Outside the Lines: The business of baseball
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Outside the Lines: The business of baseball | ||||
OUTSIDE THE LINES - Can Major League Baseball Level the Economic
Playing Field?
Announcer - July 16, 2000.
Mark Schwarz, Guest Host - After 18 months, the findings from baseball's economic parity panel were revealed.
Unidentified Male - There is a large and growing revenue and
payroll disparity. And those disparities are causing problems upon
competitive imbalance.
George Will, Baseball Economics Committee Member - "Wait till next
year" is an old baseball cry. It Will simply not do as a principle of
baseball governance any longer.
Schwarz - Even the man responsible for deciding the future course
of the game acknowledged the urgency of the issue.
Unidentified Male - We are done making believe this doesn't exist.
It exists in a very real way. And now we have to figure out what to do.
Schwarz - Next on OUTSIDE THE LINES, Will a high profile report
alter the competitive balance in Major League Baseball?
Announcer - OUTSIDE THE LINES is presented by 1-800-CALLATT.
Joining us from ESPN studios and sitting in for Bob Ley, Mark Schwarz.
Schwarz - Baseball is a sport divided. The large market teams
expect to win. The small market clubs hope to survive.
In a game where hope is meant to spring eternal, it often
disappears in January. Last season, the eight clubs that advanced to the
post season ranked in the top 10 of player payrolls, averaging $73
million.
Commission Bud Selig, who ran the Brewers for 28 years, is well
acquainted with the plight of small market clubs. He says the solution is
increased revenue sharing.
Owners like the Yankees' George Steinbrenner and the Orioles'
Peter Angelos may not be convinced that they need the Montreal Expos and
the Minnesota Twins at all. What Steinbrenner and Angelos failed to
acknowledge is that the goal of a league is not to eliminate competition,
but to create it, to have pennant races determined by ingenuity rather
than by payroll size.
Selig says the situation is so desperate that he Will now consider
relocating some teams. And he hasn't ruled out the previously unthinkable
notion of eliminating some of the weakest.
And Selig now has unprecedented powers to order wealthy teams to
surrender their riches. He even convinced owners to surrender complete
control of their Internet rights to the league office.
We begin this morning with a report on how the Internet may help
the game regain its competitive balance. Here's Shelley Smith.
Shelley Smith, ESPN Correspondent (voice-over) - C.J. Nitkowski is
a relief pitcher for the Detroit Tigers who, like many professional
athletes, has his own Web site. But unlike many professional athletes, he
maintains it himself and monitors it often, uploading photos, writing
restaurant reviews, answering e-mails, and posting fans' critiques of his
team's play, including his own performance.
C.J. Nitkowski, Pitcher, Detroit Tigers - I told them, I said, "If
you think I pitched bad, let it loose. That's fine. I can take it." And
I got...
Smith (on camera) - Let's see what they're saying...
Nitkowski - ... I got waxed on Sunday pretty good. "C.J. was not
sharp today."
Smith - The defend behind him didn't help him out.
Nitkowski - Yeah, exactly. I'm all for blaming somebody else.
No, but he did a nice job, a 16-year-old kid. You know, it's fun for
them.
Smith (voice-over) - The site also provides Nitkowski with the
opportunity to talk about off-the-field issues.
Nitkowski - I went to arbitration this year, and I wasn't happy
about it. And I wrote something on there. And I probably - it would have
been better if I had just stayed away from my computer because I was
pretty fired up about the whole situation.
Smith (on camera) - Nitkowski's Web site is something that Major
League Baseball plans to take a long look at as part of its efforts to
gather team- and player-related Web pages and put them into one main site
that baseball Will own and oversee.
Bob Dupuy, Head of New Media, Major League Baseball - What
baseball wants to do is become the ultimate baseball destination for all
of our fans and for the consumer. We want to provide a customizable
experience for all of our fans. And we think given our assets and our
content that the Internet provides an enormous opportunity for us to do
that.
Smith - In January, owners voted to combine Internet revenue,
meaning for example that once in place funds generated from the Yankees
site - one of baseball's most popular and lucrative sites - would be
shared with the league's other 29 teams whose sites are visited less.
Terry Lefton, "Brandweek" Magazine - In the case of baseball
specifically, every time they get something that looks like a tantalizing
new revenue stream, the commissioner takes it upon himself to see if that
could possibly address the inequities between the big and small market
clubs.
