Testimony of Allan H. (Bud) Selig
Commissioner of Baseball
Before the Committee on the Judiciary
Mr. Chairman, my name is Allan H. Selig and I currently serve as the Commissioner of Baseball. Prior to being elected as Commissioner in 1998, I served as Chairman of the Major League Executive Council for six years. I appreciate the opportunity to testify before you today on matters that are of concern to this Committee, to those of us in Baseball and to our fans. I appear today for the particular purpose of addressing H.R. 3288, a bill that would partially remove Baseball’s antitrust exemption. The bill was apparently introduced as a response to Baseball’s recent decision to contract by two teams. In order to address the bill fully, it will be helpful for me first to speak more broadly about the state of our industry.
When I was elected Commissioner on
For fifteen months, the Blue Ribbon Panel studied
Baseball’s then current economic system.
The Panel was given unfettered access to all of the books and records of
Baseball and the individual clubs. It
left no stone unturned. It had numerous
meetings with groups of owners. Player
union head Don Fehr and his associates appeared at one formal session and
members of the Panel had other discussions with the union.
The report of these four panel members was released
in July 2000 and was unequivocal. It
concluded that Baseball’s economic system is broken. It concluded that Baseball has severe
competitive balance problems that are threatening the game and that are caused
by large and growing club revenue disparities and payroll disparities. The report demonstrated beyond dispute that
there was a direct relationship between revenues and payrolls on the one hand
and a club’s on-field performance on the other.
It showed that only the top spending teams had any appreciable chance of
reaching the World Series, much less winning it. The disparity had become so severe that teams
that spent below the industry average on player payroll had not won a single
postseason game in the five years studied in the report, 1995-1999, a total of
158 games. Let me repeat – for a five year period, and over 158 games, not a
single postseason game was won by a team in the bottom half of the payrolls in
the industry. Clearly, numerous teams and their fans were
beginning spring training each year with little or no hope or faith that their
teams could reach the postseason.
Although not the focus of the
report, the report also showed extensive operating losses for the vast majority
of Major League clubs between 1995 and 1999.
Over those five years, only three teams – ten percent of the industry –
the New York Yankees, the Colorado Rockies, and the Cleveland Indians, were
profitable. During that five-year
period, on operations alone, the industry lost in excess of $1 billion.
The situation has only gotten
worse since that report. Our postseason continues to be dominated by
high payroll clubs, and those payrolls continue to escalate. Although there has been an occasional
exception involving a lower payroll team appearing – – but not advancing – – in
the playoffs, the payroll and performance correlation is unmistakable and
powerful. Only teams that are able and
willing to spend enormous sums on player salaries have any chance to win the
World Series. As the attached Chart 1
shows, through the 2001 playing season, there have now been 224 postseason
games in the past seven-year period.
Still, no team other than in the top one-quarter of payrolls has won a
single World Series game. Due to the
performance of the Oakland Athletics, teams in the lower half have now won five
playoff games out of 224 games, representing a mere 2%, but none has advanced
beyond the first round.
And Baseball’s financial losses and
overall economic stability are even bleaker now than they were in the summer of
2000. Although revenues continue to
grow, so do losses. As the attached
Chart 2 shows, cumulative operating losses over the seven-year period have
grown to almost $1.4 billion and now only two teams have been profitable on an
operations basis over that period – Cleveland and the Yankees. Not surprisingly, the average payroll per
club has grown from $33 million in 1995 to double that – – $66 million in 2001.
In fact, even respected outside
observers are concerned about our “successful clubs.” For instance, just this week, the head of the
Sports Group at Lehman Brothers was quoted in the Sports Business Journal
as follows about the Cleveland Indians:
[T]he Indians are not a basket-case
franchise. They’ve maximized
all their venue revenue. They’ve got a good, competitive team.
They’re not at the top of the payroll heap. And they’re still not
making money.
Where does that leave most of the other clubs?
I met with all clubs last week in
Let me point out just a few of these
numbers for you on the attached Chart 3 and urge that everyone take the time to
study what we have presented. Although
this year’s audits are not yet final, the consolidated loss for all thirty
clubs in 2001 will be approximately $519 million. Twenty-five clubs lost money and five made
money this year. The consolidated loss
from just Baseball operations will be approximately $232 million. When the net interest expense is added to
this number, the loss becomes nearly $345 million.
