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MLB's lockout partially stems from the fact that the league is a monopoly

AUDIE CORNISH, HOST:

Major League Baseball's lockout is more than two weeks old, with owners and players still at odds. The dispute stems in part from the fact that the MLB is a monopoly organization. Stacey Vanek Smith and Adrian Ma from our daily economics podcast The Indicator brings us the backstory.

STACEY VANEK SMITH, BYLINE: Baseball's status as a monopoly has been kind of enshrined in legal history. To understand how, we have to go back to the very early days of American baseball.

ADRIAN MA, BYLINE: Andrew Zimbalist is a sports economist at Smith College in Massachusetts.

ANDREW ZIMBALIST: When baseball was first starting, as you can imagine, it didn't require a lot of resources to put a baseball team on the field. There was a lot of open urban area, for one, back in the 1870s and 1880s, and there was lots of competition.

VANEK SMITH: And while all this competition was really good for the sport's popularity, it pretty quickly became really annoying for the owners of the National and American Leagues. Those are the two leagues that would later combine to become Major League Baseball.

MA: So the problem was, you know, to make money, they have to attract fans. But to do that, they have to attract the best players - or, you know, at least the best white players they were willing to hire in the context of a super segregated sport.

ZIMBALIST: And so the bidding war starts. And all of a sudden, the salaries, which had been well controlled, now they start getting out of control, and the leagues realize they're doing this to each other. And they said, well, you know what? Rather than being enemies, let's just work together.

MA: This sort of scratch my back, I scratch yours approach worked for a little while until another rival showed up on the scene, something called the Federal League. And the National and American Leagues saw this and they moved to snuff it out. They offered buyouts to a lot of the Federal League owners to, you know, make them go away.

VANEK SMITH: Except there was this one team that did not want to play ball. It was the Baltimore Terrapins, and it brought a lawsuit under the Sherman Antitrust Act, which prohibits monopolies in interstate commerce. And when the case eventually reached the U.S. Supreme Court in 1922, the justices unanimously kind of kicked dirt in the Terrapins' face. The court says, yes, OK, these teams do travel around the country playing games for money, but somehow that is not technically commerce, and ipso ergo antitrust law does not apply.

MA: What do you think was going on in their heads that made them arrive at that conclusion?

ZIMBALIST: The justices saw this as something that was threatening the stability of this cultural, iconic activity.

MA: This decision a hundred years ago gave Major League Baseball essentially an antitrust exemption, a green light to continue anti-competitive practices.

VANEK SMITH: But then in the 1960s, the players got together and formed a union. And suddenly, pro baseball went from a sport with one monopoly to essentially a sport with two monopolies.

J C BRADBURY: We have players who have banded together to form a union to form a monopoly to sell Major League talent to Major League owners.

VANEK SMITH: This is Kennesaw State University economist and baseball nerd JC Bradbury. And he says this is what is called a bilateral monopoly.

BRADBURY: You have a single buyer and a single seller, and each party needs the other one. And that's why this becomes such a brutal bargaining game right now. The neat thing about markets is that we don't have to sort of judge necessarily who's right. It's a bargaining process.

MA: Yeah. Try telling that to the fans, right? If these sides cannot get together with some sort of agreement, there won't be any baseball to watch.

Adrian Ma.

VANEK SMITH: Stacey Vanek Smith, NPR News. Transcript provided by NPR, Copyright NPR.