The Business of Baseball

This article was originally published in The SABR Review of Books, Volume IV (1989).

 

Good afternoon, students. I am Professor Hailey, and this is Industrial Organization 162, “Baseball as a Business Enterprise” — which is better known around campus, I understand, as “Bats, Balls, and the Bottom Line.”

In 1914 a New York court ruled that major league baseball was not subject to the antitrust laws because “baseball is amusement, a sport, a game … not a commodity or an article of merchandise.” In other words, the court held that baseball was a sport, not a business.

Baseball is certainly a sport, but it is also a business. That is obvious in today’s world of million-dollar player salaries and billion-dollar television contracts. But it was also true long before 1914. Baseball clubs began charging admission and paying their players in the 1860s. The American Association, or “Beer-Ball League” was organized in 1881 in response to the National League’s decision to ban ballpark liquor sales and Sunday games; four of the association’s founding fathers were brewery owners, who got into baseball in order to sell more beer. In 1899, New York Giants owner Andrew Freedman urged his fellow owners to follow the example of robber barons like Rockefeller and Frick and organize a “Baseball Trust” powerful enough to drive rival leagues out of existence.

A major-league baseball team is a relatively small business. In 1985, the average baseball team had fewer than 300 full-time employees and total revenues of $25.6 million (up from $8.4 million in 1977). About 60% of that money came from the fans who attended games in person; most of the rest came from the sale of broadcast rights.

By 1990, average annual team revenues will jump to $40 million, primarily because major league baseball recently sold national broadcast rights for the 1990-93 seasons to CBS and ESPN for almost $1.5 billion, or $14.4 million per team per year; the current national television contracts are worth only about $7.5 million annually to each team. Beginning in 1990, the average team will take in more money from selling television and radio rights than from ticket sales and concessions.

Player salaries account for over half of the average baseball team’s costs. The average salary in 1975 was about $44,000; last year, the average salary was almost ten times that amount. In 1989, over 100 major-league players will make $1 million or more; at least 21 players will earn $2 million or more.

So much for revenues and expenses: what about profits? In 1984 the 25 major-league teams suffered a net book loss of well over $50 million and fewer than a half-dozen teams made money; commissioner Peter Ueberroth claimed that baseball was “headed for bankruptcy.” But after examining the teams’ financial statements, Professor Roger Noll of Stanford University concluded in a report prepared for the Major League Baseball Players Association that the sport was generally in good financial condition, with only a few franchises in serious trouble. Ueberroth did not agree with that conclusion in 1984, but he does now; just before giving way to A. Bartlett Giamatti earlier this year, Ueberroth said that the ratio of money-losing and money-making teams that had existed when he became commissioner had been reversed.

An accountant who works in the front office of one team once said, “Anyone who quotes profits of a baseball club is missing the point. Under generally accepted accounting principles, I could turn a $4 million profit into a $2 million loss and I could get every national accounting firm to agree with me.”

We will briefly discuss how the alchemy of corporate tax accounting can turn profits into losses a bit later. Suffice it to say now that the prices paid for major-league teams continue to escalate. Of course, people who buy baseball teams are rarely motivated entirely by economic considerations, and some of them would be willing to pay plenty for a team even if it consistently lost money – but the current sellers’ market in baseball franchises indicates that sport is in good economic health. As Professor Noll has observed, “Smart business executives do not pay $50 to $100 million for the opportunity to lose further millions in a perpetually losing venture.”

Now let’s talk about the books on the course reading list. This course will concentrate on current events, not history. The required texts are the most up-to-date sources available on the particular subjects we will be covering – labor-management relations, radio and television contracts, and so on.

The first book on our reading list, “Baseball Economics and Public Policy,” by Jesse Markham and Paul Teplitz, was commissioned by major-league baseball in 1977 in anticipation of a Congressional inquiry into certain aspects of professional sports leagues. Markham and Teplitz conclude that conventional anti-trust analysis should not be applied to major-league baseball clubs because “baseball is essentially a cooperative rather than a competitive enterprise.”

Most businessmen operate independently of their competitors. General Motors does not consult with Ford when setting prices or deciding how many units of a certain model it will produce; the antitrust laws prohibit such cooperation between competitors. But you can’t play baseball with only one team, and you can’t have a league without agreeing when and where to play and what the rules of the game are.

Baseball’s owners have gotten together on much more than the schedule and the rulebook, however. They have agreed to a number of competitive restrictions that they justify as necessary to maintain competitive balance, which is in their (and the fans’) long-term interest. GM would like nothing better than to capture all of Ford’s customers and run it out of the automobile business. But the Yankees will do better over the long term if they lose to the Red Sox some of the time rather than always beat them. Studies have shown that game attendance is positively correlated with uncertainty over the game’s outcome and the closeness of the pennant race. If the Yankees always beat the Red Sox, attendance at Yankees-Red Sox games in New York as well as Boston suffers.

