In North American professional sports, the reserve clause was part of a player contract that stated upon the contract's expiration, the rights to the player were to be retained by the team. This meant the player was not free to enter into another contract with another team. Once signed to a contract, a player could be reassigned, traded, sold, or released at the team's whim. The only negotiating leverage that most players had was to hold out at contract time, refusing to play unless their conditions were met. The player was bound to either negotiate a new contract to play another year for the same team, or ask to be released or traded. The player had no freedom to change teams unless he was given his unconditional release. Unconditional release is when a team no longer needs that player. In the days of the reserve clause, this was the only way a player could be a free agent.
History and baseball
In the late 19th century, baseball in America became popular enough that its major teams began to be businesses worth considerable amounts of money, and the players began to be paid sums that were well above the wages earned by common workers. To keep player salary demands in check, team owners promulgated a standardized contract for the players, in which the major variable was salary. The players unsuccessfully tried to fight the growing reserve system by forming a union, the Brotherhood, and founding their own Players' League in 1890, but the PL lasted just one season. For the next 80 years, the reserve system ruled the game. In this era, all player contracts were for one year. There were no long-term contracts as there are today, because the reserve clause negated the need for them.
The Reserve Clause's inception was in 1879, when it was proposed as an unofficial rule known as "the Five Man Rule." It would allow teams to reserve players for each season, unless a player opted out of his contract and did not play in the league for a year. While the rule was not secret, teams started to sign other teams' "reserved players", thus encroaching the rule. These controversies caused the National League to instate the rule officially on December 6, 1879.
Teams realized that if players were free to go from team to team then salaries would escalate dramatically. Therefore, they seldom granted players (at least valuable ones) a release, but retained their rights, or traded them to other teams for the rights to other players, or sold them outright for cash. Players thus had a choice only of signing for what their team offered them, or "holding out" (refusing to play, and therefore, not being paid).
Under the Sherman Antitrust Act of 1890, two or more non-affiliated companies in any other interstate business were prohibited from colluding with each other to fix prices or establish schedules or rates. Enforcement of the Act reached its apotheosis in 1910 when the Supreme Court affirmed the government's order to dissolve the Standard Oil conglomerate. Yet it was argued that to keep baseball (the only large-scale professional sport in America during the 1920s) prosperous, granting it immunity from the Sherman Act was in the best interests of the game and the nation.
Thus, the United States Supreme Court had held in 1922 in Federal Baseball Club v. National League (259 U.S. 200) that baseball was an "amusement", and that organizing a schedule of games between independently owned and operated clubs operating in various states, and engaging in activities incidental thereto, did not constitute "interstate commerce" and that therefore antitrust laws did not apply to such activity, a ruling that, as of now, has never been overturned, despite efforts to do in Toolson v. New York Yankees and Flood v. Kuhn.
This pass on "trust-busting" essentially codified the reserve clause for many years, and gave what came to be known as Major League Baseball unprecedented power over both players and the independent organizations of the National Association of Professional Baseball Leagues (NAPBL). MLB could dictate not only how and where professional players could move between major league clubs, but as they took the opportunity of the Great Depression to establish systems of farm teams of players wholly owned by the parent clubs placed on 'independent' teams from the NA leagues around the country, they developed a way of expanding control of contracts of virtually the entire pool of professional baseball players.
When other team sports, particularly ice hockey, football, and basketball developed professional leagues, their owners essentially emulated baseball's reserve clause. This system stood almost unchallenged, other than by the occasional holdout, for many years.
In October 1969, St. Louis Cardinals outfielder Curt Flood unsuccessfully challenged his trade to the Philadelphia Phillies. Flood sacrificed the remainder of his playing career to pursue this litigation. Flood's case established that the reserve clause was a legitimate basis for negotiation in collective bargaining between players and owners, and that the historic baseball antitrust exemption was valid for baseball only and not applicable to any other sport. Curt Flood unsuccessfully challenged the reserve clause in 1970, but Marvin Miller helped overturn it five years later in 1975.
Removing the reserve clause from player contracts became the primary goal of negotiations between the Major League Baseball Players Association and the owners. The reserve clause was struck down in 1975 when arbitrator Peter Seitz ruled that since pitchers Andy Messersmith and Dave McNally played for one season without a contract, they could become free agents. This decision essentially dismantled the reserve clause and opened the door to widespread free agency within North American professional baseball.
Other sports soon followed suit.
