Chat Log, 5/31/2002

Doug Pappas: Hi, everyone. I've got more than 50 questions waiting already, so let's get started...


Eric (NJ): Are these numbers submitted by MLB even audited by independent accountants? I find it hard to believe that Forbes would not be communicating with MLB finance / PR to verify some numbers before they release drastially different amounts.

Doug Pappas: All of MLB's numbers are audited, and Forbes did meet and discuss those numbers with MLB before releasing its own figures.

There's often room for disagreement with "audited" numbers. Paul Beeston once said, "Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss, and I can get every national accounting firm to agree with me." Moreover, accurate accounting doesn't address the problem of valuing related-party deals, like when the Braves "sell" their TV rights to AOL Time Warner.


Toby (DC): When do MLB's national TV contracts expire? Isn't it true that MLB's TV partners have been losing money on those deals and that MLB's TV deals will be worth a whole lot less the next time around? How does that bear on Bud's prophecies of doom?

Doug Pappas: The ESPN deal runs through 2005. The Fox broadcasting and cable contracts run through 2006. That's a lifetime, in TV terms -- nobody knows what will happen to the rights fees when they're up for renewal.


David Tate, Alexandria VA: Doug, If you personally were negotiating for the MLBPA, what would you consider to be credible evidence that MLB really is in dire financial straits? (I'm not saying it's true; I'm just asking about how the owners could convince the MLBPA that it WAS true if it really were...)

Doug Pappas: If I were Donald Fehr, the only credible evidence I'd accept would be the conclusion of my own hired expert, after he or she had been given full access to MLB's books.

The only time the books have been opened to this extent was 1985, when Peter Ueberroth directed the owners to open them. The MLBPA hired Stanford economist Roger Noll, who concluded the owners were overstating the problem.


Scott in Reston, VA: Doug, Is there any legal or business reason why a financially needy baseball team could not IPO their stock to the public to raise cash for their team? I think a couple of teams have already done this (Yankees?).

Doug Pappas: The Indians were the last team to sell shares to the public. There's no legal reason a team can't go public -- but a "financially needy" team would be a poor investment, unlikely to attract enough investors to make the deal worthwhile.


David (Redding): Can you shed some light on the argument that new sports facilities add to the local economy? I see the argument as tainted since the income it receives is just syphoned from somewhere else in the locale.

Doug Pappas: That's the conclusion of virtually all independent economists who've studied the question. See Mark Rosentraub's "Major League Losers" and the Brookings Institution's "Sports, Jobs and Taxes," a collection of economic papers edited by Roger Noll and Andrew Zimbalist.


bob mong (Seattle): Did the players benefit in any way from the strike of 1994? If so, how? If not, do you think they will strike this year anyway? If so, how come?

Doug Pappas: The players "benefited" in the sense that salaries since 1994 are probably $400 million higher than they would have been if the MLBPA had accepted the owners' final offer before the strike.

That's the same calculation the players will make this time around: does the long-term gain justify the short-term loss?


D.J. Harmeling (San Diego): A question I've been thinking about lately is how much a new park really does to generate revenue. For example, the Pads are getting 25,000 a night right now at the Murph. Would 25,000 at the new downtown ballpark (set to open in 2004) generate significantly more revenue? If so, isn't this revenue primarily from increased ticket prices? Don't the fans as taxpayers, who are paying for the new park, then pay for this "additional" revenue through increased ticket prices? In other words, don't we get screwed on the front end and back end of the deal?

Doug Pappas: The big gain from a new park comes from luxury boxes, not ticket revenue. Last year the Padres took in about $8.5 million in "other local revenue" (luxury boxes, concessions, parking, premium seats, etc.). In their first year at Miller Field, the Brewers took in $37 million in "other local revenue." THAT's why teams want new homes.


Tom (Orlando): Tampa Bay was awarded a team to avoid a lawsuit and still has 26 years left on the lease. Florida has an Attorney General who has threatened to sue to recoup the investment of public money if they are contracted. Would MLB really be willing to take on all those lawsuits to contract the Rays?

