EXECUTIVE SUMMARY
The focus of this study is on Major League Baseball. It examines the problems that are present in the operating business aspect throughout the entire league. Of the four major sports leagues in the United States, baseball has the most questions surrounding its league. Major League Baseball is a very troubled industry that faces numerous chronic problems that threatens the future of the league. Some of these major problems include: effects of the antitrust exemption, competitive balance issues, profitability of franchises including Forbes magazine’s take on the issue, the Collective Bargaining Agreement, new stadium financing issues, and Commissioner Bud Selig. These problems all can be traced back to a single common reason: monopoly. Since 1922, Major League Baseball has benefited due to an assumed exclusion from our nation’s antitrust laws. MLB is the only top-tier professional baseball league throughout the United States.
A practice called “sabermetrics” exists for franchises that are in rough shape financially to compete with teams like the Red Sox and Yankees. First used by the Oakland Athletics, sabermetrics is a statistical theory that is used to evaluate baseball players. Oakland has been one of the most successful franchises on the field over the past five years because of this approach despite having a miniscule payroll.
Emphasis is put on the Milwaukee Brewers organization. An in-depth look at the entire organization is done with sabermetric principles. Also, statistical projections for the upcoming 2004 season are made for players competing for the Milwaukee Brewers roster as well as for the top 25 prospects in the Milwaukee Brewers farm system.
INTRODUCTION OF MAJOR LEAGUE BASEBALL
In the baseball movie “Field of Dreams” the voice says ‘If you build it, he will come.’ Early in the film this refers to constructing a baseball diamond in the middle of acres of valuable cornfields in order to allow players in the after-life to return to earth and (re)play the good old game of baseball. By the end of the film, hundreds of fans are seen heading in droves to the cornfield diamond to watch these players play ball. “If you build it, they will come.”
“Field of Dreams” is a portrayal of the powerful hold that baseball has on the United States of America – an activity said to be the national pastime. While there is obviously more to the film than this particular “field of dreams,” it is based on the preposition that if you put on a game of baseball, Americans will part with their own, hard earned cash to watch it. To further illustrate this point, no matter what happens in regard to the game’s organizational structure and production, there will always be Americans that will watch and follow baseball. Americans love baseball. “If you build it, they will come.”
Over the past decades of baseball in America, Major League Baseball (MLB) in particular, has been involved in controversy after controversy. Today, baseball faces perhaps what is its most important problem – the growing divide between the game itself and its fans. According to a USA Today / CNN / Gallup poll conducted during June 2003, the results were not promising for America’s pastime. The poll results stated that 33% of sports fans say they are following baseball less closely than they did three years ago, and 39% believe the game is in a state of crisis or has major problems.
It can be very easy to be lulled into the thinking that everything is fine with baseball. The numerous experiences that everyone seems to remember are still accumulating in everyone’s mind, more vivid than ever. With Mark McGwire and Sammy Sosa relentlessly chasing the homerun record in 1998, Barry Bonds breaking numerous batting records in 2001, the Cubs and Red Sox just five outs from facing off against each other in the 2003 World Series; it is moments like these that can still seize the serious as well as the casual fans alike. But the more important issue behind those highlights - the foundation of the game - is falling apart faster than ever before.
The actual business of baseball stands in stark comparison to the game’s nostalgic appearance as America’s national pastime. Major League Baseball is a very troubled industry that faces numerous chronic problems that threaten the future of the league. Some of these major problems include: ongoing labor tension, competitive balance issues, transfer of game telecasts to cable, rising ticket prices, and MLB Commissioner Bud Selig’s leadership. While all of these issues are taking place, there is the threat of contraction, current franchises are requesting public funding for new stadiums all while more than capable host cities are practically begging for teams. The heart of baseball’s fan-base is also aging while MLB is doing very little to make the game more attractive to a much younger fan base.
The Source of the Problem in Major League Baseball
These problems all can be traced back, in some part, to a single common reason: monopoly. Since 1922, Major League Baseball has benefited due to an assumed exclusion from our nation’s antitrust laws. MLB is the only top-tier professional baseball league throughout the United States. As a result, each franchise is assigned to an exclusive market territory. In general, monopolies have market power which is in turn used to achieve higher returns, abuse resources, and above all take advantage of consumers. Major League Baseball is not exempt from these accusations (http://slate.msn.com/, Greenberg).
The antitrust exemption is actually an irony. Owners and players prove day after day that they consider baseball, above all, a business instead of just a game. But the exemption arrives from our own national government's naive insistence that baseball is just a game. Alone among all other professional sports in America, baseball enjoys its immunity from antitrust prosecution because neither Congress nor the Supreme Court has been willing to overturn an ancient decision that baseball is merely an amusement, not a commercial enterprise.
