[Senate Hearing 106-1045]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 106-1045

               BASEBALL'S REVENUE GAP: PENNANT FOR SALE?

=======================================================================

                                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

                              ----------                              

                    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?

                              ----------                              


                       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.

                                
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