Today Major League Baseball remains the only sporting league that receives an antitrust exemption from the United States, essentially giving them free reign to stamp out any sort of competition. This all stems from a Supreme Court case decided in 1922.
The Federal League initially sued the two major leagues in 1915, stating that they had violated antitrust laws by using the reserve clause to prevent players from being signed by the new league. The reserve clause essentially stated that a team had the ability to “reserve” certain players and that these players could not be signed by any other team. If the players tried to leave, they could be found in breach of contract and sued. The case was brought before Judge Kenesaw Mountain Landis, who was known for having a hard stance against monopolies. Unfortunately, Landis loved baseball the way it was, so he sat on the case and kept putting off his decision. Eventually, the owners of the Federal League capitulated and the leagues made a merger of sorts, with most of the owners either joining the Major Leagues or receiving monetary settlements of some kind. Landis was made the first Commissioner of Major League Baseball thanks to his loyalty.
The owners of the Baltimore and Chicago teams from the Federal League were frozen out in the peace agreement between the organizations and sued the National and American Leagues again under the antitrust laws. They were awarded $264,000 ($2.8 million in 2003 dollars) by the federal district court, but this decision was later overturned by the appeals court.
The case was then appealed to the Supreme Court in 1922. A summary paragraph from the judgment by Chief Justice Oliver Wendell Holmes (emphasis mine):
The business is giving exhibitions of base ball, which are purely state affairs. It is true that in order to attain for these exhibitions the great popularity that they have achieved, competitions must be arranged between clubs from different cities and States. But the fact that in order to give the exhibitions the Leagues must induce free persons to cross state lines and must arrange and pay for their doing so is not enough to change the character of the business. According to the distinction insisted upon in Hooper v. California, 155 U.S. 648, 655 , 15 S. Sup. Ct. 207, the transport is a mere incident, not the essential thing. That to which it is incident, the exhibition, although made for money would not be called trade of commerce in the commonly accepted use of those words. As it is put by defendant, personal effort, not related to production, is not a subject of commerce. That which in its consummation is not commerce does not become commerce among the States because the transportation that we have mentioned takes place. To repeat the illustrations given by the Court below, a firm of lawyers sending out a member to argue a case, or the Chautauqua lecture bureau sending out lecturers, does not engage in such commerce because the lawyer or lecturer goes to another State.
The court ruled unanimously that Major League Baseball was not interstate commerce, and thus did not fall under the Sherman Antitrust Act. Even though people crossed state lines in order to play in and watch baseball games, this action was not essential to the playing of baseball itself. Each team was an independent entity that agreed with each other to perform exhibitions in different locations.
In the 1972 case of Flood v. Kuhn, the Supreme Court called the Federal League decision an “exception,” an “anomaly,” and an “aberration”, but still reaffirmed it! The majority reasoned that because Congress had rejected numerous attempts to bring baseball under the antitrust laws, it had implicitly approved the decision. As a result, baseball is allowed to engage in practices that would be declared illegal for almost any other business.