Effectively Wild: A FanGraphs Baseball Podcast - Effectively Wild Episode 798: The Baseball Amicus Brief

Episode Date: January 15, 2016

Ben and Sam talk to FanGraphs legal analyst Nathaniel Grow about a number of baseball-related cases working their way through the courts.

Cause the law is for protection of the people Rules are rules and any fool can see We don't need no hairy-headed hippies Scaring decent folks like you and me No siree like you and me. No siree. Hello and welcome to episode 798 of Effectively Wild, the daily podcast from Baseball Perspectus, presented by the Play Index at BaseballReference.com. I'm Ben Lindberg of FiveThirtyEight, joined by Sam Miller of Baseball Perspectus. Hello, Sam.

Yo. We've got a guest today. He is a first-time guest on our podcast, Nathaniel Groh. He is an associate professor of legal studies at the Terry College of Business at the University of Georgia. He's also the legal analyst at Fangraphs and the author of a book, Baseball on Trial, The Origin of Baseball's Antitrust Exemption. Hey, Nathaniel. Hey, thanks for having me. The origin of baseball's antitrust exemption. Hey, Nathaniel.

Hey, thanks for having me. You're a busy man these days. You're much in demand. There's a lot of baseball legal news. On the gist, Mike Peska has a segment called Names in the News. I feel like we need a whole new segment for baseball legal cases, cases in the courts. There are some pretty momentous cases that are coming up, and we're going to ask you about a couple of them. But you recently did a year in review post at Fangrass looking at some of the ongoing cases

and then looking at more of the ongoing cases. So the most recent one that you wrote about, the Fangrass post is called The Impending Battle Over the Future of Televised Baseball. And it's a case called Garber versus the Office of the Commissioner of Baseball, which starts in New York next week. So tell us a little bit about the backstory of this case and what the stakes are. Sure. So back in 2012, a group of plaintiff's attorneys filed this lawsuit against Major League Baseball. Like two or three months beforehand, they had filed one against the NHL, which was basically the exact same case. And so they filed these same allegations against Major League Baseball. And they said MLBs violating

federal antitrust law, the Sherman Antitrust Act, primarily by assigning its teams exclusive local broadcast territories, which any baseball fan is probably pretty well familiar with, that the Boston Red Sox are not allowed to broadcast their local feed into New York City and the New York Yankees are not able to broadcast their feed on the YES Network into Chicago or Kansas City, etc. And so the plaintiffs basically argued that restraint on trade, a restriction of competition, that in a totally free market, the Yankees and the Royals and the Cubs and the Giants and all the different teams would be directly competing against one another in each

other's broadcast markets. And if that were the case, the plaintiffs say, then we'd have more baseball, it would be cheaper, and the world would be a better place. So you wrote the book or a book on the antitrust exemption. Is this one of the strongest challenges that it's had to face in recent years? Yeah, so this is probably the most important case. I'm guessing from MLB's perspective, they'd say that this is the most important case to them. Ironically here, the antitrust exemption is not really, at least for present purposes, not really in play. The judge in the case, Judge Scheinland, ruled back in 2014 that baseball's antitrust exemption didn't apply to broadcasting. And so she said that

this isn't even an issue here. Plaintiffs, you can go forward. And MLB contests that, but for the time being, there's not a lot they can do about it. So is there reason to think that the Yankees want to broadcast their games in Pittsburgh? It's a good question. You know, my intuition is probably in a perfect world, they'd say, sure, because we can make more money that way, right? You know, it's not even just so much even about broadcasting locally in Pittsburgh. It might even be you could have in a different world, if the plaintiffs win here, you could have the Yankees signing their own national television contract if they wanted to with ESPN or Fox or whoever, kind of like Notre Dame does in football with NBC. And so for the biggest market teams, potentially there's a lot of money to be made by being able to expand and extend their reach to new markets.

