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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:

  • Revenue disparities exist, they’re causing competitive imbalance, and
    things are going to get worse unless MLB takes corrective action.

  • The revenue-sharing and salary-tax provisions of the 1996 CBA are not
    dealing with the problem adequately.

    And, finally…my personal favorite…verbatim from the report…

  • In a majority of MLB markets, the cost to clubs of trying to be
    competitive is causing escalation of ticket and concession prices,
    jeopardizing MLB’s position as the affordable family spectator sport.

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.

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