Bookshelf:

Recently Read & Reviewed:

• Ken MacLeod, Dark Light

Currently reading:

• Jeffrey Ford, The Physiognomy

Next up:

1. Analog, January 2002 issue
2. Bill Bryson, I'm a Stranger Here Myself
3. Analog, February 2002 issue
4. Sean McMullen, The Centurion's Empire
5. Vernor Vinge et. al., True Names and the Opening of the Cyberspace Frontier
6. Analog, March 2002 issue
7. George R. R. Martin, A Game of Thrones
8. Julian May, Jack the Bodiless
9. A. K. Dewdney, The Planiverse
10. Joseph J. Ellis, Founding Brothers

Baseball Economics and the Big Pot

Joe Sheehan's current Daily Prospectus columns in the Baseball Prospectus are focusing on the economics of baseball. As you might have gleaned from my earlier entries, I find the Prospectus' staff's analysis of baseball economics to be, well, not exactly the same as my own analysis. To be fair, they've put in (collectively) more legwork than I have, and their analysis is always cogent. I just disagree with some of their basic points, such as their repeated dismissal of revenue imbalance among teams.

Sheehan's January 30 column has some good fodder for discussion in it. (And I call him "Sheehan" not out of disrespect, but because I don't know the man, and don't want to type his full name every time I want to refer to him.)

I find myself disagreeing with Sheehan near the start of his article:

I've made this point before, and it bears repeating: baseball's nominal "large-market/small-market" problem is primarily a "Yankees/everyone else" problem. The Bronx Bombers are an outlier in every category, and no more so than in the area of local revenue. It is difficult to construct a fair solution to a problem created by an outlier.

1. Revenue does play a significant role in fielding a competitive team. It's not the only factor - talent evaluation is clearly very important - but it's not trivial either. Few teams are run like Billy Beane runs the Athletics. The Indians, for instance, continue to be competitive because they have the revenue to spend on good players even though their farm system is not the most productive. The Marlins - even admitting that they are hamstrung by conditions imposed by their previous owners - are only moderately well-run and thus only moderately successful. With more revenue, they might look more like the Indians.

   Moreover, even if most teams were run like the A's (a development which is likely to occur over the next 20 years), that means that revenue disparity would become more important, not less, as it would be harder for teams with smaller cash flows to get a leg up on the "big boys" by running their farm system intelligently.

2. The fact that revenue disparity is as large as it is is inherently unfair, and baseball should strive to level the organizational playing field - providing all teams with a similar level of raw resources (revenue, access to talent, access to other organizational resources) - as much as possible.
3. The fact that teams move up and down the "revenue pole" over the course of a decade or two is irrelevant. So the Expos were a "big market" (read: big revenue) team 20 years ago. So what? The fact that they're not one now is the real problem.
4. Advocating capitalist solutions to revenue disparity is unfair to a team's fans, are more importantly, to fans of the game. Sure, the Expos are poorly run, have been poorly run for eight years (or more), and have paid the price both on the field and in their shrinking cash flow. To argue that the solution is for them to get cracking at running their team more intelligently is unfair to Expos fans of this decade, as it could take years for them to return to a point where they can be competitive in their revenue. Baseball is a business, but it's also - and perhaps primarily - a game. The baseball ever allowed - and continues to allow - the Expos to degenerate to this point is the real problem here. What's needed is a structural change in how baseball is administered so that this sort of revenue disparity can't happen. One approach is true revenue sharing.

Sheehan's next point:

It's clear that revenue sharing above a token level should act as a drag on salaries. Assuming rational decision makers (pause here for five minutes of unbridled laughter), teams should be willing to pay players according to the revenue that they're expected to create. However, if a team can only keep a percentage of that marginal revenue, the value to the team of that player is lessened, and their offer to the player should be reduced accordingly.

The thing I fundamentally disagree with here is that Sheehan is equating "rational decision makers" with "rational capitalist decision makers", i.e., teams are bring run to make a profit for their owners. More explicitly, they're being run only to make a profit for their owners.

I'm always a little wary capitalist arguments. Not just because I find capitalism in its pure form to be dangerous if not downright spurious (not to mention that our society is only pseudo-capitalist at most), but because our society is so wedded to the idea of capitalism as a Good Thing that we're rarely sensitive to when capitalism might be leading us down the wrong path, or blinding us to other things that motivate human behavior. In this case, I think Sheehan is overlooking some a key motivations that some (if not many) GMs and owners have in assembling their teams:

1. Teams want to win. Some owners and GMs are fans. They're fans of their team, and they want to win games because they're fans. In an ideal world, GMs would be insulated from the issues surrounding whether or not their team is making a profit: A GM has a budget, and his job is to maximize use of that budget in order to win games and ultimately win the World Series. This isn't an ideal world, of course, but I truly believe that many people in ownership and front offices are strongly motivated by this desire, far more so than whether or not they're turning a profit.

2. Owners like to be appreciated. Who wouldn't want to be the owner who finally engineered a World Series victory for the Red Sox? Or the Cubs? This feeds back into the "winning" motivation, but winning becomes a means, rather than an end. Sports are (for good or ill) a highly visible endeavor in our society, and champions are accorded a great deal of praise (sometimes including visits to the White House). This is no small thing. No matter how much money you make or lose, being able to say, "I owned the 1997 World Champion Florida Marlins" is something you can keep with you the rest of your life.