The controversial antitrust exemption dates to the early years of organized ball. In January 1903, the rival American and National Leagues joined to form the beginning of Major League Baseball. The two leagues included a "reserve clause" in their contracts. The National League had been using this technique for the past 25 years. The “reserve clause” in essence tied the athletes to the teams that had first signed them to a contract. The players were able to be sold or traded by team management; however, they couldn't simply sign with new teams on their own after their contracts expired (http://www.zmag.org/zmag/articles/barzimb.htm).
In 1914, the new Federal League made an attempt to lure ballplayers away from Major League Baseball with the attraction of higher salaries and no reserve clauses. Only a few athletes made the jump to the new league, however, and in 1915 the Federal League sued MLB for cornering the players' market—a violation, it seemed, of the Sherman Antitrust Act. The two parties soon reached a settlement that terminated the upstart league while compensating its owners. Each owner accepted the buyout except the owners of the Baltimore Terrapins, who were offered only a sliver of the settlement money. They rejected the $50,000 settlement offer and further pursued their antitrust claims at the Supreme Court. In the 1922 decision in Federal Baseball Club of Baltimore v. National League, the court ruled against the Terrapin owners. Justice Oliver Wendell Holmes wrote that "personal effort, not related to production, is not a subject of commerce" and that baseball therefore wasn't subject to federal regulation (Federal Baseball Club v. National League, 292 U.S. 200 (1922)).
In the Federal Baseball decision, it pointed out that baseball exhibitions are “purely state affairs” and as a result did not constitute interstate commerce. The fact that teams had to travel across state boundaries to play the games was a “mere incident, not the essential thing.” (Federal Baseball Club v. National League, 292 U.S. 200 (1922)). It should also be pointed out that the idea of what interstate commerce meant at the time and what it is understood to stand for now are very different, with it being much narrower today. The idea back then was that if a good was produced within a state, it was intrastate commerce and the production activities of the company weren’t subject to the Sherman and Clayton Acts.
Judge Holmes' ruling was keeping in line with other lower-court rulings from the era that stressed baseball's status as just a game. Over time, however, the ruling came to be widely regarded as flawed, as the Constitution's "commerce clause" was increasingly used as grounds for the government to regulate a range of dealings that had once been deemed off-limits to the feds. The court itself decreed, in other contexts, that exhibitions which crossed state lines were subject to federal control. Yet it had in effect rendered Major League Baseball exempt from antitrust law (http://slate.msn.com/, Greenberg).
The Federal Baseball ruling went unchallenged for 25 years until the Supreme Court had a chance to revisit its decision in 1953, when it heard arguments in Toolson v. New York Yankees. The case concerned George Toolson, a ballplayer whom the Yankees had reassigned from their minor-league Newark franchise to another team. Toolson sued, claiming that the reserve clause in his contract violated antitrust laws. But the high court stood by its 1922 decision. It stated that if Congress had disagreed with the earlier ruling, it would, or should have introduced new laws in the interim. "We think," the court wrote in an unsigned 7-2 opinion, "that if there are evils in this field which now warrant application of it to the antitrust laws, it should be by legislation" (Lowenfish and Lupien, p. 106).
Congress, however, again failed to act on behalf of the matter, and as a result ballplayers remained shackled to the franchise they belonged to in which they had no say. Then, in 1969, the St. Louis Cardinals traded their star outfielder Curt Flood to the Philadelphia Phillies, again without his consent. Flood did not want to move his family or walk out on his business interests in St. Louis. He appealed the trade to Commissioner Bowie Kuhn stating, "After twelve years in the Major Leagues, I do not feel I am a piece of property to be bought and sold irrespective of my wishes." Kuhn sided with the Cardinals ownership and upheld the trade. Flood retired rather than play for the Phillies.
Flood's case reached the Supreme Court in 1972. Harry Blackmun, a newcomer to the Court, wrote the opinion in Flood v. Kuhn, in which the court upheld Flood's trade by a vote of 5-3. Blackmun’s decision will be scrutinized for many years to come. Blackmun acknowledged that ever since the Federal Baseball decision, the court had routinely interpreted the commerce clause to expand the government's sphere of influence. Blackmun also pointed out that no other major sport was protected from antitrust laws. And yet, in spite of his own accumulated evidence, he maintained that the Federal Baseball precedent should stand because of the judicial custom of ‘stare decisis’, or a respect for precedent (Flood vs. Kuhn et al., 407 U.S. 258 (1972)).
