Murdoch at the Bat

May 8 1998 3:30 AM

Murdoch at the Bat

Why corporate ownership is good for baseball.

We're a month into the 1998 baseball season, and Rupert Murdoch has yet to rename his newest acquisition the Melrose Place Dodgers. Had he done so, it would probably not have surprised the commentators who saw the $311 million purchase of the franchise by Murdoch's News Corp. as final evidence of the sacrifice of the national pastime to the greed and disloyalty of players and owners. One writer went so far as to suggest that before the Dodgers were sold, "there was hope baseball could pull itself back from the brink. But now even those hopes are being dashed."

In the particular case of the Dodgers, of course, these lamentations were particularly inapposite, since the team is only in Los Angeles because Walter O'Malley made a coldblooded business decision in 1957 to abandon Brooklyn in favor of the sunnier clime of Chavez Ravine. But the larger indictment of the changing nature of team ownership is similarly misdirected. If anything, baseball needs more corporate owners, particularly those, such as News Corp., that have major investments in the game as a whole rather than a stake in a single franchise.

In the long run, the more corporate owners, the less likely that baseball's current approach of limiting expansion and migration will endure. Defending either the expansion of the number of baseball teams beyond the current 30 or the movement of franchises to new cities is, of course, enough to get you branded as an uncouth money-grubber. Defending both is enough to get you shot. Expansion, it's argued, debases an already thin talent pool, lowering the overall quality of play. The migration of franchises, meanwhile, breaks the hearts of old fans and rips the hearts out of cities--generally northern industrial cities--that can't afford to compete against the new metropolises of the Sunbelt.

It's no coincidence, of course, that the main defenders of the status quo are always in cities that already have baseball teams. The unstated premise is that people in, say, Minneapolis deserve the chance to attend a major league game more than people in Charlotte do. Of course, the Twins are only in Minneapolis because the Washington Senators moved there decades ago. But you have to draw the line somewhere.

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A less parochial view shows that change would be good both for the sport and for cherished local teams. Expansion would obviously expand--duh!--the sport's fan base. And it, like migration, would help eradicate baseball's most persistent problem--the division between small- and large-market teams. In essence, baseball teams are able to reap what are called monopoly rents because they face little or no competition for the local fan's dollar. Other things being equal (and new stadiums with high-profit luxury boxes can make a sizable difference), teams in big markets are able to reap much larger rents because the pool of fans from which they draw attendance and TV viewership is much larger. Even with two teams in New York, the Yankees are far more profitable than the Pittsburgh Pirates because there are so many more buyers for their product--an advantage the Pirates, unlike a regular corporation, can't overcome by marketing their goods in New York.

The reason this is a problem, obviously, is that the Yankees are much richer than the Pirates and can therefore afford to pay more for players, which means they'll be able to lure the best players to New York. But the revenues of baseball as a whole will be hurt if just a few teams dominate play, so the greater wealth of the Yankees leads to the long-term decline of the game.

This dilemma has occasioned anguished breast-beating ever since the introduction of free agency into the player market 22 years ago. But even when players could not freely sell their services on the open market, the richest teams still got the best players. They just did so by buying them from the poorer teams. The Kansas City Athletics, for example, were essentially a farm team for the Yankees during the 1950s and early 1960s, and not coincidentally the Yankees won pennant after pennant. What free agency has done is transfer those payments that would have gone to small-market teams to the players themselves.

But the answer to this dilemma is not a return to the old system nor is it a salary cap. The real answer would require allowing teams to move where there's unsatisfied demand for the game, whether that be in New York itself or in some region that has no team. This might mean, in the short term, that cities such as Pittsburgh or Montreal would lose franchises. But if there were three or four teams in New York, the monopoly rents exacted by the Yankees would decline, which means they wouldn't be able to pay so much for players, which means it would be easier to run a team successfully in a small market. The problem, in that sense, is not that there are big and small markets but that there are too few teams in the big markets. Supply is not being allowed to match demand.

Of course, existing owners don't want new teams in their markets. Similarly, they don't want new teams in general, because an important chunk of their current revenue comes from national television and licensing contracts that are divided among the teams. More teams, fewer dollars per team (though that's actually more complicated than it may look, since expansion might open up TV markets--like the South--where ratings have been traditionally low). Until baseball's antitrust exemption is removed, owners don't have to worry about intruders in their current markets. But a mechanism already exists for making expansion mutually beneficial: revenue sharing of all local TV contracts and gate receipts. Revenue sharing alone would solve many of the competitive-balance problems between small and large markets. Green Bay has built a Super Bowl team despite playing in the smallest market in the NFL, in no small part because NFL teams share 70 percent of their total revenue.

The point is that for all their rhetoric about looking out for the best interests of the game, baseball owners have been interested only in looking out for themselves. In an ordinary business, that's fine. But in a business like baseball, where the long-term health of any one franchise depends on the long-term popularity of the game, the pursuit of short-term self-interest--in the form of the protection of the benefits of local monopolies--brings about collective harm. The exemption of baseball from antitrust law is predicated on the idea that Major League Baseball is one company rather than an industry such as semiconductors or computers. But owners don't act like competing vice presidents. They act like competing CEOs, each seeking to maximize their local profits.

In that sense, News Corp. or Disney--which owns the Angels--could hardly be more venal or short-term in focus than the current crop of owners. In fact, it may well be that News Corp., which is building a national competitor to ESPN by stringing together a series of local sports networks, is more likely to work for the best interests of the game as a whole. That's precisely because it has a stake, through its TV channels, in baseball rather than just in the Dodgers. One of the realities of corporations, after all, is that they're somewhat isolated from local concerns. Traditionally, that's been seen as a vice. But in the case of baseball, the addition of a global--or at least national--perspective should be seen as a virtue.

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