Baseball Owners, Players Balk at a Level Playing Field

On the field, the Arizona Diamondbacks are at the top of their game.

Last year, the team beat the seemingly invincible New York Yankees in the World Series. The Diamondbacks reached the fall classic in just four years, a record for an expansion team.

To get there, the club cut no corners. It paid big salaries and built a $350-million luxury stadium, drawing some of the biggest crowds in baseball.

But off the field, the Phoenix franchise is one of the sport’s biggest money losers, which prompts the question: What do you have to do to make a buck in the Grand Ol’ Game?

The reality, according to baseball executives and sports economists, is that the financial problems plaguing the major league are so entrenched that only a sweeping overhaul can return the game to health. But every avenue for substantive change is resisted by owners, players or politicians, virtually ensuring problems for years to come.

In less than a decade, baseball’s collective debt has grown from $593 million to about $4 billion as teams have spent beyond their means in a mad dash to keep pace with the Yankees, the richest in baseball. The Yankees not only have an unrivaled fan base but a huge local TV contract that allowed them to spend a record $140 million on player salaries this year, putting other teams at an instant disadvantage, especially those in smaller markets.

That dynamic has driven up annual salaries to an average of $2.4 million, a 71% jump in just five years. Teams across the country have built stunning new ballparks--with the help of local taxpayers--to draw bigger crowds to pay the rising bills, only to see aisles of empty seats in some of them. Even in cities where attendance remains solid, the money is not enough to meet expenses. Half a dozen teams are quietly on the market. Only a decade ago they would have been snapped up, but no buyers are in sight.

Now looms the prospect of another strike, which would be the ninth since 1972. The last one, in 1994, canceled the World Series. Today, the players union is expected to vote on whether to set a strike date in hope of accelerating negotiations that have stalled. The two sides are tackling such prickly issues as revenue sharing among teams, shrinking the number of clubs, drug testing and the stratospheric salaries.

But whatever agreement ultimately is reached, the result probably will be something more akin to a bloop single than a game-winning homer.

“What’s happening now is a repeat of 1994 because these same problems were never resolved,” said Bruce K. Johnson, an economics professor at Centre College in Danville, Ky. “They are trying to put Band-Aids on the problem and it’s not a scratch--it’s an illness that could be terminal if there’s another strike and a mass exodus of fans.”

No Cap on Salaries

Among the professional sports leagues--the National Basketball Assn., the National Football League and the National Hockey League--only baseball has balked at modernizing its economic structure, which now requires little compromise or sacrifice.

“Baseball’s economic model wasn’t in place just before television or radio but before flight, before the internal combustion engine,” said columnist George Will, a member of the 2000 Blue Ribbon Panel on Baseball Economics commissioned by major league baseball.

In baseball, there are no caps on player paychecks as in other sports. Big-market teams with sky-high local TV revenue, such as the Yankees, are not forced to pool large percentages of their money for the benefit of less fortunate clubs, as they are in the NBA and the NFL. Baseball also is the only sport exempt from federal antitrust regulations, meaning that owners can control the number and location of teams as a monopoly would. Members of Congress, for their part, use the threat of revoking the exemption as way to obtain or save teams in their districts.

A complication underlying almost every proposal to fix the sport’s finances is the deep lack of trust that has developed between players and owners. Many players and their agents say the owners are exaggerating the severity of their problems to gain the upper hand during the labor negotiations. Instead of answering the charges, the owners have refused to open their books.

Losses cited by teams owned by media conglomerates can be misleading. The Atlanta Braves, owned by AOL Time Warner Inc., and the Los Angeles Dodgers, owned by News Corp., reported losses last year. So did the Chicago Cubs, owned by Tribune Co., which also owns the Los Angeles Times. But analysts say the corporate parents have profited by developing television networks built around their clubs’ games whose massive values are not reflected on the teams’ ledgers.

Beyond the Bottom Line

Cable riches played a big role in the recent $700-million sale of the Boston Red Sox. The team reported a loss of $13.7 million last year. The sale included the team, Fenway Park stadium and control of the New England Sports Network, which carries most Red Sox games as well as other sports. The network alone was valued at an estimated $325 million in the sale.

