The media has been full of blather lately about how baseball is doomed if the players walk off the job this week in the sport’s ninth work stoppage since 1972. While another late-season strike that threatens the postseason would by no means be a good thing, if the players are only off for a week or so, the damage isn’t likely to permanently diminish baseball’s appeal.
And even if the World Series is canceled like it was in 1994, does it really spell the end of baseball? Peter Gammons threw a tantrum last week in the form of a rambling column pronouncing that the players and the owners don’t matter. The people who matter are schoolteachers, police officers, firefighters and ex-Enron employees.
If the players and the owners don’t matter, one wonders how Gammons got so famous writing about them. In any event, the players and the owners obviously do matter. Otherwise nobody would care if there were a strike, because they’d be too busy thinking about the importance of the schoolteachers, police officers, firefighters and ex-Enron employees in their lives.
Like it or not, baseball fans aren’t thinking of these people. They’re thinking of Barry Bonds, Curt Schilling and the hundreds of other players who make on average 100 times what the typical public servant makes. Fans turn to the players, and the marketing apparatus they play under controlled by the owners, to occupy their time and imagination from spring to fall.
Which is why it’s doubtful that baseball will cease to exist even in the event of a prolonged walkout. Will the sport lose customers? Sure. It will get them back eventually, although not necessarily quickly. Per-game attendance is still struggling to reach the levels before the 1994 strike. And it will take less tone-deaf leadership than Bud Selig is probably capable of.
But it’s hard to swallow the suggestion that 127 seasons of the major leagues will disappear into the history books or that baseball will become a second-tier sport with the World Series broadcast by tape delay. This sounds like the alarmist talk of people so addicted to the game that they can’t bear being deprived of it for a few weeks or months. Most of them will be back.
What a lot of fans, including Gammons, apparently want is to wish the players and the owners off to some never-land where a few tens of millions of dollars is trivial. They want to make the issues seem simple while doing little to understand what’s really going on. Millionaires vs. billionaires, the rich vs. the richer, the players and the owners conspiring to screw the fans.
It seems lost on these people that getting the system right is better than getting the system fast. It’s unfortunate that it’s come to another strike date to get the players and the owners to make concessions, but if this were grounds for boycotting an industry, then Americans would be walking everywhere because everybody would refuse to buy cars or airline tickets.
Compromise on the Horizon?
It appears that the players have accepted the two items at the top of the owners’ wish list: expanded revenue-sharing and a renewed luxury tax. Revenue-sharing is a good idea. A luxury tax is not. In short, revenue-sharing done right would address structural inequities in baseball’s cartelized system and potentially improve the product on the field throughout the league.
A luxury tax, on the other hand, is simply another form of salary cap. It punishes teams for seeking to improve themselves, stifles a free market in labor, and shifts to the players a problem that the owners should really solve among themselves through revenue-sharing. In fact, the adoption of properly designed revenue-sharing would eliminate the need for a luxury tax.
Was Marx a Royals Fan?
A lot of people who consider themselves free-marketers loath revenue-sharing as socialistic. The error in this thinking is overlooking the fact that baseball is a cartel, where owners have already agreed to not to compete at the cash register and to apportion certain benefits among themselves by a mechanism other than the invisible hand of the free market.
Since the owners have already agreed to divide the spoils among themselves through territorial rights, top-to-bottom control of the labor supply, and pooling national media and licensing rights, how is increased revenue-sharing any different? To be consistent, these so-called free marketers should be calling for the Yankees’ right to have their own national TV deal and Nike contract.
It makes no sense to tell the Royals, who occupy a market of 1.8 million people, that they must respect the territorial rights of the Yankees, who share with the Mets a market of 20.2 million people, while calling the Royals socialists if they think they deserve some compensation for letting George Steinbrenner have half of the Big Apple all to himself.
In a free market, either the Royals would have the option of invading Steinbrenner’s territory, which would still be potentially more lucrative divided three ways than a monopoly in Kansas City, or Steinbrenner would pay the Royals for the privilege of keeping his territorial rights. Many of the putative free-marketers do not propose the former but decry the latter.
They also neglect the fact that it takes two teams to play a game. Both teams are required to put on the field a product of supposedly major-league quality, but Team A might earn 10 times as much as Team B in broadcast rights on that game. Some of this might be due to Team A’s marketing savvy, but a lot of it is because of built-in advantages owing to territorial rights.
