In an article for Forbes in 2006, Tom Van Riper noted that "Two-thirds of baseball's 30 clubs lose money....The solution is to centralize the operation, and share all sources of revenue equally among the clubs. Socialist? Sure." Van Riper notes that Major League Baseball is really more "one business with 30 locations, not 30 different businesses." He makes a good point, and economists are already wanting to stop me before I go any further and emphasize why this is a poor example to use for society at large. Which, really, would only lend credence to my thesis which is that money people obsess too much over the fine letter of what the law says they can do to accumulate money, and far too little on the human aspect of what their actions do. For the purpose of this blog, all analogies and examples will be drawn from Major League Baseball.
Let's suppose that MLB did not operate as a centralized organization, but rather a confederation of thirty ballclubs. There would be absolutely nothing aside from an owner's own limitations to prevent an owner to take two courses of action, both of which have been taken. The first is to maximize his own profits by pocketing as much cash as possible. This means not signing players who command big salaries and the major consequence of this is that it is improbable, if not impossible, for the organization to stay healthy and competitive. The second is to pour seemingly endless money into the organization which, if done intelligently, ought to net the organization as many talented players as there are roster spots. The chief consequence of this is that this team will dominate to the point of discouraging other teams and their fans.
The first problem owner is exemplified by Carl Pohlad, owner of the Minnesota Twins. Pohlad "got his start in the banking business by foreclosing farms during the Great Depression" according to his Wikipedia profile. Whatever system Pohlad developed to put himself first during that time, and to block out the effect his job had on human beings has stayed with him because this is a guy who continues to own the Twins while simultaneously putting as little into them as he can get away with. The Twins's 2008 payroll was ranked 25th of the 30 MLB teams, outspending the Washington Nationals by $2 million. In 1997, Pohlad arranged the sale of the Twins but the deal fell apart when the residents in North Carolina voted not to help fund a facility to host the team. When MLB toyed with the idea of contraction in 2000, Pohlad offered up the Twins despite the fact that somehow, some way, the team had become competitive within its division.
The second problem owner is exemplified by George Steinbrenner, owner of the New York Yankees. Steinbrenner made his fortune in the shipping business, but always wanted to be involved with sports. His obsession with winning, in tandem with what is likely an inferiority complex, has often made sports news. Sometimes these stories concerned championship victories; often, they revolved around his explosions with his own managers and players when he felt their performance jeopardized the prospect of winning. Either way, especially in the Joe Torre Era (1996-2007, when Torre managed the Yankees), the team's high payroll and postseason success (they reached the postseason every year, and won four World Series, three of them in succession) came to be characterized as baseball's "Evil Empire."
Winning has long been associated with making money, and most owners were caught between Pohlad and Steinbrenner; they needed to operate profitably, but they wanted to win. MLB came to realize that the disparity amongst the teams was not good for the sport. Even as Yankee Stadium reached its seating capacity with regularity, other teams failed to even reach half of theirs--and few ballparks could accomodate the size of a Yankee Stadium crowd in the first place. In their final seasons, the Montreal Expos regularly drew 6,000 fans--less than a Triple-A Minor League Baseball game. Their attendance was so bad that the Expos actually scheduled several games to be played in Puerto Rico during the regular season! Clearly, something had to be done. What did MLB do? It bought the team.
For two seasons, until a new ownership could be found, the other 29 team owners collectively controlled the Montreal Expos. Common economic theory would have demanded that the Expos simply collapse and the rest of the league continue, minus one competitor. If your local Saturn dealership fails, the Ford and Dodge dealerships don't take over operating it until a new ownership can be found; why should baseball have done it? There are two answers. First, the Major League Baseball Player's Association would never have allowed that many players to lose their job opportunities. The union would have resorted to any tactic at its disposal--including a dreaded strike--to ensure that ownership find a solution to keep the players employed. The other reason that MLB owners kept the Expos going was that competition is good for the sport.
If competition were not good for the sport, the Yankees would not have been considered public enemy number one. Fans regularly complained that they could write off their team's chances before the season even started in April. Whether the 29 owners saw the sustaining of the Expos in their interest or not, give the Office of the Commissioner credit for seeing it. The Expos have since moved to Washington, D.C., been renamed the Washington Nationals and just opened a beautiful, brand new ballpark. They have not as yet had a winning season, but they have at times forced the rest of the National League East to earn its victories.
MLB's solution to the disparity was to adopt a policy that had bolstered the National Basketball Association (NBA) and National Football League (NFL): revenue sharing. Teams whose income reached an established level were taxed; this money went directly to the teams whose income failed to reach an established level. Is it fair for an owner like Steinbrenner, who has dedicated his fortune and energy to fielding a competitive team, to line the pockets of an owner like Pohlad, who has starved his team? Of course not, but not all owners operating low-revenue teams are as stingy as Pohlad. Other factors beside greed prevent some owners from boasting Yankee payrolls, including the impact of their other business ventures, attendance levels and their ability to generate advertising sales (which is, in turn, related to market size, attendance levels and the team's national recognition, which is, in turn, related to its ability to compete).
When Ryan Howard appears in a Subway commercial, it not only means that Subway considers Philadelphia Phillies fans a large enough demographic to court, but that they expect the general public will recognize Howard. This, in turn, means that the Phillies are in a position to say "Look at us! We're one of the big guys--we've got a marquee player in a national ad." Just as winning draws fans to the ballpark, so too does reaching that top tier of national exposure bring other businesses' attention. If Subway will bank on Ryan Howard, might not another company like, say, Joker Brand come looking to put Chase Utley in a TV spot? (Hopefully not for Utley, since Joker Brand is not only fictitious, but fatal.)
In his recent testimony to Congress, Alan Greenspan confessed that in hindsight, he discovered a "flaw" in his operational model of how the world works. The flaw? He presumed that businesses's self-interest would ensure that they would operate to make themselves healthy and competitive. If Greenspan had been a Twins fan, he would have known that while there are some Steinbrenners out there, there are also a lot of Pohlads, too. While everyone was villifying "The Boss," they overlooked the real danger: the men who made their living foreclosing farms.
Meanwhile, just as Greenspan thought all the business owners were Steinbrenners, voters have confused themselves. They don't mind their team benefitting from revenue sharing, yet they quickly line up to prevent themselves from benefitting from it. If you're a fan of the Philadelphia Phillies or the Tampa Bay Rays, ask yourself this: If there's nothing wrong about your team being in the World Series, which there's not, and there's nothing wrong with them having gotten there in part because of revenue sharing and being able to get early draft picks, which they did, then why would it be wrong for the George Steinbrenners of the world to give a little for the Phillies and Rays of the country? Competition is healthy for baseball, it's healthy for business and it's healthy for our society.