Baseball Men - The Economist

Our ‘Baseball Men' interview series continues with Dr. Andrew Zimbalist, the foremost authority on the Business of Baseball.

Being a baseball fan means a membership into the biggest debating society in the world. Mays or Mantle? Koufax or Marichal? Cardinals or Cubs? Peanuts or cracker jacks? All you have to do is pick a side, wait for someone to take another, and yet another conversation is born.


One thing that isn't up for much debate, however, is the identity of the foremost authority on the economics of the game. That would be one Dr. Andrew Zimbalist.


After all, Dr. Zimbalist's resume reads like a laundry list of high-profile know-how about the business behind the game. Shortly after he received his Ph.D. from Harvard in 1974, he became a tenured economics professor at Smith College and began his career as an expert in scores of sports-related court cases, arbitrations, and Congressional hearings. In the years, since he has also written dozens of articles for publications like the New York Times, but fans might know him best for his most recent, well-received books on the game-  May the Best Team Win' (2003) and ‘National Pastime: How Americans Play Baseball and the Rest of the World Plays Soccer' (2005).


The good doctor is currently working on his eagerly awaited new book, ‘The Best Interests of Baseball?: The Revolutionary Reign of Bud Selig', which is expected to hit the stores in March 2006.



In your past writings, you've placed a lot of emphasis on baseball's monopoly status, on its status as the only industry which enjoys a presumed exemption from antitrust law. Please explain how you think that works in the game, and why you think it's important.


If you take a long view of the exemption, which dates back to 1922, you see an industry that stood pretty much alone on the professional sports pedestal in the United States. On top of that, they were given an exemption from the nation's antitrust laws. So, not only did you have an industry without a lot of competition, but essentially, you had one with a lot of power to prevent competition from materializing.


In those circumstances, you encouraged those in charge to be lax, lackadaisical, and non-responsive. I think if you look at the central governance of baseball, if you look at the management at the team level, you see this kind of creeping lassitude take over. Instead of getting entrepreneurship, instead of establishing bridges to the local community by courting fans and doing marketing to promote the game . . . instead of doing all that, they sort of sat back and said ‘We're baseball. We're a monopoly, we can do what we want, we'll open the gates a little before game time and people will come'.


That might be exaggerated a little bit, but basically was the management culture that set in.


Is that kind of image still valid today?


I think they're still struggling to overcome that, that they're in a process that's finally moving forward in overcoming some of the historical inefficiencies and laxities.


In the late ‘50's the NFL emerged and emerged rapidly, and two decades later the NBA emerged as a strong competitor. As a result, baseball as a sport started to realize that it had to change its ways. I think you see the beginnings of that recognition at the end of [Commissioner] Bowie Kuhn's period [of the late 1970's and early 1980's] but he doesn't really do anything about it. [Commissioner] Peter Ueberroth started to do something about it [in 1984-88] by growing sponsorships. Fay Vincent didn't have much time to do anything [in 1989-92] and had all sorts of new problems.


And then we've had Bud Selig, who's been an owner and Commissioner at the same time. He's seen it as baseball's direct interest to develop the sport commercially and promote it as a business, so they've started to do that. Baseball began to change its ways. I think you had a combination of different sources and forces coming together in the early ‘90's to change the management culture for the first time.


That's not to say that they've dealt with all their problems and we don't have to worry about monopoly power any more, but I think the industry is much more responsive.


But how much of today's competition can be traced as far back several decades now, to the mid-1970's when the modern free agency overthrew the old reserve clause system?


It began to change in the late 1970's, when they suddenly had to start paying significant salaries to the players and start looking for new revenues. But the change has come slowly, it really has.


Part of the problem with baseball, historically, is that the owners have been very fractious. They always had many different ideas about what had to be done, because the ownership experience in Milwaukee or San Diego or Kansas City has been different than Los Angeles or New York. Often, they owners have had big egos; they've been on top of the world in their industries; they're used to having their own ways; they all have their own style and ways and politics. It's been very hard to get all the owners together on any one position for the industry.


