Tag: socialism and baseball

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Baseball’s Failed Experiment, Part 2

The question of “Tanking” has arisen.  “Tanking” is the practice of a team intentionally taking steps that almost guarantee a losing season, under the premise that he owners are actually saving up cash or acquiring higher draft picks for the future. CBS Sports, in a 2018 analysis, noted that “It’s time to reassess the practice of tanking… and recognize it for what it is: cover for profit-hungry owners to line their pockets, at the expense of their own fans’ entertainment.”  Those owners don’t have to worry about depriving their fanbase of a competitive team, discouraging them from attending games; revenue sharing dollars will come in anyway. 

How bad was tanking in 2018? Last August, Baseball America’s Kyle Glaser reported: “  How bad can a tank job get in 2018? The answer, apparently, is historically bad. After an offseason where “tanking” was the word on everyone’s mind, Major League Baseball is on track to see a nearly unprecedented amount of losing. Since adopting a 162-game schedule in 1961, MLB has never had more than two 110-loss teams in a season. It is currently on pace to tie that record. In that same time, MLB has never had more than four 100-loss teams in a season. It is currently on pace to tie that record as well.”

2018 wasn’t the first time revenue sharing was sharply questioned. In 2010, The New York Times’s J.C. Bradbury  reported: “Despite the good intentions behind revenue sharing, doling out money to baseball’s have-nots has the unintended consequence of creating a disincentive to win. Though the correlation is not perfect, winning tends to attract fans, which increases local revenue. But a healthier bottom line means drawing less from the revenue-sharing pool. The quandary faced by poor-and-losing teams is that using the added wealth to improve their clubs increases local earnings, but these gains may be offset by reducing revenue-sharing payments.

“In my book on valuing baseball players, I estimated the relationship between winning and revenue for M.L.B. teams. The revenue function shows disparate responses to winning at various levels of success, which support the notion that revenue sharing discourages improvement. The function shows that improving from a mid-60s-win team to a mid-70s-win team generates financial losses. The observed revenue bump from losing is consistent with the hypothesized disincentive to win when teams face a cut in revenue sharing. I refer to this region as the loss trap, because improving your team over this range of wins can cost you money.

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“Also, strong returns to winning do not kick in until a team hits the mid-80s in wins. Losing teams might improve their financial standing somewhat if they improved drastically, but transforming a loser to a winner does not happen overnight and cannot be willed into existence. Thus, the safety net offered by revenue sharing encourages teams to remain perpetually bad.”

There are lessons far beyond the sports world in why the equal outcomes idea, and other socialism and “socialism light” ideas fail.

Mark J. Perry, writing for the American Enterprise Institute explains:

“Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives. In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter! Under socialism, incentives either play a minimal role or are ignored totally…By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!”

Photo: Pixabay

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Quick Analysis

Baseball’s Failed Experiment

 America’s long tradition as “The Land of Opportunity” is being replaced by the new philosophy of “equal outcomes,” regardless of the effort put in. The attempt to implement this idea, akin to the growing popularity of socialism, has already found a home in one of the nation’s most beloved institutions: Major League Baseball (MLB).

The results have not been good. 

MLB’s luxury tax and revenue sharing practices are also known as a “competitive balance tax.” Proponents of the concept allege that it was necessary to allow teams in smaller cities to play more competitively against big-city teams.  Hal Steinbrenner, a co-owner of one of those big-city teams, The New York Yankees, disagrees with the idea.  The National Review quotes him as stating “At some point, if you don’t want to worry about teams in minor markets, don’t put teams in minor markets, or don’t leave teams in minor markets if they’re truly minor…Socialism, communism, whatever you want to call it, is never the answer.”

Whatever label is placed on the concept, it has not achieved the results it was supposed to, and has in fact produced a whole new set of problems.

William Ryan Colby, in a paper presented to the e Department of Economics at Amherst College noted that “In 1996, Major League Baseball introduced its first system of comprehensive revenue sharing with the goal of creating more competitive balance in the league. the marginal tax rates created by MLB’s revenue sharing systems have actually worsened balance in the league. Although the most recent sharing system begins to realign incentives, it still risks “turning a ‘good’ imbalance into a ‘bad one” by subsidizing poorly managed teams at the expense of well run teams… the incentive structures created by MLB revenue sharing had the anticipated negative effects on competitive balance.

How the system has worked in practice is described by NBC sports “MLB teams participate in revenue sharing, a system that redistributes income from the richest franchises to their less profitable partners in an attempt to improve competitive balance. Under the 2012–2016 Collective Bargaining Agreement (CBA), each team contributes 34 percent of its net local revenue into a pool that gets divided equally among every team. Higher-earning clubs put in more than they get back while lower-earning clubs receive more than they put in…Over the past four years the Marlins, Rays, Royals, Padres and A’s among other teams received a combined $642 million dollars. The franchises that keep on giving to them are the New York Yankees, Boston Red Sox, Chicago Cubs, Philadelphia Phillies and San Francisco Giants. The mountain of cash deposited since 2012 i[reached] a staggering $1.15 billion [by 2016]”

A list of World Series winners since 1996 clearly demonstrates that the revenue-sharing scheme has not achieved its goals. Instead, it has ushered in a whole new set of problems.

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There have been complaints that the organization that have received the revenue sharing have pocketed the money rather than invest in building more competitive teams. Indeed, it appears that some small market teams apparently no longer worry about trying to effectively compete, because even if attendance falls off due to poor play, revenue will still flow to them from revenue sharing.

Russ Roberts, writing for CafeHayek explains: “Even if the Yankees [a big-market, big spending team] share their revenue equally with other teams, the beneficiaries of that subsidy may decide to simply pocket it rather than making their teams more competitive.  Revenue sharing does reward mediocrity and punish excellence and as the amount of sharing grows, the potential harm from that perverse incentive gets worse.”

According to some, that diminished devotion to meaningful competition means that teams, both in large markets and small, feel free to be less generous with player salaries.  

A 2018 CBS Sports report reported that “According to the Associated Press, the average MLB salary decreased from 2017-18. It’s only the fourth time in the last half-century the average salary decreased from one year to the next…The [MLB Players Association (MLBPA)] said…its final [2018] average was $4,095,686, down $1,436 from $4,097,122 last year. Since the union started keeping track in 1967, the only previous declines had been by $66 in 1987, when owners were found to have conspired to hold down salaries among free agents; a 4 percent decline in 1995 following a 7½-month strike that wiped out the World Series for the first time since 1904; and by 2.5 percent in 2004.”

The MLBPA voiced concern  that several organizations, including at least one that received up to $160 million, were pocketing the cash and not using it to enhance their team.

The Report concludes tomorrow.

Photo: Pixabay