   (By contrast, I suspect that Carl Pohlad is partly motivated by feeling unloved by Minnesota, since he - and many other owners - seem to equate civic appreciation with getting public funding for a new stadium. Since he hasn't been given a new stadium, Pohlad is behaving petulantly and acting to prevent the Twins from being truly competitive. I'm sure no one was as surprised as he that the Twins vied for a postseason berth in 2001.)

3. People like to have fun. This isn't always the best motivation. Many teams seem to make bad signings because they like to feel good by bringing some veteran to town. (This seems to be particularly true in south Florida, where various Hispanic players have been signed by the two teams there to try to court the Hispanic communities in that region.) I'm sure that being able to hobnob with the players and fostering an atmosphere where everyone - players and fans and staff - can have a good time is a motivation for many folks in the business. I personally don't think this should be the main motivation in running a team (overall, I think that winning should result in both appreciation and fun, provided you have realistic expectations about when and how those results will show themselves), but it's certainly a factor.

Sheehan continues:

Now, revenue sharing isn't a panacea. As we saw after the 1995 agreement, the great danger is that it allows a team to be profitable without trying to be competitive. Anything that provides disincentives for a team to improve itself is problematic. Of course, this can be fixed in any number of ways, from a simple payroll floor--problematic in and of itself--to an elaborate distribution system tied to an assortment of factors. The important thing is to assure that every team has the same financial incentive to improve, and to win.

In other words, just because teams lately have been driven by the simplest risk/reward approach to salary investment, that doesn't mean they can't learn and be driven by the rewards that a less straightforward system could provide.

I'll agree that it would be nice to implement rules which prevent teams from trying to use revenue sharing to maximize profitability at the expense of on-field performance. But I'm doubtful that such rules could truly be effective. If some Pohlad wants to punish his fan base for not supporting his dream of a new stadium, there isn't a lot that such rules could do to prevent that. After all, I think it's been fairly well demonstrated that by cultivating organizational excellence, fielding a winning team, and aggressively marketing your product to the fans, you can vastly increase the value of your investment (i.e., the team). If things end up not quite working out the way you want, you can sell the team to someone else and let them have a crack at it.

That's the real problem here: Pohlad hasn't been willing to build on his investment and sell, hasn't been willing to sell preemptively, and the owners haven't been willing to oust him for not playing the game (either the baseball game or the investment game).

Additionally, considering the game of musical chairs being played by MLB, John Henry and Jeffrey Loria involving the Expos, Marlins and Red Sox, I'm also not so sure that MLB isn't making a few deals in smoke-filled rooms with owners and prospective owners, which perhaps actively dissuades them from working to build their franchises' values with an eye towards making a profit by selling them.

If true, then financial incentives regarding payroll management aren't going to have a whole lot of effect on such owners. They're playing by different rules, and have goals that have little to do with winning ballgames or making money from their team in the traditional ways.

Back to Sheehan's article:

If baseball is going to turn to revenue sharing to address its perceived problems, then it has to use it fix the problems that are real--different market sizes and potential revenue streams--and not ones that are the result of mismanagement. What I'm suggesting is distributing shared revenue primarily according to market size--using something like Mike Jones's research to determine market size--because that's the only thing a team does not control.

I'm a little dubious of distributing revenue according to market size, though perhaps what Sheehan has in mind here is a partial revenue sharing scheme, such as the one currently advocated by Bud Selig, rather than the "big pot" scheme I suggested above. In that case, I can see that pro-rating sharing somehow would make sense. But I prefer a "big pot" scheme. I therefore don't really agree with Sheehan's later statement:

The proper system is going to be complicated, because it has to straddle the line between fairness and providing the proper incentives.

Revenue disparities might not be the biggest problem the game has to face today (the fact that GMs such as Kansas City's Allan Baird continue to hold jobs is perhaps more important), but I don't believe that claiming that a revenue sharing solution has to "straddle the line" between any two thinks helps the cause of revenue sharing, which is a good cause.

I imagine that only hard-core baseball fans have made it this far through this entry.

Whenever I discuss this stuff with my friend Subrata - or with anyone else - for more than a couple of minutes, I start wondering why we bother. After all, we're "only" fans. We don't have the authority to change how the owners behave, or even enough influence to get them to listen to what we have to say. Perhaps a few diligent and fortunate fans catch the ear of a GM or even an owner, but most of us are just blowing smoke.

The problem with these debates is that they can always devolve into arguments like, "Yeah, that's what they should do, but we all know they're never actually gonna do that. So why argue about it? Let's just consider things that might actually happen."

I guess what I hope is that my lending my voice to the debate - regardless of whether or not mine is the popular view - I can, in some very small way, help to color the decisions that get made down the line. The sabermetricians of the 70s and 80s did so, and sabermetrics is becoming a more accepted part of the front office game. By speaking out, we can provide at least a little bit of input to the decisions of the owners and the politicians and the voters who all affect how the game of Major League Baseball is managed.

This is why it sometimes frustrates me when the Baseball Prospectus people espouse points of view which seem so wrongheaded to me. Of all the fans out here, they probably have the ear of people in the game more than anyone else.

And that, I guess, is why I write entries like this. Because if I can help a little to change their minds, or to influence other people to change their minds, then maybe I can transitively affect the minds of people with more direct control over the game. A longshot, sure, and I do also write stuff like this because I find it interesting and enjoyable, but maybe it could happen.

I've been thinking for the last eight months or so of starting my own baseball Weblog, to do some of my own analyses and provide my own sounding board for baseball issues, much as the Prospectus guys use their Web site. As always, time is the limiting factor. But it's in the back of my mind and hasn't gone away yet. So maybe.