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May 27, 2001
A few months back, I was a guest on a radio program, and the topic of conversation was "the problem of baseball economics." This topic quite naturally came about because the evil Alex Rodriguez had decided to sign a mammoth contract to spend the next decade in Arlington, Tex. Terms like "competitive imbalance" and "small market" were used quite liberally by the host and the callers. I've always thought of terms like those being in the same category as other imaginary goblins used to frighten children, like The Bogeyman, Misshapen Wolves Who Hunger For Children Who Don't Eat Lima Beans, and Renny Harlin.
With this in mind, I wanted to take another look at the Report of the Independent Members of the Commissioner's Blue Ribbon Panel on Baseball Economics, released last July. I'm an alumnus of one of the Big Six (now Big Five) Accounting/Consulting firms, and have produced a number of similar documents in my day, usually accompanied by a PowerPoint file just slightly too big to fit on a floppy. I have a morbid curiosity about these sorts of things; the creation and study of these sorts of documents create a cynicism that's absolutely palpable.
Let's get the substance of the report out of the way first. It's not really important for this column, and I do agree with some of the basic tenets of the report, so I want to get the gist of it out there for your consumption. The overall conclusions are pretty straightforward:
Those are the basic conclusions of the report. There are also some recommendations, which make some sense, and I encourage you to click on the link above and read the entire report for yourself. It's certainly more instructive than I expected, on many levels.
What I want to focus on, very briefly, is the report itself. Let's start with the title. It's actually very unusual. When you have a committee--for example, a committee to select what kind of enterprise software (ERP) your company's going to buy--the report is usually called something like "Report of the ERP Selection Committee." Yet for this report, the report title itself says it's a report of the INDEPENDENT MEMBERS of the BLUE RIBBON panel on baseball economics.
MLB clearly thinks that it's important for us to understand that the four men responsible for the report are both independent of vested interests because of links to MLB, and are well-qualified to make assessments about the health and well-being of a business. The resumes of the four authors--Rich Levin, George Mitchell, Paul Volcker, and George Will--are available in the report. For a good laugh, read them with an eye towards trying to assess whether they're both independent and qualified. I humbly suggest that a Venn Diagram representing qualification and independence would be less than fully confidence-inspiring.
Next, let's examine the last item in the conclusions section outlined above. "The cost to clubs of trying to be competitive is causing escalation of ticket and concession prices...". This is nothing short of an outright, bald-faced, pustulating, turgid lie. A lie that's been peddled by baseball ownership for a hundred years. Ticket and concession prices are completely independent of salary expenses. People buying tickets don't care one whit what you're paying the players on the field. It's not like consumers are going to change their individual demand curves because the club is paying David Segui $7 million a year.
The market for tickets will be determined by supply and demand. Owners set prices at a level designed to maximize profit. In the case of something like baseball tickets, with a marginal cost close to zero, that's usually the same as maximizing revenue. The questions are simple for the consumer: Is the team fun to watch? Is it affordable to attend the game? Are they giving away a Vic Darensbourg yo-yo? (I love Vic Darensbourg yo-yos.)
If player salaries were secretly cut in half tomorrow, do you think owners would reduce ticket prices?
The underlying issue with this report is one of trust. Baseball clubs are not subject to the same rules about financial disclosure that public companies are. It's very easy to move things around a bit and make a profitable enterprise look unprofitable. Baseball, as an entity, likes to look unprofitable. They have a vested public-relations interest in crying poor.
Don't get me wrong--I do like the revenue-sharing proposal recommended by the committee. But don't be fooled. This is not an independent report, put together by an objective evaluation of financial and performance metrics. It is, at best, a marketing piece, commissioned by major league baseball, to provide a platform from which to negotiate and spin the media. The financial information provided to the committee was taken at face value with regards to revenues and expenses, and was provided by a group of people who have a vested interest in a particular outcome--one that shows that they're not making money.
Any report is only as good as the information on which it's based on. Until there is complete and full financial disclosure by major-league ballclubs, never believe anything they tell you about their financial condition, either directly or indirectly. You're just going after a baited hook.
Read the report. Think about the motivations of the parties involved. Then, sit back, hunker down, and pray for a sudden burst of enlightenment that leads to a 2002 baseball season.
Gary Huckabay is an author of Baseball Prospectus. You can contact him by clicking here.