The Money Pitch
The Widening gap between rich and poor teams means only a handful will have a shot at the World Series
Ken Shouler, Austin Merrill
From the Print Edition:
Cuban Spy Scandal, May/Jun 02
More and more, Major League Baseball resembles high-stakes poker. Bringing the most money to the table doesn't guarantee you a victory in poker tournaments. But you need a load of money to even get a seat with the big boys, ante up, and have a chance at winning. Baseball commissioner Bud Selig has said that fans want to begin each spring with hope and expectation.
But as many as 15 of the 30 Major League clubs—possibly more—have virtually no chance of winning the World Series. Their dim prospects don't stem from a deficit in runs scored or high earned run averages or any of the standard statistical barometers for that matter. Their problem is more basic: they simply lack the cash to field a championship team.
Of the eight teams that made the playoffs in 2001, six spent between $75 million and $109 million on payroll. The only playoff contenders spending under $75 million were Houston ($60 million) and Oakland ($33 million). Both were eliminated in first-round division series.
Sixteen other teams spending under $75 million sat out the playoffs.
"From 1995 through 2001, only four teams from the bottom half of payrolls reached the postseason, and combined, they won a total of five out of 224 games," says Andrew Zimbalist, Robert A. Woods professor of economics at Smith College in Northampton, Massachusetts, and the author of Baseball and Billions: A Probing Look Inside the Business of Our National Pastime, an award-winning study of baseball business from Civil War times to the present.
"There is a stacking of the deck; the most problematic part of that stacking of the deck is that there are teams at the top that spend so far above everyone else in payroll. There is clear evidence today that the problem is not just the Yankees, but it is the growing disparity between the top and bottom revenue teams.
"Just over a decade ago, in 1989, the revenue difference between the highest and lowest teams was around $30 million. By 1999, this difference grew more than fivefold, to more than $160 million. When you get to the top handful of teams, they are not spending five or ten percent more than the teams below them, they are not just spending 100 percent more, or 200 percent more."
The advantages of the rich teams reach to 300 and 400 percent and beyond. Last year, the Yankees and the Red Sox led the way with payrolls of more than $109 million each, while Oakland and Minnesota held up the rear at $33 million and $24 million, respectively.
At the outset of Major League Baseball's 132nd season, how dire are some teams' hopes of winning? Consider the numbers:
-The Minnesota Twins won the World Series in 1991, the last time a team with a payroll in the bottom half won a championship. The Twins were 17th in payroll that year, spending just $22.5 million.
-A difference of more than $85 million separated the 2001 payrolls of the highest team, the New York Yankees, with $109,791,893, and the lowest team, the Minnesota Twins, with $24,300,000. This awesome disparity is not even the greatest ever. In 2000, the Yankees spent $113,365,867, nearly $98 million more than the Twins' bottom- feeding $15,822,000.
-Before last season, the last time a team not in the top five in payroll was in a World Series was 1998, when the San Diego Padres, who ranked 10th with a payroll of $53 million, were swept by the Yankees.
-The 2001 Arizona Diamondbacks ranked eighth in spending ($81,206,523) and won the World Series. It was the first time in nine World Series that a winning team ranked that low.
-In the 25 years since 1977, seven teams ranked below the top 10 in spending have won the World Series. But only one—Minnesota in 1991—has won any of the last 10 Series. (See table of Series winners since 1977 and where they ranked in payroll, page 109).
In addition, teams that once had winning traditions seem to have little or no chance today. Since the 1970s, teams like Kansas City, Milwaukee and Detroit have enjoyed successful runs. Now, ranked in the bottom half of payrolls, these three clubs have not only failed to win a World Series, but not one has won a pennant, division or wild card in 15 years. (Milwaukee won the pennant in 1982, Kansas City won the World Series in 1985, and Detroit won its division in 1987.)
Moreover, the problem is one of image, not just numbers. "The perception of the fan is also relevant," says Zimbalist. "It's not an absolute measure. In absolute measures, the Yankee dynasty of the last five years is no worse than the Yankee dynasty of 1949—53. The perception is the greater problem today than it was then because it's more on the table. The money [George] Steinbrenner is spending is all there for everyone to see.
