The Best Commissioner for Hard Times?

Baseball is a $6 billion dollar business that has boomed during the reign of current Commissioner Bud Selig. How will the deepening recession impact the blossoming prosperity of the sport? Will it undermine the current state of labor and ownership harmony? Will marginal franchises fail?

Noted author and economist Andrew Zimbalist is perhaps the most prominent economic analyst of the game and a good place to start when answering questions about baseball’s economic state. His 2006 book on Bud Selig, In the Best Interests of Baseball, looked at the role of the current commissioner in fostering an era of unparalleled prosperity for the sport.

Zimbalist credits Selig with helping to create a time of unique harmony in the sport. Some fans will remember Selig for the strike of 1994 and contraction threats, but  Zimbalist said in a weekend interview that he believes, “the thoughtful fan will see that Bud Selig has changed baseball’s governance in positive ways.”  Selig’s reign has built an era of labor harmony and economic growth for baseball and its owners, but the next few seasons may be tough tests of that harmony and growth.  The machinery of baseball’s current prosperity must keep baseball from floundering in what Democratic economist Robert Reich is calling “a mini-Depression.”

One of the more important facets in boosting baseball’s economic situation is the marketing campaign begun by Selig less than a decade ago. When Selig took over as acting commissioner in 1992 there was no central marketing authority for MLB and he did not address the issue for several years, but it may be one of the most lasting pieces of his legacy.

The most important marketing tool for MLB, Inc. has become MLB Advanced Media (MLBAM) that streams audio and video to viewers over the internet and takes a bite of online ticket sales through Tickets.com. ESPN estimated MLBAM’s gross revenues at $380 million in 2007. MLBAM started modestly enough but ESPN figures show that annual revenues grew from $36 million in 2001. Now every franchise will get a check for approximately $3 million from the profits of MLBAM. Baseball once lagged far behind football and other sports in marketing and technology, but is now an industry leader.

Overall revenues in baseball have spiked remarkably during Selig’s tenure and been resilient through the small economic downturns during the last decade. Between 1998 and 2007 the average value of a MLB franchise increased by 143 percent according to Forbes Magazine. Attendance is at all time highs. Baseball began a steady growth after the signing of the 2002 Collective Bargaining Agreement (CBA) and each year saw new records for attendance until the high in 2007 of 79.5 million. In 2008 figures fell slightly to 78.8–a harbinger of times ahead perhaps–but for the thirty major league teams average annual attendance is still at a very healthy 2.6 million.

There is considerable disparity between the attendance figures at the bottom and the top. The Florida Marlins and Kansas City Royals average gameday attendance is less than 20,000 and in days gone by they would be at risk as we enter a time of economic uncertainty. But the sharing of all revenues put in place during Bud Selig’s tenure as Commissioner will protect those franchises as the world’s economy tanks.

Zimbalist believes that Bud Selig has been about much more than just marketing. According to Zimbalist the commissioner has “provided 13 years of labor peace, a playoff structure that has heightened interest in the game, and initiated revenue sharing that has helped small market clubs and improved competitive balance.” Zimbalist does not credit Selig alone, saying that others have been involved, not the least of which has been Bob Dupuy, “who doesn’t back down from a challenge.” At the end of the day however, history will credit Bud Selig with getting baseball back on the threshold of cultural prominence it once enjoyed.

Before Selig the owners were a loosely knit set of warring factions that were exploited deftly by the players’ union. But the labor negotiations in 2002 and 2006 were resolved without work stoppages and revenue sharing and luxury taxes enacted in both of those CBAs have provided modest drags on salary growth, according to Zimbalist.His book, In the Best Interests of Baseball, puts the 2005 revenue sharing pot at $300 million–money that went from the wealthiest tier of teams to those at the bottom. Zimbalist is not certain that the current system is an efficient economic tool. He questions whether the system is fair–it penalizes performance as much as demographic advantages. But it has helped to foster a modicum of competitive balance–witness the Tampa Bay Rays in ‘08 and the Colorado Rockies in ‘07–after it all but disappeared in the second half of the 1990’s.

More important from the current perspective, revenue sharing and luxury taxes provide a common source of revenues for small market teams that will help them through the coming recession. During the Depression the Philadelphia Athletics and Washington Senators were owned by individuals–Connie Mack and Clark Griffith respectively–whose fortunes were tied solely to baseball. The Depression nearly bankrupted both men and neither franchise was financially able to field a competitive team for decades after their Depression woes. Some franchises may experience similar difficulties as the economic crisis deepens, but revenue sharing and money flowing from MLBAM will provide a floor of revenues for small market clubs that may make the difference between disaster and survival.

As MLB, Inc. heads into a period of economic adversity, it does so as a group largely united. The fractious ownership cliques that once plagued the game have been largely swept aside by the sheer dint of Bud Selig’s personality in the past fifteen years. Zimbalist describes Selig’s constant contacts with other owners that have served to knit the group together. It was Selig and Dupuy’s hard work that created the atmosphere in which revenue sharing and luxury taxes could supplant salary caps as the best mechanisms for reigning in salaries and addressing competitive imbalance.

In prior books Zimbalist “focused on baseball’s monopoly power and the way it leveraged its economic position to take advantage of its fan base. Its economic power extracted stadium subsidies” and limited the access of fans and raised prices. Zimbalist cites ticket prices at the new Yankee Stadium for 2009 as an ongoing example of baseball taking advantage of its fans. The coming economic crisis may force some adjustments on teams like the Yankees as unemployment rises and even the wealthy are forced to adjust their budgets. But as baseball faces the gathering economic storm, it is hard to imagine it in much better position to weather it.

The existing CBA runs through 2011 and Bud Selig’s current term extends until 2012–after which he says he will retire. Although Selig will be 78 years old in 2012, few would bet on his retiring at any age. Perhaps Selig’s greatest challenge will be the upcoming labor negotiations where the ante may be upped by hard times. But it is difficult to imagine a better commissioner to get baseball through this time of economic adversity. If love of the game and hard work can make a difference, then this commissioner is the best man for the job.