Fall 2000: Senate Hearing on "Competitive Balance"

Senate Holds Hearing on "Competitive Balance" by Doug Pappas

Even with Congress in recess and the Presidential election in dispute, on November 21 the Senate Judiciary Committee found time for a hearing on competitive balance in baseball. Commissioner Bud Selig was the lead witness, followed by George Will and former Senator George Mitchell, both members of the owners' "blue ribbon economic committee"; sportscaster/author Bob Costas; Washington State economist Rodney Fort, co-author of Pay Dirt: The Business of Professional Team Sports; and self-appointed "fan representative" Frank Stadulis, president of "United Sports Fans of America." All but Costas submitted prepared statements, which are available online at http://www.senate.gov/~judiciary/wl112120.htm.

Selig voiced his familiar lament: "an increasing number of our clubs have become unable to successfully compete for their respective Division Championships - thereby making post-season appearances - let alone post-season success - an impossibility. ... At the start of spring training, there no longer exists hope and faith for the fans of more than half of our 30 clubs."

Did you sleep through the 2000 season, Bud? In case you missed it:

For the first time in modern history, no team won fewer than 40% or more than 60% of its games.
Three of the 10 highest-payroll teams qualified for the playoffs.
So did three of the 14 lowest-payroll clubs.
Two of the "cheap teams," the Giants and White Sox, finished with the best records in their leagues.
Both Western Division champs, the Giants and Athletics, had the lowest payroll in their divisions.
The Yankees, Exhibit A in any discussion of competitive balance, finished with the majors' ninth best record, 3-1/2 games worse than any other postseason qualifier.
The eight playoff clubs ranked first, third, sixth, 11^th, 14^th, 17^th, 25^th and 26^th in Opening Day payroll.
The six last-place clubs ranked ninth, 10^th, 13^th, 16^th, 20^th, and 30^th. In fact, two of the six, Texas and Tampa Bay, spent more than the average payroll of the postseason qualifiers.

Unsurprisingly, Selig never specified which 16 clubs ("more than half") were out of the race before Opening Day. Whatever the merits of greater revenue sharing, overstated, alarmist statements like this can only hurt Selig's cause - and having the Commissioner repeatedly tell fans of losing teams that they have no realistic hope for the future can only exacerbate MLB's problems in those markets.

Selig undercut his own credibility in another way. First he quoted his own testimony to a House committee in 1994 that baseball's "economic problems have become so serious that in many of our cities the 'competitive hope' that is the very essence of our game [is] being eroded." Later he identified nine markets -- Montreal, Milwaukee, Tampa Bay, Toronto, Florida, Kansas City, Minnesota, Pittsburgh and Cincinnati -- where "it is beyond debate that competitive imbalance is causing serious issues" today.

But these can't be the same cities he was referring to in 1994. That year Tampa Bay didn't have a team; Florida was a second-year expansion club which had drawn over 3,000,000 fans in its first season; Montreal had the majors' best record; Pittsburgh had won its division in three of the previous four years; and among them, Cincinnati, Minnesota and Toronto had won the past four World Series. Only Kansas City and Selig's own Milwaukee Brewers could possibly have been on both lists - and only the Brewers had no history of recent success for their fans to recall.

Well aware of his audience, Selig backed away from the Blue Ribbon Panel's most politically controversial recommendation, the relocation of franchises to better markets. He assured Congress that no team would move before the 2001 season, and suggested no move would be approved at least until a new labor deal was in place.

Senator Mike DeWine (R-OH), a Reds season ticket holder, pressed Selig to explain why he thought the MLBPA would accept the "sweeping changes" in baseball economics he demanded. "Isn't it going to depress wages?" asked DeWine. Selig responded, "I think if we as an industry do this right, I don't think it has that effect at all." Although Selig didn't explain what "doing it right" would entail, greater revenue sharing will inevitably depress wages unless accompanied by steep minimum-payroll requirements to compel low-payroll teams to raise salaries by at least the amount by which high-payroll clubs' salaries are reduced.

