News: Analysis & Commentary: BASEBALL
OWNERS: 1 PLAYERS: 0
You would think they had just called off the season. Leaving the baseball owners' Apr. 2 meeting at Chicago's O'Hare Hilton Hotel, Atlanta Braves co-owner William C. Bartholomay stalked grimly past reporters. Bud Selig, owner of the Milwaukee Brewers and baseball's acting commissioner, flared up in anger. "I don't regard it as a surrender," he barked.
Easy, guys. You won. A mechanism to slow soaring labor costs is in the works. And on Apr. 26, at last, big leaguers will play ball. After federal Judge Sonia Sotomayor in New York issued an injunction on Mar. 31 that had been requested by the National Labor Relations Board, Major League Baseball's professional players voted to end their 234-day strike. The owners agreed to start the season after a three-week delay to allow for an accelerated spring training.
Even before the injunction came down, baseball's owners were way ahead. The players had agreed to some form of "luxury tax" on clubs with high payrolls, creating a disincentive for rich teams to jack up stars' salaries and curbing the forces that have lifted pay an average of 14% annually over the past 15 years. Think of it as legislated self-control: Owners, unable to stop spending on their own, now will pay through the nose if they do so.
TARNISHED GAME? Granted, hard-line owners want a larger tax, which they're unlikely to win now. But "once the players bought the principle of a luxury tax, it's just a matter of quibbling over the numbers," says Gary R. Roberts, a Tulane University law professor who once represented football's owners in labor battles. The union's proposal would levy a charge of 25% on team payrolls that exceed $50 million, a threshold that would escalate in future years. If applied today, the tax would hit just five or six of the highest-paying teams. "That way, the market is inhibited but not shut down altogether," says Lauren Rich, an in-house union lawyer. Even Robert D. Manfred, an outside attorney for the owners, concedes that the union's proposal would generate taxes of $25 million after three years if payrolls grew just 3% faster than revenues.
The owners' hang-up: They want more. Their latest proposal calls for a 50% tax on payrolls above $44 million, which would do more to reduce the disparity between the highest-spending Detroit Tigers' 1994 payroll of $56 million and the low-ball San Diego Padres' $20 million. "It's not as simple as just splitting the difference [between the two sides]," says Colorado Rockies owner Jerry McMorris.
Even if the players ceded that point, however, the teams can't agree on what to do with the proceeds. The players want luxury taxes to be divided among poorer teams in smaller markets, to level the playing field. Big-money teams, however, object to such corporate socialism, and no unified proposal has come forth. Indeed, some hard-liners seem determined to continue the fight. One indication: As the strike ended, Selig demoted Charles P. O'Connor, Manfred's boss, who has advised the league on labor for years. In his place, Selig elevated Robert L. Ballow, a Nashville attorney who has advised aggressive employers on how to use permanent replacements to break unions. "Ballow's success is in using replacements in industries where equipment can do the work anyway," says union leader Donald M. Fehr. "This industry ain't that."
Negotiations likely will start again soon, although they may not get serious until the owners' injunction appeal is decided next month. In the meantime, the league has begun repairing the damage done by the strike. By allowing players back onto the field, the owners averted the risk of having to pay at least $5 million a day in back-pay liabilities that could have resulted from unfair labor practices charges against them. More important, they won a chance to resuscitate their sport before more damage was done.
Selig recognizes the urgency of the task ahead. "Right now, it's important to get the focus of the game back on the field," he told reporters. "It's in our best interests for us to do that." Indeed, after losing $350 million last year and alienating fans from Yankee Stadium to Candlestick Park, baseball has lots of lost ground to make up. Ticket sales are off, and some advertisers are demanding discounts for supporting a sport they fear may be tarnished in viewers' eyes.
To woo back fans, clubs are trying gimmicks, giveaways, and ads that deflect attention from all the strife. A Chicago White Sox television commercial features a fan who met her boyfriend at Comiskey Park. And the Chicago Cubs are extending the half-price ticket offer begun during the strike until May 3. "We're going to be saying, `I'm sorry' a lot," says Rob Gallas, the White Sox marketing vice-president. Is it working? Some clubs, such as the Tigers and the Texas Rangers, have kept 70% to 90% of season ticket-holders. However, less dedicated fans will likely be a tougher sell. During the strike, the Tigers only sold half of their 52,000 seats for opening day, an annual sellout.
SKITTISH SPONSORS. Clubs are rushing to win back advertisers, too. Even with replacement players, the league retained all but one of its 20 multiyear deals with major TV advertisers. But other, smaller deals haven't materialized, so owners remain $60 million short of the $200 million in national ad revenues they were set to collect before the strike last season. Some clubs, moreover, had to offer steep discounts to retain local advertisers. The Houston Astros kept many major accounts, but only with a 50% discount.
Now, teams are trying to sell their regular product again at full price, but some sponsors remain skittish about the damage to fan interest. Coca-Cola Co. is seeking reductions in its $18 million worth of local baseball contracts. And Houston Astros broadcast director Jamie Hildreth says that his team lost some local advertisers whose budgets were allocated before the walkout ended. Still, the robust economy has created a shortage of ad space during prime time, when the league broadcasts games on 12 nights plus the playoffs and World Series. "The overall tightness of the prime time market will help tremendously," says Robert E. Igiel, the head of broadcast at Young & Rubicam Inc.
Ultimately, fans and advertisers likely will trickle back to baseball: They always do, it seems. Even as the stadiums fill up, though, the labor standoff looms large in the background. If owners win their appeal of Sotomayor's injunction, which appears unlikely, they may abolish the old contract again and trigger another walkout. If they lose, however, owners finally may start to compromise. The upshot? "This isn't over," says Fehr. "This is halftime." Those aren't the comforting words disillusioned fans have been waiting 10 months to hear. But this contest is unlikely to end until owners figure out that they can quit and still come out winners.
BASEBALL: THE STATE MF PLAY
FINANCES The 28 club owners lost $350 million last season, most of
it following cancellation of the highly profitable playoffs and
the World Series. Major-league players lost about $300 million in salary.
TICKET SALES Some clubs, such as the Cleveland Indians and the Detroit Tigers, have sold 70% to 90% of their season tickets--though sometimes at reduced prices. But single-ticket sales around the league could be hit hard.
ADVERTISING Major League Baseball has renewed all but one of its 20 major national TV advertising deals, and its prime-time broadcasts are attractive vehicles. But it still is $60 million short of the $200 million in ad revenue raised last season.
LABOR TALKS The standoff between owners and players likely will continue for a month or so, while the owners appeal the court injunction that forced them to restore the old labor contract.
DATA: BUSINESS WEEKBy Aaron Bernstein in New York and David Greising in Atlanta, with bureau reports