Regulation and Antitrust Solutions
The major, driving force of capitalism is competition. Without competition, eventually capitalism will falter. Therefore in baseball as well as in the government, public policy should be promoting competition instead of restricting it. Over the past decades, Major League Baseball has provided several ‘lackluster’ arguments in its defense of the league’s assumed antitrust exemption that it enjoys.
The first example came in 1977 when Major League Baseball claimed that the player reserve system was crucial in order to maintain competitive balance in the league. MLB also claimed that the antitrust exemption allowed the league to keep this labor market restriction. In reality, the restriction decided where the monopoly rent went. It was directed either to the owners’ or the players’ pockets. It did nothing of the sort in terms of equaling the competitive balance issue as the league had claimed. Once free agency was allowed, it made it tougher for teams to afford to keep its high-priced talent and allowed for the weaker teams to pay top dollar to those players and become a better team. So, once the player reserve system was abolished, the competitive balance throughout the league actually improved instead of deteriorated.
Second, the league claimed there was no reason to be administratively regulated or vulnerable from competitive pressure because the league effectively had been self-regulated through its own ‘independent’ commissioner. The claim was that the commissioner had the powers to do what was necessary to act in the game’s best interest and that was all that was needed for regulation purposes. However, there have been only a few commissioners who have attempted to truly act independently. Those that did were usually terminated shortly after his plans were revealed by the unappreciative owners. Since 1992, ironically, the current commissioner Bud Selig has been an owner. If Selig claims to act “independently” between the players and the owners, he is lying through his teeth.
Third, the owners claimed that MLB is not operating as a monopoly and the fact that the owners claim to be losing money year after year substantiates this reasoning. The ongoing rise in franchise values, a thorough understanding of the league’s skeptical accounting practices, as well as related third-party transactions dispute the owners’ claim of not being a monopoly. If the franchises as a whole are unable to earn rent above market rates of return, also known as monopoly rent, it is because of three possible reasons: the indirect or non-financial returns are not being measured, the monopoly rent has already been capitalized in a higher franchise value, or the industry is simply being mismanaged (May the Best Team Win, Zimbalist).
One solution would be to have the national government create a national sports council. This is highly unlikely in today’s political environment though, because not only does this sort of regulation run counter to today’s intellectual thinking, but the reality of supporters in politics would raise many concerns about how the regulation would operate. The majority of regulating organizations in the U.S. have been influenced in some way by organized lobbying groups within a certain industry. When considering baseball, it is probable that the franchise owners and the player’s union would have a much larger influence on a council than would the fans or cities themselves. This would limit the effect that any sports council would have on the issues concerning Major League Baseball.
The more feasible solution would be for Congress to revoke baseball’s presumed antitrust exemption and resolve it in favor of judicial review and increased competition. By lifting the exemption, the least that would happen would be to provide a check on Major League Baseball’s continued arrogance and management failings. It would not guarantee increased competition within the industry. Competition alone would be a major force in getting to the bottom of many of the problems presented in this paper. It would also seem to be appropriate if Congress were to force Major League Baseball into two competing leagues.
The two leagues would not have to operate in complete discretion from one another. They could be permitted to work together on playing rules as well as uphold interleague and postseason play. The two leagues would not, however, be given permission to artificially divide up metropolitan areas, set up common drafts or player markets, or conspire when determining broadcasting contracts. If these circumstances were to exist, teams from either league would not risk financially leaving an accommodating city. If a team were to leave, it would be likely that a team from the competing league would jump at the chance to add another market to its league. Other fan friendly results would include lower local, state, and federal subsidies that would curb franchise revenues, owner profits, and player salaries. Increases in competition would bring about competent executive strategies with reduced cost structures.