“People who invest in professional sports teams get all sorts of value that does not show up on the bottom line,” said Andrew S. Zimbalist, a sports economist at Smith College in Northampton, Mass.

Baseball players also dismiss the argument that payrolls are driving teams to the brink of bankruptcy, citing the record sale prices of teams such as the Red Sox. Many financial problems, they say, are the result of mismanagement by owners and overexpansion by baseball.

“This is a lot of hocus-pocus by the league,” said agent Scott Boras, who represents 70 players, including shortstop Alex Rodriguez, whose 10-year, $252-million contract with the Texas Rangers set a baseball record. “No franchise has sold for a loss.”

But the owners say the players are perpetuating some of baseball’s most vexing problems to keep their salaries on the rise. Specifically, the players union has opposed revamping the way baseball shares the wealth among its teams.

The 30 teams contribute 20% of their local revenue from tickets, concessions, parking and TV contracts to baseball’s central pot, which is redistributed with poorer teams getting more than richer ones. Because the disparity remains so great, many owners want sharing to increase to 50% of locally generated revenue.

But the players, no matter what their team, have opposed plans for such a substantial split. The reason: They want the Yankees to have as much money as possible to keep paying increasingly big salaries, thereby lifting paydays across the league.

“If you look at what the union is doing, the primary goal is to protect the Yankees’ payroll,” Will said. “The union’s position, and they have not been wrong over the years, is a few high-spending teams pull the entire payroll structure up. But the trouble is, you’re right until you’re in a disaster.”

This kind of self-interest plays out across almost every possible solution to baseball’s financial woes.

In the business world, a company with such huge debts that continues to spend more than it makes eventually goes into bankruptcy protection. In baseball, that’s not a realistic option because of the ripple effects.

A flurry of litigation would fan out across baseball, bankers say. Cities with new publicly financed stadiums would sue if their team went under and taxpayers were left with the bill. Owners would be hauled into court by creditors for preventing the insolvent team from relocating to a more lucrative market.

Baseball also could be on the hook for loans it had guaranteed to the faltering team. Any such suit could expose the inner workings of baseball, a notoriously secretive society of mostly millionaire men.

Some 40 players not only would be out of work but at the end of a long line of creditors, a reality that would not be tolerated by the union. “In bankruptcy, you could reject the contract of a pitcher signed for 10 years,” said Sal Galatioto, managing director and head of the sports advisory and finance group at Lehman Bros., which provided bankruptcy financing to the Pittsburgh Penguins, an National Hockey League team.

A crisis of confidence, he said, would hover over baseball as banks pulled back on lending across the league, potentially throwing other teams into distress. Franchise values would decline as new investors demurred. And could a new owner buy the franchise out of bankruptcy protection and locate it, say, across the river from George Steinbrenner’s Yankees, without baseball’s approval?

Rich Team, Poor Team

With bankruptcy too damaging to the game, owners have tried to eliminate, or contract, baseball’s financial weaklings. Baseball Commissioner Bud Selig has said that contraction is essential for the sport to thrive. But again, the prospect of teams being phased out has run into a buzz saw of special interests.

Threaten a team’s survival and watch members of Congress, attorneys general and other government officials step up to protect teams, players, fans, jobs and taxpayers who have shelled out millions for new stadiums. And that doesn’t include all the folks who would be unhappy about losing any of the 200 minor league teams affiliated with major league baseball.

In November, just days after one of the most exciting World Series in recent times, Selig announced that owners had voted to eliminate two undisclosed teams. Although the targets later were revealed to be the Montreal Expos and the Minnesota Twins, several others were considered vulnerable, including the Detroit Tigers, the Florida Marlins and the Tampa Bay Devil Rays.

Within hours of Selig’s announcement, a Minnesota judge granted an injunction preventing the Twins from breaking their long-term municipal contract with the Metrodome stadium.

