Running head: New York Yankees Profitable for Baseball

The New York Yankees Spending
&
Pursuit for Perfection is not Detrimental to Baseball
Tom Moccia
Kaplan University

CM220-03AU

Professor Holly Sprinkle

November 8, 2009 Tom Moccia, CM220-03

STEP 1: Present Your Thesis Statement The New York Yankees spend the most money on payroll, sign the best free agent players to lucrative, long term contracts and have the largest budget to work with year after year in Major League Baseball. The Yankees have also won the most World Series Championships, 27 with the next closest team being the Saint Louis Cardinals with 10. The Yankees high spending threshold is not detrimental to Major League Baseball, but in fact profitable both economically and in terms of fan interest. Yankee fans have an emotional interest to see their team win, while non-Yankee fans have an emotional interest to see them falter. The New York Yankees spend the highest dollar amount in terms of salaries and they also pay the most “luxury tax” which is redistributed by “Revenue Sharing” as per the terms of the Collective Bargaining Agreement. The redistribution of revenue from large market teams such as the Yankees benefits small market teams, keeping them viable if not profitable. The spending of the New York Yankees helps keep Major League Baseball as a whole profitable. This is not to say that other teams do not spend a lot of revenue on salaries but it is the Yankees that get the most criticism mainly because of the number of Championships they have accumulated. Many aspects that will be covered will also apply to the top five spending teams but this discussion will focus on the New York Yankees. Some background into the economics of Major League Baseball will be covered so that the points that are being made in this discussion will be pertinent to the layman. If the history of Free Agency and the collective Bargaining Agreement between Baseball team owners and the Major League Baseball player’s Association (MLBPA) is not understood, most if not all of this discussion will be meaningless. Currently Major League Baseball players make a lot of money compared to the rest of the working class in the United States. The average salary for a Major League Baseball player in 2009 was $3,150,751 with Alex Rodriguez being the highest paid player at $33 million dollars per year, while minimum salary was $400,000 (MLB CBA). This was not always the case and before the inception of player free agency salaries were exponentially lower. In 1968 the first Collective Bargaining Agreement between the MLBPA and Baseball owners was signed, which raise the minimum salary from $6,000 where it had been dormant since 1948 to $10,000. The figures from 1968 are not comparable to those of 2009 and without going into economic detail comparing the two eras relative dollar amount, it is safe to say that MLB salaries have escalated exponentially. Salaries of baseball players were held down for many reason but the most notable was the lack of a Players Union and the enforcement of the “Reserve Claus”. The Reserve Claus stated, that “upon the contract’s expiration the rights to the player were to be retained by the team to which the player had been signed”, although the term of the next contract would be as little as one year it was in essence a perpetual contract. What this means is that although the teams obligation to employ the player and the players obligation to play for the team had expired the player was not free to sign a contract with another team. The player has three options 1) negotiate another contract to play for the same team for at least a year or 2) request to be traded or released and 3) retire. On December 24th, 1969 Saint Louis Cardinals centerfielder Curt Flood challenged the reserve clause when he wrote and delivered his famous letter to commissioner Bowie Kuhn. The cardinals had traded him to the Philadelphia Phillies along with other players, Flood did not wish to play for the Phillies and asked to become a free agent, effectively signing with the team of his choice. Flood insisted he had “a right to consider offers from other clubs before making any decision.” Commissioner Kuhn denied his request and Curt flood sued him as well as Major League Baseball claiming the clause robbed him of his 13th Amendment rights which barred Slavery and involuntary servitude. The case went all the way to the US Supreme Court and in 1972 ruled against Flood by a vote of 5-3. In the meantime, the first Major League Baseball Collective Bargaining Agreement was signed between the Players Union and team owners, which amongst other details, gave both parties the right to take their difference to an arbitrator for resolution. In 1975 players Andy Messersmith and Dave McNally again challenged the reserve clause, this time arbitrator Peter Seitz ruled “the reserve clause granted a team only one additional year of service from a player. This effectively put and end to the perpetual renewal rights that teams had over players for most of Major League Baseballs existence and free agency ensued.

STEP 2: Describe 3 Specific Claims or Main Points The first claim I will make is in relation to “Salary caps” being detrimental to Major League Baseball. Proponents of salary caps claim caps will foster competitive balance by redistributing talent to many teams. This prevents large market teams like the Yankees from spending above the means of other teams in essence monopolizing the best players. Major League Baseball is no different than any other business in the United States with the exception of not being held to Anti Trust Laws. Why should Baseball players’ salaries be capped when no other profession has a cap on employees’ salaries? No one caps actors’ salaries, CEO salaries, or any other salaries. The market dictates salaries in a free economy as it has in Major League Baseball for over 100 years and should continue to be market driven. I will also show that salary caps in major sports leads to mediocrity and excessive player movement. The second point I will cover is the claim that the New York Yankees “buy” their championships by signing high priced free agents instead of developing players through their Minor League System. When looking at the facts this again is not accurate; the Yankees have as many players on their roster that came through their system as they have free agent signings. I will also show why small market teams trade young talent even before they are eligible to sign lucrative contracts. The third point I will cover is in relation to competitive balance and how teams invest their capital. Each team starts with the same record at the beginning of the year, zero wins and zero loses. Many things determine a teams record at the end of the season; however, the most important is how they spend their dollars on talent. Some say, due to the presumed excessive gap between the large market teams (Yankees) and small market teams salaries that most teams don’t have a chance to win even before the season starts. I will show how this is not the fact and that the reality is that what teams spend on payroll is largely a business decision and not a lack of resources.
STEP 3: Challenges The biggest challenge that is typically cited to refute the claim that large market teams, in particular the New York Yankees, make Major League baseball profitable is that teams with low payrolls are at a competitive disadvantage and have no hopes of competing with large market teams from the beginning of the season. Although on the surface this seems true, history says otherwise and I will present the statistics over the last 30 years in relation to team salaries and the eventual winner of the World Series. The numbers will prove that small market teams are no less likely to win the World Series than larger market teams that spend more on player salaries.

STEP 4: Full APA reference for your first source
Levin, R.C., Mitchell, G.J., Volcker, P.A., Will G.F (2000). The Report of the Independent Members of the Commissioner’s Blue Ribbon Panel on Baseball Economics

This is an extremely strong source and is considered the “bible” of Major League Baseball Economics. This will provide a large amount of data that will both support my claim as well as present some challenges. This report discusses everything that has to do with economics in baseball but I will be focusing on “Revenue Sharing”, “Payrolls” and “Competitive Balance” in Major League baseball

STEP 5: Full APA reference for your second source
Schmidt, M.B., Berri, D.J., (2002). Competitive Balance and Market Size in Major League Baseball: A Response to Baseball’s Blue Ribbon Panel Review of Industrial Organization 21: 41-54, 2002 Kluwer Academic Publishers

This source will be extremely useful after I pose some of the challenges from the other side of the argument, that being that “Large Market Teams” (Yankees) cause there to be a competitive imbalance in Major league Baseball and that small market teams have little chance of competing for a title due to economic inequalities. Factual statistics are presented in such a way that there is little room for argument or denial of my side of the argument. I found this source in the Kaplan Library and without the tutorial on how to conduct a search for relevant information I would have never come across this reference.