The Impending Battle Over the Future of Televised Baseball

Next week, in a federal courtroom in New York City, the future of televised baseball will be at stake. On one side, attorneys representing baseball fans at-large will contend that MLB’s existing broadcast policies violate the Sherman Antitrust Act by illegally limiting competition and consumer choice, ultimately increasing the price we pay for televised baseball. On the other side, lawyers for Major League Baseball will seek to preserve the status quo by arguing that the league’s restrictions increase both the quantity and quality of games aired on television, to the benefit of fans.

The case — Garber v. Office of the Commissioner of Baseball — may not be the highest-profile lawsuit currently proceeding against MLB. But from the league’s perspective, it’s almost certainly the most important.

Long-time Fangraphs readers are probably already familiar with the Garber suit, as we’ve previously covered the case on a number of different occasions. By way of a brief recap, though, the lawsuit essentially alleges that MLB violates federal antitrust law by assigning its teams exclusive local broadcast territories (the same rules that also give rise to MLB’s infamous blackout policy).

Not only do the plaintiffs allege that the creation of these exclusive territories illegally prevents MLB teams from competing for television revenue in each others’ home markets, but they also contend the rules restrict teams from competing with the league itself in the national broadcast marketplace (preventing teams from signing their own national television contracts, for instance, or offering their own out-of-market pay-per-view services in competition with MLB Extra Innings and MLB.TV).

Thus, the Garber suit presents a direct challenge to MLB’s existing television business model, one that could revolutionize the way in which baseball is broadcast in the future.

The Garber case was originally filed in 2012. Since that time, the plaintiffs have survived a series of attempts by MLB to have the lawsuit thrown out of court. In 2014, for instance, presiding Judge Shira A. Scheindlin ruled that baseball’s historic antitrust exemption did not apply to the case, allowing the plaintiffs to move forward with their suit.

Then in May 2015, Judge Scheindlin certified the Garber suit as a class action, meaning that any outcome in the case will now cover all MLB fans adversely affected by MLB’s television practices, rather than only those specific individuals named as plaintiffs in the suit. At the same time, however, Judge Scheindlin ruled that the plaintiffs may only seek injunctive relief — i.e., a court order forcing MLB to change its broadcasting policies — rather than monetary damages.

That ruling set the stage for the lawsuit to go to trial this month, beginning on Tuesday Jan. 19th, proceedings that are expected to last at least two weeks.

Because only injunctive relief remains on the table in the suit, the case will be tried as a “bench trial,” meaning that the parties will present their evidence straight to Judge Scheindlin herself, without a jury present. Ultimately, Judge Scheindlin will apply antitrust law’s so-called “rule of reason” to the case, deciding whether the harms of MLB’s current broadcasting practices outweigh the benefits that have resulted from the existing system.

If Judge Scheindlin determines that the current policy is more harmful to consumers than beneficial (or, alternatively, that the benefits of the system could be better obtained via less harmful means), then she will rule that the league’s restrictions are illegal under the Sherman Act. On the other hand, should Judge Scheindlin find that the asserted benefits of MLB’s television policies outweigh their harmful effects, then the existing system would be affirmed as lawful under federal antitrust law.

During the trial, the parties will thus focus their arguments on whether MLB’s broadcasting rules have, on the whole, harmed or benefited fans. The plaintiffs, for example, will argue that MLB’s exclusive local broadcast territories have effectively given each team a monopoly over its local television market. Absent these restrictions, the plaintiffs will contend that teams would directly compete with one another by televising their games in each others’ home markets.

In other words, the plaintiffs envision a world in which the Boston Red Sox would be free to televise their games in, say, Pittsburgh, giving fans in western Pennsylvania direct access to Red Sox games on their local cable package. This could occur in one of two ways, with the Red Sox either signing a local broadcasting agreement with a Pittsburgh television station, or alternatively allowing the New England Sports Network (NESN) to directly broadcast the team’s games in Pennsylvania. Either way, the plaintiffs believe that the resulting competition would not only increase the number of games available on local television stations, but also by eliminating the existing local monopolies decrease the price that teams are able to charge for their local broadcast rights, thereby lowering all of our cable bills.

Similarly, with respect to nationwide broadcasting, the plaintiffs will contend that by eliminating the exclusive broadcast territories, individual MLB teams will be free to sign their own national television agreements — picture a Chicago Cubs deal with the NBC Sports Network, for instance — or sell their own out-of-market pay-per-view packages, competition that would once again increase the amount of baseball on television, while at the same time lowering the price we pay for it.

