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curveball economics
The $s are there, so are greed and shortsightedness
By Carl Bialik
Welcome to the wacky world of baseball economics.
Here are some figures to ponder.
America's major league baseball teams ran operating losses of $344 million last year, as the leagues tell us.
In this same year player salaries averaged more than $2.1 million.
That's up--a 12.8 percent increase from the prior year.
And that was the lowest rate of increase since 1998.
The big battle between team owners and players these days is over contraction, a euphemism for eliminating two teams.
In typical baseball fashion, there's been lots of bullyragging on both sides, with the players threatening a strike if the owners move forward on their plans to chop the two teams.
But overshadowed by contraction are far deeper issues dividing players and owners.
If baseball were a nation, it would be a nation of haves and have-nots, with the haves being the players and a few top teams.
The have-nots? All the other teams.
As a nation, baseball is in deep need of some income distribution--wealth-sharing. Few disagree that all would be better off for it, the teams and their owners, the players and especially the fans.
It also needs to go on an allowance.
Impeding that, though, is the poor financial health of many teams and the short-term focus of the players’ association as they sputter at attempting to work out a new collective bargaining agreement this offseason.
And looming over those talks is the threat of a strike.
While analysts believe a players’ strike is highly unlikely this offseason, the mere mention of it rattles them.
"Self-inflicted suicide" is how Marc Ganis, president of sports consulting firm Sportscorp Ltd., describes the effect of a strike or a lockout by the owners.
"I think the backlash would be so intense that the sport itself would lose virtually all the public support it currently enjoys."
Ganis, like many, thinks the union needs an attitude change before the sport's longer-term woes can be remedied.
"For the players’ association, the current system works just fine, if your only goal is to maximize the salaries," Ganis says.
"However, that myopic, singular goal has the unintended but completely understandable effect of making teams in small- and mid-sized markets noncompetitive."
The evidence of that can be found in the numbers.
Teams with the top-12 average player salaries all had winning records. Of the remaining 18 teams, only four had winning records.
A seemingly simple solution to baseball's lopsided economics would be to cap teams' salaries, as owners have suggested.
It would certainly make sense. Not only would it hold down costs across the leagues, it would keep deep-pocketed teams like the New York Yankees from bidding up the salaries of all players as they up the price they're willing to pay for the most sought-after players.
Baseball would once again become a game of talent--talented managers spending wisely to assemble talented teams of players who play talented baseball as a team.
But the players' union will have none of it.
"A salary cap represents a formidable obstacle for agreement," says Don Hinchey, director of creative services at The Bonham Group, a sports-consulting firm. "The union’s response has been consistently hostile."
And at least at this point in baseball history, the union clearly has more power than the owners.
Its successes have made the union and its chief, Donald Fehr, resistant to changes.
Ganis says Fehr could learn from his counterpart at the NFL, Gene Upshaw. As executive director of the football players’ association, Upshaw agreed to a salary cap in 1994.
"Fehr has not shown the kind of foresight that Upshaw has shown," Ganis says.
"Upshaw recognized the way players benefit most is if the NFL grows, so his goal was, let me get a big slice of the NFL pie, and let me help the NFL grow that pie. It was a simple yet brilliant strategy."
Still, Ganis see some hope for baseball this offseason.
He says baseball commissioner Bud Selig’s recent decision to release baseball’s dour financial figures has helped ease fan and media pressure for owners and general managers to pursue talented free agents without regard to cost.
Against Selig's numbers the doling out of multimillion dollar salaries seems all the more profligate.
As a result, bidding has been slow even for a superstar like the San Francisco Giants’ Barry Bonds, who set the major-league record for home runs this year.
Having received no outside offers for his slugging services, Bonds accepted the Giants' offer of arbitration yesterday, ending his free agency.
However, Ganis thinks this does not solve the problem; it merely slows the rate of salary growth.
He sees a complete package, including tying salaries to revenue and increasing revenue-sharing, as necessary to long-term financial health.
Above all, the owners and players must build a long-term relationship of trust and partnership. Ganis says the cooperation between Upshaw and NFL Commissioner Paul Tagliabue is a model that should be followed by other sports.
Until now, Fehr and baseball commissioner Bud Selig have hardly followed that model. The two were at the helm of their respective sides during the players’ strike of ’94-’95, and the rancor still occasionally surfaces.
At a news conference on Dec. 6, Fehr said Selig had cut negotiations off cold in June and that his office had threatened a lawsuit if the union released certain financial data.
Hinchey, interviewed before the talks on delaying contraction broke down, saw the negotiations as a positive sign.
"I’m encouraged by the apparent progress the two sides have made in this contraction discussion," Hinchey told Media Life. "That suggests to me they are able to set aside the emotion and get down to substantive issues, which at the end of the day will be essential to an agreement."
But now that the contraction rancor has resumed, even less time will remain in the offseason for the two sides to reach a compromise on bigger issues.
Ganis thinks a one-year extension in the current collective bargaining agreement is possible. That would just put off talks on the larger issues for another year.
December 20, 2001 © 2001 Media Life
-Carl Bialik is a New York writer and a regular contributor to Media Life.
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