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| The Legal Dimension
of Major League Baseball’s “Contraction” Controversy In 1999, Major
League Baseball (MLB) convened a blue ribbon panel to produce a report
about how best to address the league’s perceived long-term financial
difficulties. Those difficulties included rising costs, limited sources
of revenue, and significant disparities amongst existing franchises
in revenues and player payrolls. The panel, whose ranks included luminaries
such as columnist George F. Will and former U.S. Senate majority leader
George J. Mitchell, deliberated over a period of many months. The
final report of the panel, issued in the summer of 2000, featured
a host of recommendations, including the imposition of a salary cap
and the expansion of present revenue-sharing amongst existing franchises.1
The list of proposed solutions did not, however, include any call
to shrink or “contract” the number of MLB franchises. Nevertheless,
on November 6, 2001, MLB commissioner Bud Selig announced that MLB
would eliminate, or “contract,” at least two of the existing
30 baseball franchises before the start of the 2002 baseball season.
Press reports strongly suggested that the Minnesota Twins would be
among the teams slated for elimination.2 The
resulting and continuing controversy has developed political, athletic,
and business overtones in Minnesota and nationwide. But it is the
legal dimension of the contraction controversy that is particularly
compelling, including high-profile litigation, proposed legislative
fixes, and significant union grievances. What is “Contraction?” Contraction is more than the mere
elimination of MLB franchises. The contraction process that MLB has
conceived contemplates the purchase by MLB of two or more franchises,
at prices that arguably exceed the market value of those franchises.
For example, some parties may be willing to pay $150 million for the
Twins, but under contraction rules, MLB may be willing to pay as much
as $200 million. The 40 or more players on the contracted teams would
then submit to a dispersal draft, whereby remaining teams would select
the players in a pre-determined order. The remaining franchises would
assume the contractual obligations as to each selected player, but
would not incur any additional cost for acquiring the rights of those
players. The dispersal of players would be particularly beneficial
for teams acquiring emerging stars who may have received large one-time
signing bonuses from a contracted franchise, but whose salaries are
small.3 The net result of contraction, as its
MLB architects envision, would be more revenue and more quality players
for each remaining franchise. Foes of contraction are more suspicious.
They ascribe contraction to politics, and accuse MLB of using contraction
to pressure state and local governments into helping finance stadiums
that MLB perceives will increase revenue for allegedly struggling
baseball franchises.4 The Litigation Response In Minnesota, the legal response
to the contraction announcement took the form of immediate litigation.
The Metropolitan Sports Facilities Commission (the “Commission”),
which owns and operates the Hubert H. Humphrey Metrodome stadium in
which the Minnesota Twins play all of their home games, filed a declaratory
judgment action against the Twins in Hennepin County District Court
on the same day that MLB announced its contraction aims. The lawsuit
alleged that contraction, if effectuated, would result in a breach
of the Twins’ remaining one-year lease. The terms of that lease,
in the form of a “use agreement,” entitle the commission
to no regular rental payments by the Twins for use of the Metrodome.
Instead, the Commission derives benefits from the use agreement in
the form of a 25% share of the Twins’ stadium advertising revenue,
a portion of revenue from concessions at the stadium, and the continued
play of Twins home games in the Metrodome. In light of MLB’s
imminent plans to implement contraction, the commission moved for
a temporary injunction ordering the Twins to perform under the terms
of the existing use agreement, and preventing Major League Baseball
from interfering with such performance. The district court granted
the injunction, and the Twins, in concert with MLB, appealed. On appeal, the Twins and MLB argued
that the district court had abused its discretion. As an initial matter,
the appellants asserted that the district court had failed properly
to analyze the issuance of an injunction under the applicable factors
set forth in the Dahlberg case:5 (1)
the nature and background of the relationship between the parties;
(2) the balance of harms to the parties; (3) the likelihood that one
party or the other will prevail on the merits; (4) public policy considerations;
and (5) administrative burdens of enforcing the contemplated injunction.6 Indeed, the appellants argued that the court
failed to discuss the factors at all with respect to MLB. Simply stated, the Twins and MLB
argued that “[t]he only harm to the [Commission] will be in the
form of lost revenue if it does not collect its commission from the
sale of concessions and advertising during Minnesota Twins games.