And how do TBS and WGN fit into this? They obviously back in the 90s and stuff, 80s and 90s, you saw games on those super stations. MLB has cracked down on that in recent years. And so that's probably going to be a point of contention between the parties at the trial is what impact was that? Did those super stations have on baseball when they were still broadcasting Braves and Cubs games nationally? Was that a bad thing? Was it a good thing? The parties will probably dispute that at trial. What does the NHL precedent tell us about this? If that case was settled, what were the terms of that or what was different for fans as

a result of that? So relatively little. A lot of people think that the attorneys didn't cut that or the plaintiff side attorneys didn't get that great a deal for the fans in the NHL case. Basically, the NHL agreed to offer single team packages of its NHL center ice or whatever the equivalent of MLB.TV and MLB extra innings is MLB has now announced that it's going to do the same thing, undoubtedly motivated by this suit. But in terms of the actual blackout issues, the local broadcasting territories, the NHL got to maintain all those in their settlement. So in the grand scheme of things, they got a pretty favorable deal. And it would be really interesting to know if MLB would cut a simpler deal or if they're just digging in their heels and don't want to negotiate at all,

or what's going on there. Is there any slice of America that doesn't currently have broadcast rights limited, you know, territorial restrictions on it where it's just like any, if, if you wanted to, you know, the Tigers could broadcast games in Arkansas or the Yankees could broadcast games in South Dakota. Is there any part of it that hasn't been restricted? That's a good question. The map that I always see is mainly of the lower 48, and that's entirely covered.

So basically everybody in the country is divvied up amongst MLB teams in the lower 48. I know Hawaii is too. The one thing I'm not sure about is Alaska, to the extent that matters to anybody in the listening audience. I'm not sure what the status of Alaska is. Yeah, I'm curious. I mean, I'm really...

This is sort of kind of embarrassingly maybe to say this, but these details are all totally new to me. And so when I hear there's a lawsuit about baseballs broadcast restrictions, I thought this all had to do with like blackouts and MLB.com. And I didn't realize that I could be getting Royals games on channel six, if the Royals were free to do that right now. And so I have a lot of questions that are just sort of very basic and along those lines. So I'm just going to keep asking them. That's okay. And a lot of questions that are just sort of very basic and along those lines.

So I'm just going to keep asking them. Yeah. And a lot of it is, I mean, the blackouts are tied into that. The reason that we have blackouts in large part is because of the exclusive broadcasting territory. So it's really kind of a hard case to unpack. And I think even the attorneys are struggling a little bit to really clearly state it. But the biggest thing about it is it totally attacks the status quo of how sports have been broadcast for the last 50 years. We're so used to this idea that, well, the league has the national contract and the teams have their own little territories. And economists have been saying for the last couple of decades, it doesn't have to be this way. And maybe it would be better if it wasn't this way, but we're just so used to it that this is a really fundamental challenge if the plaintiffs win. So clearly the team that would

benefit the most from this seems obviously to be the Yankees. They're the one team that has a pretty good case to be made that they could be the Notre Dame or that they could have a national presence. Maybe the Dodgers could certainly go beyond their territory, but there's a couple of teams where this matters. It doesn't matter for the Pirates, except for in protecting their own territorial rights so that the Yankees can't infringe on them. So do you have any sense of, I mean, clearly Major League Baseball is fighting against this suit. Do you get the feeling or do you have any indication of whether the Yankees and or maybe a couple of other teams are actually like secretly subterfuging because they want this suit to win. Yeah, it would be interesting to see what was going on behind the scenes. You know,

you may or may not remember that like back in the 90s, the Yankees filed their own lawsuit over trademark licensing and saying we want to be able to cut our own deals because we have such valuable, you know, trademarks and we don't want to be collectively doing this with MLB anymore. So there's definitely been some history more so under, you know, the George Steinbrenner of the Yankees wanting to go their own path. I don't know, they're a defendant in the case, they've hired their own attorneys in the case for the Yes Network. So there's definitely some there, they've kind of positioned themselves separate from the rest of the league a little bit. But overall, the positions that their attorneys are taking appear to be the same.

