[Senate Hearing 106-1045]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1045
BASEBALL'S REVENUE GAP: PENNANT FOR SALE?
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HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
BUSINESS RIGHTS, AND COMPETITION
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
NOVEMBER 21, 2000
__________
Serial No. J-106-114
__________
Printed for the use of the Committee on the Judiciary
__________
U.S. GOVERNMENT PRINTING OFFICE
74-416 WASHINGTON : 2001
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
------
Subcommittee on Antitrust, Business Rights, and Competition
MIKE DeWINE, Ohio, Chairman
ORRIN G. HATCH, Utah HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
Pete Levitas, Chief Counsel and Staff Director
Jon Leibowitz, Minority Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio......... 1
Kohl, Hon. Herbert, a U. S. Senator from the State of Wisconsin.. 5
Leahy, Hon. Patrick, a U. S. Senator from the State of Vermont... 6
WITNESSES
Costas, Bob, Sportscaster, National Broadcasting Company......... 40
Fort, Rodney, Professor of Economics, College of Business and
Economics, Washington State University, prepared statement..... 41
Mitchell, Hon. George J., Former Senate Majority Leader, and
Independent Member, Commissioner's Blue Ribbon Panel on
Baseball Economics, prepared statement......................... 28
Selig, Allan H. ``Bud'', Commissioner of Major League Baseball,
prepared statement............................................. 9
Stadulis, Frank, President and Chief Executive Officer, United
Sports Fans of America, prepared statement..................... 55
Will, George F., Columnist, Washington Post, and Independent
Member, Commissioner's Blue Ribbion Panel on Baseball
Economics, prepared statement.................................. 52
APPENDIX
Pecor, Raymond, Owner of Vermont Expos and Ottawa Lynx, prepared
statement...................................................... 77
Zimbalist, Andrew, Robert A. Woods Professor of Economics, Smith
College, prepared statement.................................... 78
BASEBALL'S REVENUE GAP:
PENNANT FOR SALE?
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TUESDAY, NOVEMBER 21, 2000
U.S. Senate,
Subcommittee on Antitrust, Business Rights,
and Competition,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:00 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine,
(chairman of the subcommittee) presiding.
STATEMENT OF HON. MIKE DeWINE, A U.S. SENATOR FROM THE STATE OF
OHIO
Senator DeWine. Good morning. Let me begin by welcoming
everyone here this morning. As you know, we have convened this
hearing to examine the issue of competition in baseball.
We have reached a point in the game where growing revenue
disparity among teams in Major League Baseball is creating a
sport of haves and have-nots, a sport where teams with the
biggest bucks can buy the best players and control the game.
Unless baseball addresses these increasing income inequities,
America's pastime, as we know it, will simply no longer exist.
The simple fact is this: There is a direct relationship
between the levels of revenue teams bring in and their ability
to compete on the field. As revenue disparity increases,
competition decreases. High-revenue teams can simply outspend
the others.
Just compare this past season, the year 2000, and compare
opening day payrolls to year-end team standings. For example,
in the American League East, the New York Yankees, with the
highest opening day payroll of $92.5 million, won this year's
World Series. The Minnesota Twins, on the other hand, the team
with the lowest opening day payroll of $16.5 million, finished
dead last in the American League Central Division, and also had
the second worst record in all of baseball this year. And as
sports fans know, those were only the opening day figures. The
opening day figures of the Yankees at $92 million, and it was
not too long after that that they went over the figure of $100
million.
The story is similar in the National League, where the
Braves, with an $84.5 million payroll, finished first in the
East Division, while the Pirates, for example, with a $28.9
million payroll, placed second to last in the Central Division.
This seems to indicate that while the boys of summer
certainly still play for the pennant, right now some Major
League Baseball owners are out to pay for the pennant, and to
pay big. This fact convinced Baseball Commissioner Bud Selig to
create a blue ribbon panel to examine the situation and
consider methods to restore revenue balance and healthy
competition.
The panel's report, which we will be examining closely
today, shows startling facts about the state of competition in
baseball, though most baseball fans didn't need a blue ribbon
report to know that teams in smaller markets simply cannot
compete against those with big payrolls. Still, it is my hope
that this hearing today will help galvanize public opinion and
compel the owners and the players to act in the best interest
of baseball.
With the release of the Blue Ribbon Panel's report, we have
reached a crossroads between baseball as it is and baseball as
it should be. Today, utilizing the bully pulpit of this
subcommittee, I hope that we can do more than just simply talk
about the problems in regard to baseball. Today, it is my hope
that we can take a first step toward real action to save
baseball. Two members of the Blue Ribbon Panel--George Will and
former Senator George Mitchell--are here with us today, and we
certainly look forward to their testimony.
Now, there is no question that baseball is a serious
business. Its impact on our economy is significant and
certainly growing every year. As with any major multi-billion-
dollar enterprise, the Federal Government has a role, although
certainly a delicate one, in making sure that businesses are
run in a manner that is consistent with the law and is good for
the consumer.
As far back as 1922, when the Supreme Court granted
baseball an exemption from Federal antitrust laws, and most
recently in 1998 when Congress modified that ruling, the
Federal Government has monitored the business of baseball. And
this certainly isn't the first congressional hearing on the
state of competition in baseball.
In fact, many of Congress' hearings on baseball were held
by this very subcommittee, the Antitrust, Business Rights, and
Competition Subcommittee. As many fans of baseball know, one of
the more memorable exchanges took place in this very
subcommittee between Estes Kefauver and Casey Stengel. And we
will not today go through that interesting exchange, but as I
can tell by the smiles around the room, everyone remembers or
has seen newsclips of that very, very interesting exchange.
Today's hearing comes at a time when revenue disparities
among major league teams are reaching unprecedented levels,
threatening the health, the popularity, and even the integrity
of the game itself. You can see one of the root causes of this
disparity by looking at local broadcasting revenues, which vary
widely between teams located in small and large media markets.
Although the estimates of local broadcasting revenues vary,
Broadcasting and Cable Magazine in a March 27 article of this
year reported that in the year 2000, the Cubs earned $55
million and the Braves $54 million from local broadcasting
revenues, revenues gained through broadcast TV, cable and
radio. The Reds and the Brewers, Mr. Selig, two teams that you
and I are pretty familiar with, on the other hand, earned $6
million and $4.6 million, respectively, at least as this was
reported in that magazine.
Additionally, there are enormous differences in total
revenue between the richest and the poorest teams, and those
gaps keep growing and growing. According to Andrew Zimbalist,
an economist at Smith College, the total revenue gap between
the richest and poorest teams in 1989 was about $30 million.
The recent Blue Ribbon Panel report found that in 1995 the gap
grew to $73 million, and in 1999 the gap reached $130 million.
Again, this is the gap between the richest and poorest teams.
With a huge cash advantage, big-market teams have the best
chance to sign and retain the best players. This is having a
clear impact on the field itself. For example, in 1999 all
eight playoff teams were among the top 10 in payroll. This
year, two of baseball's biggest spenders, the Yankees and the
Mets, advanced to the World Series. And the Yankees, the first
club to invest more than $100 million in a single year for
players' salaries, has won the World Series in 4 out of the
last 5 years.
While it is true that some lower-payroll teams, such as the
Chicago White Sox and the Oakland A's this past season, and the
1999 Cincinnati Reds, either made the playoffs or, in the case
of the Reds came within one game of making it, it is only the
teams with large payrolls that are winning repeatedly year
after year after year.
I am concerned that if the gulf between big- and low-budget
teams gets wider, it will become even harder for teams such as
the Pirates and the Reds to compete. In fact, two of our
witnesses here today, Senator George Mitchell and Bob Costas,
have both written that if a few cash-rich teams continue to
dominate the league, fans of the smaller-market teams will lose
interest.
Both Senator Mitchell and Bob Costas, as well as George
Will, have all talked about one of the essential things of
baseball, and that is that every fan in March, during spring
training, ought to have hope that their team at least has a
chance of making it to the playoffs, if not to the World
Series.
If a few cash-rich teams continue to dominate the league,
fans of the smaller-market teams will lose interest. They will
not want to ``wait until next year'' because they will come to
believe that there simply will be no ``next year.'' That is bad
for both the business and for the game of baseball.
The relationship between revenue and success on the field
is not a new issue for baseball. In 1976, then Baseball
Commissioner Bowie Kuhn voided the Oakland A's attempt to sell
off Joe Rudi, Rollie Fingers, and Vida Blue. He said that if he
approved the sale, the, ``door would be opened wide to the
buying of success by the more affluent clubs, public suspicion
would be aroused, traditional and sound methods of player
development and acquisition would be undermined, and our
efforts to preserve competitive balance would be greatly
impaired.''
Not everyone, however, is convinced that revenue inequities
are a threat to baseball. Some point to the recent success, as
I have said, of the A's, the White Sox, and the Reds, teams
with good players, good management, teams that beat the odds
and had winning seasons. They also point to teams like the
Dodgers and the Orioles as examples of how money alone does not
guarantee success.
Now, I agree that good management, solid player
development, smart trades, and sometimes plain old-fashioned
luck still play a role in which team is in or out of the
running. Yes, all the money in the world is not a substitute
for bad personnel decisions or untimely injuries. However, in
today's baseball, without money, you simply don't stand a
chance.
As a lifelong fan of baseball, I am concerned about the
future ability of Ohio's teams and other teams--in Ohio, of
course, the Indians and the Reds--to compete with big-money
teams such as the Yankees, the Braves, and the Diamondbacks.
While new ballparks represent a solid revenue source for teams
in small or medium-sized markets--Cleveland being a great
example, and beginning in the year 2003, Cincinnati--I do not
believe that in the long run ballpark revenue alone will ever
be able to generate the kinds of dollars needed to compete.
In fact, the argument has been made that big-market teams,
when they have a new ballpark, versus a small-market team when
they have a new ballpark, obviously the big-market teams will
see the disparity get bigger and bigger and bigger. And so it
is a short-term fix, at best. It doesn't resolve revenue
disparities in the long run. Ultimately, ballpark revenue from
ticket sales and concessions eventually max out and can bring
in only a finite amount of cash.
While there is no consensus on the correct approach to
remedy the decline in competition in the business of baseball,
one thing is very clear: The status quo is simply unacceptable.
Unless something is done to correct the payroll and revenue
disparities among the teams, unless we untie the stranglehold--
and I believe those were Senator Mitchell's terms in a recent
op ed piece--around the small and medium-sized market teams by
increasing competition, baseball cannot survive as we know it.
We look this morning to the Commissioner of Baseball, Bud
Selig, to outline his blueprint as the Commissioner and to tell
us what he plans to do to save baseball. We know the problems.
We will hear about the recommendations. But what the game
really needs, of course, now is leadership. The immediate
challenge is clear: How will the Commissioner convince the
owners, particularly the larger-market owners, as well as the
players, that their future is tied to the health and to the
survival of their sport, and that the health and survival of
baseball is directly dependent on the amount of competition
that exists in the game today? It is now up to them, to the
owners and the players, to step up to the plate. And as always,
the fans will be watching.
To put it simply, we look forward to hearing how the
Commissioner will lead the owners and the players toward real
solutions to the problems that plague baseball. And I hope that
for the sake of the game, they do the right thing.
Before we proceed to our first witness, I want to note for
the record that the subcommittee extended an invitation to Mr.
Donald Fehr, the Executive Director of the Major League
Baseball Players Association, to appear at today's hearing.
However, due to a longstanding family commitment during this
holiday week, Mr. Fehr could not be here with us today.
Let me enter at this point in the record a statement by
Senator Kohl, as well as Senator Leahy. We will at this point,
without objection, enter them into the record.
[The prepared statements of Senators Kohl and Leahy
follow:]
Prepared Statement of Hon. Herbert Kohl, a U.S. Senator From the State
of Wisconsin
I want to thank you, Mr. Chairman, for holding this hearing, for
all is not well in the state of baseball today. While the challenges
faced by baseball do not rise to the level of a constitutional crisis,
to be sure, the troubled state of our national pastime nonetheless is
very important to many Americans. Although baseball's gross revenues
have nearly doubled since the strike shortened 1994 season to over $2.7
billion, and while players continue to earn higher and higher salaries,
these simple facts mask serious problems in our national pastime.
Simply put, major league baseball appears to be losing its competitive
balance. Smaller market teams are finding it increasingly difficult to
compete with the large market clubs, especially given the continued
escalation in player salaries. By and large, we are watching the same
top payroll, big market teams in the playoffs and World Series every
year. It seems that teams in the small and medium-sized market cities
simply can't afford to compete.
Commissioner Selig deserves to be commended for having the
foresight and wisdom to appoint the Blue Ribbon Panel on Baseball
Economics to examine this issue. The Report convincingly demonstrates
that the gap between the haves and have nots of baseball is growing
ever wider. From 1995 to 1999, local revenue earned by the wealthiest
quarter of teams--ticket sales, concessions, local television and radio
(revenues which are not shared among ballclubs)--grew by over $50
million to an average of $122 million per team. This was nearly $100
million more per team, on average, than the local revenue generated by
the poorest quarter of clubs. The team with the most local revenue, the
New York Yankees, exceeded by approximately $11 million the local
revenues of six other clubs combined.
This disparity in revenues was reflected in player payroll which
last year averaged over $71 million for wealthiest quarter of teams, as
compared to about $26 million for the bottom quarter. The 1999 player
payroll of the New York Yankees, more than $92 million, was more than
six times the player payroll of the Minnesota Twins, the team with the
lowest payroll, and was about equal to the payroll of the five lowest
paid teams combined. In 2000, the salary of the game's highest paid
player was equal to the payroll of the entire Opening Day roster of the
Minnesota Twins.
This inequality of wealth has a direct result on team performance.
Not surprisingly, teams with the highest payrolls tend to perform best
on the field. In the five seasons from 1995 to 1999, 17 out of the 20
teams that reached the League Championship Series--baseball's final
four--had a payroll in the top quarter of the major leagues. No team
with a payroll in the bottom half of the major leagues made it this
far.
The conclusion is clear--money equals victories. It takes a top
payroll in order to field a competitive team. In order to afford a top
payroll, a team must be in the top tier of local revenues. And high
local revenues are much easily achieved by teams located in large
markets. The gap between baseball's haves and have nots is large and
growing ever wider, and baseball's small market teams are steadily
being shut out.
This caste system is bad for the competitiveness of the game, bad
for the fans, and bad for baseball. If it continues, fans in small
market cities have little chance of seeing their hometown teams field
competitive lineups, or retain their star players. Baseball fans can
expect to watch the same few large market/high revenue teams fight for
the pennant year in and year out.
Mr. Chairman, I find this situation to be very unfortunate. Fans in
smaller markets such as Milwaukee, Pittsburgh, or Minneapolis, for
example, deserve competitive teams every bit as much as fans from the
largest markets. Baseball needs to restore competitiveness to the game,
and needs to take action now. It should look to models found in other
professional sports, such as pro football. In the NFL, which enjoys a
high degree of competitive balance, local and national revenues are
shared to a considerable extent and a salary cap is employed to ensure
that all teams have a level playing field, both in the stadium and the
front office. We should carefully examine these and the other remedies
that the Blue Ribbon Panel and other thoughtful observers have
suggested to address the competitive imbalance found in the sport
today. We should always strive to ensure that equality of opportunity
exists for small and large markets alike in baseball.
And action to restore competitive balance in baseball is in the
interest of everyone, big and small markets teams alike, their fans,
players, and owners. For if we only root for the home team, it may well
be ``one, two, three strikes, you're out'' for small market baseball.
Thank you again, Mr. Chairman, for holding this timely hearing with
this excellent panel of witnesses. I am eager to hear from each of you
as we consider these issues so important to the health of our national
pastime.
____
Prepared Statement of Hon. Patrick J. Leahy, a U.S. Senator From the
State of Vermont
Mr. Chairman, I know this is a much-delayed hearing that you have
been seeking to convene. I am sorry that I am not available to attend
and that not all the witnesses who had been planning to appear will be
able to do so today to provide a balanced record. I do thank you for
including the written testimony of Mr. Ray Pecor, owner of the Vermont
Expos and Ottawa Lynx.
Major league baseball owners have enjoyed extraordinary increases
in the values of team franchises over the past half-century. George
Steinbrenner bought the New York Yankees in the early 1970s for $10
million. Today, the Yankees are estimated to be worth $600 million. The
Yankees were able to field a team this year whose combined salaries
reportedly exceeded $115 million. The Yankees also have a outstanding
field manager and have made a number of good management decisions with
regard to player personnel. While not a Yankee fan by any stretch of
the imagination, I congratulate the New York Yankee organization and
Yankee fans on an outstanding playoff and World Series win. I hope that
Governor Bush and Vice President Gore will likewise congratulate each
other once this presidential election process is concluded.
Twice in the past decade major league baseball has assembled a
blue-ribbon panel of experts to examine the financial situation of the
sport. Its panels have advocated team revenue sharing. The Subcommittee
will hear from some members of the most recent distinguished panel
today on its study based on the 5-year period after resumption of play
following the last major labor-management dispute.
There is quite a baseball buzz around Washington , D.C., these
days--even though the closest major league team is way up in Baltimore
and the season has been over for a couple of months. The buzz is not
about whether or not the Orioles will re-sign their ace pitcher Mike
Mussina. It is not about whether the Orioles can rebuild their team.
And it is not about some new fan appreciation extravaganza planned for
Camden Yards this year. No, it is about the prospect of a major league
baseball team relocating to or near to the nation's capital for the
first time in 30 years.
Washington has become the most infamous bridesmaid city in
professional baseball. Several teams over the years have threatened
their home cities with the prospects of moving their teams to
Washington in order to get the home cities to agree to publicly
subsidize the team, usually by building them new stadiums. San
Francisco, Houston and Texas come to mind.
The latest team to be rumored to be exploring the option of
relocating to the greater Washington metropolitan area is the Montreal
Expos. Owners in Minnesota, Oakland, Tampa Bay, and Florida have all
indicated that without additional revenue, they cannot compete with the
New Yorks, Atlantas and Los Angeleses of the baseball world. We must be
careful, however, not to reward owners who cry ``poor'' and ransom a
new stadium from a city by threatening to move the team or try to
excuse their own poor business management. If the owners of major
league baseball want to share their revenues to the benefit of so-
called smaller market teams, the questions arise whether that is a
matter that is consistent with the antitrust laws or whether it
requires the concurrence of any other parties or public authority.
One aspect that should not be overlooked in all of these
discussions is the impact on minor league baseball around the country.
I thank Ray Pecor, owner of the Montreal Expos' single-A affiliate, the
Vermont Expos, and triple-A affiliate, the Ottawa Lynx, for submitting
insightful testimony today. He sheds light on the current dilemma he
faces with the rumors of the Expos moving.
The Montreal Expos do not have a local television contract. They do
not have an English radio contract either. In fact, the only way you
can even catch any of the action of Expos' home games, unless you go to
Olympic Stadium, is to learn French because the only contract the team
has to broadcast their games is with a French-language radio station. I
ask unanimous consent that a copy be included in the record of a chart
I have put together showing the enormously talented players who
previously played for the Montreal Expos. This list of players is an
all-star roster that would be able to challenge any team and includes
both this year's Cy Young Award winners.
[GRAPHIC] [TIFF OMITTED] T4416A.001
Senator DeWine. Let me also, as a longtime season ticket
holder of the Cincinnati Reds, recognize Carl Lindner, one of
the principal owners of the Reds, who is here today.
Mr. Lindner, thank you very much for being here with us and
joining us.
Let me start by explaining there will be three panels
today. Commissioner Bud Selig will testify on the first panel.
Pursuant to senatorial courtesy, Senator Mitchell will testify
on the second panel. And, finally, we will hear testimony from
George Will, Bob Costas, Rodney Fort, and Frank Stadulis, who
will be on the third panel.
The custom of this subcommittee since I have become
chairman and Senator Kohl has been the ranking member is to
have very informal hearings. As we are having discussions, I
will throw questions out, and frankly I will take statements
made by one of you and ask another member of the panel if you
agree with that statement or if you disagree with it.
Although this is not some of the Sunday morning talk shows
or ``Crossfire,'' we do have kind of a freewheeling discussion
that I would like to have. I think we have found that that
works very well and it gets a good exchange of ideas, and that
is what we are trying to do today. So I would encourage you to
jump in at any point that you have anything you would like to
say once we get to the questioning.
Our first panel today is the Commissioner of Baseball. Bud
Selig is the ninth Commissioner of Baseball. A lifelong
baseball fan, Mr. Selig brought Major League Baseball back to
Milwaukee in 1970 as the owner of the Brewers. As President of
the Brewers, Mr. Selig was active in his community and received
numerous awards for his service in baseball, but also service
to his community.
In 1992, Mr. Selig began serving a dual role as President
of the Milwaukee Brewers Baseball Club and Chairman of the
Major League Executive Council. That lasted until his
appointment as Commissioner in 1998. Under his leadership as
Chairman of the Executive Council and Commissioner, baseball
has implemented several changes, including inter-league play
and the beginning of revenue-sharing.
Last year, Commissioner Selig appointed a Blue Ribbon Panel
to examine the question of whether baseball's current economic
system has created a problem of competitive imbalance in the
game.
Mr. Commissioner, thank you very much for joining us here
today. We have your written statement which will become a part
of the record, as we have the written statements from our other
panelists today. All of those written statements will become a
part of the record. We would invite you to summarize that
statement or proceed however you wish.
Thanks for joining us.
STATEMENT OF ALLAN H. ``BUD'' SELIG, COMMISSIONER OF MAJOR
LEAGUE BASEBALL, MILWAUKEE, WI
Mr. Selig. Thank you very much. Mr. Chairman, members of
the committee, thank you for this opportunity to appear before
you to discuss the most critical issue that Major League
Baseball faces today--competitive imbalance.
Before I begin, Senator DeWine, I too am pleased that your
constituent, Carl Lindner, of the Cincinnati Reds, is here with
me today. Cincinnati is one of our oldest and proudest
franchises, and I am proud to have Carl present with me at this
very important hearing.
By every measure, baseball is in the midst of a great
renaissance. Never has the game been more popular. We set a new
attendance record in 2000, drawing nearly 73 million fans to
our ballparks. More fans attended Major League Baseball games
than attended the games of the other three major professional
team sports combined. When you add the 35 million fans drawn by
minor league baseball, the aggregate number of fans that
attended professional baseball is nearly 110 million. In the
so-called halcyon days of New York baseball in 1949, the three
New York teams--the Yankees, the Dodgers, and the Giants--drew
a combined 5,113,000. Last season, the Yankees and Mets drew 6
million.
The only set of circumstances--and I have often said this,
Senator--that can impede this great renaissance is our
inability to solve the problem of competitive imbalance. During
the past decade, baseball has experienced a terribly disturbing
trend. To put it simply, an increasing number of our clubs have
become unable to successfully compete for their respective
division championships, thereby making post-season appearances,
let alone post-season success, an impossibility.
The enduring success of our game rests on the hope and
faith--key words here, ``hope and faith''--of each fan that his
or her team will be competitive. At the start of spring
training, there no longer exists hope and faith for the fans of
more than half of our 30 clubs, and we must restore that hope
and faith.
The trend toward competitive imbalance which is caused by
baseball's economic structure began in the early 1990's and has
consistently gained momentum. Indeed, as I testified in 1994
before members of the U.S. House of Representatives, baseball's
economic problems have become so serious that in many of our
cities the competitive hope that is the very essence of our
game is being eroded.
Unfortunately, baseball's economic problems have only
worsened since 1994, and for millions of our fans the flicker
of competitive hope continues to become more faint. The
competitive imbalance problem is one that, if not remedied,
could have a substantial effect on the continuing vitality of
our game.
Competition is the main product that Major League Baseball
sells. Because of my concern about the competitive state of the
game, I commissioned a Blue Ribbon Panel of independent experts
to determine the extent and cause of this problem. I also
requested that the Panel recommended reforms to our economic
structure if it concluded that our structure was contributing
to the problem of competitive imbalance.
The distinguished independent members of the Blue Ribbon
Panel were Richard Levin, President of Yale University; George
Mitchell, former Senate Majority Leader; Paul Volcker, former
Chairman of the Board of Governors of the Federal Reserve
System; and George Will, the political columnist and
commentator who has written extensively about baseball.
The independent members of the Blue Ribbon Panel approached
their task in an even-handed and open-minded fashion. As their
report makes clear, they viewed themselves as representatives
of the fans. I am sure you are familiar with the findings of
the Blue Ribbon Panel, so I will not review those in detail.
Suffice it to say that the Panel identified a crisis of
competitive imbalance in baseball.
From a personal perspective, the Panel's findings are
especially troubling to me because as Commissioner of Major
League Baseball, my primary responsibility is to preserve the
integrity of the game in all 30 major league markets. Moreover,
I understand the problem of competitive imbalance because I ran
a small-market team, the Milwaukee Brewers, for 30 years. And
it is the small-market clubs, those clubs that cannot generate
enough local revenues, that are bearing the brunt of the
competitive imbalance problem.
I have witnessed the disillusionment that competitive
imbalance has caused Major League Baseball's clubs and fans.
Clubs like Minnesota, Montreal, Kansas City, Cincinnati,
Pittsburgh, Milwaukee, Tampa, Houston, Detroit, among others,
have all fallen prey to baseball's inherently flawed economic
structure.
Moreover, this problem we are facing today is different
from anything previously experienced. If I could just add--and
this will probably come up later on--there are many who say we
have always had some competitive imbalance, but for factors
that are far different, frankly, than exist today.
In the past, clubs did not have equal revenues or payrolls,
but small-market clubs had the ability to compete with large-
market clubs because revenue disparities were less severe and
small-market clubs had a much greater relative ability to
afford top talent. Although small-market may have had to work
harder than large-market clubs to generate revenue, there was
no structural impediment that kept them from being competitive
on the field.
Today, by contrast, the revenue and payroll disparities are
so great and the role of media revenue is so significant that
small-market clubs are faced with situations that at least
appear to be hopeless. In an age where the Yankees are rumored
to be in line for a $100 million-per-year local media contract,
it is difficult to have hope in other cities in which the 2000
season either had no television contract or local revenues of
just under $14 million, $14 million being a very important
line.
My own experience with the Milwaukee Brewers shows how
things have changed. When the Brewers won the American League
Championship in 1982, a feat that is virtually impossible for a
small-market club under baseball's current economic structure,
it was due largely to the fact that our organization had the
ability to generate sufficient revenues to support a
competitive club.
We had the resources to develop great players, including
Hall of Famer Robin Yount, soon to be Hall of Famer Paul
Molitor, and Jimmy Gantner. But more importantly, we had the
resources to keep these players for their entire careers--Yount
and Gantner--or nearly their entire career in the case of
Molitor.
While it was a struggle every day, we maximized revenue and
made prudent contract decisions that allowed us to pay our
great players market salaries. These players enabled the
Brewers to be successful participants in the post-season.
We were not alone. Other small markets enjoyed similar
success in the 1980's and early 1990's. Again, that is an
important time line. Indeed, clubs such as Montreal, Oakland,
Pittsburgh, Cincinnati, Minnesota, San Diego and Kansas City
all participated in league championship series. Oakland, Kansas
City, Minnesota twice, and Cincinnati even won World Series
during that era.
Today, however, is a much different story for small-market
clubs. Even small-market clubs like Kansas City, Pittsburgh and
Cincinnati that enjoyed success on the field not long ago have
confronted very different circumstances. These clubs have often
done a good job signing and developing players, but today they
are forced to watch these players depart for other teams due to
small-market clubs' inability to compete from an economic
perspective.
In fact, fans in a number of markets have been forced to
watch their teams become chronically uncompetitive. As part of
the same phenomenon, players routinely demand to be traded to
clubs that have a chance to compete. During my 32 years in
baseball, I have never witnessed the type of despair that
competitive imbalance is causing so many of our clubs today.
All of our clubs are greatly concerned about this issue because
of the potential effects competitive imbalance can have on
national fan interest.
While baseball, in general, is in the midst of a period of
great popularity, it is beyond debate that competitive
imbalance is causing serious issues in markets such as
Milwaukee, Houston, Detroit, Tampa, Toronto, Florida, Kansas
City, Minnesota, Pittsburgh, Cincinnati, and others. Indeed,
two of our four most recent expansion clubs are having real
difficulty. If baseball does not correct the competitive
imbalance, the game's current renaissance could be destroyed.
The Blue Ribbon Panel concluded that sweeping changes in
the game's economic landscape are necessary to remedy this
problem. I agree. I will leave the specifics of the Blue Ribbon
recommendations to Senator Mitchell and George Will, who will
explain them in detail shortly. I would like, however, to
emphasize several points regarding any recommendations or
changes relating to baseball's economic structure.
First, I cannot state with certainty that the Panel's
recommendations would solve our competitive imbalance problem.
I do believe the Panel has provided, at the very least, a very
valuable road map on which to plot any changes that we venture
to implement.
Second, any changes to our economic structure cannot be
implemented without the cooperation and input of the Major
League Baseball Players Association. I believe, however, that
the Players Association and Major League Baseball have a common
interest and desire in making our game the best product for our
fans.
I know that our players are aware of and concerned about
baseball's competitive imbalance problem, and I am hopeful that
in our upcoming negotiations for a new collective bargaining
agreement both sides will work together to create a new
economic structure in which everyone will benefit.
Let me be clear, however. This is a problem that cannot go
unresolved. I am committed to making any and all internal
changes that will expedite our journey back toward adequate
competitive balance. I am committed to continuing our efforts
to grow baseball's central fund, which has been used and
hopefully can be used more effectively to balance our clubs'
economic resources. Indeed, I believe the central monies
generated by baseball's recent television contracts with Fox
and ESPN provide an opportunity to improve the competitive
state of our game.
I would like to conclude by stating that the game of
baseball is at its best when all clubs, those from markets that
are diverse geographically, demographically and economically,
are provided a reasonably level playing field on which to
compete.
Our current economic structure prevents baseball from being
its best. It is time for sweeping changes that will hopefully
reinvigorate all of our clubs and our fans, and enable baseball
to continue this marvelous renaissance and maintain its place
as America's favorite sport.
Thank you again for your time and attention, and I ask that
my written remarks be submitted in their entirety.
Senator DeWine. They will be made a part of the record. Mr.
Commissioner, thank you very much.
