Loss by Design

Via USS Mariner, here is an excellent Forbes article on the financial situation of the Seattle Mariners.

As successful as the team is, nobody in management really likes to talk about it. Mariners President Charles Armstrong, who declined an interview with FORBES, instead told a Seattle reporter in March, “We’ll see FORBES magazine come out and say we’re making all this money. But in essence we’re not.” According to Armstrong, the Mariners just barely broke even–if you exclude gains from an unpaid salary for a player who quit the team but include a charge for depreciation and amortization.

What the Forbes article doesn’t mention is that Armstrong’s position isn’t just modesty, it’s policy. Major League Baseball, the Mariners included, has adopted a public relations strategy that revolves around the argument that the sport is in desperate financial straits. This argument does the following work:

1. Wins public sympathy for the owners in any labor dispute with the players
2. Makes it easier for owners to extract concessions from localities, including tax breaks and free stadiums.
3. Wards off any potential Congressional investigation of baseball’s anti-trust status.
4. Provides some, very minor, justification for high ticket prices.

What is the actual financial situation of baseball? Sterling. Buying a baseball team isn’t quite as good as buying a mint, but it’s pretty close. In short, the description of baseball revenue given by baseball’s ownership is a fantasy. It bears no relationship with reality, and would barely pass muster with the accountants at Enron. The late Doug Pappas wrote an excellent series on the finances of baseball back in 2001. Take a look when you have the time. In 2001, for example, Major League Baseball claimed a loss of $200 million dollars while, in fact, it collectively made $76 million dollars.

Commissioner Bud Selig has been critical in the construction and maintenance of this fantasy. When the kids note that the Emperor has no clothes, the Emperor strikes back. Here’s Pappas description of the phone call Selig gave him after his series hit the net, and here’s Rob Neyer’s experience with an angry Selig after Neyer called bullshit (scroll down).

You have to remember two things regarding this particular big lie. First, baseball needs it to work. Owners tend to get furious at other owners who let the mask slip. When the San Francisco Giants paid for their own beautiful stadium, the rest of baseball was nearly apoplectic. A baseball team paying for its own digs? How absurd!!!! Similarly, George Steinbrenner is not a popular figure among the ownership, because he understands that player salaries are, after all, an investment. Paying good players lots of money can lead to a good team that makes even more money. This is hardly the sort of argument that baseball ownership wants to hear. Second, you will never be able to rely on the sports media to call ownership out on this. Like the rest of the media, they don’t like complicated issues, and they don’t do well when asked to evaluate conflicting claims. The owners tell a good story, and in the end the sports media can be relied upon to parrot the line.

All of this has resulted in the rather bizarre spectacle of the typical baseball consumer taking the side of the billionaire owners against the millionaire players in labor disputes. The owners have managed the feat of completely inverting normal economics, such that player salaries are the fault of the players, rather than the owners, and that these salaries, rather than supply and demand, determine ticket prices. The “liberal” media, mainstream and sports, has been complicit in this inversion. This has resulted in massive local government expenditures in service of the billionaires who own baseball teams and other franchises.

And, wouldn’t you know it, George W. Bush was right in the middle of all of it. Having never seen a corrupt business deal he didn’t like, and being rather used to sucking on the teat of government, GW “made” his fortune (after losing several of his father’s) by buying the Texas Rangers, arranging the construction of a new stadium through blatant financial falsehoods and political contacts, then selling the Rangers for a massive profit.

Ain’t America great?