Freeman

ARTICLE

Correction, Please

DECEMBER 01, 1994 by MARK SKOUSEN

Mark Skousen is editor of Forecasts & Strategies, a monthly investment newsletter with a great lifetime batting average. His newsletter and his latest book, The investor’s Bible: Mark Skousen’s Principles of Investment, are available by calling Phillips Publishing Inc. at (800) 777-5005.

Baseball Strikes Out: Who’ s to Blame?

“It is quite amazing that America’s pastime is exempt from the rules of supply and demand . . . The time has come for Washington to act. Remove baseball’s antitrust exemption now.”

—Business Week editorial

September 26, 1994

According to Business Week, the reason the World Series was canceled in 1994 is simple: baseball is a government sanctioned-cartel. Remove baseball’s immunity from market forces and the Cleveland Indians might well be playing in their first World Series since 1954. Sounds convincing, but why blame only the owners? The players’ union is exempt from antitrust, too.

Misconceiving the Market

Will imposing the Sherman, Clayton, and other antitrust acts on baseball’s owners and players resolve their conflicts? I doubt it. In fact, Congress should move in the opposite direction. It should exempt all businesses, large and small, from antitrust law. During the Reagan-Bush administrations, antitrust enforcement was minimal. Under the Clinton administration, the antitrust division of the Justice Department is flexing its muscle again. It’s an unfortunate new trend.

Economist D. T. Armentano, who has made a lifetime study of antitrust, demonstrates that government intervention in this area is counterproductive. He concludes, “the entire antitrust system—allegedly created to protect competition and increase consumer welfare—has worked, instead, to lessen business competition and lessen the efficiency and productivity associated with the free-market process.”1

Apologists for antitrust assume that most mergers, tying agreements, price collusion, and other forms of “monopolistic” behavior reduce social welfare. This view is based on a misconception of the marketplace. They fail to understand that the market consists of both competitive and cooperative processes. In sports, for example, teams compete for players, but they also must cooperate in scheduling games. Only the voluntary decisions of all market players can determine the degree of competition versus cooperation that should exist in business.

Market Failure?

In this case, the antitrust issue is actually a red herring. The strike is essentially a private dispute between two headstrong duopolists, neither of whom wants to back down from its position. It is a classic case of temporary market disequilibrium.

Of the two organizations, I believe that the players’ union is making the more serious blunder and has the most to lose.

Consider the facts. Both the league owners and players have done extremely well over the past thirty years, as evidenced by attendance figures, revenues, franchise prices, and players’ salaries, fringe benefits, and endorsements. But the players have clearly advanced the most in the past twenty years, especially after free agency and arbitration were adopted in the major leagues. In the past decade, players’ salaries have almost quadrupled to an average $1.2 million, not including outside endorsements and other forms of compensation. In sum, players’ salaries and fringe benefits have skyrocketed since the 1960s. Criticism of high player salaries is unfounded but, by the same token, today’s players need to be more appreciative of what baseball has done for them recently.

In my judgment, the ballplayers are foolishly fighting the owners’ proposed revenue sharing and salary cap. Such measures may indeed trim the growth in salaries and restrict free agency and arbitration, but it won’t keep salaries from advancing, especially in expectation of higher television revenues. It certainly hasn’t reduced the average compensation to basketball and football players.

Players’ Union Gone Awry

Meanwhile, the players have sullied their reputations far more than the owners. After all, it was they—not the owners—who called the strike, in the middle of a season that promised to be the most exciting finish in baseball history: three players knocking on Roger Maris’s homerun record, two players close to winning the Triple Crown,a hitter breaking .400, and the Cleveland Indians possibly winning the pennant. I doubt if the fans will be very forgiving in the future.

The Yankee great Mickey Mantle says that he does not begrudge today’s players their high salaries, and neither do I. The Mick states: “They deserve what they can get. For so many years, players were like second-class citizens, forced to accept whatever the owner or general manager wanted to pay them.” But now, according to Mantle, “it’s probably gone too far in the other direction . . . . I didn’t like the idea of baseball players having a union, although I guess it’s necessary for some people. But I was opposed to walkouts and strikes and all the things a union needs to get what it wants. I just wanted to play baseball.” 2

The Future of Baseball

Next year at spring training, the wills of management and labor will be tested. The owners will probably invite minor league players to put on the pinstripes and play ball. There aren’t very many young ballplayers who will give up a chance to play in the big leagues. In a free society, labor has the right to strike, but management must have the right to hire strike-breakers. Several years ago, the National Football League ended a players’ strike in a few weeks when they hired outside players.

My prediction: The players’ union will be humbled and the smart players will return to what they know best, playing ball. []

1.   D. T. Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure, 2nd ed. (New York: Holmes and Meier, 1990), p. 271.

2.   Mickey Mantle, My Favorite Summer 1956 (Doubleday, 1991), p. 242.

ASSOCIATED ISSUE

December 1994

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