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Commentary: The Crack Of The Bat And Labor Strife In The Air


Sports Business

Commentary: The Crack of the Bat--and Labor Strife in the Air

For fans across America, the start of a new baseball season brings a sense of renewal and optimism. Yet all the Opening Day festivities and efforts to keep the euphoria of 1998 going can't mask the awful truth: Major League Baseball faces the unpleasant prospect of labor strife in the very near future.

Because it failed to resolve the sport's most pressing financial concerns during the 1994-95 strike, MLB finds itself headed back toward the brink as its current, inadequate collective bargaining agreement expires at the end of the 2000 season.

If baseball is to continue its impressive rebound, it must aggressively address the critical issues of revenue distribution and player cost. A lot of folks blame the growing disparity between teams on the economic Darwinism of rich ball clubs like the Los Angeles Dodgers, which signed pitcher Kevin Brown for $105 million over seven years. But these teams are merely responding--within agreed-upon guidelines--to market opportunities.

Still, efforts to redress baseball's upstairs-downstairs divide have been largely fruitless. Under the existing agreement, five teams with payrolls in excess of $70.5 million were assessed a luxury tax in 1998. But the money, which went into a revenue-sharing pool, totaled a meager $6.5 million--less than what Brown will have made by midseason. That will do little to correct the financial imbalances between large- and small-market clubs or to discourage large-market teams from spending lavishly on players.LOWER THRESHOLD. For the luxury tax to have its intended impact, MLB must in the short term significantly increase the rate from its current 35% to as much as 50%. Additionally, the payroll threshold required to trigger the tax must be lowered by at least several million dollars. And small-market teams must be required to reinvest their subsidies rather than use them to cover losses.

Before the luxury-tax system was put into place, the owners tried unsuccessfully to convince the players that a cap on salaries was necessary to protect the financial viability of all teams. Given the astounding imbalance between clubs--the payroll of the New York Yankees is almost $70 million higher than that of the Montreal Expos--owners will again certainly push for a salary cap, perhaps similar to the one recently adopted by the National Basketball Assn. Under the NBA's new contract, players receive as much as 57% of defined gross revenues. In exchange, NBA players agreed to a salary scale based primarily on experience, with maximum annual increases of 12%.

Whether MLB players and their powerful union would even consider such a structure is difficult to predict. But if players reject a salary cap and the influential owners of large-market teams balk at a higher luxury tax, MLB will have to adopt a more liberal policy regarding franchise relocation. Essentially, if a team's market is so economically unviable that it is unable to compete, MLB must allow it to move.

Of course, no one expects that there will ever be 30 great teams all racing to fight their way to the World Series. However, there should be a measure of parity throughout both leagues. Optimal parity means most teams would post a winning percentage around .500. Sure, clubs in the large markets would win more frequently, but there would at least be a level of uncertainty. That would help boost Nielsen ratings and, in turn, strengthen advertising rates and attract more corporate sponsors.

Failing to avert a second major labor impasse in less than a decade will most certainly deal a devastating blow to baseball's cash flow. Corporate America will back away, and fans who were wooed back to ballparks by the electricity of the Mark McGwire-Sammy Sosa home-run contest may be unwilling to forgive baseball yet again. In the end, wealthy owners and players will discover that there are far fewer dollars over which to bicker.

Carter, founder of The Sports Business Group consultancy, teaches sports business at the University of Southern California Graduate School of Business.By David M. Carter


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