WASHINGTON, Dec. 6 (UPI) -- Gloucestershire County Cricket Club, in 1961, the first year I followed it, had total revenues of 9,500 pounds ($26,600 then, equivalent to about $150,000 now) out of which it had to pay salaries for seventeen professional cricket players and ten amateurs during the five-month season.
In this context, today's baseball economics take some getting used to!
I mention Gloucestershire County Cricket Club, employer of David Allen, the finest off-spin bowler of his generation, because it makes the point that sport need not be a matter of billions, that international quality sportsmen have in the past been quite happy to work for a decent workingman's wage and a free car, and that it needn't cost close on $50 to see a mid-season baseball game against the Tampa Bay Devil Rays.
In most human endeavors, you get what you pay for, in baseball, there is little or no evidence that the game spectators see today, in spite of its astronomically higher cost, is a superior product to the game of Ty Cobb and Babe Ruth.
Having yesterday written about the U.S. steel industry, I am struck by certain similarities between the two endeavors. In both cases, a strong trades union has forced up wages, by threatening strikes and in some cases delivering them, against feeble management, to the level where the employers became unprofitable and the economics of the industry became shaky. In the case of steel, the result has been a flood of foreign competition, a sharp decline in industry employment, and a continual demand from successive administrations for protection against "dumping."
In the case of baseball, whose operatives are of course paid a lot more than the $36 per hour enjoyed by steelworkers, the economic results of the strong union have been different, and at least in the medium term (it's now 25 years since baseball free agency) have benefited "line" operatives (the players) "staff" and "management" operatives (the managers, general managers, vice presidents, etc. who are all paid salaries equivalent to top management in a Fortune 500 corporation) and, surprisingly, the owners themselves.
A 53 percent share in the Boston Red Sox and its New England Sports Network TV station, a storied franchise but one whose stadium is 89 years old, is expected to sell for close to $400 million in the next few weeks, far and away a record price. Tom Yawkey bought the Red Sox in 1933, and including purchase of players appears to have invested about $1 million in it in the 1930's. The Yawkey family and trust thus will have achieved a compounded rate of return of approximately 9.2 percent per annum, just about the same as they could have achieved in the stock market over the same time period -- but stock market investment would not have allowed Yawkey to go fishing with Ted Williams!
In other words, until very recently, the whining of baseball team owners about their terrible investments was simply a façade to assist them in their dealings with the Players' Association. In practice most baseball franchises, over most periods, have been perfectly satisfactory investments, and at least one franchise, the Yankees, has been a fabulous investment for either its early owner Jacob Ruppert (1915-1945) or its legendary recent owner George Steinbrenner (1973-present) -- George, it's sure as hell beaten the shipbuilding business over the last 28 years!
This may now no longer be the case. For those who don't follow the sport, baseball has since 1976, following the efforts of the extremely aggressive Players Association organizer Marvin Miller (interestingly, formerly a labor leader at the United Steelworkers) been subject to free agency, by which any player with six years service who comes to the end of his contract can auction his services to the highest bidder. The auction process in baseball is very frequently subject to the "buyer's curse" in which the winner of the auction finds out he has overpaid. 2001's examples of this are the Texas Rangers, who finished last in their division after signing a $250 million contract with shortstop Alex Rodriguez, and the Boston Red Sox, who through free agent signings (in successive years, Jose Offerman for $26 million over 4 years, Carl Everett for $30 million over 4 years and Manny Ramirez for $160 million over eight years) ran their payroll up to $118 million, the highest in the league, and then struggled to win more games than they lost. The numbers are overstated of course, because it is in the interests of both sides to the contract to maximize the apparent amount paid -- the player for bragging rights, the ownership because it convinces local fans that they "care" about winning a pennant.
At this stage, however, it is apparent that baseball may have economically painted itself into a corner. With seats costing up to $50, baseball is no longer a cheap family night out, but must rely increasingly on corporate entertainment revenue. TV audience shares have declined over the last few years, and it seems unlikely except possibly in rural areas that TV channels covering baseball can significantly increase their revenues, either from cable fees or advertising. Cities in tight budget years are no longer likely to provide huge subsidies for new stadiums filled with corporate boxes -- and indeed it's possible that the clubs wouldn't be able to find takers for the boxes if they did. After the demise of Enron, PSInet and the rest, there is no longer going to be a really exciting market for ballpark naming rights. In short, team revenue over the next decade is unlikely to grow significantly, and will quite probably shrink.
Of course, the baseball owners, a notoriously untrustworthy group, are overstating the case when they claim in 2001 to have lost $519 million, but it is significant that it is in this year, the first non-expansionary year in the U.S. economy in the last decade, that they have made this claim. It is indeed likely that baseball teams, having in general broken even or been marginally profitable for many years (and with the owners of course making out like bandits when they sold the franchise) have suddenly run into difficulties with the 2001 economic downturn.
The way forward is thus particularly murky. While the Players Association is so strong, and the free agent system plays so cleverly (from the players' point of view) on owners' and local macho instincts, it is likely that upward pressure on player remuneration will continue, while revenue ceases to grow. The result must surely be escalating losses, and an increasing number of franchises, which, like Montreal or Minnesota currently, decide they can no longer continue. If the desirability of baseball team ownership is reduced, so that franchise values drop, the game could be in for a very difficult financial period indeed.
The solution, of course, is to reduce the power of the Players Association. The most obvious way to do this is to institute a "salary cap" as in the National Football League. This has a number of disadvantages; it tends to reduce all teams to mediocrity, it penalizes the franchises, which work hard at player development, and it entrenches the financial position of the owners -- who enjoy a de facto monopoly.
Whether or not this is done, we need to remove the "free ride," either that of the players currently or that of the owners if salaries are capped. This can be done very simply, by removing baseball's antitrust exemption, granted in 1922 by Supreme Court justice Oliver Wendell Holmes in a moment of sentimentality and now wholly inappropriate. If that exemption was removed, then teams which continued to charge their fans $50 for a baseball game would, at least in the big cities, find themselves challenged by an upstart league which offered lower stadium seating prices. The result would be a huge bidding war for baseball talent, which would quickly reduce the salaries of the superstars, but ensure the employment of hundreds more major league journeyman at salaries which, to anybody but a baseball player, would be more than satisfactory. This is what happened in the 1880's, when the National League, charging 50 cents for seats, was challenged by the American Association, charging 25 cents and allowing beer in ballparks.
More baseball, cheaper but still prosperous players, and ticket prices reduced to a level the average fan can afford -- it seems like nirvana, and it can be done quite simply, without reducing baseball to the level of the 1961 Gloucestershire County Cricket Club!
