Profit-Sharing and the National Pastime

It seems as if everyone has something to say about the salaries in baseball: newscasters, congressmen, Johnny Carson, Penthouse, even political columnists. Why should anyone, they say, who hits a ball with a stick around a grass field earn more than the president of the United States? College graduates ought to pass up law, medicine, and business, and head for the baseball diamond. With all due respect to the fans, commentators, columnists, and owners who utter cries of indignation at those fat contracts and predict the demise of the game, there are a number of justifications for the players' present bargaining position.

While accounts of the lucrative salaries abound, few of these examine the background of the issue or consider the possible justification for such remunerations. The issue, of course, is the reserve clause, a term that has been bandied about on the sports pages with nearly the same frequency as Watergate has on the news pages. Similar to the name of that famous Washington building, the phrase "reserve clause" has been so overshadowed by subsequent events that no one remembers its actual meaning.

The reserve clause is a term used to define the set of provisions pertaining to player retention. The baseball player reservation the set of provisions pertaining to player retention. The baseball player reservation system, established in 1879, granted to the team with which an athlete first signs, the exclusive perpetual rights to that player's services for his playing lifetime through the mechanism of automatic contract renewal. If the player was traded or sold, these rights were transferred with the contract. From the moment an amateur baseball player signed a contract, he relinquished all rights to control his location of employ and agreed to negotiate only with his assigned club. This was the framework for baseball's reserve system, which remained in effect until December 1975.

In 1922, the Supreme Court freed major league baseball from charges of illegal anti-competitive practices by granting the sport an exemption from the antitrust laws. Since that ruling, the legality of the perpetual reserve system has been the subject of constant court cases.

In 1949, Judge T.S. Frank of the N.Y. District Court issued an electrifying opinion in the case of Danny Gardella v. Commissioner of Baseball Chandler:

the reserve clause results in something resembling peonage of the baseball player...it is shockingly repugnant to moral principles that, at least since the War Between the States, have been basic in America.

This opinion struck the core of all subsequent reserve system disputes. Regardless of whether baseball depends on the reserve clause for its existence, and even if baseball players receive substantial wages, should the courts condone their exploitation and the infringement of their right to offer their services on the open market? Organized baseball, frightened by the prospect of legal defeat, offered the plaintiff $60,000 to settle out of court. Gardella dropped the charges, and the reserve rules remained unaltered.

The issue was brought to public attention again in the Curt Flood case. Flood, a star outfielder for the St. Louis Cardinals, challenged the right of that team to trade him against his wishes. The Supreme Court voted 5-3 in favour of the owners, on the grounds that if the reserve clause was an anti-competitive measure, it was up to Congress to legislate the inclusion of professional baseball under the Sherman Antitrust Act.

Finally, in 1975, the perpetual reserve clause was abolished by baseball arbitrator Peter Seitz. He ruled that Andy Messersmith and Dave McNally were no longer bound to their respective teams upon termination of their contract plus one additional renewal year. After that year, the players became free agents, able to offer their skills to the highest bidder. Seitz declared that the Uniform Players Contract did not grant a club a perennial option to an athlete's services. It is no wonder that this sweeping judgement, which obliterated the binding labor rules that had persisted for nearly one hundred years, thrust the major leagues into an unprecedented uproar.

Since the 1920s, owners have arduously maintained that the reserve clause was necessary to insure an equal distribution of skill among teams. Otherwise, they argued, the big-city clubs, who can profit more from fielding a winner, would hoard all the talent. The player retention system protected player assets of all franchises in the league.

However, one look at a list of pennant winners through this century reveals anything but an equal division of league titles. Between 1900 and 1960 the New York Yankees totally dominated the American League, carrying home for 25 pennants. Obviously, the reserve clause was not fulfilling its expected function.

Restrictive labor rules could not balance relative team strengths because players still ended up working for the club for whom they were most valuable, with or without the reserve clause. Although an athlete could not offer his services to the highest bidder, one team would bargain with another to purchase a player's contract. Today negotiations take place directly with the ballplayer in question, allowing him to accrue the fruits of his labor rather than the employer.

The return to investment in player skills varies widely among teams, depending on a number of factors, including market size and intensity of fan loyalty. Clubs blessed with large potential audiences, like Los Angeles and New York, or diehard fans, like Boston, generally find it more advantageous to secure a stronger squad than their competitors, reserve clause or not.

Essentially, the effect of a prohibitive labor market was not to evenly distribute skill, but to lower salaries. If a player wanted to remain in the profession, he had no alternative but to work at the salary offered him from the franchise possessing his contract. If he was not satisfied, well, he could sell used cars.

In the wake of the Seitz ruling, the roles have been reversed. Upon termination of his contract, a player can renegotiate for a new pact or decide to become a free agent, potentially available to every franchise. This past year, 26 major league players became free agents, including such celebrities as Reggie Jackson, Sal Bando, and Bobby Grich. During the frenzied bidding war most major newspapers ran front page stories on the latest developments, following the bargaining sessions as closely as the Paris Peace Talks. Daily, the media announced the most lucrative contract offer ever made in the sport, only to be surpassed the very next day.