This amount is easily calculable, and it is payable in dollars as
damages. This is not irreparable harm.”7 As support, the appellants emphasized the oft-cited
formulation that “a party may not have equitable relief where
there is an adequate remedy at law available.”8
More particularly, the Twins and MLB argued that “specific
performance is not available to a landlord to force a commercial tenant
to stay in business,” since “breach of a commercial lease
gives rise to complete relief in damages.”9 The Twins and MLB next chastised
the district court for “focusing on the inchoate loss to the
community at large, rather than on the cognizable injury to [the Commission].”10
In sum, appellants argued, “[t]he loss of the opportunity
of the people of a city to witness Major League Baseball is not damage
recognized in either law or equity. Such loss is analogous to a claim
of mental distress resulting from breach of contract; too remote and
speculative to be compensable.”11 Moreover, as to the balance of harms, and as
to public policy considerations, the Twins and MLB asserted that the
injunction amounted to the impermissible commandeering of a private
enterprise. “[T]he Minnesota Twins are not a ‘public trust;’
they are a private business, owned by private parties, who should
not have to bear the huge financial burden of subsidizing the public’s
entertainment.”12 The Twins and MLB next argued that
language of the use agreement explicitly permits contraction in two
ways: First, via the force majeure clause; and second, by a
clause stating that “The Team may, without prior consent of the
Commission, sell or transfer the Team’s assets for operating
a major league professional baseball team, provided the Team shall
require any buyer of the Team’s assets . . . to assume all of
the Team’s obligations under this Agreement as a condition of
the sale . . . .”13 On the issue of administrative burdens, the
Twins and MLB asserted that the injunction “literally forces
the Minnesota Twins to play major league baseball, without any explanation
of what this means, and what it requires the Minnesota Twins to do.”14
Finally, the Twins and MLB argued that the injunction violates the
Commerce Clause of the U.S. Constitution by unduly burdening interstate
commerce.15 The Commission, aided separately
by the Minnesota Attorney General’s Office as amicus curiae,
argued that the district court’s order was sound in all respects.
Indeed, the Commission asserted that injunctions pertaining to the
preservation of professional sports teams as a whole “present
an exceptionally strong case for equitable relief given the unique
irreparable harm to the public they present . . .”16
Moreover, argued the Commission, “[a]ll the injunction does is
to freeze the status quo.”17 As to the balancing of harms and
the weighing of public policy considerations under the Dahlberg
test, the Commission referenced the “rare unanimity of courts
nationwide” that “the sports franchise case presents a prototypical
case of irreparable harm.”18 To the Commission,
the intangible effects and good works of the Twins for the past 41
years are “precisely what justifies the Commission to charge
the Twins no rent; to defend the Twins’ exemption from property
taxes all the way up to the Minnesota Supreme Court; and to cede to
the Twins large portions of admissions tax, concession, and advertising
revenues that are the right of the stadium owner to collect for itself.”19
Accordingly, argued the Commission, “[t]he Twins may not at once
accept public subsidy and then complain that the public has no cognizable
legal interest in the community benefits the Twins offer in return.”20 The Commission pointed out the statutory underpinnings
of its own existence, which state that, in light of “the economic
and social interests of the metropolitan area,” “[i]t is
. . . necessary for the public health, safety and general welfare
to establish a procedure for the acquisition and betterment of sports
facilities and to create a metropolitan sports facilities commission.”21
On the question of possible
harm to the Twins, the Commission noted that the Twins had only recently
committed themselves to an extension of their lease under the use
agreement, and that specific performance as to their one-year contractual
obligation is not akin to “forcing” the Twins to do anything
more than they had already proposed themselves.22
As for the likelihood of success
on the merits, the Commission rested on several grounds. First, the
Commission argued that the Twins “are not privileged to engineer
their own demise so as to claim impossibility of performance.”23
Second, the Commission argued that the language of the use
agreement contemplated specific performance as a remedy, as in the
clause authorizing remedies “including but not limited to, injunctive
relief and specific performance . . . .”24 The Commission next argued that the
injunction does not impose significant administrative burdens. Specifically,
the Commission noted that the injunction does not require a court
to fashion a schedule or monitor the selling of the team’s assets,
but requires only compliance with “preexisting commitments.”25 The Commission dismissed as inconsequential
the argument that the district court had failed separately to analyze
the Dahlberg factors with respect to MLB alone. Given the Commission’s
contentions as to the soundness of the court’s order, it argued
that “MLB cannot use ‘contraction’ to interfere in
the Commission’s contractual relationship with the Twins by essentially
bribing the Twins to break the [u]se [a]greement.”26
Moreover, the Commission asserted, “MLB completely failed to
make a record of any justification for its contraction gambit.”27 The Minnesota Court of Appeals affirmed
the district court’s grant of the temporary injunction.28
The court’s opinion rigorously tracked the Dahlberg
