Executive Summary

The Sherman Antitrust Act of 1890 was intended to prevent monopolization and promote competitive markets across the U.S. economy. Yet in the world of sports, the Act’s influence has been paradoxical—sometimes shaping leagues into more equitable and competitive institutions, and at other times being suspended or narrowly interpreted to preserve closed, cartel-like structures deemed necessary for “the business of sports.” This white paper examines how the Act and its exemptions have influenced the organization, governance, and economics of American sports from the early twentieth century to the present.

I. Origins: The Sherman Antitrust Act and the Logic of Competition

Enacted in 1890, the Sherman Antitrust Act sought to outlaw “every contract, combination, or conspiracy in restraint of trade.” Its passage reflected fears of industrial monopolies—railroads, oil, and steel—that stifled competition. Yet as professional sports began to evolve, their cooperative nature (teams agreeing to schedules, rules, and territorial exclusivity) immediately collided with the literal terms of antitrust law.

Key Provisions:

Section 1: Prohibits restraints on trade. Section 2: Forbids monopolization or attempts to monopolize any part of interstate commerce.

Early professional leagues—particularly baseball—were organized as cooperative cartels with strict territorial rights and reserve clauses tying players to teams indefinitely. The question quickly arose: was sport a form of commerce, or something categorically distinct?

II. Baseball and the Birth of the “Exemption” (1914–1922)

The Federal Baseball Club Case (1922)

Background: The Federal League (1914–1915) challenged Major League Baseball’s (MLB) reserve system, alleging an unlawful monopoly. Supreme Court Ruling: In Federal Baseball Club v. National League, Justice Oliver Wendell Holmes wrote that baseball exhibitions were “not trade or commerce,” since the travel between states was merely incidental. Result: MLB was deemed exempt from federal antitrust law.

This ruling was pivotal. It effectively allowed MLB to maintain centralized control over franchises, player contracts, and territorial rights without fear of federal challenge. The “baseball exemption” became a defining legal anomaly that persists, in modified form, to this day.

III. Antitrust Pressure and the Expansion of Exemptions (1950s–1970s)

Toolson v. New York Yankees (1953)

The Court reaffirmed Federal Baseball, citing congressional inaction as implicit approval. Despite the commercial growth of televised baseball, the exemption stood.

Flood v. Kuhn (1972)

Curt Flood, challenging the reserve clause, argued that baseball was clearly interstate commerce. The Court agreed in principle—but maintained the exemption, declaring it an “aberration” to be corrected by Congress, not the judiciary.

Broader Implications

By maintaining the baseball exemption, the Court effectively signaled that other sports—football, basketball, hockey—would not enjoy similar immunity. These leagues thus structured themselves to minimize antitrust vulnerability through collective bargaining agreements (CBAs) and union recognition.

IV. The Rise of League Coordination and Collective Bargaining

In response to legal pressure, major leagues pursued collective bargaining as a shield against antitrust challenges. If restrictive practices—like drafts, salary caps, or free agency limitations—were products of labor negotiation, they could be exempt under the non-statutory labor exemption.

Key Milestones:

NFL (1960s–1990s): Court challenges to the draft and merger with AFL prompted reliance on union agreements to justify restrictions. NBA (1970s–1990s): Player lawsuits led to greater mobility but preserved structural limits via the CBA. NHL (1970s–present): Faced challenges over player restraint and expansion territories, resolved via negotiated settlements. MLB (Post-1976): Free agency introduced after arbitration decisions, but the core exemption remained intact for franchise and territorial control.

V. Collegiate and Amateur Sports: NCAA and Antitrust Law

NCAA v. Board of Regents (1984)

The Supreme Court ruled that NCAA control over televised football contracts violated the Sherman Act, as it restrained trade and suppressed competition among member schools. This landmark case redefined the NCAA’s authority—recognizing that sports governance bodies could act as illegal monopolists if they imposed excessive commercial restrictions.

Subsequent challenges, such as O’Bannon v. NCAA (2015) and NCAA v. Alston (2021), have further eroded the NCAA’s immunity, leading to the ongoing revolution of Name, Image, and Likeness (NIL) rights for athletes.

VI. The NFL and Antitrust Challenges

The NFL, unlike MLB, has never enjoyed a broad exemption. It has faced repeated scrutiny:

Radovich v. NFL (1957): Court confirmed that the baseball exemption did not extend to other sports. U.S. Football League v. NFL (1986): Jury found the NFL monopolized television rights but awarded only nominal damages, underscoring judicial reluctance to dismantle established leagues. American Needle v. NFL (2010): The Court held that NFL teams are separate economic actors for antitrust purposes, restraining the league’s ability to act as a single entity in merchandising.

Congress has occasionally granted limited exemptions, such as the 1961 Sports Broadcasting Act, which allowed joint national TV contracts—recognizing that some coordination was essential to the product’s integrity.

VII. Modern Implications and Emerging Issues

1. Franchise Relocation and Expansion

MLB’s antitrust immunity shields it from relocation suits, while the NFL and NBA face judicial oversight in disputes such as the Oakland Raiders or Seattle SuperSonics cases.

2. Media Rights and Streaming

As leagues evolve into media conglomerates, questions of market allocation, exclusive streaming deals, and data rights renew antitrust scrutiny under digital conditions.

3. Collegiate Athlete Compensation

The erosion of NCAA control has opened the door to more market-driven athlete compensation models—directly linked to the same antitrust doctrines that once shaped MLB.

4. Esports and Emerging Leagues

New sports organizations often mimic the cartel-like structures of old leagues, raising fresh questions about the reach of antitrust principles into digital and hybrid sporting economies.

VIII. Policy and Reform Considerations

Reconsideration of the Baseball Exemption: Periodic legislative proposals have sought to curtail or eliminate MLB’s special status, particularly regarding minor league treatment and franchise rights. Balancing Labor and Competition: The ongoing tension between labor exemptions and antitrust oversight remains central to professional sports’ stability. Transparency and Competitive Access: Regulators continue to debate how to balance collective organization (essential for leagues) with consumer and athlete protections.

Conclusion

The history of antitrust and American sports reflects a century-long negotiation between competition and cooperation. The Sherman Act’s foundational logic—guarding markets from monopolies—has both constrained and enabled sports institutions. Baseball’s exemption created a unique legal island, while other leagues navigated compliance through collective bargaining. The NCAA, once untouchable, now faces the same economic scrutiny that redefined professional leagues decades earlier.

In effect, the Sherman Act has shaped not only the business model of sports, but also its moral and cultural narrative: the tension between fair play and market control, competition and cartel, athlete and owner, fan and franchise. Each new challenge—from NIL rights to media monopolies—replays the same old drama: what does it mean to compete, and who gets to own the game?