The reverse-order-of-finish draft of high school and college players that the owners agreed to after the 1964 season is one mechanism that promotes competitive balance. Limits on the maximum number of players on a team’s roster and the policy of sharing national broadcast revenues equally are also designed to equalize team strength.

But baseball is not strictly egalitarian. For example, baseball teams do not share local broadcasting revenues. Beginning in 1991, the Madison Square Garden Network will pay the Yankees almost $42 million annually for local television rights; teams in smaller markets like Milwaukee and Cincinnati get a fraction of that amount for their local broadcast rights. The home team also keeps the lion’s share (about 80%) of ticket and concession revenues, which vary greatly from team to team. The bottom line is that the most successful baseball franchises take in about four times as much money in a season as the poorest teams. Teams in smaller metropolitan areas are almost always at a financial disadvantage to teams like the Dodgers, Mets, and Yankees, and that financial inequality should lead to competitive imbalance in the long run.

The relationship between a team’s revenues and its on-the-field success is not as strong as one might expect because the owners of baseball teams do not necessarily seek to maximize profits. As New York Times sportswriter Leonard Koppett put it in a 1973 article, “Profit … is not the owner’s primary motive. Any man with the resources to acquire a major league team can find ways to make better dollar-for-dollar investments. His payoff is in terms of social prestige. … A man who runs a $100-million-a-year business is usually anonymous to the general public; a man who owns even a piece of a ball club that grosses $5 million a year is a celebrity.”

For some owners, a major-league baseball team may be primarily a hobby or food for the ego instead of a business. But let’s not overestimate the enjoyment that team owners derive from losing money. Virtually all team owners have interests in bigger businesses; when you look at the combined results of an owner’s business operations you may find that the allegedly money-losing team is really a money-maker for its owner. The next assigned reading, Roger Noll’s “The Economics of Sports Leagues,” which is chapter 77 of a legal reference work titled “Law of Professional and Amateur Sports,”” explains how that happens.

Once upon a time, baseball teams were family-owned, mom-and-pop businesses. But the Macks, the Griffiths, the Wrigleys, and most of the other old-time baseball families have long since sold their teams. Today most team owners have diversified business interests; teams like the Braves and Cardinals are relatively small parts of large corporate empires. To evaluate the profitability of such teams, you must know something about the operations of their corporate cousins.

Ted Turner owns the Atlanta Braves. He also owns WTBS, a TV “superstation” that sells broadcasts of Braves games to cable TV systems across the country. In 1984, WTBS paid the Braves $1 million for their television rights, which was quite a bit less than most teams were paid for local TV rights that year. The Braves’ 1984 financial statement, therefore, understated the team’s true profitability; by the same token, WTBS’s operating results are overstated because they were able to buy valuable programming from their corporate cousin at a bargain price. Turner may have had some reason for having his baseball team subsidize his TV station; perhaps he was thinking about selling WTBS and wanted to make it look as profitable as possible. On the other hand, the $1 million number may have been plucked out of thin air – since Turner owns both businesses, deciding whether to charge WTBS $1 million or $10 million for the Braves’ broadcast rights may have been of no more significance to him than deciding whether to put his change in his left or his right pants pocket.

Noll also explains how professional sports teams lower their tax liability significantly by amortizing player contracts. The tax laws allow the purchaser of an existing pro team to allocate roughly 50% of the purchase price to the value of the team’s contracts with its current players, and to amortize that 50% over a five-year period. In other words, if you buy a team for $50 million, you can assign a value of $25 million to the player contracts and deduct one-fifth of that amount, or $5 million, in each of the next five years. If the team’s operating profits are $5 million, it pays no income taxes; if it loses money, the owner can use the excess tax deduction to shelter income from other sources.

Amortizing or depreciating assets is standard accounting practice. Let’s say that you’re in the cropdusting business, and that the average life expectancy of a cropdusting plane is ten years. Your plane loses ten percent of its value each year, and it is logical to allow a tax deduction of that amount annually. But the baseball business is not like the cropdusting business. A cropduster’s most valuable asset is his airplane. A baseball owner’s most valuable asset is his membership in the major-league fraternity — his franchise — which entitles him to a share of the money from baseball’s national TV contract, an exclusive right to operate a team in a particular city, and many other benefits. A player’s contract may be an asset to the owner, but it may also be a costly liability.