Why are they separate? So the suit technically names six or seven MLB teams. It also names DirecTV and Comcast as television providers who they say are part and parcel with this illicit, allegedly illicit scheme that MLB has created. And one of the networks they've targeted is the Yes Network. And so through that, the Yankees have retained their own council representing the Yes Network. So let's just say hypothetically that Major League Baseball lost this and the world was completely open to all teams to go wherever they want. So the Yankees immediately start broadcasting their games in South Florida. Major League Baseball, which has decided that it is in its interest for broadcast restrictions to

be in place, wants to do what it can to preserve the old status quo. So they simply pass further revenue sharing that essentially taxes teams' broadcast revenues that go outside of their territory. So you're free to do it. You're allowed to do it. But they strip the financial incentive to do it. Would that be seen as an illegal skirting of anti-monopoly law? Or does Major League Baseball, under their antitrust exemption, kind of have wide latitude to do sorts of things like that to promote their collective business model? I think it would probably, assuming that MLB is not doing something nefarious like any outside royalties taxed at 120% or something like making it super punitive, I think that that would be okay under the law. It would have to be negotiated with the players union because revenue sharing is part of the collective bargaining agreement. The plaintiffs are arguing that your hypothetical is exactly the way it should be,

that customers get the benefits of increased competition. We see the local monopolies eliminated, prices drop, our cable bills go down. And then if there's competitive balance issues, just have the Yankees share that revenue with the other teams. MLB's arguing that it's not that simple. We can't just wave a magic wand and have more revenue sharing. I mean, revenue sharing already looks like it's going to be a fairly contentious issue on the table for the 2016 CBA talks already. And if you added something like this into the mix, it could be quite difficult to strike a balance between the union, the big market teams, the small market teams, etc. So this is getting underway next week, and it's already survived attempts to dismiss it. So it seems that all parties involved are pretty serious about this. Is there any estimate of how long it

will drag on? I'm assuming that based on the fact that we're only a month or so away from teams reporting to spring training, this isn't something that's going to result in changes for 2016. But are we getting close to a resolution one way or another? Presumably, yeah. So the trials estimated to last two weeks each side has said they need about a week in court. Usually you see those estimates tend to be a little bit on the short end. So it wouldn't be surprising if it dragged into a third week. Then the question will be, when does the judge rule?

This is a judge who's known to be pretty deliberate and, you know, wanting to make sure she's got everything right and takes her time with things. So it could be you don't see a decision coming out from this until March, April, May, you know, potentially sometime into the season before we find out how she's going to rule. And then almost inevitably, either side will appeal that. And so the appellate process, you know, could take another year or two. There's always a possibility of settlement at some point if one side gets cold feet. always a possibility of settlement at some point if one side gets cold feet. So we're closing in on some resolution, at least the initial resolution, but a final resolution is probably at least another year, year and a half away. How much money is at stake here for Major League Baseball or for the teams themselves? I mean, it must be a fairly enormous sum.

Yeah, I think so. And one of the court filings, I'm trying to remember, I think MLB, I might be getting this slightly off. I believe I remember them saying that local broadcast revenue accounted for 35% of league revenues, 30 to 35%. So that part of the league revenues is pretty significant. And then once you get into national television issues as well, if this case undermines MLB's current national contracts, that could have a bigger impact there as well, too. So it's a huge revenue stream for MLB, obviously. The weird thing about it is that it seems like, now I'll contradict myself at the end of this, but it seems pretty obvious that, in fact, the plaintiff's position is the one that generates more revenue for Major League Baseball. If all 30 teams could broadcast in all 30 markets, well, obviously they

wouldn't, but that would provide more opportunities for revenue for the sport as a whole and for specific teams. The problem is that it would come at the expense of certain teams. It would have competitive balance issues. And perhaps you could argue that by taking away scarcity of the product, it would devalue the national contracts, which maybe you could argue are kind of artificially high. And so maybe it's a threat to the national contracts, but don't, am I wrong in thinking that like in a vacuum, this would, the plaintiff's position would create more revenue for the 30 teams as a collective? I think, I mean, it's hard to tell for sure, because we're dealing with like total, you know, counterfactual that nobody's

