IS THERE A CEILING?
It must have been the Dallas locale. As Bowie Kuhn addressed the annual winter meeting in December, baseball's reserved and formal commissioner was suddenly transformed into a country-music singer belting out a familiar tale of woe. His dirge sounded something like this:
Well, it's cry in' time again (the year's end).
Don't ask Bowie where he's been (through the books).
Oh, the stories never end (salaries are too high, losses ever-mounting).
'Cause it's cryin' time again.
"The percent of increase in player compensation has been running nearly double that of operating revenues," the commissioner lamented. "During 1979 only 11 of our clubs operated in the black.... Operating revenues simply will not grow fast enough to keep even close to the vaulting cost of doing business. We are projecting player compensation by 1984 at $320,000 per player."
Kuhn didn't come across very well as Wailin' Waylon Jennings. Even as he outlined a grim financial picture, the commissioner was admitting to record television ratings and rousing attendance figures. Baseball had just completed the first season under a national television package yielding a whopping $190 million over four years—double the previous one. After four straight record-breaking seasons, attendance had dropped slightly but passed 43 million for just the second time in history. The average ticket price ($4.53) was holding firm as the best buy in sport. So what was Bowie complaining about? Baseball has never opened its books; by citing but not releasing, detailing or documenting an accounting survey made exclusively for his office, Kuhn invited skepticism.
But the commissioner did have a point about salaries. Even according to Player Association figures that discount deferred payments, in 1979 salaries and player-pension contributions increased 14.1% over the previous year's, while estimated general revenues were up 9.4%. In just three seasons the average salary has nearly doubled—from $76,066 in 1977 to an estimated $130,592 in 1980. In 1976, the first year of open market bidding, the top five free-agent contracts totaled $11,131,000. This year, not counting Dave Winfield's cost-of-living increases, the top five totaled $27,275,000. Of equal importance, owners have had to pay multiyear, multimillion-dollar contracts to keep other players from becoming free agents. These numbers are also astronomical: $800,000 per season to L.A.'s Dusty Baker, $900,000 to California's Rod Carew, and $850,000 to Pittsburgh's Dave Parker. There have been far more of these signings than free-agent contracts. Four years ago Pitcher Jim Palmer signed Baltimore's first multiyear deal. Now more than half the Orioles have them.
So it makes sense to consider the question of salaries. Will they spiral ever upward? Will they bankrupt teams? And if they're so potentially lethal, why are owners paying them?
To Marvin Miller, executive director of the Players Association, the importance of salaries is overrated. According to his figures, player salaries and pension contributions accounted for just 27.6% of total revenues in 1978 and 28.7% in 1979. "Players costs amount to a smaller percentage of revenues in baseball than in any major sport except football," he says. "To put the blame for all baseball's financial problems on salaries is ridiculous."
Ray Grebey, baseball's chief owner-negotiatior, concedes that Miller's figures are in the ball park. But he adds, "You have to tie in other salaries as well. Out of every dollar we spend, 65¬¨¬®¬¨¢ goes to employee wages and benefits, but only about 30¬¨¬®¬¨¢ of that goes to the 25-man roster. What about minor leaguers, umpires, ball park employees and their salaries, insurance and pensions? Hospitals spend as much as we do on wages and benefits, and they're going out of business. And what about the costs of spring training, airline tickets, hotel rooms and other non-salary expenses? When we speak of the state of the union, Mr. Miller sees it as an attack on his union. The basic problem is the increase in costs—all of them."
Yet owners do most of their complaining about major league player salaries. It's easy to see why. The owners haven't much room for cutting back when it comes to other salaries and expenses, but they could exercise some restraint over big league contracts.
At least in theory. "Inflation drives salaries up," says Harry Dalton, general manager of the Milwaukee Brewers. "We now have salary arbitration, and a club must set its prices higher than it wants in order to avoid paying what the players want. Agents have taken over negotiations and their percentages drive salaries up. And salaries are commonly known these days, so players can find out what others are making."
