27 April 2010

Low Road Labor Policy in Professional Baseball

Relatively speaking professional baseball players make a lot of money in our society. This is neither profound, new, or interesting to me.
More remarkable is the differences in policies towards paying players between teams.
It is also commonly accepted that "big market" teams like the New York Yankees, Boston Redsox, etc. have much higher payrolls than most other teams.

For example in 2010 the Yankee's first baseman Alex Rodriguez is slated to make 33 million dollars. The entire salary for the 40 man roster of the Pittsburgh Pirates in 2010 is approximately 35 million dollars.

Major league baseball does not impose a salary cap on teams, but rather uses a revenue sharing program to attempt to compensate for differences in markets. Revenue sharing takes a flat percentage of each team's revenue (I think about 30%), pools the money and distributes the total evenly back to the 30 teams that comprise major league baseball. It is essentially a program of tax and transfer intended to get a few extra million dollars into the hands of poorer teams, allowing them to hire one or two extra star players, to attract more fans and thus more revenue themselves.

The major league teams that are losing money in revenue sharing are the financially successful ones. I don't have a problem with this process.

These same teams that are financially successful tend to be the ones who have the highest payrolls, and also are the most successful on the field in terms of winning games.

Taking Marx's simple model of dividing the work day (or baseball season) into
where A--B represents covering of wages, that is the necessary labor of the players, and B--C representing surplus labor appropriated from the players by the owners.
The obvious goal of any owner is to make the area B--C as big as possible, that is maximize the surplus they extract from their labor.
Almost across the board professional baseball teams take a route commonly known as "high road" labor policy.
That is, they pay as much as possible to attract the best talent available. The logic is that having good players will win games. Winning games sells tickets and merchandise, as well as increases advertising revenue regardless of what market a team is in. Teams generally attempt to maximize revenue by increasing the productivity of their labor.

Pittsburgh is an exception to this. In terms of labor policy the Pittsburgh Pirates are the Wal-Mart of Major League Baseball. The team is attempting to maximize profits not be increasing relative surplus value, but rather by making the necessary labor (A--B) as small as possible.

The Pirates ownership pays as little as possible to maintain a "professional" franchise, and keeps the millions that they receive in revenue sharing each year as profit. As a result the team is terrible, as I write this the pirates have lost 20 - 0 and 17 - 4 in the last couple of days, and honestly it will be a miracle if they can win 60 out of 162 games this year.
For obvious reasons attendance in Pittsburgh is terrible, merchandise and ad revenues are basically non-existent.

The problem spills over as other teams who are trying to provide a high quality entertainment product to their fans when they have to play a team like Pittsburgh. Writers have been calling for various solutions to this for years, including the forced sale and movement out of Pittsburgh of the Pirate's franchise. What drove me to write this was reading about a new idea, suspending the entire franchise for the rest of the year, which I found to be really interesting, if completely impractical.

It is not a new idea that low road policy sucks for labor (imagine being a player on a team that isn't even trying to win, or a cashier at Wal-Mart for that matter), but now it is aiding in the destruction of the great American pass time.


Daniel MacDonald said...

One of the assumptions of the "high road" model is that both parties to the contract have long-run expectations about the viability of the relationship.

It looks like all the talk of a possible move for the team is really hindering the ability of expectations to improve.

Given this, what would you argue as the right policy? You can't really have either party commit without first giving them a reason to do so. Have other teams dealt with problems like this before/

James Miehls said...

Without giving this deep thought I would have to say that agency in this case lies with ownership.
Like many people outside of tenured jobs baseball players (by history of their labor talks) put a lot of emphasis on long term contracts. They want stable employment, players also want to win, as it is just a game when it comes down to it.
Until the ownership shows that they are willing to make long term commitments to decent players in an attempt to win they players will not expect anything other than expecting to leave Pittsburgh if they can get a contract somewhere else.
I appreciate the argument about expectations of the relationship being important on both sides but in this case I can't see things improving without ownership taking the first few steps

joseph göner-rebello said...

Don't forget the Florida Marlins. Compare the ratio of player expenses to operating inc. for the Yankees (25mil/240mil) and the Marlins (46mil/48mil)!

Also, I don't know many owners but it does seem to be the case that owning a sports team is not about maximizing profits in the first case, but more about being a sports fan and thinking it would be awesome to have a team, a status symbol, etc. Of course, most of these guys are capitalists so they like to turn a profit (and see the value of the club go up of course).

Also, are you sure that the revenue sharing income is distributed evenly? Last I knew it was distributed "progressively" so the pirates and marlins of the world are the ones who get the biggest checks. Supposedly the Marlins were getting more money from the program than their whole payroll but I think the MLB hides this data.

Also, I don't quite understand the problem Dan poses.

Anyhow, interested to see your further thoughts...

James Miehls said...

You bring up a couple great points.
1. Teams have been successful with lower payrolls. a) The Marlins, b) The Rays, etc.
A lot of baseball writers argue that the problems in Pittsburgh and KC are poor management and player development and not just a lack of spending. That being said poor management can be offset with heavy spending as in the case of Boston 10 years ago.

2. I would think that most owners are of the type you mention....sports lovers but also materialistic and capitalist. I don't know enough about the owners of the Pirates to comment here. Does the professional sports team owner we know have a love of sports? or just not know what to do with his inheritance?

3. My understand of revenue sharing (and it was changed in the last rounds of negotiations between the league and the players union I think?) is that it is progressive in the sense that The poor teams pay less into it than they get back and the rich teams pay more than they get back but all 30 checks are the same size. Again I am not 100% sure on this and MLB does not make the numbers public as far as I know.

alyssa schneebaum said...

if owning a team is a status symbol, then owning a shitty team is especially embarrassing.

james, do you have some sources about the profit sharing/redistribution action you wrote about? i had never heard of it, and i think it's totally cool. it may have revived a very small part of my interest in professional baseball.

thanks for this cool post.

James Miehls said...

Thanks for writing.
There used to be a link to the official policy on mlb.com , I can't seem to find it anymore.

This short article provides a fairly concise (albeit incomplete summary)

If you want a longer explanation with graphs and numbers (feeling like and economist today?)
this study of the effectiveness of revenue sharing is also pretty good at explaining what it is, and why it was put in place. This is worth reading if you have a minute or two (just the first parts explaining it..the findings are rife with methodological error)