You see, the early years of free agency weren't only defined by pressures on the cost side - it was also very hard for the owners to agree on what they should be doing for the game. But one thing that they could agree on was their desire to smash or curtail free agency. It was really a period where the owners were really sent into a tizzy.


I wonder how much of that lack of owner unity or central control has really been a problem, however. Stuff like the color line, collusion to wreck the free agency market, and anti-labor efforts were all about united owners' desire to assert control. On the other hand, individual teams have done a lot to innovate and grow the game.


That's not what I'm talking about. What I'm talking about is creating a framework for centralized rules of the game. Do you have revenue sharing or not? Do you have centralized marketing initiatives or not? Do you do you do something about the advent of the steroids problem? Those are not issues you can deal with in a local market.


Yeah, in local markets, some teams are going to emphasize on-base percentage, others are going to emphasize batting average, some are going to emphasize player development, others are going to emphasize free agency. Yeah, you have local initiatives, but all that has to take place within a central framework created by Major League Baseball. It's that framework that hasn't been there, and that's created a lot of argumentation and divisiveness among the owners. Without a strategy, it's hard to get anywhere. You tend to get instead, crisis management and no industry can successfully operate with crisis management for long.


But the numbers seem to indicate that the majors have been very successful indeed for the last decade, at least to judge from record attendance and gross revenues.


Since the early ‘90s, they're starting to get their act together, increasingly so. When salaries started to push up in the late ‘70's, there was some promotion of the game and they started to expand the number of teams. Part of their revenue success since the early 1990's has had to do with the telecommunications revolution. You can't necessarily attribute the revenue growth to something they were doing right - it was more an outside something they took advantage of.


Commissioner Selig has promised to push for more revenue sharing in the next collective bargaining agreement. How do see the issue?


I think revenue sharing is a positive for baseball. The owners are going to share almost $300 million dollars this year.


The problem is with the incentive structure in the revenue sharing system - they reward failure and penalize success. The better job you do in building a team, attracting people to your ball park, and boosting television ratings, the more you'll be taxed. And, the worse job you do, the more revenue transfers you'll receive.


For example, you have an example like the Philadelphia Phillies. They play in the fourth largest market in baseball and, until last year, they were getting roughly $10 million plus per year in revenue sharing. That's absurd. [Owners] David Montgomery and Bill Giles weren't doing a good job in building their team and selling it in the community, and they were getting all that money in the largest unshared market in the game. Those are bad incentives.


At the other end, you have the Red Sox in the sixth largest media market in the country and the 18th or 19th largest baseball territory, as defined by Major League Baseball, and   because they've been so successful, they're paying the second-most revenue sharing of any team. Close to $50 million dollars in revenue sharing. So, you're penalizing them for being successful.


In my view, the revenue sharing system is structured wrongly. The teams shouldn't share based on revenue; they should share based on local market size.


The Commissioner has taken the credit for the game's competitive balance by connecting it to his revenue sharing system.


If you look at the number of teams in contention to make the playoffs as of September 1st, it's been close to half the teams in the last two years. Selig says it's the revenue sharing but, if you think about it, how's revenue sharing supposed to work? You're supposed to give money from the rich teams to the poor teams and the poor teams are then supposed to spend it on players. If you give David Glass, the owner in Kansas City, $25 million and he puts it in his pocket, how's that supposed to make the Royals better? It won't. The system only works if you take the money from [Yankee owner George] Steinbrenner, so he has less money to spend on his players, and you give it to Glass, so he has more money and he spends it on his team.


The [revenue sharing system] is supposed to reduce the salaries at the top and raise them at the bottom, but if you look at the figures in payroll differences, they're significant and they're growing. All the numbers indicate that there's more payroll inequality today than there was in 2000 or 1996. The revenue sharing is, in fact, not working to promote competitive balance, though it is working to restrain salary growth.


