The reserve clause is a term formerly employed in North American professional sports contracts. The reserve clause, contained in all standard player contracts, stated that, upon the contract's expiration the rights to the player were to be retained by the team to which he had been signed. Practically, this meant that although both the player's obligation to play for the team as well as the team's obligation to pay the player were terminated, the player was not free to enter into another contract with another team.
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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 the national pastime prosperous, the only large-scale professional sport in America during the 1920s of any significance, 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 2011, has never been overturned.
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.
