Operation: Iraqi Freedom
Clown's War Council

If I were King
Clown
Paulie

Then the Yankees signed Jason Giambi. And now the smart money is betting on the Bombers – again. And the media and fans are screaming that THAT is what is wrong with baseball. Small market teams invest their sweat and blood scouting and developing young players; and as soon as these players turn into stars, they are summarily kidnapped by the high-paying large market teams. Left without any superstars for fans to watch, small market teams are subject to long periods of depressed revenue, until the next round of home-grown future stars are ready for the big show. And the vicious circle continues.

There is probably some truth to the vicious circle diagnosis. The Montreal Expos are the classic case. Through the years, the Expos have fielded some good teams and great players. Every time they appear ready to compete for the World Series, however, other major league teams raid their starting lineup. Today’s active ex-Expos include Randy Johnson, Larry Walker, Pedro Martinez, Moises Alou, Andres Galarhaga, and Rondell White – all first string players, three of them sure-fire hall-of-famers. Only a non-negotiable, but soon to expire, non-free-agent contract stands between the Expo’s latest superstar, Vladimir Guerrero, and the salivating big market teams. After averaging fewer than 8,000 fans per game in 2001, Montreal’s baseball consuming public appears ready to give up.

According to Commissioner Bud Selig, the Expos are just one of 25 teams, which lost money in 2001.

Commissioner Selig’s solution to this problem? Force the Expos (or some other low performing team) into non-existence. Mandate that the team just give up and go away.

How about a blue ribbon panel? The commissioner’s panel of baseball experts have suggested increased revenue sharing among teams, a luxury “tax” on payrolls which exceed $84 million, a salary cap, and – of all things – a salary floor. Very technocratic. Al Gore for Commissioner! If we take a look at what is really causing baseball’s problems, the absolute folly of the current situation is revealed.

Baseball is a business – one that is rich in tradition and romance, but a business nonetheless. One aspect that makes the baseball business unique, is that moving from city to city is very difficult for the companies (teams) in this industry. For the company owners, this is good sometimes and bad sometimes. In the case of companies like the Yankees, Braves, and Cubs, this is very good. Those are large market, high revenue companies, which not need worry about losing customer dollars to new competitors invading their local markets. For the smaller market teams, however, the inability to move can be like being chained down to a chair at an all you can eat buffet. Lust over the possibilities of big market revenues as they might, The Expos, Marlins, and Devil Rays cannot escape their small market hell.

Somehow we are supposed to believe that the restriction on moving, which is related to baseball’s exemption to the anti-trust laws, ensures baseball’s continued existence in such traditional small markets as Cincinnatti, St. Louis, and Cleveland. With three of the more successful small market teams, that baseball would have left any of these cities is very doubtful. Meanwhile, in cities where baseball would have run away without looking back, the anti-moving restrictions have brought baseball to the current impasse.

Bud Selig has practically guaranteed that the baseball owners will eventually agree on increased revenue sharing. Selig can make such a guarantee because, as distasteful as it may be to the Yankees, George Steinbrenner would much prefer revenue sharing over the prospect of another company competing for customers in his market. Imagine what a company like the Expos could do in New York. Though the Expos do not have a winning tradition, they are a recognizable brand. And thanks, largely to the lack of winning tradition, there is nothing very offensive about the Expos to New Yorkers. The same could not be said of the Red Sox or Braves. Operating in New York, the Expos’ core competency of recognizing and developing young talent, would suddenly be combined with a market that could generate the financial capacity for retaining their own superstars and acquiring others. But the Expos cannot set up shop in New York; so instead the Yankees and Mets enjoy a league-protected duopoly.

In this respect, Major League Baseball is no better than utility companies and local telephone monopolies. Don’t like your phone bill? Fine – we’ll disconnect you. Tired of waiting for a World Series in Chicago? Too bad – you’re stuck with the Sox and Cubs. Meanwhile no other owner could move his team into Chicago if he wanted to. Chicago fans are very loyal to the Cubs and Sox, but – like everybody – Chicago fans actually do love a winner. If a serious baseball man declared that he was moving his team to Chicago, where he intended to win, people would pay attention. That new team would see fans and force the Cubs and Sox to either win, or leave town.

Does three teams in New York sound crazy? Absolutely. There could be five teams in New York. The New York Metro area is home to 17 million people; Chicago’s metro population is 9 million. Both cities have two baseball teams. If we assume the teams in these cities evenly split their home markets, simple mathematics reveals that Cubs and Sox owners each operate in markets with 4.5 million potential customers. Meanwhile, the Yankees and Mets each serve 8.5 million potential customers. Market size parity between New York and Chicago would dictate two more teams in New York. To achieve market size parity with a city like Milwaukee, which has a metro population of 2.5 million, five more teams in New York, and two more teams in Chicago, would be necessary.

