Moneyball: Baseball has had some success in restoring competitive balance
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In a seven-day span 20 years ago, the Pirates watched two of the team's stars sign contracts that would take them far away from Pittsburgh.
When Doug Drabek signed a four-year, $19.5 million contract with the Houston Astros Dec. 1, 1992, and Barry Bonds signed a six-year, $43 million deal with the San Francisco Giants Dec. 8, 1992, it signaled more than the end of an era in Pittsburgh. It helped usher in a new economic age that has transformed the industry.
In that 20-year span, average player salaries have increased by 217 percent -- far greater than the rate of inflation -- from $1,080,000 to $3.44 million. And the difference between the haves and the have-nots in the game has increased, too.
In 2012, the five largest market teams spent an estimated average of $136.3 million on payroll, according to Baseball-Reference.com. That is 83.7 percent more than the five smallest market teams, including the Pirates, who spent an estimated average of $74.2 million.
In 1992, the spending disparity between the five biggest and five smallest teams, by market size, was 17.8 percent.
But while payroll disparities escalate, Pirates general manager Neal Huntington dismissed the notion that his task is more difficult than that faced by small-market GMs two decades ago.
"I think it's just as challenging today as it was 20 years ago for a small-market team," Huntington said.
The economic gap has grown the past 20 years because of increased television dollars and new stadium revenue. Teams rake in millions of dollars annually in local TV deals alone, and that's not counting the $800 million the league will divvy up every year from national contracts with Fox and Turner Sports.
New stadiums -- plush with luxury suites, high-definition scoreboards and new opportunities for naming rights -- offer much more revenue than the cookie-cutter stadiums that dominated the landscape in '92.
But revenue growth has not been equal. TV contracts are worth more in New York than Pittsburgh. So, too, are naming-rights deals, advertising agreements, ticket prices and a host of other economic factors that impact a team's bottom line.
Rob Manfred, MLB's executive vice president of labor relations and human resources, said the difference in revenue between big- and small-market teams is greater in Major League Baseball than any other American sport.
The spending and revenue gaps reached a critical point in the late '90s, so much so that Major League Baseball commissioner Bud Selig convened a "Blue Ribbon Panel" to look into the issue and make recommendations to the league.
The panel concluded in a 2000 report that "large and growing revenue disparities exist and are causing problems of chronic competitive imbalance;" the problem was getting worse, and the league's revenue-sharing system at the time did not do enough to promote competitive balance.
"There was an explosion of inequality beginning in the early 1990s, and that led to greater difficulty for the small markets," said Smith College economics professor Andrew Zimbalist, who was not part of the panel.
The league adopted many of the panel's recommendations, and as a result, small-market teams have been more successful on the field ever since.
In the past five years, 15 of the 42 teams to reach the postseason finished the season in the bottom half of the league in payroll spending. In the five seasons between '95 and '99, only one playoff team out of 40 finished in the bottom half of the league in payroll.
The correlation between payroll and victories is diminishing, Manfred said, and the league has taken steps to promote equity.
"There has been probably the most significant economic overhaul of the economic landscape in the history of the game since 1992," Manfred said. "If you go back to 1992, we had virtually no revenue sharing, we had no payroll regulation, we had no global economic regulation directed at financial stability, and we had no regulation or cost-containment mechanism in the amateur talent acquisition market."
Now, a $400 million revenue sharing program, a luxury tax, debt-control rules and an amateur slotting system have been implemented to try and bring competitive balance to the only American professional league that lacks a salary cap.
The Pirates benefitted from the prior amateur draft system that recommended, but did not require, teams to spend a specific amount for a specific draft pick.
But Zimbalist, Manfred and Dennis Coates, a professor of economics at the University of Maryland-Baltimore County, said putting more regulations on the amateur draft will help small-market teams in the long run because, eventually, the richest teams would have outspent them all.
In addition to league reforms, small-market teams have gotten smarter.
"It still remains a tougher challenge for the small-market teams, but it's not an insuperable challenge," Zimbalist said. "And lots of teams have demonstrated that."
Small-market teams have adapted their tactics in recent years by signing young stars to multi-year deals before their prime to delay free agency.
Meanwhile, some of the league's richer teams have erred by doling out booming contracts to aging stars. The Yankees last week signed two players older than 40 to contracts worth more than $10 million a year.
"I think what the money really does, is you can screw up big-time and you have the money to fix it," Coates said. "If the Pirates screw up big-time on a contract, they're stuck. They can't go to the well and say, 'Well, we'll just replace that guy and eat that $10 million a year, or whatever,' versus the Yankees, the Red Sox to some extent and probably the Dodgers now, they can do it."
But the Yankees have been wildly successful in this era of economic growth, a sign that the system still needs re-tooling, Coates said.
"The fact that they show up in the playoffs basically every time, with one exception in the last 18 years, that's a problem," he said.
Manfred said the league is constantly refining the revenue-sharing system to find the right competitive balance. And in recent years, the correlation between payroll and victories continues to diminish.
"It's clear that the big-market, high-payroll teams have an advantage, but it's not a decisive advantage," Zimbalist said.
It can be overcome by a savvy front office, Zimbalist said, or an enhanced integration of Sabermetrics.
"It could be made up by good scouts, made up by good luck. There's lots of stuff that goes into success that's not related to payroll," he said. "I do think the small market teams, though they are disadvantaged, have a fighting chance now. And that chance is likely to increase going forward."
First Published December 3, 2012 12:04 am