Noll believes that most of the value of a major-league franchise is created by the owners’ self-imposed limits on competition for players, which keep player salaries well below what they would be in an unrestricted market. Just imagine how much money Jose Canseco (or Dwight Gooden) could have demanded after his rookie season if he had been a free agent. Because players are not eligible for arbitration until they have three full years of major league service, a player like Canseco has little choice but to take what his team offers him after his first and second seasons in the majors. Noll dismisses as a “myth” the argument that restrictions on free agency preserve competitive balance. Such limits may restrict the ability of players to choose to move from poorer teams to richer teams, but they do not prevent the owners of the poorer teams from selling their players to the richer teams. Former commissioner Bowie Kuhn established a $400,000 ceiling on straight cash deals to prevent the more well-heeled owners from simply buying up all the good players, but such a restriction does not solve the problem entirely. Trading a player with a million-dollar contract for a couple of rookies making the minimum wage is almost the same thing as selling that player – a business can boost profits by increasing revenues or by cutting expenses.

Noll discusses the economics of all four major professional sports — baseball, football, basketball, and hockey — and identifies a number of important differences among those sports. As previously noted, the most successful baseball teams have revenues several times greater than their less fortunate rivals; the same is true in basketball and hockey. But all NFL teams take in roughly the same amount of money. Winning football teams and teams in big cities don’t make much more money than perennial also-rans or teams in small markets. That’s because pro football teams share all television money equally and split ticket revenues 60-40.

By the way, don’t expect much demand for used copies of “The Economics of Sports Leagues” or “Baseball Economics and Public Policy” from students who take this course next year. It is almost certain that I will drop them from the course reading list in favor of Professor Gerald Scully’s “The Business of Major League Baseball” which will be published in September 1989 by the University of Chicago Press. Professor Scully has been kind enough to let me take a peek at the manuscript of this ambitious and provocative book, which discusses all the significant economic issues we will discuss in this class: restrictions on competition for players, broadcast rights and revenues, tax accounting, expansion and franchise relocation, and so on. But Scully does more than simply describe baseball as a business enterprise: he also attempts to demonstrate how on-the-field performance is affected by baseball’s economic structure. For example, Scully examines the effects of revenue sharing (or the lack thereof) and the amateur free agent draft on relative team strength. He also analyzes racial discrimination in baseball and relates the won-lost records of baseball managers to their salaries. Scully’s conclusions are certain to generate considerable controversy.

The next book on the reading list is “Hardball: The Education of a Baseball Commissioner,” by Bowie Kuhn, who served as Commissioner of Baseball from 1969 to 1984. A lot happened during Kuhn’s tenure. The owners prevailed when Curt Flood took baseball’s century-old reserve system to court, but their victory was rendered almost meaningless a few years later when arbitrator Peter Seitz granted free agency to Andy Messersmith and Dave McNally; the relationship between the owners and the players’ association then festered until 1981, when the worst strike in American sports history wiped out almost one-third of the baseball season. A number of franchises came and went: Kansas City, Montreal, San Diego, and Seattle got expansion teams in 1969; the Seattle franchise quickly went bankrupt, so it was transferred to Milwaukee just in time for Opening Day 1970; after the next season the American League approved the move of the Washington Senators to Dallas-Fort Worth; and in 1975, the American League voted to expand to Toronto and Seattle. Since then, no expansion teams have been admitted, and no existing teams have moved to different cities. In the hope of increasing its television audience and revenues, baseball decided to play the All-Star Game and most World Series games at night rather than in the daytime, and sold ABC the rights for “Monday Night Baseball”; cable TV “superstations,” which threatened to take a bite out of the teams’ local broadcasting revenues and home attendance, reared their ugly head. “Hardball” covers all these developments in considerable detail.

The mere existence of the Commissioner of Baseball is evidence that baseball is a peculiar business enterprise. In theory, the commissioner has almost unlimited authority: baseball’s constitution, the Major League Agreement, gives him authority to investigate “any act, transaction or practice, charged, alleged or suspected to be detrimental to the best interests of the national game of baseball,” and to determine what “preventive, remedial or punitive action is appropriate … and to take such action either against Major Leagues, Major League Clubs or individuals.” As author Daniel Okrent has put it, “The more responsible owners, miscreants in spite of themselves, want to give the commissioner a whip with which to discipline themselves.” When Charlie Finley decided in 1976 to follow the honorable and ancient baseball tradition of selling off his star players to the highest bidder, he had no trouble finding bidders — Boston, Cincinnati, and the Yankees were more than willing to spend millions for the likes of Vida Blue, Rollie Fingers, and Joe Rudi. No doubt the other owners breathed a sigh of relief when Kuhn quashed the sales and helped protect them from their brethren.

The first commissioner, Judge Kenesaw Mountain Landis, was hired to restore the integrity of the sport — and, equally important, to restore the public’s faith in its integrity — after the “Black Sox” scandal came to light in 1920. In more recent times, the commissioner also has been expected to be baseball’s CEO. Peter Ueberroth, for example, will be remembered as the man who negotiated baseball’s new record-breaking television contracts. Kuhn was also a relatively savvy businessman. When he was elected commissioner, baseball was losing market share; pro football was increasingly popular, especially with younger fans. Traditionalists excoriated Kuhn for moving World Series games into prime time, but he was convinced that baseball “had to use national television as a means of rejuvenating baseball’s popularity”; according to Kuhn, it made no sense to broadcast baseball’s greatest event “when most of North America was working or going to school.”

