by David Beck
EEEEEE!Contributing Editor
Installment 9 -- April 2, 2000
If you haven't already, with all good speed get a hold of the Time magazine issue from April 3, 2000. It's got a picture of the Pope in the Holy Land on the cover. On the very last page is an essay by Charles Krauthammer titled, "Requiem for the Summer Game."
Read it. Read it carefully.
If you can't get to the newsstand, we can get you to it right now.
What I have anticipated would happen to baseball is happening. I won't belabor key points from the Time essay, but I will elaborate a bit more clearly on the economic condition of baseball that will continue to destroy the game.
One of Krauthammer's main points is that television has been largely responsible for the game's demise. To be honest, it is not as much television, but rather the expectations associated with televised coverage. Television by its nature must present drama and excitement often enough to keep the viewer tuned in. That content can take any form, and baseball may indeed satisfy at many different levels.
The whole environment of free agency has pulled most of that satisfaction toward seeing superstars do their thing on the small screen, rather than reveling in the character and talent content that make up the teams. Before free agency, each team could work hard and play hard with the traditional tools of scouting, drafting, developing, applying fundamentals, and there were no class differences among players, so to speak. Certainly the players knew who the better ones were, as did the fans for that matter, and the better players did get paid more. Today there is a very palpable impression that the success of baseball depends only on those better players, in part because of what is expected from televised coverage.
In a word, people used to come to see the best players on their teams, teams that always had the same chance to win as any other. The ball club that did the best job in putting its team together rightfully won. When baseball ruled, it did just fine.
Today, money rules, and the game is in dire shape.
Some will claim that money has always ruled to some extent. The operative factor here, though, is "to some extent." Before free agency, money did not have the dictating, game-changing impact it has today. Furthermore, for the sake of argument, let's say that in actuality, money was the reason teams like the Yankees of the '50s were dominant. That it wasn't really just hard work and smart choices that got the Yankees players like Mickey Mantle and Whitey Ford -- that there was in fact that extra measure of favoritism ($$$) given to the "darling" teams (Yankees) back then. The point is, if it's true that baseball really wasn't on the up-and-up but we thrilled to it anyway and the Powers-That-Be brilliantly hid their duplicity from us, does that criminal behavior then justify continuing to allow it today with a shrug as long as Joe Fan gets his jollies?
For our purposes here, let's look closely at the game as it is today, from what we can clearly see. I am not an economics expert, but I can convey enough of the basics to detail how the almighty dollar has become baseball's unrelenting despot.
We all know that the price of any commodity is determined by the laws of supply and demand. For review, it is pretty simple. When there is a shift in overall demand -- people want more of a product at each and every price -- and supply stays constant, price will go up. Or if overall supply goes down and demand stays constant, then price will also go up. The average everyday business world watches these market forces work pretty well. Certainly market failures occur, but a free price system generally does okay and we good American capitalists cheer it on more frequently than not. In real life it is just no big deal if the Shells and Chevrons are always the gasoline company winners while the Thriftys and Stars are always the losers, and, for that matter, the Rotten Robbies and Cheapos go out of business.
In baseball it can't be exactly like that. Vitally different factors are at work. The first critically instrumental factors still seem to be lost on most everyone: Baseball is a sport, for one, and it is a zero-sum game. Because of these two factors, for it to be successful, it absolutely cannot be treated just like your average everyday business.
A significantly unique economic condition of baseball is that the supply of major league baseball players -- star players and relatively lousy ones -- is always perfectly inelastic. Elasticity refers to how much response there is to price changes. If supply were elastic, a change in price would mean a large change in supply. If it were inelastic, a change in price would mean a small change in supply. Perfect inelasticity means that after any change in price, no change whatsoever in supply would occur.
In baseball, this means that no matter what the price is, no matter what it is the player is paid for his services, the supply of players will always stay exactly the same. It will never be more or less, at any time, whether they each make a gidzillion dollars a year or a buck-fifty. Whatever the majors determines is the number of teams and the number of players on each team, each team will have its roster spots filled. The demand for those spots by aspiring ballplayers is always sky high.
But it has always been assumed that because the supply of good ballplayers is so low, the price for their services will be very high, given high enough demand. However, because of that inelastic supply and the nature of baseball, this assumption is almost completely inconsequential economically. It is not the low supply of good ballplayers but the low supply of ballplaying teams. It has always been this way, and because baseball is what it is -- a sport and a zero-sum game -- it must always be in low supply. Thirty teams (perhaps soon 32) competing for one world championship prize is about as many as the game can take. What would happen if the majors had 40 teams? Fifty? A hundred? Because of this supply condition, the only determinant of the price of baseball -- that is, the economic value of what a ballplayer gives us out there on the field -- is demand. The million-dollar question is and has always been, really, what is that demand?
Over the past several years ballplayers have used an essentially warped measurement of their own value. The star ballplayers have assumed that people's demand is so high that they should be getting paid more. But the only standard they have used to measure that demand was how much the owners have paid for other star ballplayers. In businesses that are not baseball, dictating salaries comparatively is no big deal, because the forces of supply and demand will work appropriately.
