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Outside the Lines: The business of baseball

OUTSIDE THE LINES - Can Major League Baseball Level the Economic Playing Field?

Announcer - July 16, 2000.

Mark Schwarz, Guest Host - After 18 months, the findings from baseball's economic parity panel were revealed.

Unidentified Male - There is a large and growing revenue and payroll disparity. And those disparities are causing problems upon competitive imbalance.

George Will, Baseball Economics Committee Member - "Wait till next year" is an old baseball cry. It Will simply not do as a principle of baseball governance any longer.

Schwarz - Even the man responsible for deciding the future course of the game acknowledged the urgency of the issue.

Unidentified Male - We are done making believe this doesn't exist. It exists in a very real way. And now we have to figure out what to do.

Schwarz - Next on OUTSIDE THE LINES, Will a high profile report alter the competitive balance in Major League Baseball?

Announcer - OUTSIDE THE LINES is presented by 1-800-CALLATT. Joining us from ESPN studios and sitting in for Bob Ley, Mark Schwarz.

Schwarz - Baseball is a sport divided. The large market teams expect to win. The small market clubs hope to survive.

In a game where hope is meant to spring eternal, it often disappears in January. Last season, the eight clubs that advanced to the post season ranked in the top 10 of player payrolls, averaging $73 million.

Commission Bud Selig, who ran the Brewers for 28 years, is well acquainted with the plight of small market clubs. He says the solution is increased revenue sharing.

Owners like the Yankees' George Steinbrenner and the Orioles' Peter Angelos may not be convinced that they need the Montreal Expos and the Minnesota Twins at all. What Steinbrenner and Angelos failed to acknowledge is that the goal of a league is not to eliminate competition, but to create it, to have pennant races determined by ingenuity rather than by payroll size.

Selig says the situation is so desperate that he Will now consider relocating some teams. And he hasn't ruled out the previously unthinkable notion of eliminating some of the weakest.

And Selig now has unprecedented powers to order wealthy teams to surrender their riches. He even convinced owners to surrender complete control of their Internet rights to the league office.

We begin this morning with a report on how the Internet may help the game regain its competitive balance. Here's Shelley Smith.

Shelley Smith, ESPN Correspondent (voice-over) - C.J. Nitkowski is a relief pitcher for the Detroit Tigers who, like many professional athletes, has his own Web site. But unlike many professional athletes, he maintains it himself and monitors it often, uploading photos, writing restaurant reviews, answering e-mails, and posting fans' critiques of his team's play, including his own performance.

C.J. Nitkowski, Pitcher, Detroit Tigers - I told them, I said, "If you think I pitched bad, let it loose. That's fine. I can take it." And I got...

Smith (on camera) - Let's see what they're saying...

Nitkowski - ... I got waxed on Sunday pretty good. "C.J. was not sharp today."

Smith - The defend behind him didn't help him out.

Nitkowski - Yeah, exactly. I'm all for blaming somebody else. No, but he did a nice job, a 16-year-old kid. You know, it's fun for them.

Smith (voice-over) - The site also provides Nitkowski with the opportunity to talk about off-the-field issues.

Nitkowski - I went to arbitration this year, and I wasn't happy about it. And I wrote something on there. And I probably - it would have been better if I had just stayed away from my computer because I was pretty fired up about the whole situation.

Smith (on camera) - Nitkowski's Web site is something that Major League Baseball plans to take a long look at as part of its efforts to gather team- and player-related Web pages and put them into one main site that baseball Will own and oversee.

Bob Dupuy, Head of New Media, Major League Baseball - What baseball wants to do is become the ultimate baseball destination for all of our fans and for the consumer. We want to provide a customizable experience for all of our fans. And we think given our assets and our content that the Internet provides an enormous opportunity for us to do that.

Smith - In January, owners voted to combine Internet revenue, meaning for example that once in place funds generated from the Yankees site - one of baseball's most popular and lucrative sites - would be shared with the league's other 29 teams whose sites are visited less.

Terry Lefton, "Brandweek" Magazine - In the case of baseball specifically, every time they get something that looks like a tantalizing new revenue stream, the commissioner takes it upon himself to see if that could possibly address the inequities between the big and small market clubs.

