What Next for Baseball?

New Collective Bargaining Agreement (Dec ) Announced in late Oct –Reached with minimal rancor between players, owners –Current prosperity of MLB made it easier Selig: 25 of 30 teams are profitable Some owners still want payroll cap, but not at expense of strike Contraction a dead issue “Five years of labor peace” Broadly similar to current ( ) CBA –Selig, most owners had been very happy with 2002 CBA –Players a bit less happy MRPLs (and salaries) rose more slowly due to revenue-sharing taxes Salaries rose, but salary share of revenues fell Strike probably not worth the lost income, however

How the New CBA Is Like the 2002 CBA Revenue sharing –Extensive compared with pre-2002 CBAs –Same amount as 2002 CBA initially ($326 M in 2006) Will rise as revenues and revenue disparities rise Luxury tax on high payrolls –Still too high to affect more than a few teams –But likely to become more binding Tax threshold rises slowly (<5% per year), probably slower than revenues Steroids/drug program (actually began in 2005)

How the New CBA is Different Revenue-sharing tax system is changed –(Zimbalist helped draft the new CBA) –Marginal tax rate on local revenues = 31% for all teams Lower than before (  will boost player MRPLs) Previously was 39% for richer teams, 48% for poorer teams –  poorer teams had less incentive than rich teams to improve their team and revenues »Payroll disparities were higher in than before, despite increased revenue sharing. »Then again, marginal tax rates were even higher for poor teams (40%) relative to rich teams (20%) just before “Fixed concept of revenues”: revenue-sharing transfers no longer linked so closely to current-year revenues

How the New CBA Is Different (cont’d) Some relatively minor changes: –Amateur draft –Free-agency and draft-choice compensation –Minimum salaries

Other Issues That Lie Ahead Competitive balance –Is it good enough? Standard deviation of winning percentages? –Good (fairly low) in , but high in Relation between payroll and winning? –Regular season: still positive, smaller than many think, smaller than in late 1990s –Postseason: somewhat less so, thanks to extra division and wild card Standard deviation of payrolls? –Worse (higher) in (41-47%) than in 2002 (36%) Dynasties / repeat champions? (What people notice most?) –Seven World Series winners in past seven years –Strong element of luck here. Consider: recent Yankee dynasty ( ) »Stdev. of winning % was as good then as it is now! »It occurred during the wild-card and extra-division era (1994-) –Will it get better? Changes to marginal tax rates should help, but how much? New rule allowing union grievances against poor teams that pocket their shared revenue might help.

Other issues TV/radio/Internet viewership and contracts –Seven-year deal with FOX and Turner, $3 B total  $14 M per team per year –Eight-year deal with ESPN, $337 M per year  $11 M per team per year –XM satellite radio deal: $2 M per team per year –And yet World Series and All-Star Game ratings keep dropping… –MLB Advanced Media (Internet) – “cash cow”

Other issues New ballparks? New cities? –Yankees’ revenue advantage could become staggering with planned new stadium. Will revenue sharing keep pace? –Stadium construction craze may have run its course. Most teams have new stadiums by now. What about the ones that don’t? –Taxpayers are increasingly resistant to paying for new stadiums. –MLB teams have long threatened to move if public won’t pay for new stadiums. »Finally happened with Expos. »  More teams might be moving to cities that will pay for new stadiums.