Doug Pappas: They've got to be swallowing hard at the prospect -- especially since the Florida Supreme Court has already held that the antitrust exemption doesn't apply to franchise-location issues.

Another huge obstacle to contracting the Rays is that owner Vince Naimoli doesn't want to sell, and MLB can't force him to sell.


Geof (Huntsville, AL): Why don't more owners do like Peter Magowan did and finance their own park privately? It seems like they could make much more money if they owned the whole thing.

Doug Pappas: Not as much as they can make if the taxpayers put up the money, assume the risk of cost overruns, then lease the park to the team for a nominal sum.

Magowan spent over $300 million on Pac Bell, most of it borrowed. He did that only after four votes for publicly-funded stadiums in various parts of the Bay Area had failed. He'd have been MUCH better off with a publicly-funded park and a sweetheart lease.


Jerry (Chicago): If the owners can put an artificial restraint on salaries, will the financial benefit be passed on to fans through slower growth in ticket and concession prices?

Doug Pappas: No. Ticket prices are set by supply and demand. At any salary level, the owner will set ticket prices so as to maximize his revenue.

One of my favorite quotes about baseball economics comes from the year after the players won free agency. Salaries skyrocketed, but ticket prices rose only slightly. Bud Selig explained: "That the burden is passed along to the fans is a myth. The owners absorb it. If we passed along our increased cost of doing business because of the free agent draft, it would be unbelievable. We would have had to raise our prices 10 times over what we have."

The NCAA doesn't pay its players at all, but the price of tickets to the BCS and Final Four keeps climbing.


Zachary (Sacramento): Why doesn't Las Vegas have an MLB franchise? Isn't gambling on baseball relatively uniteresting enough to allow a team to move into Nevada? I know other sports have made arguments that betting/gambling is too close to the on field action...what about New Jersey? Isn't the home of the Sporanos close enough to New York City?

Doug Pappas: The Las Vegas market is too small to support a MLB franchise -- particularly since outside the immediate metropolitan area, there's nothing but desert for two hours in any direction.

New Jersey could definitely support a major league team, but northern New Jersey is part of the Mets and Yankees' territory and much of southern New Jersey is in the Phillies' territory. Those teams have veto power over such a move and will never consent.


Drayton (Houston): Have player salaries increased, decreased or remained about the same as a percentage of gross industry revenues in recent years?

Doug Pappas: Since you were nice enough to submit this question in advance, I looked up the answer before logging on:

Salaries as a percentage of revenues:

1996: 52.9%
1997: 54.0%
1998: 51.3% (expansion year)
1999: 54.0%
2000: 52.4%
2001: 55.6%

2001 was unusually high, but part of that is probably because Sept. 11 depressed revenues for the final weeks of the season.

The best predictor of this year's salary increase is last year's revenue increase. This year, Opening Day salaries rose by the smallest percentage in years.


Paul Covert (Lynnwood, WA): Has revenue sharing made a difference in the percentage of industry revenue that ends up in the players' pockets?

Doug Pappas: So far I doubt it's had much of an effect. This would be a very difficult issue to study properly, but since the MLBPA is willing to accept some additional degree of revenue sharing, it's reasonable to assume THEY don't think it's been much of a drain on salaries.


Brian (STL): Why shouldn't MLB expand in NYC or northern NJ? If anything it could cut into their cable revenue, possibly brining those teams' salary spending down to the stratosphere.

Doug Pappas: MLB as a whole would be much better off with a third team in metro New York. The Mets and Yankees wouldn't be, though, and under current MLB rules they can veto any such move.


Vincent Paterno, Westfield, NJ: How much do you think baseball's attempt to contract is simply its way of circumventing a franchise move to Washington, D.C./Northern Virginia at all costs? And if the arbitrator rules for the players regarding contraction, is it dead? What would players then demand from management in exchange for contraction?

Doug Pappas: MLB likes the idea of an open territory that wants baseball -- it gives teams leverage in negotiating stadium deals with their hometowns. Right now, DC/VA is the only place most clubs could credibly threaten to move.

At this point, contraction depends more on the outcome of the labor talks than on the arbitrator. The owners admit that even if they win, they still have to bargain the "effects" of contraction.


gil(cincinnati: With the Twins being saved(temporarily) from extinction who will be going when the Spos' go?