really ever dealt with before, at least in the, you know, the present modern era. I believe the economists would say that that's not quite right, though, that it actually would decrease the amount of television revenue coming in. And I think what they would say is that a large part of the reason that the Dodgers are signing a $3 billion local television deal or that these teams are striking such huge amounts locally is because each team has effectively has a monopoly over its local television market. And if there was other avenues for networks to be able to provide baseball on a local regional basis, that teams would not be seeing those sorts of huge television dollars we're seeing flow into the sport regionally. At the end of the day, yes, the Yankees make more on some local markets. Other teams make less. How does it all add up? It's hard to predict for sure, but I think that the economists would probably predict that you'll see that television revenues would drop. There's

one analogy that it's not totally apt, but back in the 80s, the NCAA and football was doing the same thing. And they had one college football package and only one network could buy. And what you saw after the Supreme Court broke that up was all the different teams and conferences started signing their own contracts. The amount of football and television went up dramatically, but the amount that was actually brought in in terms of revenue dropped by half. And I think that that's what economists would say would probably result here as well. Yeah, that makes sense. So I often hear that the TV contracts right now that we're in a TV contract bubble and that at some point it might pop. Is

this a sizable factor in people thinking this is a bubble or is it kind of more of a minor thing that it's not necessarily likely to resolve itself in a way that is so industry changing that it pops that bubble? Yeah. I mean, I think if you're betting on it, you probably bet on something. If I had to bet my life on it, I'd say that MLB probably loses at least at the district court level at somewhat, but that the judge probably hedges her bets a little bit and doesn't totally revolutionize the system, that she finds some sort of middle ground to rule here, given some of the indications she's made before. So I think when people are talking about the television sports bubble, I don't think that they're thinking about this case necessarily.

They're just thinking in general, can this model with cord cutting and everything else going on, can it continue to exist? If you add this case into the mix, that might make an even stronger argument that this bubble might be popping sometime soon. All right. So the other legal topic in baseball that is getting headlines, probably getting more headlines, although not necessarily deservedly so. But last week, we read the indictment in the Chris Correa Cardinals Astros hacking story. Correa was indicted for five charges of violation of the Computer Fraud and Abuse Act. And everyone is wondering now, speculating about what the compensation for the Astros will be, speculating about what the compensation for the Astros will be, if there will be any. And there are various proposals about draft picks or money. Is there any real way to guess? I mean, is there a way to make an educated guess about how the commissioner of the league might respond

to this? Is there any sort of precedent that helps us figure that out? So from a punitive standpoint, so there's kind of two sides to the coin, right? It's like, what's going to happen to the Cardinals? And then what, if anything, is going to happen for the Astros as a result of this, right? And from the Cardinals side, you can look at the MLB league constitution, and that limits the commissioner's power to some extent here on what he can do to the Cardinals as punishment. So in terms of fines, for instance, it caps any monetary fine at $2 million. He could argue that there's actually five incidents here. Every time that Correa hacked into the system, that that should be a separate incident. So maybe he would get that up to 10 million. I would assume some sort of fine in that

general ballpark would be forthcoming. Probably some loss of draft picks, although he might have to negotiate that out with the union a little bit too, since the drafts all collectively bargained as well. I'm thinking those are probably the most likely scenarios for the Cardinals. The big question then becomes, do some of those draft picks, if that's the route MLB takes, do some of those go to the Astros as compensation? Or is it more just about punishing the Cardinals? And how does, you know, Commissioner Manfred choose to, to handle that situation? And do you think this will change anything about the way that teams operate on the league level?