The statements of Blue Ribbon Panel members suggested that this could indeed be the strategy. Senator Mitchell reiterated the Panel's recommendation for sharing of 40-50% of local revenues, accompanied by a 50% luxury tax on payrolls over $84 million (using August 31 payrolls, six teams topped this threshold in 2000), with incentives to bring all payrolls to at least $40 million (eight teams, including two playoff clubs, were below this figure in 2000). In his statement, George Will described the $84 million tax threshold as a "porous ceiling on payrolls, whereas the floor is firm, because of the powerful incentive (access to unequal distributions from the 'commissioner's pool') to meet the payroll minimum of $40 million. Noting that he had backed the players in the 1994-95 labor dispute, Will challenged the MLBPA, "led by my friend Don Fehr," "to avoid sterile strategies and stereotypes."

Mitchell also defended the Blue Ribbon Panel's reliance on financial data provided by the clubs. Responding to widespread criticism that the report overstated MLB's collective losses, Mitchell said that "nothing in our report or recommendations turns on the issue of Club profitability or a lack thereof," but went on to say, "we do not doubt the accuracy of the financial data - revenues, expenses, profits and losses." This misses the point: the critics aren't challenging the accuracy of the data, but whether it represents meaningful economic reality, particularly with respect to related-party transactions. The data was further undermined by Selig's testimony: he claimed that 18 to 20 teams lost money in 2000, which would be seven to nine fewer than supposedly posted a loss from 1995-99, notwithstanding double-digit annual salary increases and flat national media revenues throughout this period.

Selig's testimony further suggests that the current revenue sharing formula is grievously flawed. According to the Commissioner, the Yankees paid $17 million and the Mets $15 million - but the Yankees drew 500,000 more fans at a higher price per ticket, and receive $30 million more for their local media rights! He testified that the five lowest-revenue teams (at a guess, the Expos, Twins, Royals, Pirates and Brewers) received from $11 million to $23 million. As the Twins opened the season with a payroll of $16.5 million, this means that billionaire Carl Pohlad's entire team was effectively paid by George Steinbrenner.

For his statement, Professor Fort drew upon Financial World and Forbes data for recent years, as well as the payroll and profitability data presented to Congress in the 1950s as part of earlier Congressional investigations of baseball. Fort concluded that modern revenue imbalances "are as high in each league as in any year except the early 1950s in the AL," when the Yankees dominated even more than they do today. However, competitive balance has been steadily improving over the decades, with 2000 the AL's most balanced season in 40 years.

Reviewing the Blue Ribbon Panel's recommendations, Fort concluded that greater revenue sharing and a luxury tax were most likely to improve competitiveness, but that both would depress player salaries to the point that the MLBPA would not accept them without receiving concessions in other areas. Unequal central-fund distributions could improve competitiveness without antagonizing the MLBPA, but minimum-payroll requirements have historically been difficult to enforce. Fort's preferred solution is to divide Major League Baseball into competing American and National Leagues. This would lead to more teams in the largest markets and a consequent reduction in the financial advantages enjoyed by large-market clubs, improving on-field competitiveness through increased off-field competition.

Finally, UsFANS' Frank Stadulis presented an unintentional parody of research and analysis. Outdoing even Commissioner Selig, he opined that "two-thirds of the teams - and their fans - were destined to disappointment before the season even began, because the odds against their making the playoffs - and clearly against succeeding in the playoffs - were prohibitive." As eight out of 30 clubs qualify for the playoffs, Stadulis apparently believed that only two other teams had any realistic chance. He didn't identify which 20 teams he had ruled out, though with the UsFANS Web site offering "free access to wagering tips" to its paying members, his constituents might be especially interested in their leader's gift of prophecy.

After modestly asserting that his organization was "in a unique position to determine and focus fan views," Stadulis claimed a "mandate to act" because 94% of respondents to a survey on the USFANS Web site said Yes when asked, "Do you support a movement that would require Major League Baseball and its Players' Association to take whatever steps are necessary to restoring competitive balance, or parity, to the game." As evidence of "the mood and intensity of fan concern," Stadulis cited a message posted to the UsFANS Web site in April which condemned "Shawn Green and his selfish attitude," said "teams with low payrolls have no chance of competing," and identified the Yankees, Red Sox, Cards, Mets, Braves, Diamondbacks, Rangers, and Indians as the likely playoff teams. Stadulis said the poster "correctly predicted five of the playoff teams"; in fact, he got four correct. Even at a hearing as fundamentally pointless as this one, Stadulis' presence was an embarrassment which could only confer a legitimacy on his group which, if his testimony and Web site are any indication, it has done nothing to deserve.