Dupuy - We think that this can be a significant component of what
the commissioner has instructed us to try to achieve. And that is to help
with regard to the economic disparity that's present in the game today and
help therefore with regard to the competitive disparity that's present in
the game today. And yes, we're confident this can be an integral part of
that.
Lefton - The problem is how much money Will it generate? If you
look at the economics of what a player earns, an average player earns
around $2 million. A star player earns around $10 million. So is the
Internet play going to generate enough so that each club gets $10 million
or that small market clubs get $10 million additional income that Will
allow them to get one star player?
Smith - At issue still is who actually owns the Internet rights to
things like game or practice video or even merchandise sales. Major
League Baseball is beginning to explore the scope of intellectual property
rights.
Donald Fehr, Executive Director, MLBPA - That involves the
potential applications of traditional law relating to copyright,
trademark, privacy, and publicity rights of individuals and companies and
how that would apply in the Internet area. And I think that remains to be
seen.
Smith (on camera) - Do you know how it's going to work yet? Or is
it something you guys are still...
Dupuy - We are still talking about it as part of both the
collective bargaining process and as part of again providing an enriched
environment for the fan. It is an emerging area, although we have 50
years of labor negotiations and collective bargaining agreements that deal
with what rights we have, and what rights the players have, and what
rights the players association has. And we Will work through all of those
issues.
Smith (voice-over) - So the question remains how could all of this
affect someone like Nitkowski? If he stays independent, which he is
allowed to do, could baseball, for example, forbid him from using team
logos or other trademarked material on his site?
Nitkowski - Would they? I doubt it. I think you're going to see
push come to shove when it comes to video on the Net. That's going to be
the big battleground because they know that's where the money is going to
come in.
Smith - So far Nitkowski isn't exactly thrilled by baseball's
proposed super site.
Nitkowski - I don't think that should be something that Major
League Baseball has total control of because some sites are better than
others. Bud Selig I don't think needs to have his hand in that. I mean,
that's something that should be left up to each individual team and what
they want to offer for their fans.
Dupuy - We don't, however, intend to have each of the individual
sites be devoid of their own local flavor and content. We adopted what
we've called the hybrid model. And that is each of the individual clubs
Will be able to provide their own look, their own look, their own content
so that the fans of a particular team Will feel comfortable going to their
own site.
Smith - And Nitkowski is even less thrilled about moving his page
there.
Nitkowski - I'm not trying to be politically correct. I'm not
trying to. You can get that stuff in the paper. You know, I'm just - I
mean, I don't talk about everything. I mean, obviously there's things
that need to be kept in the clubhouse or kept amongst the team. And I'm
smart enough not to cross that line. But as much as I can tell you, I
Will.
Smith (on camera) - Nitkowski had an offer in the off season to
turn his Web site over to Rivals.com, one of the leading producers of
athlete Web pages. He turned them down even though they offered thousands
of dollars and stock options because he says he wanted to continue to give
his fans something different, something not likely to fall under Major
League Baseball's Internet umbrella.
For ESPN's OUTSIDE THE LINES, I'm Shelley Smith.
Schwarz - When we continue, Will teams like the Twins and Expos
survive to one day enjoy the benefits of baseball's projected Internet
windfall? We Will explore that with one of the authors of the report and
with a legendary labor leader.
Schwarz - Our topic, the attempt to level the economic playing
field in Major League Baseball. And joining us from Aspen, Colorado,
Richard Levin, the president of Yale University and a member of the panel
chosen by baseball to study its financial inequities. From New York, the
former executive director of the Major League Baseball Players
Association, Marvin Miller.
First, let's just review the principal recommendations from
President Levin's committee, that at least 40 percent of all local revenue
be shared by all the clubs, that there should be a 50 percent tax on club
payrolls above $84 million, that clubs should be encouraged to have a
payroll floor of $40 million, that the commissioner have a fund to assist
small market clubs with competitiveness, and finally that franchise
relocation be considered.
Rick, let's start with you. How do these proposals affect fans in
markets big and small?
Richard Levin, President, Yale University - I think it's going to
be good for everyone because the idea is to bring the teams into better
competitive balance. You know, in the last five years, we've seen an
unprecedented disparity where nine of the 10 teams in the World Series
were right out of the top of the teams ranked by order of payroll.
Seventeen of the 20 teams that made the playoffs were in the top seven in
terms of payroll in that particular year.