What do you say to those who say that the last 5 years are
just the exception, that you have to look at the long history
of baseball? There are two arguments that are made. One
argument is we have always had a problem. And anyone who is my
age can look to the New York Yankees in the 1950's, or my dad
can talk about the dominance of the Yankees back in his time,
recalling when the Yankees took the Reds in the World Series
pretty handily. So we can all look back and say, well, this has
always been a problem in baseball. So there are some who say it
has always been a problem.
There are others who say, well, it is not really not a
problem. First of all, the last 5 years are the exception, the
argument that has been made that has to do with the strike and
with the problems that baseball had a few years ago.
There are others who would look at the White Sox, for
example, and the Reds last year, and would say, look, these are
recent examples of teams that did compete. The Reds went right
down to the last game of the season. The White Sox, with not
very great revenue, competed. They would cite those examples.
So what is your response to those different arguments, but
they are arguments?
Mr. Selig. Yes, they are, and I have a lot of responses. It
will take me a little time here, but let me try to deal with
that.
Number one, in terms of the last 5 or 6 years now, Senator,
there is no question that they are an accurate microcosm of
where we are. There have been 189 playoff games; the teams that
you talked about won 3 of those games. Think about that.
I know that you are talking about Oakland and the White Sox
and Cincinnati, but the problem is they sometimes come from
divisions where there isn't a big-spending team. So somebody
has to win in that division, but they leave the playoffs very
quickly because the higher-payroll teams are able to do at the
end what they need to do to get ready for the playoffs. I think
there is no question that these last 6 years are a very
accurate reflection of our industry.
Let me go back, however, into the 1930's and 1940's and
1950's, because I hear that argument all the time and it is
historically incorrect in this regard. Yes, the Yankees won 19
out of 22 years. Yes, the boys of summer dominated a little bit
in the 1950's, but they dominated for different reasons. They
dominated because of the brilliance of George Weiss, the
general manager of the Yankees, and before him, Ed Barrow. They
dominated because Branch Rickey was so good and so smart in St.
Louis and then later on in Brooklyn that he was able to develop
a farm system that other people weren't able to do. Now, that
was about management.
In fact, Senator, I have gone back as an old history major
and history buff of baseball and many other things and looked,
and I am surprised at the lack of economic disparity that I
find. so I am more convinced than ever that when Bill Esock
went and signed Joe DiMaggio and took a gamble that every other
club could have that there was no question that for $25,000 the
Yankees wound up with one of the great players of all time; the
same with scout Tom Greenway going into Oklahoma and finding
Mickey Mantle. Others knew. They went and got him. They didn't
give him any money. It was all about management.
Today, as the Blue Ribbon Panel has found out, this is not
about management anymore. The fact of the matter is that I have
watched a lot of small-market clubs going from franchise to
franchise. And having run one and watching what happens, they
are extremely well run. But I would submit to you that if Ed
Barrow, George Weiss and Branch Rickey could be brought back
today, even they couldn't run a small-market club under these
conditions the way that Mr. Rickey took a bankrupt Brooklyn
Dodger club and built it up without very much revenue, because
things change.
You could see these changes coming even in the late 1980's.
But in the early 1990's, running a club in Milwaukee, you could
see them coming. No, I didn't realize that local media revenues
would grow as rapidly and as disparately as they have. There is
no question about that. But the fact of the matter is, Senator,
that that is what happened.
I used to give a speech all the years that I ran the
Brewers all over Wisconsin and northern Illinois, and I would
talk about two things, because I had them myself as a fan--hope
and faith. I used to say it is our job on April 3--that is
opening day of most years, April 2 or 3--to make sure that you
have hope and faith that your team has a chance. That is all
you can ever ask of them. So the thing that so concerns me, and
I believe is the major thrust of my job in the coming months
now, is to restore that kind of hope and faith.
When people talk about the Yankees, let me just give you
another--I happened to think about it the other day. You talk
about the Yankees winning, but in the National League, other
than the Dodgers who won in 1947 and Boston who won in 1948, I
could take you back into the 1950's and all of a sudden in 1957
the Milwaukee Braves win. In 1958, the Milwaukee Braves win. In
1959, the Dodgers win. In 1960, Billy Mazeroski hits a homerun
and the Pirates win. In 1961, the Cincinnati Reds win. In 1962,
the San Francisco Giants win. In 1963, the Dodgers win. In
1964, the St. Louis Cardinals win. In 1965, the Dodgers win.
You go on and on and on, and you see the point I am making.
There was hope and faith. So this business that this has always
existed is absolutely incorrect. It may have existed because of
management, but existed for a different reason. It didn't exist
in both leagues.
The fact is, as I have often said, because wherever I go,
Senator, it is the first question, whether I am in Cincinnati,
whether I am in Pittsburgh, whether I am in New York, Chicago,
or Los Angeles--what are you going to do about competitive
imbalance, or disparity? Call it whatever you like.
The fact that every so often Oakland or the Chicago White
Sox or the Cincinnati Reds manage to struggle to the last game
of the year and into a playoff, get that far and then disappear
from the playoffs--Drayton McLain, the owner of the Houston
Astros said, because they were in it for three straight years,
well, it is great we got in the playoffs because in our
division there were no big spenders, in the National League
Central, and then they disappear quickly.
The fact is that in the last 6 years, all the teams have
come from quartiles one or two. As you know, we divide the
teams up into top six, middle six, third, and fourth. Only the
San Diego Padres, in 1998, played in a World Series, and they
were gone in four games and you know what has happened to the
Padres since then. That is the point that all small-market
general managers would tell you. They have a very tough time
keeping the products of their management together.
So I reject the two notions: number one, that the last 6
years aren't an accurate microcosm; and, two, that this is the
way it has always been. No, it isn't. This is not the way it
has always been.
Senator DeWine. Mr. Commissioner, you have outlined the
problem, I think, very well, and you have said that the Blue
Ribbon Panel has given us the road map. I guess the next
logical question is how do you get there, how do you get it
done.
What do you say to the owners of the Yankees or the owners
of the Braves who would say, look, this is America, we bought
this franchise, we knew what the market was when we bought it,
just as other owners knew what markets they were buying when
they bought their team? The price they paid for the team
reflected that market. And why in the world should I give up
something? Isn't it sort of un-American to ask me--I have been
successful, I own it. Why in the world should I give this up?
How do you convince them, because isn't that your problem?
It seems to me you have ultimately two issues, two
problems.
Mr. Selig. I wish I only had two problems, but you are
right.
Senator DeWine. Well, we are not getting into the
designated hitter today or the strike zone or the elevation of
the mound, or other things, or even into whether we should have
wild cards and other issues that are near and dear to my heart.
We won't get into that today.
Mr. Selig. I am grateful for that.
Senator DeWine. I will spare you that, Mr. Commissioner,
and a few other issues that I hear about in Cincinnati as well.
We will spare you all those today.
But how do you deal with basically, it seems to me, two
issues? One is the owners who have the market, who have the
money and say, well, why should I give that up, because of
someone else's mismanagement, they might argue? I wouldn't
agree with that, but that might be their argument.
And then how do you deal with the issue of the players?
Talk for a moment about whether or not the Blue Ribbon Panel
recommendations, if they would be implemented, are beneficial
to the players.
Mr. Selig. Let me take the first part of your question, if
I may, about how do we do it because there are many moving
parts here. And you are absolutely correct. There are many
things that need to be balanced, and I have known that. I had
at least the experience of watching three or four commissioners
work while I was an owner which as provided really an
invaluable insight for me.
When I took over in 1992 as the Chairman of the Executive
Council and so-called acting or interim Commissioner, everybody
said revenue-sharing was impossible. Now, Senator DeWine, keep
something in mind. As late as 1994, the National League was
still paying their clubs the same way they did, as I like to
say, in the Ebbett's Field-Polo Grounds days, which means there
hadn't been a scintilla of change in the internal dynamics of
that since the 1930's. Now, the American League paid 20 percent
of the gross gate. But in a great sense, you know, you just
sent money back and forth. It was a little bit of help for a
small-market club, but very little help.
Now, what have we done since then and what are we doing
now? Let me try to outline it because I regard baseball as a
social institution. And as you know, Senator, being a fan, it
is resistant to change, and sometimes ought to be resistant
change. But as the economics changed, so did we.
We had some awful meetings. None of my predecessors were
ever able to even confront revenue-sharing. In fact, we had
committees, frankly, Senator DeWine, in the early 1990's where
the very comments that you made are so germane here because
those were the comments made. And we would leave meeting after
meeting, as close as all of us were as owners--at least I was
to some--I have never been to more unpleasant meetings.
Having said that, everybody said we would never be able to
put together revenue-sharing. This year, as a result of the
plans that I put forth in 1994 and later passed in 1996 and
became part of our agreement, $155 million is being sent from
the top six clubs to the bottom six.
Senator DeWine. Your testimony has been, though, I believe,
that that is inadequate.
Mr. Selig. I was just going to say that. There is no
question that it is inadequate. The point I am making, though,
to you is that people thought that couldn't be done.
What has happened since then? Last January 19 and 20, in
Phoenix, AZ, much was made of the increase of powers that I
got. But more importantly than that, Senator, there was a
development that I believe, other than what Pete Rozelle as a
33-year-old commissioner did in 1961 with the National Football
League, history will some day regard it as the most powerful
event in baseball's economic history.
The clubs voted 30 to nothing to share all Internet
revenue. We have since set up a company. We have a chief
executive officer now. The company is at work. And I believe
that if we do our work properly, it will become a critical
economic mechanism. You couldn't have even thought about taking
a vote 6 or 5 or even 4 years ago, to say nothing of 10, 20 and
30-plus years ago when I entered this business.
Also, I have made a conscientious attempt, Senator DeWine,
in the last 5 years to take the central fund revenues and grow
them as dramatically as possible, never believing we could grow
them that fast. These are all shared equally by 30 clubs.
Senator DeWine. This is a principle, though. I mean, your
point is, isn't it, that you have established a principle you
had not had before?
Mr. Selig. Well, in terms of the central fund revenue, it
is more than principle; it is dollars. After all, we just
signed a huge network deal with Fox. We have other deals that
we have made. Central fund revenue has grown dramatically over
the last 5 years. So today we share somewhat in excess of 30
percent of our revenue. Is it enough? No. But, Senator DeWine,
it is 30 percent more than we did 5 years ago.
Senator DeWine. And I respect that and I understand it. I
think your point is certainly well taken. Just for the record,
though, give us an example of what kind of transfer that has
made. We are not picking on the Yankees today, but pick the
Yankees, the Braves, or one of the top revenue teams. What kind
of transfer has that made from them?
Mr. Selig. Well, of the $155 million, I would have to look
up the specific amounts, but I believe it is--the Yankees this
year paid $17 million-plus into that fund, the Mets $15 million
into that fund.
Senator DeWine. The reality, and again I am not----
Mr. Selig. By the way, there are clubs at the bottom level
that received $23 million, $20 million, $15 million, a whole
raft of clubs at $11 and $13 million. So the fact is they are
very significant.
Senator DeWine. And I think your point is very well taken,
but the reality is that--and I think the Blue Ribbon Panel may
have made this point, and I am sure Senator Mitchell will
correct me if I am wrong when he gets up here, but that the
disparity is growing faster than the amount of money that is
going into the pool.
Mr. Selig. I am the greatest proponent of that. In fact,
there is no question. I have said this all over America. We
have taken steps in the right direction, but we have a long way
to go, and I realize it is certainly the greatest challenge I
have in front of me.
Senator DeWine. Let me, if I could, get into this a little
more because we are discussing today the problem, we are
discussing today several ideas of the solutions. The third
panel is going to have several ideas of the solutions, as well
as when Senator Mitchell testifies.
I guess a skeptic would say, well, that is all interesting,
Senator DeWine or Commissioner Selig, but I still don't see how
you get this done. Shed some light for us, will you, on
something that always fascinates fans, which is the inner
workings of baseball? What kind of power do you have to deal
with this? What can you do unilaterally?
Give us a temperature read of your 30 owners. I mean, give
us some clue, please, for the fans of this country what are the
odds of getting anything done beyond what you have already
gotten done, where the problem seems to be racing far ahead of
the solution so far, at least the solution that has been
implemented so far, with all due respect.
Mr. Selig. Well, many initiatives are already underway. Do
I believe this problem will be corrected? I do, Senator. I want
to say that to you today. I took this job a little over 2 years
ago understanding the dimensions of the problem, understanding
the problems, and I believe that it can and will be solved.
Senator DeWine. When and how?
Mr. Selig. Well, exactly doing the things that we have
done. As I say to the clubs often--we have had meetings, we
just had a meeting a couple of weeks ago--the economic
landscape of this game not only must be changed, but the way we
do business must be changed.
As I said earlier, I think the Blue Ribbon report is a road
map in terms of some of the moving parts, and I have every
confidence that that will serve as a road map. I also believe
that as we grow the revenues--and I have discretionary use of
those in my role as the Commissioner that I will determine as
time goes on--I think there are enough moving parts here.
Look, every vote we have taken so far--and I will take some
credit for this--has been 30 to nothing. What I say to the
clubs, Senator, in the end is off the field we are partners,
off the field we need to solve these problems. Nobody benefits
from these problems, and so far the clubs have responded to
each and every thing. I can't impress upon you how important
the Internet thing is because the Internet thing, I believe,
alone will change the economic landscape of the game.
Senator DeWine. I don't know much about computers, as my
children will tell you.
Mr. Selig. No, neither do I.
Senator DeWine. But I do know enough that my son can figure
out how to get the Reds when we are sitting in northern
Virginia and we want to pick it up off the Internet. That much
I do know.
Mr. Selig. Look, how do we do it? We need to take that 30
percent of revenue shared and boost it up. We need to do that
by expanding the revenues dramatically.
Senator DeWine. I want to make sure that I understand and
we get this out on the record. The power that you were given to
deal with the central fund does not reach--correct me if I am
wrong, but it does not reach to most of the recommendations
that Mr. Will and Senator Mitchell made. I mean, you can't do
that today unilaterally, can you? Can you do that today?
Mr. Selig. No, no. However, there is a whole series of
moving parts here, Senator. I frankly, amongst other things,
have been working with each club on what I call their fiscal
responsibility in total, because the debt of the industry has
also grown at a very alarming rate. So as the Commissioner of
Baseball, I feel I have every reason to be concerned about
that.
And the fact of the matter is, on central fund revenues and
other things, as time goes on, as all these other moving parts
come together, I will use my discretion relative to a club who
is struggling mightily and who will need some help. But all of
these parts are so related that I would hope that while we take
care of the revenue, and we will do that--look, when you think
about where the industry was 10, 15, 20, 30 years ago, this
industry was a sleepy industry.
There used to be a slogan years ago--you talk about the
1950's and 1960's--a franchise would say, here I am, love me;
if you don't love me, I am gone. Today, clubs are aggressive.
They are building stadiums; they are making huge investments
themselves, as Mr. Lindner has done in Cincinnati.
So if clubs are aggressive--and that is what I have to
watch on a franchise-by-franchise basis--doing everything they
can, generating their own revenues, then we supplement that
with central fund revenues and other revenues that come out of
that. Now, there are other moving parts. If we keep moving in
the same direction we have, that is how we are going to solve
the problem.
Senator DeWine. Mr. Commissioner, I appreciate that, but
let me just make sure I do understand, though. You don't have
the power today to implement most of the recommendations of
this Blue Ribbon Panel. I am not saying you won't get it
tomorrow, but I just want to make sure where we are today.
You talk about the central fund. As that central fund
grows, as it is defined today, then, yes, you have that. So if
the Internet just goes straight up and, you know, hundreds of
millions of dollars, you clearly have the power to distribute
that today.
What we are talking about, though, when you are talking
about the Blue Ribbon Panel, you are talking about some very
significant revenue-sharing. You are talking about some other
things that we are going to hear from Senator Mitchell. But I
just want to make sure, yes or no, you don't have the power to
implement that today, do you?
Mr. Selig. Some of those are obviously subject to
collective bargaining.
Senator DeWine. Ok. Well, we are going to get into that in
a second.
Mr. Selig. That is what they are subject to. That is really
what they are subject to. The revenue-sharing and the salary
restraint that you are talking about are part of our labor
agreement.
Senator DeWine. Is there the will among the owners today,
in your opinion, to implement, putting aside the issue of
collective bargaining--we will get to that in a minute--let's
just stay with the owners. Is there the will to deal with this
problem today as it is outlined in something similar to the
Blue Ribbon Panel? What is the temperature, as I asked you a
few minutes ago? How do you read the temperature of the owners?
It seems to me there are two issues: what can you do
unilaterally, and then what is the support there.
Mr. Selig. Well, there are a significant number of things
internally that I can do. But on the issues that you are
raising here, I kid the clubs a lot, but on every major issue
over the last 8 years we have had a 30 to nothing vote. I have
talked to the clubs. We have had very candid meetings on these
subjects and I am not concerned that the vast majority of clubs
are not only very supportive of my efforts, but will be
supportive when we come to the moments of truth, and I mean the
vast majority.
Senator DeWine. When you go back to them for additional
either authority or change in the basic structure?
Mr. Selig. I don't need any more authority. They really,
last January 19, gave me more authority than any commissioner
has ever had in baseball, or quite frankly in any other sport.
Senator DeWine. I am going to try it one more time, and
maybe I am just a little slow this morning. Do you have the
power to implement a good portion of this today or do you have
to go back to the owners, or are you just saying for those of
us who aren't in the inner workings of baseball that that just
isn't how it works? Isn't that what you are saying, it just
doesn't work that way, Senator? I have got to have a consensus?
Mr. Selig. No. I am not worried about our side in terms of
the ownership.
Senator DeWine. Well, that is very goods news. That is very
good news.
Mr. Selig. The moving parts of this--quite frankly, the
moving parts of this, of the Blue Ribbon report, are a part of
the collective bargaining agreement. Am I concerned that I can
deliver the votes on critical things to fix this problem? I am
not concerned. I am very confident.
Senator DeWine. That is very good news. Let me move to the
second part of my question, then, and that is the players. What
do you say to players who could recite the long history going
back to Curt Flood and going back to the reserve clause, et
cetera, et cetera, who say none of the solutions that I have
seen are helpful to players, that in fact you are trying to
roll back the clock, that in fact even the Blue Ribbon Panel
report, while it does not have a cap, per se, really does have
an effective cap?
Mr. Costas has a cap, and we will get into his proposal
when we get to his panel. But they would say that even in the
Blue Ribbon Panel that it is an effective cap. I am not
speaking for the players, but I am saying what if they would
say that? What is your answer? And how do you propose getting
over the second hurdle which, as you say, part of this is, in
fact, tied to collective bargaining?
Mr. Selig. What I would say to the players in that regard
is, look, the more teams that are competitive, Senator, the
more teams that have a chance to win, the more teams that have
hope and faith, the better off the players will be. There is no
question about that.
In fact, it has been interesting to me the number of
players on small-market teams that have commented both publicly
and privately how frustrating it is for them. The fact of the
matter is that none of this, I believe, hurts them. On the
contrary, I believe for most of the major league players this
is helpful.
Senator DeWine. Well, there is a report out from Baseball
Weekly, a player survey for the year 2000, which I know you are
familiar with and the Blue Ribbon Panel was familiar with as
well.
Mr. Selig. Right.
Senator DeWine. Fifteen percent of the players said lack of
competitive balance was baseball's biggest problem. Twelve
percent thought players' salaries were too high. Now, those
were some of the top items that were, in fact, listed here. And
then in here they quote some of the players who do talk
specifically about what these problems are. So I think that is
of interest. The players' representatives are not here today,
and obviously we cannot hear from them about this.
Mr. Selig. Right.
Senator DeWine. You mentioned something a moment ago sort
of as an aside about the profitability of baseball. Do you want
to shed any light on this and, you know, how many of the teams
are making money and how do you deal with the issue that player
representatives in the past have called into question your
figures because they are your figures and they are baseball's
figures?
Also, some observers, for those teams that are entwined
with media companies, have also questioned that the figures are
correct; that, in fact, the profitability is actually being
hidden in that relationship between the media companies and the
ball team itself.
Mr. Selig. It is called related-party transactions. Let me
say at the outset I spend a great amount of time with each club
now on a daily basis for two reasons. Number one, the industry
as a whole is in a loss position, a significant loss position.
Senator DeWine. You say is?
Mr. Selig. Is.
Senator DeWine. Is in a loss position.
Mr. Selig. Eighteen to twenty of our clubs lost money in
2000. The loss is significant. More important, Senator DeWine,
the debt of the industry has risen to an alarming number.
Therefore, as the Commissioner of Baseball, it becomes my
responsibility and my concern, and so I am spending a great
deal of time with clubs on budgeting, on a whole series of
things as we speak.
Now, having said that, I have heard for 30 years about,
well, the real sets of books, and so on and so forth. These
numbers, as Senator Mitchell and George Will, amongst others,
know, have been audited by two national auditing firms, plus
the clubs' auditing firms. I ran a team for 30 years. Maybe
there is something I didn't know because we only had one set of
books. I never did know whether the other set existed. These
losses are real.
I have gone into the so-called related-party transactions
and their losses are real, those that are losing. The fact of
the matter is that this is a concern and it should be a concern
of ours, and it is one of my primary concerns. The losses are
real and they are related to the very things we are talking
about here today. It is a very, very difficult set of
circumstances, and that is in no one's best interest.
You asked about initiatives before. Well, one of the
initiatives that I have underway with the 30 clubs deals with
this very subject that we are talking about because the lack of
viability is another problem that we have in trying to
establish competitive teams.
Senator DeWine. What is the relevance, if any, in your
opinion, of the sale value of the teams? In other words, some
would argue, well, that is fine, you don't make any money. But
if you buy at one level and you sell at another level, it is
like a stock. I mean, maybe you don't get dividends, but you do
increase your gain here. What is the problem?
Mr. Selig. For many years, I used to hear that and it was
true to some extent. But we used to call it, with all due
respect, the greater fool theory. The problem is, Senator, we
have run out of greater fools.
Yes, there will always be some franchises that can be sold,
the premier franchises. But when the Kansas City Royals were
sold earlier this year at a price that was well under $100
million for a club that had lost a lot of money, the fact of
the matter is that they lost money. And there are a lot of
franchises that have struggled to find local owners, other
owners.
I would say that Carl Lindner could be reminded of the
conversation, Senator, that he and I had last year. It wasn't
something that people were stepping up and waiting in line to
do. And so the appreciation of these franchises is over in
terms of buying it for that reason. I guess, to put it in its
bluntest terms, the greater fool theory no longer exists in
most of these franchises that we talked about, the smaller and
medium-sized markets.
Senator DeWine. Let me go back, if I could, to a question I
asked you a moment ago, maybe, if you could elaborate a little
bit more on your answer, and that is having to do with the
whole issue of collective bargaining and the whole issue of
players. What is in this for the players? Let's be blunt about
it. What is in it for them? Why should they accept some version
of this Blue Ribbon report? Isn't it going to depress wages?
Mr. Selig. Well, no, not in my judgment; no, not at all. In
fact, I think as an industry if we do this right, I don't think
it has that effect at all. But what is in no one's best
interest, if what you have said here today is correct, and it
is, and what I have said here today--and I know it is correct;
I know that the others on both panels, hopefully, will agree.
Wherever I go, Senator, baseball fans everywhere understand
this problem. The more, as you said earlier, this problem is
growing, the less likelihood--there are people, for instance,
doing research on the World Series ratings who will say, well,
one of the factors you have is the lack of competitiveness
among the franchises beginning to rear its ugly head. This
thing has a chance to rear its head, manifest itself in so many
ways that no one--players, owners, anybody connected with the
national pastime--will be better off as a result of it if we
don't solve this problem.
I meant what I said in my statement and I will say it again
here today. The only thing that can impede this renaissance and
really hurt us is our inability to solve this problem.
Senator DeWine. Well, it seems to me that one of the things
that makes common sense has to do with human nature, but I
think it is also reflected in the player survey that I
referenced, and you see it quoted in the paper all the time
when players say who they want to be traded to.
Mr. Selig. Exactly right.
Senator DeWine. Players are competitive. They want to play
for winners or they want to play for teams that have a shot at
being winners. You keep seeing that time after time after time
when you read the sports page day after day after day. Players
are making decisions not just on the basis of money. Certainly,
that is part of it; again, it is human nature. But they are
also making it because they want to be competitive. They want
to play for a team that has a shot at the pennant, has a shot
at the playoffs. And it seems to me that that is something that
has some significance to this whole discussion.
Mr. Selig. If I can just respond to that for a second, if
you are running a franchise in Cincinnati, or when I was
running it in Milwaukee, thing about this. I know that we will
never go back to what we were back in the 1930's, 1940's,
1950's and 1960's, and probably shouldn't. But a fan felt in
Cincinnati, Senator, that Ted Kluszewski or Wally Post or Jim
Greengrass, or whatever----
Senator DeWine. You just know my age, that is all, Mr.
Selig. Do you want to go through the rest of that lineup--
Johnny Temple, Roy McMillan.
Mr. Selig. Roy McMillan came to the Braves later on. That
is exactly right. We sent you Joey Jay and it was a bad mistake
that the Braves made.
Senator DeWine. Let me conclude, if I could, by reading an
e-mail that I received from a constituent of mine in my home
State of Ohio, speaking about the current situation in
baseball. I just got this e-mail this past week. This is what
this individual said: ``It is getting to a point where fans of
small-market teams don't even care. If Major League Baseball
thought that post-strike attendance was bad, it is not going to
get any better. I know the World Series ratings weren't that
great as well. As much as Mr. Steinbrenner and others don't
want to hear it, there is no team that is greater than the
game.''
I guess you have addressed that and I won't even ask you to
comment on it, but I think it does go back to what everyone has
talked about, and that is some of us think the greatest month
of the year is March because it is the time of hope and it is
the time of spring training and it is the time when we look
forward to what lies ahead. And we hope that fans will always
have the opportunity to have that.
Mr. Selig. Well, thank you. Let me just say in conclusion,
Senator--and I appreciate very much the opportunity to be
here--that I would say to you today what I say to myself
everyday when I am working on this problem. It is my job to
restore hope and faith, and I can assure you this system will
be changed and this problem will be dealt with.
Senator DeWine. Mr. Selig, thank you very much. I hope you
will be able to stay and watch the other panels.
Mr. Selig. I will. Thank you very much.
Senator DeWine. Thank you very much. We appreciate it.
[The prepared statement of Mr. Selig follows:]
Prepared Statement of Allan H. Selig
Mr. Chairman and members of the Committee, thank you for this
opportunity to appear before you to discuss the most critical issue
that Major League Baseball faces today--competitive imbalance.
By every measure of comparison, Baseball is in the midst of a great
renaissance. Never has the game been more popular. We set a new
attendance record in 2000, drawing nearly 73 million fans to our
ballparks. More fans attended Major League Baseball games than attended
the games of the other three major professional team sports combined.
When you add the 35 million fans drawn by minor league baseball, the
aggregate number of fans that attended professional baseball is nearly
110 million. In the so-called halcyon days of New York baseball in
1949, the three New York teams--the Yankees, Dodgers, and Giants--drew
a combined 5,113,869. Last season, the Yankees and Mets drew 6,027,878.
The only set of circumstances that can impede this great
renaissance is our inability to solve this problem of competitive
imbalance. During the past decade, Baseball has experienced a terribly
disturbing trend. To put it simply, an increasing number of our Clubs
have become unable to successfully compete for their respective
Division Championships--thereby making post-season appearances--let
alone post-season success--an impossibility. The enduring success of
our game rests on the hope and faith of each fan that his or her team
will be competitive. At the start of spring training, there no longer
exists hope and faith for the fans of more than half of our 30 clubs.
We must restore that hope and faith. the trend toward competitive
unbalance, which is caused by Baseball's economic structure, began in
the early 1990s and has consistently gained momentum. Indeed, as I
testified in 1994 before members of the United States House of
Representatives, ``[Baseball's] economic problems have become so
serious that in many of our cities the `competitive hope' that is the
very essence of our game [is] being eroded.'' Unfortunately, Baseball's
``economic problems'' have only worsened since 1994, and for millions
of our fans, the flicker of ``competitive hope'' continues to become
more faint. The competitive imbalance problem is one that, if not
remedied, could have a substantial effect on the continuing vitality of
our game.
Competition is the main product that Major League Baseball sells.
Because of my concern about the competitive state of our game, I
commissioned a Blue Ribbon Panel of independent experts to determine
the extent and cause of this problem. I also requested that the Panel
recommend reforms to our economic structure if it concluded that our
structure was contributing to the problem of competitive imbalance.
The distinguished independent members of the Blue Ribbon Panel were
Richard Levin, President of Yale University; George Mitchell, former
Senate Majority Leader; Paul Volcker, former Chairman of the Board of
Governors of the Federal Reserve System; and George Will, the political
columnist and commentator who has written extensively about Baseball.
The Independent Members of the Blue Ribbon Panel approached their task
in an even-handed and open-minded fashion. As their report makes clear,
they viewed themselves as representatives of the fans.
In its investigation, the Panel relied on data provided by Baseball
for the years 1995 through 1999 which included information regarding
each Club's regular and post-season win-loss record, ticket and
concession prices, local revenues, player payrolls, revenue sharing
payments and receipts, and profits and losses. This data was verified
by the accounting firm Ernst & Young and audited by the accounting firm
of PricewaterhouseCoopers. After 18 months of intensive investigation
and analysis, the Panel reported its findings and recommendations in
July of this year.
The findings were, to say the least, disheartening.
First, the Panel concluded that large and growing revenue
disparities do exist and are causing problems of chronic competitive
imbalance. Second, these problems have become substantially worse
during the five complete seasons since the strike-shortened season of
1994, and seem likely to remain severe unless Major League Baseball
undertakes serious remedial actions. Third, the limited revenue sharing
and payroll tax systems that were approved as part of Baseball's 1996
collective bargaining agreement with the Major League Baseball Players
Association have produced neither the intended moderating effect on
revenue and payroll disparities nor improved competitive balance.
The Panel's findings begin with the issue of revenue disparities
between Clubs. Local revenues, which are the largest component of a
Club's total revenue and include such items as local television and
radio contracts, ticket sales and local sponsorship, vary widely
between Clubs. For example, in 1999, the Montreal Expos had local
revenues of $12 million compared to the New York Yankees' local
revenues of $176 million.