factors. As to competing harms, the court noted that the use agreement’s
waiver of rent and other payments by the Commission meant that “the
benefit of the bargain to that the [C]ommission received was the Twins
[sic] promise to play their home games at the Metrodome for the duration
of their lease.”29 The court made clear that the availability
of money damages did not necessarily preclude an injunction, especially
if “there are additional injuries for which money cannot compensate
the non-breaching party.”30
Given the Commission’s statutory mission, the fact that
the Metrodome was publicly financed, and MLB’s own prior representations
about the importance of professional baseball to its host communities,
the court deemed proper the district court’s partial reliance
on potential harm to the public.31 The court found that the potential harm to
the Twins and MLB was difficult to calculate given the lack of financial
records submitted as evidence of the need for “contraction.”32
Regarding the likelihood of success
on the merits, the court flatly held that “the contract between
the [c]ommission and the Twins does not foreclose specific performance,
but instead identifies it as a potential remedy . . . .”33
Because that is so, the court concluded, the district court
properly extended the injunction to MLB so as to prevent interference
with the contractual relations between the Twins and the Commission.34
As an aside, the court dismissed as untimely the argument by the appellants
that the injunction violated the Commerce Clause.35
The court next held that considerations of public policy militated
in favor of the injunction, given the importance of the public role
in building, financing, and operating the Metrodome.36
Finally, as to administrative burdens, the court noted that
the injunction “merely continues a close, long-term relationship”
between the Twins and Major League Baseball.[37]
With relatively little fanfare, but
with the status quo frozen as a result of the injunction, the case
continues in Hennepin County District Court. The Commission is now
attempting to keep the Twins in Minnesota beyond the 2002 season,
alleging that MLB’s “contraction” threat has interfered
with the Commission’s ability to renew a Metrodome lease with
the Twins. Regardless of the legal outcome of the case, however, the
practical consequence of the proceedings is that the Twins will remain
in Minnesota through the end of the 2002 season. Whether the team
ceases to exist after that is a question as much about the politics
of building a baseball stadium as it is about the legal options of
the various parties in interest. The Legislative Response Apart from the stadium debate at
the Minnesota Legislature, whose political dimensions are beyond the
scope of this article, the legislative response to the “contraction”
threat has taken shape not in Minnesota, but in Washington, D.C. There,
lawmakers seeking to stop MLB’s “contraction” strategy
have realized yet again that the only practical way to prevail is
to limit or eliminate MLB’s exemption from federal antitrust
laws. Only such a statutory remedy could overcome the solid legal
precedent in favor of shielding professional baseball from laws governing
potentially anti-competitive conduct. The longstanding antitrust exemption
for professional baseball was first set forth by the U.S. Supreme
Court in Federal Baseball Club of Baltimore v. National League of
Professional Baseball Clubs, Inc., in which the Court held that
the Sherman Antitrust Act did not apply to professional baseball because
the game was not interstate commerce.38 As Justice Holmes put it in the Court’s
opinion, “the transport is a mere incident, not the essential
thing. That to which it is incident, the exhibition, though made for
money would not be called trade or commerce in the commonly accepted
use of those words.”39 Most recently, and despite the revolutionary
changes in the intervening understanding of the contours of interstate
commerce, the Court re-validated professional baseball’s antitrust
exemption in Flood v. Kuhn, in which Justice Blackmun, by way
of a famously sentimental opinion, rested the continuing exclusion
on “a recognition and acceptance of baseball’s unique characteristics
and needs.”40
Ultimately, the Court deferred to Congress to change any perceived
inconsistency or unfairness in professional baseball’s enjoyment
of special antitrust status.41 In 1999, the Minnesota Supreme Court
made clear that the collective weight of the Federal Baseball and
Flood cases precludes even preliminary antitrust investigations by
state authorities under state law. The case, Minnesota Twins Partnership
v. State ex. Rel. Hatch, was occasioned by the efforts of the
Minnesota Attorney General’s Office to serve the Minnesota Twins
and other baseball entities with civil investigative demands as part
of an investigation regarding potential violations of Minnesota state
antitrust statutes.42 While noting that the
U.S. Supreme Court itself seemed to acknowledge that “the legal
footings for the exemption [are] no longer valid,” and while
characterizing the exemption itself as an “aberration,”
the Minnesota Supreme Court held that it was constrained by precedent,
and by the traditional application of federal antitrust decisions
to Minnesota law, to forbid the use of Minnesota’s antitrust
statutes to investigate the practices of professional baseball.43
Taking a page from Justice Holmes in Federal Baseball, the
Court noted that the judiciary is “not the forum in which this
tangled web ought to be unsnarled.”44
Mindful that only a statutory change
on the federal level would suffice to halt contraction, Senator Paul
Wellstone introduced S.F. 1704 on November 15, 2001, just days after
the Commission filed its declaratory judgment action against the Twins.
