December 13, 2012
Five stories seen on the web last night:
1) Union members threaten violence in Michigan over the legislature’s new “right to work” law that will further diminish union influence in the American work place;
2) tea party leaders vow to fight the re-elected President’s plan to raise taxes on businesses and the wealthy, saying this will stifle growth and cause another recession or financial crisis like 2008;
3) the NHL cancels all games through December 31, as the owner’s lock-out has now eliminated nearly half the season with no resolution in sight;
4) MLB announces that the average salary for 2012 was a new high, $3.2 million; and
5) expecting billions of dollars in revenue through a new TV deal, LAD’s payroll for the upcoming season approaches $250 million with two new free agent signings, including a 6 year, $147 million contract with Zack Greinke (and just now LAA has signed Josh Hamilton for five years, $125 million).
Marvin Miller died last month at the age of 95. As most of you know, he was the architect of the rise of the Major League Baseball Players Association as a very powerful union in the 1970’s, earning players the right to become free agents and sell their services to the highest bidder. While I generally side with management on most labor issues, I recognize a great performance when I see it, and Mr. Miller’s legacy is one that every MLB player should honor everyday. Many baseball writers expressed this same sentiment in memorials following Miller’s death, which seems contradictory to me since some of them (along with HOF-member players and executives) must be responsible for the BBWAA’s continuing refusal to vote Mr. Miller into the MLB Hall of Fame.
In a similar contradiction, my management tendencies have rarely caused me to support Allan Huber “Bud” Selig in his efforts during 20 years as MLB Commissioner. Yet, despite the personal animosity I felt toward Miller in my youth, when I learned that a “strike” in baseball could mean more than a batter’s swing and miss, and toward Selig in my middle age (is there any part of the game still sacred?), I believe the times are proving that each of these men has been very good for baseball. Therefore, in the spirit of my Advent-season pledge to love my enemies, I grudgingly give them both credit for keeping baseball out of the negative headlines referenced in stories 1-3 above. Instead, as evidenced by stories 4 and 5, Miller’s and Selig’s performance statistics are definitely worthy of a hall of fame (business, if not baseball). They also go a long way toward proving that labor and management can both succeed under our capitalist system when they have the right product to sell and are willing to cooperate in the marketing effort, even if that willingness comes only after some hard-fought battles where both sides lose some of the time.
In 1975, when Miller brilliantly engineered the successful legal challenge to the perpetual application of the reserve clause on behalf of Andy Messersmith and Dave McNally, the average MLB salary was $44k. As noted above, the average salary for players in 2012 rose to $3.2 million. Even an English major like me knows that inflation won’t account for this nearly 100 fold salary increase in less than 40 years – not 100%, but 100 TIMES. Clearly, free market enterprise has been very good for baseball players, but surprisingly it has not been a financial death-knell for MLB owners as many predicted, and it certainly hasn’t killed the sport even though the percentage of revenue spent on salaries increased from 20% in 1974 to over 54% in 2001. Who gets credit for that? Well, capitalism for starters, but that’s for another post. For now, just recognize that Marvin Miller gets credit for the legality of rising salaries, and Bud Selig must get some, perhaps the lion’s share, of the credit for the owners’ ability to pay higher salaries. I see these two points as related because there is no denying that baseball has enjoyed enormous growth since the advent of free agency, both in attendance and revenue. Although I’m not the business professor in our family (my brother is), there must be some connection between the emotion free agency brings to the fan base (both positive and negative), and the increased revenue derived from that emotion. Therefore, Miller’s legal victory at least set the stage for an increase in baseball’s popularity which owners have exploited under Bud Selig’s leadership, whether they know it or not, or will admit to knowing it.
When Selig became acting commissioner in 1992, the average player salary had risen to $1 million and the total attendance had increased from 29 million in 1975 to 55 million. As I reported in my post “The Only Real Game…” (11/05/12), total attendance in 2012 exceeded 72 million, and had been even greater in the prior year. More importantly for owners, under Bud’s leadership total MLB revenue has increased from $1.5 billion in 1992 to over $7.5 billion in 2012. With new TV deals in several markets, including LAD, it is estimated that revenue for 2013 could approach $9 billion. Even in Barry Goldwater terms, that’s starting to sound like real money.
When your company has increased total revenue over 600% during your tenure, you are generally considered to be an effective CEO, even if industry followers decry your failure to police PED use among players and grouse about traditions being trampled by innovations such as interleague play, an All-Star game that “counts” and the expanded post-season. Further, many will say that TV cable deals are largely responsible for the revenue increase, but even if that is so doesn’t the popularity of the product have a direct bearing on the fees paid? And who more than Bud Selig has molded the product that is the current MLB game? (New stadiums in 26 markets; interleague play; expanded post-season; multiple TV outlets including its own network; quicker games – except NYY v. BOS, of course – instant replay and numerous other developments over the past 20 years).
The owners’ satisfaction with Bud’s job performance is evident by their keeping him as “acting” commissioner for 6 years, then removing the qualifier and extending his contract multiple times. Twice he has delayed his retirement plans at the owners’ request and is now set to leave the office in 2014, when he will be an octogenarian. If you have been on the job for nearly 20 years, are approaching 80 years old and they still want you to come to work every day, you must be doing something right. And in my opinion, he has done as much right for the players as he has for the owners.
