Baseball Economics for Dummies
The players get it. The big-market owners get it. So why do the small-market owners seem so dense?
By Allen Barra
Aug. 23, 2002 | So where are we one week before the strike date? Though the media has been slow to grasp this important fact, we are exactly where we were at the end of the 1994 strike: with the owners, lead by commissioner Bud Selig, using public and media pressure to squeeze concessions out of the players. The principal issue -- the only issue, as I keep repeating -- capable of causing a work stoppage is the so-called luxury tax.
Though the economics-impaired writers and commentators covering the negotiations don't seem to understand it, so-called revenue sharing is not and never has been Bud Selig's primary motive. If the owners simply wanted to share more revenue, they'd have gone to the players and said: "Let us share X amount of dollars, and we will guarantee you that that money will go to players' salaries instead of into our pockets." But of course they haven't done that.
The fans and so-called small-market cities have been driven to a fever pitch by the commissioner's carefully calculated rhetoric regarding revenue sharing. They honestly believe that the selfishness and greed of a few owners (almost all of them it seems, with the name Steinbrenner) are keeping them from a big nest of golden eggs and that Bud's war against the players is going to get them their share of these golden eggs. They're right about the first part: The big-market owners are greedy and they are sitting on golden eggs. But the small-market owners are dead wrong if they think Commissioner Bud's plan is going to get them some of those eggs.
For instance, there was a photo in the New York Times last Tuesday, Aug. 20, which showed a banner from Pittsburgh Pirates fans: "Better a Strike Than Five More Years of Yankee $tranglehold." One would like to point out that it hasn't been the Yankees oppressing the Pittsburgh Pirates the last two years, but the leading team in their own league, the Arizona Diamondbacks. One would also like to point out the principal reason the Pirates are a small-market team has to do not with the success of the New York Yankees but with the decline of the U.S. steel industry. No, forget all that. What I'd really like to say to the Pittsburgh fans with the banner is: "We're sorry in New York that you suck so much," but let that pass.
The point is that over the last six years, the primary supplier of golden eggs to baseball's so-called small-market teams has been the New York Yankees, and that's because the luxury tax has been low enough for the Yankees and a few other teams to continue to give big contracts to their veterans and still purchase an occasional free agent like Jason Giambi. That's why $674 million has changed hands from the "richer" teams to the "poorer" teams from 1996 to 2001. If the Players' Association was to suddenly suffer a bout of insanity and approve Bud Selig's plan of an increase of the tax from 20 percent to 50 percent, who would then offer these contracts to veterans or purchase higher-priced free agents? The answer of course is: nobody.
The players know this, which is why they resist the tax: because it would lower salaries. Most of the big-market owners seem to understand the concept, which is why they are backing Selig. But most of the small-market owners seem to be slow at getting this picture in focus. They don't seem to realize that if the tax that Selig proposes is too high, it will do what all high taxes have always done: namely, put a choke on spending. And if the big-market teams stop spending, then from where is all of this wonderful revenue in the revenue-sharing plan to come? So, what kind of dummies would support a 50 percent tax on payrolls above a preset limit as a means of creating new revenue? Well, which small-market owners are backing Bud Selig?
