Let’s suppose, for
the sake of argument, that the Professional Bowlers Association Tour features
the best bowlers in the world and attracts more bowling fans than any other
tour. Suppose that the PBA Tour is so well-established that competing
tours fail to attract top-level bowlers to enter their events.
How would you feel if the PBA started charging higher ticket prices at tour
events, raised food and beverage prices, sold television rights to the highest
bidder (including cable television), and limited the number of tour events
to increase demand for top-level bowling. Bowling fans would be outraged.
Would such behavior violate the nation’s antitrust laws? Should the
Justice Department intervene? What if the sport was not bowling, but
Major League Baseball?
Andrew Zimbalist, the author of May the Best Team Win: Baseball Economics and Public Policy,
would probably favor regulation of the PBA if it was indeed the most prominent
bowling tour. And Major League Baseball, as the only provider of “top-level
baseball,” is a monopoly that should be subjected to antitrust regulation,
according to Zimbalist. Baseball’s monopoly position, says Zimbalist,
results in higher prices for tickets, food, and cable television, and is
responsible for baseball’s competitive balance problem. The solution
to all of these problems is for Congress to repeal baseball’s antitrust exemption.
But is baseball really a monopoly, and do professional sports leagues require
antitrust regulation? Do sports fans really need government protection
to prevent themselves from spending too much on sports entertainment?
And isn’t the solution to baseball’s competitive balance problem a salary
cap or strong luxury tax?
Most baseball fans agree that Major League Baseball is in some sort of trouble.
After the 1994-1995 work stoppage, average attendance per game declined from
31,612 to 25,021, and 20 of 30 teams saw declines in attendance in last season.
On the other hand, in 2002 average attendance recovered to 30,050 and industry
revenues doubled from 1996-2001 (thanks in large part to lucrative television
contracts with Fox and ESPN).
Yet the perception remains that baseball is no longer America’s national
pastime. As more and more families are priced out of an evening at
the ballpark, and as many teams begin each season with little hope of winning
their division, many fans are simply losing interest in the sport.
The free-spending New York Yankees, whose $157 million payroll contrasts
sharply with the rest of the league, are widely viewed as the primary example
of competitive imbalance in baseball. The American League East, in
which the Yankees play, is a shocking example of competitive imbalance:
|Won-Loss Record on 8/11
New York Yankees
Boston Red Sox
Toronto Blue Jays
Tampa Bay Devil Rays
It should be noted that $12.4 million of the Orioles’ payroll is going to Albert Belle, who is retired.
For Zimbalist, the roots of baseball’s problems are clear: Major League Baseball
is an unregulated monopoly. The Supreme Court’s 1922 Federal Baseball
decision exempted MLB from the nation’s antitrust laws on the grounds that
baseball did not constitute “interstate commerce;” baseball has enjoyed
exempt status ever since. This exemption is unique to MLB; football
fans may recall that Oakland Raiders owner Al Davis successfully brought
an antitrust suit against the NFL and was able to move his team to Los Angeles
in 1980. Applying antitrust law, the judge in that case held that the
NFL engaged in an “unreasonable restraint of trade” by preventing the Raiders
from moving out of Oakland. If Congress were to remove MLB’s antitrust
exemption, MLB would be unable to prevent teams from changing cities – except
when preventing such movement was “reasonable.”
Like most monopolists, MLB artificially restricts supply to increase demand,
according to Zimbalist. The “restriction of supply” takes the form
of limiting the number of Major League ballclubs. The most glaring
example of this restraint on trade is the lack of a baseball team in Washington,
DC, the nation’s sixth-largest market. According to Zimbalist, MLB
uses Washington as economic leverage against current baseball cities.
MLB threatens to relocate teams to Washington if current host cities fail
to publicly finance stadiums for their teams. On the other hand, if
MLB were subject to antitrust regulation, it would be unable to prevent the
creation of an expansion team in Washington unless such action was found
to be “reasonable.” Nor could MLB prevent an owner from moving its
team to Washington -- or any other city -- unless such action was deemed
The MLB “monopoly” results in higher prices for baseball fans, according
to Zimbalist. Because each franchise enjoys exclusive marketing rights within
its territory, each team can extract monopoly prices for tickets, food, beverages,
and parking. Each team can also extract the monopoly price when selling
radio and television broadcasting rights in their market. In short,
consumers pay a much higher price for baseball entertainment than they would
if baseball was regulated.
Monopolies often are run by greedy owners, and Zimbalist’s characterization
of MLB’s owners is generally consistent with this stereotype. Not content
to extract as much cash as possible from fans, baseball’s owners are also
constantly trying to break the union:
than the 1972 strike that affected the regular season for nine days, all
subsequent work stoppages in baseball ensued from owner demands for change.