At least a decade before the Blue Ribbon Panel was appointed, many
of us in Baseball recognized the growing problem of revenue disparity
and tried to address it. Historically, Baseball had no meaningful
mechanism for local revenue sharing. In the early 1990's, I made an
improved system of local revenue sharing my primary goal. In 1994, I
convinced the Clubs (by a 30-0 vote) to adopt a revolutionary local
revenue sharing plan. Although the Players Association initially
resisted this change, an agreement to implement the new plan was
reached in 1996. Today, approximately $155 million is transferred from
high revenue to low revenue Clubs. Moreover, we have worked tirelessly
to increase central fund revenue which tends to decrease disparity
because it is shared equally by all 30 Clubs. In 1995, central fund
revenue was approximately $171 million. In 1999, it was $521 million.
These efforts, however, simply proved inadequate. The Blue Ribbon
panel found that from 1995 through 1999, the difference between the
highest and lowest Club total revenues, meaning a Club's revenues after
revenue sharing and central fund distribution, rose from $74 million to
$164 million. In 1999, the total revenue of the highest revenue Club
was $22 million more than the combined revenues of the four Clubs with
the lowest revenues.
The Blue Ribbon Panel's second major finding was that revenue
differentials between high and low revenue Clubs resulted in
significant disparities in player payrolls. For example, in the 2000
season, one Club's payroll was approximately equal to the sum of the
payrolls of the five lowest payroll Clubs. Between 1995 and 1999, the
difference between the highest and lowest Clubs' payrolls increased
from $45 million to $76.5 million, and the difference between the
highest Club's payroll and the average of all Clubs' payrolls increased
from $22 million to $43 million.
Finally, and most important, the Panel highlighted the consequences
of these revenue and payroll differentials. To do this, the Panel
separated the Clubs into quartiles by either revenue or payroll;
Quartile One containing the Clubs with the most revenues or highest
payrolls and Quartile Four containing the Clubs with the least revenues
or lowest payrolls. As the Panel noted, from 1995 through 1999, every
World Series winner was from payroll Quartile One and no Club outside
payroll Quartile One won a single game in the World Series. Indeed, the
World Series Champion each year was among the five Clubs with the
largest payroll. With the exception of 1998, even the World Series
loser was from payroll Quartile One. As all of you probably know, this
trend continued this year (2000) with the number one and number three
payroll clubs--the New York Yankees and the New York Mets,
respectively--both participating in the 2000 World Series.
From 1995 through 1999, no Club in payroll Quartiles Three and
Four--meaning all Clubs in the bottom half of payroll--won a single
playoff game. Although the White Sox and A's managed to break this
``shut out'' in 2000, the facts remain stark. Over the period 1995-
2000, 189 post-season games have been played. Three of these post-
season games, or less than 2 percent, have been won by Clubs with
payrolls in the bottom half of the industry.
The Panel's staggering findings are especially troubling to me
because, as Commissioner of Major League Baseball, my primary
responsibility is to preserve the integrity of the game in all 30 Major
League markets. Moreover, I understand the problem of competitive
imbalance because I ran a ``small market'' Club--the Milwaukee
Brewers--for thirty years. And it is the small market Clubs, those
Clubs that cannot generate enough local revenues, that are bearing the
brunt of the competitive imbalance problem. I have witnessed the
disillusionment that competitive imbalance has caused Major League
Baseball's Clubs and fans. Clubs like Minnesota, Montreal, Kansas City,
Cincinnati, Pittsburgh, Milwaukee, and Tampa Bay, among others, have
all fallen prey to Baseball's inherently-flawed economic structure.
Moreover, this problem we are facing today is demonstrably
different from anything previously experienced. In the past, Clubs did
not have equal revenues or payrolls, but small market Clubs had the
ability to compete with large market Clubs because revenue disparities
were less severe and small market clubs had a much greater relative
ability to afford top talent. Although small market Clubs may have had
to work harder than large market Clubs to generate similar local
revenues, there was no structural impediment that kept them from being
competitive on the field. Today, by contrast, the revenue and payroll
disparities are so great and the role of media revenue is so
significant that small market Clubs are faced with situations that
appear hopeless. In an age when the Yankees are rumored to be in line
for a $100 million per year local media contract, it is difficult to
have hope in Montreal which, for the 2000 season, had no television
contract and local revenue of just $14 million.
My own experience with the Milwaukee Brewers shows how things have
changed. When the Brewers won the American League Championship in
1982--a feat that is virtually impossible for a small market Club under
Baseball's current economic structure--it was due largely to the fact
that our organization had the ability to generate sufficient revenues
to support a competitive Club. We had the resources to develop great
players, including Hall of Famer, Robin Yount, soon-to-be Hall of
Famer, Paul Molitor and Jim Gantner. But, more important, we had the
resources to keep those players for their entire careers (Yount and
Gantner) or nearly their entire career (Molitor). While it was a
struggle every day, we maximized revenue and made prudent contract
decisions that allowed us to pay our great players market salaries.
These players enabled the Brewers to be successful participants in the
post-season. And, we were not alone. Other small markets enjoyed
similar success in the 1980s and early 1990s. Indeed, Clubs such as
Montreal, Oakland, Pittsburgh, Cincinnati, Minnesota, San Diego and
Kansas City all participated in the League Championship Series, and
Oakland, Kansas City, Minnesota (twice) and Cincinnati even won the
World Series during this era.
Today, however, is a much different story for small market Clubs--
even those small market Clubs that experienced post-season success not
so long ago. The Montreal Expos provide one such example. In the
1980's, the Expos were very competitive on the field. They won the
``first-half'' of the strike-divided 1981 season and nearly won the
division in 1987. The Expos' team in the 1980's included such great
players such as Andre Dawson, Tim Raines, Andres Galarraga, Gary
Carter, Hubie Brooks, Bryn Smith and Tim Wallach. Lest we forget, Randy
Johnson also began his career with the Expos in the late 1980's. As the
decade progressed, however, the problems inherent in Baseball's
economic structure began to effect Montreal's ability to compete on the
field. By 1991--in what has proved to be a sign of things to come--all
of the key players mentioned above had left Montreal--most often via
free agency or the threat of free agency--for other Major League teams.
The Expos, however, persevered. They rebuilt with new, young talent
and, throughout the early 1990's, Montreal had one of the best records
in the National League. In 1993, the Expos had 94 wins--one shy of the
Club's all-time record. In 1994, the year of the player strike, the
Expos had a team that included Larry Walker, Moises Alou, Marquis
Grissom and pitchers Jeff Fassero, Pedro Martinez, Ken Hill and John
Wetteland. When the strike began on August 11th, the young Expos had
the best record in all of Major League Baseball.
Unfortunately, due to the changing dynamics of Baseball's economic
structure, the Expos again were not rewarded for their hard work in
building this team. Rather, they were penalized because of their market
size by being financially forced to break up this strong, young team.
Even worse, the Expos stars often left town not because of free agency
or the threat of free agency, but because the Club could not even
afford to pay the going rate in salary arbitration. In other words, the
Expos were forced to give up the players it developed at a much earlier
point in their careers. Several players went straight to large market
Clubs--Wetteland to the Yankees, Grissom to Atlanta, Martinez to
Boston, Fassero to Seattle and Alou to Florida for the high-payroll
1997 World Series Championship Club. Now, this once competitive ``small
market'' Club maintains one of the lowest payrolls in the League due
primarily to its inability to generate local revenues.
Montreal continues to be one of the more successful player
development organizations in baseball. The Club scouts and signs great
young talent. Unfortunately, the price for that talent is set in salary
arbitration and free agency by Clubs with vastly more revenue. A Club
with revenues approaching $200 million may be willing to pay a player
$15 to $17 million per year. A Club with $40 million in revenue simply
does not have that option. As a result, the only viable option
available to Clubs like the Expos is the very low price--usually not
very competitive--team.
The Expos are just one example of what has occurred throughout our
League during the past decade. Fans in a number of markets have been
forced to watch their teams become chronically uncompetitive. As part
of the same phenomenon, players routinely demand to be traded to Clubs
that have a chance to compete. During my thirty-two years in Baseball,
I have never witnessed the type of despair that competitive imbalance
is causing so many of our Clubs today. In fact, all of our Clubs are
greatly concerned about this issue because of the potential effects
competitive imbalance could have on national fan interest. While
Baseball, in general, is in the midst of a period of great popularity,
it is beyond debate that competitive imbalance is causing serious
issues in markets such as Montreal, Milwaukee, Tampa Bay, Toronto,
Florida, Kansas City, Minnesota, Pittsburgh, Cincinnati and others.
Indeed, two of our four most recent expansion Clubs are having real
difficulty. If Baseball does not correct the competitive balance
problem, the game's current renaissance could be destroyed.
The Blue Ribbon Panel concluded ``sweeping changes in the game's
economic landscape are necessary'' to remedy this problem.
I agree.
I will leave the specifics of the Blue Ribbon Panel's
recommendations to Senator Mitchell and George Will who will explain
them in detail shortly. I would, however, like to emphasize several
points regarding any recommendations or changes relating to Baseball's
economic structure. First, I cannot state with certainty that the
Panel's recommendations would solve our competitive imbalance problem.
I do believe that the Panel has provided, at the very least, a valuable
roadmap on which to plot any changes that we venture to implement.
Second, any such changes to our economic structure cannot be
implemented without the cooperation and input of the Major League
Baseball Players Association. I believe, however, that the Players
Association and Major League Baseball have a common interest and desire
in making our game the very best product for our fans. I know that our
players are aware of and concerned about Baseball's competitive
imbalance, and I am hopeful that, in our upcoming negotiations for a
new collective bargaining agreement, both sides will work together to
create a new economic structure in which everyone will benefit.
Let me be clear; this is a problem that cannot go unresolved. I am
committed to making any and all internal changes that will expedite our
journey back toward adequate competitive balance. I am also committed
to continuing our efforts to grow Baseball's central fund, which has
been used, and hopefully can be used more effectively, to balance our
Clubs' payrolls. Indeed, I believe the central monies generated by
Baseball's recent television contracts with Fox and ESPN provide an
opportunity to improve the competitive state of our game.
I would like to conclude by stating that the game of Baseball is at
its best when all Clubs--those from markets that are diverse
geographically, demographically and economically--are provided a
reasonably level playing field on which to compete. Our current
economic structure prevents Baseball from being its best. It is time
for ``sweeping changes'' that will, hopefully, reinvigorate all of our
Clubs and their fans and enable Baseball to continue its renaissance
and maintain its place as America's favorite spectator sport.
Thank you again for your time and attention.
Senator DeWine. Let me now introduce Senator George
Mitchell. Senator Mitchell was a member of the U.S. Senate from
1980 to 1995 and, of course, as we all know, served as the
Senator Majority Leader from 1989 to 1995. Senator Mitchell
serves as director to several multinational corporations, as
well as Chancellor of the Queens University of Northern
Ireland.
Recently, Senator Mitchell served as chairman of the peace
negotiations in Northern Ireland. Under his leadership, a
historic accord ending decades of conflict was agreed to by the
governments of Ireland the United Kingdom and the political
parties of Northern Ireland. For his service in Northern
Ireland, Senator Mitchell has received numerous awards and
honors, including the Presidential Medal of Freedom, the
highest civilian honor that the U.S. Government can give.
Recently, Senator Mitchell has been asked by President
Clinton to serve as part of a bipartisan commission tasked to
investigate the causes of the recent outbreak of violence in
the Middle East.
A lifelong fan and a student of baseball, Senator Mitchell
sits on the board of the Florida Marlins. Last year, Senator
Mitchell was appointed by Commissioner Selig as an independent
member of the Blue Ribbon Panel formed to examine the issue of
competitive imbalance in baseball.
We welcome back to the U.S. Senate the Honorable Senator
George Mitchell. And let me just say, Senator Mitchell, on a
personal note--and I know I speak for many Americans--we deeply
appreciate your service to your country not only during the
time you were in the U.S. Senate but since you have left the
Senate. It has been a distinguished period in your career.
There is nothing more important than working for peace, and you
have done that and we applaud you for that and we thank you for
that. We apologize for making you wait for an hour, as I will
apologize to our other panel members for making them wait for
longer than that.
Senator Mitchell, thank you very much.
STATEMENT OF GEORGE J. MITCHELL, FORMER SENATE MAJORITY LEADER,
AND INDEPENDENT MEMBER, COMMISSIONER'S BLUE RIBBON PANEL ON
BASEBALL ECONOMICS, WASHINGTON, DC
Mr. Mitchell. Well, Mr. Chairman, thank you for your kind
words and for the opportunity to speak to you today on behalf
of the independent members of the Blue Ribbon Panel on Baseball
Economics.
I use the term ``independent members'' purposefully. In
undertaking this task, the four of us made clear to all
concerned that we viewed ourselves as representatives of the
public, the fans, not as representatives of either the owners
or the players.
Our mission was, first, to determine whether baseball has a
real, as opposed to a perceived problem of competitive balance.
If our conclusion was in the affirmative, we were asked to
decide whether the lack of competitive balance is due to the
structure of baseball's economic system, or instead to other
less permanent forces that are likely to change over time. Our
final task was to provide recommendations for structural
change, if necessary.
Our findings can be summarized as follows. First, large and
growing revenue and payroll disparities exist and are causing
problems of chronic competitive imbalance in baseball.
Second, these problems have become substantially worse
during the period following the strike-shortened 1994 season
and seem likely to remain severe unless Major League Baseball
undertakes significant remedial actions that are proportional
to the problem.
Third, the limited revenue-sharing and payroll tax approved
as part of the 1996 collective bargaining agreement with the
Players Association did not moderate payroll disparities or
improve competitive balance. In fact, some low-revenue clubs
used those dollars to become modestly profitable because they
believed that their proceeds from revenue-sharing were
insufficient to enable them to compete.
Fourth, high-revenue, high-payroll clubs completely
dominate post-season play. In the last 6 years, including the
2000 post-season, out of the possible 48 post-season slots,
only 3 clubs with payrolls in the bottom half of the industry
made it to the post-season--45 to 3. Of the 189 post-season
games played during this period, only 3 games were won by clubs
with payrolls in the bottom half of the industry--186 to 3.
Mr. Chairman, these statistics, with other facts, lead
inescapably to our conclusion that competitive imbalance does
indeed exist and that baseball's economic structure is
ultimately responsible. We also concluded that if the current
trend of competitive imbalance is not reversed, baseball's
status as an accessible, affordable and competitive spectator
sport may be jeopardized.
Our recommendations are as follows. First, baseball's local
revenue-sharing should be substantially increased. Second, the
tremendous disparity in the clubs' payrolls should be reduced
through a competitive balance tax that would impose a 50-
percent tax on any club whose payroll is over a fixed threshold
of $84 million. That threshold is the figure used by the
parties the last year of the luxury tax negotiated as part of
the 1996 basic agreement.
Third, all clubs should be encouraged to maintain a minimum
payroll of $40 million. The combination of the competitive
balance tax and the minimum club payroll is intended to move
all major league franchises to within a payroll range that
would permit real competition on the field.
With these mechanisms in place, the clubs' payrolls would
likely move closer to a 2-to-1 ratio among the highest- and
lowest-payroll clubs. Such a ratio would be similar to that
which existed in baseball in the late 1980's and early 1990's,
a period of substantial competitive balance, and just above the
payroll ratio which currently exists in the National Basketball
Association and the National Football Leagues, leagues commonly
thought to have achieved a significant level of competitive
balance.
Fourth, the Commissioner should use unequal distributions
of central fund revenues to improve competitive balance and to
assist low-revenue clubs in improving their competitiveness.
Currently, central fund revenues are distributed to the clubs
on a pro-rata basis.
Fifth, Major League Baseball should conduct an annual
competitive draft during which the eight clubs with the worst
season records would have an enhanced opportunity to select
professional talent from the eight clubs that qualified for the
post-season in the preceding year. This draft would only
include players on the clubs' non-40-man rosters.
Sixth, Major League Baseball should implement reforms in
the Rule 4 draft, which is baseball's entry player draft,
including adding international players to the draft,
eliminating compensation picks, increasing the opportunity for
low-revenue clubs to sign top prospects by reducing the number
of times a player can make himself eligible for the Rule 4
draft, allocating a disproportionate number of selections to
chronically uncompetitive clubs, and allowing the trading of
draft selections.
Seventh, Major League Baseball should also utilize
strategic franchise relocations to address the competitive
issues facing the game. Clubs that have little likelihood of
securing a new ballpark or of undertaking other revenue-
enhancing activities should have the option of relocating if
better markets can be identified.
Finally, we encourage Major League Baseball to expand its
initiatives to develop and promote the game domestically and
internationally.
We do not believe that these changes will be easy to
implement or that they are or will be universally popular. Our
analysis suggests, however, that these reforms would reduce the
current revenue and payroll disparities, preserve key player
rights, and improve competitive balance, all to the ultimate
benefit of teams, players, and fans.
The indisputable record of the past 6 years makes clear
that more than half the clubs have no hope of being competitive
when their players report to spring training in February. When
there is no hope in a city, fans will inevitably turn their
attention elsewhere, and players will look to move on to one of
the few clubs that has the economic ability to field a
competitive team.
We believe that our recommendations, if implemented, would
return hope to those clubs, those players, and most importantly
to the fans, those fans who have now lost their ability to
dream about the magical season when their team will play for
the World Series championship.
Mr. Chairman, thank you for your time and attention. I ask
that my full statement be made a part of the record. I have
summarized it briefly here. And I will be pleased to try to
answer any questions that you may have.
Senator DeWine. Senator, thank you very much for your
testimony.
The Blue Ribbon Panel, as you have just outlined,
recommended a 50-percent competitive balance tax on payrolls
that were above $84 million. How do you respond to the argument
that that, in effect, is a salary cap, and is that good or bad?
Mr. Mitchell. It is not a cap.
Senator DeWine. And, again, explain to us, Senator, why it
is not a cap, why it doesn't have the effect of being a de
facto cap, if not a de jure cap, and then try to respond, if
you could, to the issue of what is in the best interest of the
players, because Mr. Selig, the Commissioner of Baseball, has
pointed out that ultimately much of this is subject to
collective bargaining.
Mr. Mitchell. It is not a cap. A cap, by definition, is a
fixed ceiling beyond which no party can go even if they wish to
do so. A competitive balance tax permits a party to go beyond
that level if they make the judgment that it is in their
interest to do so and they are willing to pay the necessary
tax. It clearly is intended to serve as a restraint, but it is
plainly, in law and in fact, different from a cap and is not
therefore a cap.
With respect to the players, Mr. Chairman, here is what
makes baseball different from most other businesses. If there
are now 30 companies engaged in the manufacture of microphones
or of drinking glasses or of tables or chairs, if 29 of those
companies go out of business, the 30th can survive, and indeed
perhaps prosper better than when the other 29 were in business.
But if 29 out of 30 major league baseball teams go out of
business, the 30th cannot survive. It takes two teams to have a
game and it takes several teams to have a league. So the
economic factors which operate in a purely free market
situation simply don't apply in full in this circumstance.
The players' interest is plainly in having a competitive
balance in the sport so that several teams can compete, so that
the leagues will be successful, and so that there will be a
continuing successful overall effort as teams compete
aggressively to reach the playoffs and the World Series. That
is the long-term interest.
Now, I believe that baseball players are athletes of
extraordinary skill and ability. People like us who have tried
to play baseball, who played as kids, have an understanding of
just how great these athletes are. And they deserve to be
rewarded commensurate with their extraordinary skill. That is
the case and will only continue to be the case if there is
effective competitive balance, and I believe the players
themselves recognize that. You cited one survey. I believe that
all thoughtful commentators recognize that as well.
You can have both highly compensated players deservedly
receiving remuneration that is commensurate with their skill,
and at the same time an enterprise, baseball itself, two
leagues that are fully competitive and actually make it better
for the players and for the fans.
Senator DeWine. As you point out, the fact that these are
highly competitive individuals--they are by nature competitive;
that is why they are playing baseball. Everyone wants to play
for a team that has a shot at winning and everyone wants to go
into the playoffs and everyone wants to go to the World Series.
I mean, it is just basic human nature and it is something that
we see time and time again when we see quotes from major league
baseball players about being traded or not being traded and
making those decisions.
If this last few years is this inexorable trend that will
not change unless the structure of baseball is changed, what
brought this about? In layman's terms, how would you explain it
to the layperson who has not spent all the time you have spent
studying this? What in the world changed? What happened in
1993, 1994, 1995? Why are things different today?
Mr. Mitchell. Well, first, Mr. Chairman, I am a layman. I
am not an expert. I am a baseball fan.
Senator DeWine. You spent a lot of time on this report,
though.
Mr. Mitchell. I did spend a lot of time, but I had a lot of
great help from people who know a lot more about baseball than
I do, like George Will and others. In fact, if you don't mind,
I would take a moment to tell a story which makes the point
about my limited information.
My first day in the U.S. Senate--I had been appointed to
complete an unexpired term. It happened so suddenly that when I
came here, I was sworn in during a regular session in the
Senate. They were interrupted and swore me in. I went back to
my office and a young man who had been running Senator Muskie's
staff who was now running my staff, just like these smart young
men and women sitting up behind you here, Mr. Chairman, came up
and said, well, Senator, we have an invitation for you here
tonight to go and speak to a national convention of certified
public accountants.
I said, gosh, that is amazing. How did they know I was
going to be here? I didn't know myself until a day or so ago.
He said, well, I didn't know. He said, they have had several
cancellations and you are the only person they can think of who
might not have anything to do tonight. I said, what do they
want me to speak about? He said the tax code. I said, well, you
want me to go to speak to 3,000 certified public accountants
about the tax code? They all know a lot more about it than I
do.
And this young man drew himself up, and with the confidence
that young congressional aides often demonstrate said, Senator,
with that attitude, you will never get anywhere in politics.
[Laughter.]
So I went to speak to the accountants about the tax code,
and here I am to talk about baseball. But I tell you that story
to remind you that the real experts are sitting behind me.
Mr. Chairman, I think that these kinds of changes are going
to be necessary if there is going to be a continuation of
competitive balance. One can say, as some have, that the last 5
years are an aberration. At what point does it cease to become
an aberration? When the facts are so dramatic, so overwhelming
as they have been in the last 6 years, it suggests to me that
this is not an aberration, that unless action is taken, this
trend will continue, indeed accelerate. I think that when you
have such clear symptoms of a problem, you act, lest you wait
until the patient be dead and then you say, well, it really was
a problem.
Senator DeWine. Senator, one of the recommendations of the
Panel is a proposal to include international players in the
annual draft. Do you want to address this?
Mr. Mitchell. Yes.
Senator DeWine. Judging by the number of e-mails that we
have received in our office, and calls, I think we have a
pretty good baseball audience here today and maybe they are all
familiar with the international draft, but maybe some of them
aren't. Would you like to kind of explain that?
Mr. Mitchell. The entry draft was established at a time
when the vast majority of players in Major League Baseball were
born in the United States. As we know, that is no longer the
case. Baseball is truly an international sport. Therefore, the
draft procedures, the entry-level draft procedures do not cover
players who are born outside of North America.
As a consequence, you have a tremendous disparity in the
manner in which signings are made, and it appears to us that
this has enhanced the ability of the high-revenue, high-payroll
clubs to sign talented players who are born in areas outside
the area covered by the initial entry-level player draft,
particularly the Caribbean and Latin America, and hindered the
ability of the low-revenue, low-payroll clubs to do so.
Now, there are a number of other proposals we make with
respect to the entry-player draft, all of which we think will
operate in a synergistic manner to help to deal with the issue
of competitive balance. That is one aspect of it.
Senator DeWine. Explain to me what you mean when you talk
about the central fund distribution. You say the Commissioner
would be given, I guess, discretion to determine how some of
this money would be distributed. Do you see any problem with
granting the Commissioner of Baseball that kind of discretion,
and what criteria would he use?
Mr. Mitchell. Well, at the risk of oversimplifying, you can
divide baseball revenues into two categories--local revenues
which go directly to the clubs, and central revenues which go
to the central office of the commissioner. At the present time,
up until the circumstances which the commissioner described in
his testimony with respect to the Internet, central fund
revenues were distributed to clubs on a pro-rata basis. So they
tended, of course, not to have any impact on the issue of
revenue disparity.
We have recommended that the commissioner, who we believe
should have, if he does not have the authority, use unequal
distributions of central fund revenues to improve the
competitive balance, to be able to make distributions not on a
pro-rata basis but to those who need them.
Now, I wish to emphasize, included in our report and
included in my testimony, but I didn't read it because of time
constraints, we have also urged a minimum payroll of $40
million. And in order to encourage clubs who are below that
level to come up to it, we have suggested that the commissioner
not make unequal distributions to any club which has not come
up to the minimum. That is one thing I think the players should
find attractive; that is, the minimum payroll.
You rightly asked a question about the restraint that we
offer at the top. We are also suggesting a minimum payroll
level which increases significantly the amount of money paid to
the players. Our concern is not the profitability of the clubs.
That is a matter for the commissioner and the owners to deal
with. Our concern is competitive balance.
What we concluded, based upon what happened in baseball a
decade or more ago, based upon what happens in football and
basketball, is that you can best achieve competitive balance by
reducing the ratio of payroll disparity to roughly two to one,
or less, as is the case in the NFL and the NBA. And we believe
that the commissioner should have the authority to help achieve
that goal by making unequal distributions from the central
fund.
Senator DeWine. You say you would encourage the $40 million
as basically a floor. It is not a hard floor.
Mr. Mitchell. That is right.
Senator DeWine. But you put some incentives in there to
make it happen. I assume that addresses the problem that we
have heard about that we have with the revenue-sharing today
and the distribution of the money today where a team will take
the money and instead of investing in payroll, a team will
invest in the bottom line and make it so they can maybe not
have so much red or less red, or maybe even be in the black.
Mr. Mitchell. That is correct, Mr. Chairman. That is the
intent to do that. If you look at the profitability figures
that are contained in our report, you will find in the most
recent years the anomaly that only a very few clubs at the very
top of the revenue payroll scale and a very few clubs at the
very bottom of the payroll revenue scale are profitable. And
that is precisely for the reason that you have just stated that
some of the lower-revenue clubs obviously are making the
judgment that the amount they are receiving from revenue-
sharing is insufficient, even if entirely invested in talent,
to lift them into a competitive position and have opted instead
to use those funds to make themselves modestly profitable.
And we don't think that the right way to go, although we
are not involved in questioning individual management judgment.
We think the way to go is to reduce the disparity in the range
of payrolls to give everybody a chance to be competitive.
Senator DeWine. Let me ask about one more of the
recommendations, and you talked briefly about this, but it is
one of the recommendations that I don't think has received a
lot attention. You would allow the weakest eight clubs to
select one player from the non-40-man roster of the other
teams. Basically, every team protects 40 people.
Mr. Mitchell. That is correct.
Senator DeWine. And I assume what this does is it stops the
hoarding up of minor league players and others who are playing
in AAA ball and they are sitting down there on a minor league
team and probably could be playing major league baseball if
they were under contract with some other team.
Mr. Mitchell. That is correct, Mr. Chairman. It is an
attempt to achieve a balance. You don't want to create a
disincentive for good management in the good teams by invading
their 40-man rosters. You also want to prevent the circumstance
which you describe, and most importantly give the less
competitive teams an opportunity to gain access to that talent,
and by the same token to give more players who have major
league ability the chance to play in the major leagues.
Senator DeWine. One last question, Senator. The report is
silent on the issue of salary caps, among other issues. There
are other issues that you are silent on. I wonder if you can
explain what the thought process was of how you excluded some
issues and included other issues.
Mr. Mitchell. In a general sense, Mr. Chairman, we were not
charged with the responsibility of making a complete critique
of all aspects of the economics of Major League Baseball. We
were asked to address specifically the issue of competitive
balance, and therefore we focused our attention on those
factors which we felt would contribute directly to competitive
balance.
As in all such endeavors, there is an element of judgment
involved. When you stand up on the Senate floor and give a
speech, one of the first things you must decide is the point
you want to make and what are the elements that contribute to
that point. And you can't deal with everything, and so we
couldn't deal with everything.
On the issue of the salary cap, we concluded that the
alternative that we suggested was the best way to proceed in
terms of making a realistic assessment of the situation, one
which could attract broad support from the owners, the players,
and the fans, and one that we hoped could be implemented along
with the other reforms in a reasonably prompt way.
We were, of course, conscious of the fact that a cap had
been much discussed in the prior negotiations, was a very
controversial matter, and had been rejected. The fact is that
in the prior agreement reached between the owners and the
players, there is revenue-sharing. So enhancing revenue-sharing
does not introduce a wholly new factor.
There is, or was, a luxury tax. So enhancing that tax,
describing it, we feel, accurately as a competitive balance tax
does not introduce a completely new factor that either side has
previously rejected. Indeed, both sides have previously signed
up to this. We felt this was the proper approach in terms of
trying to come up with a package of recommendations that, if
fully implemented, we believe will help achieve competitive
balance and that has a realistic prospect of being implemented.
Senator DeWine. Senator, I believe what the Blue Ribbon
Panel is saying, what Commissioner Selig said and what you have
said, in trying to explain this whole problem to the average
fan--and let me take a shot at this, and tell me if I am
correct in what you are saying.
Baseball is still operating under a system that the revenue
was based primarily on ticket sales, maybe some local radio,
maybe some local TV that was not huge. And baseball is still
operating under that system. In fact, baseball has even moved a
little bit away from that system.
I was always under the impression that the visiting team,
for example, got a certain percentage of the gate at some
point, and baseball has moved a little bit away from that, I
believe. Somebody can correct me if I am wrong about that, but
the commissioner is shaking his head correctly. So in a sense,
we have moved even further away from that, or even further
back.
Football and basketball really came of age as major sports
since the advent of TV and the advent of bigger and bigger and
bigger contracts, and maybe had the opportunity or an easier
chance of--they didn't have to reinvent themselves; they
basically invented themselves. But baseball is still back to
the era of how many people you put in the ballpark and what you
did to do that. Yes, New York certainly had a competitive
advantage in that sense over a Cincinnati or a Pittsburgh, but
it wasn't such a competitive disadvantage.
Is that a simplistic summary of where we are today?
Mr. Mitchell. I think it is an accurate summary, Mr.