"Baseball once stood alone on the pedestal of team sports. But today, baseball is seriously challenged by the NFL and the NBA as well as by a growing list of new professional sports and entertainment options on television and the Internet. So baseball has to care more about fan sensitivity to these issues since fans have so many more options now."
If fans perceive unfairness, baseball risks losing its prestige and—in the lexicon of advertising—market share. "What you're really interested in competitive balance is what turns the fans on and what turns the fans off," says Zimbalist. "What fans respond to is a sense of hope for their team, a sense of fairness in the process. And insofar as they respond to outcomes, I think they are much more inclined to respond to winners of championships, winners of divisions, and so on than they are to winning percentage. Keep in mind, that inequality isn't necessarily bad. Any rational league would want to have some inequality toward the larger cities. Because you get more rating points if the Yankees are in the Series than if the Oakland A's are. You don't want perfect equality. It tends to be a turn-on to have a king of the hill to go after."
Recent evidence also shows that payroll alone doesn't take you to the promised land. Baltimore, Anaheim and Los Angeles have been emptying the vault lately and the last of them to win a Series was Los Angeles in 1988. Even the Yankees were spending a lot of money 10 years ago without results. They finished 67-95 in 1990, leading conservative pundit George Will to quip, "As the Yankees have recently shown, the absence of baseball acumen in the front office can be a great leveler, regardless of financial assets."
Among the top-ranking teams in payroll last year, five—Toronto, Los Angeles, Texas, Boston and the New York Mets—didn't make the postseason. Seattle ranked 11th in payroll, yet tied a Major League record with 116 wins. So the correlation between high payrolls and a high won-lost percentage is imperfect. The best that can be said is that payrolls influence the outcomes and create a greater probability of one outcome over another. Predictions fit the realm of inductive logic and probability, not deductive logic and certainty. "The correlations between payroll and performance for the last five years is that payroll explains about 30 to 40 percent in the variations in performance," Professor Zimbalist says. "That leaves 60 to 70 percent of the variation explained by other factors. There's no guarantee that you're going to win by spending a lot more money. It's just more likely that you'll win."
So the phrase "economy is destiny" overstates the case. But is there any chance for a team in the lower half of the payroll rankings to win the World Series in 2002? Economist Charles R. Link is unequivocal in his answer. "No; it's purely accidental if it happens." A professor at the University of Delaware, Link thinks that payrolls are highly predictive of outcomes. "I feel that I can predict the five or six teams that are going to be in the World Series next year. And I'll be shocked if one of those five or six is not there." Who are the contenders? "Well, the Yankees are one of them. Could be Boston because Boston just got bought by an owner who has the resources and they paid a humongous amount of money for the franchise. I see Atlanta. I see Arizona. I see Seattle. The Mets are going to be there; they just invested a lot in beefing up the team. Cleveland will be there. And I think eventually Texas will get back into it, because they've got the money to start buying. One thing they didn't buy was pitching." But if predictive power is so assured, should Minnesota, Tampa Bay, Montreal, Kansas City and a few other low payroll clubs just pack it in? "No," says Roger I. Abrams, the dean of Northeastern University School of Law and author of The Money Pitch: Baseball Free Agency and Salary Arbitration. "It just means that someone who is rich has to buy those teams. But if you're not ready to put money into the team, don't play the game. You don't go out on the field without a glove. Don't go out and own a club unless you're willing to put in the money it's going to take. If you're almost rich, I think that's nice, but go play another game." What makes this money talk more urgent from the money talk of decades before? It all changed in the 1990s.
At the outset of the '90s, hopes for competitive balance in baseball were high. A new national television contract with CBS and ESPN for 1990 through 1993—together with growing central licensing, superstation and Copyright Royalty Tribunal revenues—funneled some $19 million a year to each team. In 1990, $19 million was nearly 40 percent of average team revenues.
