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The Economic History of Baseball, 1945-present Lectures, Dec. 6-8, 2005.

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Presentation on theme: "The Economic History of Baseball, 1945-present Lectures, Dec. 6-8, 2005."— Presentation transcript:

1 The Economic History of Baseball, 1945-present Lectures, Dec. 6-8, 2005

2 “Landis was a hero to most...” Judge Kenesaw Mountain Landis was MLB’s first Commissioner (1920-44) –in early 1920s, helped restore the game’s popularity by banning players associated with gamblers –but overall might have hurt the game’s economics. Opposed: night baseball (Larry MacPhail) radio broadcasts of games (MacPhail) minor-league farm systems (Branch Rickey) racial integration of baseball (Rickey, Bill Veeck) –By late 1920s, owners wanted to get rid of him.

3 The baseball industry, 1945-1965 (overview) World War II (1941-45): attendance fell further Mexican League (weak rival league, mid-1940s) –OF Danny Gardella’s antitrust suit settled out of court Celler Committee hearings in Congress (1951) –no action on antitrust exemption, but... franchise movements (first in 50 years) –Braves, St. Louis Browns, A’s, Dodgers, Giants Expansion by 4 teams (1961-62) –response to planned rival league (Continental League) The amateur draft (1965)

4 Pre-history of the players’ union Robert Murphy’s American Baseball Guild –failed unionization attempt, 1946, but led to minimum salary ($5,000) modest pension plan Major League Baseball Players Association 1952 “company union” (funded by owners) nothing like modern MLBPA until 1966

5 Marvin Miller & the MLBPA Miller = MLBPA’s Executive Director, 1966-83 –union background, saw players as exploited –owners opposed him, withdrew funding of MLBPA --> no longer a company union Early accomplishments –1966: 3-year deal on pension plan; increased funding –educated players about salaries: average, comparisons –1968: comprehensive Basic Agreement with owners $10,000 minimum salary grievance procedure (Commissioner as judge) joint study group on reserve clause

6 Curt Flood Aging star outfielder with St. Louis in 1969 Late 1969: Cardinals traded him to Philadelphia –Flood tried to stop the trade –Filed grievance, but Commissioner said no Commissioner Bowie Kuhn favored reserve clause Jan. 1970: Flood sued MLB on antitrust grounds –said reserve clause violated antitrust law –Miller said he would lose, but backed the suit anyway –suit lost and appealed, went to Supreme Court –June 1972: Court ruled 5-3 against Flood

7 Strike one; Fallout of the Flood case First industry-wide players strike, April 1972 –issue: dispute over pension benefits –strike lasted 13 days (incl. 9 days of regular season) –owners discovered no money was at stake, gave in How Flood’s case made a difference –It turned fans against the reserve clause (by 8 to 1?) –It turned the players against the owners somewhat. –It led the owners to enact the ten-and-five rule (a.k.a. the “Flood rule”) allowing 10-year veterans who’d been with their current teams for 5 years to veto a trade

8 Salary and grievance arbitration 1970: Second Basic Agreement –$15,000 minimum salary –20% maximum pay cut –grievance arbitration by an outside, impartial arbitrator, not the Commissioner 1973: salary arbitration enacted by owners –purpose: to placate players, forestall free agency –“final-offer” arbitration –tactical blunder: drove up salaries, didn’t stop free agency.

9 The labor market for baseball players was still a monopsony The RESERVE CLAUSE (1879-1975) allowed owners to renew a player’s contract for one year. –After each season, a player’s only choices were to re- sign with his team or retire. –No free agency; no competitive bidding for players. –Held salaries down; average salary = $25,000 in 1969.

10 A free-agent precedent, sort of: Catfish Star pitcher Catfish Hunter had standard contract, but A’s owner Charlie Finley reneged on part of it Arbitrator Peter Seitz declared Hunter a free agent Multiple bids, big $$

11 Ending the reserve clause: the first steps 1974-75: L.A. Dodgers and star pitcher Andy Messersmith are unable to agree on a new contract –> free-agent test case 1974-75: Orioles pitcher Dave McNally traded to Expos, unable to settle on contract –ineffective and retires, but another free-agent test case

12 The first real free agents 1975 season: Dodgers and Expos try to sign Messersmith and McNally –no deal; contracts automatically renewed Messersmith and McNally file grievance asking for free agency Dec. 1975: Arbitrator Peter Seitz makes ruling: –“for one year” means “for one year only” –declares Messersmith and McNally to be free agents.

13 Independence Day Spring 1976: owners locked out players, demanded labor deal with almost no free agency; caved July 1976: new Basic Agreement gave all players free agency after 6 years of service. Why six years? –Six-year threshold was “compromise” between owners and Players Association. Marvin Miller had calculated that a six-year threshold would maximize player salaries –Average salary rose 47% from 1976 to 1977.

14 Labor strife and collusion in the 1980s Prosperous decade –rising revenues, profit; best competitive balance ever Owners sought to restrict free agency, salaries –1980-81: owners proposed free-agency restriction –players went on strike for 50 days in 1981, won –1985: short strike over salary arbitration; compromise Peter Ueberroth: Commissioner, 1984-89 –COLLUSION, 1985-87 agreement not to sign others’ free agents led to lawsuit, huge damage award to players

15 Baseball’s salary explosion, 1976-present “Freedom and prosperity” Shift from monopsony to competitive bidding was less sudden than it seems –Over time, more and more teams played the FA market –Collusion against FA’s held salaries down in mid-1980s Salary arbitration (1973-) allowed 3rd-to-6th-year players to piggyback on FA salary scale MLB revenues surged -- attendance rose, TV revenues soared, stadium revenues soared,...

16 Baseball’s continuing salary explosion, 1989-present Salary growth reflects not only rising revenues, but also increased player bargaining power –Salary share of revenues has grown rapidly 32% in 1989, 45% in 1991, 49% in 1993, 54% in 1996, 67% in 2002 Salary share has fallen of late, to 53% in 2005 Average salary can fall –1995: -5%; revenues/MRPLs down due to strike –2005: -3%; due to new CBA’s high marginal tax rates? –1987, 1996: ~unchanged, but fell in real terms

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