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. Last Updated: 07/27/2016

The Baseball Strike: A Primer

WASHINGTON -- Baseball owners and players seem bent on preserving their unbroken streak of failing to settle contract disputes without a work stoppage. To understand what is going on, it is necessary to recognize that three parties are involved, not just two.

The three groups are the players, the owners of so-called large-market clubs and the owners of small-market clubs. The real antagonists are the players and the large-market clubs. Both are trying to win support, or at least grudging alliance, with the owners of small-market clubs.

Such large-market clubs as the Mets, Yankees, Cubs, White Sox and Dodgers have access to metropolitan areas that generate large attendance and high local television revenues. These teams can pay large salaries and still make large profits. Small-market clubs pay smaller salaries to players on the average than do large clubs. But because their gate receipts and local television revenues are smaller, they have a hard time making a profit. Many report losses.

The owners and players are fighting over what to do about this. The owners propose to cap salaries as a share of defined revenues, to transfer a modest amount of revenue from large-market to small-market clubs. The reduction in overall player compensation would be larger than the amount being transferred from large-market to small-market clubs. This means that profits of the large-market clubs would increase. Thus, what the owners are asking is that their players provide relief for small-market clubs plus a bonus for large-market ones.

The players understandably consider this unfair. They point out that baseball as a whole has been profitable, even according to the teams' own reports. Moreover, these reports understate baseball profits for at least three reasons: Some clubs make sweetheart deals with TV, radio or cable networks that belong to the club owners. The profits show up in the books of the media company, not those of the baseball team.

Some team profits are almost certainly being recorded as team expenses. Some clubs charge far more to front office expenses than other clubs do. In this fashion, several million dollars per year per club may be classified as baseball expenses when they are really payments to owners, or expenses of other businesses in which the owners are involved. Keeping reported team profits low is a great convenience when the owners solicit large stadium subsidies from state or local governments.

The owners neglect to include as income the revenues from fees paid for expansion club rights. While expansion cannot go on forever, the owners have indicated that it will go on for a good while longer. Expansion revenues, which will continue for many years, should not be ignored.

The sales prices of baseball teams cast doubt on the claims that baseball is in financial trouble. Expansion club rights sell for fees and forgone revenues of approximately $100 million each. Existing clubs sell for similar or larger sums. The hard evidence of the prices owners demand -- and get -- for baseball franchises destroys the claims that baseball as a whole or most franchises are in financial extremis. The contention that a salary cap is necessary to save baseball is simply indefensible.

It is, however, quite understandable. Players as a group will earn about $1 billion in 1994 if the season is completed. A salary cap that cut player salaries by one-fifth would increase team profits by $200 million. At a capitalization rate of 10 percent, such a cap would increase the value of baseball teams by about $2 billion, or more than $70 million per club.

This gain would not be equally divided, however. Some of the financially weaker clubs might not be able to survive an extended work stoppage. Others would actually be hurt by the new arrangements proposed by the owners. The reason is that the owners are also proposing that each club must pay at least a minimum total amount in salary. This minimum exceeds what some clubs are now spending by more than they stand to gain from increased revenue sharing.

For other clubs, the result would be little better than a wash. Owners in both of these groups stand to lose more from a strike than from a continuation of current rules, even if the owners win, and especially if they lose. While not natural allies of the players, these clubs want to negotiate a settlement without forcing a stoppage.

Aaron, director of economic studies at the Brookings Institution, was a player-appointed member of the committee to study the economic status of baseball.