Now that the season has been canceled and the 1994 World Series callously stolen from us, the pundits have stepped up to relieve the real athletes with plays of their own in the battle between labor and management. In the discussion thus far, it appears that economic logic has also gone on strike.
Take, for instance, the near-universal assertion that high player salaries push up ticket prices, and that a cave-in by the owners would drive up player’s salaries. That is, the willingness of fans to shell out so generously for baseball, not just with dollars at the gate but with their time as viewers of broadcast and cable television, is what drives salaries to the skydome.
The popularity of the sport, boosted by developing new TV markets, makes baseball more lucrative. And owners price for what that market will bear; they wouldn’t lower prices by one red cent if players played for the fun of it.
Baseball salaries are generous because fans and advertisers are generous-at an average of $1.2 million annually, very generous. The widespread sentiment is that, if management desires not to pay so much, it must learn to “just say no.” The salary cap-or its “luxury tax” substitute-is compared to the schizophrenic plea, “Help me before I sign a multiyear deal in eight figures again!” Do the team owners need a new collective bargaining agreement, or a little electroshock?
Therapy is not the answer for this malady (although George Steinbrenner may elect to explore other possibilities).
The simple economics are that baseball clubs are in competitive bidding wars for talented players, and it is competition, not any delusional or psychotic behavior, that accounts for the huge tabs. But the price tags are padded on the extravagant side by the fact that what may be a reasonable purchase for any one club (a high salary that is worth it, in terms of increased ticket sales or ad revenues) may be wasteful from the standpoint of the league. This is particularly true where a big-city franchise, finding it more financially rewarding to win a pennant than a team in a smaller market, bids away star talent. If the team then runs away with a championship, it may be compensated by its ecstatic and abundant fans, even as several other franchises suffer losses from being knocked out of the race early.
This fact-that the performance of any one team affects the overall success of the league-makes baseball, and sports leagues generally, different sorts of businesses than typical marketplace competitors.
This fact embarrasses the emphatic call of virtually every political commentator harboring populist sentiments: Revoke baseball’s coveted antitrust exemption! (That’ll fix the owners and bring them to the table, if not their knees, in a hurry.) That baseball teams by their natures collude is a truism; indeed, they form a league-what used to be (along with “pool” or “cartel”) a dictionary term for an organized effort to limit competition.
Before the players chuckle over this discovery, they should first be apprised that they themselves enjoy an antitrust exemption as an employees’ union. That such efforts are conspiracies in restraint of trade was recognized by legislators even prior to the enactment of the Sherman Antitrust Act in 1890. Members of unions, let’s not forget, agree not to compete against one another in the job market; today, the Major League Players Association is engaged in a collusive action to bring the owners to the bargaining table-on their collective terms.
Baseball without collusion is an illusion. What sense does it make for the Boston Red Sox to take the field at Fenway Park if the Seattle Mariners fail to “collude” by showing up as well? Teams must actively conspire on scheduling, on rules of the games, on umpiring, on splitting ticket fees, television rights and marketing revenues.
Indeed, they openly collaborate to achieve “parity”; like each major league sport, baseball conducts a draft of new players, with the best teams selecting last. This conspiratorial exercise is clearly an effort to create greater league competitiveness. Yet, it clearly restricts inter-team competition-indeed, its whole purpose is to short-circuit a bidding war for new talent.
Teams even go so far as to collude in fixing the sport. The famed home-field advantage, supported in baseball by the rule to let the home team hit last, is nothing more than payoff to fan loyalty. That’s the sort of nefarious subterfuge that inter-team collusion fosters.
It has almost become a commonplace that the owners’ call for a salary cap is a diversion from “free market capitalism.” The analysis reveals a naivete regarding market structures in a competitive economy. The teams in a baseball league are best thought of as independently owned franchises (indeed, we often refer to them this way). With franchised operations, a central authority (usually a brand name product or service) protects the integrity of the core product, while individual businesses invest their time and resources to produce and/or market the product locally. Franchises often have profit-sharing arrangements, implicit or explicit, and rules governing the competition between franchisees. For instance, exclusive territories are quite common. (Interestingly, the Supreme Court once viewed these agreements as inherently anticompetitive, but reversed this analysis in a 1977 ruling.)
So it is in baseball. Teams are independently operated, and each franchise has a healthy economic incentive (higher profits) to hustle for a championship.
But the league has a slightly different interest: to ensure that the game itself is attractive (read: highly competitive) to fans. This requires some coordination between teams. If salaries are paid as a percentage of the gate rather than as a fixed amount negotiated on a case-by-case basis, it is not more “socialist” than a profit-sharing scheme. If salary rolls are capped at a given percentage as determined by a league-wide agreement, that is no more “socialist” than when franchisees share a given product’s brand name.
Baseball is not organized as the auto industry. If Charley Finley of the Oakland A’s attempts to sell his talent and field a crummy team, as he did in the 1970s, it hurts revenues at other clubs-which are now in a less exciting division-besides the Oakland A’s. Whereas Ford profits if Chevys are disastrously bad, the Chicago White Sox lose fan interest as the A’s become a bore. That’s why the commissioner of baseball stepped in to stop Finley, and why even profitable league owners are now concerned about the health of marginal franchises. By the reverse logic, if some teams buy up all top talent, they may hurt other teams which, serving less populous areas, are powerless to match such bidding.
Whatever settlement obtains next year, fans may relax about the consequences. Ticket prices will not be affected: They’re likely to go up no matter how the strike turns out. If a villain is needed, blame the corporate bigshots who are increasingly likely to pop megabucks for season tickets.
Ultimately, sports consumers are their own worst enemies. Bobby Bonilla’s $7 million came from what the New York Mets’ brass thought fans were likely to pay to watch him swing for the fences, not from prices raised when the Mets’ accountants set out to make payroll. It is the loyal fanatic who makes ticket prices fantastic.
This knowledge may not take the sting out of a costly trip to the ballpark, as fan anger is tinged with envy. “There but for the grace of God go I, at $3.6 million per,” thinks the frustrated softballer in the bleachers when booing the .228-hitting shortstop who has just booted a routine grounder. It is asserted that such bountiful rewards are undeserved-after all, it’s only a game. But wages in a capitalist world are determined not by the intrinsic merit of an individual, but by how much consumers are willing to pay (often through intermediaries called businesses or team owners) for their services. A damn good thing, too. Would you enjoy living in a world in which some autocratic Moral Authority- and not consumers in the competitive market-set values? Probably not unless you fashion yourself as among the empowered elite, you budding fascist, you.
The baseball work stoppage does not suggest that the antitrust laws be brought in from the bullpen. Both sides are engaged in collusive behavior-neither to the detriment of the American consumer. The one glaring aspect of professional sports that could actually use some successful collusion, however, is the bargaining position taken by municipalities vis-a-vis new stadia.
Baseball teams, along with other sports entrepreneurs, have repeatedly rolled city councils into forking over hundred of millions of tax dollars to subsidize shiny new ballparks. The clubs use their bargaining position-there are lots of eager towns and only so many big league franchises-to squeeze blood from overburdened city treasuries.
Here is an instance where there is far too little collusion; a federal law barring municipalities from spending a penny of the tax base (including rebates, givebacks, subsidies, in-kind contributions, real estate, etc.) to bribe team owners would enforce a collective agreement by cities to cut out this zero-sum jockeying. This preventive medicine would respond to the plea, “Help me before I spend someone else’s money again!” And fans would finally have something to cheer about in the strangely silent pennant race of 1994.
