Is Baseball the New Football?

Thirteen years ago Major League Baseball’s thirty teams collectively fronted a $75 million investment and launched a vehicle incorporating all individual team’s web sites and other Internet activities under the league’s umbrella. All content delivery, including developing live steaming capabilities, became part of Major League Baseball Advanced Media (MLBAM) assets, and their format has been essentially copied by all the rest. At the turn of the millennium the Internet could be described as roughly at the same early stage of development as television technology when the Colts-Giants 1958 NFL championship game triggered the transformation of football into America’s TV game. Since, and primarily simply due to the nature of the game, baseball has been regarded by many as a dinosaur because of its (relative to football) lack of adaptability to television broadcasts. Yet now the Internet, and the associated technology and devices, is rapidly changing viewing options, as did television offer an alternative to live event attendance. Perhaps, in much the same way that the NFL thrived because of its adaptability to television broadcasts, a baseball renaissance is mounting because of the sport’s suitability to the Internet.

The Internet through its access flexibility, available through an increasing array of mobile devices, provides an environment that allows consumers to partake in other activities, sport related and otherwise, while at once viewing/consuming a game. In this case, the nature of baseball may make it the sport most apt for multi-dimensional consumption. Besides standard broadcast delivery for viewing and listening though live streaming—available to all but local market subscribers (more on this to come) on MLB.com since 2003—customers can access news, schedules, standings, and statistics from around the league and detailed information on each of MLB’s teams. Additionally, comes the opportunity to create and play in fantasy leagues. As consumption options have expanded beyond the simple and passive viewing of a game, baseball's deliberate pace, a liability for old fashioned broadcast TV, seems tailor-made for complimentary consumption options, and particularly for baseball because it is arguably the team sport whose fans are most consumed by supplemental statistics and information. 

MLBAM’s impact on MLB’s revenues was quick and clear. In 1999 MLB revenue totaled a little more than $3.6 billion, similar though about one-half billion more than the NBA at the time. By 2006 MLB revenues had nearly doubled to more than $6 billion, nearly keeping pace with the TV-rich NFL who returned $6.5 billion that year; meanwhile NBA revenues had grown only a bit, to just exceed $3.5 billion. Baseball business analyst Maury Brown wrote in late 2005 that MBLAM had become a money machine, and profitable in less than three years. USA Today reported revenues reached $380 million annually by 2006. Pete Toms revealed that by 2010 MBLAM annual revenues were excess of $500 million and the estimated value of the subsidiary enterprise was $2 - $3 billion. The MBLAM subscription price in 2013 topped out at $130 for all-year, full service access. The NBA and NHL followed MLB’s lead and each offer similar full service websites that include live broadcasts to subscribers for out–of –market games. These products are likewise popular and similar to MBLAM, and are able to charge annual subscription prices of  $150 per year, though both attract fewer subscribers than MLBAM.

The dinosaur this time around may be the NFL, ever cautious and always effective at limiting consumer viewing access for profit. Like its peers, the league maintains control over team websites and content. However they've left live steaming options to their contracted broadcast networks. For example ESPN is able to live steam Monday Night Football, but will do so only for its cable subscribers. Because of the volume of cash turned over by the networks for rights, there is for the NFL a more delicate relationship than the other league’s have with their TV partners; the networks collectively pay the NFL substantive rights fees—over $20 billion in 2011—12, and that amount will nearly double to $40 billion per year beginning in 2014—far and away the highest in sports.  At present, the surge in traditional broadcast revenue has kept the NFL on at the top of the heap in terms of revenue generation- as they are now nearing $10 billion in annual revenues as number two MLB approaches $8 billion. But the NFL trails the pack in internet delivery. NBC offered the first ever live steaming of the Super Bowl in 2012, but the decision on steaming in the future will be determined by the network holding the broadcast rights. General access to live steaming is controlled by the NFL’s satellite television partner DIRECTV, and before 2011 access had been limited to those only homes where that service was not available and then only to those with specific mobile devices. Live streaming of NFL games became available universally to all devices for the first time in 2012, and at a hefty subscription price of $300 for the full service package.

