FACT: Free agents are not destroying competitive balance in pro sports, because it never existed.
This is an article from the July 17, 1978 issue
Last season, after major league baseball expanded to 26 teams and made the usual claim that there would be tight pennant scrambles in both leagues, who should turn up to play each other in the World Series for the ninth time but those old overdogs, the Dodgers (15th pennant) and the Yankees (31st pennant). So what else is new?
Not a thing, not even the old all-purpose rationalization. Doggedly, despite all evidence to the contrary, the guardians of the professional games have always maintained that any tinkering with the system would upset the "delicate mechanisms of competitive balance." Reserve clause, antitrust, merger, any and every issue is, it seems, reason for them to unfurl the banner of competitive balance. There is only one response to the wailing: What competitive balance?
The order that prevails in professional sports has nothing to do with competitive balance but with overloading the scales in favor of the teams in larger, stronger markets. The imbalance was built into the system long ago, and it derives from a formula as straight and decisive as three strikes and you're out.
That is, all other things being equal, a team that monopolizes a big-city or regional market can draw more fans, earn more money, buy better players, win more games, draw many more fans, earn much more money, and so on to the championship. Over the long pull, this formula tends to make good teams stay good and bad teams stay bad.
Exceptions leap to mind—the A's, Broncos, Trail Blazers, SuperSonics in recent seasons—and the application of the formula to each league is as different as the games themselves. However, in general, a half dozen or so teams in the major markets flourish at the top of pro leagues, while another half dozen in smaller cities wallow at the bottom. "The basic difficulty confronting professional sports," says economist James Quirk, "arises from the fact that franchises are located in cities of differing revenue potential. Consequently, a star player is worth more to the owner of a New York franchise than he is to the owner of a franchise in a smaller city." The result, says Quirk, is a second axiom: "Franchises in low-drawing areas typically sell good players to franchises in high-drawing areas.
"Thus, in baseball a star player who is worth $500,000 in revenue potential to Kansas City would be worth $2 million in New York. So the Yankees offer to buy him for $1 million and both teams are better off." Very often the incentive for selling is survival. According to Quirk, from 1920 to 1950, while the Yankees were leisurely buying an estimated $1.6 million worth of talent, the St. Louis Browns were anxiously unloading a platoon of players for some $2.5 million. Had they not gone on their selling spree, the Browns would have lost about $1.5 million during the period.
This winter the Braves' Ted Turner sold Andy Messersmith to the Yankees to stay afloat for one more season of flippant remarks. "For $330,000 a year, Messersmith wouldn't even say hello," says Turner. "He gave me the impression that he thought he was smarter than I am. I suppose he's right. I was dumb enough to give him the contract."
What economists learn from statistical analysis, baseball men know from experience. If George Spendbrenner had bought the Orioles instead of the Yankees, he would be far less flashy with his bankroll, because he would get a lower return on each dollar spent. As Steinbrenner says, "You measure the value of a ballplayer by how many fannies he puts in the seats." So never mind hits, home runs and runs batted in; in the sports business Reggie Jackson is worth 500,000 fannies in New York and 65,000 fannies in Baltimore.
Phillie Executive Vice-President Bill Giles says, "The advantage that we and four or five other franchises have is that we can afford to pay higher salaries because our attendance figures are so much higher. On the other hand, no matter how good Baltimore is, the maximum it could ever hope to draw is probably about 1.2 or 1.3 million. By contrast, the Mets, Phillies, Yankees, Dodgers and two or three other teams can vary from 1.2 to 3 million. It's easy for us to say to ourselves, 'We'll keep the good guys and pay them $400,000 a year, and we'll get that much back at the gate.' A lot of clubs can't do that."
The correlation between pay and performance is strong throughout sports; and in the case of the Phillies' division, the National League East, it was a precise gauge last season:
ORDER OF FINISH
St. Louis Cardinals
New York Mets
The rest of the divisions conformed almost as perfectly to the 1977 standings/salaries lineup. Far trickier is playing the free-agent match game, although, like naturalists tracking the migratory patterns of the yak, most everyone in baseball tried to plot the course of the roving millionaires. It seemed important at the time, because for years owners have been warning in baleful voices that player freedom would disrupt competitive balance, which is like saying that taking the leg-irons off the Christians would discourage the lions.
Bowie Kuhn ominously reported at one point that 10 of the 19 free agents bought in this winter's draft went to teams with better records than the ones they left. (Eventually 15 of 28 chose clubs with better records.) Others cheerily noted that nearly half of the players joined clubs with worse records. So baseball's cup does not runneth over; it is either half empty or half full. Take your pick.
More pertinent is the fact that in the last two drafts, 39 of the top 50 free agents were snapped up by American League teams. In part their big plunge came compliments of the expansion Mariners and Blue Jays, whose entry fees endowed each of the other A.L. teams with $500,000 in spending money over the past two seasons. In the process, the two expansion teams have in effect temporarily priced themselves out of the free-agent market, leading to further imbalances and more lopsided scores.
