The Future of Baseball: What Needs to be Done and Why

1. The Future of Baseball:What Needs to be Done and Why Artemus Ward Department of Political Science Northern Illinois University aeward@niu.edu New Yankee Stadium Construction as seen from the top of Yankee Stadium, 4/2/08

2. Introduction • Major League Baseball is a monopoly: it is the only provider of top-level professional baseball in the country. Economists believe that this condition leads to a number of undesirable outcomes: lower output, higher prices, indifferent service to the consumer, and inefficiency. • The general remedy that economists propose for such a condition is either divestiture (breaking up the monopoly into more than one firm) or regulation. • In this lecture we will discuss possible changes to baseball and whether or not these changes are likely to come about. • We first begin with a discussion of the puzzle of “talent compression” and how it relates to the popularity of the game with casual fans.

3. Talent Compression I • What accounts for record-breaking performances over time? Why, until 1998, were almost all of baseball’s personal achievement records set between 1910 and 1930? • The reason has to do with relative degrees of talent compression. The distribution of baseball skills in the population follows a normal distribution (like a bell-shaped curve). For any given curve, the larger the number of people selected to play MLB, 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 will fall and the distribution of talent will become more compressed toward the mean. This is what happened in MLB between 1903 and 1960, when the population grew from 80 million to 181 million and the number of teams remained constant at sixteen. • 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. Hence, records ceased being broken, or even approached. The blue curve represents talent decompression which occurs when more of the population is able to play Major League Baseball – a more normal distribution. The black curve represents talent compression which occurs when less of the population is able to play Major League Baseball.

4. Talent Compression II • So it is difficult to compare Babe Ruth (714 career HRs, 60 in a single season) to players from the 1960s. It makes more sense to conclude that Ruth played during a time when talent was more dispersed, so he faced many superb pitchers but also a much larger share of weak pitchers than did 1960s hitters. • Similarly, Dutch Leonard (0.96 ERA in 1914) and Walter Johnson (1.09 ERA in 1913) faced some spectacular hitters, but they also faced a much higher percentage of weak hitters than did the greatest pitchers from later, more compressed years such as Sandy Koufax, Nolan Ryan, Roger Clemens, or Curt Schilling.

5. The dramatic rise in foreign-born players in recent years—as well as the turn of American youth away from baseball toward basketball and football—further exacerbates the problem of compression as the most talented young athletes spurn baseball and the weakest U.S. baseball players are replaced by better non-U.S. players.

6. Talent Compression Data • Taking into account the exclusion of African-Americans prior to the 1940s, the ratio of the U.S. male, playing-age (20-44) population to the number of U.S. major league players gradually rose from 36,500 to 1 in 1901, to 71,500 to 1 by 1960; Over this time span, talent was gradually compressed making individual excellence harder and harder to achieve. • But by 1970, MLB had expanded from 16 teams to 24 and decompression to 1930 levels returned. • But it was short-lived as compression hit record highs in the 1980s, 90s, and into the 21st Century – despite expansion to 26 and then 30 teams by 2000. • Thus, talent compression appears to be a permanent fixture of today’s game.

7. The Compression Conundrum • So in today’s compression era, players like Mark McGwire, Sammy Sosa, Barry Bonds, Roger Clemens, and Alex Rodriguez can only excel if they take dramatic steps to counteract the lack of mediocre and weak competitors. Their answer was performance-enhancing drugs. Without them, there is virtually no way that records from decompressed eras would have fallen so quickly and so dramatically. Consider Roger Maris’ 1960 record of 61 HR in a season being easily eclipsed by Sosa’s 66 and McGwire’s 70 HRs in 1998 and Barry Bonds’ 73 in 2001. • Why does this matter? Because if baseball is successful at eradicating steroids yet continues to recruit players from outside the U.S., talent compression will only grow and we would expect fewer, if any, record-breaking performances. This would make the game less exciting to the casual fan and, with lower demand, more economically challenged. • The only answer is ongoing expansion and probably on an international scale. Indeed, scheduling games outside the U.S. and creating the international World Baseball Classic are examples of MLB moving in this direction.

8. Economic Discrimination: Hulbert’s Law • When William Hulbert founded the National League in 1876 the owners were able to collude to set ticket prices at a half-day’s wage for a workingman—much more than even today’s ticket prices. The early pricing structure limited potential spectators to the upper classes who could afford to attend. Games were also played during the day making it virtually impossible for workingmen to attend as where professional workers could regularly attend by taking a few hours off work, taking long lunches, and attending games with colleagues. • Hence, William Hulbert started the move, still practiced today, to gentrify the business of baseball. • Today, stadium gentrification is rampant. Baseball ticket prices are too high—pricing out lower-income families and children who might otherwise attend games and play the sport. • Seat licensing for the right to purchase season tickets, is an example of stadium gentrification and economic discrimination. • Furthermore, televised baseball games have increasingly migrated from free, broadcast TV to pay-cable outlets and satellite—making it increasingly costly for would-be fans to even see a game on TV.