Traditional broadcast markets are still thriving and keep the NFL at the top in terms of revenue and value. However assuming that Internet technology develops in the next twenty years at least as dramatically as did television technology from the 1960s onward, MLB is the league best prepared to capitalize. 

  

Broadcast Revenue and Competitive Balance in the NFL

The NFL receives much credit for achieving the highest degree of competitive balance among American team-sport leagues. This is after all the league that shares all television broadcast revenue equally among its teams and strictly enforces a hard salary (actually payroll) cap. Any number of methods used to assess competitive balance confirm the competitive balance superiority of the NFL relative to the other major American team-sport leagues. Yet after further review, the two primary reasons just given for the league’s success at maintaining a relatively even distribution of talent across clubs do not hold water. This post will discuss the sharing of broadcast revenue, with the salary cap’s effect to be evaluated in a future post.

Much credit for the level of competitive balance, and the assumed corresponding financial success, in the NFL is given to the decision to sell collectively and share equally all television broadcast revenue. The financial advantage is certainly the case as the league controlled sales generate considerable market power and price is manipulated by regulating output; monopoly profits result. Commissioner Bert Bell realized the economic advantages of monopoly limits on the availability of televised games through league controlled rights the 1950s. However, he was thwarted by federal antitrust law. League sale of broadcast rights was ruled a violation of the Sherman Antitrust Act prior to the enactment of the Sports Broadcasting Act of 1961. Nonetheless the upstart challenger American Football League, formed in 1960, boldly sold their broadcast rights collectively, and without a successful legal challenge. Facing a competitive disadvantage the NFL, through recently appointed Commissioner Pete Rozelle, aggressively lobbied Congress to enact the SBA as a statutory exemption to federal antitrust laws. Under the Act antitrust laws do not apply to any agreement allotting broadcasting rights made by a professional league comprising only the sports of football, baseball, basketball, and hockey. Though not required by the law the NFL and the other three major American sports leagues have chosen to split league collected revenues equally among clubs. Only the NFL has assumed full ownership of television broadcast rights at the league level.

With NFL broadcast revenues equalized across teams beginning in 1962, the first year of league sales and equal revenue sharing, conventional wisdom suggests that the distribution of talent would also have leveled as the advantages of media market size were significantly curbed. However, the examination of two key dimensions of competitive balance does not support this position. The frequent claim is made is that the league’s broadcast revenue distribution allows the smallest markets to compete on an even playing field with the largest.  However from inception in 1922 to 1961, the Green Bay (WI) Packers, representing the NFL’s smallest media market through all except the very early part of this history, accumulated more league championships, at seven, than any other club. (The Packers were league champions in 1962 as well.) Green Bay and other smaller market clubs have accumulated titles since, but small market success hardly parallels the sharing of broadcast revenues. Championships in the before SBA period, as they have been since, were quite well distributed. From the largest markets the Chicago Bears earned six titles and the New York Giants four championships. Among the rest, the Detroit Lions won four championships, while the Philadelphia Eagles and the Cleveland Browns claimed three titles each. For those clubs with significant membership tenures in the league during this period, only the Pittsburgh Steelers and San Francisco 49ers were denied titles.

Economists prefer a more scientific approach for evaluating the distribution of talent, with the standard deviation of win percent each season commonly employed. (Standard deviation is adjusted to account for the number of scheduled games per season by creating an actual to ideal ratio of dispersion, the RSD. The closer to one the ratio, the better the competitive balance.) Again using the more specific metric, the claim that the SBA and collective rights sales improved balance is specious. Comparing the adjusted standard deviations averages of the before and after SBA periods in their entirety does reveal modestly better balance in the latter period. The RSD averages 1.74 for forty years before and improves to 1.57 for the fifty years after the Act’s passage. However a closer look, comparing the shorter periods directly before and after passage, reveals a different story. For the eleven preceding years, 1950 to 1961—the period beginning with the merger of the NFL and AAFC—RSD for the NFL was 1.53. RSD for the eleven years, 1962-1973 following the Act’s passage measures 1.74.  Competitive balance actually became worse in the immediate aftermath of the SBA!

