Some More on Baseball's Incentive To Lose

Some More on Baseball's Incentive To Lose

Some More on Baseball's Incentive To Lose

A blog about business, finance, and economics.
Aug. 27 2010 3:32 PM

Some More on Baseball's Incentive To Lose

My friend Richard Panek, who published an excellent book on baseball and economics , thinks I was a little dismissive in yesterday's post about the Deadspin Papers , and what they say or don't say about revenue-sharing creating an incentive to lose. Responding to my sweeping question "So what?" he wrote: "Yes, the baseball system is gamed this way, but the revelation—the journalism—puts the news out there that some teams are 'betraying' their fans. It'll be a lot harder for the Pirates to cry poor now to the hometown fans."

He's got a point, and my post used some shorthand logic that might be clearer if spelled out. Here is the perspective I was trying to get across: In Major League Baseball, there will always be teams that lose more games than they win, and a fair number of them: In 2009, 14 out of 30 teams finished the season below .500. That is an inviolable result of a zero-sum situation. For reasons of economic "fairness," we might be tempted to say, as has been said of the Pittsburgh Pirates , "They are not spending enough on player development to be able to win." That may or may not be true, but if the punishment for a losing season is that "fairness" dictates that your team has to lose money, then there will soon be no league at all. (You can kick out losing teams, but that will only change which teams lose.)

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In fact, most teams—even winning ones—are positioned to lose money, prior to revenue sharing. This is not theory, but history. As part of its move to introduce revenue sharing in 2002, MLB commissioned a blue-ribbon panel on baseball economics , which found that in the period from 1995 to 1999, only three ball clubs—the Colorado Rockies, the Cleveland Indians, and the New York Yankees—made a profit. The report also concluded: "The growing gap between the 'have' and the 'have not' clubs—which is to say the minority that have a realistic chance of succeeding in postseason play and the majority of clubs that have poor prospects of reaching the postseason—is a serious and imminent threat to the popularity, health, stability and growth of the game."

That's the rationale behind revenue sharing, and it has some odd consequences. One of which is: In order for the system to be sustainable, it must have teams that both lose more games than they win and generate a profit for their owners, at least in the medium- to long-term.

The question of "How much profit is enough?" is an excellent one, but to be able to provide a real answer, we'd need at least two things we don't have: 1) the equivalent annual reports for all 30 teams, and 2) a reliable formula for how much more has to be spent on players in order to win more games. The second point is much debated by sabremeticians, and of course the debate will never end. As Phil Birnbaum pointed out on Slate , some teams (like the Tampa Bay Rays) are able to improve their records substantially by investing more in players; others improve with less investment; and still others will probably not improve much even if they do invest more.

The thing is, all of this is knowable without the revelations in the Deadspin Papers . Having access to the Pirates' real figures will give ammunition to those who hate the way the team's business is run, but it's really just plugging numbers into an equation that was already there. Revenue sharing is the worst way to run a sports league, except for all the other ways that have been tried.

I also think it's possible to overstate the effects of these theoretical incentives to lose. There are other incentives, including the pride and ego satisfaction of owners. And remember, the owners aren't the ones on the field; players still have major incentives to win, including things like contract clauses that reward them for wins, saves, or other milestones. If Deadspin gets some documents showing players have an incentive to lose, *that* would be a game-changing coup.

James Ledbetter is the editor of Inc. and the host of Panoply’s podcast Inc. Uncensored.