Basically Andy Messersmith and Dave McNally (who quit mid season in 1975) played out their reserve clause. The owners argued that a clause in the basic contract that existed from the 1880s that said a team could renewed a contract for one year meant they could renew it indefinitely. Players argued one year meant one year. They also won the right to have an arbitrator decide disputes in the spring 1972 baseball strike (which was Seitz). That may have been the key point…getting a neutral party who was unimpressed by cries of “the game will die without the reserve clause”
Bill James in his Historical Baseball Abstract talks about how one agent, Tom Reich, had a brother Sam who was a lawyer, ask for a copy of the basic contract years after the case.
Sam had all his life heard about the reserve clause and finally decided to read one. He couldn’t find it in the contract until his brother pointed out the one sentence. Sam was shocked, saying no one could expect to win their case on one solitary sentence, especially since the clause was an owner’s decision and courts would not act favorably to language that punished one side (players) that was inserted by the other (owners). Sam was expecting all kinds of paragraphs outlining the areas covered and not covered.
Flood didn’t play out his option. he refused to report to Philadelphia in 1970, although in 1971 he did sign a contract with Washington but quit after a few weeks, in an emotional state of distress and playing poorly.
Probably the main reason why Flood lost his case was twice before in the 1920s (Federal league) and 1950s (Toomey? a minor leaguer) the Court ruled that baseball was immune from anti-trust and Congress should regulate it if it wanted. The Supreme Court generally does not like to overturn its decisions, particularly if the first one was written by a heavyweight like Oliver Wendell Holmes. Since the Congress in the preceding half century had left baseball immune, therefore the Court in Flood vs Kuhn (by a 5-3 vote, Powell abstaining since he owned stock in Anheuser Busch, owner of the Cardinals) ruled against Flood. Apparently Flood's attorney, former Justice Arthur Goldberg, put on a lousy presentation although whether that hurt is unknown.
Players union boss Marvin Miller liked to make a big deal out of three of the Nixon appointees voted against Flood. He always left out that fact that the Kennedy appointee, Byron White voted against Flood. White played in the NFL in the 1930s when millions were unemployed and players travelled to cities packed in station wagons. He was grateful that the NFL salary paid for his law school and thought Flood was a fool for saying on national television that he was a slave making 15 times White's NFL salary and staying in first class hotels. See the Woodward book "The Brethren" for this and wonder how Harry Blackmun could forget Mel Ott.
Hard to believe that Messersmith (and McNally) were the first ones to try this. A couple (Ted Simmons and Richie Zisk?) had a couple years played until September before signing contracts (part of that was whether players salaries were covered by the wage and price controls laws of 1971, ultimately they were ruled they weren't). Of course before that owners had other tricks to keep players in line. In 1964 when Jim bouton was fighting the Yankees for a raise, they announced they were fining him $100 a day for not signing. Bouton retaliated by announcing his demands would increase by $500 a day.
Another big factor was the Catfish Hunter free agency of 1974. A’s owner Charlie Finley refused to follow the contract the two had concerning who controlled the money set up for deferred salary in the contract. Finley refused to follow it, Hunter filed a grievance, won and became a free agent. There was a huge scramble for the other teams to sign a Cy Young winner in his prime and the money was far greater than anyone had received (although it was apparently exaggerated by a factor of 100%). This set off in players and union minds that becoming free agents would be a financial boon and a labor dispute in 1976 ultimately gave players the right to free agency after six years.
At least the owners had one consolation. One of their biggest critics for years was Bill Veeck, the former owner of Indians, Browns and White Sox. Out of baseball since the early 1960s, he had testified for Flood in his case. He was able to buy the White Sox with a lot of borrowed money just as free agency was hitting and found his team decimated by players leaving for greener pastures. Veeck was reduced to saying that when he testified that the reserve clause should be eliminated, he didn’t mean all at once. But the owners liked to see him squirm.