Surprisingly, shortly after Flood, baseball players were awarded the right to free agency and ended the 100-year tyranny of the reserve clause. The avenue of redress wasn't litigation but collective bargaining, through which the players' union had recently secured the right to arbitration. In 1975, pitcher Andy Messersmith's contract with the Los Angeles Dodgers expired, and although the Dodgers and Major League Baseball insisted the Dodgers alone had the option to re-sign him, Messersmith claimed otherwise. The parties took the case before an arbitrator hired by the owners, Peter Seitz, who ruled for Messersmith. Seitz was immediately fired. The owners lost an appeal in federal court, and thereafter players enjoyed a limited right to free agency (http://slate.msn.com/, Greenberg).
In October 1998, in a long overdue effort to finally fix the labor problem, President Clinton signed into law the so-called Curt Flood Act, which stated that baseball's antitrust exemption didn't apply to player employment issues after all. But with the players faring well through collective bargaining, and with free agency embedded in baseball's practices, the point was now moot. On the other hand, however, the 1998 act explicitly left untouched such issues as team relocation, minor-league play, the employment of umpires, broadcasting agreements, and league expansion—suggesting that the exemption did in fact apply in these areas.
As a result of these controversial rulings in the higher courts, it is obvious that others differ in the law’s interpretation, resulting in uncertainty about whether the country’s antitrust laws apply to MLB. If they do consider MLB to be exempt, it is also unclear just how far the exempt status extends into the league.
- posted by Hot Rod @ 9:53 PM 0 comments
The Realistic Effect of Baseball’s Supposed Antitrust Exemption
The most rational way to determine whether or not Major League Baseball should continue to enjoy its antitrust exclusion is to consider the implications that would occur to the game and to its consumers of either doing away with or officially allowing the exemption to continue. Listed below are some important topics and how the practical meaning of the assumed exemption has been handled to date and what would theoretically happen if it were abolished.
Minor Leagues and Amateur Draft
A result of the assumed exemption is that Major League Baseball has been allowed to pursue restricting labor market practices when dealing with its minor leagues. MLB has a draft of amateur players from the U.S., Canada, and Puerto Rico every June. The worst MLB teams pick first and so on. After a player is selected, he can sign with his team for $850/month plus a corresponding signing bonus, depending on how high he was drafted. Once signed, the player is locked to the franchise for four years before another franchise can sign him. If the player is put on the team’s major league 40-man roster, he is required to play seven years in the team’s system before he has an opportunity to choose a different organization.
It is clear that these limitations are obvious examples of restraints on trade. First, the player is unable to entertain competing bids at the draft. Second, he can’t receive contract offers from other franchises for up to seven years after the player is drafted. Third, the player’s salary is determined according to a scale that is set by the owners. “Since there is no labor union of minor league players, there has been no collective bargaining wherein a player’s representative bargained away free labor market rights in exchange for other benefits,” like there is in the major leagues (May the Best Team Win, Zimbalist).
However, if the antitrust exemption was revoked, it would give any minor leaguer the opportunity to sue Major League Baseball. It is not clear that anyone would do so because these players are, after all, very young and are focused on making it to the big leagues as soon as possible. There also is no guarantee that a minor leaguer would even win his case in court.
The most significant point here is that it would allow a judicial review of MLB’s procedures and guidelines. The minor league system most likely would still survive with these changes. Affiliated teams may lose their relationship with the major league parent club and be forced to create an independent minor league(s). If ballplayers were not “owned” by MLB teams, it is to be expected that competitive balance would improve on the big league level. For the draft, teams would select players from the minor leagues instead of out of high school or college. The players would be further along in the developmental process and their prospective talent level would also be more predictable.
Franchise Relocation
Pretend that you are an owner of a house and were told by politicians that you were restricted to selling your home to someone who is from out of town. Or more to the point, pretend owning a corporation in a state that has high labor costs with even higher taxes and you were told that you couldn’t move the operations to a more appealing state. Perhaps it seems as though someone is interfering with your desire to dispose of your resources at your discretion and that you are not being able to take advantage of a free market. This is, in essence, what happens in Major League Baseball.
In the NFL (football), NBA (basketball), and NHL (hockey), which are all the equivalent of Major League Baseball for their respective sport, there are no presumed antitrust exemptions. In each of the three leagues the relocation guidelines have transformed into one where the majority of ownership proposals to relocate are negotiated between the owner and the MLB commissioner. The owner more often than naught is able to move the team by paying a relocation fee in the order of tens of millions dollars. The problem with Major League Baseball operating as a monopoly is that the league creates non-traditional markets for franchises looking to relocate. This means that the city instead of the franchise owner will be forced to pay the hefty relocation fee.