Dupuy - We think that this can be a significant component of what the commissioner has instructed us to try to achieve. And that is to help with regard to the economic disparity that's present in the game today and help therefore with regard to the competitive disparity that's present in the game today. And yes, we're confident this can be an integral part of that.

Lefton - The problem is how much money Will it generate? If you look at the economics of what a player earns, an average player earns around $2 million. A star player earns around $10 million. So is the Internet play going to generate enough so that each club gets $10 million or that small market clubs get $10 million additional income that Will allow them to get one star player?

Smith - At issue still is who actually owns the Internet rights to things like game or practice video or even merchandise sales. Major League Baseball is beginning to explore the scope of intellectual property rights.

Donald Fehr, Executive Director, MLBPA - That involves the potential applications of traditional law relating to copyright, trademark, privacy, and publicity rights of individuals and companies and how that would apply in the Internet area. And I think that remains to be seen.

Smith (on camera) - Do you know how it's going to work yet? Or is it something you guys are still...

Dupuy - We are still talking about it as part of both the collective bargaining process and as part of again providing an enriched environment for the fan. It is an emerging area, although we have 50 years of labor negotiations and collective bargaining agreements that deal with what rights we have, and what rights the players have, and what rights the players association has. And we Will work through all of those issues.

Smith (voice-over) - So the question remains how could all of this affect someone like Nitkowski? If he stays independent, which he is allowed to do, could baseball, for example, forbid him from using team logos or other trademarked material on his site?

Nitkowski - Would they? I doubt it. I think you're going to see push come to shove when it comes to video on the Net. That's going to be the big battleground because they know that's where the money is going to come in.

Smith - So far Nitkowski isn't exactly thrilled by baseball's proposed super site.

Nitkowski - I don't think that should be something that Major League Baseball has total control of because some sites are better than others. Bud Selig I don't think needs to have his hand in that. I mean, that's something that should be left up to each individual team and what they want to offer for their fans.

Dupuy - We don't, however, intend to have each of the individual sites be devoid of their own local flavor and content. We adopted what we've called the hybrid model. And that is each of the individual clubs Will be able to provide their own look, their own look, their own content so that the fans of a particular team Will feel comfortable going to their own site.

Smith - And Nitkowski is even less thrilled about moving his page there.

Nitkowski - I'm not trying to be politically correct. I'm not trying to. You can get that stuff in the paper. You know, I'm just - I mean, I don't talk about everything. I mean, obviously there's things that need to be kept in the clubhouse or kept amongst the team. And I'm smart enough not to cross that line. But as much as I can tell you, I Will.

Smith (on camera) - Nitkowski had an offer in the off season to turn his Web site over to, one of the leading producers of athlete Web pages. He turned them down even though they offered thousands of dollars and stock options because he says he wanted to continue to give his fans something different, something not likely to fall under Major League Baseball's Internet umbrella.

For ESPN's OUTSIDE THE LINES, I'm Shelley Smith.

Schwarz - When we continue, Will teams like the Twins and Expos survive to one day enjoy the benefits of baseball's projected Internet windfall? We Will explore that with one of the authors of the report and with a legendary labor leader.

Schwarz - Our topic, the attempt to level the economic playing field in Major League Baseball. And joining us from Aspen, Colorado, Richard Levin, the president of Yale University and a member of the panel chosen by baseball to study its financial inequities. From New York, the former executive director of the Major League Baseball Players Association, Marvin Miller.

First, let's just review the principal recommendations from President Levin's committee, that at least 40 percent of all local revenue be shared by all the clubs, that there should be a 50 percent tax on club payrolls above $84 million, that clubs should be encouraged to have a payroll floor of $40 million, that the commissioner have a fund to assist small market clubs with competitiveness, and finally that franchise relocation be considered.

Rick, let's start with you. How do these proposals affect fans in markets big and small?

Richard Levin, President, Yale University - I think it's going to be good for everyone because the idea is to bring the teams into better competitive balance. You know, in the last five years, we've seen an unprecedented disparity where nine of the 10 teams in the World Series were right out of the top of the teams ranked by order of payroll. Seventeen of the 20 teams that made the playoffs were in the top seven in terms of payroll in that particular year.

The disparity between what the richer clubs can pay and what the bottom of the market can pay has now grown to about three-and-a-half to one in terms of payroll. It used to be two to one or less throughout the history of baseball.

