Remember the days of the old telephone monopoly, when you had to go to Ma Bell's local outlets to pick up a rented telephone? When service options were limited to the color of the phone? When it was a big deal to get a long-distance call because of the extra toll charges?
In the two decades since U.S. District Judge Harold Greene decided to break up the monopoly, telephone service has dramatically changed in the United States. Local and long-distance carriers compete for business. So do cell-phone providers. Firms stake out niches, like local businesses or public agencies. Companies offer extra services, not just for the phone but for computer access and cable television as well.
You need to appreciate the heavy hand of monopoly in order to understand the recent decision by Major League Baseball to eliminate two of its 30 franchises by the 2002 season. The decision _ reached without any input from the players union or officials from the losing cities _ is a classic power play by a monopoly industry determined to protect the privileges of the most powerful and put the squeeze on the most vulnerable.
Once you understand the peculiarities of baseball's monopoly, you can develop a strategy to confront baseball's power and arrogance and save the game, not only for the cities about to lose teams but the rest of us as well.
After weeks of denying that baseball had any such plans, Commissioner Bud Selig announced the "contraction" last Tuesday and hinted that two more teams might be on the way out by 2003. He spoke with all the candor of a Kremlin spokesman in the 1970s. "It makes no sense of Major League Baseball to be in markets that generate insufficient local revenue to justify the investment in the franchise," Selig said. "The teams to be contracted have a long record of failing to generate enough revenues to operate a viable major league franchise."
The cities losing teams are likely to be the Montreal Expos and Minnesota Twins. Selig and his band of hitmen aren't willing to say, though, so teams in Tampa Bay, Miami, and Oakland are put on notice that they're in danger, too. It's Bud Selig's version of Russian Roulette.
The contraction announcement came as baseball owners prepare to negotiate with the players union. It comes at the time that baseball's meager "wealth tax," a puny form of revenue sharing used since 1995, is about to expire. And it comes as baseball faces the first serious resistance to its hardball efforts to get states and localities to finance billions in new stadiums.
The official rationale is almost comical, but Selig delivers it with a straight face: For some strange reason, some clubs cannot generate the revenues they need to compete with other teams. At the same time, for another strange reason, player salaries have exploded. And _ here is the really unfathomable fact _ fans in cities with crummy teams don't pack the stadium to watch losers. The only way to address these odd happenstances is to eliminate the weakest links. Goodbye.
To understand the real source of baseball's problems, let's begin with Selig's own words. He says the problem is the "markets that generate insufficient local revenue." Just who are these franchises and why do they have a hard time generating "sufficient" revenue?
The major reason _ which neither Selig nor the game's real chieftains, such as George Steinbrenner, will ever acknowledge _ is that baseball locks inequality into each team's operations. Every team has exclusive rights to broadcasting in its geographic area. The Yankees and Mets control metropolitan New York. The Cardinals control the St. Louis area. The Orioles control Baltimore and Washington. And so on.
The problem with exclusive dibs on a region is that some regions are bigger and wealthier than others. The Yankees have access to almost $60-million in local broadcasting revenues. The Twins' local broadcasting haul is less than one-tenth that amount. The Expos make even less than that _ and, to add insult, it's in Canadian dollars.
It is any wonder that the Yankees can shop for players the way a rich person shops on Fifth Avenue or Rodeo Drive? When the Yankees want a good player, they buy him. George Steinbrenner gives his general manager a blank check to pick up Bernie Williams, Roger Clemens, Mike Mussina, Tino Martinez _ and this winter, Jason Giambi _ without a care in the world. Must be a nice feeling, eh?
Meanwhile, the Expos, Twins, Devil Rays, and A's scrimp and save to get the occasional star. The Expos have nurtured as much talent as anyone in the game, but they never win. They cannot afford to keep stars like Randy Johnson, Pedro Martinez, Larry Walker, and now Vladimir Guerrero.