But then, that fits right in with pro sports tradition:
•In baseball, out of a possible 150 pennants over the past 75 years, teams in the three largest cities have won a total of 76. New York teams have won 56.
•Since the merger of the NFL and AFL in 1970, eight teams have been in the playoffs a total of 47 times, and 10 teams have never been in the playoffs.
•The Montreal Canadiens have won the Stanley Cup 14 times in the last 23 seasons. Since the NHL started expanding in 1967, 14 of the league's 17 teams have never won the title.
•Of the 26 NBA championships from 1947 to 1972, the Celtics won 11 and the Lakers six.
•Since joining the NFL in 1967, the New Orleans Saints have never had a winning season. The Atlanta Falcons, who became members of the league in 1966, have had one winning season.
•A baseball team that improves its record by 10 games will draw an extra 25,000 fans in Seattle or Milwaukee, but an additional 210,000 fans in New York.
•In 1976-77 eight of the nine NBA teams with the highest player payrolls advanced to the playoffs.
While the inequities created by doling out franchises according to geography instead of population are grievous enough, they are compounded by gate-sharing arrangements that further enrich the haves by denying revenues to the have-nots, particularly in basketball and hockey. The NBA and the NHL allow the home team to retain all gate receipts. The NFL gives visitors 40%, and in baseball the American League gives visitors 20%, while the National League gives 38%. Pleading anonymity, a pro basketball owner in one of the smaller cities complains, "We go into the Garden to play the Knicks, and they rake in more in one night than we make in two weeks at home. We're half the show and should be compensated accordingly."
The inequitable distribution of revenues, says economist Gerald Scully, is "the major source of all the problems that are currently facing professional sports." Though opinions differ on the most beneficial split, analysts agree that there can be no real competitive balance without a better shake at the gate. Even so, says Buck President Jim Fitzgerald, "There is a very real limit to the economic benefits of revenue sharing. Basketball, like any other product, particularly a product that competes for the discretionary dollar, must be promoted and sold. With excessive revenue sharing, the incentive to promote and field competitive teams is dulled."
Pride and bonus money for the winners will erase those problems, counters Scully, explaining that "equalizing financial strengths should bring about the possibility of the long-run equalization of playing strengths." The only contingencies not covered, he adds, are the mistakes of a "blockhead" owner.
Scully cites three other salutary effects of greater revenue sharing: "First, it would reduce player movement, because a player would be worth roughly the same in all locations. Second, franchise shifts would be minimized, because each team would have a vested interest in seeing that all the teams are judiciously located. Third, expansions would be more carefully considered, because the financial viability of the league would be in question, not just the profits of a single franchise. In their battle with the ABA, established teams like the Knicks and Lakers cared little about where expansion franchises were located, because with no gate-sharing, they earned no revenues on the road. Rather, NBA strategy was to block the entry of ABA teams into potentially viable locations for basketball teams."
Despite that sort of short-sighted thinking, the NBA is the most competitive of the four major sports. Indeed, no team has been able to win back-to-back championships since the 1968-69 season, and during that period seven teams have won the title. This was partly the result of the fact that the NBA has added a dozen new franchises over the past decade, including the strongest of the survivors of the great war between the old league and the ABA. And partly it is because basketball is the one sport in which the draft or purchase of a single star—a Dr. J, a Walton or a Kareem—can turn a franchise around.
For certain, the lively competition in the NBA is not the result of its financial structure. The advantages enjoyed by the big-city teams are as pronounced as ever. In the 1976-77 season, the total gate receipts of the Rockets ($1.4 million), Pistons ($1.6 million) and Spurs ($1.5 million) were surpassed by the receipts of the Knicks ($5.7 million). With that kind of bankroll, says Celtic owner John Y. Brown, the New Yorkers may fall off the pace for a season or three, as they have recently, "but pretty soon they'll end up with the best players."
In the NFL, the big-city factor is less important because, with frequent sellouts and a 60-40 gate split, the top team grosses only about twice the revenues of the bottom team. Moreover, building a championship team in the NFL takes more time and there is less certainty in the draft than in the other sports.
Says economist George Burman, "The common draft has been defended by the owners in pro football as necessary for maintaining equally competitive franchises. A careful examination of the mechanics of the draft indicates the inaccuracy of this position. The team with the poorest record drafts first, 29th, 54th and so forth. The team with the best record drafts 28th, 53rd and so forth. It is clear that the difference between the top and bottom teams in the draft can only be one quality player per year. This, along with the uncertainty of the selection process, an expected player career of four and a half years and the team nature of football, makes the advantage of the draft an illusion."
Equally illusory, it turns out, was the danger that the era of the free agent would give acquisitive owners in the largest cities a big new edge. The rules of Moneyball long ago had given them all the advantages they could hope for.