The Baseball Strike Jude Wanniski February 10, 1995

The central problem with baseball is that on the field it is the most entrepreneurial and individualist of all team sports, but it is organized as a business on socialist principles. The players are innocent victims of an industry twisted out of shape by the policies of the national government. They are 100% correct in their negotiating position. It defies human nature and market capitalism to refuse a $2 million paycheck in preference for half that amount, which is what the players are being asked to do. In normal collective bargaining situations, the workers demand more than the owners are willing to give. In baseball, it is the owners who feel compelled to give the workers more than they can afford to pay. Something is wrong here, which is why normal mediation by the nation’s leading mediator, Bill Usery, will not work. He is a split-the-difference kind of negotiator, and there is no difference to split. The only way to solve the problem and save the season is to understand why the owners are trapped in a cul-de-sac, and how they could be rescued from it by congressional action. The key to understanding the problem is the fact of baseball’s antitrust exemption. Rep. Charles Schumer [D-NY] is exactly correct in locating the problem here. The Republican leadership in Senate and House must understand why Schumer is correct, or their control of Congress and inaction will kill baseball.

Players are Labor, which means they get paid ordinary income for the few years of their mortal careers. They should be allowed to maximize that income in any way they can, because they get only one shot. The owners are Capital, which means they are rewarded in the value of the shares they own in the franchises, which are eternal. They should be allowed to maximize the value of these shares in any way they legally can. There is no reason why there should be a baseball strike if the industry were organized on capitalist principles. In any other industry, the enterprise that has the best team makes the most money when it achieves its objective. It is not the biggest auto company that makes the most money. It is the one with the highest margins. General Motors can sell 5 million autos and lose money if its margins are negative. If Chrysler can sell 1 million autos with revenues from sales exceeding cost of sales, its owners will be happier than GM’s. The share prices of GM and Chrysler will reflect the efficiency of each of its teams. 

In baseball, the objective is to win most of the games during the season, most of the games in the playoffs, and most of the games in the World Series. A sizeable portion of the revenues to the industry as a whole accrue from the revenues that flow from the playoffs and World Series. Yet the owners, with an anti-trust exemption allowed by the government, are forced by the financial problems of the poor teams to share the revenue pie at the end of the season. Mao Tse-tung could not have dreamed up a better method of organizing the collective farms of Communist China. The franchise that sleeps through a season and comes in dead last is roused from its slumber in late October for a big meal, courtesy of the franchise that has been on the ball. Indeed, it normally costs the owners of the teams that get to the World Series between $5 million and $10 million, depending on whether the series goes to four or seven games. This is because the television money is split 28 ways. The only advantage of getting to the Series is that it strengthens advance ticket sales for the following year. Of course, players who get to the Series make higher contract demands over the winter.

There is no dispute among the owners about these facts. When I gently suggested to one owner Thursday morning that the industry is organized along socialist principles, he said “communist” is the more appropriate term. The anti-trust exemption militates toward this behavior; without the exemption, the incentives that constitute the “invisible hand” of the marketplace will quickly inspire solutions that would rejuvenate baseball. Once a team is able to pull out of a franchise city that no longer supports it, the dynamics change completely. This is one major barrier to capitalist organization. The inability of a team to relocate invites a sense of dependency among players and management and encourages the community of fans to take the franchise for granted. In the other team sports, which have no anti-trust exemption, franchises remain vibrant even on losing teams as communities respond with support.

Another reason given for the exemption is that it permits the majors to indenture minor league players for six years through the reserve clause. Without it, they say, minor league teams could not survive. The argument is merely an assertion, one that holds the rest of the industry constant in the absence of an anti-trust exemption. If the major leagues expire, the minor leagues which played a full season last year could continue without them. If the majors were to crawl out from the protection of the exemption, they would more likely experience a boom that would spill over into the minors as well. 

The third reason the owners cherish their exemption from normal capitalist forces is that it permits the owners to negotiate as a monopoly with the players association as a monopoly. They argue that this is merely back-up authority to the National Labor Relations Act, which permits such collective bargaining. Not quite. The NLRB will permit the Associated General Contractors to negotiate with the building trades, but there are separate contracts for each of the trades in negotiating uniform wages, hours and working conditions. The 28 teams of the Major Leagues negotiate individual contracts with the players. With the player associations, they attempt to negotiate a system to override the individual contracts. 