Also known as the “Fairness in Antitrust in National Sports (FANS)
Act of 2001,” the legislation would amend the Clayton Act45
to make federal antitrust laws applicable to the elimination or relocation
of Major League Baseball franchises.46 In particular, the FANS Act proposes an addition
to the Clayton Act of a provision allowing causes of action pertaining
to “the conduct, acts, or agreements of persons in the business
of organized professional major league baseball directly relating
to or affecting the elimination or relocation of a major league baseball
franchise.”47 The proposed consequence is to apply the law
to the defined transactions in the same manner as “any other
professional sports business affecting interstate commerce.”48
Notably, the FANS Act explicitly excludes from its own reach a list
of items, including the MLB organizing document commonly known as
the “Professional Baseball Agreement,” “the marketing
or sales of the entertainment product of organized professional baseball,”
“the licensing of intellectual property rights owned or held
by organized professional baseball teams individually or collectively,”
and transactions under the Sports Broadcasting Act.49
The FANS Act has yet to receive a vote in the Senate Judiciary Committee.
The Labor Response Seemingly forgotten among the high-profile
attempts to curb “contraction” in the courts and in Congress,
the Major League Baseball Players Association (MLBPA) is attempting
to stop “contraction” through various grievance procedures
under the now-expired collective bargaining agreement between the
players and MLB. Labor battles are nothing new to MLB. Indeed, there
have been eight work stoppages of one kind or another since 1972.
The present grievance proceedings, held before a baseball arbitrator,
are not public. But the MLBPA has made known its legal arguments.
As a threshold matter, the union
claims that contraction itself is subject to collective bargaining,
since it directly affects the fate of potentially dozens of players.
Second, MLBPA claims that the timing of the contraction announcement,
just after the end of the 2001 baseball season, was an intentional
and successful effort to depress the market for “free agents.”
On the latter claim, the union claims that the proposed dispersal
draft resulted in lower-than-normal salaries for players free to move
to new teams, since the MLB teams not slated for contraction knew
that they would likely get a pro rata share of freshly available players,
at no extra cost, in the proposed post-contraction dispersal draft.
In other words, the prospect of a dispersal draft lowered demand for
otherwise coveted free agents. The union is seeking declaratory relief
as well as unspecified damages. If the union prevails, even if only
on its request for declaratory relief, it will have exacted a huge
concession from MLB. Oral arguments before the arbitrator are currently
set for June 6, 2002. Regardless of the outcome of the
grievance procedure, however, the contemplated dispersal draft presents
MLB with other interesting labor-related contractual problems. One
such problem has a name: Brad Radke, a star pitcher for the Minnesota
Twins. Radke is one of very few MLB players with a clause in his contract
providing that the contract can not under any circumstances be assigned
to any other baseball team without his prior written consent.50
Thus, if Radke were selected in the dispersal draft by another
team, he would have the right to refuse assignment of his contract.
Conceivably, the Twins, though officially “contracted,”
would still be obligated to pay Radke’s $9 million annual average
salary for the remaining years of his contract - regardless of whether
Radke pitched another baseball again or decided instead to spend his
summers fishing. Another inevitable issue for MLB is the prospect
that the MLBPA will insist, in the ongoing negotiations for a new
collective bargaining agreement, that players have veto power, or
considerable leverage, regarding any future plan to “contract”
or otherwise re-orient MLB teams. Conclusion The legal dimension of the “contraction”
controversy, in the courts, in Congress, and in the collective bargaining
context, is compelling, but it will perhaps not be dispositive. Ultimately,
as with so many other sports-related finance issues in recent years,
the decisive action will likely be political, not legal. The possible
political outcomes include a new baseball-only stadium in Minnesota,
a new ownership group for the Minnesota Twins, a new list of teams
slated for “contraction” by MLB, or possibly all three.