The disparity between what the richer clubs can pay and what the
bottom of the market can pay has now grown to about three-and-a-half to
one in terms of payroll. It used to be two to one or less throughout the
history of baseball.
We think that needs to be addressed. And the recommendations go
to compressing that range of payrolls by bringing the bottom up and making
those teams in the bottom and in the middle more competitive.
Schwarz - Marvin, you have read this report. What do you think
about some of the proposals inside it?
Marvin Miller, Former Executive Director, MLB Players Association -
Well, I've only skimmed the report. But I have to say I'm not impressed
with the proposals. I had hoped that there might be some original ideas.
And I had hoped that the report would be a lot more scholarly than it is.
It's a kind of a rehash of the arguments that have been made for
years. There's a kind of a shift in the argument in recent years. That
is instead of claiming outright poverty, the argument has shifted to the
question of competitive balance.
And I guess I'm older than most of the writers who cover this.
I'm older than the four members of the panel. But I find the notion that
competitive imbalance as a serious problem which has grown worse through
the years to be absolutely incorrect.
"Sports Business Journal," a Street and Smith (ph) publication
which covers sports closely, did a survey of their own, kind of impressive
research survey last year at the end of the season. And what they
concluded was that the 1990s was the most competitively balanced decade in
the entire history of Major League Baseball.
Schwarz - Well, I'll tell you, Mr. Levin, how do you respond to
that? Twenty-four of the 30 major league clubs this decade have made it
to the post season. Is that bad?
Levin - That of course is not bad. But what is not being
recognized here is the tremendous change since 1994. Actually, if you
wanted the most competitively balanced decade in the 20th century, you
would pick the period 1985 to 1994.
What's happened since - and all the movement in payroll disparity
has occurred during this last six-year period...
Schwarz - But why do you choose...
Levin - Why...
Schwarz - ... to study a five-year period that happened after a
cataclysmic strike?
Levin - ... Well, because it's changed the game. I mean, I agree
with Mr. Miller on the conclusion that the issue now is not poverty. This
issue is competitive imbalance.
And we're concerned that if you let this situation persist where
only the wealthier teams are able to have true hope of making the
playoffs, you Will diminish the fan interest in the game and fan attention
to the game.
That, we have to remember the period in which there was great
competitive imbalance, namely in the long period of Yankee dominance, 1920
to 1964, the stands weren't full. People didn't go to the game like they
do today. And they didn't have the TV audiences they have today.
The players benefit from this, as well as the owners of course.
The popularity of the game is something that we value and we think the
fans of America value. And that's why we believe some measures. These
are not radical measures. They're not overreaction I believe to
situations. I think they're appropriately tailored to the situation.
Schwarz - Marvin, isn't it better if all 30 clubs can bid for the
premiere free agents rather than the seven or eight that are bidding for
them now?
Miller - Sure. No question about that. But that's not the issue
here. You know, you've got to stay with competitive imbalance because
that's now said to be the cure for everything that's going to happen.
I'm troubled by the fact that the panel chose to make its case by
using the industry's figures, which are very selective figures, which are
unaudited figures, and which are unanalyzed basically. And I think that's
a dangerous practice.
I want to explain what I mean. Paul Biston (ph), who is the chief
operating officer of Major League Baseball...
Schwarz - Mr. Miller, let me get in for just a moment. We have to
take a break. We're going to get into those unaudited figures that you
referred to in just a moment with Mr. Levin.
We'll be back with more on baseball and parity right after this
break.
Schwarz - And we're back with Yale University President Richard
Levin, and the man who challenged baseball's reserve clause, Marvin
Miller.
And when we left, Mr. Miller, you were challenging some of the
data in Mr. Levin's report.
Miller - Well, not so much challenging the data as the
methodology. You know, the owners have always been reluctant to turn over
any kind of figures, even when they were obligated to do so by law because
they knew that they would be analyzed and subject to a lot of scrutiny.
And I see no evidence that that is what happened this time.
Apparently the owners' figures are what the panel is relying on. And I'm
starting to quote one of the top officials of baseball who is Paul Biston
(ph), who is the chief operating officer of Major League Baseball and
second ranking official of the game.
When he was the comptroller for the Toronto ball club, he was
interviewed by a national magazine about baseball's perennial claims of
poverty they made in those days. And he responded in effect in the
following fashion.
He said, "Any certified public accountant with any ability at all
without violating the law could convert a major league baseball club's
actual multimillion-dollar operating profit to an apparently
multimillion-dollar loss."