The most important component of his success, of course, arose from his greatest failure – the 1994-95 players’ strike that cancelled the World Series for the first time, something two World Wars hadn’t done. Fans were outraged and swore never to return. Then just when everyone assumed MLB was dead, it climbed out of the morgue and has since gotten healthier than ever, based in large part on 18 subsequent years of management and labor peace – soon to be 22 with the ratification of a new contract extending through 2016. Selig has to get credit for much of this since he is the constant figure in the process. It shouldn’t be an insult to say that a man who grew up in the car sales business has proven to be as astute a negotiator as the former leading man for the United Auto Workers union. Nor should it be forgotten that Selig clearly has a sense of baseball’s place in American history and how it can impact the nation’s psyche for the better. During his tenure MLB has played a very important role in our national reflection and the rebuilding of our national self-confidence. (Remember September, 2001, and why “God Bless America” has replaced “Take Me Out To The Ballgame” as the most-sung anthem during the 7th inning stretch.)
On a more practical level, perhaps Selig’s best work came not against the players or regarding the performance of the game, but rather against his wealthiest owners, whom he convinced in 2000 to share revenue among the franchises. This agreement provided the necessary balancing of the economic impact of free agency and allowed small market teams at least a chance to make money if not win championships – and let’s face it, NYY, BOS, LAD and LAA need teams in the fly-over states to play against or there wouldn’t be a league. If you’re really interested, see the Sport Journal’s article “Is Revenue Sharing Working for MLB?”, ISSN 1543-9518, where the impact of disparity among local revenue is analyzed in pains-taking detail. Alternatively, if you’re only moderately interested, read the next few paragraphs.
Although 2012’s annual Winter Meeting came and went last week without any public debate or friction, rest assured that the labor/management salary drama continued off-stage. We learned enough through the media to know that several actors had changed roles, some no doubt due to revenue sharing and luxury tax (ask Hal Steinbrenner). LAD is now playing the part of NYY (“take our money, please!” $240 million and counting for 2013), and NYY is doing its best to impersonate OAK (“we must abide by our budget!” – they lost Russell Martin in a bidding war with PIT?) LAA’s signing of Pujols, Wilson and now Hamilton further shows that even the younger team in a large market has money to burn.
Most observers – fans and experts alike – will assert that the business model is still broken when one team can spend nearly 10 times more than another on its annual payroll (the Astros currently have only $30 million committed to player contracts for 2013). However, when your product is popular enough to generate revenue to support a $250 million payroll to produce it in one market, and yet agile enough to where the same product (or even better) can be produced in another market for less than $60 million (see Billy Beane and Andrew Friedman), don’t you have the perfect storm of labor and management success? You do, in my opinion, and I applaud the owners and players (management and labor) for seeing just that.
As Congress debates with itself and the President about seemingly impossible budgetary problems for our national government, our National Pastime could supply some of the answers. Of course, I think that baseball holds the answer to almost every question in life, but it would at least be informative if Mr. Miller’s actions were studied. He first made small but important gains for the players before taking on the citadel of free agency. Further, his shrewd strategy was also always carried out in a calm and gentlemanly fashion. Wouldn’t it be helpful if Congressional leaders investigated MLB’s successes under Selig’s leadership as aggressively as it did its PED failures? MLB’s balance sheet is more than a little better than the country’s. Indeed, when our Nation looks to be heading downward on an irreversible path, MLB is there to show that it doesn’t have to end that way. Mr. Miller and Mr. Selig, representing labor and management, have shown the way to a hard-fought but fair compromise that can be beneficial to all. politicians, take note.
I must admit that the somewhat terse statement Selig released on behalf of MLB marking Miller’s death suggests that the owners still harbor grudges, and Selig was one of them for 12 of Miller’s 17 years as head of the MLBPA. It is obviously difficult for some owners to come to terms with free agency, even though the adjective “free” should also apply to them in the sense of the freedom NOT to bid on players unrestricted by a contract (unless of course they colluded with other owners and all agree not to bid….) Rather than fretting over the industry’s rising labor costs, these owners should focus on the revenue rise and overall increases in franchise values. Net operating revenue may still be a challenge some years, but for some time now and for the foreseeable future balance sheets among MLB franchises look very healthy – even when they are examined as Monthly Operating Reports before the Federal Bankruptcy Court, as in the recent cases filed by TEX and LAD. So long as attendance remains strong and the cable TV operators can pay the fees they have agreed to pay, baseball’s future, and the future of its players, will be very bright and leaves no cause for owners and players to be enemies. That should make for Happy Holidays for MLB owners, players and fans. Now, if the government will just take note.
(A personal note: Lest you have any doubt about my schizophrenic personality, you should know that I am the product of a mixed marriage. My father was management and my mother was labor. Of their myriad personality differences, perhaps none was more telling than this fundamentally opposite view of life. As is often the case with offspring, I got some of the tendencies of each gene pool, and I never know which is going to control my thinking. However, I learned a good while ago in the practice of law that you are not going to succeed if you can’t even envision your opponent being right. How can you ever understand his arguments and counter them, or hope to come to an agreement to resolve them, if you don’t start by acknowledging the possibility that your opponent’s position is right and yours is not? “Come now, let us reason together.” Is. 1:18.)
(JSR) © 2012