Friday, November 30, 2001

The 2001 baseball season was one for the ages: historic feats by Barry Bonds and Ichiro Suzuki, Cal Ripken’s farewell, a thrilling World Series between the Diamondbacks and Yankees.

Commissoner Bud Selig, however, will paint a different picture Thursday when he testifies before the House Judiciary Committee. Responding to efforts on Capitol Hill to roll back the game’s cherished antitrust exemption, Selig will characterize this past season as the worst in baseball history, at least off the field.

Selig will arm himself with a litany of financial figures: 25 of 30 teams losing money this year, more than $500 million in total industry losses, more than $3 billion in total industry debt and several clubs needing league bailouts to stay afloat.

“Our economic problems are more serious than most people comprehend,” Selig said. “[This] is a business profile that’s not only unacceptable, it is stunningly bad. Everybody will see everything [at the hearing], and there will be no more dispute.”

A closer examination of the fiscal state of the game provides a picture that is far less dire one that arguably is quite robust in light of the broader economic recession. To be certain, the game is badly in need of far more competitive and fiscal balance between teams. But consider the following:

• Annual industry revenues have soared from $1.4 billion to more than $3.5 billion since the 1994-95 players strike. Average salaries increased from $1.1 million to $2.3 million over the same span.

• Fox Sports last year agreed to pay $2.5 billion over six years for exclusive national broadcast rights to baseball, a 44 percent increase over the previous contract. Fox’s investment this year was rewarded with a World Series Game 7 that delivered the network its largest audience ever for non-NFL programming.

• A 52 percent interest in the Boston Red Sox is up for sale. The stake is certain to sell for more than $300 million, the largest sum ever for a baseball franchise. The game’s estimated franchise values in total have increased 12 percent in the last year.

• One of the Red Sox bidders is George Mitchell, former U.S. Senate majority leader. Mitchell last year chaired the Commissioner’s Blue Ribbon Panel on Baseball Economics, a group that produced a report decrying the current economic state of the game.

• Leading Mitchell’s group is Tom Werner, former owner of the San Diego Padres. Out of the game since 1994 following a difficult tenure in San Diego, Werner now wants back in, and he’s not alone. Other former equity holders and executives itching to return to baseball include Fred Malek, formerly with Texas and now leading a District-based group seeking a relocated team, one-time Houston Astros owner John McMullen and former commissioner Peter Ueberroth.

• Thanks in part to the development of 11 new stadiums over the past decade, baseball attendance has grown or held steady each year since the strike, save a miniscule dip in 1999. Attendance has increased despite a near-doubling in ticket prices over the period.

• Selig claims 25 teams failed to turn a profit. If true, that would be an improvement. Baseball said only Cleveland, Colorado and the Yankees showed operating profits from 1995 to 1999. How many and which teams actually have profited and when, however, is itself a puzzle. Because so many teams are owned by larger corporations, getting a true read on a team’s cash flow is difficult.

So how does Selig or anyone else explain all the discrepancies? Good, old-fashioned posturing. The owners are working without an active labor agreement with the players union. After repeated defeats at the bargaining table, the owners are eager to get meaningful union concessions, preferably some form of cost control on salaries.

“This is pure labor negotiation maneuvering,” said Roger Noll, a Stanford University professor who publishes research on baseball economics. “Baseball is always on the verge of bankruptcy just before negotiations open. As long as we all shall live, [the owners] will say the economics of the game are in terrible shape. The players could play for free, and we’d be hearing baseball is in terrible shape.”

The union has yet to comment on Selig’s latest economic characterizations. However, union chief Donald Fehr decidedly dismissed the Blue Ribbon Panel’s report when it was released. He has since continued to trumpet the game’s rapid revenue growth as a key indicator of baseball’s overall health.

“You will discover that prior to nearly all the other bargaining sessions, each time we’ve seen an economic analysis that has suggested problems and was then used as a framework for [the owners] bargaining,” Fehr said last year. “I hope we can begin a bargaining process where conclusions can be drawn collectively and not in advance.”

Selig’s numbers also obscure two basic truths about all sports businesses. First, franchise value growth is far more important than year-to-year cash flow because the real money is made when a team is resold. Bad years can be partially offset through tax writeoffs and depreciation, but it’s a much more difficult and lengthy process to prop up a team’s net worth if it sags.

Second, baseball’s debt load is higher than ever largely because of an unprecedented turnover in ownership. Yankees boss George Steinbrenner, at the post since 1973, is now the game’s senior owner. And every time a new owner comes aboard, he brings tens or hundreds of millions in debt with him.

“We’ve had a tremendous amount of turnover,” Selig said.

Selig’s aim next week will be to convince Congress of three primary points: Baseball is financially ailing; the game is aggressively seeking to address those problems, most immediately through eliminating two teams; and that removing the antitrust exemption would do far more harm than good.

If early comments from the 15 members of Congress sponsoring the legislation are any indication, Selig will find a tough audience on all three points, even though the exemption has survived numerous challenges over its 79-year life.

The bill’s sponsors in particular are having a difficult time reconciling the rapid growth of the industry with the Supreme Court decision behind the exemption ruling baseball as solely a game and not interstate commerce.

“If the antitrust laws can apply to major league football, basketball, and hockey, there is not a reason in the world they cannot apply to major league baseball,” said Rep. John Conyers, Michigan Democrat.

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