Since the players won free agency in 1976, during each contact negotiation
they have been confronted by an ownership demand that free agency be abridged
in one way or another. The owners always came to the table without
a cohesive vision for the industry but with a demand for unilateral sacrifice
by the players. In practice, as implemented by the commissioner’s office,
the subtext was often to break the union. Along the way, the owners
cried poverty as the players experienced ownership collusion and saw franchise
Zimbalist has singular contempt for Bud Selig, the current commissioner of
baseball and former owner of the Milwaukee Brewers. Zimbalist rehashes
all the usual allegations against Selig, using language that suggests he
is merely reporting the opinions of others. With regard to Selig’s
proposal to contract the Minnesota Twins, Zimbalist reports, “Some said
that Selig had a conflict of interest.” Regarding Selig’s negotiation
strategy before the potential 2002 work stoppage, Zimbalist writes, “To some
it seemed that Selig was not interested in negotiating anything, but that
his real interest was in busting the union.” Zimbalist writes that
Selig “repeatedly violated an internal baseball rule that prevents owners
from making loans to each other…without first receiving the permission of
the commissioner and all of the other owners,” labels a Selig statement on
the minimum salary issue as “a characteristic obfuscatory comment,” and starts
one sentence, “When Selig pretended that he was being forthcoming with MLB’s
financial numbers in December 2001…”
But even if Zimbalist’s contempt for Selig is thinly veiled, he is correct
in identifying MLB’s primary problem -- competitive imbalance. Zimbalist
argues that the imbalance is not a necessary consequence of free agency,
which became a right of the players in 1976. Free agency made the league
more competitive by making it more expensive for owners to hold together
a good team, he argues. This argument would be compelling if each franchise
was spending approximately the same amount of money on payroll, as do teams
in the NFL. However, because high-payroll teams like the Yankees spend
millions more than low-payroll teams, Zimbalist's argument makes little sense.
Free agency is the mechanism by which high-revenue teams like the Yankees
acquire the best available talent, such as Jeremy Giambi and Hideki Matsui,
during the off-season. Free agency certainly contributes to the competitive
The competitive balance problem seems to have emerged as high-revenue teams
learned how to take advantage of their exclusive territories to greatly increase
local (non-shared) revenues through local cable contracts. The Yankees
contract with the YES Network is worth at least $42 million a year, a source
of income that is unmatched by any other team.
And the competitive imbalance problem is acute. From 1995-2001, only
four teams from the lower half of the payrolls reached the playoffs.
Those four teams won only five games, and no team outside the top quartile
won a single World Series. (The 2002 Anaheim Angels and San Francisco
Giants had the ninth and fourteenth highest payrolls, respectively.)
For Zimbalist, competitive imbalance is the heart of baseball’s problem.
According to his baseball-as-monopoly theory, teams like the Yankees exploit
their exclusive rights to compete for revenues in their territories.
Take away baseball’s antitrust exemption, and another team would enter the
New York City market, siphoning revenues from the Yankees and remedying baseball’s
competitive balance problem.
The 2002 collective bargaining agreement made small steps toward remedying
the competitive balance problem. The luxury tax taxes teams whose payroll
exceeds $117 million in 2003 at a 17.5% rate, and teams who are over the
luxury tax for three consecutive seasons will be taxed at a 40% rate.
From 2003-2006, about one billion dollars will be transferred from high-revenue
to low-revenue teams. But as the Yankees’ $157 million payroll shows,
the agreement does not go far enough in remedying the competitive balance
problem. And the luxury tax threshold increases each season through
2006, meaning few teams besides the Yankees will feel its effects.
What is needed is not antitrust regulation but a salary cap or a strong luxury
tax. Repealing MLB’s antitrust exemption seems like a way of avoiding
confrontation with those most responsible with maintaining the status quo
– the players union and the high-revenue owners.
And it is not clear why Zimbalist thinks MLB is a “monopoly” anyway.
He states that baseball is a monopoly because “it is the only provider of
top-level professional baseball in the country.” But so is the Professional
Bowlers Tour, and is anyone clamoring for increased antitrust scrutiny of
The answer to baseball’s competitive balance problem is simple: a salary
cap and/or a stronger luxury tax. What is needed is the cooperation
of the players union and the high-revenue teams. Consumers don’t need
antitrust protection when deciding whether to attend a bowling event, and
I doubt they need it when deciding whether to go out to the ballpark.
May the Best Team Win is available at Amazon.com.
Andrew Alexander is Co-Editor of IntellectualConservative.
Email Andrew Alexander
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