Chairman. I think you have perceived what the problem is and
have identified it.
Before I address that, could I make a comment on my
previous answer? You asked me to describe the thought process
of the Panel. I am one of four members and I have described the
thought process that went through my mind. George Will is
sitting here.
Senator DeWine. We will get to Mr. Will in a minute here.
Mr. Mitchell. I hope you give him the chance.
Senator DeWine. We will.
Mr. Mitchell. There are a few things in life that he and I
disagree on, but I hope this is one that we do agree on.
Senator DeWine. I am surprised you disagree.
Mr. Mitchell. Well, a few things not involving baseball.
Senator DeWine. The important things.
Mr. Mitchell. I think you have identified it correctly, Mr.
Chairman. The reality is when I started going to ball games at
Fenway Park, in Boston, as a young man, and when you started
going in Cincinnati, life was completely different. Those
television cameras right here have transformed every aspect of
American life, not just baseball. They have transformed
politics, in which you and I have been engaged for a long time.
They have transformed the social mechanisms of every society,
including our own.
I don't think that anyone anticipated that cable television
rights would be a huge factor in local revenues several years
ago. They are now. It is one of the major contributing factors
to the disparity in revenues that is occurring. It is the
technical ability to now transport a visual image of an event
all over the country and the world that has transformed the
economics of baseball.
Therefore, it has made possible changes which are very
good. As the commissioner said, 73 million people saw ball
games. Players' salaries are high and going higher. The problem
is that this can't continue in the current state. And before
the patient dies, remedial action should be taken, and I
believe the remedial action that we have suggested is sensible,
reasonable, proportional to the problem, and we hope, if
adopted, will contribute to a solution.
I thank you very much, Mr. Chairman, for giving me this
time and for listening to my comments and for putting my
statement in the record.
Senator DeWine. Senator, we thank you very much.
Mr. Mitchell. Thank you.
[The prepared statement of Mr. Mitchell follows:]
Prepared Statement of Senator George J. Mitchell
Thank you for the opportunity to speak to you today on behalf of
the independent members of the Commissioner's Blue Ribbon Panel on
Baseball Economics.
In January 1999, Baseball Commissioner Allan H. Selig formed the
Blue Ribbon Panel to examine and address the issue of competitive
imbalance in Baseball. I was appointed as an independent member of the
Panel along with Richard Levin, President of Yale University; Paul
Volcker, former Chairman of the Board of Governors of the Federal
Reserve System; and George Will, political columnist and commentator. I
use this term ``independent member'' purposefully when I describe
myself and my three colleagues. In undertaking this task, the four of
us made clear to the Commissioner that we viewed ourselves as
representatives of the public--the fans--and not as representatives of
owners or players.
The mission that the Commissioner asked us to undertake was not an
easy one. We were first asked to determine whether Baseball has a real,
as opposed to a perceived, problem of competitive imbalance. If our
conclusion was in the affirmative, we were asked to decide whether the
lack of competitive balance is due to the structural characteristics of
Baseball's economic system or is due instead of other less permanent
forces that are likely to change over time. Our final task was to
provide recommendations for structural change, if necessary.
The Panel's investigation and analysis took one and a half years to
complete. During that time, the Commissioner's Office made available to
us virtually every conceivable form of economic data. We had data on
revenues, expenses, debt, franchise purchases and sales, as well as
numerous measures of on-field performance. The Commissioner's Office
also made available to us its entire professional staff which we
utilized to perform extensive analysis of the available data. We also
had the benefit of numerous presentations from and interviews with
owners and executives from all types of teams--large market, small
market, individually-owned and corporate-owned. Also, at our request,
we had a formal meeting with representatives of the Major League
Baseball Players Association.
Before I summarize the Panel's findings, I believe it is important
to address two preliminary matters. First, after the Report was made
public, some commentators criticized it on the basis that we relied on
Club-provided financial information, particularly profitability data.
These criticisms are ill-founded because nothing in our report or
recommendations turns on the issue of Club profitability or a lack
thereof. The recommendations set out in our report are aimed
exclusively at the issues of disparity and competitive imbalance--the
issues that affect the game's fans and the other public interests
affected by Baseball. In our view, profitability is primarily a Club
concern and it is a concern which received very little attention in our
report.
Having said that, we do not doubt the accuracy of the financial
data--revenues, expenses, profits and losses. As part of the 1990 Basic
Agreement, the owners and players formed a joint study committee
composed of representatives of both parties and outside experts
appointed by both sides. That joint study committee concluded that
Baseball's financial data were better than those found in most American
industries. Since that time, the owners and the players agreed to a
local revenue sharing plan that transfers over $100 million a year from
high revenue Clubs to low revenue Clubs based on the same data that we
studied. Pursuant to the parties' collective bargaining agreement,
these data are subject to review and audit by both Ernst & Young and
PricewaterhouseCoopers. Further, that same collective bargaining
agreement grants the Players Association the right to demand its own
audit of the data and to file a grievance over any accounting
irregularity, including any dispute concerning the auditor's treatment
of ``related party transactions.'' The Players Association has never
felt compelled to exercise any of these rights during the five revenue
sharing years covered by the Basic Agreement. This is compelling
evidence for the proposition that Baseball's audited financial
information is complete and accurate. Thus, any criticism of our report
on this basis is not supported by the facts.
A second preliminary issue relates to the role of the independent
members. We, the independent members, did not and do not consider
ourselves as mediators in the collective bargaining process but rather
as outside, independent analysts for the game. Our findings and
recommendations may not meet with the universal approval of either Club
ownership or with the Major League Baseball Players Association, but we
believe our input will stimulate discussion and objective analysis and
consideration from those two parties as well as from the parties'
ultimate audience--the fans.
The Panel's findings can be summarized as follows.
First, large and growing revenue and payroll disparities exist and
are causing problems of chronic competitive imbalance in Baseball.
Second, these problems have become substantially worse during the
period following the strike-shortened 1994 season, and seem likely to
remain severe unless Major League Baseball undertakes significant
remedial actions proportional to the problem.
Third, the limited revenue sharing and payroll tax approved as part
of the 1996 collective bargaining agreement with the Players
Association did not moderate payroll disparities or improve competitive
balance. In fact, some low revenue Clubs used those dollars to become
modestly profitable because they believed that their proceeds from
revenue sharing were insufficient to enable them to compete. In other
words, some Clubs concluded that payroll disparity was so great and
revenue sharing was so modest that the investment of revenue sharing
dollars in additional payroll was a futile act. Rather than engaging in
such futility, the Clubs used revenue sharing to improve their bottom
lines.
Fourth, high revenue, high payroll Clubs completely dominate post-
season play. In the last six years, including the 2000 post-season, out
of the possible 48 post-season spots, only four Clubs with payrolls in
the bottom half of the industry made it to the post-season. Of the 189
post-season games played during this period, only three (or less than
two percent) were won by Clubs with payrolls in the bottom half of the
industry.
These facts lead inescapably to our ultimate conclusion that
competitive imbalance does indeed exist and that Baseball's economic
structure is ultimately responsible. We also concluded that if the
current trend of competitive imbalance is not reversed, Baseball's
status as an accessible, affordable, and competitive spectator sport
may be jeopardized.
Concluding that Baseball now suffers from chronic and systemic
competitive imbalance was not difficult in light of the foregoing data.
Crafting effective and appropriate remedial measures to solve this
problem, however, is more complex. Nevertheless, as I stated
previously, our Panel concluded that strong and proportional remedies
are required to fix Baseball's problem. We do not believe that any one
change in the current economic system alone will fix the growing
competitive and economic imbalance. Rather, we concluded that the
implementation of a package of changes is necessary.
Our recommendations to the Commissioner are as follows.
First, Baseball's local revenue sharing should be substantially
increased. Currently, Baseball's revenue sharing system operates under
what is called the split pool plan. This plan requires each Club to
contribute 20 percent of its net local revenue to a pool. The pool is
then subdivided into two parts. One part--which represents 75 percent
of the pool--is redistributed equally to all Clubs. The second part--
the remaining 25 percent--is redistributed only to those Clubs below
the industry's average local revenue. Clubs further below the average
revenue receive a greater share of the second pool. This plan has
created anomalous results in the sense that some middle revenue Clubs
bear a greater relative burden from revenue sharing than do the very
highest revenue Clubs.
We suggested that the Clubs share at least 40 percent, and perhaps
as much as 50 percent, of all Clubs' local revenues (less local
ballpark expenses) under what is known as a straight pool plan. Local
revenues are composed of a Club's gate receipts, local television,
radio and cable rights fees, ballpark concessions, advertising and
publications, parking, suite rentals, and income from post-season and
spring training games. The straight pool plan treats all Clubs equally
in that 40 (or 50) percent of local revenue is contributed by each Club
to a single pool which is then redistributed equally to all Clubs.
Second, we suggested that the tremendous disparity in the Clubs'
payrolls should be reduced through a ``competitive balance tax'' that
would impose a 50 percent tax on any club whose payroll is over a fixed
threshold of 484 million dollars. The recommended fixed threshold is
approximately the threshold used by the parties in 1999, the last year
of the ``luxury tax'' negotiated as part of the 1996 Basic Agreement.
The recommended ``fixed threshold'' and the proposed increase in the
tax rate from 35 to 50 percent are both intended to refine the ``luxury
tax'' adopted in 1996 in a manner that would more effectively address
the competitive balance problem.
Third, we recommend that all Clubs be encouraged to maintain a
minimum payroll of $40 million. The combination of the competitive
balance tax and the minimum Club payroll is intended to move all Major
League franchises to within a payroll range that would permit real
competition on the field. With these mechanisms in place, the clubs'
payrolls would likely move closer to a 2 to 1 ratio among the highest
and lowest payroll Clubs. Such a ratio would be similar to that which
existed in Baseball in the late 1980s and early 1990s (a period of
substantial competitive balance) and just above the payroll ratio which
currently exists in the NBA and NFL, leagues commonly thought to have
achieved appropriate levels of competitive balance.
Fourth, the Office of the Commissioner should use unequal
distributions of its central fund revenues to improve competitive
balance and to assist low-revenue Clubs in improving their
competitiveness. Currently, central fund revenues are distributed to
Clubs on a pro rata basis. In January 2000, the Commissioner was
granted new powers to distribute central revenues in unequal amounts.
We believe the Commissioner could use unequal distribution of these
central revenues to help address the local revenue disparity problem,
to encourage revenue-enhancing activities and to assist low revenue
Clubs that have developed young talent. We suggested that Clubs which
do not meet the minimum payroll obligation of $40 million would be
ineligible for distributions from this fund.
Fifth, Major League Baseball should conduct an annual competitive
draft during which the eight Clubs with the worst season records would
have an enhanced opportunity to select professional talent from the
eight Clubs that qualified for the post-season the preceding year. This
draft would only include players on the Clubs' non-40-man rosters. This
recommendation is intended to promote long-term competitive balance by
preventing high revenue franchises from stockpiling talent in their
farm systems. The competitive draft, however, would protect the Clubs'
40-man rosters, thereby rewarding successful Clubs for good player
management and allowing those Clubs to retain their established
players.
Sixth, Major League Baseball should implement reforms in the Rule 4
draft, which is Baseball's entry player draft. Reforms would include
adding international players to the draft, eliminating compensation
picks, increasing the opportunity for low-revenue Clubs to sign top
prospects by reducing the numbers of times a player can make himself
eligible for the Rule 4 draft, allocating a disproportionate number of
selections to chronically uncompetitive Clubs, and allowing the trading
of draft selections. By expanding and improving the Rule 4 draft, we
hope to ensure that all Clubs have equal access to talent at the entry
level in much the same manner as do teams in other professional sports.
Seventh, Major League Baseball should also utilize strategic
franchise relocations to address the competitive issues facing the
games. For example, Clubs that have little likelihood of securing a new
ballpark or undertaking other revenue-enhancing activities should have
the option of relocating if better markets can be identified. While
Baseball in general, and the current Commissioner in particular, have
vigorously protected baseball fans from the ``franchise free agency''
that has plagued the other professional sports, we believe that Major
League Clubs should not be sentenced to markets that will not or cannot
support a Major League Club.
Finally, we encouraged Major League Baseball to expand its
initiatives to develop and promote the game domestically and
internationally.
The Panel does not pretend to believe that these changes will be
easy to implement or that they will be universally popular. Our
analysis suggests, however, that the package of reforms would reduce
the current revenue and payroll disparities, preserve key player rights
and improve competitive balance to the ultimate benefit of teams,
players and fans.
Every fan wants their team to have a chance to compete, to play in
the post-season and, perhaps, to win a championship. Fans in every
Major League city want to follow the daily exploits of their favorite
team from the beginning of March, through the long summer months and,
if things go well, deep into October. But the indisputable record of
the past six years makes clear that more than half of the Clubs have no
hope of being competitive when their players report to spring training
in February. When there is no hope in a city, fans turn their attention
elsewhere and players look to move on to one of the few Clubs that has
the economic ability to field a competitive team. We believe that our
recommendations, if implemented, would return hope to those Clubs,
players and, most important, fans who have lost their ability to dream
about that magical season when their team would play for the World
Series championship.
Thank you for your time and attention. I would welcome the
opportunity to answer any questions that the members of the Committee
may have.
Senator DeWine. Let me introduce our third panel and
apologize to our third panel for having to wait, although I
hope they found the two first panels to be as interesting and
as informative as I have. As the panel members are coming up,
let me introduce them.
George Will's newspaper column has been syndicated by the
Washington Post since 1974. Today, it appears twice weekly in
just under 500 newspapers in the United States and in Europe.
In 1977, he won a Pulitzer Prize for commentary in his
newspaper columns. Well regarded as one of our Nation's
foremost political commentators, Mr. Will is equally
provocative on the subject of baseball. Whether it is astro
turf, the designated hitter, or advertising on players'
uniforms, you always know where George Will stands on efforts
to tinker with America's pastime.
In 1990, Mr. Will published Men at Work: The Craft of
Baseball, which topped the New York Times Bestseller List for 2
months. In 1998, he offered us Bunts: Curt Flood, Camden Yards,
Pete Rose and Other Reflections on Baseball, a best-selling
collection of new and previously published writings by Mr. Will
on baseball.
Along with Bob Costas, Mr. Will gave voice and perspective
to the monumental Ken Burns miniseries on baseball. Mr. Will
sits on the boards of the Baltimore Orioles and the San Diego
Padres. Last year, Mr. Will was appointed by Commissioner Selig
as an independent member of the Blue Ribbon Panel formed to
examine the issue of competitive imbalance in baseball.
Bob Costas has been with NBC Sports since 1979. During this
time, he has covered every major sport, but is perhaps most
identified with the Olympics and with baseball. During the past
few years, Mr. Costas has handled play-by-play for NBC's All
Star, playoff, and World Series telecasts. He also called last
year's NBA's playoffs and the championship series. Mr. Costas
has won 12 Emmy Awards, eight of which were for Outstanding
Sports Broadcaster. He has also been named National
Sportscaster of the Year seven times by his peers. He is the
author of the book Fair Ball: A Fan's Case for Baseball.
Rodney Fort joined the Department of Economics at
Washington State University in 1984. The professor has
extensively studied professional and college sports. He is the
author of a number of journal articles and books, including
books coauthored with Jim Quirk entitled Pay Dirt: The Business
of Professional Team Sports and Hard Ball: The Abuse of Power
in Pro Team Sports.
Frank Stadulis has served as President, Chief Executive and
Chairman of United Sports Fans of America since its inception
in 1996. He has appeared in interviews with Fox Sports, CBS
Sportsline, MSNBC, and other national and local television and
radio shows. He appeared most recently at a National Press Club
Forum on Violence and Sports.
We welcome all of our witnesses here today. Those who have
submitted testimony, it will become a part of the record. I
would invite each one of you to make a statement and then we
will begin a discussion.
Mr. Costas, we will start with you.
PANEL CONSISTING OF BOB COSTAS, SPORTSCASTER, NATIONAL
BROADCASTING COMPANY, ST. LOUIS, MO; RODNEY FORT, PROFESSOR OF
ECONOMICS, COLLEGE OF BUSINESS AND ECONOMICS, WASHINGTON STATE
UNIVERSITY, PULLMAN, WA; GEORGE F. WILL, SYNDICATED COLUMNIST,
WASHINGTON POST NEWSPAPER, AND INDEPENDENT MEMBER,
COMMISSIONER'S BLUE RIBBON PANEL ON BASEBALL ECONOMICS,
WASHINGTON, DC; AND FRANK STADULIS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, UNITED SPORTS FANS OF AMERICA, BOCA RATON,
FL
STATEMENT OF BOB COSTAS
Mr. Costas. Well, my statement will be very brief. I don't
present myself as an expert on all the often complex political,
legal, and economic aspects of the questions we are discussing
today.
My purpose in writing and commenting on the issues facing
baseball has been to present those issues to a mainstream
audience in what I hope is a thoughtful, common sense fashion
from the perspective of someone who is not an advocate for
either side, but whose concern is the overall health and best
interest of the game.
As it happens, my book came out in early spring. The Blue
Ribbon Panel report came out some months after that, and our
conclusions were remarkably similar both in the abstract and in
the particulars. And as I look toward my friend, Bud Selig,
while we may have our occasional disagreements on the wild card
or on inter-league play, I don't know why he and I should ever
be at odds on the circumstances surrounding baseball's present
economic imbalances because we agree on that pretty close to a
hundred percent.
I think without going back over much of the ground ably
covered by Senators DeWine and Mitchell and Commissioner Selig,
it might be worth noting that the likes of Andrew Zimbalist,
the esteemed economist from Smith who has been used at times
almost as a house economist--and I don't mean that
disparagingly toward Professor Zimbalist--by the Players
Association, or people like myself who over the course of the
last 20 years have consistently sided with the players in their
ongoing battles with the owners--people like Zimbalist, people
like myself, people in the press who consistently have believed
that the players' side was more persuasive than the owners'
side now are forced to conclude, as Senator Mitchell just said,
that the evidence is so overwhelming, so dramatic, so
indisputable over the past 5 or 6 years that the arguments that
used to compel no longer compel, and new arguments do, and
baseball needs a new paradigm for how it will approach the
upcoming seasons in this new millennium.
There is a point that I would like to make before we get
back to the economics of the game and then I will relinquish
the microphone. I have a concern that the atmosphere of
economic crisis, real and perceived, around baseball impacts
decisions that affect on-the-field issues.
Now, thoughtful fans can debate whether the DH should stay
or go, whether radical realignment is required, whether there
should be inter-league play, and if so how it should be
formatted, whether the wild card is a good idea or not, and
whether every World Series game should be played at night, and
if so at what time of night.
But I think we can agree that it would be best to make
those decisions absent an atmosphere in which the clubs feel
that they are compelled to grab for every last dollar from
every last available source. Just as no one would advise you to
go grocery shopping if you haven't eaten in 2 days because you
are likely to make rash decisions, I think baseball would be
better able to consider the on-field issues in a clear-headed
way if this economic crisis were eased.
Then it might be possible--and cynics might say, well, it
won't make any difference; they could be as profitable as
profitable could be and they would still grab for every last
dollar. Perhaps so, but that will never be put to the test
until some sort of economic equilibrium prevails, and then the
on-field issues could be considered in a more sober fashion.
Senator DeWine. Mr. Costas, thank you very much.
Mr. Fort.
STATEMENT OF RODNEY FORT
Mr. Fort. Thank you, Senator DeWine, and thank you for
entering my statement into the record.
I attempted to examine the relationship between revenue
imbalance and competitive balance in Major League Baseball;
then just taking that balance as given, evaluated a variety of
devices aimed at changing that after-the-fact outcome. Then I
looked at the root of revenue imbalance, and that suggests to
me a more dramatic, intrusive approach.
Revenue disparity is a roller coaster ride through the
1990's. There is historically very unbalanced revenue in the
middle of the decade. Turning to the outcome on the field, the
balance of play during the season has improved steadily over
the past 40 years. The decade of the 1990's was more balanced
on the field, on average, than any of the preceding 3 decades.
A detailed look at the 1990's shows that even though
revenues became more balanced at the end of the decade, balance
on the field in terms of winning percents has gone the other
direction. Recent playoff outcomes continue the typical outcome
in Major League Baseball. Large-revenue-market teams always
have dominated the playoffs and the World Series, and they
continue to do so. It isn't clear whether that dominance has
worsened in the 1990's.
On the ameliorative devices offered in the Blue Ribbon
Panel report, they are aimed at treating the symptoms of
revenue imbalance and they are a mixed bag. Two will have no
impact whatsoever--draft alterations and the development of the
game. The implementation impacts of the rest are problematic.
The most likely to work are enhanced net local revenue-sharing
and the luxury tax, but appropriate levels must be chosen and
there are collective bargaining obstacles.
Nowhere to be seen in the discussion of these devices is
the impact on players. In every case, except the unequal
central fund distributions, franchise relocation and game
development, the impacts on players are negative and they will
bear large in upcoming collective bargaining agreement
negotiations.
Going to the heart of the matter, the basis of revenue
disparity is the maintenance of exclusive territorial rights of
baseball. Some territories are simply worth more than others.
That suggests that it is the behavior of the league in the
maintenance of those territories that is the heart of the
issue, and one way to think about fixing that type of problem
is in terms of making leagues more competitive, economically
speaking.
In other words, I have suggested that that can happen by
going back in time, actually, to a situation that existed in
the 1900's where there were two competing major baseball
leagues, the American League and the National League. That
would require care. The propensity of all rival leagues in
baseball has been to merge or regroup into one dominant league
all over again. If that kind of competition were to work, it
would have to be monitored carefully over time and that would
be an antitrust job.
Thank you.
[The prepared statement of Mr. Fort follows:]
Prepared Statement of Rodney Fort
I. INTRODUCTION
The issue at hand is whether revenue disparity in Major League
Baseball (MLB) has been increasing over time and the impact of
disparity on competitive balance. It is difficult to imagine an issue
of greater importance to sports leagues. If competitive imbalance
becomes great enough, there is a very real danger that fans will lose
interest in the weaker teams and, eventually, only those larger revenue
market teams will survive in the long run. This general fan interest is
often referred to as ``brand'' name identification. Judging by the
recent Blue Ribbon Panel Report, 2000 (BRP 2000), MLB itself is worried
that the current level of imbalance is reducing MLB's brand name
identification.
From the perspective of competition policy, it is worth a quick
review of just what it is that leagues do for member teams. On the one
hand, joint action by individual owners through MLB is necessary in
order for league play to occur at all. Scheduling, a common set of
rules, officiating, appeals of officiating, and playoff design all
require cooperation by teams. And this last has become one of the
primary avenues of revenue enhancement and fan satisfaction.
Even at this level of required cooperation, economics comes into
play. In scheduling, the match-ups between teams are of different
value. Teams with the highest degree of fan interest want to play each
other more often because the revenue potential is higher for them. But
this would reduce the overall brand name value of the league and, early
on, every league adopted a more balanced schedule, eventually in
division play. This balanced approach to scheduling postponed
immediately greater revenues for some teams but raised the overall,
longer-term benefit of all teams by generating a high degree of general
fan brand identification.
Now, the rest of what MLB does is entirely grounded in the economic
interest of member teams. There are a number of activities teams
undertake through MLB that do not require joint action. Since teams
undertake these activities through their league rather than
individually, one can only surmise that they are better off by that
approach.
First, MLB maintains territorial exclusivity for member teams.
Since a team in one exclusive territory can generate different revenue
streams than another team in another exclusive territory, it is this
function of leagues that generates revenue disparity in the first
place. This activity is not required in order for play to happen. But
the careful management of team location does determine the value of
each MLB franchise.
MLB also handles negotiations that could be done by individual
teams. TV negotiations are one example. Centralized negotiation isn't
required since, in MLB, individual teams negotiate their own local TV
outcomes. They could just as easily decide about their participation in
national contracts, but choose to do that through MLB, itself. Leagues
also handle negotiations with the Major League Baseball Players
Association (MLBPA). Nowhere else, to my knowledge, in the private
American economic system, do producers join forces in their
negotiations with organized labor. for example, each of the individual
major auto manufacturers in the U.S. negotiates individually with the
United Auto Workers. Since joint negotiations are not required, again,
one surmises that teams are better off under this practice. Finally,
MLB plays an important role in the relationship between teams and host
cities. While the league does not negotiate for teams directly in this
case, it does set the stage by carefully managing the availability of
alternative locations.
The issue at hand concerns the management of franchise exclusivity.
Large revenue market teams generate greater revenues because of
territorial protection by MLB. In Section II, revenue disparity is
examined directly. Are revenues increasingly disparate over time in
MLB? Is the level of revenue dispersion related to season winning
percents and playoff outcomes? In Section III, comments are offered on
whether or not revenue disparity is a problem for MLB. Regardless of
the assessment in Section III, there is nothing to stop one from
wondering about how competitive balance can be altered. On this issue,
there are two approaches. In Section IV, following the approach in the
Blue Ribbon Panel report, 2000, the level of competitive balance is
taken as given and devices suggested to alter it are evaluated. In
Section V, the second approach is to go offer an approach to
competitive balance that is based on an identification of the root
cause, itself, namely, MLB's power over team location. The summary is
in Section VI.
II. REVENUE DISPARITY AND COMPETITIVE BALANCE
What is the level of revenue disparity in MLB? How do current
levels compare, historically and to other leagues? The data sources are
earlier Hearings, a series for 1990-1997 from surveys of owners by
writers at Financial World (now defunct) and Forbes, and the BRP 2000
for 1995-1999. Different analysts have different feelings about the
veracity of these data but here is what they tell us about revenue
disparity.
Table 1 portrays MLB revenue disparity in terms of Gini
coefficients for each the years with data. The Gini coefficient is a
well-known measure of disparity. Its values are between zero and one
with larger values of the coefficient indicating higher levels of
disparity. Since the eventual object of analysis is competitive
balance, especially during the playoffs, the data are shown for the AL
and NL, separately, as well as for the MLB.
First, note that recent levels of revenue imbalance, for some years
in the 1990s, are as high in each league as in any year except the
early 1950s in the AL. The highest levels occurred in the early 1950s
in the AL for a very familiar reason. Typically, according to the
earlier Hearings data, the New York Yankees had four times the revenue
of the lower revenue teams in the AL. Second, note that the AL has
always had more revenue imbalance than the NL. All of the decade
averages (sparsely covered in the 1980s data) are larger for the AL.
Doubtless, the reason lies in the fact that the New York Yankees, the
team with the largest local revenues in MLB, plays in the AL. Finally,
the behavior of revenue imbalance in the 1990s is the same in both
leagues. By both popular accounts and the BRP 2000, an abrupt jump in
revenue disparity occurred over the 1994 and 1995 seasons. By the
popular account, that disparity continued to grow in 1996 and 1997 in
both leagues. The BRP 2000 data do not show as marked a trend at the
end of the decade.
From the policy perspective, it is useful to compare the disparity
in MLB revenues with other pro team sports since different mechanisms
for revenue distribution are in place in different leagues. Table 2
gives the Gini index comparison for what little data exists in other
leagues (also found in Financial Work/Forbes; earlier Hearings data
also exist for comparisons in realier periods, but time constraints
precluded such an analysis). The NFL clearly is the most balanced
league in terms of revenues. Of course, this occurs for two reasons.
First, the NFL shares the highest portion of local revenues of all
leagues--all of its broadcast revenues, national and local, are shared
equally (except for small radio contracts). Second, if it actually is
enforced and functions as intended, the NFL salary cap would drive more
revenue balance by reducing spending on talent by large revenue market
teams. The ratio of the MLB to NFL Gini coefficients typically has been
about 3.1. The distribution of MLB revenues is dramatically more
unbalanced than NFL revenues. The primary lesson is that, apparently,
the institutional difference in local revenue sharing and, potentially,
the salary cap, make for more revenue balance.
If a problem is caused by revenue disparity, but would be revealed
by competitive balance problems on the field; larger revenue market
teams would dominate. There are two ways to examine outcomes on the
field, the day by day outcomes measured by winning percent and playoff
outcomes. The usual measure of variation in winning percents is the
standard deviation. Increases in the standard deviation indicate less
balanced play.
Table 3 summarizes the standard deviation of winning percents on a
decade by decade basis for the last forty years. On average, in both
the AL and NL, as measured by the standard deviation of winning
percent, play is as balanced in MLB as it has been since the 1960s. The
decade average of the standard deviations has been falling for forty
years. Indeed, the 2000 season just completed is the most balanced in
the last 40 years in the AL and about par for the course in the NL
compared to the last two decades. In our first book, ``Pay Dirt: The
Business of Professional Team Sports,'' James Quirk and I show that
this is true for MLB generally back to the 1900s, and especially true
since the introduction of free agency after the 1975 season.
A look behind the averages for the 1990s, shown in Table 4, reveals
something very interesting. Over the early 1990s, where revenues become
more balanced (Table 1), imbalance on the playing field held quite
steady. When revenue imbalance jumped in the AL in the mid-1990s,
imbalance on the field was as high as any time during the decade. But
when revenue imbalance eased at the end of the decade, imbalance on the
field climbed. Whether this is a trend cannot be known at this time but
is certainly worth watching for two reasons. First, and the general
issue for these hearings, imbalance can be a concern in terms of league
health. Second, it is interesting from the theoretical standpoint that
revenue balance and balance on the field moved in opposite directions
for these last two years of the decade.
While day to day outcomes matter to leagues and fans, so do playoff
opportunities. Table 5, updated from our work in Pay Dirt (p. 257),
shows one measure of playoff opportunity--the amount of time between
titles. In years when there were only eight teams in each league,
completely balanced playoff opportunity would show all teams with a
title every eight years. Until just very recently, complete balance
would have each team winning a title every fourteen years. Table 5
shows the more successful teams, with ten years or less between titles,
on average, and at least ten years in a league. Historically, the
comparison depends on the identification of small and large revenue
market teams, but Table 5 strongly indicates that titles are unequally
distributed and, typically, in favor of large revenue market teams.
