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Sox sale shows problems with baseball’s antitrust exemption

US REPRESENTATIVE BILL Delahunt is right: the sleaze surrounding the sale of the Boston Red Sox to John Henry and Tom Werner shows that it’s time for Congress to repeal baseball’s prized antitrust exemption.

Not that the congressman used the word "sleaze" on Monday when he said he would push for hearings on the exemption by the House Judiciary Committee, of which he’s a member. But there’s no better description for the essential nature of John Harrington’s "auction" of the controlling interest of the Boston Red Sox to the "highest qualified bidder."

In accepting $700 million from the John Henry–Tom Werner group, which includes the New York Times Company among its investors, Harrington turned down higher bids by financier Miles Prentice and New York cable magnate Charles Dolan. Harrington’s decision quickly came under the scrutiny of Attorney General Tom Reilly, who as overseer of the state’s charities has an interest in making sure that the Yawkey Trust, which owns the controlling interest in the Sox, received as much money as possible from the sale of the team. As Reilly told the Boston Herald this week: "Our goal has been to get more money for the charities. We don’t have an agreement at this point, but this is simply about trying to get more money for the schools, the hospitals, and the kids."

In the meantime, both Prentice and Dolan have upped their offers in the last week — the highest coming from Prentice at $795 million, with $495 million of that earmarked for the Yawkey Trust. Dolan’s offer was rejected by the Sox’ limited partners; Prentice’s was never presented to them for consideration.

So what does this have to do with baseball’s antitrust exemption? Everything.

It’s become clear that the Boston Globe’s Gordon Edes was correct last December 9 — back when the Henry-Werner group was still called the Werner-Otten group — in surmising that Werner would win the bidding process thanks to his close ties to baseball commissioner Bud Selig. Citing sources close to Henry, as well as an executive with an ownership stake in a Major League Baseball team, Edes noted that cynics might think the sale of the Sox was an "inside job."

It was. And an inside job like this one could not have succeeded without the antitrust exemption, which allows Major League Baseball (the only professional sport to enjoy such an exemption) to ignore the Sherman Antitrust Act that would otherwise prevent the league from manipulating every detail of the business of baseball — such as the sale of a team. Federal law is clear on monopolies: businesses can’t conspire with others to control an area of commerce.

How did the process work? Well, forget for a moment the money left on the table that would have gone to Massachusetts charities set to benefit from the Yawkey Trust. Think about the money passed up by the Sox’ limited partners. Savvy businesspeople don’t pass up an opportunity to maximize their investment unless they know that such an opportunity doesn’t exist in the first place. The decision by the Sox’ limited partners to reject every deal but the Henry-Werner offer, even as the bids were pumped up into nosebleed territory, makes sense only if it was made clear to the partners that the sole bid that would be accepted by Major League Baseball was Henry-Werner’s.

Selig’s motivation is transparent. He wants owners who are going to support two of his pet issues in the current negotiations for a new collective bargaining agreement with the players’ union: contraction — eliminating two, and possibly four, teams from the league — and the institution of a salary cap. That means he wants to see John Henry and Tom Werner as the new owners of the Boston Red Sox. (Henry’s bid for the Sox actually depends on contraction going through. He still owns the Florida Marlins. In a complicated arrangement, Montreal Expos owner Jeffrey Loria, who will receive about $200 million in compensation from Major League Baseball if his team is eliminated from the league, is set to buy the Marlins from Henry, thus freeing Henry to become the new owner of the Sox.) Selig doesn’t want Charles Dolan or Miles Prentice in the Sox’ owner’s seat. Both have the kind of deep pockets required to sign the game’s most talented players. Would either one of them want to see limits placed on his ability to field a winning team? After all, as columnist John Donovan has noted: "Since 1994, there have been 31 postseason series. No team that has a payroll in the bottom half of the league has won any of them. Not one. Simply put: The rich teams win."

The people who lose under this set-up are, as Reilly rightly points out, the charities set to benefit from the sale, the proceeds of which will be distributed by the Yawkey Trust. But Harrington reneged on his fiduciary duty to the trust when he accepted an offer for the Sox that was tens of millions of dollars less than the highest bid. Reilly is doubly correct to call for Harrington’s removal as head of the trust. In a Globe op-ed Tuesday, Daniel L. Goldberg — a partner at law firm Bingham Dana, which has long advised the Yawkey Trust — asserted that Harrington sold just half the team for more money than had ever been paid for an entire team. But that does not matter. What matters is that Harrington could have gotten more, much more, and he chose not to.

(It’s also hard not to notice another result of Harrington’s utter incompetence as a businessman: his failure to obtain financing for a new Red Sox baseball stadium. If he’d had any idea of what the team was really worth when he first went to seek funding from the banks, he might have been able to secure bank financing with the team’s stock as security. Or he could have privately sold a portion of the stock to raise some cash, thus reducing the amount of money he needed to borrow to get the deal done.

It’s also hard not to notice that Goldberg admits in his column that the generous contract extended to food-and-beer concessionaire Aramark just before the "auction" ended was arranged to keep bidders from partnering up with Aramark. As the Boston Herald’s Cosmo Macero Jr. points out this week, Goldberg’s assertions in his column directly contradict what he told the Boston Globe December 21: that the Aramark contract extension had nothing to do with the sale. As many observers pointed out after the Aramark contract extension became public, it sure seemed as if the deal had been struck in order for Harrington to buy the limited-partner votes he needed to win approval of any sale.)

The other group that loses out here is the fans. There’s nothing to stop Joseph Baerlein, a spokesman for the Henry-Werner group, from claiming, as he did this week: "Further last-minute maneuvers to undo this agreement or cause further delay comes at a serious price for the baseball team and its fans for this upcoming season."

But the truth, as the fans know, is that John Henry and Tom Werner are less interested in fielding the top talent needed to bring a World Series to Boston than they are in doing Bud Selig’s bidding. By signing on to Selig’s intended economic restructuring of Major League Baseball, Henry and Werner are sending a message to fans: don’t expect us to pay for a World Series. Either Dolan or Prentice could have afforded it — but neither was ever given a chance. In the end, Red Sox Nation will pay through the nose — either at the ballpark, or as at-home cable viewers — for the privilege of watching their team ... lose yet another season.

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Issue Date: January 17 - 24, 2002

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