MLB's antitrust exemption in a case challenging the way MLB divvies up the U.S. into broadcast territories for each team. MLB, MLB Advanced Media (which owns and operates MLB.tv and the Extra Innings package), cable and satellite operators like Comcast and DirecTV, and several regional sports networks are facing trial in a class action lawsuit brought by fans seeking to upend the high prices and blackouts brought on by the broadcast territory scheme. This decision allows that case to go forward.


The problems with MLB's blackout policy stem from the ways in which it interacts with broadcast and cable providers. The bulk of each team's games are shown on regional sports networks available only through a cable or satellite provider. Just a few games are shown nationally on FOX, TBS, ESPN, and MLB Network, and most of those games are available only with cable or satellite service. At the same time, MLB blacks out in-market games on its subscriptions services—MLB.tv and Extra Innings. That means that even if you have access to a regional sports network that shows your favorite team's games, you cannot watch those games on MLB.tv or Extra Innings if you're in the team's broadcast market.

This is what MLB's broadcast territory map looks like. Look at Iowa. It's within the broadcast territories of the Chicago Cubs, Chicago White Sox, Milwaukee Brewers, St. Louis Cardinals, Kansas City Royals, and Minnesota Twins. If you live in Iowa, you can't watch any of those teams' games on MLB.tv or Extra Innings because those services don't show games within your broadcast territory. So effectively, Iowans are blacked out of watching any of the six "local" teams that baseball's broadcast territory system is designed to make available to them.

The fans suing MLB claim that the broadcast territories reduce competition because regional sports networks don't have to compete with each other to broadcast games in their local markets. They also argue that MLB has monopoly power over the rights to broadcast out-of-market games and it uses that power to limit out-of-market viewing to either Extra Innings or to MLB.tv. Without these restraints, the lawsuit says, regional sports networks would compete with each other to broadcast "out-of-market" games in other parts of the country, making games both more accessible and more affordable.


MLB made several failed attempts to have the case thrown out before trial. The latest rejection for MLB came last week when the Second Circuit Court of Appeals in New York refused to intervene to consider whether the trial court erred last year when it ruled that MLB's federal antitrust exemption didn't apply to claims challenging the broadcast territories. The Second Circuit's order wasn't unexpected—it's quite unusual for a federal appeals court to intervene in a case until there is a full record from the trial court—but it leaves the league without one of its favorite legal shields, for now.

But there's now a direct conflict between the federal appeals court in California and the district court in New York over the viability and scope of MLB's antitrust exemption. The appeals court ruled that Congress acquiesced in a broad exemption when it passed the Curt Flood Act in 1998. That statute eliminated the exemption for antitrust claims involving the reserve clause, clearing the way for full free agency in baseball. But Congress went so far as to say that it was not altering the exemption as it relates to "league expansion, franchise location, the amateur draft, and broadcast rights." For the appeals court, that language was significant, but the district court brushed it aside. That kind of conflict could give the City of San Jose a boost when it asks the U.S. Supreme Court to take up the issue.


In the next year or so, MLB's lucrative broadcast scheme will be on trial with billions of dollars at stake, unless the league gets scared and settles, an outcome that wouldn't surprise me. A settlement would likely keep the broadcast map in place and at least mute the effect of the district court's narrow interpretation of the league's antitrust exemption. It might cost the league a bunch of money, but keep its monopoly power in place a while longer.

If that happens, subscribers to MLB.tv and Extra Innings might have a few extra dollars in their pockets, but still be blacked out from in-market games.


Sorry, baseball fans.

CORRECTION: A previous version of this story stated that Iowa residents did not have access to the regional sports networks that broadcast the six teams that share the Iowa market. At least two cable and satellite subscribers offers those networks in Iowa.


Wendy Thurm writes about sports and other things. She practiced law for 18 years but is now almost recovered. She can be found on twitter @hangingsliders.


Photo by Stephen Dunn/Getty