Over the last decade, the story is quite similar. Table 6 shows the
title winners in each league for the 1990s and the recently ended 2000
season. It's always a judgment call about large and small revenue
teams, but no more than four ALCS (1990-1992, 1995) and two NLCS (1990,
1995, and 1998) involved small revenue market teams in the 1990s. And
at most two winners of each league championship series have been small
revenue market teams (Oakland and Minnesota in the Al, Cincinnati and
San Diego in the NL). And only one World Champion, the Twins in 1991,
can reasonably be called a small revenue market team. These
observations are not far from those of the Blue Ribbon Report 2000,
which concentrates on 1995-1999 (p. i):
During this five-year period, no club from payroll Quartiles
III or IV won a DS or LCS game, and no club from payroll
Quartiles II, III or IV won a World Series game.
In Pay Dirt (p. 260), we also show that over the 1900-1990 period
the top 10% of teams, in terms of titles won per year, won just about
30% of all of the AL titles and just under 25% of all of NL titles.
Dropping down in terms of titles won per year, the top 20% of title
winners have won almost 55% of the titles in the AL and just under 40%
of the NL titles. Again, in the 1990s, this concentration of titles is
apparent. The Yankees won 30% of the titles in the 1990s and Oakland
won 10%. In the NL, Atlanta won a full 50% of the titles, the Mets won
10% and the Reds another 10%. So, historical title heavyweights
accounted for 40% of the AL titles and 70% of the NL titles.
So, all in all, MLB revenue disparity is a roller coaster ride
through the 1990s with historically very unbalanced revenue in the
middle of the decade. Compared to the NFL, MLB revenues are
dramatically unbalanced, indicating that there are lessons in the
institutional structure of other leagues if the observed level of
imbalance in MLB is a problem. Turning to the outcome on the field, the
balance of play during the season has improved steadily over the past
forty years. The decade of the 1990s was more balanced, on average, on
the field than any of the preceding three decades. If the just
completed 2000 season is any indicator, the trend continues in the AL
while it appears to have slowed in the NL. And a detailed look at the
1990s shows that even though revenues became more balanced at the end
of the decade, balance on the field in terms of winning percents has
gone the other direction. Recent playoff outcomes are a continuation of
the typical outcome in MLB. Large revenue market teams always have
dominated the playoffs and World Series and they continue to do so. It
isn't clear whether playoff dominance has worsened in the 1990s.
III. IS OBSERVED REVENUE DISPARITY A PROBLEM IN MLB?
Clearly, there is revenue disparity, unbalanced play on a day to
day basis, and unequal playoff opportunities in MLB. But is the level
of imbalance a problem? First, let's remember that focusing on a
particular point in time without any historical reference can make a
problem appear larger than it really is. This is doubly true if the
period of time under scrutiny is the end of a cycle. In his book, The
Market Structure of Sports, Professor Gerald Scully demonstrates that
there is a distinct pattern to winning in MLB. By focusing on a
particular point in time, we only see a snapshot of these cycles among
teams. From this perspective, today's Yankees may just be yesterday's
Detroit Tigers, to be replaced by the upcoming equivalent of the
Oakland Athletics of the 1970s.
The results in Table 5 reveal the danger in looking only at the
last few years. As before, with revenue disparity, an historical look
reveals that playoff disparity has always been with us. The years/title
data in Table 5 show that this has always been the case. Just looking
at any particular period and saying unequal playoff opportunities have
worsened doesn't make it so. And, interestingly, in what many are
calling an age of disparity, teams that aren't even in the running by
the criteria in Table 5 added to their titles in the 1990s--the Twins,
Blue Jays, and Indians in the AL and the Phillies, Marlins, and Padres
in the NL. Disparity in titles won still reigns, but a few teams
managed to close the ``title gap.'' And Atlanta wouldn't even be in the
table if it weren't for their splendid play in the 1990s!
What will happen in the next decade? All we have to go on is the
past. And all we really know is that there are cycles in winning.
Perhaps the only thing the data show in the last section show is that
we are at the end of a cycle for the current winning teams of the past
few years and others will take their place soon. On the other hand, we
can't know whether or not an entirely new regime has begun. Only time
will tell.
While historical reference points are useful, there are other types
of reference points. One is the level of balance that fans would most
prefer. This perspective is the same as taking the interest of
consumers in antitrust investigations. From the fan's perspective, the
best outcome would come from an economically competitive league
structure that internalized the impact of each team's talent choices on
the rest of the teams in the league. But such an outcome would still
have higher talent levels in those locations willing to pay the most.
This would be true of MLB just as it is with the higher density of
upscale shopping in areas of higher income and population. But since
the location of teams is not competitively determined, it is nearly
certain that this definition of fan-preferred balance is not met by the
current structure of MLB. And even under this fan-preferred balance is
not met by the current structure of MLB. And even under this fan-
centered view, outcomes would not be perfectly balanced with team
winning the league title once every fifteen years.
Judging the level of competitive balance in MLB boils down to the
same type of analysis in other forms of entertainment. Where are
particular entertainment activities located and how much do people get?
Is that distribution efficient? Is it fair? I think of opera. This art
form/business is highly concentrated in large revenue areas and,
although there are not opera leagues or championship competitions, the
best performances are always in the largest of revenue centers. Is this
a problem? For an opera lover like me, living in Pullman, Washington,
there isn't enough opera and it typically is lower quality. While I may
be able to convince my elected representatives that the distribution of
opera is unfair, it isn't very likely that moving the Metropolitan
Opera (house and all) to Pullman and subsidizing it at its premier
quality level into perpetuity makes much sense from an efficiency
standpoint. So, while there clearly is opera imbalance, it isn't really
a problem.
IV. DEVICES TO ALTER THE LEVEL OF COMPETITIVE BALANCE
An inability to determine whether or not the level of MLB
competitive balance is sufficient does not stop us from thinking about
the source of imbalance and devices that will effectively alter
balance. Two paths lie before us. Along one path, we can take the level
of competitive balance as given and attempt to do something about the
results we dislike. Along the other path, we'll find the root of the
problem. Once found, we can think about how to end the problem, itself.
This second path is saved for the next section. Here, as in the BRP
2000, let's take the level of balance as given and investigate
ameliorative devices. It's easiest to follow the same order as the
authors of the report.
1. Enhanced revenue sharing. MLB teams should share at least 40%
and perhaps up to 50% of all net local revenues (local TV, sponsorship,
and special stadium seating) after ballpark expenses under what is
known as a straight pool plan. Essentially, at the limit, teams will
contribute 50% of net local revenues and get back 1/30 of the pool that
is created. This requires an appropriate minimum club payroll.
Otherwise, owners may just pocket the cross-subsidy and leave their
teams at the same level of quality (the minimum is later specified at
$40 million).
Evaluation: This type of sharing will alter competitive balance.
Pooled sharing of this sort reduces the marginal value of talent to all
teams, regardless of the chosen sharing percentage. But it reduces the
value more for larger revenue market teams.
So, it will lead large revenue market teams to reduce spending on
talent, freeing players to other teams at a lower price.
But some observers doubt how large the impact will be. Professor
Andrew Zimbalist (Sports Business Journal, Aug. 7-13, p. 50) reports
that each club currently contributed 17% of net local revenue to a pool
shared equally by 28 teams (Tampa Bay and Arizona were excluded under
the most recent expansion agreement). Zimbalist further reports that
the Yankees' net contribution was about $18 million. The report
suggests any increase in this activity, but the formula generates only
about another $3 million from the Yankees. This seems a paltry sum if
the aim is to have an meaningful redistribution to small market teams.
Further, the report ignores the impact on talent! While it is true
that such a pooled sharing arrangement will lead large revenue market
teams to reduce their talent choice, it also is true that the amount
paid to players will fall. This is an important element in enhancing
the ability of smaller revenue market teams. Thus, the gains in
competitive balance will come at the expense of large revenue market
teams and players. One would naturally suspect that the MLBPA would
seek offsetting benefits in the rest of the competitive balance
enhancement package before they would find such a mechanism acceptable.
2. Competitive balance tax. The current luxury tax threshold of
about $84 million in payroll should be taxed at a higher, 50% rate.
Evaluation: A luxury tax on talent choices, like enhanced sharing
of local revenues that are determined by the level of talent hired,
will reduce the value of talent at the margin for large revenue market
teams. This will lead them to spend less on talent, driving the price
of talent down for the rest of the league. Since smaller revenue owners
now face lower talent prices, they can buy more and enhance team
quality improving league balance.
But currently, the tax rate is 34% on the top five payrolls on the
amount above the same threshold. And increases in revenues appear to
have offset the tax payments by these teams. Again, as revenues rise,
even 50% may not be enough to reduce spending on talent. Dramatically
higher marginal tax rates, and more brackets, may be required to bring
about any meaningful reduction in talent choices.
And, once again, the impacts on players are ignored. Under the
luxury tax, large revenue market teams hire less talent and payments to
players fall. The MLBPA is unlikely to be enthusiastic about this
outcome unless there are other offsetting elements in the overall
compensation plan. Further, the current tax won't be in operation over
the next couple of years under the collective bargaining agreement
between the league and the MLBPA. Any imposition in the future requires
agreement under the upcoming negotiations.
3. Unequal distribution of central fund revenues. Over and above
the $13 million distributed in 1999, the Commissioner should spend the
increment of central fund revenues where it will have its greatest
competitive balance impacts. Especially, the commissioner should use
the funds to get teams to a $40 million minimum.
Evaluation: This approach just takes a specified excess over $13
million per club and distributes it on a need-determined basis. The
only way this can work is if there is an established and enforced
minimum. Otherwise, owners will simply interpret this as a lump-sum
transfer from richer to less rich teams. Other leagues have found this
enforcement problem onerous and effectiveness varies. A novel approach
would be to invent the equivalent of food stamps or vouchers that can
only be redeemed by higher salary choices.
4/5. Draft reforms. MLB should conduct an annual draft of players
not on a 40-man roster, which is designed to improve the least
competitive clubs from the prior year. MLB also should extend worldwide
draft to include international players, eliminate compensation picks,
and encourage the NCAA to adopt the ``no return'' policy enforced in
football and basketball. Finally, playoff winners should be kept out of
the draft until the second round and tradable draft picks be allowed.
Evaluation: There is no reason to get into the details of items 4
and 5. There is nothing about the draft, in any shape or form it may
take, that will impact the distribution of talent as long as player
contracts can be traded or sold under the current system that restricts
player movement in their first six years. Professor Simon Rottenberg's
invariance principle is in operation here. For young players with
restricted mobility, the only thing that the draft does is redistribute
money from players to owners and from large revenue market owners to
smaller revenue market owners (and from college players to their
athletic departments, in the case of imposing a ``no return'' policy in
baseball). The changes in items 4 and 5 simply alter the level of the
redistribution from richer owners to less well-off owners. But nothing
will happen to competitive balance. James Quirk and I clearly
demonstrated this in our paper on cross-subsidization in pro sports in
the Journal of Economic Literature.
6. Franchise relocation. Franchise relocation should be an
available tool to address the competitive issues facing the game. Clubs
that have little likelihood of securing a new ballpark or undertaking
other revenue enhancing activities should have the option to relocate
if better markets can be identified.
Evaluation: This idea rests on the supposition that the revenue
enhancements that come from new stadiums, lease arrangements, and
sponsorships actually are spent on enhancing the quality of players on
a team. After all, that is the only way that competitive balance, as
opposed to wealth balance, will be enhanced. Typically, it is true that
attendance, stadium revenues, and winning percent increase with a new
stadium. But this is not a panacea since there are notable exceptions.
And the same observation is true of the new revenues that come with
a team move. Competitive balance will only be enhanced if the new
revenues actually are spent to enhance team quality. This will only
occur if franchise relocation is into larger revenue markets. Often,
this is precisely what occurs but there are exceptions as well. In the
case of the exceptions, the revenue enhancements simply end up to be
personal wealth enhancements for team owners.
The BRP 2000 notes that the team moves that actually would enhance
competitive balance would be into currently large revenue markets. But
this seems extremely unlikely to actually occur. For one thing, MLB's
past practice has been to expand into the largest revenue markets,
rather than moving teams to them. This makes perfectly good business
sense since expansion fees are large and shared by existing league
members. Why let Montreal move to New York when an expansion team would
pay hundreds of millions of dollars for the privilege? In addition,
while no team in MLB has moved since the last version of the Washington
Senators packed their bags and headed for Texas to play as the Rangers
beginning in the 1972 season, almost all MLB teams have successfully
threatened to move to an open larger revenue market location. There is
value to league members of open areas.
Revenues might be enhanced by new rivalries, as hoped in the BRP
2000 but that appears to be a risk that current large revenue market
occupants don't wish to run. And MLB's own rules appear to have members
over their own barrel. It is unlikely that MLB will allow such moves on
its own. As professor Henry Aaron of the Brookings Institute noted in
the earlier report on the status of baseball in 1992, one of MLB's
major hurdles is its own decision making process (Supplemental
Statement, Report of Baseball Study Committee, Dec. 3, 1992, p. 10):
The industry of baseball is in political chaos, bereft of any
governing mechanism by which clubs can agree to share revenues
among themselves in a fashion that will permit all clubs both
to compete equally on the field and to have an equal chance to
make positive operating revenues. No such concerns arise in
most other industries where increased market share goes to the
strongest companies. In baseball, however, more ``companies''
in more cities make a stronger industry able to bring the
pleasures of baseball to more fans. Thus, a governance
structure of professional baseball clubs that is incapable of
enforcing greater revenue sharing is the problem. Unless that
problem is addressed and solved, labor management peace will
never come to baseball.
7. Contraction. If the recommendations outlined in this report are
implemented, there should be no immediate need for contraction.
Evaluation: This simply states the obvious. And, of course,
contractions would indeed enhance competitive balance. Raising some
measure of balance by chopping off the bottom end is a simple matter of
arithmetic.
But it is interesting that anyone would even consider such an
option. The reasons against such a choice are all economic ones. First,
think of the basic franchise agreement. If a team is failing, they will
simply forfeit their franchise. No action is required by MLB. For MLB
to consider buying out a franchise, it would have to be the case that
the team is, on net, costly to the league. This would only be true if
there were a better location for the team, agreeable to the league, but
the owner refuses to move. Only under very peculiar circumstances could
this be true, such as an owner willing to take even larger losses than
they must endure because they are tied to a location due to other
interests. Another example would be a team that is economically viable,
given its market, but the rest of the teams can't cover expenses by
playing there. This also seems unlikely.
And in the evaluation of teams that appear to be nonviable, extreme
caution must be exercised. For example, the report notes that only a
few teams earned profits in recent seasons. But the MLBPA and other
observers always have been skeptical of such claims. This skepticism
follows from (1) the well-known sports accounting quirks that make
teams appear to be losing money when the actual value of holding teams
is in the millions of dollars and (2) sale values that increase over
time at least as well as diversified portfolio of common stocks.
And there is the additional issue that owning an asset that loses
money on its own balance sheet does not mean that asset should be cut
loose. Owning a team feeds into owners' other earning activities and,
as long as team ownership is the most valuable way of contributing in
that fashion, it will be held even if it shows a loss to the owner on
its individual balance sheet.
8. Game Development--Domestic and International. An adequate talent
base must continue to be nurtured and so must the popularity of the
game among fans. Grassroots programs aimed at youth participation.
Youth that plays turns into tomorrow's talent and fans. Especially,
international events should be sponsored.
Evaluation: This simply sounds like good marketing strategy to me.
But I fail to see how it will have anything to do with competitive
balance unless the result of these developmental activities come home
to roost in increases in revenues for currently small revenue market
teams. But, since none of that appears to be tied to the talent choices
of current teams, I don't see how league-wide developmental strategies
will enhance balance.
All in all, the report's eight-item plan to treat the symptoms of
revenue imbalance is far from foolproof. Two devices will have no
impact whatsoever (draft alterations and game development). And the
implementation and impacts of the rest are problematic. The most likely
to work are enhanced net local revenue sharing and the luxury tax. But
appropriate levels must be chosen and there are collective bargaining
issues. Contraction will work, but there doesn't seem to be any
economic rhyme or reason to it. Unequal central fund distributions
require policing of minimum salary expenditures by teams that has
proven difficult in other leagues. Relocation supposes that new
revenues actually will be spent on team quality. Sometimes that will be
true, but not always. And nowhere to be seen is a discussion of the
impacts on players. In every case, except unequal central fund
distributions, franchise relocation, and game development, the impacts
are negative on player earnings.
V. THE UNDERLYING CAUSE OF COMPETITIVE IMBALANCE
The preceding section covered mechanisms to fix the symptom of an
underlying problem. Revenues are unbalanced in MLB because exclusive
territories are protected for individual teams. Once territories are
determined and distributed by a sports league, any difference between
their revenue potential is institutionalized. New York has greater
revenue potential than Montreal because it simply is a market with more
fans willing to pay more than in Montreal. Furthermore, the location of
franchises is managed in a way different than a more economically
competitive result would yield. Since there are multiple cities bidding
for any expansion franchise, and multiple cities interested in any
franchise move, it is clear that the number of teams is smaller than
competition would dictate. In this way, the value to the current league
members is kept higher than the competitive level. And existing members
capture the potential increase in the value of the league rather than
by entrants who would compete the level of those returns down for
current owners.
This suggests that a dose of economic competition stands a better
than decent chance of enhancing competitive balance in MLB. This is one
of the themes in my recent book with James Quirk, Hardball: The Abuse
of Power in Pro Team Sports. The idea is not ours alone. It first
appeared in earlier Hearings testimony by Ira Horowitz and Roger Noll.
And Stephen Ross nurtured the idea in later work.
Suppose MLB was simply broken-up into two competing leagues. The
American and National Leagues in baseball would be economically
competitive if they were not under unified management by MLB. Indeed,
prior to 1901, the two were, by and large, economic competitors. And
the following could be expected (indeed, the history leading up to the
joining of the AL and NL in 1901 bears this forecast out). Wherever
there is an economically viable franchise location, one or the other of
the independent baseball leagues would put a team there. This means
that larger revenue markets, capable of sustaining more teams than the
current MLB amount, would have more teams. The revenues of existing
teams in that area would be reduced through competition by entering
teams from their own or the other league. Unlike the contraction idea,
which enhances balance by killing economically viable (and well-loved,
but under-loved) teams, a competition approach would reduce revenue
disparity by distributing the fruits of previous league power over
location among more teams.
The break-up approach has a special virtue. It is an expensive
proposition for any new, competing league to generate fan loyalty and
staying power. Owners who undertook such an investment did so expecting
some sort of long-term return. Over-zealous antitrust enforcement would
kill that return and, along with it, changes for the survival of the
two competitive leagues. but this type of break-up of MLB would allow
the resulting, competing, leagues to retain the fan loyalty and media
ties they already have built over so many years. The AL and NL already
are ``major'' in every sense of the word. And they wouldn't lose the
fan brand name identification that they have cultivated over the years.
However, one would expect that expenditures aimed at maintaining this
type of loyalty would fall over time since the return to such
investments would be falling under a competitive structure.
A final note of caution is suggested concerning a break up of MLB,
given past outcomes concerning competing leagues in MLB. One wouldn't
expect the two rival leagues to last without continued monitoring and a
willingness to intervene. In every other case where rival leagues
existed, the eventual result was merger or absorption by MLB.
Enforcement of a break-up approach, under existing antitrust laws,
would be required for competition to flourish. Antitrust enforcement
would have to preclude any future move by the two leagues to ``reach a
competitive agreement'' or merge.
Of course, any change away from current MLB structure will impact
the welfare of owners, players, and fans. Owners and players could be
characterized as the losers, since their economic welfare will fall.
But, after all, their current welfare is founded on restrictions that
reduce the enjoyment of fans. Overall, fans will be winners since there
will be more, and more balanced, baseball to enjoy at lower prices.
In addition, taxpayers should win since subsidies would be reduced.
Any team that tries to extract a larger subsidy will face competition
from teams in the other league. If they threaten to leave, and the
location is viable, local taxpayers and their representatives would
know that another team is available to take its place. But some fans,
at locations with marginal teams, probably will suffer. If their
location is viable, they eventually will have a major league team. But
in the scramble by existing teams in the two leagues to capture
possibly higher valued locations, some of the lower revenue locations
might see their team leave for greener pastures. But, again, if the
location is economically viable, a team will eventually locate there.
One of the usual questions posed at this point is, ``What will be
the quality of competition on the field under increased economic
competition?'' Again, Professor Rottenberg's invariance principle
suggests that quality will stay at its current level. After all, all of
the earnings by owners and players that would be reduced were over and
above the competitive rate. Since the changes projected here would
occur league-wide, owners and players would face diminished
opportunities wherever they turned in their sport. And their non-sport
alternatives has not gotten any better. Wouldn't today's players play
for less rather than leave their sport altogether? So, the level of
competition under an economically competitive alteration, wouldn't be
expected to decline.
VI. SUMMARY
I have attempted to examine the relationship between revenue
imbalance and competitive balance in MLB. Then, just taking the revenue
imbalance outcome as given, a variety of devices aimed at altering the
after the fact competitive balance outcome were evaluated. Finally,
going straight to the root cause of revenue imbalance, a more dramatic
and intrusive approach is suggested.
Revenue disparity is a roller coaster ride through the 1990s with
historically very unbalanced revenue in the middle of the decade.
Compared to the NFL, MLB revenues are dramatically unbalanced,
indicating that there are lessons in the institutional structure of
other leagues if such imbalance in MLB is a problem. Turning to the
outcome on the field, the balance of play during the season has
improved steadily over the past forty years. The decade of the 1990s
was more balanced, on average, on the field than any of the preceding
three decades. If the just completed 2000 season is any indicator, the
trend continues in the AL, but less so in the NL. And a detailed look
at the 1990s shows that even though revenues became more balanced at
the end of the decade, balance on the field in terms of winning
percents has gone the other direction. Recent playoff outcomes continue
the typical outcome in MLB. Large revenue market teams always have
dominated the playoffs and World Series and they continue to do so. But
it isn't clear that playoff dominance has worsened in the 1990s.
All in all, devices aimed at treating the symptoms of revenue
imbalance are a mixed bag. Two will have no impact whatsoever (draft
alternations and game development). And the implementation and impacts
of the rest are problematic. The most likely to work are enhanced net
local revenue sharing and the luxury tax. But appropriate levels must
be chosen and there are collective bargaining obstacles. Contraction
will work, but there doesn't seem to be any economic rhyme or reason to
it. Unequal central fund distributions require policing of minimum
salary expenditures by teams that has proven difficult in other
leagues. Relocation supposes that new revenues actually will be spent
on team quality. Sometimes that will be true, but not always. And
nowhere to be seen is a discussion of the impacts on players. In every
case, except unequal central fund distributions, franchise relocation,
and game development, the impacts are negative on player earnings.
Breaking up MLB into two, economically competitive leagues will
unleash the forces of competition upon the current competitive balance
outcome. The expected outcome is an increase in the number of teams
into all economically viable locations. In the case of megalopolis
markets, more teams will be there competitively than currently. This
reduces imbalance at the top end of revenues by spreading returns in
excess of the competitive rate over more teams. The approach has the
special virtue of allowing the resulting, competing, leagues to retain
the fan loyalty and media ties they already have built over so many
years. They wouldn't lose their fan brand name identification. But the
cost of these gains in competitive balance would be eternal vigilance
and a willingness to intervene in the future. The propensity of rival
baseball leagues has always been to reform into a single, centrally
managed league. And that type of behavior would have to be monitored
constantly by antitrust authorities.
TABLE 1.--GINI INDICES, MLB REVENUES, VARIOUS YEARS
----------------------------------------------------------------------------------------------------------------
MLB AL NL
Year -----------------------------------------------------------------
FW/H BRP FW/H BRP FW/H BRP
----------------------------------------------------------------------------------------------------------------
1950.......................................... .210 ......... .280 ......... .106 .........
1952.......................................... .224 ......... .221 ......... .196 .........
1953.......................................... .231 ......... .249 ......... .195 .........
1954.......................................... .193 ......... .206 ......... .123 .........
1955.......................................... .190 ......... .161 ......... .188 .........
1956.......................................... .166 ......... .174 ......... .147 .........
1950s Ave..................................... .202 ......... .215 ......... .159 .........
1980.......................................... .212 ......... .218 ......... .195 .........
1982.......................................... .191 ......... .187 ......... .184 .........
1984.......................................... .149 ......... .146 ......... .148 .........
1980s Ave..................................... .184 ......... .184 ......... .176 .........
1990.......................................... .158 ......... .168 ......... .137 .........
1991.......................................... .154 ......... .151 ......... .141 .........
1992.......................................... .149 ......... .152 ......... .119 .........
1993.......................................... .140 ......... .147 ......... .128 .........
1994.......................................... .161 ......... .176 ......... .140 .........
1995.......................................... .186 .213 .195 .209 .168 .206
1996.......................................... .193 .168 .220 .181 .153 .147
1997.......................................... .201 .182 .222 .199 .170 .156
1998.......................................... ......... .180 ......... .204 ......... .152
1999.......................................... ......... .176 ......... .192 ......... .156
1990s Ave..................................... .168 .184 .179 .197 .144 .163
----------------------------------------------------------------------------------------------------------------
Notes: FW/H = Financial World-Forbes/Hearings data; BRP = Blue Ribbon Panel Report, 2000.
TABLE 2.--GINI INDICES, MLB AND OTHER PRO SPORTS LEAGUES, VARIOUS YEARS
----------------------------------------------------------------------------------------------------------------
MLB NFL NHL NBA
Year ------------------------------------------------------- MLB:NFL
FW/H BRP FW FW FW
----------------------------------------------------------------------------------------------------------------
1990.......................................... .158 ......... .047 .125 .195 3.4
1991.......................................... .154 ......... .051 .119 .139 3.0
1992.......................................... .149 ......... .037 .162 .151 4.0
1993.......................................... .140 ......... .054 .184 .158 2.6
1994.......................................... .161 ......... .061 .197 .135 2.6
1995.......................................... .186 .213 .077 .198 .137 2.8
1996.......................................... .193 .168 .059 .181 .157 3.3
1997.......................................... .201 .182 .067 .156 .172 3.0
1998.......................................... ......... .180 ......... ......... ......... .........
1999.......................................... ......... .176 ......... ......... ......... .........
1990s Ave..................................... .168 .184 .057 .165 .156 3.1
----------------------------------------------------------------------------------------------------------------
Notes: See last table. MLB:NFL evaluated at the largest MLB result between FW/H and BRP.
TABLE 3.--THE BEHAVIOR OF THE SD OF WINNING PERCENT, 1960-2000, BY DECADE
----------------------------------------------------------------------------------------------------------------
1960-69 1970-79 1980-89 1990-99 2000
----------------------------------------------------------------------------------------------------------------
AL:
Min............................................. 0.054 0.045 0.055 0.029 ..........
Max............................................. 0.101 0.099 0.080 0.083 ..........
Ave............................................. 0.079 0.077 0.069 0.064 0.054
Median.......................................... 0.085 0.078 0.071 0.063 ..........
Ave/Ideal....................................... 2.03 1.97 1.77 1.63 1.38
NL:
Min............................................. 0.047 0.061 0.045 0.031 ..........
Max............................................. 0.124 0.086 0.087 0.093 ..........
Ave............................................. 0.086 0.072 0.066 0.065 0.069
Median.......................................... 0.087 0.073 0.062 0.061 ..........
Ave/Ideal....................................... 2.21 1.85 1.70 1.67 1.78
----------------------------------------------------------------------------------------------------------------
TABLE 4.--THE BEHAVIOR OF THE SD OF WINNING PERCENT, 1990-1999
------------------------------------------------------------------------
Year AL NL
------------------------------------------------------------------------
1990.......................................... 0.057 0.057
1991.......................................... 0.061 0.061
1992.......................................... 0.063 0.066
1993.......................................... 0.055 0.093
1994.......................................... 0.029 0.031
1995.......................................... 0.083 0.060
1996.......................................... 0.069 0.056
1997.......................................... 0.062 0.059
1998.......................................... 0.081 0.088
1999.......................................... 0.076 0.079
Ave........................................... 0.064 0.065
------------------------------------------------------------------------
TABLE 5.--LEAGUE TITLES IN MLB, 1900-1999
------------------------------------------------------------------------
League
Titles Years Years/Title
------------------------------------------------------------------------
AL:
Yankees...................... 37 98 2.6
Oakland Athletics............ 7 33 4.7
Phil. Athletics.............. 9 54 5.9
Orioles...................... 5 47 7.8
Red Sox...................... 10 100 10.0
NL:
NY Giants.................... 15 57 3.8
LA Dodgers................... 9 43 4.8
Bkln. Dodgers................ 9 57 6.2
Cardinals.................... 15 100 6.7
Mil. Braves.................. 2 15 6.7
Atl. Braves.................. 5 35 7.0
Mets......................... 4 39 9.8
Cubs......................... 10 100 10.0
Reds......................... 10 100 10.0
------------------------------------------------------------------------
TABLE 6.--LEAGUE CHAMPIONS, 1990-2000
----------------------------------------------------------------------------------------------------------------
Year AL Winner AL Loser NL Winner NL Loser
----------------------------------------------------------------------------------------------------------------
1990............................ Oakland............ Boston............. Cincinnati \1\.... Pittsburgh
1991............................ Minnesota \1\...... Toronto............ Atlanta........... Pittsburgh
1992............................ Toronto \1\........ Oakland............ Atlanta........... Pittsburgh
1993............................ Toronto \1\........ Chicago............ Philadelphia...... Atlanta
1994............................ (\2\).............. (\2\).............. (\2\)............. (\2\)
1995............................ Cleveland.......... Seattle............ Atlanta \1\....... Cincinnati
1996............................ New York \1\....... Baltimore.......... Atlanta........... St. Louis
1997............................ Cleveland.......... Baltimore.......... Florida \1\....... Atlanta
1998............................ New York \1\....... Cleveland.......... San Diego......... Atlanta
1999............................ New York \1\....... Boston............. Atlanta........... New York
2000............................ New York \1\....... Seattle............ New York.......... St. Louis
----------------------------------------------------------------------------------------------------------------
\1\ Eventual World Champion.
\2\ Playoffs and World Series lost during strike year.
Senator DeWine. Thank you very much.
Mr. Will.
STATEMENT OF GEORGE F. WILL
Mr. Will. Mr. Chairman, when, 50 years ago in Champaign,
IL, I played little league baseball for the Mittendorf Funeral
Home Panthers, I batted ninth. So I am used to following the
heavy hitters, and I am content to let Commissioner Selig and
Senator Mitchell speak to the particulars.
