Baseball and the Antitrust Laws Part I: The Origins of the Reserve Clause

This is the first of a series of articles intended to address some of the interesting intersections between the law and baseball, particularly baseball’s curious exemption from federal and state antitrust laws. More generally, it’s about the struggle between team owners and players since the dawn of professional baseball, and some of the quirks to emerge along the way.

This article starts at the beginning with a fledgeling set of teams in the National League in the late 19th century—with team owners trying to turn consistent profits and players beginning to emerge as stars, and the tension between the two.

The trouble started in 1879 when the owners of the teams in the National League agreed on the “reserve clause” which was a provision included in player contracts that effectively bound the player to his team for his entire career. (Here’s an example of such a reserve clause.)

At the time, most National League teams were losing money and faced bleak financial prospects. To curb expenses, the teams agreed on a strategy to keep salaries down: each team would be allowed to “reserve” up to five players for the following season. This meant that no other team could sign a reserved player unless he received permission to do so.

As expected, each team elected to reserve their five best players, i.e., their most expensive players. With no market competing for players’ services, team owners were able to suppress salaries for elite talent and increase profits. Indeed, just two seasons after the adoptions of the reserve clause, most teams had become profitable, the first time that had happened.

 Due to this success, the owners saw no reason to limit the reserve clause to the top five players. They steadily increased the reserve limit until, by 1887, a team was permitted to reserve its entire roster, 14 players at the time. 1887 is also the year that the reserve clause became an explicit provision in players’ contracts; until then, it had at first been a secret agreement between the owners and then, after it leaked, simply become a league rule that all players were required to abide by. Importantly (for the owners), the reserve clause crept beyond the National League into other competing leagues that would emerge during that time, including the American Association and the American League, which both agreed to honour National League’s reserve lists.

At this time, the contracts were decidedly one-sided. Although teams effectively controlled a player for the entirety of his career, nothing bound the teams to their players, except for their contracts (and virtually all contracts had one-year terms). Any player could be traded or sold at any time, and they could be released on just 10-days’ notice.

John Montgomery Ward became an important early figure in challenges to baseball’s reserve clause. Known as Monte Ward during his playing days, he began his career at 19 as a pitcher for the Providence Grays. In 1879, he went 47–19 with 239 strikeouts and a 2.15 ERA, pitching 587 innings. The following season Ward went 39–24 with 230 strikeouts and a 1.74 ERA pitching 595.0 innings. Ward also has the distinction of pitching the second perfect game in professional history as well as the longest complete game shutout, going 18 innings in a 1-0 win over the Detroit Wolverines 1–0 on August 17, 1882, a record that will never be broken. (He also has a pretty epic baseball card.)

Following an injury to his pitching arm that, remarkably, was not attributed to his workload but to a mishap while sliding, Ward’s performance as a pitcher began to diminish, so the Grays sold him to the New York Gotham before the 1883 season (they have renamed the New York Giants in 1885.) The move was fortuitous for several reasons, including the fact that it enabled Ward to enrol at Columbia Law School, where he graduated in 1885.

Using his legal training, Ward organized and led the first labour union in professional sports, the Brotherhood of Professional Baseball Players. The principal goal of the Brotherhood was to raise player salaries, which had remained stagnant even though baseball’s popularity (and revenues) had risen considerably. A chief target of the Brotherhood’s effort was the reserve clause, which continued to suppress players’ salaries and limit their mobility.

Although the reserve clause was quite blatantly an anticompetitive tactic employed by team owners to suppress salaries, players did not initially attack the provisions on antitrust grounds. Instead, the early challenges to these agreements were brought under the law of contracts—and were actually first brought by the owners, not the players.

The challenges arose when the Brotherhood announced plans to start their own league for the 1890 season to compete with the National League. Instead of abiding by the one-sided agreements with the National League teams, the players founded the Players’ League, which included a profit-sharing plan for the players and, importantly, no reserve clause in the contracts. Many of the National League’s top players announced their intention to sign with Players’ League team, despite the reserve clause in their contracts with the National League.

