Andrew Zimbalist (Washington, DC: Brookings Institution Press, 2003)

Reviewed by James Spaulding

 

Competition in baseball, as in other professional sports leagues, is an unusual concept. While Home Depot grows stronger if rival hardware stores shut down, even baseball’s strongest teams need competitors that are financially viable. What would be the value of the Yankees franchise if it eliminated its 29 rivals? With no competition, Home Depot’s value soars; with no competition, the Yankees’ value arguably goes to zero. Meaningful competition on the field requires a financially stable back-drop for Major League Baseball (MLB) as a whole.

 

Recent trends in MLB operations, however, may be threatening its financial stability. Andrew Zimbalist, who has written extensively on the economics of MLB, contends in his newest work that baseball’s presumed exemption from antitrust laws is the root of the problems the game faces today. While there is competition on many levels within MLB, as a whole MLB itself is a monopoly in that it is the only provider of top-level professional baseball in the country. The presumed antitrust exemption, stemming from a 1922 Supreme Court ruling holding that baseball did not involve interstate commerce, seems almost accidentally granted and even more accidentally maintained over time, in Zimbalist’s fascinating relation of its history.

 

Current Issues

Zimbalist traces the effects of the presumed exemption through the full range of issues affecting the economics of baseball, including industry profitability, labor relations, revenue sharing (and the difficulties in simply identifying revenues), and new stadium construction. The book’s strength is its summaries of recent history in several of these areas, particularly profitability and revenue sharing. Along the way, Zimbalist provides some very helpful examples to illustrate his points.

 

In the chapter on the game’s profitability, he notes that profits can easily be hidden or manipulated when teams are owned by corporations that also own cable TV stations or facilities management companies. He then illustrates the ways teams do so by looking at the Atlanta Braves and TBS, the New York Yankees and their cable TV ventures, and many others. As fans, we might not care about profitability, unless the owner is simultaneously pleading poverty to try to get public financing for a stadium, or reducing the amount of revenue subject to the luxury tax that is part of the collective bargaining agreement. Zimbalist does not focus as much on another residual effect: the price of a ticket to a game.

 

So what are the problems that MLB faces today? To a fan, the most problematic outcome is the threat to competitive balance. Because of financial inequalities/differences in the value of local TV rights, revenue effects of new stadiums, and other areas, and the lack of meaningful revenue sharing, on-the-field competition is threatened. Zimbalist finds that competitive balance has suffered since the mid-1990s, and the relationship between a team’s payroll and its winning percentage has grown stronger. It may be too soon to tell whether this is a short-term phenomenon, and the trend might be more apparent with 20 years of hindsight. But by then it might be too late to restore any necessary balance.

 

To a fan in the Washington, DC area, however, an even more problematic outcome is the limitation on franchise movements. Compare franchise movements in the other three major professional sports in the past decade to baseball, which has not seen a move in 30 years (the most recent move, of course, being the second version of the Senators leaving Washington). As Zimablist notes, current teams (and MLB as a whole) have used the potential lure of the Washington market to get better deals or new stadiums in their own cities, but Washington has not yet actually been granted a new franchise. (Okay, this limitation might affect you fans in Charlotte and Portland, too.)

 

Quantitative Analysis

The book does not contain a great deal of econometric analysis, and most of what is included comes in its extensive footnotes (29 pages worth). Much of the quantitative analysis in the body of the book consists of alternative calculations of luxury taxes and other revenue-sharing proposals. These are interesting, in a number-heavy way, in showing big differences in winners and losers under various proposals that sound similar on their face. Zimablist concludes by coming back to the presumed antitrust exemption and its implications for public policy in a number of the areas he has covered.

 

While Zimbalist’s book contains a great deal of useful data and is well argued, one disappointment is the degree of overlap with Baseball and Billions , his 1992 work. It provides a good update of the past 10 years, but it covers much of the same territory as its predecessor. In addition, about 10 pages of the labor relations section of the book are virtually identical, paragraph-to-paragraph and word-to-word, with a similar section in the earlier book. For a fan who wants the latest news, however, as well as anyone wanting a thorough overview of MLB’s financial landscape, this is a valuable book.

 

James Spaulding is the director of cost analysis, budget execution, and grants management for the Office of Budget and Planning in the District of Columbia. He has his Ph.D. in economics from the University of Wisconsin.