I mean, will there be some sort of standardized protection? Or, you know, will it be encoded into the rules that there will be a specific penalty for this in all future offenses or some sort of league, you know, counter cyber hacking division or department or something? Or will it just be sort of a, you know, change your password when you switch teams? Yeah, I think I saw that there was a report that MLB has been encouraging its teams to do more to protect its IP in terms of employee contracts. So, you know, there's some things they can do and non-compete agreements, non-disclosure agreements. If you leave our team to go to work for another one, you can't bring certain knowledge with you.

I think that from MLB's perspective, I don't know if they would want to have a league-wide policy in terms of data protection necessarily, because that almost gives each team a roadmap onwide policy in terms of data protection necessarily, because that almost gives each team a roadmap on how to hack into each other's systems, right? They all know what the baseline is and what everybody else is doing. In some ways, that makes it easier to get around those protections once they know for sure what everybody's doing. So I'm thinking that the league will probably want to leave it individualized and let teams establish their own firewalls. And I'm not a data person. So whatever else you do to protect that stuff on their own, I, you know, whether this makes it into the league constitution or something, like, I don't know if they'll necessarily have to have a

cyber, you know, espionage, you know, agreement, just like the domestic violence agreement or anything, but it's definitely something that's on the radar screen of teams, I'm sure. And I know that some teams have taken more steps to try to protect their data and their networks accordingly. And obviously, everyone's curious. This is going to be the first application by Manfred of this new policy. And there's no clear sense of what the penalties or suspensions will be. Do you think there is, I mean, how much of a consideration is the upcoming CBA negotiations? Is that a consideration where you wouldn't want to be too harsh because of that? Because obviously the climate is in favor of fairly harsh punishments and it doesn't look great to protest a punishment for these kinds of allegations. So do you think that the commissioner is being mindful of that? Is there a number of days that would incite the players union to protest or appeal? Yeah, good question. I'm guessing he's definitely aware of the fact that there's this collective bargaining, you know, kind of hanging over

everything. My instinct, if I was commissioner, though, is I think he wants to get it right this time in terms of however he views getting it right, because when the union and the league agreed to that new policy, they basically threw out all prior precedent in any domestic violence cases. So they basically hit reset in terms of punishment, whatever he does in these, you know, the Jose Reyes case and the Eraldo Chapman case, that's going to be the new precedent and kind of the new baseline for this. And I think he wants to make sure that he's not, he doesn't want to go easy this time and then hope to, you know, make it tougher next time around. He's got to get it right in his mind, this, this first instance, in terms of the number of games, my, my instincts probably somewhere in that 25 to 50 range. I think you got to make it more serious than, you know, some of the really

minor stuff that the league punishes people for. But I don't know if they're going to go as far as, you know, a PED violation, whether the league would protect or whether the union would protest that they'll probably put up a little bit of a fight, but I don't know if they would necessarily go to war over it. Since the unions already agreed to this new policy when they didn't even have to in the first place, it seems like it's something that the union's fairly amenable on working with the league on. And another focus of your work lately has been other suits that are related to payment of minor league players and of scouts. We discussed one of those cases in episode 590, if people want to go

back and listen to that, but things have happened since then. So what are the updates? And is there either of these a serious challenge to the antitrust exemption? Yeah, so this the minor league players case, those are there's been like three different lawsuits filed. So it's kind of it gets a little bit confusing. But the main one that people focused on is just under the federal minimum wage laws. And it's just arguing that MLB is violating, you know, the $7.25 minimum wage by only paying minor leaguers,

you know, $3,000 a year or whatever they allege in some cases. That suit is continuing to move forward. Back in October, the judge certified it as a class action, basically meaning that now the plaintiffs in that case represent all current and former minor leaguers going back to 2011. So instead of just the 50 or so who stepped forward originally, now it potentially opens up for everybody. And the parties have been working to try to identify additional players who

want to join that case. And there was a report earlier this week, if I remember right, that up to 1,100 current and former minor leaguers have now signed on to that suit. So it's definitely becoming a pretty significant case in that regard. And one that MLB is probably not quite as worried about is the television, since that's more central to the whole league model. But it's definitely one that could have a big impact on the minor league system down the road. And when you wrote about the antitrust exemption, and you kind of point out that it made some sense at the time for MLB to have that kind of policies? I mean, when did that change, assuming you think it did? Well, so I guess what I've argued is that if you look at, so there's been a series of like three

