Against Baseball Socialism: Haves, have-nots, and Commissioner Selig's faulty vision

National Review, Nov 10, 2003 by Tim Marchman

The nation (or most of it) may have been rooting for a Cubs-Red Sox World Series, but, as the Series opened, baseball commissioner Allan H. "Bud" Selig was the happiest man in America. He couldn't have chosen a better match than that between the Florida Marlins and the New York Yankees. No matter which team won, he and his vision of the game would prosper. A victory by the not-rich Marlins would prove that last year's collective-bargaining agreement (CBA) between owners and players was a great success; a victory by the rich Yankees would prove it wasn't quite enough of one. Either way, he'd get to argue that the CBA should be extended when it expires in 2006. How can opposite outcomes both serve Selig's interests? If you aren't sure, you haven't been paying attention to the game outside the lines.

This was a good year for baseball. Usually downtrodden Montreal and Kansas City played meaningful games well into September, while the equally hapless Philadelphia and Florida clubs went to the last week of the season in their fight for a playoff spot. Meanwhile, fans from Oakland and from Minnesota's twin cities cheered as their teams continued strong runs of regular-season success and won their divisions.

What do these teams have in common? Absolutely nothing -- except that they are all, as "small market" teams, recipients of welfare checks from Major League Baseball's inane revenue-sharing plan, implemented in 1996 and significantly strengthened by last year's CBA. Of course, being designated a "small market" club for the purpose of revenue sharing has little to do with the actual size of a team's market. According to sports economist Andrew Zimbalist, the Phillies and the Miami-based Marlins will receive a combined total of about $36 million in revenue-sharing money this year. This despite being situated in, respectively, the fifth- and sixth-largest American metropolitan areas with major-league teams. Absurdly, last year's world-champion Angels, who play in the Los Angeles suburbs, will, according to the same estimate, receive $13 million this year. Even more absurdly, the Seattle Mariners, who play in the 15th-largest market, will actually have to contribute $28 million to the revenue-sharing pool, and the Cleveland Indians, who play in the 22nd-largest market, will pay out $19 million.

Last year, when the CBA was ratified, Commissioner Selig could hardly contain his elation about the league's first victory over the players' union in nearly 40 years. "This historic agreement will significantly contribute to restoring competitive balance and economic stability," he crowed. "[It] revives hope and faith to many franchises in baseball." Has it, though? And what, exactly, is meant by "competitive balance"?

The second question is easier to answer. Competitive balance is a nice euphemism for what Henry D. Fetter, in his excellent new book Taking On the Yankees, calls "cooperative mediocrity." The revenue-sharing plan doesn't attempt to compensate teams that play in small cities for the disadvantages they face, which would make sense. It instead penalizes high-revenue teams and rewards low-revenue teams.

To put it another way, it rewards incompetence and punishes competence. Seattle, playing in a metropolitan area of about 2.5 million, has high revenues because of its fantastic stadium and its consistently excellent team, and because of aggressive marketing in Japan, where its games are broadcast nationally. Detroit, playing in a metropolitan area of 4.4 million, has . . . well, this year Detroit ran one of the worst teams in the history of baseball -- yet it will get around $9 million from the revenue-sharing pot.

The lesson for baseball clubs? Run a bad team that doesn't attract fans, and you'll get free money; invest in your team and open up new revenue streams, and you'll be labeled "large market" and forced to cough up your hard-earned cash.

How this, or the "competitive balance tax" that no one except the New York Yankees pays, revives the "hope and faith" of anyone but incompetent owners is quite open to question. The "small market" teams that performed well this year did so for reasons that have nothing to do with their welfare checks. The Marlins had some unexpectedly good pitching, got a breakout season from warhorse third baseman Mike Lowell, and were able to sign veteran catcher Ivan Rodriguez after freeing up some cash by sending expensive players to Colorado and Atlanta. Oakland is successful every year because it, along with a few other teams, applies real-world business concepts like cost-benefit analysis to its club instead of running it like a feudal barony.

As these examples show, it isn't at all obvious that revenue sharing is necessary to team success. Indeed, one suspects the whole point of the recent CBA -- which includes a "luxury tax" on teams whose payrolls exceed $117 million -- is to limit the amount of money clubs have to spend on player salaries, thus depressing the wage market and ensuring greater profits for owners.