Blue Ribbon Silliness, Part 1

For a columnist like me, the report by Major League Baseball's "Blue Ribbon Panel on Baseball Economics" is too juicy a target for just one column. This month, I'll dissect the data; next issue, I'll critique the conclusions.

The very first sentence of the report should set off BS detectors across America: the panel modestly describes itself as "representing the interests of baseball fans." Who are our self-appointed protectors? Twelve of the 16 panelists (including the ubiquitous John Harrington) own or operate major league baseball teams. The four "independent" members are Yale president Richard C. Levin, who drafted the owners' 1989 salary cap proposal; former Federal Reserve Board chairman Paul Volcker, who represented the owners on the last blue-ribbon economic panel, in 1992; former Senator George Mitchell, often mentioned as a possible Commissioner; and columnist George Will, who in a remarkable conflict of interest serves on the boards of both the Orioles and the Padres.

Yes sir, a regular cross-section of American fandom.

The report, which covers the 1995-99 seasons, presents three main categories of data: revenues, player payrolls, and "competitiveness," measured by comparing payrolls to on-field performance. All of this data is flawed to the point of uselessness.

The team revenue and profit data is especially suspect. The panel merely accepted the numbers provided by the clubs, conducting no independent investigation of its own. Comparing these "official" figures to the informed estimates published by Financial World and Forbes strongly suggests that the owners have underreported their income and overstated their expenses MLB claims that only three clubs made money from 1995-99, while the industry as a whole lost over $1 billion -- an average of $35 million per team! By contrast, the independent estimates suggest that MLB has earned more $400 million over that period. (See accompanying table.)

Who's right? Look at the objective evidence. Franchise values keep rising. No team has moved, let alone filed for bankruptcy. Indeed, look at the panel's own figures. According to MLB itself, from 1996 to 1999 gross revenues grew by more than $1 billion, while player salaries rose by only $550 million -- yet MLB's losses increased over this period! Where did the other $450 million go?

The official figures look even sillier when broken down by team. According to MLB, only the Yankees, Indians and Rockies turned a profit. The Braves lost $7 million? The Cubs lost $30 million? The Dodgers lost $77 million? I don't think so. And if Cleveland and Colorado made money, what happens to the argument that "small markets can't compete"? The Indians dominated their division while playing in a market the same size as Minneapolis-St. Paul, while the Rockies' home market is the size of metropolitan Pittsburgh.

Dutifully ignoring the implications of this data, the blue ribbon panel presents payroll and "competitiveness" charts to illustrate its concerns about "chronic competitive imbalance." The charts show that as a group, teams with higher payrolls have better records than teams with lower payrolls.

This is news? Unless the owners are totally irrational in handing out contracts (take a bow, Peter Angelos), high-payroll teams will collectively have better players than low-payroll teams. MLB's charts beg the real question, which is how easily a team can move from one category to the other.

Let's look back to 1991. That year, the Minnesota Twins upset the league's highest-paid team, the Oakland Athletics, to win their second World Series in five years. In the National League, Pittsburgh won its second of three consecutive divisional titles, only to lose in the LCS to the Braves, who in each of the past three seasons had posted the league's worst record. Meanwhile, the majors' three lowest-payroll teams finished with the three worst records, a combined 189-297. Those hapless losers, the Orioles, Indians and Astros, seem to have recovered nicely..

And by focusing only on the seasons between 1995 and 1999, the panel has made the link between payroll and performance look stronger than it actually is. In 1994, the Montreal Expos had the majors' best record and second-lowest payroll. This season, at press time the Chicago White Sox are 26th in salaries but first in winning percentage, while Toronto, Oakland and San Francisco are contending with their divisions' lowest payrolls.

In fact, the eight postseasons since 1991 have featured 24 of the 30 major league teams. A 25th, Montreal, would have made it in 1994. The other stragglers include Tampa Bay, a third-year expansion team; Anaheim and Detroit, mismanaged large-market clubs; Kansas City, which had earlier won seven division titles in 11 years -- and Commissioner Selig's Milwaukee Brewers.

Would this "blue ribbon panel" have been convened if Selig or his daughter knew how to build a winning team?

TABLE: MLB and Red Sox Profits, 1995-99 ($ millions)
   1995  1996  1997  1998  1999  1995-99
 MLB profits (official figures)  (326)  (197)  (176)  (138)  (212)  (1,049)
 MLB profits (informed estimates)  58  205  67  57  30  418
 Red Sox profits (official figures)            (5.43)
 Red Sox profits (informed estimates)            34.2

Copyright © 2000 Doug Pappas. All rights reserved.
Originally published in the August 2000 issue of Boston Baseball.

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