We think that needs to be addressed. And the recommendations go to compressing that range of payrolls by bringing the bottom up and making those teams in the bottom and in the middle more competitive.

Schwarz - Marvin, you have read this report. What do you think about some of the proposals inside it?

Marvin Miller, Former Executive Director, MLB Players Association - Well, I've only skimmed the report. But I have to say I'm not impressed with the proposals. I had hoped that there might be some original ideas. And I had hoped that the report would be a lot more scholarly than it is.

It's a kind of a rehash of the arguments that have been made for years. There's a kind of a shift in the argument in recent years. That is instead of claiming outright poverty, the argument has shifted to the question of competitive balance.

And I guess I'm older than most of the writers who cover this. I'm older than the four members of the panel. But I find the notion that competitive imbalance as a serious problem which has grown worse through the years to be absolutely incorrect.

"Sports Business Journal," a Street and Smith (ph) publication which covers sports closely, did a survey of their own, kind of impressive research survey last year at the end of the season. And what they concluded was that the 1990s was the most competitively balanced decade in the entire history of Major League Baseball.

Schwarz - Well, I'll tell you, Mr. Levin, how do you respond to that? Twenty-four of the 30 major league clubs this decade have made it to the post season. Is that bad?

Levin - That of course is not bad. But what is not being recognized here is the tremendous change since 1994. Actually, if you wanted the most competitively balanced decade in the 20th century, you would pick the period 1985 to 1994.

What's happened since - and all the movement in payroll disparity has occurred during this last six-year period...

Schwarz - But why do you choose...

Levin - Why...

Schwarz - ... to study a five-year period that happened after a cataclysmic strike?

Levin - ... Well, because it's changed the game. I mean, I agree with Mr. Miller on the conclusion that the issue now is not poverty. This issue is competitive imbalance.

And we're concerned that if you let this situation persist where only the wealthier teams are able to have true hope of making the playoffs, you Will diminish the fan interest in the game and fan attention to the game.

That, we have to remember the period in which there was great competitive imbalance, namely in the long period of Yankee dominance, 1920 to 1964, the stands weren't full. People didn't go to the game like they do today. And they didn't have the TV audiences they have today.

The players benefit from this, as well as the owners of course. The popularity of the game is something that we value and we think the fans of America value. And that's why we believe some measures. These are not radical measures. They're not overreaction I believe to situations. I think they're appropriately tailored to the situation.

Schwarz - Marvin, isn't it better if all 30 clubs can bid for the premiere free agents rather than the seven or eight that are bidding for them now?

Miller - Sure. No question about that. But that's not the issue here. You know, you've got to stay with competitive imbalance because that's now said to be the cure for everything that's going to happen.

I'm troubled by the fact that the panel chose to make its case by using the industry's figures, which are very selective figures, which are unaudited figures, and which are unanalyzed basically. And I think that's a dangerous practice.

I want to explain what I mean. Paul Biston (ph), who is the chief operating officer of Major League Baseball...

Schwarz - Mr. Miller, let me get in for just a moment. We have to take a break. We're going to get into those unaudited figures that you referred to in just a moment with Mr. Levin.

We'll be back with more on baseball and parity right after this break.

Schwarz - And we're back with Yale University President Richard Levin, and the man who challenged baseball's reserve clause, Marvin Miller.

And when we left, Mr. Miller, you were challenging some of the data in Mr. Levin's report.

Miller - Well, not so much challenging the data as the methodology. You know, the owners have always been reluctant to turn over any kind of figures, even when they were obligated to do so by law because they knew that they would be analyzed and subject to a lot of scrutiny.

And I see no evidence that that is what happened this time. Apparently the owners' figures are what the panel is relying on. And I'm starting to quote one of the top officials of baseball who is Paul Biston (ph), who is the chief operating officer of Major League Baseball and second ranking official of the game.

When he was the comptroller for the Toronto ball club, he was interviewed by a national magazine about baseball's perennial claims of poverty they made in those days. And he responded in effect in the following fashion.

He said, "Any certified public accountant with any ability at all without violating the law could convert a major league baseball club's actual multimillion-dollar operating profit to an apparently multimillion-dollar loss."

