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April 1, 2003

Selig Yes, Zimbalist No

Poking Holes in So-Called Analysis

by Doug Pappas

One of Major League Baseball's most honored traditions is the fan's right to second-guess the manager's decisions or the umpire's calls. A less honored, but unfortunately all too common, tradition is the practice of self-proclaimed "experts" on baseball economics to second-guess MLB's finances and draw unwarranted conclusions from their manipulation of the data.

In May the Best Team Win: Baseball Economics and Public Policy, Andrew Zimbalist repeats many of the mistakes found in his earlier Baseball and Billions. Zimbalist "analyzes," "interprets" and "adjusts" the facts until they conform to his preconceived world view. This time he goes further, advocating a series of "reforms" which, if implemented, would surely lead to the destruction of Major League Baseball as we know it.

For example, Zimbalist suggests that MLB's restrictions on the number and location of franchises, its ability to veto prospective owners, its limits on clubs' ability to broadcast and cablecast their games outside of their own markets, its control of players through the amateur draft and reserve rule, and its favored tax treatment may constitute "abuses." But where is the abuse? If MLB were truly the greedy monopolist depicted by Zimbalist, where are all the monopoly profits?

There are none. The starting point for any real understanding of Major League Baseball's economics must be the detailed, comprehensive financial information disclosed by Major League Baseball after the 2001 season. These startling figures proved that in 2001, despite record revenue, MLB lost an astonishing $519 million. These losses were not confined to the small-market clubs: Despite their on-field success and huge superstation contract, the Atlanta Braves lost $24 million, while the $69-million loss incurred by the Los Angeles Dodgers threatens to wipe out News Corp.'s entire equity, leaving the Dodgers insolvent and unsalable.

These losses and their consequences are facts, not pointy-headed intellectual theorizing. As aptly stated by Commissioner Selig in his Congressional testimony:

"The idea that somehow what I have presented today is not an accurate picture of the industry's economics is sheer nonsense. Anyone who would state otherwise is just plain misinformed or is engaging in deliberate misstatement."

This is the industry Zimbalist desires to contain through regulation, self-regulation or divestiture into two competing leagues. In fact, even without Zimbalist's "reforms," MLB is on life support. It tried to address some of its problems through triage in the form of contraction, killing its weakest members so that the rest might live, but this noble gesture was blocked by petty partisanship and mindless sentimentality. Notwithstanding the new labor agreement, the problem of competitive balance remains so severe that as the 2003 season opens, I can think of no more than six clubs with any meaningful chance of qualifying for the postseason.

Although Zimbalist pays lip service to the problem of competitive balance, he soon loses himself in his vendetta against Major League Baseball. For example, he notes that when the Padres, Yankees, Indians, and Red Sox issued financial statements or offering documents in connection with their attempts to raise capital, all four clubs reported revenue higher than that attributed to them by MLB. Given the obvious financial incentive for businesses to make themselves more attractive to investors, there is no reason to believe the teams' disclosures over MLB's, especially since MLB had no reason to stretch the truth.

Zimbalist goes on to identify a number of clubs with media or stadium affiliates, suggesting that some of the profits earned by these related ventures should be attributed to the baseball team. Why? Don't these other businesses deserve to make money, too? Such criticism of the capitalist system belongs only in an article like this, written by a well-known former Red Sox consultant. Zimbalist even rejects the uniform conclusion of dozens of HOK and Chamber of Commerce studies, which have found that taxpayer-funded stadia pay for themselves several times over in new economic activity. Prof. Zimbalist knows nothing at all about the world of pro sports, although at least part of his ignorance may be explained by the fact that he teaches at a women's college.

Noted sportswriter Phil Rogers wrote last July that: "Commissioner Bud Selig has gone on a crusade to save his sport from itself." We who love baseball can only hope he succeeds. Major League Baseball needs more Bud Seligs and fewer Andrew Zimbalists.

Doug Pappas is a lawyer in New York who really, really, REALLY wants to work for Major League Baseball. He originally planned to follow Laurel Prieb's path to success, but changed strategies after learning that Commissioner Selig has only one daughter. If you know any of MLB President Bob DuPuy's relatives, drop Doug a note.

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