The most important result would be that Major League Baseball’s competitive balance issues among teams would then be solved. With two leagues competing against each other, not only would cities currently without a team find themselves with one, but some of the larger cities could find another team or even two in their markets. Take this example for instance. If sharing the New York City market with the Mets and Yankees offered a more lucrative scenario for a team than having New Orleans all to itself, the Big Apple may have three or more teams calling it home. If this were the case, the Mets and Yankees would not have as large of a competitive advantage over smaller markets because their own markets would be shrinking thanks to new teams in their city. Having a competitive league where teams can move to more lucrative cities would solve many of the artificially created boundaries that are present in today’s game.
The aforementioned blue ribbon panel that Commissioner Selig appointed actually recommended placing a third team in the New York City market. It felt that the expansion or relocation of a team would serve as a more desirable strategy in dealing with competitive balance issues instead of using a system that uses progressive taxes on revenue. Unfortunately, Bud Selig did not heed the advice of his own panel that he appointed.
By having competition between two leagues, baseball would authentically accomplish the expansion and/or relocation automatically. Take the fast-food industry for example. McDonald’s and Burger King restaurants are constantly trying to beat each other to any economically sound location. If McDonald’s builds a new restaurant in a new location, Burger King will more than likely have one of their own within reasonable viewing distances. In baseball, each league would compete against one another to fill a prospective baseball market before the other league does. By having leagues competing against each other, there is no possible reason why there would not be a franchise located in our nation’s capital and eighth largest market in the United States.
Solutions from a Marketing Standpoint
Baseball is obviously operated more like a business than as a fantasy dream by franchise owners. According to the 2001 financial data, total operating revenue for all 30 franchises equaled $3.547 billion, which would place Major League Baseball as the 441st company on the Fortune 500 list. That is quite a large business.
The league has a thing about misery. The casual fan doesn’t even have to ask about certain controversial topics. The league will go out of its way to say that players are grossly overpaid, that too many teams are unable to compete, or that the average length of a game is too long. The list can go on and on. But, baseball is also a game, which means it has entertainment value to the fans. In entertainment, image plays a major role in the success or lack there of for a certain industry. Discussed below are some of the more consumer-friendly changes that should take place to increase the marketability of Major League Baseball.
Promote the Players
Only in baseball do the owners complain about the players – their talents, personalities, and salaries. No other professional sports league has their owners openly criticizing their own players. In the real world, businesses don’t bad mouth their own products but instead try to make them more appealing to the general public.
Most people feel that the average baseball player doesn’t take the game itself seriously enough, while thinking way too much of themselves in the process. A place to begin changing this attitude would be to emphasize two aspects: there are as many great players in the game now as there ever has been, and the players themselves are actually good, respectful people in their own right.
By looking at statistics, there is no question that the likes of Barry Bonds, Rickey Henderson, Roger Clemens, and Greg Maddux are some of the best players ever to play the game. There are also some younger stars that have the potential to become legends in their own right, like Eric Gagne, Albert Pujols, Vladimir Guerrero, and Mark Prior.
Baseball players are more than just statistics and skill. The personalities of some of the major leaguers are very commendable as well. John Smoltz has repeatedly mentioned that he would like to try his hand in politics after his playing career is over. Several players, such as Doug Glanville, have distinguished degrees from the likes of Ivy League universities. Numerous players who earn millions of dollars a year donate a large portion of their salaries to charities, whether it is to AIDS research or homeless shelters or community development programs. Sammy Sosa always gives back resources to his homeland of the Dominican Republic every year. In fact, many of the Latin American players give back to their homelands.
There are enough baseball players that are good people and help spread good will throughout the world. The problem is that they do not all get recognized for their generosity by Major League Baseball. This is due to the league’s hesitation to promote them. Obviously not every player elects to participate in numerous promotions, but there certainly are enough players that do seize the opportunity. Major League Baseball could improve its own image if it were just to increase the image of its own ballplayers.
Sell the Montreal Expos
Major League Baseball’s strategy for handling the final destination for the Montreal Expos has been long considered a failure. The league has continued to trip over its feet attempting to free themselves from the situation for almost three years in trying to decide where to permanently move the franchise. Bud Selig claims that the league is just trying to find the right place to put the Expos.
