4 - Introduction to the economics of Major League Baseball

Summary

INTRODUCTION

This chapter serves as an introduction to the general economics of Major League Baseball. It starts with a brief history of the events leading to the creation of what we now know as MLB in 1903. Subsequent sections cover the horizontal and vertical structure of MLB and its relationship to the courts and elected government. An overview of MLB's vertical arrangements with its upstream suppliers of talent reveals part of the control that MLB has acquired over the operation of baseball in North America. Vertical control is both dir-ectly over the cost of talent development and over any possibility of rival leagues rising up out of upstream minor leagues. The focus of the section on horizontal operations is the power MLB has managed to acquire primarily over the location and number of teams. In addition, the essential league function of controlling the relative strength of teams via competitive balance policy is covered with a brief model and a summary of the effectiveness of mechanisms claimed to alter balance. The final section covers the relationship between the courts, elected government and the business of MLB. Over its entire history, and on into the present day, the courts and elected government have been concerned with labour relations and antitrust (competition policy) in MLB. For sports economists, the major topics include Rottenberg's (1956) invariance principle (raised here first in the vertical operations section, relative to the player draft), Rottenberg's uncertainty of outcome hypothesis (as part of the explanation for league management of competitive balance in the section on horizontal operations) and, finally, industrial organization outcomes that yield almost complete market power over this sport by MLB.

THE CREATION OF MAJOR LEAGUE BASEBALL1In the late nineteenth century “base ball” in North America started as a club sport, a form especially familiar to those studying clubs in Europe. The original clubs were member-driven and -directed. Primarily, at that time, the game was a pastoral outing and an afternoon of fun. The motto seemed to be “A good, long game with plenty of time for beer”. But it did not take long before fans revealed their willingness to pay to watch higher-quality baseball, in addition to participating themselves.