Once again, baseball is just different.
Another critical factor here involves the majors being a monopsony. No, I did not misspell monopoly. I did write monopsony. Whereas a monopoly is a single seller of a product, a monopsony is a single buyer of a product, and usually it refers to a company that is the only buyer of labor. Examples include the town lumber mill as the only "buyer" in the region hiring lumber workers, NASA as the only "buyer" of astronauts, and, yes, the major leagues as the only buyer of baseball talent.
Interestingly, while a monopoly can manipulate the price of a product to make it as high as they can, a monopsony can manipulate the wages of those workers to be as low as they can. When the majors was strictly under the reserve clause, this is what happened. Players had a good argument that their salaries were being kept artificially low. The best thing a group of laborers can do to fight an unfair monopsonist is to unionize. A union would try to bring wages up, and while unions can do that and not violate the laws of supply and demand, in baseball the Player's Union has jacked up salaries too high, indeed making them artificially high. In a sense, the Player's Union and the constant threat of shrieking "collusion" has actually created a binding price floor that is above the equilibrium, the location where the true demand curve intersects the supply curve.
It is at the equilibrium where all parties involved in baseball would be happiest. The ballplayers would be getting as much as the fans would be willing to pay. If demand by fans is high enough, the players would be making a perfectly fine living. Owners would be able to keep their costs down and be willing to meet demand by paying players what they are worth on the market.
However, the ballplayers, perpetually angry over past injustices at the hands of the owners abusing the reserve clause, have manipulated the unique station of baseball economics to effectively set that price floor.
Price floors at work in the real economic world always result in a surplus. For instance, the minimum wage -- the classic example of a binding price floor -- inevitably leads to less skilled workers being laid off because employers will only hire workers at point where demand meets the price floor.
In the graph above, there will be no surplus of players because that supply is perfectly inelastic. Again, it doesn't matter what happens to price, supply of players will always stay the same. There will always be the exact same number of players in the majors (number of teams and players per team remaining constant). It doesn't matter if you have 50 superstars and 700 "tweaks" in the majors, those "tweaks" still need to be out there playing. Certainly one "tweak" can replace another one any day, but they will still make up that inelastic supply. (I put "tweak" in quotes because not one of these guys is a tweak, really, or he wouldn't be in the majors, period. We just see them as tweaks because we are always comparing them to the superstars. It is a warped perception fans always have had. Except in the case of Kim Batiste. He was a genuine tweak.)
If some player wants to leave, another will fill that spot instantly. It doesn't matter if a star player leaves or isn't even there. We, the fans, will simply look at who is there, and whoever among them are the best will be the superstars we admire. You may be able to see what happens at this point economically. The owners must keep the mandated supply. At the equilibrium everything's fine. But above it, at the price floor, he loses tons of money. The owners are the ones who take the hit. Note that there can be no surplus -- that is, no players who "can" play left out. The owners can't pay players at point A, which would allow them to pay fewer players. So they are, for all intents and purposes, forced to pay the price where the price floor meets supply (point B).
The owners lose money because they are paying at a point higher than the equilibrium. They will make a push either to move that demand curve up or to recover their lost surplus, in this case that which gives them the economic incentive to own and operate a major league ballclub. They are fervently doing exactly that now, and have been doing it. They have been building newer, cushier stadiums, preferably paid for by the taxpayer. These parks are lined with luxury boxes to appeal to big-money fans. Advertising is popping up in places once considered off limits, seriously compromising the sacrosanct character of baseball. I firmly believe that the simple practice of naming parks after the company that bids the highest is nothing less than prostitution, no matter how much Joe Fan thinks it is no big deal. This is to say nothing about ads placed on the foul poles, on outfield fences, in the dugouts, and behind home plate. There is now a move to allow gambling interests a chance to promote themselves at major league venues because ball clubs so crave that extra revenue they couldn't get otherwise. (See Los Angeles Times, April 6, 2000.)
The most significantly destructive tactic of them all is the wholesale marketing campaign to promote each team as the winner, and that getting that winner is the only way to get fans to come to the park. Now there is nothing wrong with boasting about how good your team may be, about showcasing your best players and putting the best possible light on your chances. Certainly fans want to see a winner.
That is exactly the point here. Every team has an equal chance to win. There is something very wrong with the institutionalized philosophy that the only way to draw fans to the park is to buy a winner, that is, to spend excessively to get all the best players possible to "guarantee" that winner, a condition that gives an unreasonably unfair advantage to certain teams.
Again, for the eleventeen-hundredth time, there can only be one winner. It's a zero-sum game.
If the Powers-That-Be accurately acknowledge that, and they do, then they will all agree to work more earnestly to get that demand curve up to where it meets that price floor the players have set (point B). When the one accepted way to do that is to "have a winner," then it is in everyone's best interest to impart the best chances of winning to the teams that have the best chance of drawing the most fans, the most fan interest, the most merchandising sales, the biggest media following. Of course, those teams everyone will favor are the "big market" teams, the "media darling" teams, the more "popular" teams -- the teams that generate the most revenue. And by everyone, note again that this includes ball clubs in the major leagues that benefit financially when other particular teams win.
