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Baseball, broadcasters on deck in antitrust trial

Experts: case has potential to change how live events are distributed

By Ashley Cullins, Los Angeles Daily Journal

Major League Baseball executives are up to bat in federal court Tuesday as trial begins in an antitrust class action alleging local blackouts on the league’s digital service are thwarting broadcast competition.

Consumers across the country sued the league, its teams and its broadcasting partners, including DirecTV LLC and Comcast Corp., claiming they have made “agreements to eliminate competition in the distribution of games over the Internet and television.” Garber et al. v. Office of The Commissioner of Baseball et al., 12cv3704, (S.D.N.Y., filed May 9, 2012)

Attorneys say this bench trial has the potential to change the game of how live events are distributed across the country, but baseball’s special standing could make it a home run for the defense.

In 1922 the U.S. Supreme Court held in Federal Baseball Club v. National League that the business of giving exhibitions of baseball isn’t interstate commerce and therefore is not subject to the Sherman Act.

In 2014 U.S. District Judge for the Southern District of New York Shira Scheindlin threw defendants a curveball when she declined “to apply the exemption to a subject that is not central to the business of baseball, and that Congress did not intend to exempt – namely baseball’s contracts for television broadcasting rights.”

Bryan M. Sullivan, a partner at Early Sullivan Wright Gizer & McRae LLP who is not involved in the case, said the complexities of this case stand out above other antitrust suits specifically because of baseball’s exemption from the Sherman Act.

“This has to do with the distribution of individual games as opposed to the actual business of baseball,” Sullivan said. “It’s a very fine line.”

According to court documents, defendants will seek to erase that line entirely by proving that “eliminating the territorial rules would reduce the ability of certain small-market teams to invest in players and other resources, hampering their ability to compete on the field – and could, over time, prevent certain clubs from remaining viable.”

Glen A. Rothstein, a partner at Greenberg Glusker Fields Claman & Machtinger LLP not involved in the case, said the argument is groundbreaking.

“Most antitrust cases are about preserving economic balance between commercial competitors,” he said. “This is about preserving competitive balance on the field itself.”

As a New York Yankees fan living in Los Angeles, Rothstein explained, he has to buy the entire DirecTV baseball package to watch his team play and the revenue from those sales is split among every team in the league. If this is found to collusive, the package will cease to exist, which will decrease the amount of revenue to be shared among the teams, Rothstein said.

Even if the federal exemption doesn’t apply, Rothstein said the sentiment surrounding baseball as the national pastime may be significant.

“A court might be loath to make a change such as this that could have unattended consequences to competition on the field,” he said. “I think that may be something that Major League Baseball has in its favor, which makes this unique.”

If plaintiffs prevail, Sullivan said this trial could have far-reaching effects.

“It’s challenging how not just baseball but all sports slice and dice the media markets to maximize profits for themselves,” Sullivan said. “If they win then these leagues need to come up with a different revenue model.”

Plaintiffs are represented by Langer, Grogan & Diver PC and Cohen Milstein Sellers & Toll PLLC.

Defense counsel includes Davis Polk & Wardwell LLP for Comcast, Kirkland & Ellis LLP for DirecTV and Paul Weiss Rifkind Wharton & Garrison LLP for the MLB.

None of the firms responded to requests for comment.