Not one person doubts that the league has long since decided that our nation’s capitol is the perfect market to host the Montreal Expos. The league has been holding out for Washington, D.C. to give the franchise a stadium package that is to the league’s approval. Until this occurs, other markets like Portland, Las Vegas, Virginia, and North Carolina will be pitted against each other to artificially drive up the price for a major league franchise.
Major League Baseball claims the Expos have been losing serious amounts of money for over the past decade. Nobody really knows if moving the team to the Washington, D.C. area will eventually turn all the negative numbers into positive numbers. But it is certain that the longer the team remains in Canada, the worse off it will be. By dragging out the process of relocating, there is no gain long-term and a huge loss for the short-term of the league.
The focal point needs to be on developing value and a fan base for the Expos. But during this off-season, the league threatened to cut player payroll to less than $30 million by gutting the roster. Who would want to purchase a team that has no future in terms of on-field talent? Even the lowly Detroit Tigers could have a chance at beating the Expos at this rate. The players are the biggest asset right now to the Expos. But they have continually gotten rid of their best talent. This off-season saw the departure of a dominant pitcher, Javier Vazquez, and perhaps the best all around outfielder in the game, Vladimir Guerrero, because of financial limitations.
Over the past decade, these were some of the players who at one time played for the Montreal organization: Larry Walker, Marquis Grissom, Pedro Martinez, Andre Dawson, Tim Raines, Randy Johnson, Andres Gallaraga, Bartolo Colon, Moises Alou, Gary Carter, John Wetteland, Jeff Shaw, and Cliff Floyd. A group that at one time consisted of one current Hall of Famer, two certain first ballot entries, and the rest of which have been All Stars, is not too bad of a team. At this rate, it is only a matter of time before their next two best players, Jose Vidro and Orlando Cabrera, become too expensive and are jettisoned off due to financial limitations. This just is not good for the Expos or Major League Baseball.
Support Community Involvement
The National Football League does an outstanding job of promoting its players through community development. Throughout the year, the NFL runs commercials featuring one player from each team highlighting his contributions to the United Way Foundation. Major League Baseball does not do anything compared to its football counterparts. During the past 2003 season, the only commercials seen on television were for two separate players promoting the Boys and Girls Clubs. It did nothing else for the other 28 teams, let alone all the other players in the league.
The problem here is not what baseball players do for their communities, they do plenty, but how Major League Baseball handles their efforts. MLB does not show the rest of the nation just how hard its players work with their communities. Take Rafael Palmeiro for example. He was a member of the Boys and Girls Club as a kid. But the first thing the public likely thinks of when they hear his name is Viagra. Now, there is nothing wrong with being a spokesperson for the company. But why couldn’t he promote something more meaningful such as his experience within the Boys and Girls Club?
How to Beat the System
Now with a thorough understanding about the actual business of Major League Baseball, the next step can be taken in figuring out methods to gain an advantage and beat opponents on and off the field. It is apparent that changes in the structure of the league’s operations will take some time before they are fully implemented and achieving their desired effect. In the meantime, franchises have become very dependent upon the product they place between the foul lines.
Those who have been heading Major League Baseball have complained for over the past decade that the game itself was going away from being an athletic competition to being a financial competition. As stated earlier, the gap continues to rapidly widen between the haves and have-nots far more in baseball than any other professional sports league. With the rich teams able to afford the most talented players and the cash-strapped teams only able to afford the disfigured and incompetent players, the poor were certainly doomed to fail. It is this argument that top baseball officials wanted the public to believe, and for the most part is true. However, one franchise in particular has managed to resist the trend.
Oakland’s Recent Success
For the past five seasons dating back to 1999, the Oakland Athletics have won more games than any other team except Atlanta, while operating with one of the lowest player payrolls each year. They reached the playoffs each of the past four years. Nobody could seem to figure out how they managed such an incomprehensible feat. Bud Selig called their success an aberration, but was more of an attempt to put off acknowledging how they did it.