9. Breaking the Amateur Draft and Minor League Monopoly • Baseball’s presumed antitrust exemption allows it to follow restrictive labor market practices relating to its minor leagues. • Each June, MLB holds a draft of amateur players from U.S., Canadian, and Puerto Rican high schools and colleges. Teams choose players according to their finish in the previous year’s standings: teams with the worst records pick first. Once chosen, players can either sign with the selecting team for a fixed salary plus a signing bonus or they can stay out of professional baseball until next year’s draft. • Chosen players who sign with a major league team then spend up to four years in that club’s minor league system before another team has an opportunity to sign them and move them up to a higher minor league or to the major league level. If, however, the drafting club puts a minor leaguer on its forty-man major league roster, then that player cannot be signed by another team until he has completed seven years in the team’s system. • These restrictions on minor leaguers are all restraints of trade. The amateur cannot receive competitive bids for his services at the time of the draft nor can he receive bids from other teams (for up to seven years) after he is drafted. While in the minors, salaries are determined according to an owner-set scale. With few exceptions amateurs do not go directly into the unionized major leagues and there is no labor union of minor league players. • Without the exemption, it is possible that minor league players would sue and the farm system as we know it could collapse. But if minor leaguers did not “belong” to a particular major league club, then it is likely that competitive balance among major league teams would improve. Major league clubs would draft players out of the minors, not out of college and high school. These players would be more developed and their potential talent level more knowable. The reverse-order draft would confer a larger advantage on the low-finishing teams than does the present amateur draft.

10. Boycott? • Why do fans continue to patronize the sport instead of boycotting it? • Fans are a geographically dispersed, amorphous group for whom effective collective action is highly unlikely. • Furthermore, baseball has cultivated an increasingly gentrified fan base which is unlikely to rock the boat.

11. Congressional Inaction • The only way congress will ever act is if a “policy window” opens where MLB is largely unpopular with the public and there are calls for change. Scandal or work-stoppages would be the two most likely events to prompt such an opportunity. • Meanwhile members of congress have little incentive to act. MLB has a powerful full-time lobbying organization, contributes money to congressional campaigns through a political action committee, and the wealthy owners are politically and economically connected to members of congress through their other business ventures. • Absent a policy window opening, attacking MLB’s presumed exemption is a no-win situation for members of Congress. There is little to gain from constituency support, there is the risk that an alienated MLB establishment would be less willing to retain a team in or introduce a team to a member’s district or to provide a member with box seats for a high-profile game.

12. Promoting the Game • MLB could do more to attract young fans: • Start World Series games earlier; • Open ballparks earlier so that fans can watch the home team take batting practice; • Increase the number of discounted family games; • Build parks and open spaces for urban youth to play the game; • Schedule games with top stars in cities without MLB teams such as Portland, Charlotte, Sacramento, etc; • Expansion: more teams in more cities and players on team rosters.

13. A New Players League? • Though Monte Ward’s Players League (1890) failed, could their model—or a form of it—be revived today? • Then, as now, the public cares little for the pleas of highly paid athletes. As in the 19th century, claims to moral authority or appeals to rationality will have little effect. • The Players League failed because the effort lacked a source of reliable capital to create and maintain a major business enterprise. Because the players needed to build stadiums and meet payrolls, they turned to financial backers who were motivated primarily by profit and not by ideological zeal or a passion for the game. • Hence the only way to make a new Players League work is for MLB players themselves—and most importantly the biggest stars—to abandon MLB forever. Indeed, since the advent of free agency in 1977, the reserve clause for major leaguers no longer protects MLB from encroachments by a potential rival league. • Furthermore the barrier of access to minor leaguers is less problematic today due to the success of several independent minor leagues around the U.S. • Also, the college game is better developed and producing better players than in the past. • Finally, non-U.S. players have proved to be excellent ballplayers and present a wealth of opportunity for a competing league. Indeed MLB knows this and has made moves in recent years to further “internationalize” the game in a long-term plan to stave off potential competition. They have not only increasingly signed players from outside the U.S., they have played exhibition and regular season games in places like Japan, Mexico, and China and started the World Baseball Classic featuring teams from Australia, Canada, China, Chinese Taipei (Taiwan), Cuba, Dominican Republic, Italy, Japan, Korea, Mexico, Netherlands, Panama, Puerto Rico, South Africa, and Venezuela. • Still, it is obvious that to compete with MLB, a rival league would need substantial capital to sign players, secure public financing to build new stadiums, and secure television contracts to generate revenue and publicize the games. Is this possible?