Of course there are several factors that potentially influence the distribution of talent across teams in a sports league. Moreover, much besides the enactment of the SBA will likely differ between any arbitrarily compared eras. Included are shifting demographics, collective bargaining provisions, league expansions and mergers, changes in post season opportunities, etc. Notwithstanding, there is no evidence that the equal sharing of the proceeds from national television broadcast rights sales improved competitive balance in the NFL.

Ranking FBS Coaches

The college football season kicks off this weekend; every squad has a clean slate and most fans have rosy expectations regarding the fate of their favorites. However as the season progresses many teams will disappoint and the head coach will be forced to face the music. In fact it’s likely that as many as twenty of the current group of one-hundred twenty-five FBS head coaches will be replaced before next season. The volatile labor market begs the question, what factors determine success and failure in this extremely well paid but highly competitive occupation?

Head football coaches must be proficient in two primary areas. First they recruit talent, the primary input to success. Just as important, the talent on hand must be utilized to produce wins. The head coach, much like a corporate CEO, assembles a staff responsible for both of these aspects. A fair evaluation of a head coach's performance accounts for execution in both of these areas. My paper, just published in the Journal of Sports Economics, “Efficiency and Managerial Performance in FBS College Football to the Employment and Succession Decisions, Which Matters the Most, Coaching or Recruiting?”, examines coaches' performance in both realms and ranks the full set of FBS coaches each year from 2005-2011. The quantification of “talent” is derived from the annual Rivals.com recruiting class rankings. Efficiency is defined as how well each coach uses his resources relative to the average of his peers for each given year.

There are few surprises among the group that most efficiently utilizes talent (see the paper's table 3); Alabama’s Saban, TCU’s Patterson, Boise State’s Peterson, and Oregon’s Kelly are consistently represented in the top ten for the most recent years. More surprising are those comprising the bottom ten each year. This group is typically populated by coaches at premier programs, and thus able to recruit top talent, but whose teams were coning off mediocre or worse seasons, Texas’ Brown, Georgia’s Richt, Tennessee’s Dooley, and Neuheisel at UCLA, make multiple appearances among this group. Note that a frequent presence toward the bottom of the list typically leads to dismissal, e.g. Michigan’s Rodriguez, Dooley, and Neuheisel.

For the purposes of evaluating recruiting, the efficiency tests control for the football program’s reputation and resources. Even with the controls, coaches at high resource schools rank at the top of the yearly recruiting efficiency lists (table 5). However, that is not a surprise as there are some intangible factors that push blue chips toward these schools and effective coaches in recruiting as well as winning—those are highly correlated—move up to these highest paid positions at high resource programs. LSU’s Miles, Ohio State’s Tressel, and Oklahoma’s Stoops were regulars at the top of the recruiting efficiency list list during the sample period. Likewise some of those who fared poorly in talent utilization, like Richt and Neuheisel, are also frequently near the top in recruiting efficiency. The bottom groups in recruiting efficiency reflect an odd mix; some are coaches from high resource schools who had an unusually low-ranked recruiting class, Iowa's Ferentz  for example. However, coaches of successful lower resource programs, like Peterson and Patterson, are well represented here. Likely those who employ a nontraditional style of play are less interested in the blue chips, those players who are rated highly by the recruit ranking services. Instead they successfully recruit lesser ranked high school and junior college players who fit their particular style of play. Most revealing was the examination of individual coaches' performances over time. The key finding is the trend among all coaches for recruiting efficiency to wane over their tenure, and this decline leads to eventual dismissal. 

Both efficiency factors matter to firing and hiring, although talent utilization carries more direct weight in those decisions. Nonetheless, as recruiting efficiency falls of so does winning, which leads to dismissal. Interestingly, a consistent finding is that the new hires who best use the predecessor’s talent most likely go on to become the most successful coaches.