MLB, on the other hand, will argue that its current broadcasting practices have benefited fans in a variety of ways. The league believes that by guaranteeing its teams the exclusive rights to their home television markets, MLB’s rules have actually increased the total number of games that are broadcast, providing the necessary incentive for local stations in the league’s smallest markets to televise all of their teams’ games. At the same time, the league contends that this exclusivity has increased the quality of these broadcasts, incentivizing teams and networks to produce the highest quality telecasts possible.

Similarly, the league will argue that most individual teams would lack the financial incentive and ability to create their own Internet streaming services, meaning that centralizing the control over national broadcasting activity in MLB’s central league office was essential to supporting the creation of a streaming service like MLB.TV.

MLB can also be expected to emphasize the issue of competitive balance, contending that allowing individual teams to compete with one another in the local and national television marketplaces would drive an even greater percentage of broadcasting revenue to the largest market teams, ultimately impacting the quality of the competition on the playing field. Not only would allowing the New York Yankees to sign their own broadcasting agreements with television stations in Cincinnati or Milwaukee increase the Yankees’ team revenue, for instance, but it would also decrease the amount of local television revenue received by the Reds and Brewers, further exacerbating the existing revenue disparities between the teams.

In response, the plaintiffs will contend that eliminating exclusive broadcast territories would also give small market teams the ability to directly broadcast their games in larger, more lucrative markets, helping offset any revenue gains enjoyed by the biggest market clubs. Regardless, the plaintiffs will also argue that even if larger revenue disparities result from increased competition between large and small market teams, that problem can be better addressed through enhanced revenue sharing, thereby providing fans with the benefits of greater television competition, without sacrificing the level of competitive balance on the playing field.

Given the various economic arguments that will be asserted by the parties, the most important evidence presented during the trial will come from the economic experts that each side has retained. The highest-profile testimony, though, is likely to come from the various MLB executives currently slated to appear on the witness stand, including Commissioner Rob Manfred, former Commissioner Bud Selig, Robert Nutting (owner of the Pittsburgh Pirates), Laurence Baer (President & CEO of the San Francisco Giants), and Bob Bowman (President and CEO of MLB Advanced Media).

All in all, it’s difficult to predict who will ultimately prevail in the Garber case before all of the evidence has been presented. That having been said, the fact that Judge Scheindlin has refused to dismiss the case at several points over the past few years may suggest that she believes there is some merit in the plaintiff’s arguments. Of course, even if the judge is predisposed to favor the plaintiff’s side of the case today, that doesn’t necessarily mean that she will still feel the the same way once all of the testimony has been presented at trial.

But considering that Judge Scheindlin has appeared skeptical of most of MLB’s defenses in the past as well as the fact that the plaintiffs must merely establish that any benefits imparted by the existing rules could be obtained through less harmful means it is certainly quite possible that at least some part of MLB’s current broadcasting policies will ultimately be held unlawful. Indeed, the National Hockey League decided to settle a similar case earlier this year one filed by the same attorneys that are bringing the Garber suit rather than risk losing at trial.

If the plaintiffs do prevail in the Garber case, Judge Scheindlin will issue an order detailing the extent to which MLB may permissibly continue to restrict its teams’ broadcasting activities in the future. Such an order could alter MLB’s existing broadcasting rules in any number of ways, with potentially significant ramifications for the baseball industry.

For instance, Judge Scheindlin could rule that the very concept of exclusive local broadcast territories is inconsistent with antitrust law, and thus throw out MLB’s current restrictions in their entirety. This would not only force the league to allow its teams to directly compete with one another locally, but also permit teams to directly compete with the league itself in the national broadcast marketplace. At the same time, an order along these lines would presumably spell the end of MLB’s blackout rules.

Alternatively, Judge Scheindlin could determine that it is generally appropriate for MLB to provide its teams with some protection in their local markets, but that the league’s current broadcast territories are nevertheless much larger than necessary, and therefore should be reduced in size. Such an order would increase competition in areas outside of a team’s immediate metropolitan area, and would help to alleviate some of the current frustration over MLB’s blackout provisions by substantially reducing the number of fans that are subjected to blackouts on MLB.TV.

Of course, it’s also possible that Judge Scheindlin could find that all of MLB’s current broadcasting practices are, on the whole, beneficial for consumers, and thus perfectly legal under the Sherman Act.