I want to address, as my testimony serendipitously does,
the three salient questions you asked this morning: what do you
say to the Yankees, what do you say to the players, and why
isn't the competitive balance tax the equivalent of a salary
cap.
The path to competitive balance, Mr. Chairman, involves,
among other things, recognizing that the term ``local
revenues'' is a misnomer. No revenues in baseball result
exclusively from the sale of a local product. It takes two
teams to have a game. Any team that doubts that should try to
play 162 intra-squad games and see what their attendance is.
Substantially more, therefore, of the industry's revenues
should be just that; they should be treated as the industry's
revenues.
Furthermore, as Senator Mitchell said, a sports league is a
mechanism for producing reasonably equal competitors. It is a
contrivance. It is not like 30 widget companies competing. This
sounds, I know, to some people like socialism.
Senator DeWine. That would be a shock.
Mr. Will. Well, Rick Levin exclaimed one day in our
deliberations as I was applying compassionate conservatism to
the small-market teams of Major League Baseball that he was
going back to Yale to say that he was to the right of me on
this issue. Perhaps he is.
I should also add that one of baseball's strengths--its
long tradition running deep into 19th century America--means
that it also has a problem; that is, as you mentioned earlier,
this ante-dates the advent of broadcasting which has changed
everything.
Now, some people, Mr. Chairman, say baseball can solve its
problems simply by increasing its revenues. Those people
misunderstand the perverse dynamic of baseball's prosperity.
Baseball's gross revenues almost doubled between 1995 and 1999.
But under the game's current economic model, this prosperity
exacerbated competitive balance. In 1995, top-quartile teams
spent about twice as much as bottom-quartile teams. In 1999,
they spent 3 times as much.
Some people say the appreciation of franchise values
confirms baseball's fundamental economic health. They
misunderstand this: of the 13 teams sold in the last 20 years,
the appreciation of five was considerably less than their
cumulative operating losses. The appreciation of four
represented only a modest return, less than the normal rate of
return on invested capital. And the substantial appreciation of
the four other teams was caused by actual or planned new
ballparks.
Commissioner Selig says that he ``cannot state with
certainty that the Panel's recommendations would solve our
competitive balance problems.'' The competitive rate for the
competitive balance tax on payroll spending above $84 million
may be insufficient to reduce the behavioral change baseball
needs. Furthermore, for reasons arising from the rethinking of
the very concept of local revenues, perhaps 50 percent of those
revenues should be shared.
Let me echo something that Bob Costas said a moment ago.
During the 1994 strike, my sympathies, strongly written, were
with the players, as they were then lead by my friend--and he
is a friend--Don Fehr. So I hope for a sympathetic hearing for
the following fact which responds to something Mr. Fort has
just said.
The 50-percent competitive balance tax, far from being
equivalent to a salary cap, provides only a porous ceiling on
payrolls, whereas the floor is firm because of the powerful
incentive--access to unequal distribution's from the
commissioner's pool--to meet the payroll minimum of $40
million, a substantial increase.
Professor Fort says he knows that our recommendations will
have a negative impact on player compensation. I don't see how
he can know that. Our Panel is agnostic on that question. The
Panel is agnostic regarding the distribution effect, but it
seems to me likely that under the Panel's recommendations most
players would be in a better financial, as well as competitive
position.
Baseball, Mr. Chairman, is not Bangladesh; it is not poor.
It can get well by deciding to get well, and the first decision
has to be made among the owners. Commissioner Selig mentioned a
moment ago the number of 30-to-nothing votes he has received.
He may have to have some less than unanimous votes in settling
with the owners. He may have some group of owners who are going
to have to out-vote the other group. That responds, I think, to
your question repeated this morning about how you get there.
You get there by voting, not, of course, on a butterfly ballot.
That concludes my remarks.
[The prepared statement of Mr. Will follows:]
Prepared Statement of George F. Will
Mr. Chairman. when, fifty years ago in Champaign, Illinois, I
played Little League baseball for the Mittendorf Funeral Home Panthers,
I batted, as I recall, ninth. I am used to coming to the plate after
the heavy hitters.
Commissioner Selig and Senator Mitchell, my colleague on the Blue
Ribbon Panel, have presented the salient facts about the effects of
revenue disparities on competitive balance, and the Panel's
recommendations for a reformed economic model for baseball. So I will
address some of the Panel's premises.
Competitive balance will exist only when every well-run team has a
regularly recurring reasonable hope of reaching postseason play. The
path to this involves, among other things, recognizing that the term
``local revenues'' is a misnomer. No revenues result exclusively for
the sale of a local product. It takes two teams to have a game. Any
team that doubts that it is selling not just, say, Yankees' baseball
but major league baseball should imagine that its attendance would be
for 162 intrasquad games. Substantially more of the industry's revenues
should be as just that--the industry's revenues.
A sports league is a mechanism for producing reasonably equal
competitors. If 30 widget companies are competing, it is reasonable for
each to hope to achieve lasting dominance, and to hope to reduce many
competitors to anemia, even extinction. But 30 baseball teams,
associated for the purpose of producing, day in and day out, balanced
competition, must evolve mechanisms for insuring 30 healthy
competitors.
One of baseball's strengths--its long tradition, running deep into
19th century America--has a debilitating cost. Baseballs anachronistic
economic model predates the formation of the modern market for
professional sports; it predates, to take just one example, the advent
of broadcasting.
Some people say baseball can solve its problems simply by
increasing its revenues. Those people misunderstand the perverse
dynamic of baseball's prosperity. Baseball's gross revenues almost
doubled between 1995 and 1999. But under the game's current economic
arrangements, this prosperity exacerbated competitive imbalance: In
1995 top quartile teams spent about twice as much as bottom quartile
teams on players; in 1999 they spent about three times as much.
Some people say the appreciation of franchise values confirms
baseball's economic health. They misunderstand this: Of the 13 teams
sold in the past 20 years, the appreciation of five was considerably
less than their cumulative operating losses. The appreciation of four
represented only a modest return--less than the normal rate-for
invested capital. The substantial appreciation of the four other teams
was caused by actual or planned new ballparks.
Commissioner Selig says he ``cannot state with certainty that the
Panel's recommendations would solve our competitive balance problem.''
The 50 percent rate for the competitive balance tax on payrolls
spending above $84 million may be insufficient to produce the
behavioral change baseball needs. Furthermore, for reasons arising from
the re-thinking of the very concept of so-called ``local revenues,''
perhaps 50 percent of those revenues should be shared.
However, the Panel was not unmindful of feasibility considerations
arising from the fact that some changes recommended are collective
bargaining issues. Just as our report challenges owners to think anew,
so, too, does it challenge the Players Association to avoid sterile
strategies and stereotypes. During the 1994 strike my sympathies,
strongly written, were with the players as led by my friend Don Fehr,
so I hope for a sympathetic hearing in calling the players' attention
to this fact:
The 50 percent competitive balance tax, far from being equivalent
to a salary cap, provides only a porous ceiling on payrolls, whereas
the floor is firm, because of the powerful incentive (access to unequal
distributions from the ``commissioner's pool'') to meet the payroll
minimum of $40 million. Certainly the Panel believes its
recommendations would result in redistribution of revenues. However,
the Panel is agnostic regarding the effect on total spending on
players. It seems plausible that under the Panel's recommendations,
most players would be in a better financial as well as competitive
position.
Mr. Chairman, once when manager Casey Stengel reached the mound to
remove a struggling pitcher, the pitcher said, ``I'm not tired.'' To
which Stengel replied, ``Well, I'm tired of you.''
Fans are tired of competitive imbalance. The owners say they are.
So do the players, competitors all: Earlier this year a poll of players
by Baseball Weekly revealed they ranked competitive balance at the top
of their list of things needing fixing.
The players will, I hope, see how their material interests can be
served by the Panel's recommendations. And the owners will, I hope,
understand that their response to the Panel's recommendations will
determine, for a long time, the credibility of their chronic complaints
about baseball's condition.
Baseball is not Bangladesh. It is not poverty-stricken. And it can
get well by deciding to get well. The deciding must be done by both the
owners and players.
Senator DeWine. Mr. Will, thank you very much.
Mr. Stadulis, thank you very much for joining us. We
appreciate it.
STATEMENT OF FRANK STADULIS
Mr. Stadulis. Thank you for inviting UsFANS to participate.
We are proud to be here with the commissioner and the
distinguished panelists.
I am President of United Sports Fans of America. We are
sort of a new anomaly on the sports scene. We represent about
half a million sports fans across the country. We are not a
militant group. Quite simply, what we try and do is put a
business head on the fan community at large and start to give
it some leverage in situations such as these.
We have a fairly robust media capability. We have a Web
site called UsFANS.com, national radio show called UsFANS
Sports Fire. We will be inaugurating a television show in the
first quarter. The only difference is we have got the lunatics
running the insane asylum. This is run by the fans, for fans.
We invite people from the industry in on some of these
seemingly intractable problems, and we try and really run these
things to ground from a fan's perspective and feed that back
into the infrastructure, with the hope of making change.
We are a for-profit business, and please don't be aghast
when I tell you that. My God, a sports fan association that
makes money. There is a graveyard littered with sports fans
associations because the business model was fundamental
defective. These are powerful organizations and associations
that we are dealing with. We need to create a wealth center for
fans so that, in fact, they can have representation.
On specific issues, we do attempt to get the broadest
possible input from fans. Some of our surveys are statistically
valid, some are not. I would urge you to note that the date
points I will give you today are not statistically valid, but
we think inferentially they are very important.
Some of the kinds of issues we have been active in are
things like blackouts, lockouts, violence in sports. And in
baseball, we, had worked with Earl Blumenauer's office on a
piece of legislation called H.R. 590, Give the Fans a Chance
Act, which now has evolved into H.R. 534. The issue there is to
try and give communities, where they can give a competitive
bid, to have the opportunity to own their own hometown team.
In the past year, increasingly we have become concerned
about the major problems confronting baseball from a fan's
point of view. As you know, this has been the focus of the
commissioner's Blue Ribbon report. Fans have voiced their
concerns anecdotally about the higher-payroll teams always
being the ones that seem to get a shot at grabbing the golden
ring.
Our analysis, by the way, separately and distinctly, shows
that there are two major remedial things--effective forms of
revenue-sharing among all teams and some sort of salary
restraint, whether it is in the form of a luxury tax or a
salary cap. We don't pretend to be experts in baseball finance
or economics. All we can kind of tell you is what we perceive
needs to be fixed as lay people.
Our analysis is not unique, but in summary I would just
like to share with you a couple of survey questions that we did
run. The first survey was answered by approximately 3,000 fans.
The first question was, do you support a movement that would
require Major League Baseball and its Players Association to
take whatever steps are necessary to restore competitive
balance or parity to the game? Yes, 94 percent; no, 6 percent.
Second: Do you support the implementation of salary caps and
equitable revenue-sharing throughout the league? Yes, 94
percent; no, 7 percent. That particular survey was run on
UsFANS.com.
We ran a similar survey on MSNBC.com. That was, I think,
somewhere around 4,800 respondents. The questions were not
identical, but in terms of the result it was almost identical.
There was very strong support on behalf of fans for the leagues
and the Player Association to fundamentally attack these
issues.
UsFANS considers 70 percent of anything a mandate to act,
and we believe we now have overwhelming fan support. We believe
that Major League Baseball, the Players Association, along with
us having input representing the fans, will be a key ingredient
in trying to address this seemingly intractable problem that
certainly has plagued the game.
We really do believe that the notion of the $84 million
cap, or let's say luxury tax threshold, might be supported. But
what we have to recall is who is going to pay for the people
that do want to spend over, and it is the fan. And we do
believe that perhaps something more drastic has to be done in
terms of salaries. A case in point: today, as you may know, the
Colorado Rockies are interviewing Alex Rodriguez and Rodney
Hampton. Were they to recruit those two fine players, their
salary contribution immediately would be $34 or $35 million.
And the problem is simply this from a fan's perspective:
you have this large vat, and that vat is money, OK? And we are
trying to fill the vat with new revenue streams and revenue-
sharing and all kinds of things, which we are supportive of.
But on the other hand, there is a valve at the bottom and
somebody is turning that valve over and the water is leaking
out as fast or faster than the new programs can put the revenue
in. And guess where the source of the revenue comes from? Us,
as fans. I mean, after all, we do pay for this whole party.
Having said all that, we are absolutely excited about the
Blue Ribbon report. We think that that and Bob Costas' analysis
are all fundamentally on track. The problem with this thing, as
we all know, is the devil is in the details. It is going to be
in the implementation, and we just don't think we can skirt the
issue of harder reality regarding the Major League Baseball
Players Association and what needs to be done with salaries to
provide a corrective balance to this generic problem.
Thank you.
[The prepared statement of Mr. Stadulis follows:]
Prepared Statement of Frank Stadulis
I am Frank Stadulis, President and CEO of the United Sports Fans of
America (UsFANS). I appreciate the opportunity to appear before the
Subcommittee and to represent our membership and others who have
responded to our mission.
UsFANS is an association of sports fans, incorporated in 1996,
dedicated to improving the operation and delivery of sports, and to
giving fans an effective voice at all levels of the sports
establishment. UsFANS currently has over a half million members, and is
growing. We communicate with our members and other fans through a
variety of media, including our Internet sites, our SportsFire radio
programs, and live events; we plan to introduce our SportsFire
television show early next year.
We are a for-profit, proactive organization, that gathers input
from fans through all of our media. In particular, our principal
Internet site invites responses to our articles, and uses chat rooms
and message boards as well as polls and surveys to solicit the views of
our members and other site visitors. On specific issues, we will get
the broadest possible input to determine whether we should take action.
We consider it a mandate to act if we have a 70 percent vote in favor
of a particular position.
Over the past year we have been concerned with the problems
confronting major league baseball, which have been the focus of the
Commissioner's Blue Ribbon Panel report. Well before the report was
issued our own concerns were with the problems of league dominance by a
handful of teams, largely in the biggest media markets and all with the
highest payrolls, and the skyrocketing salaries underlying this
situation.
Our analysis indicated that two principal remedial measures were
required: one, a far more effective form of revenue sharing among all
teams, and two, some form of salary restraint or limitation.
The problem was clear: two-thirds of the teams--and their fans--
were destined to disappointment before the season even began, because
the odds against their making the playoff--and clearly against
succeeding in the playoffs--were prohibitive. And since fans deserve,
for their loyalty, and expect, for their economic support, a
competitive home town team, the threat of a long-term loss of fan
support for these teams, and thus for the League as a whole, is very
real.
Our analysis was not unique, but we considered what role would be
appropriate for UsFANS in seeking to use our national fan base to help
deal with baseball's--and the fans--problems. We realized that we are
in a unique position to determine and focus fan views, and to support
the MLB in its efforts to generate a more competitive environment for
all teams. The owners had taken the major step of giving the
Commissioner unprecedented powers to cure the problems; but there was
little doubt that exercise of these powers would face serious
resistance from some owners--those with the deepest pockets, richest
markets, and winningest teams--on the one hand, and from some players
and their agents, and possibly the MLB Players Association, on the
other.
We decided to pose to our membership and other fans visiting our
website, clearly had directly, the questions we deemed critical, in the
form of the UsFANS ``Give All Baseball Teams A Chance Petition'' (copy
attached as Exhibit A). The Petition described the problem, then set
forth two questions to be answered yes or no. A total of 2,894 fans
responded as indicated below:
First: Do you support a movement that would require Major League
Baseball and its Players' Association to take whatever steps are
necessary to restoring competitive balance, or parity, to the game?
Yes=94 percent No=6 percent.
Second: Do you support the implementation of salary caps and
equitable revenue sharing throughout the league? Yes=93 percent No=7
percent.
As stated earlier, we consider 70 percent a mandate to act; here
there is overwhelming fan support for required changes which we believe
could be translated into action through a continuing and cooperative
effort between Major League Baseball, its Players Association and
UsFANS. We believe fan involvement can be the catalyst to taking the
steps needed for baseball's continued success and long-term survival.
Over the past year, UsFANS has analyzed the numbers and the
situation and reached the same essential conclusions as the Blue Ribbon
Panel. Our editorial writers have discussed the problems, and possible
(and needed) solutions, frequently. We also have received anecdotal
evidence of the need for action through the submissions of fans,
responding to articles and the Petition. One example of the mood and
intensity of fan concern is the following:
There are two problems in baseball. Money is one of them. The
reason I stopped watched baseball was Shawn Green and his
selfish attitude, not only with this contract demand but also
how he treated the Blue Jays. What I can't figure out is how do
you expect [people] to watch with that kind of attitude and why
would you watch when teams with low payrolls have no chance of
competing. To me I have no interest because come Fall you know
the Yankees, Red Sox, Cards, Mets, Braves, Diamondbacks,
Rangers, and Indians are most likely to be there. If they're
not a team with another high payroll will take their place.
Then if a low payroll team has good players it will lose them
to the big teams * * * (Posted by Sean O'Reilly on April 23,
2000).
Sean, writing in April, correctly predicted five of the playoff teams--
the Indians just missed.
Today's sports enthusiasts, particularly family groups and kids, in
ALL markets, not just New York and Atlanta, must be induced to become
or remain fans for baseball's long-term survival. Baseball must create
a next generation of fans, who also will require competitive teams and
affordable access to the games. The passion and frustration of
individual fan responses such as Sean's is telling, but perhaps even
more so--and more threatening--is a growing apathy that says ``we're
beginning to just not care.'' It is the fans who buy (or don't) the
tickets and advertised products that are the economic foundation of the
league: their money ultimately pays for the salaries, the stadiums, the
naming rights--and when necessary, the relocation costs--and their
emotional attachment to the game and to their teams and heroes is what
makes the industry succeed.
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Senator DeWine. Let me thank all our panel members. I will
direct questions to different members, but, as I said, give
each one an opportunity to respond even if the question has not
been asked to you.
Mr. Costas, if your book had been written after the 2000
season instead of after the 1999 season, wouldn't it have been
more difficult for you to make your case in regard to the
problem that we have.
Mr. Costas. No, I don't think so. I guess you are referring
to the success of the Oakland A's and of the Chicago White Sox.
Senator DeWine. Correct.
Mr. Costas. Wait until Jason Giambi becomes a free agent in
a year or so. See if he is still a member of the Oakland A's,
and if he is still a member of the Oakland A's after they have
made that investment at something approaching market value, see
how much money they have left over to fill in around him with
competitive players.
Take a look at a team that made the playoffs and actually
took the Yankees farther in terms of games played than anyone
else they faced. Seattle took them to six games, a competitive
series in the LCS. But look at Seattle's situation; it is as
instructive as any, maybe more instructive than the so-called
small markets.
They have done just about everything you can do to max out
revenues. They built a new ballpark with substantial input from
public funds. They will draw more than three million fans to
that ballpark for the foreseeable future. I assume that they
have come close to maxing out their media revenues in a middle
market. And over the last few years, they have had a forced
trade of Randy Johnson. If you want to discount that and say
that it pre-dates the opening of Safeco Field, fine. They have
had a forced trade of Ken Griffey, Jr., and now they may lose
Alex Rodriguez.
If they had been able to keep Griffey and Rodriquez at
market value, you tell me, with a decent set-up man going for
$4, $5 million a year, with a decent fourth outfielder running
$2, $3 million a year, how they are going to fill in around
Griffey and Rodriguez with a team that would keep them
competitive over a sustained period of time.
I think sometimes the players don't realize that their
arguments place them in a double bind. The players want market
value, understandably so. Almost every one of them to a man
says, I want to play for a contender and I want my team to do
everything it can to fill in around me with players who will
make this team a contender. In many markets, that simply is not
possible as they come close to maxing out the available
revenues.
I think that the Chicago White Sox are truly an anomaly
because they are not in a small market, and I don't think the
Chicago White Sox payroll will remain at anything like its
present level in the next few years. And if you build in the
short term by catching lightning in a bottle, as Oakland and
Chicago did, with excellent management--if you build a
contender in the short term, by definition, the performances of
those players that made it possible increases their value to
the point where if they become eligible for free agency or
arbitration, you will have to significantly increase your
payroll, so you will no longer be a small-payroll team, or you
will be forced into economically-driven trades that will strip
mine your roster.
Senator DeWine. It seems to me that you could even make
that same argument--and again I will put on my parochial Ohio
hat, and I have talked a little bit about the Reds, a small-
market team. It seems to me that you could foresee a situation
where the Indians would eventually have the same problem in the
sense that they are setting records. They sell season after
season 81 games, totally sell out the ballpark. Their TV
revenue ratings--I am not privy to what their dollars are.
Mr. Costas. They are among the highest local ratings for
any sports anywhere in the country.
Senator DeWine. Their ratings are just as high as you can
get. At some point, I don't know how you get much higher as a
percentage of the market.
Mr. Costas. Right.
Senator DeWine. And so it seems to me that an argument can
be made that at some point they do max out and they hit some
sort of a, maybe not a ceiling, but at least a slowdown of the
increase in revenue, whereas there may be other teams that they
will be directly competitive against that, because of the size
of the market, because of the local TV rights, may not ever hit
a ceiling. They may just continue to go straight up.
So it seems to me that an example of a high-payroll team
that we look at, and we look at the charts of the Indians, and
a team that has been very successful, might even run into this
same problem.
Mr. Will.
Mr. Will. They have run into it. They can't keep Manny
Ramirez, in all likelihood. If money is the deciding factor in
Mike Mussina's case, the Yankees will get him. You mentioned
the Oakland A's. Stairs is already gone and Valardi soon may be
off that team. Last year, the White Sox had a payroll of $40
million. To keep that team together, Mr. Chairman, just to keep
the same team under the arbitration mechanism and free agency,
it will go over $50 million just 1 year later.
Senator DeWine. And, again, your comment brings up, Mr.
Will, another problem that fans have, and that is continuity.
You know, each one of us as a fan from a parochial point of
view wants to be able to follow players for some period of
time. That is why I can recall a good part of the starting
lineup of the Cincinnati Reds in 1955.
Very few believe that we should go back to the time when
players didn't have more rights than they have today. That is
not the issue. The issue is, is there a way to set the
structure of baseball so that fathers and sons don't have a
discussion like I had with my son, Mark, the other day. We just
heard about a new trade and I said, well, why did they do that?
And he looked at me like I was silly and said, well, dad, it is
a payroll question, they have to deal with the payroll.
It used to be, when my dad and I talked about trades, it
was one of us or maybe both of us lamenting the fact that the
Reds had traded away someone whom we really liked and wanted to
watch forever, or we argued that it was a good trade or it was
a bad trade, but it was all on the merits. It wasn't dollars
and cents. Not that dollars and cents are bad, but as a fan so
much of what we are reading about is that. And as a fan, it
sort of takes something away from the game.
Mr. Will. Your son, who is wise beyond his years, will
doubtless tell you----
Senator DeWine. He is 13. He is doing pretty well. He is
doing better than his dad.
Mr. Will [continuing]. That even questions related to
signability relating to the cost of bonuses now has turned the
draft itself into a perverse mechanism. The amateur draft was
supposed to be something that would allow the poorer finishing
teams to draft first. Well, now, if you go down the list, they
no longer draft the one, two, three, four, five, six Baseball
America-ranked players. You will find the Pirates skipping over
and drafting someone much farther down the list because they
say we simply can't afford to use this mechanism ostensibly set
up to help us.
Mr. Costas. Senator DeWine, a couple of reactions there.
First, this is seldom remarked upon because understandably the
focus is on the great disparities between the so-called large-
market teams, who really should be referred to as large-revenue
teams because sometimes it doesn't correspond directly to
population, and medium-market and smaller-market teams.
But there is tremendous instability now in baseball even at
the top. There was always movement, all of it instigated by
management in the days prior to free agency through trades and
releases. But now you see unprecedented movement of top-level
players. I broadcast the All Star Game in July and was struck
by how often I found myself saying he is a six-time all star
with his fourth different team. You can no longer tell the all
stars and the pennant contenders without a scorecard. And I
think in the long term, that is not good for baseball.
Also, talking about teams maxing out their revenues, I
think every team should do everything it can in terms of
aggressive marketing and every other strategy to maximize its
revenues. And there is nothing wrong with public-private
partnerships to build new stadiums. If they are built in the
right way, it can make sense economically, and these new
ballparks, especially those with a retro feel, are appreciated
by fans.
But, clearly, without some sort of economic reform,
comprehensive revenue-sharing, and some sort of salary
restraint, all this is going to do in the long term, after
providing, as you noted earlier, perhaps a short-term fix for
certain markets who got ahead of the curve in building a new
ballpark--once all of this evens out, once all the new
ballparks are built or all the franchises that are no longer
viable in a given market can't get a new park or other economic
factors come into play have moved to a new market--once that
has all happened, absent significant economic reform within the
game, the disparities will simply take hold at different
levels. So instead of the disparity being 90 to 50, the
disparity will be 140 to 70. The Players Association will be
thrilled with that, but fans will not be thrilled because the
outcome on the field will be the same.
When the Milwaukee Brewers say to their fans, help us build
a new ballpark, it will help us compete, at that time it may
have meant--I am making these figures up, but they will suffice
for the purpose of the argument--that may have meant we will go
from a payroll of $30 million to a payroll of $50 or $55
million. And it will, in fact, enable them to do that, but that
will no longer be sufficient to compete.
Mr. Stadulis. Senator, you talked about the disillusionment
of fans without being able to have the loyalty they used to
have to their players. I just want to give you one anecdotal
data point, if I may. I am going to protect the player's name
because it is not relevant. This is from a fan: ``There are two
problems in baseball. Money is one of them. The reason I
stopped watching baseball was a player and his selfish
attitude, not only with his contract demand, but also how he
treated his team, my team. What I can't figure out is how do
you expect people to watch that kind of attitude, and why would
you watch when teams with low payrolls have no chance of
competing? To me, I have no interest because, come fall, you
know the Yankees, Red Sox, Cards, Mets, Braves, Diamondbacks,
Rangers, and Indians are most likely to be there. If they are
not, a team with another high payroll will take their place.
And then if a low-payroll team has good players, it will lose
them to the big teams.'' Posted by Sean O'Reilly April 23 of
this year. Sean wrote this back in April, correctly predicting
five of the playoff teams. The Indians, as you know, just
missed. My only point is the fans--and the commissioner
mentioned this--the fans really do understand the dynamics of
what the heck is going on here.
Mr. Fort. Senator, the discussion so far is predicated on
the idea that there is a trend occurring here, and disparity in
baseball. I would just like to point out that forecasting has
been characterized as driving 60 miles an hour down a curvy
road with nothing but a rear-view mirror. Right now, what we
have is one, maybe two curves ahead of us that we are able to
actually observe in baseball and the behavior of competitive
balance.
One thing that is being ignored is that, through time,
there have been cycles in the performance of teams. And if you
think, as Commissioner Selig pointed out, good baseball and
good baseball management starts with a team that may not be so
great figures out how to make it great. But that has a cycle to
it, and especially in free agent years where, once you build
that team, it is especially difficult to hold on to it. Those
cycles have been observed even in the 1980's and into the
1990's.
And so the question seems to me to be not one of is it time
to save the patient before they are dead. It seems to me to be
one of trying to make sure about the right prescription to make
here. The patient may not be dead. The patient may not need
drastic, dramatic, invasive surgery. It may simply need, like
my doc does most of the time, to sit and wait for a few minutes
while we see what the real problem is.
Senator DeWine. So the premise that most of the witnesses
have proceeded under today that this has been a problem, that
we are now into a brand new era, that this era really kicked in
heavily in the last 5, 7, 8 years, and that this is a trend
that will not change--you reject that premise, basically?
Mr. Fort. I think we don't have enough information to know
whether that premise is true or not. Commissioner Selig tells
us that it was a different era. The reason that teams performed
and generated dynasties in the past didn't have to do with
money. But the hearings data early on in the Kefauver hearings
and later point out that the Yankees had a four-to-one revenue
advantage through those early years when their dynasty was
occurring.
Senator DeWine. Which early years were those? Were they in
the 1920's, or which Yankees era?
Mr. Fort. I think in the 1950's were when most of the data
were----
Senator DeWine. So it is not good management, it is money?
Or is it maybe both?
Mr. Fort. I think it may well have been that there has been
a regime change. It could be good management, it could be
money, and right now we are seeing things that historically are
not unprecedented in the imbalance that I was able to find.
Senator DeWine. We picked three charts. We could have
picked any number of 30 or 40 charts. Not that charts show
everything, but it seems to me these three charts are pretty
stunning. And if the lines at least continue--I guess your
argument is the lines won't continue, but if the lines
continue, it seems to me it is just an absolutely unbelievable
problem.
You look at the local broadcasting revenue and look at
these figures, and these figures are already out of date and we
didn't even bother to put the Yankees up there, who are
involved in some negotiations that I am not quite sure I can
yet figure out where those dollars are going to. All I know is
it is an awful lot of money. Unbelievable disparity between
teams that are in direct competition to the Milwaukee Brewers
and Cincinnati Reds.
Mr. Costas, then Mr. Will.
Mr. Fort. Before you proceed, though, that misses the point
that substantial portions of those are already shared. This is
before they do their revenue-sharing which is already in place.
Senator DeWine. Well, some of it is shared.
Mr. Fort. And the other part of it has to do with just
looking at a more general way. If you always compare the end
points, that makes a very dramatic case. But if you compare a
more averaged sort of look at competitive balance in baseball,
you don't get that startling picture at all. I am not arguing
that it will or won't continue. In fact, the preface of my
remark was that forecasting is an extremely difficult thing to
do. There seems to be a lot on the line here for owners, for
the league, and for fans.
Senator DeWine. Let me just make a comment. As Senator
Mitchell said, we rely on our efficient staff here. My staff
tells me that the first chart closest to me, the total revenue
gap between baseball's richest and poorest teams--that is after
the sharing. That does take that into consideration, and you
see where that line is going.
Mr. Costas, then Mr. Will.
Mr. Costas. I think the citing of Yankee dominance,
Brooklyn Dodgers success in the 1950's or various cycles of
competitive imbalance prior to the advent of free agency is an
obvious red herring argument.
First of all, as Commissioner Selig and others have argued,
there are persuasive arguments to be made that the factors that
contributed to that were different. But even if that were not
the case, simply citing an historical precedent for an
objectionable condition is hardly an argument for the
continuation of that condition under new circumstances.