To begin the search for Oakland’s success, one must understand that while money plays a major role in professional baseball, it still matters less how much of it you have in comparison to how efficiently you spend it. A Manhattan lawyer named Doug Pappas, who is a primary independent authority regarding baseball finance, pointed out a distinction between Oakland and the rest of the teams in baseball. Based upon the formula discussed earlier that provided the “marginal cost per marginal win,” the minimum cost for a franchise is $13 million. The enormous roll of luck in any baseball game and the relatively small difference in ability among veterans and rookies who played for minimum-type salaries, meant that the fewest amount of games a team sporting a $13 million payroll could win during a season would be 49 games.
From 2000 to 2002, the Athletics have paid roughly $500,000 per win. The only other team during that time span to pay less than a million dollars was the Minnesota Twins, at roughly $675,000 per win. The most reckless spending teams like Baltimore and Texas paid about $3 million per win which is six times what Oakland had paid. It seemed as if Oakland was playing a different game than every other franchise in the league.
The underlying concept to the experiment the Oakland A’s were performing was the willingness to think differently about baseball. The front office changed their views on how the game was managed, how it was played, who was best suited to play it, and why. General Manager Billy Beane went searching for inefficiencies within the game. His search basically turned out to be a systematic, scientific investigation of the game. Beane and his staff re-examined everything possible ranging from the going market rate for foot speed to the natural difference between the average major league player and the outstanding Triple-A player. It was by re-evaluating players that the A’s were able to acquire their bargains. Most of the players they drafted or traded for had been the victims of an unimaginable prejudice deeply ingrained in baseball tradition. The Oakland research and development department freed them from this unjust prejudice and allowed these “castoffs” a chance to showcase their true worth.
The Art of Discovering a Ballplayer
The first thing pro scouts would do when evaluating a player was to have the prospect run sprints in order to see his speed. When scouts would evaluate a group of prospects, foot speed was always the first point they checked off from their lists. These checklists that scouts used were to determine prospects’ “tools.” There were five main tools that scouts would look for: the ability to run, throw, field, hit, and hit for power. One by one they would put the prospects through various drills to test each of the five major “tools.” The emphasis was more on overall talent and projected ability.
In most baseball organizations, the goal before the amateur draft is to come to a general understanding between the general manager and his scouting department regarding players. The GM usually takes a back seat in discussions about prospects and uses this information to influence his selections in the draft. Some general managers even let their scouts hand pick their own guys in the higher rounds. Oakland GM Billy Beane employed this strategy in the 2001 draft. It would turn out to be the last time he used this approach. In all of the confusion of drafting, the A’s selected a high school pitcher named Jeremy Bonderman who possessed a 94 mph fastball, a smooth delivery, and a firm body. It was precisely this sort of player that Beane had instructed his scouting staff to avoid.
The odds were stacked against Bonderman making it to the major leagues, just as it is for any high school player. Conventional scouts worship high school players, especially pitchers. These high school pitchers were light years away from being who they would be once they grew up. In essence, they could become just about anything. More importantly, they had brand new pitching arms that generate the one skill scouts were able to measure: velocity. The most important skill in a pitcher wasn’t necessarily his physical strength, but his knack for deception, which can take various forms.
To prove how risky it is drafting high school pitchers, look back at the history of the draft. H.S. pitchers are twice as less likely than collegiate pitchers and four times less likely than collegiate position players to make it to the major leagues. Selecting a high school pitcher in the first round and giving him a $1.4 million signing bonus was the sort of thing that happened when scouts got what they wanted. This process defied the odds as well as reason. It was the “reasoning” that Beane had intended on bringing into the art of managing talent for a baseball franchise.