Now that's not my statement. That's Paul Biston's (ph) statement. And I think it points out...

Schwarz - Mr. Levin, can you respond to Mr. Miller's comment?

Levin - I've been waiting for an opportunity to respond. First of all, what Mr. Miller says may have been true of previous studies in previous eras. But it's not true on this one.

First of all, we don't rely on profitability data. We show some of it in an appendix. But our conclusions are based entirely on the connection between local revenue, payroll, and winning and losing. And the detailed analysis contained in this report - and I do hope Mr. Miller Will take the time to read it - the detailed analysis rests principally on the link between payroll and winning and losing, which we think is dramatic.

Now the payroll numbers I Will remind you are numbers where the definition of these was agreed to in the last labor contract. And as I understand it, these numbers are audited twice, once by the owners and second by an outside auditor retained jointly by the players association and the owners to certify them for purposes of computing this currently so-called luxury tax.

These aren't unreliable figures. They're perfectly reliable figures...

Schwarz - Marvin...

Levin - ... And we've worked with great care to analyze them. And I do...

Miller - Let me jump in. What's troubling is let's just take the figures as presented by the panel. And incidentally, what I'm about to say is not even pointed out, although I think it's significant.

The figures shown in the period selected by the panel is that the average club payroll in those years, 1995 through '99, has increased by 50 percent, big increase. But the average revenue of the clubs in the same period has increased double that, 101 percent, so that the average club payroll went up something like $16.6 million a year. And the average revenue went up $46.7 million a year.

But that's not the only point here. When you look at what the panel says is the profit and loss table, they say in those years only three clubs were profitable. They make a big point of this. Three clubs. And they were profitable by an average of $24.6 million a year.

Schwarz - Let me get back to Rick here just a moment...

Miller - Let me get the unprofitable ones...

Schwarz - ... OK.

Miller - ... because it's rather important. The alleged 27 unprofitable clubs were unprofitable by an average of $59 million, almost $60 million? Now how is revenue sharing going to produce the desired solution according to the panel? If you're going to take three clubs with an average of less than $25 million a year profit and divide it up among 30 clubs, including 27 that were unprofitable by almost $60 million a year on the average, you're not going to accomplish anything.

Schwarz - Mr. Levin, we're in our last minute. Let me ask you, if you're a successful owner like George Steinbrenner in the most costly market in the world, and you're making hundreds of millions of dollars, why should you share that with owners who are perhaps inferior and not doing as good a job as businessmen?

Miller - Well...

Levin - Because the...

Miller - ... go ahead.

Levin - ... I thought the question was addressed here. I think it's in the interest of the game that even the best teams and most successful have strong competition to play against. I think if they don't, the fans Will eventually lose interest.

And when you have a situation where the odds that the Yankees face when they go and play a Minnesota are three to one that they're going to win - which is pretty much what the data show - that's not - or two-and-a-half to one - that's not good for the game.

I do wish Mr. Miller would focus on the positive effects of this proposal for players. This Will make, as you suggested Mark, it more possible for the middle teams and even the lower teams to bid successfully for talent. And I believe the competitive boosters of the owners Will encourage them to continue to pay appropriate salaries for the players. This is not an attempt...

Schwarz - Mr. Miller...

Levin - ... This is not an attempt to squeeze down player compensation. It's an attempt to make the game more competitive.

Schwarz - ... 15 seconds. Your final thought, Marvin.

Miller - Well, I just looked at the paper this morning. There's the White Sox in this year 2000 with a payroll of $31 million a year compared to the Yankees $100 million. They're twenty-sixth out of 30 clubs in terms of payroll rank.

In the central division, the White Sox are in first place. They're eight-and-a-half games over Cleveland and...

Schwarz - Mr. Miller, I'm sorry but we are out of time.

Miller - ... OK.

Schwarz - Thank you very much for joining us. Rick Levin...

Levin - Thanks.

Schwarz - ... thank you also for joining us this morning on OUTSIDE THE LINES. More in just a moment.

Schwarz - OUTSIDE THE LINES is interactive at where the keyword is otlweekly. Browse the library of transcripts or stream video from each of our past shows, or register your feedback and story ideas. Our e-mail address

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 Mark Schwarz and Marvin Miller discuss the business of baseball.
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