The interest I speak of relates
predominantly to debt that is staggering in its proportions. The total industry debt is currently over $3
billion, as shown on Chart 4. If you add
deferred compensation and future, guaranteed obligations to players, that
number approaches $8 billion.
Needless to say, those numbers are the highest in Baseball history, and,
incredibly, they are still growing rapidly.
Two of Baseball’s bankers spoke to the clubs at our meeting last week
and underscored the severity of this situation.
I have read that the union and its
economists will be skeptical about these numbers. Well, I am here to tell this Committee that
the union has had these numbers, that these numbers have been audited
repeatedly, and that the union has represented that it accepts the veracity of
the numbers we have presented. The union
has had club financial data since the mid-1980’s. Since 1985, the clubs have provided the union
with audited financial statements from each club, uniform financial
questionnaires prepared by each club and the industry’s consolidated financial
statements. Since 1997, we have also
provided the union with the results of the separate revenue sharing audits that
are done of each club’s books each year by Pricewaterhouse Coopers. Finally, the union has the right under our
collective bargaining agreement to conduct is own audit of any of the Clubs’
revenues. It has never done
so. As part of my submission, I have
provided three pages describing the financial information that has been
presented to the union.
The idea that somehow what I have presented today is
not an accurate picture of the industry’s economics is sheer nonsense. It is disappointing that union head Fehr is
not here to verify my statements, but anyone who would state otherwise is just
plain misinformed or is engaging in deliberate misstatement.
In examining Baseball’s competitive
and financial issues, it has become clear that no single measure will solve the
industry’s overall problems. The owners
recognized that in January, 2000 when they concluded by resolution passed by a
30-0 vote that the industry did not currently have sufficient competitive
balance and directed me to take action to correct the problem.
It has also become clear that there are clubs that
generate so little in local revenue that they have no chance of achieving
long-term competitive and financial stability, as shown on Chart 5. This conclusion holds true even under some of
the most aggressive revenue sharing models which are being contemplated. Revenue sharing alone will not enable certain
clubs to be viable over the long term.
Furthermore, we have closely monitored the prospects of increasing local
revenues in each of these markets through new facilities, lease enhancements,
or other forms of public support. In
certain cases, the public has spoken loud and clear that additional support is
not a realistic option. As a result,
despite significant efforts by the club owner, we believe certain clubs have no
prospect of long-term competitiveness on the field or financial viability off
the field. That is why Baseball has made
the decision to contract by two teams, without having finally decided which
teams they will be. Baseball has made
this decision because the local revenue generated in these markets is simply
insufficient to justify our continued investment in those markets. Baseball has seen significant increases in
the national revenues generated for all clubs, but for a team to survive today
it must also generate adequate local revenues.
As you saw from the numbers, we have one team that receives 80% of its
total revenues from Central Baseball and others that receive more than
50%. To generate sufficient local
revenues, each club must have an acceptable home ballpark and sufficient market
support. Jerry Bell, the president of
the Minnesota Twins, will also testify today and, I understand, will emphasize
the importance of having a satisfactory home ballpark. I am proud to say that 18 cities and Clubs
have entered into partnerships of different dimensions over the past 15 years
to build fan-friendly facilities that would generate sufficient revenues to
allow their teams to compete. Others are
under development.
Much has been written and said on
the subject of contraction since I announced it a month ago today, and much is
simply wrong. As an example, Baseball
has been criticized for supposedly proceeding with contraction without
consulting the players union. Nothing
could be further from the truth. We
first broached the subject of contraction with union leaders early this year
and continued to discuss it with them throughout this year. We made it very plain to the union that
contraction was a distinct possibility and that we would soon engage in
bargaining over the effects of contraction, which is our responsibility to do
under the labor laws, and which we have now begun. The union has clearly been kept informed that
contraction was an option we were considering.
Any confusion on the part of the players’ union is attributable solely
to the fact that, throughout the year, no final decision on contraction had
been made.
It has also been said that Baseball
should not contract its troubled franchises but should relocate them. We have looked at the possibility of
relocation and have not ruled it out in the near future. It is not, however, an immediate answer to
the problems we are trying to solve. In
weighing various relocation possibilities, it became clear to us that moving a
club during this offseason, given our current industry economic environment,
would merely be substituting one problem for another problem. Again, although we are very proud that no
clubs have moved for thirty years, we may well find that relocation can become
one part of our overall solution in the near future. But it is not the answer to any problems we
are facing this year.