As long as teams like the Yankees, Braves, Dodgers, Red Sox, and Mets are contenders, then the Powers-That-Be may get that overall demand curve up. As long as the Royals, Twins, Marlins, Expos, or Pirates are contenders, they will all be sweating. Remember when Wayne Huizenga essentially bought the talent on the 1997 Marlins? He was reviled, a lot because he tipped his hand so blatantly when he dismantled the team shortly afterwards because he knew he couldn't sustain the efforts himself to jack up that demand curve. It is perfectly fine for Joe Fan, though, if someone like George Steinbrenner does it and can keep it up, because it is almost natural, he already has the money, he has always had it, and after all, he owns the Yankees. The Yankees.
As Krauthammer addresses the condition of baseball, maybe, just maybe more people are really seeing that unless they are one of the blessed fans of a privileged team, they are just spinning their rooting interest wheels. When that true, genuine, balanced and fair competitive nature of the game is damaged, baseball is destroyed. Maybe, just maybe, even Joe Fan is actually seeing how that is happening.
What is the solution?
It is easy, really, something I've brought up before.
Make the majors a natural monopsony. In a natural monopoly, such as an electric utility company, the government uses fundamental marginal cost analysis principles to set a price that will guarantee the company a profit without gouging the customer. The same thing can be done with baseball. Certainly doing something like this would be like pulling the teeth of a 500-pound saber-toothed tiger because the Powers-That-Be are so damned entrenched, but let's give it a shot.
First cut out this crap about each team acting as its own buyer. The major leagues has really operated as a monopsony for years anyway, again, as the only buyer of the best baseball talent. It has for eons had a minimum salary for any player in the bigs -- a classic monopsonist condition. Indeed that salary -- for those "tweaks" mind you -- is $200,000 today, much more than most doctors, small-business owners, and teachers make. Nonetheless, I really have no contention with this; it is really not this minimum wage that is wrecking major league baseball.
A system must be set up in which the majors -- not the team -- pays the player, while the teams still use their best respective skills to scout, draft, and develop the talent they want to. If the player turns out to be one of the better players in the league, whether he plays in Montreal or in New York, he should get paid a relatively higher salary from the allotted player pool, determined by a fair impartial group that carefully evaluates big league talent. If a player doesn't like the bazillions of dollars he is offered, then he simply doesn't have to play major league baseball. If he wants to start his own league and take a whole bunch of other players with him, he certainly can, but that league would most likely fail. If it did by chance succeed, then the economics of the majors today would realistically affect that new league in exactly the same way and the game of baseball would again suffer, unless a model of natural monopsony were implemented there as well.
A natural monopsony in the majors today would still require teams to work hard to market themselves, but that would lie mostly in their ability to build their team. They would still have to work to bring fans to the park. Economically they could still even succeed or fail, perhaps even go completely under if they didn't do a good job managing their organization. That's real market economics at work. As it is, the more powerful teams are subsidizing the weaker teams with that luxury tax. Aside from the expressed purpose of the tax, it really serves to make it look like the majors is being fair to all teams when it is really only guaranteeing those powerful teams the advantages of free agency and, henceforth, the better chances to win.
The whole point to this polemic is to make baseball what it should be. If enough people value the integrity of honest competitive principles reigning in the game, then a fully and properly employed natural monopsony would effectively raise the demand to that point where the game will no longer be in trouble. If, however, the voice of Joe Fan is prevails and he perpetually indulges his gratification when the Yankees and Dodgers unjustly dominate the majors, then baseball will suffer.
Again, do you join Joe Devotee and desire every team to start on equal footing and have equal chance to do the best they can to demonstrate the best baseball ability? Or do you side with Joe Fan and only care about seeing the darling teams entertain you as if you were at the circus?
On a personal note, I know there are may not be whole lot of people out there reading this. I know there are expert university economists who could do an analysis like this a lot better, a lot more clearly -- I heartily invite one to do so. I know Joe Fan may still comprehend the tiniest about any of this. And I always get that feeling that whatever I say in the most earnest defense of our wonderful game, the Powers-That-Be are up there in there ivory towers somewhere snidely snickering, "This yutz knows nothing about what we are doing. He actually thinks all of this is even on the level! No one is listening to his strident rantings anyway, hyip-hyip-hyip. Still, no one will suspect."
Even as baseball's Orpheus, I am still hopeful our game can be recaptured. Still.
EEEEEE! Contributing Editor David Beck shares his name with former teamster boss Dave Beck, as well as a number of others named David Beck, such as both David Beck and David Beck. David Beck, however, wishes it to be known that he's not the same David Beck as David Beck.
Copyright ©2000 by David Beck
Last updated 5/15/00Gregg Pearlman, EEEEEEgp@EEEEEEgp.com