As the owners see the problem immediately before them, there is not enough communism in the industry. They are constantly driven by the need to nurture its weakest team, in this case the Seattle Mariners, which had revenues of $39 million in 1993 and costs of $56 million. The sharing of revenues drives the industry toward this weakest child in the family, in the process establishing a system of increased subsidies for failure and decreased rewards for success. Inevitably, this maximizes security and minimizes risk-taking throughout the “sport.” The owners are not really interested in winning the prize at the end of the season as much as they are in filling their stadiums during the season. The team effort is thus diminished and the individual talents of players become magnified. Because owners perceive that fans come out to watch individuals perform, not to watch teams win, they are driven to bidding up individual talent instead of concentrating on building a winning team. The players aim at building their statistics, which is what gets the biggest payday. The amount of money they get for winning the World Series is trivial compared to their megabuck contracts for everyday play.

Without the antitrust exemption,, there is no excuse for the Mariners remaining in Seattle, unless the community of fans suddenly exerts itself. There is no reason for the League to increase subsidies at the expense of rewards. It would take the owners a weekend of brainstorming to decide that the teams and players that get to the World Series get to keep all the TV revenues instead of 1/28th each. And the teams who make the playoffs would also share all the revenues instead of 1/28th each. And the teams that did not make the playoffs would get none of the TV revenues, except that portion that covers the weekly games on national TV. Owners would build teams to win pennants, players would play for pennants instead of statistics, the crazy bidding for day-to-day talent would subside, the fans would be energized by the hustle and determination of players playing as a team like they used to in the old days. TV revenues, down to $100 million from $200 million a few years ago when baseball still had some internal energy, would climb to $300 million. Et cetera.

The owners will be forced to be entrepreneurs, year after year, as each season is born anew, the franchises forever young. Baseball will not only have survived as the national pastime, it will also have been reborn to accompany the national renaissance of entrepreneurial capitalism soon to bud and flower. In this scenario, the players will have a tendency to want to stay with the team that seems to be knitting together, because the payoff will come with success. The fear that the scorecards will change drastically every year is unrealistic. It is like imagining everyone at Goldman Sachs leaving at the end of the season, dispersing to Morgan Stanley, Merrill Lynch, Bear Stearns and J.P. Morgan, etc., and each of these dispersing as well. The advantages of close communication and integration of personalities in any team overwhelms the tendency to lose or gain new players at the margin. 

All I needed to do in my conversation with the baseball owner Thursday morning was push his creativity into the capitalist mode and he was brainstorming methods of discouraging owners from bidding wars for talent in favor of creating winning teams. The joy of baseball dissipates as we sense each player concentrating on his own success, the team no longer bound together in genuine pursuit of fame and fortune. A player doing drugs? What incentive is there for his teammates to shape him up? A slugger on a six-year contract for megabucks cannot help but shade his effort for the team in favor of adding a point or two to his slugging average. The other players notice, but shrug it off. It’s the norm, as it is on a collective farm. Baseball is dying because of the dead hand of government, and it is only surprising that a liberal Democrat like Charles Schumer notices this and the GOP conservatives pretend not to notice. It is, of course, corporate socialism.

With the anti-trust exemption gone, the owners will have their minds concentrated wonderfully on building the right incentives and the game that I knew as a boy will soon return. I watched my first games at the age of 9, on Memorial Day, 1946, a double-header at Ebbets Field between my beloved Dodgers and the Boston Braves. For six hours I stood in the lower deck behind home plate as the Dodgers split. I watched Dodger Pete Reiser, the most reckless ballplayer I ever saw, steal home, one of the seven he stole that year, a record that remains to this day. It was the most exciting thing I had ever witnessed and Pistol Pete’s audacity became part of my life. Baseball is American because it is individualism and collectivism (in a team sense) in perfect combination. Like our national political economy, it has become skewed toward security away from risk-taking and is slightly out of whack. But it can be easily fixed.

Will this happen? Just as we saw the fall of communism in the USSR and China when their team owners realized they were rotting from within, it is now becoming clear to the baseball owners that the franchises they value at $100 million each on paper are approaching zero when marked to market. At this point, they might even be willing to try capitalism for a change. The easiest way for them to make the transition is to first admit to themselves that the players are not being stubborn, but are in the right, given the distorted incentives in the system. Then, they have to realize the anti-trust exemption they thought was helping them is smothering them, and ASK the 104th Congress to repeal it -- perhaps at the end of this season. No need for shock therapy. Meanwhile, by conceding the players their existing contracts, they can let the invisible hand restrain them from over-generosity in bidding for talent in the future.

These ideas are rough-cut, as I’ve only been concentrating on the problem for two days, following a discussion with Jack Kemp, who is thinking along similar lines. Senate Majority Leader Bob Dole and House Speaker Newt Gingrich are also wondering what might be possible if some fresh perspectives are brought to the baseball bargaining table. With a little luck, we may be playing the national pastime again with enthusiasm, with zest. Any ideas, Little Leaguers?