It's a mistake to attribute whatever improvements in competitive balance to the revenue sharing system. It makes more sense to contribute it to other factors. Some of it may be chance; some of it may be better management, or the introduction of the wild card, which doubled the number of playoff teams. The Yankees have gotten older, and that alone has created greater opportunity for other teams - this is part of a natural team cycle.


Part of the complication seems to be in the definition of a ‘market', in deciding how much built-in economic power different franchises really possess.


The one thing that's often overlooked about smaller markets is the fact that they tend to have less competition from other sports. They also tend to have fewer cultural entertainment options - they don't have as many expensive theatres or expensive museums or expensive night clubs. The Yankees and the Mets, though they tend to have a greater population to work with, also have far more entertainment competition. That tends to diminish their apparent advantage in terms of population size.


The other thing that gets left out of the discussion, unfortunately, that some owners have a much greater incentive to invest in their team. If you're Ted Turner and you own TBS, or you're George Steinbrenner and you own the YES Network, or you're Tom Hicks and you own Clear Channel entertainment, it's different. For instance, when Hicks signed Alex Rodriguez for $252 million, he was thinking of A-Rod's direct contribution to the baseball team, but also his indirect contribution to the worth of the ballpark real estate and Hicks' profile in Dallas.


In the past, you've made reference to the need to ‘level the playing field'. Is that a practical goal, insofar as it suggests absolute equality between teams?


Oh, ‘leveling the playing field' doesn't suggest absolute equality - it suggests more equality. ‘Level' is a verb. The phrase suggests a more level field.


I don't think anyone wants perfect parity; it doesn't make sense to have perfect parity. What you want to do, to be candid, is to have big market teams be somewhat more successful than small market teams. When the ten million TV households in the greater New York metropolitan area are excited, that's when you get the biggest boost in the television ratings. Sure, you want the Royals to go to the World Series every once in a while, but if they go to the World Series every year, instead of the Yankees, you won't get good ratings.


There are so many different measures of competitive balance. How would you suggest measuring it?


Unfortunately, it's a very elusive matter. The more important measurement is the distribution of outcomes over time. In other words, the mobility between the top and the bottom.


One of the reasons the United States is a stable country is because there's a widespread sense that this is a land of opportunity. There's a sense that, no matter how low you start out, if you apply yourself you can rise up. Now, obviously, not everyone can do that, but it's part of our belief because most people can have that kind of opportunity.


I think it's the same thing in baseball. It doesn't matter if a team has a terrible year, as long as they aren't stuck in the cellar year after year. As long as they can come back after a few years and contend for the postseason, you're probably doing a good job. At the end of the day, what's most important is fan perception that their teams have a chance, that they won't necessarily get bowled over by a $208 million payroll.


In your 2003 review of ‘Moneyball', you expressed a lot of skepticism over smaller budget teams' long-term ability to compete against bigger market teams. Do you still feel the same way? Is the story less about Billy Beane's brilliance and more about smaller market teams' tendency to make up for their budget shortfalls with better management?


I'm not sure how brilliant Billy Beane might be. I mean, I think he's competent, but I wouldn't call him brilliant.


I think the main story in the A's success is the pitching staff - they had four top-flight pitchers. Those pitchers didn't come to the A's because of the insights of sabermetricians or Bill James and his theories. I have a high regard for Billy Beane; I have a high regard for Bill James, but to say that their pitching came through some special sabermetric insight, rather than good scouting, makes no sense whatsoever.


I thought [Michael Lewis' ‘Moneyball'] was a nicely told story, but the notion that this should be elevated to some kind of a bible for baseball, a secret for competitive balance, just didn't appeal to me at all.


The argument remains, however, that smaller budget teams like the Athletics, Twins, and Marlins have made multiple playoff runs because they tend to be more fundamentally sound, innovative, systematic, and longer term in their thinking. Do you think that's a valid way of looking at the business of baseball?


The notion that somebody in a small market is going to be more frugal and somebody in New York is going to be more wasteful? Sure, that can happen. But it can also happen the other way, and when that happens, I'd just as soon attribute that to bad management rather to some structural tendency in the markets.

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