A significant change occurred in 1994, when baseball's new national television contract fell by more than 60 percent. Compounding the bad news for the small-market teams was that big-market teams were earning more than $40 million a year in unshared local media revenues. The gap between rich and poor was widening. Then, too, this was the era of new, big-revenue-generating stadiums, ushered in by Camden Yards (Baltimore) in 1992. Camden was followed by Jacobs Field (Cleveland) and The Ballpark in Arlington, Texas, both in 1994, and Turner Field (Atlanta) in 1997. "With centrally distributed monies below $10 million per club," Zimbalist says, "teams with a big market or new stadium found themselves with a rapidly growing revenue advantage. The ratio of richest to poorest in payroll has thus grown to unprecedented proportions."
Baseball's caste system was set. But to some this talk of money elicits a shrug. Rich owners and poor owners—so what? That's nothing new. Teams have always won because of some monetary advantage.
The owners ruled the roost from baseball's beginning. A reserve clause was instituted by owners in 1879, eight years after the beginning of the National Association, baseball's first major league. The reserve system chained players to their teams in perpetuity. Salaries were capped at $2,500 for the vast majority of players in the 1880s. Poor teams sold players to rich teams just to survive. While player sales were becoming commonplace, the players didn't profit from them: the productive values of players were not marketed but traded between owners. Albert Spalding, who pitched for Boston and the Chicago White Stockings of the National League before becoming the owner of the latter, admitted later that he earned $750,000 from his Chicago club in the late 1880s.
The reserve system held salaries in check, even as attendance boomed. Baseball attendance in 1910 reached an unprecedented 7.25 million, and future Hall of Fame players like Ty Cobb and Christy Mathewson earned $9,000. The average salary, however, was a paltry $1,200. Competition from a new circuit in 1915, the Federal League, spiked the average to $2,800. Cobb's salary jumped to $20,000. During this time, players might earn as much as $3,000 extra if their team won the World Series (sometimes more).
The wealth of owners at the time didn't show up in team payroll but took a different form. The Yankees of the 1920s bought the Red Sox's best players when Boston owner Harry Frazee needed financing for his Broadway show No, No, Nanette. Salary dumping was nothing new. Connie Mack, whose Philadelphia A's had won three World Series from 1910 to 1913, began selling off his stars after losing to Boston's "Miracle" Braves in the 1914 Series. He even unloaded his so-called "$100,000 infield" of Stuffy McInnis, Eddie Collins, Jack Barry and Frank "Home Run" Baker. (After building the team up again and winning three straight pennants and two World Series with the A's of 1929—31, Mack again sold stars because the Great Depression caused attendance to fall off sharply after the 1931 season.)
Both leagues made a profit every year from 1920 to 1930, with the Yankees leading the way with a reported profit of $3.5 million. Babe Ruth was a symbol of their outsized wealth, though his salary was singular. The median salary on the historic 1927 Yankees was $7,000; Ruth earned $70,000 that year. Ruth's salary hit $80,000 in 1930, higher than President Herbert Hoover's $75,000. When someone mentioned the discrepancy, Ruth replied, "What the hell does Hoover have to do with it? Besides, I had a better year than he had."
An owner's right to hold players forever, or trade them at whim, ended nearly 100 years after it began. In 1969, Curt Flood challenged baseball's reserve clause. The St. Louis Cardinals had a poor season in 1969 and decided to trade Flood and others for Philadelphia slugger Richie Allen. Flood was making $90,000 with St. Louis; Philadelphia offered $100,000 and then increased it to $110,000. "There ain't no way I'm going to pack up and move 12 years of my life away from here," Flood insisted to reporters. He sued, challenging baseball's reserve clause. Flood lost the case before the U.S. Supreme Court in a 5 to 3 decision. Justice Harry Blackmun said the proper way to revise baseball was in Congress, by legislative action, not by judicial action. But Flood's challenge emboldened other players and they slowly chipped away at the reserve clause.
By 1973, players had won the right to salary arbitration, thanks to a concession negotiated by Players Association head Marvin Miller in his first Basic Agreement with the owners. As the World Series was about to begin in 1974, Jim "Catfish" Hunter, that year's American League Cy Young award winner with 25 wins, decided to terminate his contract with the Oakland Athletics after the season. Oakland owner Charlie Finley had failed to make an agreed-upon $50,000 payment (half of Hunter's salary) into a life insurance fund. Hunter cited Section 7A of the Standard Player Contract, which stated "…the player may terminate his contract upon written notice to the Club, if the Club shall default in the payments the player provided for…." Arbitrator Peter Seitz voided the contract.