(The paper’s tables report the top and bottom ten coaches in each category for 2009 -2011 and the full set of rankings are available in the appendix.)

What Drives Selig's Hard Line on PEDs?

Bud Selig is crazy…crazy like a fox. The bumbling car peddler managed his way to the head of the owners’ table and put together a coalition of merry men who engineered the biggest transfer of wealth since Lenin's crew. With the Steinbrenners and their ilk long since conquered, now it seems his sights are focused on the other group with whom he must share the proceeds of his profitable sport, the MLBPA, and he has a big stick. 

Major League baseball players face a Catch-22 on demands from their union. On the one hand they want the drug cheaters exposed and punished, if not ousted altogether. There are fewer than one thousand major league jobs and earning one and keeping it is brutally competitive and entirely performance driven. Players pumped up from PEDs literally threaten the jobs of those who choose to play by the rules. Conversely, players need the assurance of reasonable rights to privacy, and due process in any and all disciplinary actions. It is likely that right now the rank and file better understand, or at least are more responsive to, the former—it’s an emotional issue. But union leadership, distinctly in the tradition of Marvin Miller, understood that without the latter the owners via the Commissioner’s office could and would run roughshod over them—for a case in point witness Goodell’s NFL. The MLBPA has long maintained solidarity on nearly every issue, mostly falling in lock step with leadership’s propositions. That has served them well, especially when comparing their negotiated outcomes to the other sport unions. Nevertheless, PEDS policy may come to be the divisive issue. More importantly is the Commissioner’s push toward increasingly hard line policies motivated by a desire to split and bust the union? That’s what Miller thought—he viewed the drug testing frenzy as a “witch hunt” (H/T Edge of Sports).

Nonetheless, if the players want a “clean”  game they have the right to it and what constitutes banned substances should be at their collective discretion and really no one else’s. One should not feel pressured to imbibe to get or hold a job, especially when the substance is potentially dangerous and life threatening. Indeed, when it comes to banned substances, isn’t safety the only legitimate concern for what is and is not allowed? The problem is, with few exceptions, there is no clear and known line between the safe and unsafe. Substance policy at all levels instead follows a ridiculous pattern of taxonomy: if the substance is like medicine and heals one back to normal… no problem. However, if the junk is like a drug that makes a person better than normal, or to feel that way, it must be outlawed. No matter that a single substance, anabolic steroids or marijuana for example, can do both depending on the situation. But even if it could be known with certainty what substances should be, or need not be banned, the enforcement process becomes the worst sort of quandary. Nowhere are privacy rights and due process in more jeopardy than with drug testing. Yet, without testing the proscriptions have no teeth at all. On what side then does an athlete come down?  If  your career and livelihood are at stake it’s a dilemma, and one that can be exploited. Why is the hysteria over Biogenesis so baseball specific, when athletes from other sports were implicated too? As a union busting strategy, it fits all too well a familiar pattern of divide and conquer.  An unpopular antihero emerges to be the public face of the scandal, the other fingered desperados fit nicely along a vulnerable racial and ethnic divide—from Biogenesis all but two found culpable are Dominican. As Dave Zirin points out, it is white US-born players who are the most aggressively outspoken regarding their disapproval of PEDS. 

Perhaps Selig’s hardline is all about his legacy and reversing his image from being remembered as the  “steroid Commissioner” to the righteous savior of the game from drugs. But seriously, this is a man who seems to care nothing for his public image in any other context.  Every move he has made as Commissioner has been motivated by shifting the wealth of others his way, and that’s exactly what will result from a diminished union.