But Kuhn was better known for his Landis-like determination to search out and punish impropriety and the appearance of impropriety. In 1974, Kuhn suspended George Steinbrenner for two years after he pleaded guilty to making an illegal contribution to President Nixon’s re-election campaign and was fined $15,000; had Steinbrenner been sentenced to jail, Kuhn says he would have banned him from baseball for life. A couple of years later, Kuhn suspended Ted Turner for a year and took away the Braves’ first pick in the 1977 amateur draft when Turner tampered with Giants outfielder and soon-to-be free agent Gary Matthews by announcing at a World Series cocktail party that he would spend whatever it took to sign Matthews. “C’mon, Principal,” Turner told Kuhn, “you can’t take me seriously when I’ve had a few drinks.” But Kuhn was not someone to excuse an infraction on such grounds. “A good deal of baseball business, wisely or unwisely, is carried on by people who have been drinking. If we had two sets of rules, the result would be a shambles,” he primly testified when Turner went to court in an unsuccessful attempt to overturn the suspension.

It is ironic that Kuhn was usually perceived as an owners’ commissioner; he was never afraid to punish transgressing owners like Steinbrenner and Turner. But Kuhn made more enemies among the owners by supporting limits on TV superstations and greater revenue sharing among major-league teams. Turner and Chicago’s Tribune Company who owned the Cubs and superstation WGN were unhappy with Kuhn’s efforts to limit the number of games that superstations could sell to cable systems in other teams’ local markets. And Nelson Doubleday, one of baseball’s fattest fat cats, called revenue sharing “socialism.” The owner of the Mets, whose local television rights were enormously valuable — particularly when New York City superstation WOR began to sell Mets games to cable systems across the country — told Kuhn that since “he had bought the Mets for what he considered a big price, he did not see why he should share the benefits of New York with others.” The rules are different now, but in Kuhn’s day, a commissioner had to win approval from at least three-fourths of the clubs in each league to be elected; 18 of 26 owners wanted to re-elect Kuhn to a third term as commissioner, but only 7 of the 12 National League teams supported him.

Kuhn was first and foremost a lawyer, with a lawyer’s respect for precedent and procedural niceties. His decision to ban Willie Mays and Mickey Mantle from working for major-league teams after they accepted employment at Atlantic City casinos is perhaps the best example of Kuhn’s lawyerly punctiliousness. Kuhn defended that decision as consistent with a long line of precedents dating back to “Black Sox” times; only a few years earlier, Kuhn had told former Yankee owner Del Webb that he could not buy the White Sox unless he first sold off his Las Vegas casino operations. Not surprisingly, Kuhn was roasted by the press; Peter Ueberroth quickly reversed Kuhn’s decision when he became commissioner. Kuhn credits his successor with a “superior sense of public relations,” which is an understatement.

The worst blemish on Kuhn’s record was his failure to head off (or, at least, more quickly end) the 1981 strike, when the owners and players squared off on the issue of what compensation was owed by a team that signed a free agent. The owners felt that a team losing a free agent should receive a major-leaguer in return — in their view, that was both fair and necessary to maintain competitive balance. But the players were not about to agree to anything that would discourage the Steinbrenners and Turners of the world from throwing their millions at free agents. Kuhn “hated the strike and had prayed that it would not happen” — he had a “more-than-fifty-year history as a fan,” and he appreciated just how much baseball was loved by millions of others — but he felt powerless to bring it to an end. Listen: “I was still haunted by the Landis myth. I did not have the power to direct the activities of a federally protected labor union. Had it been otherwise, there would have been no strike. No sensible person would have permitted the Players Association to strike over the [free agent] compensation issue.”

Kuhn’s explanation is a bit curious. He had never hesitated to fine an owner who was guilty of tampering or suspend a player who was arrested for drug possession, even though his decisions were sometimes reversed by judges or arbitrators. Kuhn probably was legally impotent to stop the strike by fiat — it is extremely doubtful that he simply could have shouted “Play ball!” and made it stick. Perhaps a bolder, more imaginative, or more shameless man would have been able to frighten, trick, or embarrass the players and owners into bringing the strike to an end.