14. United Baseball League (1994) • After the cancellation of the 1994 World Series and in the midst of a three-month long MLB work stoppage, the UL saw its chance and announced its formation. • Each team would sign a top-tier player, several midlevel players, and a majority of low-salary players at its outset. As its following grew, the league would upgrade the talent level over time. • Among its management group, the UL included Curt Flood, Al Harazin (former general manager of the New York Mets), Dick Moss (former general counsel for the Players Association and a player agent), and Mike Stone (former general manager of the Texas Rangers). Moss said, “We’re not here to prod the old establishment and it’s not our intention to replace it. We’re here to coexist with it. We will compete just as Ford competes with General Motors. By starting fresh and not being bound to antiquated practices, we will be able to have a much healthier atmosphere.” • Initially the UL had 8 cities with modest ballparks (Los Angeles in the Coliseum, Washington DC in RFK Stadium, New Orleans in the Superdome, Long Island, Central Florida, Puerto Rico, Portland Ore., and Vancouver British Columbia), a good share of its needed capital, a 154-game schedule from March-Sept. to begin in 1996, and a 20-year television contract with Liberty Media on a revenue sharing basis. The league planned to share profits with host cities and players. Cities that agreed to build or adapt existing stadiums would get a 15% share of pretax profits and a 15% equity share. Players would get a 35% share of pretax profits and 10% equity. • The UL planned to offer fans cheaper tickets and involve members of minority groups in significant numbers and significant positions. “Minorities in the United Baseball League will be able to step from the batter's box to the owner’s box,” said Eric Vinson, vice president of the United States Trust Company and one of several black members of the league’s management company. Flood said, “I need an alternative league. Baseball’s owners have shut me out for 25 years.” • Yet a few weeks after the UL’s deal with Liberty Media, Fox Sports merged with Liberty and a few weeks after that Fox secured the long-term broadcasting rights to MLB. Liberty reneged on its contract with UL and the new league was dead before it even started.

15. Antitrust, Regulation, and Divestiture • Lifting MLB’s presumed antitrust exemption would permit judicial review of baseball’s policies and actions. When MLB claims that the minors as currently structured are necessary or that contraction by two teams is imperative, as long as there is a blanket antitrust exemption there is no judicial review. Without judicial review there is no discovery of facts and there is no analytical challenge to MLB’s claims by and independent judge or jury. Given that MLB is not regulated and faces no competition, the opportunity for judicial review would provide the only chance to limit the potential abuse of its monopoly powers. • An alternative is to regulate the baseball industry by creating a federal sports commission with regulatory authority or a national sports council with subpoena power which could recommend policy to congress. Such a body could regulate or make proposals on the schedule, the number and movement of franchises, broadcasting, labor relations, etc. • Forced divestiture—breaking MLB up into two competing business entities—is another solution. The entities could collaborate on playing rules and engage in interleague and postseason play but they would not be able to divvy up metropolitan areas, establish common drafts of players’ markets, or collude on broadcasting policy, among other things. Competition would be consumer (fan) friendly with lower government subsidies, team revenues, owner profits, player salaries, and ultimately fan cost to see and attend games. Existing markets currently without teams would gain teams under competition and some markets that could support multiple teams would see growth. For example, Charlotte, Portland, Las Vegas, New Orleans, Sacramento, and other cities could gain teams with existing MLB cities such as New York which once supported 3 teams could see expansion.

16. Conclusion • MLB’s monopoly, coupled with the recent success of the MLBPA, have made the game extremely profitable for owners and major-league players. • Stadium gentrification further satisfies the economic elite who might otherwise bring pressure to bear on the problems of the game. • A new, competing league—such as the proposed United Baseball League, revoking the antitrust exemption, regulating the game through a federal agency, or breaking up MLB into two leagues through divestiture are potential dramatic solutions to baseball’s problems. • Still, while numerous remedies could be tried to make the game more accessible to young people, the lower classes, and wider geographic areas, congress has little incentive to act to lift baseball’s antitrust exemption or otherwise act in the best interests of the game.

17. Bibliography • Chass, Murray. 1994. “Baseball; New Baseball League Offers Profit Sharing for Cities and Players.” New York Times, November 2. • Diamos, Jason. 1995. “Baseball; New League Gets TV Deal and Schedule.” New York Times, August 18, 1995. • Zimbalist, Andrew. 2003. May the Best Team Win: Baseball Economics and Public Policy. Washington, DC: Brookings Institution Press.