While Seitz's decision was only indirectly related to free agency, the bidding war that ensued for Hunter's services was a harbinger of things to come. Representatives from 15 Major League clubs descended on Ahoskie, North Carolina, near Hunter's home, and participated in a 13-day bidding period. Hunter eventually signed a five-year deal with the Yankees for $3.75 million, including a $1 million signing bonus.
In 1975, pitchers Andy Messersmith and Dave McNally challenged the reserve clause in a new way. Miller observed that the standard player's contract bound a player for one year. But what if a player didn't sign a contract while playing for his team that year—would he then become a free agent? Management claimed that the player would still be reserved by his team. The dispute went to an arbitrator and again Seitz ruled in the players' favor, saying that the option year in every contract was just that: one option year that could not be renewed perpetually. Now players could fulfill their contracts and then sign with the highest bidder. McNally and Messersmith refused to sign contracts with Baltimore and Los Angeles, respectively, and became free agents. Miller cautioned players against flooding the free agent market and thereby hurting their own bargaining position.
The owners tried to arouse fear by arguing that minus a reserve system, baseball would be ruled by the wealthiest teams. Free agency would have dire consequences for competitive balance, they warned. Many media members, fans and players believed this. It couldn't have been further from the truth.
In the first 16 years of free agency, from 1976 through 1991, 13 different teams won the World Series; only the Yankees (1977—78) won back-to-back championships. Fans could enjoy unpredictable World Series matchups like Pittsburgh and Baltimore, Philadelphia and Kansas City, St. Louis and Milwaukee, Philadelphia and Baltimore, San Diego and Detroit, and San Francisco and Oakland. One wonders if some of those matchups would even be possible now. The perennially inept Washington Senators won in 1924. The 1950 Phillies and the 1959 White Sox—both pennant winners—had a kind of small-scale charm. The New York Mets went from ninth place in 1968 to a World Series title in 1969 against the heavily favored Baltimore Orioles. But will we see their unlikely equivalents in years to come? Not if the trend of the last 10 years is any indication.
Since 1991, when Minnesota edged Atlanta in the 10th inning in one of the most thrilling World Series ever, the Braves and the Yankees have made up nine of the 18 Series contestants, with Toronto (twice), Cleveland (twice), Philadelphia, Florida, San Diego, the New York Mets and Arizona making up the rest. (No World Series was held in 1994 due to a players' strike.) While nine different teams out of a possible 18 signals a frightening, dynastic dominance to some, that's more variation than in the 1950s, when only seven different teams competed in the World Series—mostly the Yankees and the Dodgers—and not far behind the 1940s, when 11 different teams competed.
Marvin Miller thinks it was harder for most teams to win the World Series 50 or 60 years ago, unless they were one of a few elite teams. "The Yankees won 14 American League pennants in 16 years [1949—1964] and most of the World Series in that period. And in those years, it didn't matter what your payroll was.
"The problem today is nowhere near as unbalanced competitively as it was then. We're sitting here with the most recent season, when an expansion team, in business for what, four years, and they win the World Series and beat the Yankees! Regardless of payroll, it is not tougher now for a low payroll team to win a World Series than it was when a few teams dominated the game in both leagues."
Zimbalist thinks that neither the present situation nor the 1950s is optimal for the game. "The good old days of the last Yankee dynasty were not that good for baseball. In that span, average attendance at games grew by less than 3 percent over the entire 16 years [1949—64], even though real ticket prices remained virtually flat [they increased by less than half of 1 percent per year]."
Some observers point out that baseball intelligence matters as much as small or large payroll. Your front office still has to make the right decisions in picking talent, and your players must stay injury-free. So teams like San Francisco in 2000 and Oakland in 2000 and 2001 combined to win five playoff games despite being in the lower half of the payroll rankings. "The only reason that they were able to do well was they [had] players that had less than six years of experience [and thus had not earned the right to free agency], and by happenstance, were able to get a good group of them together," says Charles Link.