Beane’s scouting department was very similar to that of every other club’s. It was tradition that gave scouting directors the right to go off and find the prospects on their own without worrying all that much about the GM hovering over their shoulders. Beane’s scouting department practiced this same way. The amateur draft has been nothing but a crapshoot. In essence, a team will take around 50 players and will rejoice if two of them make it to the big league club. There is no other business where this would be considered a success. If this took place in the stock market, you would be broke in no time. Beane disagreed with his scouts’ most deeply ingrained beliefs. Billy Beane felt baseball scouting was at roughly the same stage of development in the 21st century as professional medicine had been in the 18th century. Beane intended on taking away from the scouts the power to decide who would be a pro ballplayer and who would not.
The 2002 draft became a science experiment that Beane performed on the amateur players. More importantly, the future of the Athletics hinged on the results of the 2002 draft. Oakland survived by acquiring cheap labor. As mentioned earlier, the treatment of amateur players after being signed by a franchise is the largest violation of free market principles throughout Major League Baseball. Recall that when a franchise drafts a player, the team holds his rights to his first seven years in the minors and his first six years in the majors. Without getting into further detail, the team also has the luxury of being able to pay these players far less than what they are normally worth at the beginning of their careers.
Heading into the 2001 draft, the Athletics had seven first round selections due to other clubs signing top free agents away from the A’s, such as Jason Giambi, Johnny Damon, and Jason Isringhausen. Draft rules indicate that the A’s receive the first-round selections of the three teams that had signed away their top talent along with three additional compensation selections at the end of the first round. No franchise in the 30 year history of the amateur draft had ever had seven first round picks.
The days leading up to the draft were spent reviewing targeted prospects. Oakland did not have the luxury of being able to scout as in-depth as teams like the Yankees or Dodgers were able to, so they had to be more efficient in their own scouting process. As they narrowed down their list of prospects, two main criteria were mostly used. The first stipulation was that a player had to be in college. If the player was a high school prospect, the franchise set his name aside and forgot about him. Second, the franchise evaluated the player’s “expectations.” These “expectations” referred to what a prospect was demanding in terms of a signing bonus and salary. If the prospect’s asking price was too rich for the Athletics, they would remove him from their list as a possible draftee. After a final run through all of the prospects, they were organized into two categories: those not worthy of pursuing, and everyone else that had been scouted.
Beane and his scouting department then began to discuss possible selections more in depth. It is at this stage that Beane and his scouts began to differ in strategy and opinion. Beane began to rely heavily on his assistant general manager Paul DePodesta. DePodesta spent the majority of his time analyzing players’ statistics on his computer and giving Beane recommendations based upon what the stats showed. The old fashioned scouts didn’t care what a player’s stats looked like. The scouts felt as if they had to physically look at a prospect and imagine what he could turn into down the road. Beane and DePodesta each felt as if they could project a player from his collegiate stats. Their feeling was that you can’t change players; they are who they are.
No one in Major League Baseball cared how often a college player walked. DePodesta cared more about this one statistic than any other. He felt that foot speed, fielding ability, and overall strength were overvalued in turn causing players to be overpriced. The most important trait in a player was his ability to control the strike zone. The shear number of walks a hitter possessed was the strongest indicator of future success at higher levels. If a player has a good eye in college, he is more than likely going to keep that sharp eye in the pros. DePodesta felt as if plate discipline is an instinctive trait, not something that a free-swinger can simply be taught in the minor league system.
In the scout’s view of finding a ballplayer, one would drive tens of thousands of miles, stay in a hundred rundown motels, and eat every meal at a fast food joint, all in order to see 200 high school and college baseball games in four months. Of the 200 games, 199 would be rendered meaningless to the scout. The majority of a scout’s value to the organization came from his membership in the fraternity of older scouts who have been doing this for a living. The other tiny part of value came during that lone game when he would go to a game and see something that no other person had seen – at least nobody who knew the meaning of what the scout saw. The scout only had to see that particular player once. There has always been this belief in traditional scouts that if you saw a certain talent in a player once, that scout, and only that scout, would know the meaning of what he saw. The feeling was that the player who was discovered would make that certain scout famous as a result of it.