Dalton's last point deserves elaboration. Before salary figures were published, a player had to take an owner's word that his income measured up well with that of his teammates. In the mid-'60s Dodger player representative Ron Fairly was a satisfied customer. The Dodgers had assured him that among his teammates only Sandy Koufax and Don Drysdale made more than he. But when the Players Association asked Fairly to poll the players, he discovered he was in 12th place. Fairly had been had.
Today all figures are known, and players can spot lesser performers who are making more. It's an irresistible argument for an increase. No wonder almost all major-leaguers are well paid. "The owners are seeing what Hollywood saw a long time ago," says player agent Reuven Katz. "Stars are worth a lot of money. They attract people. Hollywood paid these big salaries 20 years ago. Of course, Hollywood would pay the spear carriers scale. Baseball is paying the spear carriers as stars."
For their part, owners and general managers are willing to take responsibility for high salaries. When polled by SPORTS ILLUSTRATED, they refused to blame the players for seeking top dollar, admitted the teams wouldn't be spending lavishly if they couldn't afford to and didn't think they were investing wisely, and conceded that they, the bosses, are only too quick to reach for their checkbooks. "New owners want to make an instant hit," says Haywood Sullivan, himself a relatively new owner of the Red Sox, "so they go after big-name free agents." Adds Pittsburgh General Manager Harding Peterson, "The thirst to win is so great that owners will go to any extent to become a winner." How true. Atlanta owner Ted Turner saw himself just one lefthanded outfielder short of contention, so he signed the Mets' inconsistent Claudell Washington to a five-year, $3.5 million contract. The Astros figured they could repeat as National League West champions with a little more pitching and depth, so they signed 35-year-old Dodger Righthander Don Sutton (three years, $2.85 million) and Texas utilityman Dave Roberts (five years, $1.1 million). Of course, when it comes to free agents, all restraints are down. "You haven't had to trade anybody," says Expo owner Charles Bronfman. "You don't have to give up a frontline player." So the owner fantasizes: "If I can just spend enough I can get this guy." And he spends, frequently more than enough.
Most owners blame a few of their high-bidding peers—George Steinbrenner of the Yankees and Turner in particular—for driving up prices. Kuhn gave credence to this view at the winter meetings by stating, "Foolish player contracts signed by a few have aggravated the situation." But an examination of the record discloses that foolishness is widespread. Shortly after the second reentry draft had taken place in November of 1977, Texas owner Brad Corbett offered Minnesota Outfielder Larry Hisle a $3 million contract. Hisle hadn't said a word, but Corbett did his bidding for him. Hisle signed with Milwaukee for Corbett's figure. In 1978 Turner upped the ante for Pete Rose by offering him more than $1 million a year. Rose actually signed with his first-choice team, Philadelphia, for $800,000, but Turner had forced the Phillies to hike their original offer. In 1979, California Pitcher Nolan Ryan and his agent, Dick Moss, proposed a four-year contract, with Ryan receiving $1 million the final season. It was their opening bid, one they undoubtedly would have scaled down in negotiations. But when Angels General Manager Buzzie Bavasi began squawking that Ryan wanted $1 million a year immediately, everyone assumed that was his bottom line. Lo and behold, the Astros made Ryan baseball's first $1 million-a-year player. And remember, in 1980 it was the Mets—not the Yankees—who made Winfield his first firm offer of $1.5 million a year. Steinbrenner had to match it, and that—at least in base salary—is all he did.
Today almost everyone is shelling out big money, though you won't hear it from the owner. "[A few] big spenders are ruining the game," says Cardinal Manager-G.M. Whitey Herzog who has four $700,000-a-year players. "The Winfield deal was outrageous," says San Francisco owner Bob Lurie, whose signing of Second Baseman Rennie Stennett to a five-year, $3 million contract was probably the most outrageous deal in the short history of free agentry. Preaching sanity in salaries, Dodger G.M. Peter O'Malley says, "We're a voice in the wilderness." This is the same O'Malley who signed an average pitcher, Minnesota's Dave Goltz, to a six-year, $3 million contract. Recently the Angels signed another routine Twins hurler, Geoff Zahn, for about $1.1 million over three years. "Fools are born every day," says Minnesota owner Calvin Griffith.
