Major League Baseball gets some new competition from smaller, innovative rivals.
Major League Baseball is classically old economy. Unfortunately for its chances of continued success, its emerging competitors -- smaller, customer-focused rivals -- are not
The professional sports industry," the late senator Sam Ervin once said, putting things into perspective, "is about the size of the pork-and-beans industry."
If that's the case, then Major League Baseball (MLB) by itself doesn't amount to a hill of beans. The reason that's surprising is that baseball all along has acted like big business, even if it's not. A hundred years ago it was a model of its kind: tightly held, secretive, disdainful of its workforce, demanding of special treatment from the law, fiercely protective of its monopoly status, and anticompetitive.
Today little has changed, only now baseball's not a model anymore, it's a caricature. And maybe, too, we should add one more trait to the list, one the game acquired gradually over the last decade or so but few noticed until recently: it's vulnerable. The strike is only half the story. The other half is the timely emergence of some ballsy competitors: new leagues more in tune with their employees and their customers. MLB, meet the new economy.* * *
While the baseball business bears a certain resemblance to, oh, the circus business -- create a spectacle, put a fence around it, charge admission -- it has always seemed like much more than that. That's because long ago baseball got all mixed up with beauty and memory and longing, with the cadence of the seasons, the smell of grass in spring, youth and everything about it, the American dream, glory, loss and death. Baseball is practically a religion -- a religion with but one holy temple, MLB. How do you compete with that?
For a long time no one dared. MLB -- the corporate entity that encompasses both the National League and the American League -- has had no real competition since 1915, when the rival Federal League collapsed. It was a suit brought by the Baltimore Federal League franchise against the National League that resulted in the 1922 ruling that established baseball's antitrust exemption. In the 80 years following the demise of the Federal League, the only other competitor foolish enough to try to enter MLB's market was the Continental League. MLB quashed that threat by agreeing to expand in 1961, offering franchises to what had been the Continental League's strongest cities.
Any business lucky enough to go on operating for as long as baseball has without competitors is bound to get fat and lazy. Hence the rigid, traditional structure, with players and owners competing for the spoils and the rest of us footing the bill -- as fans, paying ever-higher ticket prices; and as taxpayers, subsidizing the industry with expensive arenas built at the public's expense. That baseball has at last reached the crisis stage is becoming increasingly clear. The evidence is there in the succession of labor wars (there have been seven strikes since 1972, each one more damaging than the last) and in the increasingly strident calls for legislative intervention, and also in the host of innovations arising from a new crop of baseball visionaries -- entrepreneurs unencumbered by the old way of doing things.
Carl Westcott, for example. He's the Texas millionaire I wrote about last fall ("Diamonds in the Rough," November, [Article link]). Westcott and his partners wanted to buy a minor-league team and move it to Texas. But when they found out how much that would cost -- upwards of $3 million for a class-AA franchise, a price that has much to do with an artificial scarcity of supply enforced by MLB -- they figured they might as well start their own independent league instead.
While they were at it, they tried out a radically new way of doing business, tossing out the old concept of competing franchises and instead consolidating operations under a single owner, Westcott, who ran all eight Texas-Louisiana League teams as wholly owned subsidiaries. With its customer-friendly focus on providing quality family entertainment at a fair price, the league exceeded projections for its first season, with revenues of $4.5 million. It added two more teams over the winter (including one in Pueblo, Colo.) and will open its second season on Memorial Day. Westcott is not shy about his ambition. "There's nothing written in the Bible that says there has to be just 28 teams in the major leagues," he says.
Sounding even more ambitious are the founders of the United Baseball League (UBL), who hope to begin play in eight North American cities in 1996 and expand to Asia by 1998. Unlike the Texas-Louisiana League, which competes now at the class-AA minor-league level, the UBL hopes to go head-to-head with MLB from day one. "We're not here to prod the establishment, and we're not here to replace it," said former player agent Dick Moss, one of the league's cofounders, at a New York City press conference last fall. "We're here to coexist with it. We will compete, just as Ford competes with General Motors."
The UBL organizers think they have a better idea. They're proposing a "true partnership" among owners, players, and cities. Salaries would likely be modest by MLB standards: perhaps an average of $14 million per team, according to one set of projections. There would be no salary cap (the MLB owners' imposition of which precipitated the latest strike). Moreover, salaries would be only part of the total compensation package; the other part would be a 35% cut of the franchise's pretax profits, paid as a percentage of salary to every team member.
Players aren't the only ones who would have a stake in the success or failure of a UBL franchise. Cities would, too. Competition among cities for franchises is so great that most teams can dictate the terms. Just look at the deal the Rockies, an expansion team, got in Denver: $160 million toward a brand-new stadium; virtually all the revenues from ticket sales, concessions, and luxury boxes; and 80% of parking revenues. The UBL would be asking cities to front the money for new arenas, too. But in exchange it would be offering cities terms they could live with -- 15% of pretax profits, 50% of luxury-box revenues, and 33% of parking is one model -- plus the right of first refusal to buy the franchise before it could move to another city.
New leagues are dicey ventures. Most fail. In January MLB, not knowing at the time whether there would even be a 1995 season, nevertheless announced plans to expand by two teams as early as 1997, and possibly to add two more by 1998. Why not? It worked the first time, against the Continental League. Maybe it will work again.
Maybe not, though. That's an old tactic, and this is the new economy. If MLB would only stop playing hardball and pay attention to its customers, it might find we're ready, finally, for a whole new ball game.* * *
David Whitford is an associate editor at Inc .