Regardless of the specific outcome, it is probably unrealistic to expect that the Garber case will result in any substantial modifications to MLB’s broadcasting policies in time for the 2016 season. If the plaintiffs win the case, MLB will undoubtedly appeal, and in the process ask the court to allow it to continue enforce its current rules pending the outcome of the appellate process.

But if MLB does in fact lose the case, and that outcome is ultimately affirmed on appeal, then the long-term ramifications for MLB’s television business model could be enormous.

All in all, then, the Garber lawsuit is probably the most significant under-the-radar story in the baseball industry today. Depending on the outcome, this is a case that could dramatically alter the way we watch the game in the future, making the suit one that certainly bears watching.



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Nathaniel Grow is an Associate Professor of Legal Studies at the University of Georgia's Terry College of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of the University of Georgia.


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TKDC
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TKDC
4 months 16 days ago

If the plantiffs are to prevail, would it be logical to assume the other pro sports leagues will face similar fates?

blue fountain
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blue fountain
4 months 16 days ago

“…even if larger revenue disparities result from increased competition between large and small market teams, that problem can be better addressed through enhanced revenue sharing…”

Enjoyed the read. This seems to me the crux of the issue that the large market ownership groups and MLB leadership do not want to address. Either there should be more teams in the larger markets or revenue sharing should be enhanced significantly.

Jetsy Extrano
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Jetsy Extrano
4 months 15 days ago

I imagine MLB will argue that sure, they could dial up the revenue sharing, but heavy sharing cuts into the incentive for a team to work for broadcast revenue. I.e. cuts into the incentive to provide a good product to the viewer, I expect they could argue.

The economists will get into this one.

blue fountain
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blue fountain
4 months 15 days ago

Yeah, I don’t doubt the willingness of economists and lawyers to make any argument that MLB pays them to make in the specific confines of a court proceeding.

But the general notion that revenue sharing decreases the on-field value of the product isn’t based on evidence. It’s just a wild assertion bandied about to justify the large (and growing) amount of revenue owners take in.

davels
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davels
4 months 16 days ago

Yeah… the NHL “settled” their case… at no real cost to them. If I was the NHL attorney, I’d be doing cartwheels. They had to offer individual team packages for out of region teams (not just a league wide package)… at 20% of the cost of the league wide package. But the regional blackout rules remained completely intact!

Who cares???

That helps about 3 people that moved away from their favorite team’s location, and can now follow their “old home team” from their new “out of region” location. Yay for them.

If the MLB settles in the same way, then nothing (of consequence) will have changed.

My guess… that is exactly what will happen.

Deelron
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Deelron
4 months 15 days ago

There’s plenty of people who didn’t pick their favorite team based on the region they grew up in (if that was even one region or choice), nor have they always had the same favorite team since youth; particularly for the newer generations of people this decision is mostly likely to effect.

Anecdotally, as a former season ticket holder to the A’s (when I live in the area in the early 2000s), the big crowds would always come for the large market teams, but it wasn’t just more As fans, there were tons of people decked out in Yankees/Red Sox gear. Presuming (since they had the clothing/flags etc) they were full time fans of those teams, there were plenty of people who it would benefit. I’d imagine a great deal of current MLB.tv subscribers fall into that category now, given that they can’t watch their local team live through the service anyway.

davels
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davels
4 months 15 days ago

Right… so, those people are already being served, by MLB.TV. If the MLB makes the same settlement as the NHL did… those people will now be able to elect to watch their favorite team for $40 a season, rather than $200 a season. They save $160 a year.

Yay for them!

My issue, is that my cableco, who has a stranglehold on TV rights, wants $200 a MONTH for me to subscribe to the appropriate tier to watch the games I want to see. And, despite the fact that some people have formed favorites with “out of region” teams, I feel that the vast majority of baseball fans are “local” fans first.

If the MLB reaches a NHL-style settlement, it will have little or no effect for the vast majority of fans (ie. locals).

I cut the cord anyway. I watched whatever random baseball games I found on national TV and ESPN (roku-sling). I get the MLB package when it goes on half price sale. I watch my local team on rerun highlights the following day. If the local team wants to drive its fans away… so be it.

The NFL doesn’t do that to me. I got all the local games on OTA or ESPN.