The Twins are one of a handful of teams, including Toronto, Oakland, Seattle and Detroit, that have generally shied away from high-priced contracts. But has their restraint been justified? Big-money signings have made money for clubs as often as they've lost it.
It's well established that free agentry and multiyear contracts have promoted competitive parity. In the last two years the maximum of eight different teams have won divisional titles. What isn't so well appreciated is the connection between parity and profits. After signing Carew in 1979, the Angels won their first divisional title and set team records for season-ticket sales and home attendance. There was even a carryover into 1980, when they had their second-largest attendance in their worst season. "We've spent more than $14 million for free agents but gotten our money's worth," says owner Gene Autry. Even the few clubs that have done well without much spending are coming around. Kansas City has given George Brett a new five-year contract at $1 million a year. And just last week Baltimore signed Eddie Murray to a five-year, $3.8 million contract.
Now consider baseball's wondrous attendance. Kuhn attributes it primarily to superior marketing. Admittedly, "baseball fever" is a nifty slogan, and teams are to be congratulated for professionalizing their operations, but the connection between large crowds and free agentry is too obvious to be overlooked. As the box on page 36 documents, even without the addition of expansion clubs in Toronto and Seattle, attendance has jumped significantly during the free-agent years. Of the 12 teams that have spent the most since free agentry began in late 1976, 10 have set single-season attendance marks. The publicity surrounding free agentry may have improved the players' bargaining power, but it has also kept baseball in the news during the offseason. Last week was the first since the end of the World Series in which the New York papers didn't run daily stories on baseball. Publicity, like parity, equals profits.
It's the oldest axiom in business: you have to spend money to make money. The example of the two New York teams is instructive. When George Steinbrenner bought controlling interest of the Yankees in 1973, he promised to build a winner by spending. Mets board chairman M. Donald Grant said big spending would be the death of baseball. The result of their divergent policies was that the Yankees became winners who have drawn better in every year of Steinbrenner's ownership, while the Mets went from champions to losers whose crowds dwindled every year but 1975 and 1980, when their new owners began spending.
Of course, it's easy to belittle the Mets in retrospect. Before the advent of free agentry, clubs were accustomed to doing good business while underpaying the players. To take a quantum leap into the marketplace meant a journey into uncharted territory. Many owners understandably asked if the trip was worthwhile, economical or justifiable. "I think we've been able to afford these salaries because we began taking a more intelligent marketing approach," says Dalton. "We didn't just open the gates and wait for the fans to show up." Owners also began to realize that in an electronic age baseball operates on a star system. This is particularly true in celebrity-conscious New York, where Reggie Jackson has been worth his weight in pinstripes. It's possible that Steinbrenner recruited Winfield with the idea of making him the Yankees' next designated attraction. "Teams have to pay the price not to move their stars," adds Dalton. "You can't measure dollars and cents. You have to imagine the potential loss to a club if a star got away. Take Robin Yount of our club. What would it cost to lose him? You have to use your wits as best you can."
Most assuredly, some owners haven't acted wisely and have made miserable investments. The names of free agents who flopped is grist for a trivia quiz: Stennett, John Curtis, Rick Wise, Bert Campaneris, Bruce Kison, Al Hrabosky and many, many more. There is an interesting paradox in the current talks over compensation for players who become free agents and go to other teams. Grebey insists that compensation is a question of equity, not money. His own boss, the commissioner, has indicated that owners would spend less if they had to sacrifice their own players to get free agents. The players feel they're being asked to bail out the owners not only for their spending but also simple business mistakes.
The athletes have a point. It's neither their fault nor their responsibility that the world champion Phillies claim to be a struggling operation because they got a poor stadium deal. "That was just a dumb baseball move by the Phillies' management," says a student of the situation. The players see no reason to rescue the inept Cubs, who could have signed baseball's best relief pitcher, Bruce Sutter, to a long-term contract. Instead they took him to arbitration, got saddled with a $700,000-per-year contract and had to trade him. The Texas Rangers were forced to pay Pitcher Sparky Lyle a huge salary because General Manager Eddie Robinson misunderstood two basic trading rules of baseball.