When the dollars had finally stopped flying, the majority of free agents had procured fat contracts, generally stipulating $200,000 to $400,000 per year in actual salary. However, despite the owners' warning that the successful on-field franchises would confiscate all the talent, furthering the discrepancy between team performances, all but one of the free agents, flamboyant Reggie Jackson, signed with clubs that had worse winning percentages than their past employer. If in this any way augurs future trends, one can put aside this fear

The outcome of the auction indicates that poor quality teams regard the addition of a star to their roster as a necessary and valuable ingredient in the formula to win more ballgames. And, for baseball, unlike exciting games like football or hockey, winning draws the crowds. Therefore, if a 20-game winner or a .300 hitter is worth $400,000 to a team, in terms of the spectator patronage generated by the improved club record (and there is every indication that this is true), a $200,000 a year salary, although admittedly a colossal amount, is hardly outrageous or ludicrous. But, how can one honestly say that a ballplayer is really worth that much money. Such salaries cause the baseball fan to either shake his head in disgust or rummage through his closet for the old Little League equipment and get in condition for next year's amateur draft.

I am not the self-appointed advocate of the capitalist system. In fact, I question whether anyone, never mind an outfielder for the Boston Red Sox, deserves such loot. However, major league baseball has become a multi-million dollar entertainment business, and the press and fans must accept that fact.

Nostalgia is a fine thing, but Fenway Park, once the quaint sanctum of the national pastime, now has a snazzy electronic instant replay board to keep the spectators from missing anything and moving baseball caps to keep pitchers from walking. Fans can lament the passing of real grass and the batting pitcher, but the Grand Old Game has gone the route of Playboy; the magazine is still around, but the presentation is not quite the same. This is show-biz, folks, less rehearsed and manipulated than TV or the movies, but big-time mass entertainment.

If Robert Redford can command $1 million for one film, Fred Lynn is certainly worth $200,000 for 162 games. Now that the players have won a measure of bargaining power and can exert pressure upon the owners, they are demanding and finally receiving a share of the profits.

But the press has grossly exaggerated the actual salaries baseball stars receive. Sources involved in the industry say that figures reported in the media should be discounted by one-third. Owners release inflated contract amounts to reassure the public that players are well paid. This tactic seems devised to lure the fans to management's camp, as if there were a baseball salary war and both players and owners needed the largest contingent of allies to win.

Most high quality players such as Fred Lynn, Joe Morgan, and Tom Seaver have signed multiyear contracts providing between $175,000 to $275,000 in actual annual salary. Given the tremendous revenues available to baseball franchises, these salaries are not unreasonable. Of course, other players of far less proficiency receive in excess of $100,000 per year. These men are cashing in on the owners' paranoia that all their players will desert for greener wallets. The wave they are riding will soon break when management realizes that .250 hitters are a dime a dozen, certainly not worth $150,000 per year.

Owners have publicly declared that they were losing money with the former reserve clause and will now be ruined without it. But would any sane businessman have purchased either of the two expansion franchises last year for $10 million each if they were certain financial losers? A baseball team can be used as a tax shelter for rich men like McDonald's owner Ray Kroc or Seagram's magnate Charles Bronfman, but shrewd businessmen do not generally invest in predictably unprofitable enterprises.

Substantial money can be made in baseball. The average team grosses $7,700,000 in total revenue. However, now that players have bargaining power, salary increases will cut deeply into the earnings level. While low wages virtually guaranteed a net profit to every team, even perennial losers, now the pressure is on to win. Since one cannot buy a pennant per se, but only those players whose combined skills appear to provide the magic blend, baseball owners today are involved in a more risky and expensive affair than ever before. To purchase the services of a top quality ballplayer today is much like buying a thoroughbred: if the horse lives up to its potential, the payoff can be great, but if he fails to perform, the investment backfires.

Only the rich can play this game: men like George Steinbrenner, Gene Autry, or Ray Kroc. If they offer Reggie Jackson $400,000 a year for five seasons, they take a costly risk which they gamble will prove fruitful. The competitive price of labor will, most certainly, prove prohibitive for someone like Minnesota Twins owner Calvin Griffith, who has no outside business to provide cash for premium players' salaries. The few teams without significant capital backing may, unfortunately, find it difficult to remain competitive.

The abolition of restrictive reserve rules has sealed the circle of baseball franchise owners to the nation's wealthiest individuals and corporations. However, if the league actually cares about retaining the less wealthy owners they can initiate measures to redistribute income, such as increasing the gate share allotted to visiting teams. If teams profit from each other's success, they will be less likely to overstock their roster with talent to the detriment of other league franchises.

Thanks to the suppressed wage rate, clubs in the past were able to lavish considerable funds on extravagant expenditures. Prior to this season, salaries constituted only 27 per cent of total team costs compared to over 50 per cent in all other professional sports. Each team allocated a hefty 23 per cent, or roughly $2 million per year to player development, including minor league support, scouting, and spring training. Since each farm system only produces two or three players of major league caliber annually, the consolidation of four or five satellite teams into fewer clubs of elevated quality would successfully reduce total expenses. This move, in fact, may be a blessing in disguise to the hundreds of players who spend years in the minors, bouncing around from Little Rock to Chattanooga to Tallahassee, waiting for the big break, the nod from up top. Most finally realize that their day in the big leagues will never come, and they go home, embittered and weary.

The athlete's day has finally arrived. After 100 years of a severely restrictive reserve clause which allowed them virtually no control over for whom or for how much they worked, the players have at last won back their freedom.

Relatively speaking, athletes receiving the big money are worth every cent of their contract. The profits that once went to the owners are now rerouted to the players, the source of that income. The fans, the public, and the media must accept baseball as the full-fledged entertainment business it has become, a business controlled by the rulers of hamburger, whiskey, chewing gum, lumber, and brewery empires. Fans should not condemn the players for demanding and receiving a larger measure of the revenue they themselves generate. As Judge Frank said in 1949, "Only the totalitarian-minded will believe that high pay excuses virtual slavery."