The relevant information is what happened immediately after
the Players Association achieved not only a victory for itself,
but a victory for basic justice and fairness, and overturned
the reserve clause and the players began to receive the kind of
rewards they deserve and have the sort of freedoms within
baseball's structure that they deserve and which should never
be fundamentally altered.
In the late 1970's, throughout the 1980's and in the
1990's, did the Yankees and did the Dodgers and other large-
market teams have their successes? Yes, they did. But during
that period of time, the Kansas City Royals not only won a
World Series, but they were consistent division winners and
contenders.
The Pittsburgh Pirates at the beginning of the 1990's won
three straight division titles when there were only two
divisions, not three divisions and a wild card. So it was a
more difficult achievement. The Montreal Expos, instead of
simply populating the major leagues with their former players
who are now other teams' all stars, actually were contenders in
the early 1990's.
Your Cincinnati Reds won it all in 1990. Minnesota won the
World Series in 1987 and 1991. The Oakland A's were the best
team in baseball. They didn't catch lightning in a bottle and
win a four-team mini division. They were the best team in
baseball for a sustained period of time in the 1980's and
1990's.
That is the model, not some nostalgic good old days. The
model is the recent past. And, clearly, although perhaps Mr.
Fort is not convinced, I think we have more than enough
evidence over the last 5, 6 years as to where it is, that a sea
change took place in the early and mid-1990's, and where it is
going. And if we fail to act, we--I don't have anything to do
with it; I am just observing. But if those who can do something
about it fail to act, they will only see the problem grow not
only more severe, but perhaps more difficult to ultimately
remedy.
Senator DeWine. And the sea change again was what? What
happened at that period of time a few years ago?
Mr. Costas. Explosion in cable revenues, explosion in
stadium revenues. Even if everybody gets a new stadium,
obviously there are more Fortune 500 companies in New York and
in Chicago than there are in Kansas City. So even getting a
perfect situation doesn't mean you have access to the same
sorts of revenues.
As a public policy question, I think fans would do well to
ask not do I like my ball club. Of course, they do. Not is
there an emotional reason why I want them to stay and be
competitive, but pending substantial economic reform in
baseball, are we merely throwing good money after bad by
helping them to feed this problem, by helping them to build a
new stadium which will only ultimately perpetuate revenue
disparities or be part of perpetuating revenue disparities at
higher levels.
If it is part of overall reform, then great. And if the
players wind up making more money than they are making now, but
in some way it is connected to some sort of coherent plan for
competitive balance, that is great, too.
Senator DeWine. Mr. Will.
Mr. Will. Mr. Chairman, if baseball acumen and the running
of a franchise could overwhelm revenue disparity, the Federal
Government, instead of being alarmed by Microsoft, would be
alarmed by breaking up the Expos. They had Larry Walker, they
had Randy Johnson. As Bob Costas said, they have now seeded the
major leagues with great players because no team finds and
develops players better and no team is more incapable of
keeping them. Too much is predictable in all of baseball by a
simple number, the number of television sets in a particular
team's market.
And there is another thing that has changed, Senator, and
it is this: Fans are no longer as patient with competitive
imbalance as they used to be. Time was, back when you were a
Cincinnati fan, baseball had the undivided attention of the
country from April until Ohio State played Michigan.
Senator DeWine. That is not a very good subject today, Mr.
Will.
Mr. Will. I am sorry.
The NBA and the NFL were late arrivals on the scene, in the
late 1950's, really. Today, there are 6 weeks between the last
NBA championship game and the first NFL preseason game. The
attention competition for space on the sports pages and for the
attention of the sports fan is much more intense than ever
before, and they are just not as patient as they were, nor
should they be.
Mr. Stadulis. I think that is an excellent point. You know,
if you are a fan in a small to mid-cap market area, you really
sense there isn't sufficient time for additional data points,
although obviously to be perfect you would like them.
Let me give you an example, the Florida Marlins. I think
their payroll was something like $18 million this year. That
had a whole history which was sort of disastrous which we know
about, but the facts are something has to be done relatively
quickly because baseball as an institution, as George just
rightly said, is under increased competition from alternative
forms. What are they? The XFL is now going to be launching a
league that will extend into summer. You know what is happening
with the NBA season prolonging, and so forth.
The availability to the average fan today of different
choices continues to grow as we enrich this interactive media.
So one of the great potential sources for baseball is this
interactive media. We agree with that. On the other hand, it is
a double-edged sword because interactive media is going to be
able to provide the baseball fan a lot of other opportunities.
So baseball unto itself has to survive to be a good value per
dollar in terms of entertainment.
Senator DeWine. Let me switch gears here for a moment.
Professor Fort, you have stated in your testimony that only two
of the recommendations in the Blue Ribbon Panel's report aimed
at treating the symptoms of revenue imbalance were likely to
have much of an impact. Those two are enhanced local revenue-
sharing and the luxury tax.
Are there other things that you believe should be done to
treat the symptoms of revenue imbalance?
Mr. Fort. Asking me what should and shouldn't be done, I
can't----
Senator DeWine. Well, or that would matter. Let's just put
it that way. What matters?
Mr. Fort. The things that matter will be any mechanism that
gets owners to think at the margin about hiring one more great
player. If you make that more expensive, they will do less of
it. That is how come it ends up that the luxury tax which is
designed to do exactly that, and disproportionately so on rich-
market teams rather teams farther down the line--that has that
impact and will alter competitive balance.
So, too, will the sharing of new local revenues. Local
revenues are driven by win percent. Win percent is driven by
the talent that you choose. At the margin, then, if you make it
more expensive for larger revenue market teams to buy players
by taxing their new local revenues, forcing them to share more,
the same thing will happen.
The kinds of things that were not addressed--the only other
two that I could possibly think of were the salary cap and
instituting a broader spectrum of playoff levels. The salary
cap impact is well known. I mean, if it is defined and it is
hard and it is enforced, which is an extremely difficult thing
to do--other leagues have had difficulty with that--if it is
well defined and enforced, then the whole goal is to get teams
to spend closer to the same amount of money.
To the extent that that is enforced--again, there is the
enforcement problem because small-revenue-market teams don't
want to buy that much talent and large-revenue-market teams
want to buy more. As long as it forces them there, then they
will spend about the same amount on talent and competitive
balance should reign.
The playoff activity, as we have already seen, and Mr.
Costas spoke to plainly about, it reduces the probability that
any given team makes it to the league championship series. And
to the extent that it does that, it makes talent at the margin
less valuable, and that reduces the incentive for large-
revenue-market teams to buy more talent. If you are going to
hit competitive balance from the top end, those are the things
you would like to do.
Senator DeWine. Let me stay on the issue of the salary cap.
Mr. Costas had proposed in his book what I would call a hard
salary cap. Mr. Will and Senator Mitchell talk about in the
Blue Ribbon Panel what Mr. Will refers to as, I guess, a porous
ceiling. Is that the term, a porous ceiling?
Mr. Will. Yes.
Senator DeWine. Let me start the line of questioning with
Mr. Costas, but let me alert the panel that I am interested in
this line of questioning, at least, from the perspective of a
player. Why should a player be in favor of this?
Let me start my first question with Mr. Costas by asking
how do you compare and contrast your proposal versus Mr. Will's
and Mr. Mitchell's and the Blue Ribbon Panel, and what do you
think of their proposal in regard to the porous ceiling?
Mr. Costas. The conclusions and many of the suggestions in
my book and in the Blue Ribbon Panel are very similar. I am not
wedded to the idea of a hard cap. Even in the book, I used
suggested figures for the purposes of argument, and those
figures would slide as the game's revenues increased and
everyone had an incentive to contribute to growing the pie. The
key here is competitive balance, not suppressing players'
salaries.
If you could show me a way in which the average player
could make $10 million a year and superstars could make $50
million a year, but there would be some kind of competitive
balance and the average fan could afford to go to a game, I
would tip my cap to them. They are splendidly talented athletes
and it is upon their talents that the game's popularity
primarily rests.
So I wouldn't even mind a system whereby, let's say--and
you could do this if the owners were willing to open their
books and the revenues of the game could be fairly and
independently audited. You establish a certain minimum figure
based on a negotiated percentage of the game's revenues--and
perhaps even estimates of equity could figure in to some
extent--you establish a minimum figure that must go to the
players in the aggregate.
Then you establish either a hard or porous cap, but most
importantly some sort of salary floor so you have a range, as
Senator Mitchell described, a range that approximates no more
than two to one. If money spent on salaries within those ranges
doesn't hit the minimum figure negotiated, baseball as an
industry makes it up to the Players Association, which then can
distribute it to its members any way it wants.
The purpose here is not to withhold funds unfairly from the
players. The purpose is to recognize, as Senator Mitchell said
and everyone here, I assume, recognizes, that a league is
fundamentally different than other businesses in a free market
economy. In order to have a league, there are always mechanisms
in place; there are mechanisms now in place--roster
limitations, trade deadlines, what not--that you would never
consider in another business. And those mechanisms are designed
to maintain some sort of competitive balance.
I think it also would be worthwhile to define for the
record what most of us believe competitive balance to be. It is
not everyone hovering around an 81 and 81 record. It is not 30
different teams winning the World Series over the next 30
years. It is the belief and understanding, especially on the
part of fans, that every team has--and I am paraphrasing Mr.
Will here--sufficient revenues relative to its competitors so
that they will have at least periodic changes to contend if
they use those resources wisely and a little bit of luck is
factored in.
Senator DeWine. Mr. Will.
Mr. Will. We actually put it just slightly stronger. We
didn't say periodic chances. We said competitive balance shall
be defined as a regularly recurring, reasonable hope of making
the post-season.
I can tell you that when our Panel met, we did not think of
ourselves as writing the opening collective bargaining offer in
a negotiation. We did, however, have some sense of feasibility,
and a salary cap is nuclear war in the relations with the
Players Association.
Second, anyone who watches the NFL, where teams now have
people designated by the grotesque noun ``capologist''--that
is, his whole life is to try and fiddle the salary cap--and if
you have watched the problems of the Minnesota Timberwolves and
the huge fine on them, cheating is rampant under a salary cap.
What we provide with the used to be luxury tax, now
rechristened the competitive balance tax, is a clean set of
incentives to change behavior. I happen to be skeptical whether
50 percent is enough. You can fiddle that over time. But the
fact is, if you want to know why players ought to give this a
receptive hearing, look at your chart up there that says on
opening day the Minnesota Twins' payroll was slightly larger
than Kevin Brown's salary with the Los Angeles Dodgers.
So much attention is being paid to our proposal at the top,
the $85 million threshold. More important than the porous
ceiling is the rock solid floor that says no team shall be
eligible to receive disproportionate allocations from the
commissioner's pool unless and until their payroll reaches $40
million. Now, that changes by $24 million the reality for 25
players on the Minnesota Twins, and it makes the Twins and all
the other players that are so moved up competitors in the
bidding for free agent players.
Mr. Costas. You would think that they would view that as
being in their best interest. And I think an overlooked feature
of what I call the floor to ceiling type arrangement is if you
are at $40 million--and again that is an arbitrary figure, but
it seems a reasonable place to start--if you are at $40 million
and you know that your top competitor is unlikely to jump from
$84 million to $100 million, you have a greater incentive to go
to $50 million.
If you are at $60 million, you have got a greater incentive
to figure out a way to go to $65 million if the Yankees or the
Braves or the Dodgers can't redouble that advantage at the top.
And if the players saw it that way and took a forest-for-the-
trees view that there issues in their best interest besides
dollar figures, especially when the dollar figures are
guaranteed to be very, very high anyway, they would see that
the overall state of the game and its basic competitive balance
is in their interest as well as the owners and the fans'
interest.
Senator DeWine. Mr. Fort, then Mr. Will.
Mr. Fort. I think the answer to your question, Senator, is
a very direct one. All you have to do is remember how the
salary cap, if there were such a thing in baseball, would
likely be instituted.
Under collective bargaining, they would decide the share of
some defined gross revenue that would go to players, and then
also under collective bargaining they would decide how it would
be allocated within a team for the players on a given team. In
the NBA, for example, there are negotiated outcomes for rookies
that didn't use to exist.
Your question was why would a player ever support the
salary cap? The answer on the first basis is, writ large, if
through collective bargaining players think they can get a
larger percentage of revenue than they otherwise could get,
then the union would inform their membership of that. And
everyone would be in favor of that because it is a larger share
of the pie than they would previously be able to get.
Senator DeWine. A larger pot to be divided among players.
Mr. Fort. Exactly, exactly.
Now, the second part of it then depends on how the rules
are set when we get to the level of the most that can be spent
on a per-team basis. Not knowing a lot about the fundamentals
of union politics, at that point what matters is who is in
control of the union and whether the flow of money within a
given team structure moves to those people who are most
powerful within the union structure.
So I think the real answer to your question is just simply
any given player decides will I be better off or not under the
salary cap. There are some scenarios I can envision where they
would be. And then they make their choice. If the union is run
on a majority rule basis, then maybe the better interest and
the greater good of all players will prevail. For example, in
the NFL, relative to Major League Baseball, teams are larger
and it is so much more difficult for stars to have dominance in
the union.
Senator DeWine. Mr. Will.
Mr. Will. Mr. Chairman, the Players Association has a very
legitimate grievance about behavior under the current model;
that is, some teams at the very bottom of the pay scale take
their revenue-sharing money and pocket it and turn a small
profit because it is rational to do so. It makes no sense for a
team with a $20 million payroll to spend $5 million extra on
players because it is not going to change their competitive
situation. It is not going to advance them measurably toward
the post-season.
What we have done with our proposal with the powerful
incentive to raise payrolls to $40 million is address that
explicit and just grievance that the players have by
guaranteeing that many more dollars will be spent in places
like Minnesota on players.
Senator DeWine. I understand that no one can predict what
would happen, but I would be interested in your comments. Under
the Blue Ribbon proposal, with not only the porous ceiling, but
also what in effect is a floor of $40 million, who does win and
who does lose?
Mr. Will. Well, as I say, the Panel itself is agnostic.
Senator DeWine. I understand that.
Mr. Will. What we guarantee is there will be a
redistribution of revenues, and we think it is at least
possible--I think probable--that aggregate spending on players
will not decrease.
Mr. Costas. Senator DeWine, there are also, I guess, two
ways to look at it. There is the aggregate spending on players
and then there is what would be the impact on the majority of
players. It is possible that while the aggregate might remain
steady, fall slightly, rise slightly, there are scenarios
wherein the average player, the run-of-the-mill starter, the
bench player would fare better and the superstar would fare
slightly less well.
And the hope would be that even if that was a predicted
outcome that the superstar would view this, especially given
the levels of compensation now, the same way that the large-
market owner, we hope, in the long run will view it, that there
is a sacrifice to be made for the greater good. And it is not
such a terrible sacrifice that they won't still prosper, and
prosper to a great extent.
Mr. Fort. And I think what can't be known, although there
may be some cause for optimism looking at other sports that
have adopted this approach of moving toward more balance, is
that the overall demand for market brand name, for major league
brand name, could increase so that everybody really is better
off.
I mean, if the owners and the players do find that place of
competitive balance that fans crave the most----
Senator DeWine. That optimum point.
Mr. Fort. Well, ``optimum'' is interesting language for me.
Senator DeWine. Well, your point, I think, is an
interesting point that it is not a static model. I am not the
economist; you have to jump in here and correct me. But,
basically, if you believe that competition is good not just for
fans from the point of view that we would like competition and
we want our team to have a chance, but it is also good for the
sport and it does, in fact, maximize income--if you believe
that, then there is a good argument that you are baking a
bigger pie, and we would all like to bake a bigger pie.
Mr. Fort. That is nicely put in a way that I could only
confuse. Yes, I mean you are going to anticipate that when
folks get a brand name with Major League Baseball, which is
what Mr. Turner did with the Braves essentially--I mean, the
major market for the Braves is not Atlanta; it is nationwide.
He was able to peddle that brand name. If fans identify with
that in a much greater way, the more balanced the league is,
the pie gets bigger and all players could well be better off
even if there is a cap.
Senator DeWine. Mr. Stadulis, you have been trying to jump
in here, and I apologize.
Mr. Stadulis. This porous ceiling--and you mentioned you
have got the teams and the leagues and you have got the
players, and who wins and losses in this deal. Well, there is a
third party. I mean, it is the owners and the teams and it is
the players and the union, but it is the fans.
By the way, we have a healthy skepticism about this porous
ceiling and this bedrock $40 million, and that is that if it
doesn't work, ticket prices continue to rise to the point
where--by the way, we tout the fact to our folks that baseball
continues to be the most affordable family spectator major
sports entertainment in the country. We think baseball has to
maintain that.
What the players have to lose in this deal to us as fans is
so simple, it really is. They are going to lose jobs. This is
not a question of everybody making $90 million 5 years from
now. You really have to see what is happening. I mean, go to
some of the small-cap teams and look at those stadiums during a
game. They are empty.
The argument was we have got to have at least two teams to
have a game; we have got to have at least maybe eight teams to
have a league. That is really the problem I think we have got
to address over the next years.
Senator DeWine. Well, let me follow that up. One of the
Panel's recommendations is to improve its marketing strategy to
increase baseball's popularity. As the head of a fan
organization, what do you think needs to be done to increase
the fan base besides what you have already said? Anything else?
Mr. Stadulis. Yes, I think one thing--and some of the teams
are starting to do it locally. I know the league is starting to
do it. I think we have got to reengage the young people. This
notion about this interactive capability of baseball is
extremely important because that is where you capture a lot of
younger people today, you know, at the personal computer, and
we have to be able to engage them at that level.
Second, a lot of us grew up loving this game through
sandlot sports. A lot of the sandlots are gone. We have to
start encouraging participation as well. As we internationalize
the sport, there is no question, present course and speed, in
my opinion--and I think some fans would agree with me, and I am
not saying this is bad, but there are going to be fewer and
fewer American ball players. I mean, that is the way we are
heading.
If you can go to Santo Domingo or the Dominican Republic
and get a guy who is tremendously talented and bring him in,
versus taking another guy from America who is a good ball
player as well, but for a heck of a lot more money, you know
which way you are going to go. So I think increasing somehow
this sandlot participation across the country, engaging people
in the new interactive level, I think would make a major step
in trying to get the future fan back reengaged.
Senator DeWine. Mr. Will.
Mr. Will. Senator, it is no secret that there is a
constituency within the ownership group for the idea of
contraction; that is, closing some teams that are simply too
weak.
Senator DeWine. That was my next question.
Mr. Will. Our Panel did not address that because we
believe, with all pride of authorship, that what we have
provided would make that unnecessary. But unless something is
done, there are going to be teams that are going to be closed.
It has to happen.
Mr. Costas. And that will obviously cost the players jobs.
You go back by at least two. You could make an argument, if you
really want to get the job done, not just to lop off the weak
sisters but to have divisions that make sense and have
scheduling that makes sense, go from 30 to 24. You take 150
jobs right there, and it is really more than 150 because there
are always players who are hurt or on the fringes of rosters.
So it might be something closer to 200. So, again, that is
another part of the answer of how all of this and solving it in
some equitable way is in the players' best interest.
One more stray point, Mr. Chairman. I think we might do
well to define or answer whether or not excellence or dominance
is a problem in sports. In and of itself, not only is it not a
problem, it draws fans and it draws viewers. People love to
watch Tiger Woods or the UCLA dynasty. The question is how is
that excellence or dominance achieved.
At roughly the same time as the Yankees were building their
four out of five and three straight, Michael Jordan's Bulls
were winning six of eight, and really six in a row when he was
there for a full season. Why did that not trouble NBA fans,
except if he beat your team in the playoffs? Because there was
nothing within the structure of the NBA that stacked the deck
in favor of the Bulls. They drafted Michael Jordan; any time
could have if they came up in the same rotation. They got
Scotty Pippen in a draft-day trade.
Fans of the NBA do not believe that the Clippers are doomed
to failure because of a systemic problem in the NBA. They
believe it is because their management is incapable. NFL fans
have no reason to believe that the Arizona Cardinals are doomed
to failure by the structure of the league, but rather by either
a colossal run of bad luck or the ineptitude of their
management.
During the same rough period of time as these problems were
crystallizing in baseball, the Green Bay Packers went to back-
to-back Super Bowls in the NFL. No one thinks that the Packers
are at a significant competitive disadvantage relative to the
Jets or the Giants in New York. But the Milwaukee Brewers,
occupying essentially the same market as the Green Bay Packers,
may as well be on a different planet from the Yankees or the
Mets.
And in looking at this year's World Series--and there are
many, many factors that impact on the rating of all sports
these days, so we shouldn't attribute it to any one thing, but
I think a guy in Montana or some lady in Iowa who looks at the
Yankees and Mets playing in the World Series may be relatively
disinterested not just because of a geographic distance, but
because he or she no longer views it as a serendipitous
outcome. How about that, two teams in the same city get to ride
the subway, let's talk about Jackie Robinson and Joe DiMaggio.
They view it as an almost inevitable outcome of the way the
deck is stacked.
So, yes, did this season produce the anomalies short term,
the lightning in a bottle situations of the A's and the White
Sox? Yes. But at the end, the number one payroll played the
number three payroll.
Mr. Will. And if the Yankees sign the pitchers they now
have and add Mike Mussina, their pitching staff will be paid
$50 million next year. Now, this is not to fault George
Steinbrenner, who is a good baseball man. And up to a point, as
Bob says, a dynasty such as the Yankees is a good thing. But
let's also bear in mind that operating in New York is not in
itself an act of entrepreneurial genius. It is simply a
terrific advantage.
Senator DeWine. With the exception of Mr. Will's last
comment, we have spent the last 15 minutes or so talking about
from the point of view of a player how a player should react,
or not maybe ``should,'' but what the reality is as far as
whether this Blue Ribbon Panel report is good news for the
players or bad and whether or not when we get to collective
bargaining some version of this is something that is
potentially doable from their perspective.
Let me turn to the question that I asked Mr. Selig. Short
of out-voting, Mr. Will, as you say, some of the owners, what
is in this--I will ask this panel the same question I asked
him--what is in this for the owner who says I bought the New
York market, I paid for it, I built it here? Or in Atlanta, I
have built up the national team, as you said. Hey, it is
America. I did it. Why should I be sharing with the some of
these other teams? They knew what they bought when they bought
them.
Mr. Costas. A good opinion of history.
Mr. Will. I have a better answer.
Mr. Costas. I hope so.
Mr. Will. Well, the answer is the other 29 turn to that
obdurate team that will go nameless and say, you want to play
big league baseball, you have to play us. And you have to come
to some kind of accommodation because that is the way it is in
a sports league. It is a cooperative contrivance to produce
unpredictability.
Senator DeWine. Any other comments? Any closing comments,
anything else? One last shot, anybody?
I want to thank our three panels and all our witnesses
today. Our purpose today was to use this subcommittee as the
opportunity to bring people together who are knowledgeable in
the field to talk about an issue that has to do with
competition. This is the competition subcommittee, the
antitrust subcommittee.
Since I have become chairman and Herb Kohl as the ranking
member, we have held, I think, over 35 hearings. We have looked
at every aspect of American business. We have looked at the
area of competition. This particular subcommittee has a long
history over many, many decades of looking at baseball. So it
shouldn't come as a surprise to anyone that we held this
hearing.
Our purpose today is not to write legislation, but is to do
the other thing that Congress does, and that is to put a
spotlight on issues that have national importance. I believe
this does have national importance. I believe that the evidence
is overwhelming that baseball is in a very, very dangerous era
for the sport, that the trend lines are clearly there in all of
these charts and many, many more that we could have put up,
that competition is important in baseball, as it is important
in any business.
And it is incumbent upon those who have been entrusted with
the national game--Mr. Costas used the word ``caretaker''; we
could use other words, ``custodian.'' We could use any word
anyone would like, but those who happen to have the ownership
of baseball and those who in this era happen to be playing need
to look long and hard at this problem. And I think they will
see that it is a problem, and it is a problem that has to be
corrected.
I thought Mr. Selig's testimony was informative. I thought
of particular note was--and I will leave it to everyone who
heard the testimony, but my interpretation of the testimony is
that he believes he has the votes among the owners to basically
implement a significant portion of the Blue Ribbon Panel
recommendations, without saying that every line would be
adopted.
I think obviously the other issue is the players and
whether or not the players believe it is in their best interest
to deal with this problem, and how the two parties together can
work it out so that it is in the best interest of baseball, in
the best interest of the players collectively as a group, and
also in the best interest of the fans.
So I thank all of you for your testimony. I think it has
been enlightening. I think we put a spotlight on this issue,
and now we will await the verdict, as Mr. Costas was talking
about, of history and see whether or not everyone who is
dealing with baseball today and in charge and who can make
decisions are able to solve the problem.
I thank you all very much.
[Whereupon, at 12:50 p.m., the subcommittee was adjourned.]
APPENDIX
----------
Additional Submissions for the Record
__________
Prepared Statement of Raymond Pecor, Owner of Vermont Expos and Ottawa
Lynx
Mr. Chairman, thank you for allowing me to submit testimony today
for this important hearing on the state of antitrust law and labor
relations in baseball.
One aspect that is continually overlooked in all these discussions
is the impact major league bargaining has on minor league baseball. I
am the owner of the Montreal Expos' single-A affiliate Vermont Expos,
and triple-A affiliate Ottawa Lynx. There are many rumors swirling
around about the Montreal team leaving the city and moving to greener
pastures, possibly in Charlotte, North Carolina or Washington, D.C.
While losing the ballclub in Montreal would be bad for that city,
this difficult situation would also directly affect Vermonters. First,
Montreal is the closest major league city to a large portion of the
state's population. And second, I have some concerns about being able
to maintain my Expos team in Vermont and Ottawa over the long term.
The latest Major League Baseball blue-ribbon panel of experts has
examined the financial situation of the sport and come to many
conclusions. The panel has advocated moving some struggling franchises
to new cities. They have called for some form of a real revenue sharing
system that allows the small market teams to actively compete with
large market teams. And they have backed establishing minimum payrolls
for all clubs. But while I believe these are reasonable proposals and
we must restructure the present system in order for it to remain viable
in the new century, I hope we will also consider the fate of minor
league baseball as well.
When I first decided to pursue purchasing a New York-Penn League
team and moving it to the Burlington, Vermont, area I wanted to make
sure I got a team with strong local roots. I wanted a team affiliated
with the Boston Red Sox, Montreal Expos, New York Yankees, or New York
Mets so that fans of those major league teams in the area would be able
to see the stars of tomorrow at Centennial Field. I was doubly
fortunate to land the Montreal team not only because it is a local team
but also because they have a strong minor league system. In fact,
eighteen Vermont Expos players have made it to the major leagues.
Since the Montreal Expos have been forced to sell off most of their
young, promising talent and have been hamstrung in their efforts to
dabble in the free agent market, minor league players move more rapidly
through the Montreal system. While it is great for the fans in Vermont
to be able to see former Vermont Expos playing in Montreal within a
couple of years, rapid advancement of players can adversely affect
every level of the minor league system.
Montreal teams are now playing teams in their leagues that are a
considerable level above them. If the Montreal Expos' roster is full of
triple-A talent, then their triple-A roster is full of double-A talent,
and their double-A roster is full of single-A talent. That makes it
difficult for the Montreal minor league teams to compete with their
wealthier competitors day-in and day-out. That hurts the development of
the players, the ability of minor league teams to advertise their
teams, and ultimately the major league product.
The Montreal Expos are now faced with the very real possibility of
either moving out of Montreal or being forced to fold their franchise.
And Montreal is not alone in this perilous situation. Owners in
Minnesota, Oakland, Tampa Bay, and Florida have all indicated that
without additional revenue streams their ballclubs cannot fairly
compete with wealthier clubs. I am very concerned about how an Expos
move, or even worse an Expos implosion, would affect my teams in
Vermont and Ottawa.
In fact, this past August the Ottawa Lynx notified minor league
baseball's head office of our intention to explore new affiliation
options with major league clubs starting in the 2001 season. Our
current four-year player development contract with the Montreal Expos
expired at the end of this past baseball season.
As you know, major league teams draft available young players and
assign them to minor league clubs. These minor league players must then
stay with the teams that drafted them. Though the traditional reserve
clause has been relaxed at the major league level, it is strictly
enforced at the minor league level. In fact, minor league players are
actually employees of the major league teams and are the only players
still fully governed by baseball's historic reserve system.
In this way, the minor league clubs themselves have no say over the
players on their teams--that is the job of major and minor league
scouts and development directors. That system has made it impossible
for us to maintain a competitive team on the field. Last season, for
instance, the Lynx ended the baseball campaign with their fifth
consecutive losing season. While we have had a good relationship with
our parent team for the past seven years, we do need to protect our own
interests.
Mr. Chairman, it is time for us to examine the implications that
decisions at the major league level have on the minor leagues. While
eliminating a couple of teams might seem like a viable short term
solution, we must remember that at least eight other cities--those
housing the minor league teams--would be greatly affected. And while
moving franchises around might also seem like a short-term solution, we
must remember that teams like the Oakland A's and Minnesota Twins moved
to their respective areas because they were the green pastures of
decades gone by.
Minor league baseball is growing more rapidly than Major League
Baseball because it is affordable to most Americans, is played in many
more cities and towns, and is far from the tit-for-tat players and
owners fights of the past few decades. When debating the long-range
plans for baseball, we must also protect the interests of the minor
leagues as well.
Again, thank you Mr. Chairman for holding this important hearing
today and allowing me to submit this testimony. I hope this hearing
leads to concrete proposals that will put baseball back on solid
financial footing at the dawn of the new century.
______
Prepared Statement of Andrew Zimbalist, Robert A. Woods Professor of
Economics, Smith College, Northampton, MA
Baseball 2000 is history. It was not a bad year in the aggregate,
but try telling that to fans in Montreal, Minneapolis, Milwaukee or a
dozen other cities not beginning with the letter M.
In addition to the action on the field, there were two significant
baseball events. First, the Players Association opted to extend the
life of the 1996 collective bargaining agreement one more year, through
the 2001 season. Baseball fans, thus, can look forward to one more
uninterrupted season of play, but baseball's tumultuous labor relations
will then be put to the test once again.