Doug Pappas: My best guess is that 2003 will be played with 30 teams and the Expos headed to DC/VA.

If a second team is contracted, the Devil Rays are far and away the best candidate, but they may not be contractable. MLB would have a hard time justifying elimination of anyone else while the Devil Rays still live.


Tim (DC): Doug, Your analysis of solvency is way off the mark. Owner's equity doesn't represent cash, just past earnings (which may have been spent on capital purchases or paid out as dividends. The best predictor of solvency is cash flow which is not discussed in your column.

Doug Pappas: I don't disagree -- but the analysis is necessarily limited by the available data. Forbes published estimates of the teams' market value and outstanding debt, so that's what I worked with.


Alan (Toronto): Doug, is an "independent" commissioner, a Landis-lite figure, possible in MLB ever again? Would it be desirable if it were possible?

Doug Pappas: I don't think it's possible. Both sides are satisfied with the status quo: the owners hire the Commissioner, and the players have access to an independent arbitrator when need be.

I don't think it's especially desirable, either. If we're going to start appointing neutral commissioners to run industries, let's start with industries more important, in a larger sense, than sports leagues.


Joe (Boston): Are you related to Dr. Pappas, formerly of the Red Sox?

Doug Pappas: No. Nor to Milt or Erik.


Jeff R (New York): Is it really legal/Constitutional for baseball to continue being anti-trust exempt? (And to hide their real financial numbers from the justic dept. and congress?)

Doug Pappas: It's legal -- it's just stupid.

As for keeping their financial information private, I have no problem with long as they don't beg for publicly-funded stadia or cry poverty at collective-bargaining time without providing adequate evidence to support their claims. The moment they make claims about their finances, they should be asked to back them up -- and if they don't, their claims should be ignored.


Mike (NY/GA): Hazard a guess...what are the odds of a strike/lockout?

Doug Pappas: Lockout: less than 10%. The owners won't lock out until next spring, and the players will have beaten them to the punch.

Setting of a strike date: 100%.

Actual strike: Unclear. Once a strike date is set, the owners' apparent unity will start to splinter. If there is a strike, though, I don't expect it will last very long -- thinnk 1985, not 1994.


Brian (STL): In your column this week you said that you don't believe the Commish's claims about 8 teams being on the brink of bankruptcy. Recently in an interview with the Washington Times, former Commish Fay Vincent said that if there were a strike this year that about 4-6 teams would be in serious financial trouble. Which should I believe? Both, neither?

Doug Pappas: Vincent's point was that a number of teams are highly leveraged. They need the cash flow from continued operations to service their debt.

Vincent also said that if there was a strike, the bankers would demand the owners make a deal within a week. Two years ago, Forbes reported that several of the owners' loan agreements provide that the loans come due immediately in the event of a strike or lockout. If that's true, many of the owners can't afford a stoppage.


David (Evanston): How does the Florida Supreme Court ruling on franchise locations matter? Yeah, Florida can sue, but baseball has an anti-trust exemption from the US Supreme Court, which, as an attorney, you should know, pulls rank.

Doug Pappas: The Florida Supreme Court interprets Flood v. Kuhn as limiting the exemption to labor matters.

Flood did basically say that the entire rationale underlying the Federal Baseball decision that created the exemption has been undercut and is no longer valid, and that the strongest argument for keeping the exemption was that Congress declined numerous opportunities to repeal it.

If the D-Rays are targeted for contraction, the legal battle will go: Florida attorney general gets state court authority, MLB seeks a federal court injunction against the investigation, and whatever decision the federal court makes is immediately appealed. Who knows how it'll play out?


Geof (Huntsville, AL): What legal basis does Selig have to fine his fellow owners $1M if they talk about the labor situation? Does this help the MLBPA any legally?

Doug Pappas: The "legal basis" is the authority granted him by the other owners. It doesn't help the MLBPA, except as a nice talking point for the media.


Plainview: When is Selig gonna admit that he is still involved with the Brewers?