MLB used to be the national pastime. Now the NFL owns that label. Its pretty easy to see why.

schlomsd
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schlomsd
4 months 15 days ago

I thought the cost of an individual team package was closer to 80% of the league wide pass, not 20%.

Shirtless Bartolo Colon says in Serbian to Vietnamese to French and back to John Elway
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Shirtless Bartolo Colon says in Serbian to Vietnamese to French and back to John Elway
4 months 16 days ago

It’s all good, I’ll be “residing” in Canada, again, starting April 5th.

Westside guy
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Member
Westside guy
4 months 16 days ago

Interesting. I move to South America for the duration of the baseball season.

Nazi war criminals are some of the biggest baseball fans, let me tell you…

The Stranger
Member
4 months 16 days ago

“…the league contends that this exclusivity has increased the quality of these broadcasts, incentivizing teams and networks to produce the highest quality telecasts possible.”

How is MLB even making this argument with a straight face? Isn’t this the exact opposite of the economic factors at work here?

Jason B
Member
Jason B
4 months 15 days ago

Just came to say the same thing. “Hey, this lack of competition sure is making us bring up the quality of our broadcasts!”

The other argument in the same paragraph seems specious as well – “The league believes that by guaranteeing its teams the exclusive rights to their home television markets, MLB’s rules have actually increased the total number of games that are broadcast.”

In other words, “That one game that we’re broadcasting in this exclusive territory sure is more than the three games that might be on tonight if the territory were opened up to competing broadcasts!” (???)

They may try to advance these arguments. But these…these are not necessarily good arguments.

bpd
Member
bpd
4 months 14 days ago

Well they’ll appeal to the mountain of modern economic scholarly research that proves nothing drives innovation and quality that total monopoly and lack of market competition.

It really is an Orwellian level of absurdist argument.

Shauncore
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Shauncore
4 months 16 days ago

What do the plaintiffs themselves get out of this? Can they seek remunerations for the court costs? I’m assuming this is probably a pretty expensive lawsuit to purse for the good of the people.

Garber, Lerner, etc… don’t appear to be uber-wealthy people with money to spend on this.

Doctor Of Utter Clarification
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Doctor Of Utter Clarification
4 months 16 days ago

Nathaniel, what firms are providing the economic experts for each side?

Excellent article, thanks!

The Kudzu Kid
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Member
4 months 15 days ago

Alternatively, Judge Scheindlin could determine that it is generally appropriate for MLB to provide its teams with some protection in their local markets, but that the league’s current broadcast territories are nevertheless much larger than necessary, and therefore should be reduced in size. Such an order would increase competition in areas outside of a team’s immediate metropolitan area, and would help to alleviate some of the current frustration over MLB’s blackout provisions by substantially reducing the number of fans that are subjected to blackouts on MLB.TV.

I have to think that, at the very least, this has to come out of it. It cannot be argued that the benefit of that particular policy outweighs the harm. I don’t love the blackouts, but I understand them, *except* in the case where consumers do not have the option of watching the games on TV.

dwm8a
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dwm8a
4 months 15 days ago

A few notes from an antitrust lawyer.

(1) many cases fall under the “rule of reason,” but a precious few result in any explicit balancing of harms and benefits associated with the challenged conduct. Usually a judge will hold that the plaintiff failed to establish that the conduct caused ANY harm or that the defendant could not prove that the conduct had ANY benefit, rather than balancing the two and deciding one is larger. If this case results in the judge doing the balancing, it will be both significant and interesting.

(2) the “less restrictive/harmful means” approach is quite controversial. If the judge decides that the tv policy harmed competition on the ground that the benefits could have been achieved through less restrictive means, then that will become a significant issue on appeal.

(3) how the court views the relationship between individual MLB franchises and MLB itself is a key to how the court will assess the exclusive territories. The law prohibits two television manufacturers from agreeing with one another to divide sales territories: it is illegal for Samsung and Sony to agree that Samsung will sell in California but not New York and Sony will sell in New York but not California. The reason is that Samsung and Sony are supposed to be competing with one another. A television manufacturer can (most of the time) establish exclusive territories for its retailers, however. Samsung is permitted to choose to sell to one retailer in California and one retailer in New York and to refuse to sell to any other retailer in those territories. This is because, so long as there is competition between manufacturers, i.e., Samsung is not a monopolist, we can reasonably expect that Sony retailers and Samsung retailers will compete with one another to the benefit of consumers even though Samsung retailers won’t be competing with one another within their exclusive territories. Whether the court thinks of MLB more like the former or the latter will be very important, IMO.