Members of this august body and the
press have said that Baseball needs to share more local revenue. Governor Ventura has said many times that
Baseball needs to get its house in order by having more revenue sharing and
some form of salary restraint. Let me
address both those points. First,
Baseball shares much more revenue now than many of you and many of our fans
seem to realize. This year,
approximately $167 million in local revenue will be directly sent from the top
clubs to the bottom revenue clubs. In
addition, more than $700 million in national revenues are divided equally among
the thirty teams. The $167 million is
the highest level of local revenue sharing that Baseball has ever had and is
four times more than we had only five years ago. But we fully agree – – repeat, fully agree –
– that we should be sharing more local revenue.
Our clubs are willing to do this.
It must, however, be negotiated with the players union, which has
resisted substantial increases in revenue sharing. Let
me repeat, the owners want to share more revenues and the union has been
unwilling to agree to a meaningful increase.
Despite this resistance, we will
persist in attempting to achieve greater local revenue sharing in our upcoming
negotiations with the union.
Let me be candid, Mr. Chairman. Revenue sharing, relocation, even contraction
by themselves will not solve all of the economic problems besetting
Baseball. It is absolutely true that we
also need some form of salary restraint.
Football has it and has been able to achieve both financial stability
and competitive balance in a system that allows Green Bay to compete on an
equal playing field with a New York or a Chicago. The NBA has restraint to a lesser extent but
certainly much more than Baseball has been able to achieve. I read regularly that what our sport needs is
revenue sharing from the owners and salary restraint from the union. Again, the owners share revenue now and are
prepared to do more, but the union has indicated no willingness to provide any
salary restraint. While I am pragmatic
enough to understand that we cannot achieve a hard salary cap without a
prolonged strike, we did have a luxury tax under the last collective bargaining
agreement, and the form of tax urged by the Blue Ribbon Panel should be
acceptable to the union. Despite the
union’s rhetoric, a luxury tax is not a salary cap or “cap-like”. This was clearly demonstrated by the luxury
tax which existed for three years under our current collective bargaining
agreement. That tax had no discernible
impact on the growth in player salaries and did little or nothing to close the
competitive balance gap. Again, I am
disappointed that union leader Fehr is not here to offer his reasons for
opposing contraction, opposing revenue sharing, opposing salary restraint, and,
seemingly, offering nothing to solve the problems except the status quo.
Let me turn now to H. R. 3288, introduced by
Congressman Conyers, that would partially repeal Baseball’s antitrust
exemption. With all due respect, the
bill would not be helpful to Baseball or its fans in any way. With the partial removal of the exemption
contemplated by the bill, the franchise stability I have referred to and that
Baseball has worked so long and hard to achieve could be severely
undermined. Middle-of-the-night relocations
that Baseball has in the past been able to prevent might occur in the
future. If such a law had been in effect
during the 1990s, several cities might very well have lost their teams. Those teams would more than likely have left
smaller markets and joined larger markets that already have one or more clubs.
In addition, the bill as drafted
creates doubt as to how far the removal of the exemption is meant to go. In 1998, we worked closely with the union and
with Congress to craft a carefully worded change to our exemption in the area
of labor relations. All parties at the
time believed that the change created the right balance for the exemption. The wording of this bill could be read to
shed doubt on the exemption’s applicability to such areas as Minor League
players, the amateur draft, expansion and others. More important, it could upset the delicate
legislative balance created in 1998.
Again, the bill cannot be viewed as helpful in any way to the Major
Leagues, the Minor Leagues or fans of either.
To those who say that the bill is a
response to Baseball’s decision to contract, it must be understood that
Baseball’s decision to contract is intended to advance the interests of
long-term franchise stability. It is
better that Baseball solve its franchise problems in a coordinated and
carefully thought out way than that individual clubs take matters into their
own hands, or that local officials pursuing parochial interests file frivolous
lawsuits under the cover of federal and state antitrust laws. As I explained earlier, Baseball’s
contraction is one very important piece to solving the economic puzzle. Congress should not react by exacerbating the
problem.
Again, Mr. Chairman, I thank you for
the opportunity to appear before you today and to address these important
issues. I request that a copy of my
remarks and my written submissions to you be made a part of the official record
of this hearing.