But those potential outcomes are all products, at least indirectly,
of the legal options available to the various parties in interest.
In any event, the outcomes may not be true solutions to what ails
modern professional baseball. The debate about the proper relationship,
financial and otherwise, between professional sports franchises and
their host communities will not disappear with the fight over “contraction.”
UPDATE: Notes 1 The Report of the Independent Members
of the Commissioner’s Blue Ribbon Panel on Baseball Economics,
July 2000 at 1-10. 2 See, e.g., Jim Souhan, Twins’
Final Out Looms, Minneapolis Star Tribune, Nov. 7, 2001, at
A1. 3 A suitable example is Twins
player Joe Mauer, a promising young catcher with the Twins’ minor
league organization. Mauer reportedly received a signing bonus of
approximately $5.1 million, most of which has reportedly already been
paid, yet his current contract requires that the Twins pay him only
the standard “Single A” team salary of approximately $16,000
per year. 4 There is serious disagreement
about the extent to which individual baseball teams are struggling.
Although MLB claims that as many as 25 of its 30 baseball teams now
lose money, a recent magazine report suggests to the contrary that
a majority of those baseball teams are profitable. Michael Ozanian,
Is Baseball Really Broke?, FORBES, April 15, 2002. 5 Brief of Appellants Minnesota
Twins Partnership and Major League Baseball (“Appellants’
Brief”) at 11. 6
Dahlberg Bros., Inc. v. Ford Motor Co., 272 Minn. 263, 274-75,
137 N.W.2d 314, 321-22 (1965). 7 Appellants’ Brief at 13. 8 Appellants’ Brief at 14
(citing, inter alia, ServiceMaster of St. Cloud v. GAB Bus. Servs.,
Inc., 544 N.W.2d 302, 305 (Minn. 1996. 9 Appellants’ Brief at 16.
10 Appellants’ Brief at 17.
11 Appellants’ Brief at 18
(citing City of Mounds View v. Metro. Airports Comm’n, 590
N.W.2d 355, 357 (Minn. Ct. App. 1999); Deli v. University of Minnesota,
578 N.W.2d 779, 782 (Minn. Ct. App. 1998). 12 Appellants’ Brief at 23. 13 Appellants’ Brief at 26. 14 Appellants’ Brief at 28.
15 Appellants’ Brief at 30. 16 Brief of the Metropolitan Sports
Facilities Commission (“Respondent’s Brief”) at 20.
17 Respondent’s Brief at
21. 18 Respondent’s Brief at
25. 19 Respondent’s Brief at
26. 20 Respondent’s Brief at
26. 21 Respondent’s Brief at
28-29 (quoting Minn. Stat. ¤ 473.552(b)). 22 Respondent’s Brief at
31. 23 Respondent’s Brief at
38 (citing 8 Corbin on Contracts ¤ 40.17 at p. 580 (3d ed. 1999). 24 Respondent’s Brief at
42. 25 Respondent’s Brief at
46. 26 Respondent’s Brief at
55. 27 Respondent’s Brief at
56. 28 Metropolitan Sports Facilities
Commission v. Minnesota Twins Partnership, 638 N.W.2d 214 (Minn. Ct.
App. 2002). 29 Id. at 223. 30 Id. 31 Id. at 224-25. 32 Id. at 225. 33 Id. at 227. 34 Id. at 228. 35 Id. 36 Id. at 228-29. 37 Id. at 229. 38 259 U.S. 200, 42 S. Ct. 465
(1922). 39 Id. at 208-09, 42 S. Ct. 465. 40 407 U.S. 258, 282, 92 S. Ct.
2099 (1972) 41 Id. at 285, 95 S. Ct. 2099 42 592 N.W.2d 847 (Minn. 1999) 43 Id. at 856 44 Id. 45 15 U.S.C. ¤ 12 et seq. 46 S.F. 1704, 107th Cong. (1st
Sess. 2001). 47 Id. at ¤ 2(a). 48 Id. 49 Id. at ¤ 2(b)(1) - (3) 50 Full disclosure: One of the
authors of this article, Ronald L. Simon, negotiated the contract,
and presently represents Radke. Ronald L. Simon is an attorney
and sports agent in Minneapolis. He is the author of the book The
Game Behind the Game: Negotiating in the Big Leagues. Stephen F. Simon is an associate
with Robins, Kaplan, Miller & Ciresi, L.L.P. in Minneapolis, where
he practices business litigation. |