Kuhn believed he could not order the players to end their strike, and he would not order the owners to settle if that meant giving up on compensation for free agents. The commissioner felt strongly that free agency without compensation was wrong. “[Why] should I influence the owners to do what in my judgment was not best for baseball?” he asks. Even more important to Kuhn than the compensation issue was what he saw as the battle between owners and players for control of baseball. Kuhn had his problems with individual owners, but he had a particular dislike for Marvin Miller, the executive director of the Players Association. To Kuhn, Miller’s refusal to bargain on compensation for free agents was proof that he was “[h]ung up on outdated trade union dogma about never giving anything back and on his own ego gratification.” Kuhn was also frustrated because the players always presented a solidly united front at the bargaining table, while the owners were a house divided, saying:

It was Miller’s calculation that the owners would not long stand together against a strike, that their unity was paper-thin. It seemed to me that unless the clubs took a stand at some point, the Players Association would forever have its way. … Given free rein, the Players Association would look only to the financial welfare of the players … [with] no concern for the fans or the ticket prices. … Not so transient as the players, most of the club executives, for all their frailties, had a deep sense of dedication to the game and to the public.

In Kuhn’s eyes, Miller “was not a fan, showed no concern for the fans, and had little sense of responsibility to the public or the game.”

Kuhn sincerely believed that unrestricted free agency would destroy competitive balance and harm the fans. With the benefit of 20/20 hindsight, Kuhn’s fears seem to have been exaggerated. But the significance of the 1975 Messersmith-McNally arbitration decision, which freed the players from the shackles of the reserve system, can hardly be exaggerated.

In “Beyond the Sixth Game,” baseball journalist Peter Gammons tells the tale of the decline and fall of the mighty Fisk-Lynn-Rice-Yastrzemski Red Sox of the mid-1970s, whose front-office executives were unable to cope with the radical changes in the player-management relationship that followed arbitrator Peter Seitz’s celebrated Messersmith-McNally decision. Before Seitz ruled that the standard reserve clause in player contracts did not bind a major leaguer to his team for as long as the team wanted him, players were at a tremendous disadvantage in salary negotiations because the owners did not compete with one another for talent — a player could play for the organization that had drafted or traded for him, or he could go into another line of work. But after the Seitz decision, as Gammons puts it, the players had a “powerful gun” to point at the owners: free agency.

“Beyond the Sixth Game” is first of all a book about the game of baseball, not the business of baseball. But no serious discussion of recent baseball history is complete unless it examines the effects of free agency, salary arbitration, and the other fallout from the Seitz decision. Beginning in 1976, according to Gammons, life in baseball’s front office got a lot tougher.

The reserve system had guaranteed management equality, which in turn had fostered a club of good old boys protected by the rules of the game. The new system made every judgment and decision important: big-money signings had to be well conceived, scouting and development became increasingly vital and the ability to judge and find talent without trying to spend with George Steinbrenner became what separated Baltimore and Los Angeles from the rest of the teams.

“Free agency,” said Dodgers vice president Al Campanis, “forced everyone to be more competitive and make tougher decisions.”

The Red Sox front office wasn’t equal to the challenge. Longtime owner Tom Yawkey died seven months after the Messersmith decision and just three days before the players and owners agreed to a new collective bargaining agreement, which provided for free agency after six years of major-league service. Yawkey had been a free-spender, but new owners Haywood Sullivan and Buddy Leroux (quickly nicknamed “Dumwood and Shoddy”) decided it was time to trim the fat in the front office. Sullivan, who had been a reasonably competent director of player personnel, became general manager and chief contract negotiator; in addition, he sat on several important owners’ committees. The former bullpen catcher didn’t have the negotiating experience to deal with player agents like Jerry Kapstein, and he didn’t have enough time during the season to work the telephones and put together deals to fill the holes in the Red Sox lineup.

Sullivan met his Waterloo in the 1980-81 off-season. In 1976, the Red Sox had signed stars Rick Burleson, Carlton Fisk, and Fred Lynn to five-year contracts; Burleson was dealt to the Angels after the 1980 season. The fifth year of those contracts was an option year; the contracts provided that the teams had until March 11, 1981, to exercise their option for the 1981 season. But the Basic Agreement required teams to tender contracts to players by December 20. Sullivan did not want to mail contracts by December 20 because Fisk and Lynn might have had the right go to salary arbitration if he did; his lawyers told him it would be safe to wait until March 11. After hearing that the Angels had sent Burleson a contract on December 17, Sullivan changed his mind and put Fisk and Lynn’s contracts in the mail on December 22, two days too late. Sullivan took the rap for the fiasco that cost the Red Sox two of their best players — some people still believe he just forgot to mail the contracts on time — but he was really the victim of questionable legal advice.

There’s a considerable amount of good legal advice in “Law of Professional and Amateur Sports,” a legal treatise edited by Gary Uberstine. Chapter 4 of that treatise, “Collective Bargaining in Professional Sports,” by Boston College law professor Robert Berry, first describes collective bargaining generally, then briefly discusses the most salient feature of the basic labor-management agreements in baseball, football, basketball, and hockey. Chapter 5, “Negotiating for the Professional Baseball Player,” by sports lawyer Jeffrey Moorad — he represents Will Clark and Cory Snyder, among others — moves from collective bargaining to the individual player contract. Moorad covers what is at issue in contract negotiations for three different kinds of clients: (1) amateurs selected in the annual free agent draft, who are negotiating their initial professional contracts; (2) minor-league players; and (3) major-league players. He also describes the mechanics of arbitration and free agency. Although the Berry and Moorad chapters were written for lawyers, they are not particularly technical — after reading “Hardball” and “Beyond the Sixth Game,” you should have no trouble understanding this material.