Now that's not my statement. That's Paul Biston's (ph) statement.
And I think it points out...
Schwarz - Mr. Levin, can you respond to Mr. Miller's comment?
Levin - I've been waiting for an opportunity to respond. First of
all, what Mr. Miller says may have been true of previous studies in
previous eras. But it's not true on this one.
First of all, we don't rely on profitability data. We show some
of it in an appendix. But our conclusions are based entirely on the
connection between local revenue, payroll, and winning and losing. And
the detailed analysis contained in this report - and I do hope Mr. Miller
Will take the time to read it - the detailed analysis rests principally on
the link between payroll and winning and losing, which we think is
dramatic.
Now the payroll numbers I Will remind you are numbers where the
definition of these was agreed to in the last labor contract. And as I
understand it, these numbers are audited twice, once by the owners and
second by an outside auditor retained jointly by the players association
and the owners to certify them for purposes of computing this currently
so-called luxury tax.
These aren't unreliable figures. They're perfectly reliable
figures...
Schwarz - Marvin...
Levin - ... And we've worked with great care to analyze them. And
I do...
Miller - Let me jump in. What's troubling is let's just take the
figures as presented by the panel. And incidentally, what I'm about to
say is not even pointed out, although I think it's significant.
The figures shown in the period selected by the panel is that the
average club payroll in those years, 1995 through '99, has increased by 50
percent, big increase. But the average revenue of the clubs in the same
period has increased double that, 101 percent, so that the average club
payroll went up something like $16.6 million a year. And the average
revenue went up $46.7 million a year.
But that's not the only point here. When you look at what the
panel says is the profit and loss table, they say in those years only
three clubs were profitable. They make a big point of this. Three clubs.
And they were profitable by an average of $24.6 million a year.
Schwarz - Let me get back to Rick here just a moment...
Miller - Let me get the unprofitable ones...
Schwarz - ... OK.
Miller - ... because it's rather important. The alleged 27
unprofitable clubs were unprofitable by an average of $59 million, almost
$60 million? Now how is revenue sharing going to produce the desired
solution according to the panel? If you're going to take three clubs with
an average of less than $25 million a year profit and divide it up among
30 clubs, including 27 that were unprofitable by almost $60 million a year
on the average, you're not going to accomplish anything.
Schwarz - Mr. Levin, we're in our last minute. Let me ask you, if
you're a successful owner like George Steinbrenner in the most costly
market in the world, and you're making hundreds of millions of dollars,
why should you share that with owners who are perhaps inferior and not
doing as good a job as businessmen?
Miller - Well...
Levin - Because the...
Miller - ... go ahead.
Levin - ... I thought the question was addressed here. I think
it's in the interest of the game that even the best teams and most
successful have strong competition to play against. I think if they
don't, the fans Will eventually lose interest.
And when you have a situation where the odds that the Yankees face
when they go and play a Minnesota are three to one that they're going to
win - which is pretty much what the data show - that's not - or
two-and-a-half to one - that's not good for the game.
I do wish Mr. Miller would focus on the positive effects of this
proposal for players. This Will make, as you suggested Mark, it more
possible for the middle teams and even the lower teams to bid successfully
for talent. And I believe the competitive boosters of the owners Will
encourage them to continue to pay appropriate salaries for the players.
This is not an attempt...
Schwarz - Mr. Miller...
Levin - ... This is not an attempt to squeeze down player
compensation. It's an attempt to make the game more competitive.
Schwarz - ... 15 seconds. Your final thought, Marvin.
Miller - Well, I just looked at the paper this morning. There's
the White Sox in this year 2000 with a payroll of $31 million a year
compared to the Yankees $100 million. They're twenty-sixth out of 30
clubs in terms of payroll rank.
In the central division, the White Sox are in first place.
They're eight-and-a-half games over Cleveland and...
Schwarz - Mr. Miller, I'm sorry but we are out of time.
Miller - ... OK.
Schwarz - Thank you very much for joining us. Rick Levin...
Levin - Thanks.
Schwarz - ... thank you also for joining us this morning on
OUTSIDE THE LINES. More in just a moment.
Schwarz - OUTSIDE THE LINES is interactive at ESPN.com where the
keyword is otlweekly. Browse the library of transcripts or stream video
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Our e-mail address otlweekly@espn.com.
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Mark Schwarz and Marvin Miller discuss the business of baseball.