Second, Commissioner Selig's Blue Ribbon Panel report on the
economics of the game was published in July 2000. In some respects, it
seems that the panel's four prominent members--Paul Volcker, George
Will, George Mitchell and Richard Levin--did little more during their
18 months of deliberation than read the first edition of Bob Costas'
Fair Ball. The report carefully documents the deterioration in
baseball's competitive balance during the 1990s, then calls for
increased revenue sharing with a plan not dissimilar to that proposed
by Costas. Unfortunately, along the way, the Blue Ribbon Panel also
made a number of missteps that has led many commentators to dismiss the
report in its entirety.
what's wrong and why
Before discussing the Blue Ribbon report in more detail, however,
it is necessary to review the evidence of baseball's present
predicament and how it got there. If we divide baseball teams into
quartiles (25 percent groupings) according to their payrolls, then the
following depressing outcomes apply during the five seasons between
1995 and 1999:
No team in the bottom two quartiles won any of the 158
playoff games.
Every World Series champion was from the top quartile of
team payrolls and no club below the first quartile won a single World
Series game.
The only non-first quartile club to reach the World Series
over this five-year span was the San Diego Padres in 1998. In that
year, the Padres' payroll was in the second quartile and they lost in
four straight games to the New York Yankees.
This pattern was modified a bit in 2000. Of the eight playoff
teams, three were not in the top ten in team payroll: San Francisco
Giants ($54 million payroll); Chicago White Sox ($37 million) and
Oakland ($32 million). None of the three teams, however, made it beyond
the first round division series. In contrast, the first and fifth
payroll teams made it to the World Series, and, once again, the top
payroll team won.
Of course, there has always been competitive imbalance in baseball
and as long as one team has something other than a 50 percent chance to
win a game there always will be. The operative question is not whether
or not there is imbalance, but how much of it is healthy or even
tolerable. To some degree, baseball or any other sport would rather
have teams from bigger cities win more frequently than teams from
smaller cities. Among other things, big city teams will help raise
television ratings for postseason games. But you can only take this
logic so far. If teams from small or medium markets have but miniscule
chances to play in the postseason, let alone win the World Series, year
after year, then fans rightfully lose interest.
Baseball since 1995 seems to be increasingly in this predicament.
Despite several new stadiums being introduced each year and successful
assaults on the single-season home run record, baseball's attendance
per team has leveled off and in-season and post-season television
ratings have continued to drop. Outside of New York there was near
apathy about the media capital's vaunted subway series.
Some say the past five years represent nothing more than yet
another Yankee dynasty. The last period of Yankee dominance in the
1950s and early 1960s, however, was not a time that baseball should
seek to emulate. Between 1950 and 1965 average attendance at games grew
by less than 3 percent over the entire fifteen years, even though real
ticket prices remained virtually flat. Yet during the same period real
disposable incomes in the United States grew by 74 percent. Moreover,
four and five decades ago baseball stood alone on the pedestal of
popular team sports. Today, it is seriously challenged by the NBA and
NFL as well as by the growing list of new professional sports and
entertainment options on television and the internet.
Competitive balance in baseball had steadily improved from 1965
(the year the reverse-order draft of amateurs was introduced) through
the 1980s.\1\ Free agency gave competitive balance a further boost
after 1976. Prior to free agency, when players were stuck with teams
for their whole careers unless they were traded or released, big-city
owners bought good players from small-city owners. The money (from the
extra revenue produced by the player) went to the owner, not the
player. With free agency, it became more difficult to hold a winning
team together and weak teams became more able to improve themselves
rapidly in the free agent market. The era of team dynasties seemed to
be gone forever and Major League Baseball's 1990 economic study
committee found there to be only a slight correlation between city size
and team performance.
---------------------------------------------------------------------------
\1\ In fact, if we use the standard deviation of win percentages as
our gauge, there was a gradual, secular increase in baseball's
competitive balance between 1903 and the 1980s. Prior to 1965, this
increase in balance is most likely attributable to greater talent
compression. See the explanation in text below.
---------------------------------------------------------------------------
Then came the 1990s. At first, the news was good. Baseball signed a
new national television contract with CBS and ESPN for 1990-93, which
together with growing central licensing, superstation and copyright
Royalty Tribunal revenues, meant that each and every team received some
$19 million a year from baseball's central coffers. In 1990, this was
almost 40 percent of average team revenues.
But in 1994 baseball's new national television contract fell by
over 60 percent. Exacerbating matters, certain big market teams, like
the Yankees, were earning over $40 million a year in unshared, local
media revenues, and the era of the new, big-revenue-generating stadiums
was ushered in by Camden Yards in 1992. With centrally-distributed
monies below $10 million per club, teams with a big market or new
stadium found themselves with a rapidly growing revenue advantage.
While the revenue disparity between the richest and poorest team
was around $30 million in 1989, by 1999 it was over $160 million. Local
revenues (including all stadium-related and local media income) in 1999
went from a high of $176 million for the Yankees to a low of $12
million for the Montreal Expos.\2\
---------------------------------------------------------------------------
\2\ Richard Levin et al., The Report of the Independent Members of
the Commissioner's Blue Ribbon Panel on Baseball's Economics. Major
League Baseball, July 2000, p. 17.
---------------------------------------------------------------------------
To this volatile mixture, add the emergence of new franchise owners
who also own international communications networks or are attempting to
build regional sports channels. These owners value their ballplayers
not only by the value they produce on the field but what they produce
for their networks. When Rupert Murdock signed 33-year-old Kevin Brown
to a seven-year deal worth an average of $15 million annually, he was
thinking about the News Corp's emerging influence via satellite
television in the huge Asian market. When Steinbrenner opened up his
wallet for David Cone ($12 million 2000) or Roger Clemens ($30 million
for 2001-02, and 2003 if Clemens is up for it), he had in mind creating
a new New York sports channel built around the Yankees. In these and
other instances, the owners of baseball teams do not treat their teams
as stand-alone profit centers; rather, the team is a cog in a larger
corporate machine, used to maximize the long-term profits of a
conglomerate.
Further, baseball's expansion by four teams in the 1990s, while
adding excitement to the game, makes the star players stand out more
and, thereby, makes it easier to buy a winning team. Consider these
facts: there were sixteen perfect games pitched in 98 years of modern
baseball history, but two of those were in the last three years. Sixty
home runs stands up as a single season record for 34 years; 61 stands
up for 37 more, and then two players hit 66 and 70 in one year. If
McGwire's record is due only to a livelier ball, lower mound, smaller
strike zone or andro, how come pitchers are also setting records?
Why were almost all of baseball's personal achievement records set
between 1910 and 1930? Hornsby batted .424 in 1924, Wilson knocked in
190 runs in 1930, Webb whacked 67 doubles in 1931, Ruth scored 177 runs
in 1921, and Leonard had a 1.01 ERA in 1914. Many seem to believe that
the reason is players in the good old days were better. Not so.
Baseball stats are the product of competing forces and reveal little
about the absolute quality of the players.
The reason has to do with relative degrees of talent compression.
The distribution of baseball skills in the population follows a
standard normal distribution (like a bell-shaped curve). For any curve,
the larger the number of people selected to play major league baseball,
the greater will be the difference between the best and the worst
players in the league. If the population grows and the number of
baseball teams does not, then the proportion of the population playing
falls and the distribution of talent becomes more compressed. This is
what happened in MLB between 1903 and 1960, with the population growing
from 80 million to 181 million and the number of teams remaining
constant at sixteen.
Moreover, in the late forties baseball began to accept black
players and recruit Latin and other international players in greater
numbers. This accentuated the compression, while better nurturance of
baseball skills \3\ and physical abilities in general offset the
growing appeal of football and basketball to American youth.
---------------------------------------------------------------------------
\3\ Little League, for instance, was not introduced until just
prior to World War II.
---------------------------------------------------------------------------
With talent increasingly compressed, the difference in skills
between the best and worst players grew more narrow and it became more
difficult for the best players to stand out as much. Hence, records
ceased being broken, or even approached (save the asterisked
performance by Maris in 1961, the first year of MLB expansion).
Thus, it makes little sense to argue that Ruth hit more home runs
per season than Killebrew because he was stronger or had superior
baseball skills. it makes more sense to suspect that Ruth played during
a time when talent was more dispersed, so he faced many superb pitchers
but he also faced a much larger number of weak pitchers than did
Killebrew. Similarly, Dutch Leonard or Walter Johnson (ERA of 1.09 in
1913) faced some spectacular hitters, but they also faced a much larger
number of weak hitters than did Sandy Koufax, Ron Guidry or Roger
Clemens.
The ratio of the U.S. population to the number of major league
players rose from 250,000 to 1 in 1903, to 307,500 to 1 in 1930, and
452,500 to 1 in 1960; thereafter it fell gradually to 385,000 to 1 in
1990, and 360,000 to 1 in 1998, after MLB's second expansion by two
teams in the nineties. Thus, talent decompression gradually set in
after 1960 and by 1998 the ratio had almost fallen back to the level in
1930.
So, today McGwires, Sosas, Rodriguezes, Martinezes, and Wells' can
more easily excel. Equally important, when the better players can more
reliably outperform the others, it becomes easier to buy a winning
team. It is one thing for the Yankees to generate $176 million in local
revenue while the Expos generate $12 million. If Steinbrenner/Cashman
spend their budget on underperforming, overpaid players, then the
Yankees will squander their revenue advantage. Yet the more individual
players consistently stand out, the more difficult it is for inept
management to squander a revenue advantage.
When the latter phenomenon is combined with sharply growing revenue
disparities among teams and the presence of media conglomerate
ownership, baseball's delicate competitive balance is threatened. If
you were an avid baseball fan in Pittsburgh, how would you feel about
these facts:
In 1995, the payroll of teams in the top quartile was 2.6
times that of the bottom quartile, but by 2000 the top quartile spent
3.5 times as much on payroll as the bottom quartile;
Between 1995 and 2000, the difference between the highest
and lowest club's payrolls grew from $45 million to $97 million;
The statistical correlation between team payrolls and team
won/loss percentages was not significant in any year between 1987 and
1992, but in every year between 1995 and 2000 this relationship was
significant at the highest (1 percent) level.\4\
---------------------------------------------------------------------------
\4\ Of course, part of the problem here is the 1994-95 work
stoppage. Lower revenue teams were left financially debilitated by the
strike and were less likely to bid aggressively for free agents. The
persistence of this pattern beyond 1996 as well as a statistically
significant relationship between payrolls and performance in 1993 and
1994, however, suggest that the work stoppage is hardly the only
important factor at work.
---------------------------------------------------------------------------
This does not mean that rich teams are guaranteed to finish first,
nor that an occasional poor team can't win its division. It does,
however, mean that the historical probabilities shift sharply against
poor teams. Fans gradually lose interest.
The evidence of the problem is sufficiently compelling that it is
time to do something about it. The upcoming renegotiation of the
collective bargaining agreement presents an excellent opportunity to
right baseball's course.
WHAT IS TO BE DONE?
In theory, there are many ways to address MLB's economic and
competitive balance problems. The trick, however, is to solve the
problems in practice, not in theory. This means dealing with the rich
teams' owners who do not want to part with their revenue advantage and
dealing with the Players Association which does not want to accept any
new policies that will harm the players' interests.
At their meetings in January 2000, Major Leagues Baseball's owners
gave Commissioner Bud Selig unprecedented formal power. Given the
historical disagreements among the owners and the game's absence of
effective leadership, it is hard to quarrel with the effort to
strengthen the commissioner's office.
One significant measure granted Selig the authority to do whatever
is necessary to assure competitive balance in the game. A magnanimous
gesture, and who could argue with its goal? The problem comes in
implementation.
If we take MLB's press releases at their word, then George
Steinbrenner, Rupert Murdoch and Peter Angelos, among others, will sit
idly by if Bud Selig decides that all local media money will be
distributed among the clubs. Maybe so, but we'd bet on John Rocker
playing shortstop for the Yankees first.
More likely, Steinbrenner, who already sued baseball once on
antitrust grounds so he could pursue his sponsorship deal with adidas,
would take MLB to court, claiming that a significant portion of his
property being confiscated. Presumably, Selig knows this and would only
act with consensus among the owners.
Selig must also know that any initiative by him to redistribute the
game's riches will smack of a conflict of interest. Even though his
ownership interest in the Brewers is in a blind trust during his term
as commissioner, when he leaves the job the value of his team to him
and his family will be much greater. Is Bud Selig really the man to
lead this charge?
Furthermore, even if Steinbrenner did put Rocker at shortstop and
offer to share his local television money, what would Selig do about
Donald Fehr and the Players' Association? Revenue sharing is subject to
collective bargaining, and with good reason. The more revenue that gets
shared, the lower the payoff to having a successful team and the less a
player is worth to an individual owner. After all, it is largely for
this reason that the NFL, which generates significantly more revenue
and higher franchise values than the other sports, has the lowest
salaries. In 1999, the average NFL salary was $1.07 million, compared
to $1.19 million in the NHL, $1.72 in MLB and $3.52 in the NBA. And the
highest individual salary in the NFL in 1999 was $5.87 million,
compared to $10.36 million in the NHL, $11.95 million in MLB and $20.17
million in the NBA.
Thus, any changes in baseball's revenue sharing rules will have to
be collectively bargained with the players. While the players accepted
the additional revenue sharing that was added in the 1995 collective
bargaining agreement (which in 2000 amounted to a total of around $140
million going from the top to the bottom teams), it is likely that they
will want concessions in exchange for further revenue sharing.
The players will also want a say in how the revenue sharing is
done. If it is done out of a team's actual revenues, then the team will
have less incentive to pay a player his full value (because some of
that value is shared with other teams who do not hire the player). If,
however, the sharing is out of potential revenues (based on the size of
the local market and stadium conditions), then teams will have a
greater incentive to win and pay players top dollar. All this has to be
bargained and cannot be decided unilaterally by the commissioner's
office.
Another vote the owners took at the winter meetings declared that
in the future teams will pool their separate internet businesses.\5\
Once MLB's contract with SportsLine.com ends after the 2001 season,
baseball's central office will be able to contract with national
advertisers and sponsors for its newly-controlled website. It is
possible, but not inevitable, that this will generate more revenue than
would 30 separate websites. The central site will lose local
advertisers.
---------------------------------------------------------------------------
\5\ The Padova decision in Piazza et al. v. MLB notwithstanding, it
is a lucky thing for baseball that most still presume the industry is
protected by a blanket antitrust exemption.
---------------------------------------------------------------------------
What is positive, however, is that the internet money will be
shared equally among the clubs. (Some reports suggest that Commissioner
Selig has the power to distribute more of this revenue to low income
than to high income teams if he thinks that will benefit the game.) But
how much money will there be? Today, the most successful team sites
generate a gross of around $1 million. But if more companies advertise
on internet sites, won't there be less demand for advertising at the
ballpark and on television? Similarly, if more goods sell on the
internet sites, won't fewer goods be sold via other channels? At the
end of the day, there are a finite number of fans with finite income.
The internet accord also raises the question about what happens
when broadband technology begins to accommodate effectively both
intenet and television data. Does this accord mean that the Yankees
have already signed on to centralizing their local television money?
There is nothing wrong with these owners initiatives. At the very
least, they signal an emerging consensus among the owners that is
positive. The issue is that these initiatives are being trumpeted as
solutions and they are not. They raise more questions than they provide
answers.
The commissioner's Blue Ribbon Panel report of July 2000 attempts
to provide some answers. While this report is marred by dubious
analysis and inaccurate assertions at points, its larger message about
growing competitive imbalance and its prescriptions for remedy deserve
consideration.
Unfortunately, many writers dismissed the report out of hand
because its authors have longstanding relationships with MLB or because
of the report's willingness to accept uncritically certain ownership
claims about the industry's lack of profitability.
This is precisely what Forbes magazine writers, Michael Ozanian and
Kurt Badenhausen, did in their Wall Street Journal op-ed on July 27,
2000. Ozanian and Badenhausen denounce the report as a ``charade''
because its authors uncritically accepted MLB's claim that only three
teams made money between 1995 and 1999. To be sure, this claim is not
credible. Baseball accounting provides all sorts of ways to hide
profitability, as MLB's current President Paul Beeston instructed us
several years ago: ``Under generally accepted accounting principles, I
can turn a $4 million profit into a $2 million loss and I can get every
national accounting firm to agree with me.
Nor does the lack of profitability allegation adjust for the
presence of significant waste in baseball's management. On November 14,
2000, Jerry Colangelo, managing General Partner of the Arizona
Diamondbacks, told the Arizona Republic that he would cut front office
expenses by $10 million without affecting the team's operation or the
product. If the quality of the team could be maintained with $10
million less, then why was this money being spent in the first place?
Perhaps part of the problem lies in Major League Baseball's status as a
monopoly.
Back to Ozanian and Badenhausen. They base their argument on their
own estimates of MLB franchise values which reveal substantial
appreciation over the last two decades. They reason that franchise
values would not rise were the industry not profitable. They are half
right.
First, their data show appreciation over a longer time span than
the period considered by the Blue Ribbon report. Second, franchise
values properly reflect expected future profits, not recent profits.
Third, there are multiple ways that an owner can receive a return on
his or her investment in a baseball team besides financial profits.
Others include related party transactions between the team and other
businesses belonging to the same owner, synergies between the team and
these businesses, greater access to politicians and ability to shape
legislation, enjoyment of the power and perquisites of ownership, tax
sheltering, and so on. The value of a franchise will reflect all these
sources of investment return, not just financial profitability.
That said, it is likely that reality lies somewhere in between--
many teams in MLB do have financial difficulty and many do not. The
Blue Ribbon Report unquestionably loses some credibility by
uncritically regurgitating ownership claims of ubiquitous financial
woes. Similarly, the Report loses credibility when it incorrectly
states that NCAA rules strip a college basketball player of eligibility
once he enters the NBA draft or when it asserts that higher salaries
cause escalation of ticket prices.
These and other shortcomings, however, have little to do with the
main thrust of the Report's analysis. The great bulk of the 87-page
report concerns baseball's growing competitive imbalance and what to do
about it.
After presenting clear evidence of growing inbalance, the Blue
Ribbon Panel makes several recommendations. First, MLB should levy a 40
to 50 percent tax on a club's net local revenues, then put the money
into a central pool and distribute 1/30th of the pool to each club. The
1999 revenue sharing plan had each club (excluding Tampa Bay and
Arizona) contribute roughly 17 percent of its net local revenue to such
a pool. Distributions from the pool were then make equally to 28 clubs,
with some modest, additional distributions to the bottom revenue teams.
In the 1999 plan, the Yankees contributed a net amount of $18
million.\6\
---------------------------------------------------------------------------
\6\ First Union Securities & Merrill Lynch, Offering Memorandum.
YANKEE NETS. Senior Notes due 2007. February, 2000.
---------------------------------------------------------------------------
In the Blue Ribbon panel's plan, the Yankee contribution would rise
to approximately $21 million (using 1999 figures and assuming the tax
is set at 50 percent, Yankee stadium expenses are $20 million and total
MLB stadium expenses are $500 million). That is, the Blue Ribbon plan
would only increase the new Yankee contributions by some $3 million--
not much for Mr. Steinbrenner to squawk about.\7\
---------------------------------------------------------------------------
\7\ In the 1999 plan, the first 75 percent of the revenue sharing
pool was redistributed equally but the next 25 percent went only to
clubs with below mean revenues.
---------------------------------------------------------------------------
But the real impact comes from the incentive effect of this local
revenue tax. Again, assuming the tax is set at 50 percent, then each
increment to a team's net local revenue is reduced by 48.3 percent.
This is because half is taken away by the tax and 1.67 percent is
returned by the subsequent equal distribution from the pool to each
club. Hence, suppose Mr. Steinbrenner is contemplating the signing of
Manny Ramirez during the offseason and estimates that with Ramirez in
the Yankee outfield the team will generate an additional $16 million in
annual local revenue. Without the local revenue tax, Steinbrenner
should be willing to offer Ramirez any salary up to $16 million. With
the tax, he should be willing to offer Ramirez any salary up to $8.27
million [$16 million X (1 - .483)]! (Of course, it is also possible
that if Steinbrenner forms a regional sports channel Ramirez will have
an additional impact by increasing the value of the channel. Such a
factor may increase Ramirez's salary beyond this level. Steinbrenner
could recapture some of this value by taking the channel public.)
Thus, the revenue redistributive impact of this provision is likely
to be considerably weaker than its salary restraint impact. Perhaps
this observation helps to explain why the Blue Ribbon panelists avoided
recommending a salary cap and why the Players Association may be less
than enthusiastic about this method of revenue sharing.
The panel's second recommendation--for an additional 50 percent tax
on team payroll's above a fixed $84 million threshold--would create a
further impediment to the upward drift of salaries. What is most
notable here is not the $84 million threshold (which is close to the
threshold of the last year of the luxury tax on team payrolls in 1999),
but the suggestion that it be fixed, even as MLB's revenues continue to
grow--again cause for the Players Association to balk. Of course, it is
possible that with the salary-retarding effects of a 50 percent local
revenue tax, the $84 million payroll would never be reached.
The third recommendation is also controversial. The commissioner
would be able to use any increase in central fund distributions above
the $13 million per club in 1999 to make unequal distributions to
assist low-revenue clubs. Since the new ESPN contract (2000-05) and the
new Fox contract (2001-06) are projected to raise the average annual
payout per team to $19.1 million (from $11.6 million during 1996-2000),
this recommendation would put a very significant sum at the discretion
of Commissioner Selig and, therefore, may be resisted by high revenue
clubs. An interesting feature of this recommendation is the panel's
suggestion that only clubs meeting a $40 million payroll would be
entitled to receive these extra distributions from the Commissioner--
throwing a bone to the Players Association.
As pointed out in Fair Ball, it would make more sense for the $40
million threshold to be applied as an average over the preceding three
to five years than on a year to year basis. Among other things, clubs
may choose to pursue a building strategy, yielding a lower payroll
initially but a higher payroll as players reach arbitration and free
agency eligibility. If the threshold is applied too rigidly, it would
not leave clubs the flexibility to pursue different strategies and many
clubs would be compelled to squander salary payouts.
The report also recommends changes in baseball's draft system. The
baseball reverse-order, amateur draft was introduced in 1965. Almost
over night the (old) Yankee dynasty was ended and baseball entered an
era of unprecedented competitive balance that lasted until the mid-
1990s.
The selection of amateur players through the draft was an important
leveler. In the 1990s, however, the selection of amateurs began to
favor the high-revenue teams, contributing to a greater imbalance on
the playing field. Why?
For starters, revenue disparities across the teams exploded. These
inequalities were then reflected in vastly different player development
budgets across the teams. In 1999, for instance, the Yankees spent over
$20 million on their player development system, while the Oakland
Athletics invested less than $6 million. This means that the Yankees,
by offering far more handsome signing bonuses, have greater success in
signing foreign players who come to the U.S. as free agents.
Only U.S. residents and Puerto Ricans (and foreigners enrolled at
U.S. universities) are subject to the reverse-order amateur draft. All
other foreign ballplayers come to the U.S. as free agents. Today,
foreign-born players represent over one-fifth of all major leagues.
After the collapse of the former Soviet trade bloc and the ensuing
meltdown of the Cuban economy, the supply of ballplaying Cuban
defectors began to expand. Agents like Joe Cubas exploited the
opportunities and inspired still more defections. More or less
simultaneously, free agency rules in Japanese baseball along with
government conscription regulations in Korea were liberalized, and many
Asian ballplayers tested their market value in this country.
As the foreign free agent market developed, agents sought out
players throughout the Caribbean and elsewhere. Agents staged foreign
player workouts for prospectively interested teams. At first, these
workouts were attended by scouts from most teams, but as the signing
bonuses grew, the number of represented teams diminished. Low revenue
teams gave up ahead of time.
Complicating matters, as the signing bonuses for foreign free
agents increased, U.S. amateurs, comparing their potential to the
foreign players, demanded and often received higher bonuses. On
occasion when the player didn't get the bonus he sought, he would
refuse to sign and the drafting team in essence would lose a draft
pick. Rather than lose draft picks, low revenue teams began to skip
over the top prospects, anticipating they wouldn't be able to sign
them. The high revenue teams, though lower in the drafting order,
started to get better domestic, as well as foreign, talent. Thus, the
process of signing new talent, which had promoted competitive balance
since 1965, today seems to be exacerbating the imbalance in baseball.
Thus, the Blue Ribbon Panel, again echoing Fair Ball, sensibly
recommends that baseball's amateur draft be made worldwide. The Players
Association, however, is likely to resist, arguing that the solution to
the exploitation of U.S. ballplayers (by allowing the drafting team to
have monopoly bargaining rights over the player for a year) is not to
extend this exploitation to foreign players. Instead, the Players
Association will seek a modification in the draft process in exchange
for internationalizing the draft. They might, for instance, demand that
two teams be allowed to draft each player, so that there will be some
competitive pressure in determining the player's signing bonus without
forcing the player to sit out a year.
Why does the players' union get to bargain over baseball's draft
rules? After all, minor leaguers are not part of the union. The union
won an arbitration ruling back in 1992 that made the draft a subject of
mandatory bargaining on the grounds that free agent signings were
compensated by draft picks. Thus, an element affecting the demand for
free agents was connected to the draft process.
Since the system of free agent compensation was originally sought
by the owners as a way both to lower demand for free agents and support
greater balance on the field, it is possible that the owners could now
seek to remove the compensation rules. Without such rules, in turn,
draft procedures may no longer be a mandatory bargaining subject.
Alternatively, the owners may seek another concession from the
players. If owners were to accept the reform that two teams can draft
one player, they would probably ask in return that the drafting teams
be given permanent signing rights. The drafted player would then have
an initial choice between the two teams with whom to sign, but he could
not re-enter the draft after one year and be selected by different
teams. Such a rule should improve the chances that lower revenue teams
could actually sign the players they draft.
In any event, internationalizing the draft will require the
cooperation of foreign baseball leagues and the harmonization of labor
market rules. It would also reduce or eliminate the incentive for
individual teams to run training camps in other countries--a function
that MLB may need to assume on a centralized basis.
The Blue Ribbon Panel report also recommends allocating ``a
disproportionate number of picks to chronically uncompetitive clubs.''
This ideal is fine as long as the extra draft picks are not a reward
for free riding. That is, there should be a string attached here too:
teams must meet the minimum payroll in order to qualify for extra
picks.
The panel's final proposed change in drafting procedures is to
alter MLB's so-called Rule 5 draft. The annual Rule 5 draft allows
clubs to pick any player from another club who is not on the club's 40-
man major league roster and has been in professional baseball for four
years. The picked player must then stay on the 25-man major league
active roster for the entire year or be returned to his original club.
This rule prevents a team from stocking talented players in their minor
league system, helps to spread talent more evenly among the teams and
opens up opportunities for minor leaguers. The panel wants to add a
wrinkle to this draft: each year, prior to the Rule 5 draft, allow the
bottom eight clubs to pick any player not on the 40-man roster of any
of the top eight (playoff) clubs without the restriction that the
chosen player must remain on the major league active roster of the
selecting club for the entire next year.
These proposed changes in baseball's drafting system are very
constructive. If implemented, they will significantly promote
competitive balance without engendering conflict among the owners over
additional revenue sharing and, hopefully, without stirring dissent
from the Players Association because of new artificial salary
restrictions.
The last major recommendation of the panel is that MLB ``should
utilize strategic franchise relocations to address the competitive
issues facing the game.'' In plainer English, MLB should allow teams in
cities that won't build new ballparks with public funds to move to
cities that will. Thus, the Montreal Expos might move to Northern
Virginia and play in a new stadium with a larger, more enthusiastic
market. Not only would the Expos be more likely to become and remain a
competitive team, but the team would generate two to four times as much
revenue and eliminate the need for subsidies from the high-income
franchises.
Although MLB has allowed, indeed encouraged, teams to threaten to
move in order to elicit public subsidies over the last three decades,
MLB has not allowed a major league team to actually move since 1972. It
seems reasonable enough that MLB should allow a team to move from a
dormant to a vibrant market and this may well be the best solution in
an imperfect world.
But how will MLB decide when a market is dormant? Most baseball
markets are made, not born. Fans respond to competitive teams and
charismatic players. Indifferent or ineffective ownership can turn any
potentially strong market into a bust. Should the fans in such a city
be penalized for the ownership's ineptitude?
Remember that MLB is a monopoly and it is largely this special
circumstance that gives it the power to extract public stadium
subsidies to support its wealthy owners and players. The economic
solution to the public subsidy/team relocation problem is
straightforward: break up the monopoly. Make MLB divest into two
competing business entities while allowing the two entities to
collaborate on rule setting and postseason competition. With two
separate businesses, it would be inconceivable that Washington, D.C.,
the nation's political capital and seventh largest media market, would
be without a franchise for 28 years. Just as MacDonalds and Burger King
race to be the first to open a new store at any promising street
corner, each of the two baseball leagues would try to exploit any
potential market before the other. The result is that worthy host
cities would not have to go begging for teams. Moreover, cities like
New York might find themselves with multiple franchises and the
relative revenue advantage of George Steinbrenner's Yankees would
quickly diminish if not disappear altogether.
The problem with this plan is political. Such a divestiture policy
has about as much chance being implemented as Pat Buchanan had to be
elected president. So we must look for second best solutions and the
Blue Ribbon Panel's proposal points in a useful direction.
Whereas the further leveling of the playing field is desirable, the
trick comes in implementation. Apart from the legal issue of violating
the property rights of high revenue teams and the economic issue of
diminishing player value, revenue sharing invokes the core question of
ownership incentives. If revenue sharing is done out of actual
revenues, then the incentive to build a winning team is blunted. Owners
on the lower half of MLB's economic ladder may opt to minimize payrolls
and ride the revenue transfers to profitability. It is clear that
several teams have already pursued such a strategy and this is another
factor behind baseball's present imbalance problem. That is,
ironically, MLB's 1996 revenue sharing plan may have exacerbated rather
than ameliorated competitive inequality on the playing field.
It is also true that several automatic forces may produce a greater
leveling in the coming years. The inequality engendered by new stadiums
will recede as the novelty effect on revenue begins to wear off and
Pittsburgh, Cincinnati, Milwaukee, San Diego and other teams benefit
from new facilities. Also, the growth of national media revenues by
some $6 million per year per team will provide a modest equalizing
effect.
For these and other reasons, it is necessary for baseball to
proceed with much care in introducing additional revenue sharing. It is
possible that errant reform will produce more harm than good.