The next book on our reading list is “Sports for Sale: Television, Money, and the Fans,” by David Klatell and Norman Marcus of Boston University’s Institute in Broadcast Sports. William Wrigley used to give away the broadcasting rights to Cubs games, hoping that people who watched the Cubs play on TV or listened to them on radio might decide to come out to Wrigley Field and buy a ticket. Today, baseball’s broadcasting rights are worth hundreds of millions of dollars a year; in a few years, team owners will make more money from television than from selling tickets. “Sports for Sale” covers the past, present, and future of sports and television — and the future is spelled C-A-B-L-E.

If you like to watch baseball on TV and you don’t already have cable, you’d better get it soon. Beginning in 1990, ESPN will televise 175 regular-season games; regional cable programmers and cable superstations will show hundreds more. All you’ll get for free is 12 regular-season games on CBS, and maybe a few more on a local station. Of course, the All-Star Game, playoffs, and World Series won’t cost you anything, but don’t expect that to last forever. Pay-for-view technology, which enables your cable system to charge you by the program rather than by the month, has come a long way in the last few years. Unless the politicians step in, free televised baseball may be extinct by the year 2000. “Sports for Sale’s” examination of the history and economics of cable television — which Klatell and Marcus term “the goose that can lay golden eggs” — is particularly illuminating. The chapter on the legal and regulatory aspects of sports broadcasting is also quite good. Feel free to skip the discussion of sports anthology shows (like “Wide World of Sports”) and the Olympics.

The next required reading is “The Dodgers Move West,” by Neil Sullivan, which is an account of the most controversial franchise move in the history of professional sports. Howard Cosell has called Walter O’Malley’s decision to leave Brooklyn a “moral and ethical disgrace” because the Dodgers were not in economic distress. It is true that the Dodgers made more money from 1952 to 1955 than any other major-league team, including the Yankees. But O’Malley had reason to worry about how long the good times would last. In 1955, the Dodgers drew barely a million fans to Ebbets Field, which was cramped and dilapidated; that same season, the Braves, who had left Boston for the greener pasture of Milwaukee in 1953, drew over two million fans. O’Malley was concerned that the Braves would be able to hire better scouts, pay bigger bonuses to young prospects, and operate more farm teams than his Dodgers.

To keep up with the Braves, O’Malley needed a new stadium with plenty of parking. He did not expect the taxpayers to pick up the tab for the stadium — in fact, he preferred to finance the stadium privately. O’Malley knew it would be impossible to assemble enough land to build a stadium on unless the city was willing to use its powers of eminent domain to help him. When New York City officials responded less than enthusiastically to O’Malley’s pleas for assistance — they hired consultants to evaluate various proposed sites for a new stadium, and hemmed and hawed about whether they had the legal authority to do what O’Malley wanted — he started talking to people in Los Angeles. O’Malley eventually gave up on getting a new stadium in Brooklyn and decided to move to the west coast, where the Dodgers have been a smashing success both as a baseball team and as a business.

That’s all very interesting, but it did happen 30-odd years ago, and I said earlier that this course was about current events, not history. But if you want to discuss franchise relocation at all, you have to go back quite a few years — the last major-league team to switch cities was the Senators, who left Washington after the 1971 season. And I have a feeling that the next team that tries to move to a new city will face many of the same problems the Dodgers faced. For example, not everyone in Southern California welcomed the Dodgers with open arms. Disgruntled citizens forced a referendum on the sale of the Chavez Ravine land to the team; other unhappy taxpayers went to court to challenge the deal. O’Malley eventually prevailed, but all the legal and political maneuvering — which Sullivan’s book describes in exhaustive, and sometimes exhausting detail — delayed the construction of Dodger Stadium by several years. Keep in mind that O’Malley paid for that stadium himself; the complaining would have been much louder if it had been publicly financed.

Was Walter O’Malley justified in moving the Dodgers from Brooklyn to Los Angeles? If O’Malley had been in any other business than baseball, almost no one — probably not even Howard Cosell — would have questioned his right to pull up stakes and move anywhere he wanted. But many would argue that a baseball owner should not be allowed to move unless his team consistently loses money due to below-average fan support. It seems doubtful that the other owners would vote to approve a move today unless the team was a chronic money-loser for that reason.

