Contract Law
I. Standard Player Contract
A. Complexity
1. Contract used to be one page but now is very complex.
B. Guaranteed Salary:
1. Prior to 1970, contracts not usually guaranteed and could be terminated by a club at any time.
2. Now, many NBA (90%) and MLB (50%) contracts are guaranteed.
a. Less than 1% of NFL contracts are guaranteed except for signing bonuses.
C. Option Years/Reserve System:
1. Clubs used to have the right to perpetually re-sign players to successive one-year deals.
2. System erased in baseball by Messersmith arbitration.
D. Player Movement
1. After loss of reserve system, leagues established rules to control player mobility.
a. Rozelle Rule – if player moves from team A to team B, they must agree on compensation.
i. If they don’t agree, then commissioner sets compensation.
ii. Resulted in stifling free agency.
b. Many of these rules fall to antitrust challenges.
i. Changes with CBA.
E. Salary Cap
1. Labor and management have taken a proactive role in controlling salaries.
2. Salary caps contained in CBA and has huge control over player contracts.
F. Assignment Clause
1. Gives right for team to “assign” players’ services to another team (effective trade).
a. Players may alternatively negotiate a “no-trade” clause to combat this.
II. Baseball History
A. Reserve System
1. In the 1800’s, club teams would pay ringers and outbid other teams for the best players.
a. Owners hated this system and devised a reserve system.
i. Reserve 5 players per team for exclusive control.
ii. Eventually expanded to include full roster protection.
B. Philadelphia Ball Club v. Lajoie:
1. Facts:
a. When rival Western League started, Lajoie jumped from Philadelphia Nationals (NL) to the Philadelphia Athletics (AL).
b. Nationals sued for negative injunction prohibiting his play for WL.
2. Holding:
a. Injunction granted under terms of contract.
C. Syracuse Nationals v. Barnett:
1. Facts:
a. Barnett played out option year with Syracuse and club orally renewed for the following year.
b. Cleveland Pipers then signed him to ABL.
c. Syracuse sought injunction against Cleveland claiming no measure of damages appropriate b/c provided unique services.
2. Holding:
a. Injunction granted.
3. Briggs:
a. Unusual talent and skill concept emerges, leading to allowance of injunctions for lack of measurable harm.
b. Lifetime Reserve System:
i. Heart of Barnett claim was the inability of ever leaving without old team’s permission under option clause.
ii. This eventually changes under Messersmith.
D. Boston Celtics v. Shaw:
1. Facts:
a. Shaw had contract with Italy and then the Celtics persuaded him to naturally end his Italy contract for $5 million/5-year deal.
b. Shaw agreed but had no agent.
c. Shaw then got an agent and they decided not to break Italy deal b/c Celtics contract did not reflect fair market value.
2. Holding:
a. Celtics contract requiring lawful termination of Italy contract is not improper or unfair.
E. Houston Oilers v. Neely:
1. Facts:
a. Neely signed with Oilers in secret during college to play in bowl game.
b. Neely later also signed with Cowboys.
c. Oilers sue for injunction to prevent Neely from playing with cowboys.
2. Holding:
a. Injunction granted.
b. Neely signed a legitimate contract with Oilers.
c. Fact that Oilers concealed contract so he could stay eligible to play in Bowl game isn’t illegal and doesn’t affect equitable remedy.
3. Briggs:
a. Unclean Hands Doctrine:
i. Other cases have refused such an injunction using “unclean hands” doctrine whereby team already had their hands dirty with illicit activity to prevent the signing.
b. “No Cut” Clause:
i. Requires team to pay player his salary for terms of contract even if he is not retained on the player roster.
ii. Very rare.
Baseball Antitrust
III. History of Antitrust
A. Purpose:
1. Reflect social decision that market forces have important role to play but checks through the law should provide a legal framework in which those forces can operate.
a. Market forces lead to individual freedom of action and economic opportunity.
i. These must be balanced with equal economic opportunity and fairness.
2. Also reflects general distrust of governmental decisionmaking.
a. Antitrust law provides the required structure (instead of hoping that elected officials will police their “contributors”).
B. Sherman Antitrust Act:
1. Post-Civil War Legislation.
a. Purpose is to break the concentration of power left with a few business barons in the country.
2. Sherman Antitrust:
a. Novel premise to have the government regulate the market.
b. Legislative History:
i. Should not endure a king over production, transportation, or sale of life’s necessities.
ii. Bill does not declare all monopolies illegal (natural monopolies are allowed where the market only supports one entity).
iii. Intrastate arrangement not regulated.
c. Statute:
i. Section One:
a. Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade, is declared to be illegal.
b. Amended by Standard Oil Decision (Rule of Reason – new standard is u
(handout) (per curium; 7-2)
1. Court upholds Federal Baseball by imputing a baseball antitrust exemption from the Sherman Act to the holding of Federal Baseball.
a. This is where the baseball antitrust exemption is actually created.
b. The dissent notes that there is no baseball exemption from the Sherman Act (this is true).
2. Facts: Toolson, a minor leaguer, refuses to move teams; Yanks put him on ineligible list.
a. Lower courts dismiss; trial and appellate courts both say if Federal Baseball governs and only the court can overturn it.
3. Antitrust Exemption Theory:
a. Federal Baseball says baseball not within scope of antitrust.
i. Problem: Actually, though, this isn’t true – Federal Baseball just said that under current interstate commerce, baseball is local.
b. Baseball has now developed under Federal Baseball, understanding that it’s not subject to interstate commerce.
i. Problem: Same thing happened to the insurance industry, but they were forced to change after a Supreme Court ruling.
c. Federal Baseball reaffirmed in creating an exemption for baseball: Congress had not intended to include baseball in antitrust laws.
i. Problem: This was never said in Federal Baseball!
4. Briggs:
a. Very bad decision – flat-out wrong reading of Federal Baseball.
i. Based on not overturning prior decision without express congressional mandate. (But a few years later, the Court does just that in Brown v. Board in spite of Plessy).
F. Flood v. Kuhn (1972) (Blackmun)
1. Court upholds Federal Baseball and Toolson on the basis of stare decisis.
a. Court acknowledges baseball is both interstate and commerce.
b. The Court’s analysis is frivolous; they again reaffirm Toolson, which incorrectly held that the holding in Federal Baseball was that there was a baseball antitrust exemption: “the exemption is an established aberration”.
i. Congressional awareness of the problem & lack of action.
2. Flood is the high-water mark of the baseball antitrust exemption; after this case, the courts and legislature begin chipping away at the breadth of the exemption.