A prime example of a city that gets burned by MLB creating non-traditional markets is Washington, D.C. The city is considered a major asset of baseball even though no team is currently playing there. Since the city is a potential host, MLB is basically acting as if the city belongs to them. The reason is because Washington could be leveraged against other, smaller cities to get more lucrative deals for a franchise. This is a primary result of MLB creating markets for teams. If there was a competing league with MLB, there would undoubtedly be at least one, possibly two franchises in the nation’s capital and eighth leading media market.
On the other hand, it is important to point out that the league has not thought twice on occasions to threaten a team from relocating to a new city. The major reason behind this political move was to extort much larger public funding from the franchises’ current host cities in order to build new stadiums. In the past, MLB owners have threatened to move the Milwaukee Brewers to North Carolina and the San Francisco Giants to Tampa Bay before new stadium deals were set into motion.
In the end, if Major League Baseball was not allowed to operate as a ruling monopoly, there would not be very many, if any, of these demands for franchises to hold their current host cities ransom for a huge pay day so they can build a new stadium. Also, there wouldn’t be cities like Washington and major media markets like North Carolina, Oregon, and Virginia that don’t have a professional baseball team.
- posted by Hot Rod @ 9:36 PM 0 comments
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.
Table1 | ||||||||
MAJOR LEAGUE BASEBALL: | ||||||||
TEAM PAYROLL AND PERFORMANCE COMPARISON, | ||||||||
1980 - 2001 | ||||||||
α | β | |||||||
Year | (t-stat) | (t-stat) | r² | n (teams) | ||||
1980 | 0.484 | 3.24E-09 | 0.006 | 26 | ||||
[11.1] | [.38] | |||||||
1981 | 0.464 | 5.66E-09 | 0.002 | 26 | ||||
[9.06] | [.73] | |||||||
1982 | 0.489 | 1.46E-09 | 0.005 | 26 | ||||
[13.31] | [.34] | |||||||
1983 | 0.491 | 9.87E-10 | 0.003 | 26 | ||||
[12.82] | [.26] | |||||||
1984 | 0.418 | 7.48E-09 | * | 0.166 | 26 | |||
[10.77] | [2.18] | |||||||
1985 | 0.362 | 1.30E-08 | 0.149 | 26 | ||||
[5.26] | [2.05] | |||||||
1986 | 0.46 | 3.41E-09 | 0.290 | 26 | ||||
[9.29] | [.84] | |||||||
1987 | 0.466 | 3.02E-09 | 0.220 | 26 | ||||
[9.65] | [.74] | |||||||
1988 | 0.393 | 9.37E-09 | * | 0.181 | 26 | |||
[8.12] | [2.31] | |||||||
1989 | 0.389 | 7.89E-09 | * | 0.232 | 26 | |||
[9.10] | [2.69] | |||||||
1990 | 0.46 | 2.30E-09 | 0.028 | 26 | ||||
[9.46] | [.84] | |||||||
1991 | 0.42 | 3.14E-09 | 0.151 | 26 | ||||
[10.44] | [2.07] | |||||||
1992 | 0.47 | 9.45E-10 | 0.020 | 26 | ||||
[10.72] | [.70] | |||||||
1993 | 0.398 | 3.17E-09 | * | 0.195 | 28 | |||
[9.29] | [2.51] | |||||||
1994 | 0.386 | 3.53E-09 | * | 0.203 | 28 | |||
[8.39] | [2.57] | |||||||
1995 | 0.382 | 9.45E-09 | ** | 0.319 | 28 | |||
[10.71] | [3.49] | |||||||
1996 | 0.397 | 3.07E-09 | ** | 0.396 | 28 | |||
[14.93] | [4.13] | |||||||
1997 | 0.392 | 2.72E-09 | ** | 0.450 | 28 | |||
[15.65] | [4.61] | |||||||
1998 | 0.355 | 3.43E-09 | ** | 0.554 | 30 | |||
[13.42] | [5.89] | |||||||
1999 | 0.389 | 2.26E-09 | ** | 0.475 | 30 | |||
[15.93] | [5.03] | |||||||
2000 | 0.426 | 1.36E-09 | ** | 0.284 | 30 | |||
[17.67] | [3.33] | |||||||
2001 | 0.408 | 1.37E-09 | ** | 0.211 | 30 | |||
[11.52] | [2.74] | |||||||
* | Two-tailed test, significant @ 5% level | |||||||
** | Two-tailed test, significant @ 1% level | |||||||
- posted by Hot Rod @ 8:49 PM 0 comments