There always seem to be more cities that want major-league baseball (or football, or basketball) than there are teams available. I will not attempt to explain why that is — this is a business course, not a course in abnormal psychology or interest group politics. Viewed strictly as a matter of dollars and cents, local governments almost always lose money on professional sports.

The politicians usually argue that a big-league franchise makes a significant contribution to the city’s economy, but such claims are usually overblown. Most of the people who spend money at a baseball game are local residents; they would have spent that money at other local businesses (restaurants, movie theatres, bowling alleys, or whatever) if the city did not have a major-league team. “Beyond the Sixth Game” tells the story of how the new player-management balance of power affected one major-league team. The next book on the reading list, “Ballpark Figures: The Blue Jays and the Business of Baseball,” by Toronto newspaperman Larry Millson, offers a broader view of the business operations of a baseball team.

As its title promises, “Ballpark Figures” gives you all the numbers — Millson covers everything from player salaries to marketing expenses to the Blue Jays’ electric bill. What’s the cost of a seven-day road trip to New York and Boston? About $75,000. How much meal money does a Class A player get? Eleven dollars a day. (Double A players get twelve.) How much does each one-cent drop in the value of the Canadian dollar cost the Jays? About $285,000 per year. (Most of the dollars the team collects are Canadian dollars, but most of its bills — including player salaries — must be paid in U.S. dollars. The Blue Jays bought $15.3 million U.S. in 1987.)

But “Ballpark Figures” is about more than numbers. Millson has covered the Blue Jays for the Toronto Globe and Mail since 1980, and he knows the organization inside and out. His book introduces you to dozens of members of the Blue Jay organization — everyone from the team’s board of directors to its front-office personnel to its players, managers, coaches, and scouts — and explains what they do and why. “Ballpark Figures” takes you to spring training, to the Dominican Republic with Latin American superscout Epy Guerrero to Medicine Hat, Alberta, where the Jays have a rookie league team, and to West Palm Beach for a hearing on pitcher Dennis Lamp’s grievance. (Lamp’s contract provided for a guaranteed 1987 salary of $500,000 if he pitched in a certain number of games in 1986; he claimed that the Blue Jays stopped using him late in the ’85 season to keep him from getting the required number of appearances, but the arbitrator ruled against him.)

The American League granted expansion franchises to Toronto and Seattle in 1976. A decade later, the Blue Jays had established themselves as one of baseball’s most successful teams, both on and off the field. From 1983 to 1985, only the Tigers, Mets, and Yankees won more games than the Blue Jays, and only five more wins would have given Toronto the best four-year record in the major leagues; by contrast, Seattle won fewer games than anyone during those four seasons. Even though they have had to play their games in Exhibition Stadium, a converted football stadium that Millson calls “a sorry imitation of a baseball park” the Blue Jays’ home attendance figures have been remarkable. In 1983-86, only the Dodgers, Angels, and Cardinals sold more tickets; the hapless Mariners attracted only 40% as many fans as the Jays.

What is the secret of Toronto’s success? According to Millson, “the Blue Jays stuck to sound business principle” right from the start. Peter Bavasi, the team’s first general manager, told Millson that the Blue Jays were run like any other business.

From day one, it was expected that we would operate this franchise as a business. We produced annual operating plans, budgets, cash-flow forecasts, business plans, marketing plans, strategy plans, short-term, long-term, medium-term plans. It disciplined us.

But the Blue Jays’ owners — Labatt Breweries owns 45% of the team, Montreal businessman R. Howard Webster holds another 45%, and the remaining 10% belongs to the Canadian Imperial Bank of Commerce — never lost sight of the fact that a baseball team is in the business of winning baseball games. The board of directors never votes on whether the general manager should sign a free agent, or whom the manager should start at second base.

“The team hired experts and gave them room to operate,” according to Millson. “The business people interfered as little as possible with the baseball people.”

Unlike many teams, Toronto is a patient organization with a long-term outlook; the Jays want to win now, but not if it means throwing away any chance to win in the future. The Blue Jays don’t pinch pennies when it comes to scouting and player development — the minor-league teams get more than the usual amount of money and attention. The man in charge of the Jays’ Medicine Hat rookie league team also administers minor-league affiliates of Houston, Kansas City, and Seattle; he told Millson that Toronto was “about ten country miles” ahead of the other organizations.

They do absolutely everything first class in the minor leagues. Toronto took its entire minor-league system — the coaches, the general managers, owners — up to Toronto for the playoffs in 1985. We’re also with Kansas City and they didn’t even send me an order form for tickets. Toronto not only sent me an order form, they sent us a plane ticket and said come on down. And every year, they bring in the general managers and the owners of every one of their minor-league clubs, their expenses paid, to Toronto. Nobody else we deal with is even close.

Toronto pays attention to details: because they sign more Latin American players than most other teams, the Jays’ lower-level minor-league teams usually have a Spanish-speaking manager or coach, which eases the culture shock that an 18-year-old Dominican would otherwise suffer when he found himself in Medicine Hat or Myrtle Beach, South Carolina.