Moving a team to New York to compete for customers against today’s Yankees and Mets may sound absurd. But there are reasons to try it. Eventually, the Yankees or Mets will have some bad seasons. Losing-intolerant New Yorkers might then find another baseball alternative very appealing. Also, in reality, the 17 million people in New York are probably not all baseball fans. True business people know that, contrary to popular sentiment, the customer is not always right. In fact, the customer has no idea what he even wants. Nobody told Chrysler that they wanted mini-vans. Nobody asked Apple or IBM for PCs. Nobody asked Sony for Walkmans. In New York, there are probably thousands of people who don’t know that they would love to watch baseball. Good business people make their own markets. This rule applies to baseball just as easily as any other business.

But baseball isn’t just any other business. But it is. Too many baseball fans and media types sit around, sappy-eyed, sniveling about how money has contaminated their pure sport. The only thing contaminating baseball are a bunch of rules that artificially control the flow of money. More controls (salary caps, luxury taxes, revenue sharing, salary floors – for crying out loud!) are not the answer. Baseball needs none of this, and would, in fact, benefit from a dose of market freedom.

Ironically, over the years, as baseball’s labor market has become more liberated – reflected by free agency, arbitration, no-trade clauses – the rest of the business has not kept pace. In the old days, owners essentially owned their players. Free agency did not exist, meaning that outside teams could not bid for players unless the player’s current team denounced their exclusive rights to the player. Consequently, small market teams could re-sign their superstars without going broke – and superstars, stuck in small markets, could never earn their true worth. Today, of course, free agency has opened opportunities for the players, who now migrate to big cities for big money. The owners, meanwhile, are not afforded the same market freedom.

Allowing team owners the same market freedom as players will not fix baseball’s problems overnight. Nothing will; and baseball fans must avoid the trap of believing that something can. Again, this is business – businesses take a long time to mature and become fully competitive. A businessman who moves a baseball team to New York today would likely struggle for a year or two or three. A good businessman, however, would never take a team to New York, with the expectation of immediate high profits. He would likely draft a plan that expects profits in 5 years or ten years, which is typical of traditional (realistic) business plans. Good business people understand the risks of business, and know how to succeed in spite of them.

Speaking of good business people, very few are probably attracted to baseball right now. The best business people will be attracted to businesses where the markets are the freest and therefore the opportunities the greatest. Yes, any business, which commands the type of revenues that baseball does, will always attract investors. But are these investors the best, most aggressive business people, or even business people at all? Consider the Chicago Cubs – the so-called lovable losers. This team makes good money despite their inability to win a post-season series since 1908. Their conservative ownership depends on the charm of Wrigley field, and one or two superstars to attract business (Sammy Sosa today). In today’s controlled baseball market, the Cubs formula is great for making money. But this formula does not truly maximize profits. People pay to see the Cubs as losers. If ownership turned the team into winners, the Cubs revenue would likely increase dramatically. So why don’t the Cubs try to win? Because business is just fine without taking the risks necessary to win. Managing and choosing the right risks is the essence of good strategic business management. But, in a protected monopoly, the Cubs have little need to take risks. Consequently, Cubs ownership need not hire great business minds to manage Cubs business operations.

On the other end of the spectrum, consider a team that depends on winning for making money: the New York Yankees. In a protected monopoly market of New York’s size, however, George Steinbrenner can hire the best available talent – regardless of cost – year after year, then sit back while the Yankees win and the cash roles in. This is not risk-taking. Anybody can be successful with an unlimited supply of resources – and in a protected New York monopoly, this is essentially what Steinbrenner has. If the Yankees and Mets actually had to compete against 3 or 4 other teams for New York’s baseball dollars, fans would have more choices, resources would effectively be more scarce, and hiring an all-star pitching staff every year would actually put profits at risk.

So called “purists” – including the commissioner’s Blue Ribbon Panel – fear a baseball league concentrated in only a few large markets. Constrained by the dogma of regulation-think, this fear would seem sensible. As Cleveland sportswriter, Dan Lewis, persuasively argues in the May, 2001 issue of Reason Magazine (www.reason.com “It Happens Every Spring”) however, when regulations are blasted away, baseball retreating to just a few large markets is no foregone conclusion. Mr. Lewis’s main thesis is that in a truly free market, teams could individually negotiate the financial terms of each sports contest. The small market KC Royals, by threat of forfeit, could demand half of all gate receipts to play the Yankees in New York. Thus the Royals can stay in Kansas City, yet have a shot at a New York pay day. Meanwhile, the Yanks are giving up revenue; which means that de facto revenue sharing is occurring. The tendency toward a few baseball metropolises could further be frustrated if teams were free to pay one another for the exclusive rights to a certain market. Consequently, if those same Royals decide they want to move to New York, the Yanks and Mets, wishing not to share their market, could pull out their checkbooks and ask, “How much you want for staying in Kansas City?” Again, de facto revenue sharing would be achieved.

Could clever people, like George Will, poke holes in these arguments? Sure. But these arguments derive from just two ideas – ideas conceived by a Cleveland sportswriter who presumably has no personal interest at stake (other than as a fan) in baseball. How many more ideas for “saving baseball” might suddenly awaken in an unrestrained free baseball market, attracting the most creative business talent in the world?

Not even George Will could answer that.