Major League Baseball Restrains Competition, Stanford Antitrust Expert Says

In a declaration supporting San Jose’s suit against Major League Baseball, Stanford University antitrust expert Roger Noll argues that preventing an Oakland A’s move inhibits competition and restrains trade.

Judge Ronald Whyte will hear the case on October 4, 2013. A conservative jurist appointed to the federal bench in 1991 by President George H. W. Bush, Whyte, 71, has stood up to powerful interests in key cases. In 2005, he scuttled Google’s attempt to void Microsoft’s noncompete agreement with Kai-Fu Lee, whom Google had recruited to run a research center in China.

Whyte dismissed a “terrorism” case against animal liberation activists who argued the law was drafted in a way that no reasonable person would know if they were breaking the law. And, in May 2013, he blocked local semiconductor giant LSI from enforcing a patent action against Taiwan-based semiconductor design firm Realtek.

Noll provided a preliminary opinion on the baseball team turf battle while reserving final judgment until a review of “the complete discovery record.”

The following are excerpts of Noll’s filing:

“The purpose of this Declaration is to provide a preliminary analysis of the economic issues in this litigation before discovery has taken place.

“My main conclusion is that preventing the Oakland Athletics baseball team from moving to San Jose causes harm to competition because relocating to San Jose would substantially increase the potential fan base and attendance of the team.

“Major League Baseball (“MLB”) is made up of thirty teams.  These teams are economic competitors in many markets, including markets for players, coaches, regional television rights, and product licenses.  If teams are geographically close, they also compete for attendance among sports fans in a local area.  Presently MLB has local teams that compete for attendance in Baltimore-Washington, Chicago, Los Angeles, New York and the Bay Area.

“Economics research and prior litigation have concluded that each major professional sports league in the U.S., including MLB, possesses market power in the provision of major league games in its sport in North America.  Among the ways that MLB exercises its market power is by controlling the number and geographic location of major league baseball teams in North America.  MLB has adopted rules that define the “home territory” of each team in the league and that place restrictions on franchise relocation.  For now irrelevant historical reasons MLB has placed San Jose in the home territory of the San Francisco Giants, even though a team in San Jose would be less of a direct competitor to the Giants than is a team in Oakland because San Jose is much further than Oakland from the Giants’ home stadium.

“One domain of competition in MLB as well as other professional sports is competition among cities to attract or to retain a team.  Economics research shows that the financial success of a baseball team depends on the economic and demographic characteristics of its home territory, the quality of its home stadium, and the financial terms and other arrangements concerning the stadium.  Cities actively compete for baseball teams on the basis of agreements that they offer to a team concerning a home stadium.  The alleged anti-competitive conduct in this case is Defendants’ inhibition of competition and restraint of trade through the application of restrictions on team relocation which are preventing the City of San José from competing with the City of Oakland for the Athletics Baseball Club (Athletics).

“San Jose is much more attractive than Oakland as a home location for a baseball team for several reasons.  First, San Jose has a much larger population base, and so substantially greater potential home attendance for a local team.  Second, San Jose is located in the Silicon Valley, which is the corporate home to many of the world’s leading high technology companies.  This feature of San Jose is important because an increasingly important component of the revenue of a major league sports team is the sale of luxury boxes and other reserve seating to corporations, law firms, and wealthy individuals.  Third, San Jose has identified and made available to the Athletics a location for a new stadium that will be a substantial improvement over the facility and location where the Athletics currently play.  For these reasons San Jose is a much more attractive home territory for the Athletics than Oakland.  Moreover, relocation to San Jose is financially attractive to the Athletics precisely because it increases total economic output, which in sports is the number of fans in attendance.

“Competition in the local market for major league baseball would be enhanced if the Athletics relocate to San José.  By increasing the potential revenue of the Athletics, relocation to San Jose would increase the financial incentive of the Athletics to field a team of higher quality.  Making the Athletics more competitive would intensify competition between the Athletics and the San Francisco Giants, the other Bay Area major league baseball team.

