The End Of Baseball Again

Sixty years ago, "Memphis Bill" Terry had it right. "Baseball," said the manager and Hall of Fame first baseman of the old New York Giants, "must be a great game to survive the fools who run it. No business in the world has ever made more money with poorer management. It can survive anything." It has since endured gambling, drug scandals, AstroTurf, lawyers and the designated-hitter rule.

But can baseball survive Bud Selig and Don Fehr? We'll see. Yes, it's that time in the season when a lad's fancy turns to labor negotiations and the timeless romance of collective bargaining. Why would fans want to watch Barry Bonds stand in against Randy Johnson on some warm, moonlit night--when instead they can listen to Commissioner Selig and union leader Fehr wax poetic about revenue sharing, luxury taxes, contraction and the pharmaceutical attributes of steroids?

It's the owners against the players, the billionaires vs. the millionaires in the seriatim Thirty Years War over how to divvy up what's now a $4 billion booty. Fearing management will unilaterally declare new salary rules after the season ends, the players late last week announced they'll strike Aug. 30--what would be the ninth work stoppage since 1972. The strategy: Players will already have 83 percent of their pay. But by denying the owners the lion's share of TV revenue that comes with the playoffs and World Series, players figure the owners will cave. Owners fire back that this will finally be the year they restore fiscal sanity to the game. What tension, what drama!

And they wonder why we despise them so. The last time we watched the prima donnas of baseball try to wreck the sport, back in 1994-'95, a strike dragged on 232 days and wiped out the postseason. Who'd have thought they'd contemplate doing it again? The root of the baseball dispute, as always, is money. Owners say salaries in the era of free agency are ruining teams. Are not, say the players. Nyeh-nyeh! Nyeh-nyeh! But even Arthur Andersen could agree that baseball's economic structure is nuts, as if designed by Moe, Larry and Curly. The 30 clubs are expected to compete on the field, even though they take in wildly different revenues: the New York Yankees get roughly $60 million from local broadcast rights, 120 times more than the Montreal Expos. The Yankees' payroll is now about $171 million, Montreal's less than a quarter of that. You wonder why New York wins all those championships?

Dumber still is that owners are complicit in self-destructive salary escalation, epitomized by Alex Rodriguez's $252 million, 10-year contract ponied up by the Texas Rangers. How does such a thing happen? Management insisted when free agency started in 1976 that only a few dozen players would get it. Economics 101 teaches that such artificial limits on supply increase costs. Back then, while publicly complaining about the restriction, the union privately marveled at management's stupidity.

Ever since, only players with six years in the majors get free agency. But their high salaries in turn ratchet up the pay of players not entitled to free agency. Players with fewer than three years of service are serfs, paid whatever an owner wants (subject to a minimum of $200,000). But players with three to five years are entitled to the absurd right of salary arbitration, under which player and club each submit a request to an arbitrator, who chooses one number or the other. The measure is whatever's the going rate. Thus, one rich team's profligacy forces even a wise owner to pay the freight.

There is a better way. It's simple: make the system look like any other business--NEWSWEEK's, GM's or anybody else's. Let all major leaguers be free agents. Goodbye, salary arbitration. Goodbye, minimum pay. Goodbye, automatic guaranteed contracts. "Unlimited free agency could very well reduce the overall wage bill," says Lou Guth, a senior vice president with National Economic Research Associates, who used to advise baseball management. (NERA analyzed salary data for this article.) It may well be that veteran stars like Alex Rodriguez would continue to win top pay. And it's no doubt true that some of the 333 now enslaved young players would see big increases. But it's most everyone else--including the 223 arbitration-eligible players, as well as many of the second-rung free agents (pie chart)--whose salaries might stabilize or decline, as the labor supply remained ample each year. Why sign a mediocre reliever for a few million bucks when five other lefty zhlubs are available for a fraction of that?

Players couldn't possibly object to such a pay structure, even if it deflated average salaries. Their union has been beating the ideological drums since forever and it'd become a laughingstock if it turned down unbridled freedom. What do owners think? Remarkably, they admit they've never considered the idea. It's not because they've run the economic models, but because they believe it would destroy the minor leagues. Clubs, they say, would no longer have incentive to develop talent. But that's nonsense. There'd be just as much need for development, and since all teams would be operating under the same rules, the net effect of unlimited free agency would be nil.

A universe of unlimited free agency would still require substantial revenue sharing--lest the big-fish teams be able to outspend the minnows--but that wouldn't be a problem as long as small clubs agreed to use their subsidies on salaries. In effect, the salary pie wouldn't shrink at all from revenue sharing (and could even grow)--only the size of the respective team slices might change. The union could claim that sharing revenue smacks of collusion, but that's an ideological canard. Baseball is different from the magazine or auto industry. It prospers only if its different constituents are doing well. It takes two to have a game, and 10 times more to have a league.

Those of us who still love baseball do so no longer for what it is, but for what it used to be. Only George Steinbrenner could survey the current economic and competitive landscape and conclude that all is well with the game. Rather than merely tinker with a system that doesn't work, our modest proposal tries to alter the debate. Baseball may well be indestructible. But players and owners are testing our patience, if not fate. They'd be wise to try something new.