different Supreme Court decisions, right? In 1922, a long time ago, and then back in the early 50s, and then in 1972, in the Curt Flood case. And I think if you look at it, at each decision kind of in isolation, they all, they each kind of made sense. Like the court, the law that the court was applying back in 1922 is totally different than it is today. Baseball is totally different today than it was back in 1922. That all made some sense. It just results in this, you know, inconsistent, you know, kind of questionable doctrine. At the end of the day, I don't know if it makes that much of a difference in the grand scheme of things. You know, baseball, for the most part, with a few example exceptions, its operations are the same as the other leagues, right? You know, the NBA, the NHL, they all have the same broadcast territories, roughly, and

they all do the same. They all broadcast their games nationally, and they all have mostly one team in each big city. So for the most part, they're all running the same regardless of whether they're subject to antitrust law or not. So I think a lot of the exemption kind of gets overstated that people just, anything they don't like about baseball is that antitrust exemption's fault, which is probably not actually the case in a lot of times, a lot of cases. Although, as you tweeted the other day, I guess the biggest impact you wrote is the lack of franchise relocation, which has been in the news for the NFL this week and obviously has not been in the news at all in baseball. Yeah, I think that's probably the area that baseball really

values at the most, a little bit with the minor leagues and how they kind of run the minor leagues, but really that relocation of being able to, in cases involving the NFL and the NBA, the courts have said the league can't really restrain its teams too much from moving from one market to the other. Whereas in baseball, obviously very few teams have moved in the last 40 years, one in the last 40 years. I think reasonable minds could disagree. Is that a good thing? Is that a bad thing? It's a good thing if you have a city that wants to keep its team. It's a bad thing if you're a city

that wants to get a team. But I think on the whole, that that's the biggest area. And MLB would say that's actually been beneficial for fans. So again, some people might quibble with that. And you did do a two-part CBA preview some time ago at Fangraphs. Obviously, it's a long way off. Lots of things

could disrupt negotiations, shape negotiations between now and when they really start in earnest. But what was your takeaway on how contentious it's going to be? Mike, the big takeaway is probably you don't have to worry about a major labor stoppage this next offseason, or it's definitely not one that would extend into the season. At this point, there's important issues on the table, but it seems like both sides are pretty committed to maintaining their labor peace. And you could question whether that's necessarily in the best interest of the players union to be so, I don't want to say deferential, but amicable with the league. But it doesn't seem like there's enough issues on the table that are so fundamental that it's going to on the table that are so fundamental

that it's going to drive the parties to a major strike or lockout. Although things can change in the next 12 months, obviously, but I'd be pretty surprised right now if there is a big work stoppage. Well, good. We're happy to hear it. All right. Nathaniel writes regularly on Fangraphs. You can find him on Twitter at Nathaniel Grow. You could go listen to him on Fangraphs. You can find him on Twitter at Nathaniel Groh. You could go listen to him on Fangraphs Audio right now if you want to also. And you can tell us whether you enjoyed our version or Carson Sestouli's version better. Thank you, Nathaniel. I appreciate it. Thanks for having me again. Our pleasure. And I look forward to the day when some of the cases we've discussed today form the basis of Good Wife episodes that Sam and I will watch a few months from now. All right. That is it for us this week.

You can join our Facebook group at facebook.com slash groups slash effectively wild. You can rate and review and subscribe to the show on iTunes. Your reviews help us attract new listeners and convince them that we're worth listening to. You can email us directly at podcast at baseballperspectives.com and you can support our sponsor, The Play Index at baseballreference.com. Use the coupon code BP when you subscribe

to get the discounted price of $30 on a one-year subscription. Have a wonderful weekend. We'll be back next week. That's it, that's the law, that's the whole of the law.