On June 18, 1921, the NFL ratified its first constitution. The reserve clause ratified in the constitution was similar to that of baseball's at the time. The reserve clause stipulated that a team had the first opportunity to sign a player after the length of the contract had expired. If the team chose not to offer a contract, then the player could try to sign with a team of his choosing. Theoretically, the reserve clause bound the player "...to his employer in perpetuity". The reserve clause had been abolished in the NFL constitution in 1948 when the option clause was created.  The option clause stated that a team may choose to automatically keep a player on their team for another year, at the same pay, after his contract had expired. The term, option clause, was not used by the print media and it was instead referred to as the reserve clause. Nevertheless, in the NFL's attempt to gain antitrust exemption from Congress in 1957, Bert Bell still referred to the clause as the option clause (and also as the "option and reserve clause").
Decades later, NFL players' mobility was limited by the so-called "Rozelle Rule", named for the commissioner who first implemented it, which allowed the commissioner to "compensate" any team who lost a free agent to another team by taking something of equivalent value, usually draft picks, from the team that had signed the free agent and giving it to the team the player had left. Fear of losing several future high draft picks greatly limited free agency as no team wanted to sign a veteran player only to learn that it would lose, for example, its next two first-round draft picks. The Rozelle Rule was eventually replaced by "Plan B", which allowed a team to name a thirty-seven man roster the reserve clause would apply to, and all players not included on this list were free agents. Obviously, few top-echelon players were left off this thirty-seven man roster unless they happened to be injured. Courts eventually ruled this plan to be an antitrust violation, and something resembling true free agency came to pro football. Now, exclusive rights to a player are only for the first three years after his selection in the college draft. At the end of the first three years, a player can be a "restricted free agent", allowing his former team to match any offer made to him by another. After four years in the NFL all contracts end with the player becoming an unrestricted free agent without reserve.
There is a Franchise tag option that is similar to the reserve clause; however, teams can only tag one player each year, although they can tag the same player for consecutive years. Franchised players are eligible to receive at least 120% of their previous year's salary, and players tagged "non-exclusive" can accept offers from other teams; if the original team does not match the offer, they receive draft picks as compensation. In recent years, many teams have opted not to exercise their right to designate the Franchise tag.
The National Basketball Association went through several phases of compensation and other arcane provisions before reaching almost unrestricted free agency. The first player in that league—and the first American major-league athlete—to challenge the reserve clause was Rick Barry. In 1969, he wanted to leave the San Francisco Warriors after his second season to play for the Oakland Oaks, who were coached by his father-in-law, Bruce Hale. After a court upheld it,[clarification needed] Barry sat out a season before joining the Oaks.
The reserve clause was the basis for the NHL's injunction against the large number of players who had signed with the rival World Hockey Association in 1972, with all but one—against Chicago Black Hawks star Bobby Hull—ultimately thrown out by lower courts. The appellate court, however, sided strongly with the WHA and Hull, calling the NHL's business practices monopolistic, conspiratorial, and illegal. While the reserve clause was not explicitly struck down, the court did effectively block any further injunctions based on the reserve clause, rendering it useless. (The WHA, meanwhile, voted at its founding to abolish the reserve clause.) The end of the reserve clause in hockey remains a significant part of the WHA's legacy, as it ultimately resulted in the evolution of the NHL's modern free agency system.
The highly contentious negotiations between National Hockey League owners and players that led to a lockout, wiping out the entire 2004–05 NHL season, were in part about free agency; the previous system precluded unrestricted free agency before the player reached 31 years of age. Most younger hockey free agents were restricted free agents whose teams could retain them by matching an offer from another club or making a "qualifying offer", which usually consisted of a ten percent raise above the pay in the former contract. Following the 2004-05 lockout, owners eventually agreed to phase in a much lower age for unrestricted free agency (27 years of age or 7 years in the NHL, whichever comes first) in exchange for the players meeting owners' principal demand in the new NHL Collective Bargaining Agreement—an overall salary cap. Nevertheless, the league demanded the re-imposition of the 31-year-old threshold for free agency in the most recent lockout, but when union responded by threatening to disclaim interest and file antitrust suits against the league, the owners backed down.
Major League Soccer
Major League Soccer (MLS) is a professional soccer league representing the sport's highest level in both the United States and Canada. MLS constitutes one of the major professional sports leagues of the United States and Canada.
Unlike the other four "major" leagues of North American professional sport, MLS still retains a reserve clause in every player's contract. For Major League Soccer, this was initially to prevent clubs from competing with each other for player contracts, an aspect of single-entity designed to protect it from antitrust lawsuits. MLS is a single entity in which each team is owned and controlled by the league's investors. The investor-operators control their teams as owners control teams in other leagues, and are commonly (but inaccurately) referred to as the team's owners. In MLS' view of the global professional sports marketplace, internal bidding leads to increased costs. The league takes an additional step, imposing the reserve clause for players indefinitely, making player rights a commodity within the team structure for long after the player has left the league.
- Seitz decision, which ended the reserve clause in baseball
- Bosman ruling, a European Court of Justice decision that ended a similar system in European Association football (soccer)
- NHL Collective Bargaining Agreement
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