Billy Beane obviously had a very different approach on how to find future big league talent. He felt the more traditional scouts didn’t see the point of history. Beane sensed he could find all of his answers right in Paul DePodesta’s computer. In this current age, the Internet was able to provide almost any possible stat about every collegiate player throughout the country. DePodesta happened to know where to find all of this information as well. The good part about college players was that they possessed meaningful statistics. In comparison to high school players, they played more games against tougher competition. Their sample size was also much larger and was reflected more accurately. Collegiate players could be projected with a greater certainty than high school players thanks in large part to analyzing statistics. The statistics allowed an evaluator of talent to look past many of the sight-based prejudices. For Beane and DePodesta, a young ballplayer is not what he physically looks like or what he might project out to be, but what he has done in the past. The traditional scouts call this practice “performance scouting.” Scouts consider this practice an insult to their baseball knowledge intelligence.
Other Key Players Behind the Movement
Sandy Alderson
When Beane was hired in 1993 by Oakland, he learned this philosophy that he now stresses from his former boss, Oakland GM Sandy Alderson. When Alderson was hired as the GM, he had no prior experience in the baseball world, which was extremely rare. Almost all general managers start out as scouts and eventually rise up through the ranks. Alderson taught Beane that in-game strategies and scouting evaluations were better accomplished through scientific investigation than by trusting the consensus of old men with baseball knowledge.
Sandy Alderson ran the Oakland franchise based on his experience in the Marine Corps. He felt the star player was less important to the entire organization, and the whole organization would be successful if everyone complimented each other. His view on baseball centered on the art of hitting being the most important aspect while everything else was secondary. He initiated three basic concepts to support his beliefs:
1. Every batter needs to behave like a leadoff man, and adopt as his main goal getting on base.
2. Every batter should also possess the power to hit home runs, in part because home run power forced opposing pitchers to pitch more cautiously, and led to walks, and higher on-base percentages.
3. To anyone with the natural gifts to become a professional baseball player, hitting was less a physical than a mental skill. Or, at any rate, the aspects of hitting that could be taught were mental.
Source: Moneyball, Lewis, page 59.
Sandy Alderson eventually created a cult following around one baseball number: on-base percentage. He viewed run-scoring as a process, not as a talent. If this process was a routine by getting each player to do his fair share, you had the opportunity to pay much less for more runs than the going rate.
Bill James
When Sandy Alderson was hired in 1981 as General Counsel in Oakland, his view were formed from the writings and studies performed by a man named Bill James that would later ascend him up to General Manager. Bill James is not the typical baseball insider. James was a writer who had published numerous articles and books about baseball beginning in 1977. The underlying point in all of his work was that the naked eye served as an inadequate tool for learning what you needed to know to evaluate baseball players and games. In his book titled 1979 Baseball Abstract, Bill James provides a basis for his theory:
One absolutely cannot tell, by watching, the difference between a .300 hitter and a .275 hitter. The difference is one hit every two weeks. It might be that a reporter, seeing every game that the team plays, could sense that difference over the course of the year if no records were kept, but I doubt it. Certainly the average fan, seeing perhaps a tenth of the team’s games, could never gauge two performances that accurately – in fact if you see both 15 games a year, there is a 40% chance that the .275 hitter will have more hits than the .300 hitter in the games that you see. The difference between a good hitter and an average hitter is simply not visible – it is a matter of record.
When Bill James first began publishing his material in 1977, there were two changes that were about to take place that would make his answers more answerable and valuable. First, rapid advances in technology and computer programming drastically cut down the cost of collecting and analyzing the data used to substantiate his theories. Second, annual player salaries were about to skyrocket from the average of $150,000 per player to what they are today around $2.5 million per player (Moneyball, Lewis.)
- posted by Hot Rod @ 8:18 PM
