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

1
The Future of BaseballWhat Needs to be Done and
Why

• Artemus Ward
• Department of Political Science
• Northern Illinois University
• aeward_at_niu.edu

New Yankee Stadium Construction as seen from the
top of Yankee Stadium, 4/2/08
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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.

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Talent Compression I

• What accounts for record-breaking performances
  over time? Why, until 1998, were almost all of
  baseballs 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.
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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.

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• The dramatic rise in foreign-born players in
  recent yearsas well as the turn of American
  youth away from baseball toward basketball and
  footballfurther 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.

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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 todays game.

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The Compression Conundrum

• So in todays 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 Sosas 66 and McGwires 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.

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Economic Discrimination Hulberts Law

• When William Hulbert founded the National League
  in 1876 the owners were able to collude to set
  ticket prices at a half-days wage for a
  workingmanmuch more than even todays 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 highpricing 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 satellitemaking it
  increasingly costly for would-be fans to even see
  a game on TV.

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Breaking the Amateur Draft and Minor League
Monopoly

• Baseballs 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 years
  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 years draft.
• Chosen players who sign with a major league team
  then spend up to four years in that clubs 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 teams
  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.

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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.

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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 MLBs
  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
  members district or to provide a member with box
  seats for a high-profile game.

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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.

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A New Players League?

• Though Monte Wards Players League (1890) failed,
  could their modelor a form of itbe 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 themselvesand most
  importantly the biggest starsto 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?

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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, Were not here to
  prod the old establishment and its not our
  intention to replace it. Were 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 owners box, said
  Eric Vinson, vice president of the United States
  Trust Company and one of several black members of
  the leagues management company. Flood said, I
  need an alternative league. Baseballs owners
  have shut me out for 25 years.
• Yet a few weeks after the ULs 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.

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Antitrust, Regulation, and Divestiture

• Lifting MLBs presumed antitrust exemption would
  permit judicial review of baseballs 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 MLBs 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 divestiturebreaking MLB up into two
  competing business entitiesis 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.

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Conclusion

• MLBs 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 leaguesuch 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 baseballs 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
  baseballs antitrust exemption or otherwise act
  in the best interests of the game.

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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.