Baseball could take two strategies to address this problem. They could embrace either the market or a collective solution. In a market approach, baseball would allow its teams to sell broadcasting rights wherever they want. Teams could market themselves to cable outlets all over North America and beyond. They could put together special packages that are aimed at ethnic groups, or that feature special rivalries and matchups. It would be a scramble for lucre, and teams like the Expos that develop talent could be winners.
The collective solution would follow the National Football League's lead and share broadcasting revenues equally among franchises. Suddenly, the Expos would have the opportunity to become baseball's Green Bay Packers. By acknowledging that the sport needs teams to be competitive, today's struggling teams would have a chance.
Baseball owners also could address the problem of escalating salaries, but their myopia about labor prevents them from seeing the obvious solution _ supply and demand.
Salaries have been on the rise since 1975, when an arbitrator ruled that pitcher Andy Messersmith was free to sell his services to whichever team he chose. The specter of players selling their talent to any interested team scared the owners, because they were used to controlling players' movement for their entirety of their careers.
Believing that some restriction on player movement is better than none, the owners eventually agreed to some dubious deals with the players union. They got the players to agree to stay bound to a team for six years before becoming eligible for free agency. Meanwhile, they developed a process of arbitration for players with three years of major-league service, in which an independent arbiter would pick from the final offers submitted by the player and the team.
Because free agency is restricted, only a handful of premium players enters the market at any given time. Too many teams chasing too few players results in extraordinary salary inflation. And the highest salaries pull up the salaries of players with similar records, first in arbitration and indirectly in pre-arbitration negotiations. Since 1974, the average big-league salary has increased from about $45,000 to about $2.2-million.
Oakland A's owner Charles O. Finley desperately tried to warn his comrades that they were making a big mistake, but they wouldn't listen. Controlling players for as long as possible had always worked before. Why wouldn't it work now?
The combination of unfair revenues and escalating salaries gives a huge advantage to the blue-chip teams like the Yankees, Braves and Dodgers. The only leverage the other teams have is to blackmail their host cities for hundreds of millions in public funds for new stadiums. That has worked well for the Orioles, Indians, Rangers, Astros, and Mariners. Ultimately, though, it's a losing strategy, because the rich teams will demand new palaces as well. George Steinbrenner has been pushing Mayor Rudolph Giuliani for years to build him a new $1-billion park on the Hudson River. The Mets, White Sox, and other large-market clubs are only too happy to do the same.
The real problem with baseball is that it's a monopoly. Owners collude on everything they can. With the commissioner's assistance, they threaten to leave their host cities unless they get shiny new stadiums. They gang up _ unsuccessfully, but they try _ on the players. They have been convicted of conspiring to limit player compensation in the 1980s and 1990s. Like any monopolist, they will take whatever they can.
That's what makes the solution to the problem quite simple, if difficult to achieve. Baseball needs its own Harold Greene, a courageous judge willing to look beyond the false claims of "tradition" and break up the monopoly. It almost happened in 1994, and it could happen as a result of the contraction controversy.
In 1994, Vincent Piazza and his business partners came to an agreement to buy the San Francisco Giants and move them to St. Petersburg. Baseball's owners blocked the deal, with a shadowy smear campaign against Piazza, and so Piazza sued. He challenged baseball's antitrust exemption. The courts agreed with Piazza that baseball's infamous antitrust privileges were limited to player relations and that the suit could go forward.
The case could have ended with a breakup of the major leagues _ perhaps with the National and American leagues competing with each other for players and cities. The result could have been a wholesale revision of the rules of the game, maybe along the lines of European or Latin American soccer. On the day that the 1994 World Series was scheduled to start _ but didn't, because of the player lockout _ Piazza and baseball settled out of court. The terms were never officially revealed, but Piazza and his partners were reported to get $6-million and a shot at a new franchise. Baseball also apologized for its slurs against Piazza.
If the owners will not reform themselves, it's time to pick up the line of argument from the Piazza case again. Then maybe Bud Selig and his partners will pay attention.
Charles C. Euchner, author of Playing the Field: Why Sports Teams Move and Cities Fight to Keep Them (1993), is the executive director of the Rappaport Institute for Greater Boston at Harvard University's John F. Kennedy School of Government.