The Blue Jays’ organization is characterized by continuity and loyalty. Like the Dodgers, the Blue Jays prefer to hire managers, coaches, and scouts who have played in the Toronto organization because they know the Blue Jays’ way of doing things. Rapid turnover is a fact of life in many front offices, but many key Blue Jay employees have been with the organization since 1976 — including their executive vice-president for baseball, Pat Gillick, and executive vice-president for business, Paul Beeston. Even the equipment manager and visitors’ clubhouse attendant are original Blue Jays employees.

Toronto’s employees are loyal because they are treated well. The front-office clerical employees get a free trip to the All-Star Game each summer. The team usually promotes from within the organization: the administrator of player personnel once worked on the ground crew and in the ticket department, while the team’s original trainer is now in charge of Toronto’s spring-training facilities and Class A minor-league team in Dunedin, Florida.

Unfortunately, “Ballpark Figures” does not have an index. About the only other thing wrong with this book is that it was never published in the United States, so you won’t find it at the campus bookstore. There are a couple of copies on reserve in the library but you’ll have to contact the publisher (McClelland & Stewart, 25 Hollinger Road, Toronto, Ontario, Canada, M4B 3G2) if you want to buy one of your own.

Your final reading assignment is “A Baseball Winter: The Off-Season Life of the Summer Game,” which is a day-by-day account of what the front-office personnel of five major-league organizations — the Angels, Braves, Indians, Mets, and Phillies — did between the 1984 World Series and Opening Day 1985. Like fledgling stockbrokers and insurance agents making endless “cold calls” in hopes of finding a few people who want to buy mutual funds or universal-life policies, front-office employees of baseball teams spend most of the off-season talking on the telephone. They talk to player agents, who all seem to want multi-year guaranteed contracts for their clients (not to mention no-trade clauses and incentive bonuses); to the scouts who are monitoring the progress of the organization’s prize prospects in the winter leagues; to the doctors who operated on their catcher’s knee or their star reliever’s elbow — but most of all, they talk to one another about possible trades, the availability of better jobs in other organizations, and a multitude of other topics.

“A Baseball Winter” was written by five veteran sportswriters, each of whom had covered one of the five teams for many years. “A Baseball Winter” does not probe as deeply as “Ballpark Figures,” but by looking at five very different organizations, it tells you quite a bit about why some teams are successful businesses and others are failures. The 1984-85 Cleveland Indians provide a particularly stark contrast to the Blue Jays. For one thing, the Indians did not have financially strong, stable ownership. The estate of Steve O’Neill owned about 60% of the Indians; 54 limited partners held the rest. O’Neill had become the ninth man to own the Indians since World War II when he bought the team in 1977; he put it on the block less than four years later, not long before his death. At one point, Donald Trump tried to buy the team and move it to the New Jersey Meadowlands, but the O’Neill estate held out for a purchaser who would promise to keep the Indians in Cleveland. David LeFevre, a Cleveland native and diehard Indians fan, agreed to buy the team for $41 million in June 1984, but three of the club’s minority partners — together, the three owned less than 17% of the Indians — went to court in an attempt to get a bigger piece of the pie. That November, when an attempt to get an expedited ruling in that case failed, LeFevre was forced to call off the deal.

Not only did the Indians need an owner, they needed someone to replace retiring president Gabe Paul. Perhaps the only thing worse than having no one in charge is having too many people in charge: Peter Bavasi, who replaced Paul, hired two former general managers, Danny O’Brien and Joe Klein, and made Paul’s general manager, Phil Seghi, the director of major-league personnel. Not surprisingly, the lines of authority in the Indians’ front office became rather tangled.

What are some of the other lessons you can learn from “A Baseball Winter”? For one thing, you’ll learn why major-league teams hate to go to arbitration: because the players almost never lose. The clubs “won” seven of the 13 cases that went to arbitration in the winter of 1985 — or did they? The seven players who lost got average pay raises of 40%; about 85% of the time, the salary offers that clubs submitted to arbitration were higher than their final pre-arbitration offers to the players. Here are the latest numbers on arbitration, courtesy of the New York Times. This winter, 135 players filed for salary arbitration; only twelve players failed to settle their cases. The seven players who won in arbitration ended up with a collective 120% pay increase; the five who lost will still make 16% more money than they earned last year. The players who settled prior to arbitration will make an average of almost $552,000 in 1989, up 71% from their 1988 average salary of about $388,000. The right to go to arbitration was particularly valuable to young players like Jose Canseco who were eligible for arbitration for the first time: the 50 arbitration rookies ended up with a 137% raise.

I see that our time is up for today. If you read all these books, you will have a solid understanding of baseball as a business enterprise — and you will have no trouble passing my final exam.