Doug Pappas: Please! He just owns 35% of the team, held for him in a blind trust administered by three long-time friends while his daughter and son-in-law run the team. Why would you consider that "involvement"? :)


Duan (Dublin, Ireland): Hi, In soccer, we use a system where playing in the top level is dependant on performance. Do you think that there's any possibility of having a promotion relegation system in baseball and whether or not exposing the bad teams in MLB to relegation may make the teams more honest in their attempts to both perform, and in spending money.

Doug Pappas: Promotion/relegation is a nice idea, but it's unworkable as U.S. professional baseball is currently structured.

The 30 major league teams control all the players in the organized minors. You can't have, say, the Columbus Clippers promoted from AAA to the majors -- all their players already belong to the Yankees!


John (Santa Fe): DP- Don't MLB owners need to make a much bigger profit considering the low return on their investment? I mean, if owning a baseball team was such a good investment, wouldn't the Carlyle Group be snapping them up? I know its hard to sympathize with rich owners, but it seems to me that the fans and the game would be better served if more people were figthing to own teams.

Doug Pappas: I don't think owners "need" any amount of profit. Anyone who's dissatisfied with the return offered by an MLB team should look elsewhere -- and so long as teams aren't being abandoned and left ownerless, I'm not going to worry about how much the owners are making.


Bill (Chicago): I believe everything BP says about Selig (I may be a little naive). So if he's such an idiot, how long can he keep the support of enough owners to keep him in power?

Doug Pappas: Selig actually has some strengths. He got where he is by working the phones constantly and knowing where the owners' center of gravity lies on any given issue.

Unfortunately, those are the wrong strengths for his current position. He should be the #2 or #3 person, not the CEO -- and, God knows, not the public spokesman.

Doug Pappas: Just a couple more...


Ryan (Atlantic Canada): Bold prediction: what do you think will be the outcome of this dispute between the players and the owners?

Doug Pappas: Players meet around the All-Star break to set a strike date for early August. Negotiations intensify. The morning of the strike date dawns without an agreement.

Beyond that...? It's too early to tell. Either the parties will reach a last-minute agreement or the players will walk out. If they strike, though, I don't think it will be a long one.


Geof (Huntsville, AL): Which owner would have a better public face, then?

Doug Pappas: The Commissioner shouldn't be an owner. He (or she -- Lynn Martin was mentioned as a possible candidate a few years ago) should be an employee of the owners.


Ben (Boston): "I don't think owners 'need' any amount of profit"???? Are you working for the players union? Why do the players "need" profit if the owners, who've shelled out millions and take multi-million dollar risks, don't also deserve profits. Both deserve to make money, not one over the other.

Doug Pappas: The players don't receive "profit." The players receive "wages." They're part of the entertainment industry, where top-of-the-line talent makes an awful lot of money without assuming the risks of ownership.


Jason Fields (Paoli Indiana): Why don't the MLB cut the Yankees Payroll and split it up to the less market teams with salary cap problems?

Doug Pappas: An easier solution might be to install Jeffrey Loria as CEO of the Yankees. That should cure the revenue imbalance...


Perry(Monterey): Why do you think the players would set the strike date for August? I would October would give the most leverage, since they would get all their salaries for 2002 and the owners would stand to lose huge TV revenues if the playoffs/WS were put in jeopardy?

Doug Pappas: That's an all-or-nothing gamble. If the owners don't blink, the players are screwed.


Bill (Pittsburgh): Have you ever ran a franchise? What credibility do YOU have?

Doug Pappas: You be the judge of that.

Doug Pappas: One last question before my fingers fall off...


Zachary (Sacramento): Doug, is MLB run like a totalitarian state? It seems Selig would be considered an evil (if not, bad) dictator if MLB were a country.

Doug Pappas: No. The owners have kept their disagreements out of the papers (unlike in 1992-93, when they were publicly at one another's throats), but Selig can't dictate anything that's opposed by a majority of the owners.


Dave (Redding): Thanks for your time today, Doug. It's nice that baseball can be discussed without being low brow...even if the Yankees do suck.

Doug Pappas: This Mets fan thanks you -- and everyone else -- for coming. Hope to do this again sometime!