While a simple 50-50 split of all revenues, national and local, would address this problem, it would also raise the specter of the Phillies, a large-market team that does a poor job of generating revenues, being a net recipient of shared revenues, and the Mariners and Indians, in smaller markets but more adept at making money, being net donors.
Derek Zumsteg at Baseball Prospectus has proposed a complex revenue-sharing plan that would specifically address compensation for territorial rights through analysis of market size. There are some problems in the details of Zumsteg’s idea, but it would certainly beat the current system. The likelihood of Major League Baseball ever adopting something like it seems slim, though.
Nonetheless, Zumsteg rightly demonstrates that some form of revenue-sharing is a justified solution to structural problems in baseball’s cartelized system. To win the approval of the players, implicit in any plan should be a requirement that owners spend shared revenues on improving their teams, including a minimum payroll.
What about a rebuilding team of cheap, young players? Doesn’t a minimum payroll force the team to overpay its veterans? To remedy this situation, a partial waiver of the minimum payroll, limited to a year or two, should be available on the condition that the rebuilding team spends the shared revenues instead on player development via scouting, drafting and the farm system.
Will such expenditures make a difference? There can be no doubt that payroll is generally tied to success in modern baseball. From 1995 to 2001, the top third of teams in payroll posted an average record of 89-73, made the playoffs 61 percent of the time, and finished among the top 10 in wins 69 percent of the time.
Meanwhile, the middle third of teams in payroll posted an average record of 80-82, made the playoffs 14 percent of the time, and finished in the top 10 in wins 27 percent of the time, while the bottom third of teams in payroll posted an average record of 73-89, made the playoffs 5 percent of the time, and finished in the top 10 in wins 8 percent of the time.
There are low-revenue teams with smart management, like the A’s, that have excelled on a shoestring budget. But outliers like the A’s don’t make the overall facts disappear. The point of revenue-sharing should be to encourage some rough form of equality of opportunity, with every team committed to spending at least a minimum amount on payroll and player development.
Revenue-sharing might have some effect on player salaries, since high-revenue teams would be required to give some of their money to low-revenue teams rather than spend it on players. The right level of minimum payroll, requiring low-revenue teams to spend the shared revenues on players, should largely blunt this effect, however.
A Tax on Players
A luxury tax is really a tax on players. The owners might present a luxury tax as a means to transfer wealth from high-revenue to low-revenue teams. But they could do that themselves based on revenues, not expenditures. What they are really seeking is something that has eluded them in their 30 years’ war with the players: a transfer of wealth from the players to the owners.
There is no need for a drag on player salaries to share revenues among owners. As previously explained, there are plenty of options available to owners to share revenues among themselves that would take into account the game’s cartelized structure, which apportions territorial rights and, hence, market share and other benefits among teams.
What a luxury tax takes into account is not a team’s revenue advantages, but its willingness to spend its revenues to improve itself. In other words, you can make as much money as you want, but if you spend too much of that money on the players, you’re going to be penalized. This is a great deal for the owners but does nothing for the players or, for that matter, the fans.
Why should the players have their salaries contained when there’s no drag on how much the owners make? The players didn’t invent the system that gives some teams exclusive markets 10 times the size of those of their opponents. Nor are the players the ones who chose to pay Alex Rodriguez $25 million per year. A luxury tax punishes players for the owners’ action or inaction.
But perhaps the worst aspect of a luxury tax, at least as it has worked in the past, is that the tax revenues went to teams at the bottom of the payroll scale. Thus, teams like the Twins and the Expos had an incentive to lowball their players, since that was the basis for receiving the luxury taxes paid by teams like the Yankees and the Braves.
If a luxury tax is adopted, at least this pernicious feature should not be reinstituted. In its place, as suggested above with revenue-sharing, teams receiving proceeds under a luxury tax should be required to spend those amounts on player salaries. While still inferior to a straight revenue-sharing plan, this would be less destructive than the luxury tax’s previous incarnation.
The right settlement between the players and the owners would encompass significantly more revenue-sharing and no luxury tax. The competitive imbalance problem of the owners’ own making, but that the owners whine so much about, would be remedied, yet not at the expense of the players, who are merely seeking to sell their services to the highest bidder.
And instead of rewarding teams for maintaining payrolls below a certain level or penalizing teams for keeping payrolls above a certain level, all teams would be obligated to invest at least a minimum amount of the industry’s revenues in its product, which is the competition between the players on the field. That would be the best outcome for fans.