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MLB Blackout Policy Under Attack In The Courts

Posted By Wendy Thurm On January 22, 2013 @ 12:00 pm In Daily Graphings | 150 Comments

It won’t be long before the e-mails start arriving in your inbox. “Don’t miss any of the action! Watch all* out-of-market regular season games on MLB.tv. Purchase the entire 2013 season now and save!” And there will be glossy pamphlets from your cable or satellite provider: “Act now to add MLB Extra Innings to your viewing package.  Watch every* out-of-market MLB game from the comfort of your home.”

The asterisks are necessary because neither MLB.tv nor MLB Extra Innings provides access to every out-of-market regular season game to every purchaser of their product. For one, the games broadcast exclusively on national TV — FOX’s Saturday Game of the Week and ESPN’s Sunday Night Baseball — are excluded. Under the current MLB-FOX agreement, which will expire at the end of the 2013 season, only FOX may broadcast MLB games during a certain time period on Saturdays. That leaves many teams with the decision to either schedule Saturday games in the evening, outside the FOX window or have some Saturday home games not broadcast locally. And it leaves fans shut out from every game played on a Saturday afternoon, other than the one FOX broadcasts in their area.

There are other restrictions on the MLB Extra Innings and MLB.tv packages, particularly for fans who live in areas without an Major League Baseball team but within the broadcast territory of several teams. Iowa, for example, doesn’t have its own MLB team but is within the broadcast territory for the Cubs, Brewers, Royals, Twins, Cardinals, White Sox. That means fans in Iowa can’t watch those six teams on MLB.tv or Extra Innings because those games are considered “in-market” in Iowa. You can see the MLB broadcast territories on this map:

MLBBlackoutMap

Of course, without MLB.tv or MLB Extra Innings, fans don’t have access to any out-of-market games, other than those broadcast on FOX, ESPN and TBS. Taken together, the broadcast territories and the in-market and the out-of-market restrictions, are referred to as MLB’s Blackout Policy.

Last year, several baseball fans sued MLB, MLB Advanced Media, Comcast and several of its regional sports networks (RSNs), and DirecTV and several of its RSNs, claiming that the Blackout Policy violates federal antitrust law. The plaintiffs allege two types of antitrust violations. First, that MLB’s division of the United States into exclusive broadcast markets reduces competition because RSNs need not compete with each other to broadcast games in their local markets. And second, 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. The lawsuit contends that absent these restraints, RSNs would compete with each other to broadcast “out-of-market” games in other parts of the country, making games more accessible and more affordable.

At first blush you might think, “How can a lawsuit like this succeed? MLB has an antitrust exemption.” To an extent, it does. But that exemption is court-created and it dates to the early 20th Century and has origins in the reserve clause. MLB has been careful in recent years not to exert the exemption to justify collective decision-making, for fear Congress would overturn the courts and eliminate the exemption completely.

MLB did try to have the case tossed out soon after it was filed. But the presiding judge — U.S. District Judge Shira Scheindlin in New York — rejected those arguments and found the plaintiffs had stated plausible antitrust claims. You can read a copy of the court’s decision here.

At the heart of the plaintiffs’ lawsuit is the U.S. Supreme Court’s 2010 decision in a case called American Needle, Inc. v. National Football LeagueIn that case, an apparel company sued the NFL and its marketing arm, NFL Properties, claiming that NFLP violated antitrust law by granting Reebok an exclusive license to manufacture clothing and other merchandise for all 32 NFL teams. The lower courts had ruled that NFLP was a single entity making a league-wide business decision, and not 32 teams joining together to exclude other apparel companies from the market.

But the Supreme Court rejected that view. Instead, the high court said, that each NFL team is a “substantial, independently-owned and independently-managed business” and that NFL teams “compete with one another, not only on the playing field, but to attract fans, for gate receipts and for contracts with managerial and playing personnel.” Based on those facts, the court ruled the decision by NFL teams to license their individually owned trademarks in a collective fashion and only by one vendor “deprives the marketplace” of individualized decision-making. American Needle is nearing trial in the federal district court in Chicago.

In the antitrust action against MLB, the case will now proceed to the “discovery phase” when the plaintiffs and defendants exchange documents and question witnesses under oath. MLB will likely have to produce to the plaintiffs documents about the creation and maintenance of the broadcast territories;  MLB’s contracts with FOX, ESPN and TBS; and financial and business information about MLB.tv, to name a few. And MLB and RSN witnesses will have to testify on these and related topics. In these sorts of cases, documents and testimony are typically provided subject to a confidentiality order, such that they can’t be shared with the public. But if the case proceeds to trial, at least some of this information will become public. The court set an Oct. 15 deadline for the parties to complete discovery.

At this stage — and without access to the documents and information the parties will exchange in the next several months — it’s difficult to handicap the outcomes. We do know that, unless the parties settle the dispute, the litigation will be expensive and the ultimate resolution will take years.

In the meantime, MLB teams with expiring local TV contracts continue to make deals worth hundreds of millions — if not billions — of dollars based on the existing broadcast territory system. If the RSNs are smart, they’ve anticipated the possibility that MLB’s blackout policy will be found illegal by a court, and included language in the contracts giving them an out under such circumstances. And you can be sure teams will fight hard to keep their lucrative deals, particularly since they’ve signed expensive long-term player contracts.

For now, the MLB broadcast territories remain in place. MLB’s new national TV contracts with FOX, ESPN and TBS go into effect in 2014, and FOX has agreed to eliminate out-of-market blackouts for it’s Saturday Game of the Week. So starting in 2014, an Extra Innings or MLB.tv subscriber will be able to watch any FOX Saturday broadcast not being shown in her regional market that day. But all other blackouts will remain in effect.

That is, unless the courts say otherwise.


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