Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 5, 1995 TAG: 9502030055
SECTION: EDITORIAL PAGE: F-3 EDITION: METRO
SOURCE: DON M. CHANCE
DATELINE: LENGTH: Medium
In the likely event that you have forgotten what it is all about, the owners want a salary cap, which is a mandated means of constraining themselves from paying their players too much. They argue that teams in powerful economic markets like New York and Los Angeles have an unfair advantage over teams from cities like Pittsburgh, Seattle and Minneapolis.
The players believe they ought to be able to earn whatever any owner will pay. The had previously earned that right when Curt Flood successfully challenged baseball's reserve clause and, with some restrictions, opened the gate for free agency.
Free market economists typically argue that markets should be allowed to set prices, and this is especially relevant to labor markets. The free-marketer would, on the surface, side with the players. Yet baseball is different, and any rational free marketer upon examining his views will almost surely side with management. Here is why.
The key question is really quite simple: Is baseball an industry consisting of competing firms? On the surface, the answer appears to be yes. When the Pittsburgh Pirates take on the Atlanta Braves, there certainly appears to be a strong element of competition.
But we should not confuse athletic competition with economic competition. The Pittsburgh Pirates do not compete with the Atlanta Braves for the same dollars. They compete only on the field.
Of course, there are elements of economic competition between teams. The Yankees and Mets in New York, Cubs and White Sox in Chicago, and Angels and Dodgers in the Los Angeles area compete to a subdued extent for their local fans' dollars. Of course, the Atlanta Braves with their superstation WTBS compete economically with the Cubs with their superstation WGN.
But for the most part, baseball teams do not compete in an economic sense with each other. They compete on the playing field.
Baseball is not an economic industry with competing firms. Baseball is entertainment and nothing else. (With apologies to Ken Burns, baseball is certainly not life.)
Baseball is basically like a large corporation competing with football and other season-overlapping sports, movies, the theater, television, and the plethora of other entertainment and leisure-time activities. Baseball should be viewed as a corporation with divisions, subsidiaries, etc., whose combined and interactive labor results in the production of a revenue-generating product.
Baseball players believe they should have the right to play wherever they want for whatever salary they can earn. If we accept this argument, then we have to conclude that a company like IBM has no right to transfer an employee from Boca Raton to Research Triangle or limit the amount the employee can be paid for his or her level of responsibility and contribution to the firm's profitability. We normally accept the fact that a company must set salary scales and transfer policies that balance its need with its ability to secure talented and productive employees. Why should baseball players be any different from anyone else?
These arguments suggest that the owners deserve to win this strike, but they are in no way inculpable. There have been allegations that the owners do not present an accurate picture of their true economic condition. This is roughly equivalent to having the mainframe-computer division of IBM present false financial statements in order to grab resources from the personal-computer division.
In addition, the owners, instead of working to develop a unified and consistent salary structure, bid against each other to the detriment of the entire league. Their ability to legally collude on the high end is limited, though the players union forces it to collude on the low end with a ``minimum wage.''
Fortunately, this baseball strike is probably the most economically valuable lesson that the game will ever learn. It will teach what baseball really is, just a game, a choice of entertainment. Many diehard baseball fans simply found other, and sometimes, more enjoyable, forms of entertainment. When that economic reality hits home and the owners and players begin to realize who the real competitors are, baseball should return.
In the meantime, free marketers can rest easy. Their consciences should be clear.
Don M. Chanceis a professor of finance at Virginia Tech's Pamplin College of Business.
by CNB