Thus, the National League team owners were the first to file lawsuits against the defecting players, suing them for breach of contract and seeking to enforce the reserve clause of their contracts. They filed suits against three players at the end of 1889, including one against Monte Ward, who had signed on to play (and manage) a team in Brooklyn called Ward’s Wonders.

Now, the goal of the National League owners was not simply to be compensated for any injury but, instead, to get the players to play in their league. Thus, the owners sought injunctive relief, not money damages. Yet, as labour & employment attorneys will tell you, courts typically do not order one party to an employment contract to go work for the other (i.e., specific performance). Money damages are typically the only remedy available when one party refuses to perform. But, instead of seeking an order getting the players to play for their National League teams, the owners sought to bar them from the Players’ League.

The case against Monte Ward—Metropolitan Exhibition Co. v. Ward, 9 N.Y.S. 779 (N.Y. Sup. Ct. 1890)–-was decided first, and it went in favour of the players. The New York court denied the owners’ requested injunction, concluding the contract was unenforceable because it lacked key material terms, such as salary. Ward’s contract for the 1889 season provided for a salary of $3,000, but the reserve clause did not specify what his salary for the 1890 season would be. It merely stated that it would be no less than $3,000 if the team brought him back. Because the reserve clause failed to specify key provision, the court reasoned that it was too indefinite to be considered a binding contract for the 1890 season. Instead, it was simply a preliminary agreement to make a contract at some point in the future.

The court also offered an alternative basis for its ruling. If the court assumed that the reserve clause could be read to constitute a binding contract for the following season, then it would fail for lack of mutuality. “A contract, to be specifically enforced by the court, must be mutual . . . . Whenever . . . the contract is incapable of being enforced against one party, that party is equally incapable of enforcing it against the other.” A recurring reserve clause meant that a player would be chained to his current team for as long as the team wished, but the team could release the player at any time for any reason, as long as it provided ten-days’ notice. The court found this outcome and its gross imbalance to be outrageous: “We have the spectacle presented of a contract which binds one party for a series of years and the other party for ten days, and of the party who is itself bound for ten days coming into a court of equity to enforce its claims against the party bound for years.”

The owners’ cases against two other players that year fared equally well. Next up was the Philadelphia Quakers suit against Bill Hallman, a second baseman with the club that had signed to play with the Philadelphia Athletics of the Players’ League for the 1890 season. Hallman had a contract like Ward’s: he was paid $1,400 for the 1889 season, and the Quakers had the right to reserve him for the 1890 season. The Pennsylvania court reached the same outcome as the New York court in Ward’s matter and applied the same reasoning to get there. It found that, because Hallman’s contract failed to specify his salary for the 1890 season, it was not a definite contract that could be enforced. Alternatively, even if his contract was assumed to be $1,400 because the team could release him on ten-days’ notice, the agreement was so one-sided that it lacked mutuality.

Finally, in March 1890, right before the season was to begin, the owners lost their third case in a row, this one against Buck Ewing in federal court in New York—Metropolitan Exhibition Co. v. Ewing, 42 F. 198 (S.D.N.Y. 1890). In reaching its decision, the court cited the two prior decisions involving Ward and Hallman, reasoning that “[i]f the term, ‘the right to reserve,’ has no defined meaning, . . . it would be an ambiguous phrase . . . . In a legal sense, it is merely a contract to make a contract if the parties can agree.” The court concluded: “It follows that the act of the defendant in refusing to negotiate with the club for an engagement for the season of 1890, while a breach of contract, is not the breach of one which the plaintiff can enforce.”

Thus, with that, it seemed that the players had swiftly and definitively dispatched the reserve clause from baseball for good. But as we will see, subsequent legal decisions and market forces would conspire to ensure that the reserve clause would persist in major league baseball for another 80 years.

(For a great, in-depth, and highly readable book on baseball’s history with the legal system, I highly recommend Professor Stuart Banner’s The Baseball Trust: A History of Baseball’s Antitrust Exemption.)