It's Time for the Courts to Recognize that NCAA Amateur Rules Contradict Antitrust Law

If there is ever to be an about face on the legality, or lack thereof, of NCAA amateur rules and compensation of athletes, it will come from a belated recognition of barefaced antitrust by the courts. Imagine there exists a group of a thousand or so businesses of varying sizes and dispersed all across the country, and each firm offers a very similar set of product lines. Then suppose this group bands together and forges an agreement whereby, that rather than pay wages to a particular class of workers needed for producing one of the secondary product lines—valuable workers to the industry, but with limited job options elsewhere— instead compensate them with free access to one of the other product lines. The deal could also include the provision of housing and board, but absolutely nothing more. The actual value of the exchange may vary across firms, but the agreement,much to the benefit of each, would restrict all firms signing on to the pact to the modest in-kind payment.

As far-fetched and impractical as this scenario is for any other industrial application, it depicts the NCAA’s restrictions on compensation to athletes. In any other context collusion among firms to fix workers' compensation is a flagrant violation of the Sherman Antitrust Act. NCAA member institutions have agreed to eliminate the price competition in the market for students' athletic services by setting the allowed compensation to athletes as the “cost of attendance” to each college or university. In the jargon of antitrust law, these circumstances depict a price fix, a naked restraint of trade. It’s one thing to fool the public with the amateurism ruse, but judges? How has the NCAA steadfastly escaped the law?

The NCAA is not immune from antitrust scrutiny and, especially since the 1980s, its restrictions in other areas have been overturned by court decisions. For example, NCAA policies limiting competition in television broadcasts, NCAA v. Board of Regents of the University of Oklahoma (1984), and wage fixing in labor markets for assistant coaches, Law v. NCAA, (1998) were prohibited as a consequence of civil challenges invoking Sherman. Conversely, the courts have hardly been willing to entertain challenges to the rules designed preserve the amateur status of the athletes. Judges have bought the line put forth in the NCAA's Constitution that the competitive athletics programs of member institutions are designed to be a vital part of the educational system, and as such can only be preserved by a “clear demarcation between amateur and professional sports”.

Legal protection of their amateur rules from antitrust law relies on the NCAA’s deft portrayal of the sport participant’s dual role as both student and athlete. When subject to review, the NCAA has made a convincing effort to sufficiently entangle athletics and education so that the existence of a relevant market for athletic services cannot be effectively separated from educational mission of universities. The market for educational services is the one that is relevant, and though there is no US Supreme Court interpretation, federal district and appellate court decisions have, in almost every case, maintained that there is no relevant (labor) market for the athletic services of college students. In both of the the most prominent legal challenges to the NCAA's amateur standards, Jones v. NCAA (1975) and Banks v. NCAA (1992) the court denied the plaintiffs exactly on the basis of the failure to establish that a relevant market for their athletic skills existed. In subsequent challenges the NCAA has offered settlements before the appeals process has run a full course, for example White v NCAA(2006) where the Association was sued for price fixing under Sherman.

Holding that no relevant labor market exists implies that there is no market competition for athletic services. In that view potential college students, including those who possess exceptional athletic skills, are searching the higher education market for a suitable school. If they are good enough at their sport they may be offered a scholarship so as to offset their tuition, supplies, and room and board, but that is a secondary exchange.  While that may be the case for some students, for most athletes at the Division I level, especially those in the revenue generating sports, that interpretation is nonsense! University athletic programs compete, and do so vigorously, for the services of athletes. It’s called recruiting and the practice is as old as college sports. Yet, the roles remain bundled as athletes must also be (full time) students, but educational services are clearly the secondary market in this case. Notwithstanding, NCAA policies in about every respect but compensation treat the athletes like workers. Primarily, if they cannot perform at the necessary level the scholarship can be revoked—no work- no pay. There is no question what matters most when it comes to keeping their "jobs".

A mandate necessitated by court decision on a civil challenge is the surest way to change the system. A statutory proscription is unlikely, and the NCAA will never do what is right and fairly compensate the athletes; those collecting the returns have  far too good a deal. For the courts to engage, a Curt Flood type player has to emerge, and will probably face difficult choices in following the case all the way through in the face of settlement offers. Moreover unlike the Flood decision, the court cannot be swayed by arguments and sentiments that the right ruling will ruin college sports as we know them. It will take the right plaintiff with a compelling case, and the onus is on the courts to make it right.