Agent Scott Boras agrees. "When you talk about lower payrolls, the only way you're going to have talent on it is if it's young talent," says Boras. Boras represents Alex Rodriguez, who signed a 10-year deal with Texas for $250 million last season, and Barry Bonds, who signed a five-year pact with the Giants for $90 million, despite being 37 years old. But there is a drawback. "Young talent never wins," he says. "And the first element is that a lower payroll club does not pursue veteran talent. So experience in sports is wholly related to success."
Moreover, pointing to poor teams that succeed doesn't make a convincing case against the importance of money. They are exceptions, nothing more. The reason we can cite the poor teams that conquered adversity is that there are so few of them.
What is the formulaic elixir that will fix this situation of so few haves and so many have-nots? The remedy for baseball's economic ills is not easy to come by.
Major League Baseball tried to right the problems of competitive imbalance in 1996, when the last collective-bargaining agreement was signed. The approach then was to level the playing field with a revenue-sharing system and a luxury tax on those teams with the five highest payrolls in the two leagues. Thus, in 2000, the bottom three clubs in revenue (the Expos, the Twins and the Marlins) received $24 million, $22 million and $16 million, respectively, in transfers from the revenue sharing system.
But to Zimbalist's way of thinking, this falls short in an un-expected way. "Given that the bottom half of teams recognize that they have no hope to compete in the free agent market, their best profit-maximizing strategy is to lowball their payroll, perform poorly, and collect large transfers from the rich teams," he says.
"One of the things that's happened with the revenue sharing is that some of the teams that are getting it are using it just for their everyday operations and not to pay the salaries to be competitive," adds Link. It's possible that one of those teams is the Montreal Expos; in their 81 home games last year, the Expos drew a Major League low of 642,745 fans, less than six Double-A and Triple-A minor league teams.
"So what baseball needs to do is one of two things, in addition to expanding revenue sharing," contends Zimbalist. One option, first espoused by sportscaster Bob Costas, is to "either set a minimum threshold, where they say, 'You either spend $40 million on your players—or whatever the threshold is going to be—or you don't get any revenue-sharing transfer,'" the professor says.
The second solution to the revenue-sharing issue, advanced by Zimbalist himself, seems to embrace all the relevant factors. "You take an equation that estimates team revenues in baseball on the basis of the team win percentage, media size and stadium conditions, and you plug into that equation the assumption that every team has a .500 winning percentage. You use this estimated equation and see what a team would earn in revenue if it had a .500 winning percentage, along with the advantage of its city and the advantage of its stadium conditions. So, for argument's sake, let's say that if the Yankees were .500, that instead of generating $240 million in revenue, they would, at .500, generate $170 million. You would then tax the Yankees for the advantage they have because they are in New York. That is, you tax them on the $170 million.
"Now the net local revenue sharing rate is 20 percent, though the owners are talking about lifting it to 50 percent. Let's say it's 50 percent. You would tax them 50 percent of $170 million, the amount they would earn if they were an average team. And if they only earn $140 million, they still have to pay the tax on that difference of $30 million. On the other hand, if they are very successful, and they generate $240 million, they still only pay a tax on $170 million."
The idea may sound complex to a mind untutored in economics, but Zimbalist insists it is quite doable. It would need to be embraced by the players association and the owners, with a little give and take.
Until that time comes, enjoy the game. This season begins with interesting possibilities. Who will be this year's Seattle and Oakland and outperform their fans' expectations? Will the Braves or the Mets capture a division crown? Can the Red Sox rebound from a season of injuries to overtake the Yankees? Can the Yankees take back their crown and win their 27th World Series? Can the A's or the Cardinals win their 10th?
Baseball is still the grandest game, bar none. It will be grander still after it is tinkered with and structured more fairly.
Kenneth Shouler is the author of The Major League Baseball Book of Fabulous Facts and Awesome Trivia (HarperCollins). Data for this article was provided by Sean Lahman.
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