Contraction

Cities have not always been willing to concede hundreds of millions of dollars for a new publicly funded stadium. Miami residents refused after Marlins’ owner Wayne Huizenga’s “fire sale” of the team after winning the World Series in 1997. As a result, MLB came up with a new strategy. Commissioner Bud Selig sent an ominous letter to Miami politician J. Alex Villalobos stating, “Unless public stadium funding was secured, the Marlins would be a prime candidate for contraction or relocation. Bluntly, the Marlins cannot and will not survive in South Florida without a new stadium.” The advantage in this situation for MLB is that it could quite possibly put the burden for change on the citizens of the Miami area instead of the team owner (May the Best Team Win, Zimbalist).

A similar situation occurred during the 2001 – 2002 off-season in Minneapolis – St. Paul with the Minnesota Twins. Major League Baseball and Twins’ owner Carl Pohlad wanted to contract the team prior to the 2002 season. The Metropolitan Sports Facility Commission (MSFC), which owns the Metrodome where the Twins play their home games, sued MLB and the Twins to force the franchise to honor its lease contract which the club had signed earlier in 2001 to play the 2002 season in the Metrodome. The MSFC won various decisions in local and state courts that subjected the Twins franchise to play the season at home in downtown Minneapolis instead of being relocated or contracted, for the time being.

The MSFC’s case against MLB and the Twins did not rely on the game’s antitrust status. However, in future cases other entities from other cities could come up with antitrust cases against Major League Baseball in order to prevent the elimination of a franchise. With Major League Baseball currently acting primarily as a monopoly, the sport should not be allowed to restrict production in the event of increasing the profits for the franchise owners, which are increasing at 17 percent per year. For instance, if the antitrust exemption was determined in some form to apply to all areas of its industry, then MLB would be shielded from such antitrust confrontations from a proposed contraction.

Municipal Ownership Restrictions

A logical explanation to fix the rift that seems to be widening between cities and franchise owners would be to allow public ownership. It makes sense for a city to hold an asset stake because of how much funding a city invests for a team to succeed. For example, if a city recently invested $300 million in the local franchise for a new stadium and the value of the team increased by $200 million, then the city would realize a portion of the increased value depending on how big a stake the city had in ownership with the team. By allowing public ownership, the key is the city itself would now decide legally on its own if it wanted to keep the baseball team or not.

Unfortunately, Major League Baseball does not allow this sort of ownership in the Major Leagues. MLB teams must be privately owned. During the 1980’s, then-owner Joan Kroc of the San Diego Padres attempt to give her stake in the team over to the city of San Diego, but it wasn’t allowed by the league. This was a prime example of a restriction in trade in the market for buying and selling franchises (May the Best Team Win, Zimbalist).

As mentioned, the antitrust exemption that Major League Baseball currently operates under is a topic that is extremely important to the overall good of the game. It has the power to affect the baseball industry’s function in a wide variety of areas.

Competitive Balance Issues in Major League Baseball

By measuring the competitive balance in Major League Baseball, it showed there was a gradual long term trend toward balance in baseball up until the mid-1990’s. Some factors that can be attributed to this balance include the introduction of the reverse order draft in 1965, free agency in 1977, and the overall compression of talent in MLB.

Since 1995, the commissioner of MLB has produced two reports that appear to be very clear about the sound relationship between team payroll and team winning percentage. During the years of 1995 through 2001, there have been a mere four teams that have made it out of the bottom half of team payrolls to make a playoff appearance. Of those four teams, they collectively won a total of 5 out of 224 playoff games. This meant that the top payroll teams had a combined winning percentage of 0.978.

Twenty of MLB’s twenty-six baseball teams made it to the first round of the playoffs known as the League Championship Series from the years 1980 through 1986. However, from 1995 through 2001, only eleven of the league’s thirty teams made it to the League Championship Series. Through the first seven year stint, 77% of the teams made at least one playoff appearance compared to the second seven year stint when the league had more teams but less playoff participants. Only 37% of the teams made an appearance from1995 through 2001. Not one team outside of the top quartile of payroll percentage won a single World Series game. Only the San Diego Padres reached the World Series and failed to win a game in 1998.

The relationship between escalating payroll and team winning percentage can be examined by conducting a simple regression analysis. The table below illustrates the results from the following equation: Win % = α + β Payroll + e. Using the data from the table, it illustrates there was a significant relationship between payroll and performance only three times from 1985 – 1992 at a 5% significance level. On the other hand, from 1993 – 2001, payroll and performance were directly related every year during the time span.

- posted by Hot Rod @ 8:49 PM