It has been said often, but it bears repeating: baseball is a much better game than the people who run it. So much better, in fact, that it's sure to survive and prosper. Worry not, executives, the game's financial future looks bright:
•One way or another, the lingering free-agent question could be resolved in the next 12 months. A study committee composed of two players and two owners will submit its report next week. Most likely there will be two separate reports—a players' document that opposes the use of major-leaguers to compensate teams losing free agents, and an owners' report favoring the idea. If no agreement is reached in subsequent negotiations, the owners will have until Feb. 19 to impose their compensation system unilaterally. Then the players must decide before March 1 whether to strike. In any case, most owners agree that compensation isn't a life-and-death issue.
•More significant than player-owner negotiations is a brewing owner-owner dispute. Against considerable old-guard opposition, a group led by Baltimore's Edward Bennett Williams is pushing the idea of revenue sharing along the lines of the National Football League. All NFL teams get $5.6 million a year from their television package, and home and visiting teams divide gate receipts 60-40. In baseball only the national television package is equitably divided—to the tune of either $1.9 million or $1 million a team, depending on whether you believe the owners' or the players' estimate. Local TV rights aren't divided, so the Yankees, Blue Jays and Expos make $5-$7 million a year, while many other teams bank $1 million or less. In the American League, visiting teams collect 20% of the income from tickets sold, while National League visitors make 39 cents per ticket, and only on those that are used. Revenue sharing isn't particularly critical to football profits because there are no local TV contracts and most teams routinely sell out. But in baseball, attendance varies widely and some of the worst-drawing teams have some of the weakest TV contracts. Miller and numerous younger executives think revenue sharing is a nifty way for baseball to keep its house in order. "Revenue sharing?" California's Bavasi stormed at The Washington Post's Thomas Boswell. "Hell, that's communism!"
No matter. Even if baseball rejects revenue sharing—the pet project of that old red devil Richard Nixon—the clubs can expect a windfall from cable and pay TV. White Sox owner Bill Veeck, ever the visionary, has already sold rights to his home games to cable TV.
•Baseball may soon open the books to justify its claims of financial duress, and the books may indeed show that most teams are losing money. But beware. As any informed taxpayer knows, a good accountant can turn an actual profit into a paper loss. The owners are also familiar with such cost-cutting measures as the signing bonus and deferred payments. By giving Winfield $1 million up front, Steinbrenner saved himself $500,000 in federal taxes. Deferred money can be invested until it's due and paid when it's worth less.
And what if a team has genuine financial problems? "No one should count on new owners coming along to bail out struggling clubs," Kuhn says. Bosh. "They're standing in line to buy franchises." says Lurie. So many buyers were standing in line to buy the White Sox that the owners turned down Edward DeBar-tolo's $20 million bid. The Cleveland Indians are considered one of baseball's worst investments, yet Neil Papiano and James Nederiander are buying 53% of the club's stock for $7.5 million.
The trend won't be toward bankruptcy but toward rich owners selling to richer ones, or to companies, conglomerates or multinationals. If Griffith were to unload the Twins, the Minneapolis business interests who pushed through the $54 million Metrodome over public opposition would buy the Twins and jack them up like a grain elevator on the prairie. And poor old Calvin would retire with a fat profit. The Payson family bought the Mets for $1.8 million in 1962 and sold them for $21.1 million in 1980.
•Kuhn's suggestion at Dallas that in 1980-84 baseball will lose 10 times the "many millions" it has supposedly lost in 1975-79 is based on a questionable projection. Already salary spending is leveling off. Salaries increased 46.7% in 1977 (the first year of free-agent salaries), 31.3% in 1978, 22.1% in 1979 and an estimated 20.2% in 1980. And these numbers are based on management calculations that don't discount deferred payments. Commenting on Kuhn's projections, Miller says, "If you had a very strong dam holding back a lot of water and the dam collapses, you measure the rate of flow for the first four hours when the flow is heaviest. Fair enough. But do you then make a projection for the next four hours that it will flow at the same rate? That's inane."
The other day Cincinnati President Dick Wagner was reminiscing about the minor leagues. "In the Western League we had one club show up wearing seven different uniforms," he said. "They showed up another time with one bat."
It's doubtful the majors will ever be undressed or unarmed.
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