Joser
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Joser
4 months 15 days ago

Thanks for contributing your expertise to this thread. Very interesting and informative stuff.

Paul22
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Paul22
4 months 15 days ago

The courts and government have been pretty supportive of monopolies and cartels since FDR passed the NRA. Although the NRA was overturned by the supreme court, it was implemented long enough that the systems in place were useful to the War effort in WW II, and the benefits for a country that has adopted perpetual war as an economic model was seen. In the 70’s-80’s it was seen the favored model was a cartel of 3-5 companies controlling 80% or more of industry. Since then we have broke up some monopolies like AT&T and instituted some deregulation, which actually reduces the number of competitors in some industries by allowing the strong to swallow the weak (initially it may allow more competitors but this is short lasting). In other industries, excessive regulation is an effective barrier to competition and allows the bigger companies to get bigger. We have a mix of both.

In other words, excessive competition is deemed as much an enemy of the economy as a pure monopoly, at least in the private sector.

So I think where this is going with MLB is that MLB will be broken up. MLBAM will split and MLB will not be allowed to restrict a teams broadcast territory. MLB will only be able to control where teams can be physically located, that is the limit of their anti-trust exclusion.

Of course, if MLB can make a convincing case of devastation should the status quo be eliminated, it could go the other way. I think consumers will benefit, even if players salaries and teams revenues take a hit. Both teams and players are making out like bandits as it is, so a bit of regression won’t kill them.

Jamson1999
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Jamson1999
4 months 15 days ago

Would anyone like to take a swing at how this case would affect the on-going MASN court case? Could the MASN case be used by the plaintiffs in this case to support their position?

Nats Fan
Member
Nats Fan
4 months 15 days ago

Since I am a Nationals fan that lives in Memphis TN where all Cardinals, Reds, and Braves games are blacked out, I hope and pray MLB loses this fight! The closest of those teams is 5 hours from my house. As a result, it is very hard for me to see a nationals game when I desire. MLB.tv blacks out so many Nats games here that I had to drop the service. Plus, with my schedule I can’t watch more than a game a week, so services like Directv’s service is just not worth it at my adjunct professors salary. My mother’s house in Las Vegas is blacked out of 5 teams SFG, OAK, ARI, LAD, LAA, none are a reasonable drive from her house. My inlaws in Wisconsin are blacked out the Twins and Brewers and live 6 hours from Milwaukee. NFL Football is more popular than baseball in part because it has always been easy to watch the games. The same for the NBA. TV is marketing! MLB is stupid to maintain these rules as they make it impossible for a poor kid to ever see a baseball game and long term that will niche the game more and more like boxing. Lets hope the league wises up and drops these rules!

bly
Member
bly
4 months 15 days ago

Could this affect the Nationals / MASN situation or Giants / As situations in a more complicated way than other teams?

schneidler
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schneidler
4 months 15 days ago

Go plaintiffs go! Hoping to be able to watch Seattle Mariners on mlb.tv from western Alaska. 3 flights and 2,000 miles from Safeco field and I’m still blacked out.

Legeisc
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Member
Legeisc
4 months 15 days ago

Any chance you tackle an update on the hacking scandal?

Joser
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Joser
4 months 15 days ago

Thank you Mr. Grow. I’m an eager reader of everything you write but this in particular is especially interesting, and you did a great job breaking it down for a non-specialist audience. I look forward to your summary of the outcome when it happens (and the inevitable appeals).

BaltimoreFeathers
Member
BaltimoreFeathers
4 months 14 days ago

Something should be done about the blackout restrictions on some zip codes’

If you are living in Hawaii the following teams consider you as in their home market and then if you move to Las Vegas the same teams say you are in their home market. How ever if you move to Guam only the Giants and A’s will claim the market.

Oakland Athletics
San Francisco Giants
San Diego Padres
Los Angeles Angels of Anaheim
Los Angeles Dodgers

That is just one example of many distorted and money grubbing blackout policies MLB-TV has to enforce because of local cable companies greed.

As an out of market Oriole fan in LA the only games I can’t see on MLB-TV or local or cable TV are Orioles vs Dodgers which doesn’t happen that much.

dwm8a
Member
dwm8a
4 months 8 days ago

Trial was set to begin today and the case just settled. Would have been very interesting…

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