“MLB has not yet set forth its complete business justifications for preventing the movement of the Athletics to San Jose, so a full analysis of this issue is not feasible at this time.  In antitrust economics, a restriction on competition can be justified only if it is reasonably necessary to achieve a pro-competitive objective, which is defined as an improvement in performance that benefits consumers.  Given that San Jose is substantially more economically attractive than Oakland as a home location for the Athletics, the only plausible reason for preventing relocation of the Athletics to San Jose is to protect the Giants from more intense competition from the Athletics.

“Protecting an incumbent firm from losing business to a more efficient competitor is never a reasonable business justification for a restriction on competition.  In this instance, such protection is especially unwarranted.  Since moving to their new stadium in downtown San Francisco, the Giants are among the most successful teams in MLB.  Indeed, the success of the Giants since relocating to a new and much superior stadium illustrates why the quality and location of a stadium is extremely important to the success of a team. 

“While the Giants will experience more intense competition from the Athletics if the latter move into a much better stadium in San Jose, historical experience with stadium improvements demonstrates that increased attendance at home games of the Athletics will not come at the expense of the Giants, just as the Giants’ improved attendance since relocating to downtown San Francisco has not come primarily at the expense of the Athletics.”

Complete Declaration of Antitrust Expert Roger Noll

11 Comments

  1. Stop Already ! This is just another report done by one of Reeds friends . just like the IBM report, and the “Hoover Institute” . And yes Reed apparently has friends . 2 to be exact .

  2. “……relocating to San Jose would substantially increase the potential fan base and attendance of the team.”

    And substantially DECEASE the potential fan base and attendance of the SF GIANTS. (Who have rights to the South Bay)

    • The Giants had a chance to move to the South Bay: they didn’t.  They would be playing in Tampa Bay right about now if the Haas family (then A’s owners) had not been so gracious as to permit the Giants to claim the So Bay as “territory” in order to rally private support for ATT park.

      Now it is the A’s who need to move in order to be competitive.  They want to build a park in San Jose, the least the Giants could do is play fair and be good sports.

      • Everybody forgets that the San Francisco Giants were the first baseball team to move the bay area. The Giants allowed the A’s to move to Oakland from Kansas City back in the sixties.

        The lines were drawn, money talks. A’s don’t want to pay. Giants want a lot of money. The San Jose has no standing in the case.

  3. If a team’s success is tied to its home City’s economics, then the A’s are making an error by courting San Jose.  Mayor Reed has many times warned of “Fiscal Emergency” due to debt and has recently stated that if Measure B is overturned it will result in structural deficits.

    Measure B will very likely be overturned.  The time is well past due for him to admit that Redevelopment debt, unnecessary renovations/remodels and plain stupid budget decisions resulted in BILLIONS of dollars of debt and its not going anywhere- regardless of pensions/healthcare.

  4. Good God, why won’t this die? This fixation on the A’s is getting tiresome. Giving a millionaire downtown land to build a ball park for other millionaires to play in won’t benefit San Jose. Let the council concentrate on important issues like public safety and cut out the frivolous stuff. Let the A’s stay in Oakland.

  5. The giants should solve this by buying the land or parts of it and building a state of the art minor league ball park for the San Jose Giants.  This woud show that they support their territorial rights. They could even play 1 or 2 major league games there per year to pull in the fan base. Look at that as a win win for all. Our muni stadium sucks compared to others around the California league.  Lake Elsinore has a better venue than San Jose!

  6. Most people would say that collusion between McDonalds and Burger King would be anti-competitive, but that collusion between McDonalds franchisees is not.  McDonalds routinely decides if and where their burger stands get placed.

    I think if MLB was making deals with the NBA and NFL that would be anti-competitive, but they have to be allowed to run their own business.

  7. Can anyone deny that AT&T Park has not been a financial boon to a once low economic area of SF?
    Can anyone deny that HP/SAP arena in downtown SJ hasn’t been an economic plus for downtown?

    Giving a developer a few acres of land so he can risk his own(and private) $$ to build a ball park that will generate lots and lots and lots of economic activity can only be beneficial for SJ.

    Yes the developer is a millionaire – but if he was some guy living in St James park this would have less chance of being a success.

    Downtown ballparks are very popular.  All this fluff talk about territorial rights – is just that – fluff.
    Could McDonalds stop JackNBox from building across the street?

    Let free enterprise run its economic course with some civility and good sportsmanship.