Seven days after the owners’ vote, Florida Atty. Gen. Bob Butterworth subpoenaed documents from major league baseball, Selig and the state’s teams to find out whether the Marlins or Devil Rays were being targeted for elimination. Only four years earlier, local taxpayers had financed a $70-million renovation of Tropicana Field for the Devil Rays expansion team.

Issues of Trust, Antitrust

In Washington, Rep. John Conyers Jr. (D-Mich.) called hearings and introduced legislation to eliminate baseball’s exclusive antitrust exemption when it that appeared Detroit’s team, which has a new stadium, might be endangered down the road.

Faced with the onslaught, Selig and the owners retreated, tabling a decision on the Twins until next year. At the same time, major league baseball purchased the Expos for $120 million--$30 million more than owner Jeffrey Loria had paid. The team is being run by the league until questions about contraction are resolved in the labor negotiations and a separate arbitration.

Some economists say the best solution is not to get rid of ailing teams but to revoke the antitrust exemption, allowing them to follow the money into the biggest cities.

“It would chop a big market down to size, so New York would have two or three other teams fighting for local TV and ticket sales,” said economics professor Johnson. “Suddenly, Kansas City wouldn’t be so small if a market like New York weren’t so powerful.”

But eliminating the antitrust exemption is a pipe dream, he said. “You have an entrenched monopoly power protected by this antitrust exemption that Congress doesn’t want to give up,” Johnson said.

The owners don’t want to get rid of it either, sometimes to their own detriment.

In Florida, politicians were livid after Tampa Bay was twice promised by major league baseball that teams would relocate there. But both the Chicago White Sox and more recently the San Francisco Giants backed out. Both used the threat of relocation to Tampa Bay to get approval from their home cities for a new stadium.

Atty. Gen. Butterworth challenged the antitrust exemption and, in 1994, the Florida Supreme Court ruled in his favor. The justices said the exemption does not apply to the relocation of teams, prompting Butterworth to open an investigation of whether baseball had conspired to prevent the Giants’ move to the Tampa-St. Petersburg area.

Major league baseball responded by giving Tampa Bay its team and Butterworth dropped his investigation. In the end, however, baseball was the loser. Tampa Bay is one of the worst-performing teams in baseball, losing $10 million on operations last year even after netting $12 million from other owners through revenue sharing.

So why are owners so reluctant to give up the exemption? They’re protecting old-fashioned monopolies, economists say. Steinbrenner doesn’t relish a competitor in Brooklyn or New Jersey that could pick off fans, force him to lower his ticket prices or compete for TV revenue and corporate sponsors.

“Part of the problem with fixing baseball is that George doesn’t want to share,” Johnson said.

Steinbrenner’s pot of money has allowed his team to win four of the last six World Series. Teams that want to stay in the game have little choice but to pony up; high-payroll clubs have won 234 of the 274 postseason games played from 1995 to 2001.

Owners worry that the Yankees’ success on and off the field will only grow. Last year, Steinbrenner formed a regional cable TV company with the NBA’s New Jersey Nets and the NHL’s New Jersey Devils. The Yankees Entertainment & Sports Network airs 130 of the Yankees’ 162 regular season games. YES reaches 5.2 million customers and could take in $109 million from cable and satellite TV subscriber fees this year.

YES pays the Yankees $54 million a year for local radio, cable, broadcast and Internet rights, and 20%--or $11 million--is funneled into baseball’s revenue-sharing kitty. Owners say audits keep teams from shortchanging the revenue-sharing pool. But since YES already has an estimated market value of more than $800 million, the channel improves the team’s borrowing power.

“There is more disposable income in 10 blocks of New York City than in the whole state of Wisconsin,” said Jeffrey Smulyan, a radio entrepreneur and former owner of the Seattle Mariners. “And the more the Yankees can capture of that, the wider the disparity between big-and small-market teams becomes.”

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Times staff writer Ralph Frammolino contributed to this report.

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Next: A look at baseball Commissioner Bud Selig, the man at the center of the sport’s struggles.