S. HRG. 106–1045 BASEBALL’S REVENUE GAP: PENNANT FOR SALE? HEARING BEFORE THE SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS, AND COMPETITION OF THE COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS SECOND SESSION NOVEMBER 21, 2000 Serial No. J–106–114 Printed for the use of the Committee on the Judiciary ( U.S. GOVERNMENT PRINTING OFFICE 74–416 WASHINGTON : 2001 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 11-MAY-2000 19:48 Sep 09, 2001 Jkt 074416 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 E:\HR\OC\A416.XXX pfrm01 PsN: A416 COMMITTEE ON THE JUDICIARY ORRIN G. HATCH, Utah, Chairman STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, JR., Delaware JON KYL, Arizona HERBERT KOHL, Wisconsin MIKE DEWINE, Ohio DIANNE FEINSTEIN, California JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York BOB SMITH, New Hampshire MANUS COONEY, Chief Counsel and Staff Director BRUCE A. COHEN, Minority Chief Counsel SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS, AND COMPETITION MIKE DEWINE, Ohio, Chairman ORRIN G. HATCH, Utah HERBERT KOHL, Wisconsin ARLEN SPECTER, Pennsylvania ROBERT G. TORRICELLI, New Jersey STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont PETE LEVITAS, Chief Counsel and Staff Director JON LEIBOWITZ, Minority Chief Counsel and Staff Director (II) VerDate 31-AUG-2001 07:21 Sep 08, 2001 Jkt 074416 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 E:\HR\OC\A416.XXX pfrm04 PsN: A416 C O N T E N T S STATEMENTS OF COMMITTEE MEMBERS Page DeWine, Hon. Mike, a U.S. Senator from the State of Ohio ................................ 1 Kohl, Hon. Herbert, a U. S. Senator from the State of Wisconsin ...................... 5 Leahy, Hon. Patrick, a U. S. Senator from the State of Vermont ....................... 6 WITNESSES Costas, Bob, Sportscaster, National Broadcasting Company ............................... 40 Fort, Rodney, Professor of Economics, College of Business and Economics, Washington State University, prepared statement ........................................... 41 Mitchell, Hon. George J., Former Senate Majority Leader, and Independent Member, Commissioner’s Blue Ribbon Panel on Baseball Economics, pre- pared statement ................................................................................................... 28 Selig, Allan H. ‘‘Bud’’, Commissioner of Major League Baseball, prepared statement .............................................................................................................. 9 Stadulis, Frank, President and Chief Executive Officer, United Sports Fans of America, prepared statement .......................................................................... 55 Will, George F., Columnist, Washington Post, and Independent Member, Commissioner’s Blue Ribbion Panel on Baseball Economics, prepared state- ment ...................................................................................................................... 52 APPENDIX Pecor, Raymond, Owner of Vermont Expos and Ottawa Lynx, prepared state- ment ...................................................................................................................... 77 Zimbalist, Andrew, Robert A. Woods Professor of Economics, Smith College, prepared statement .............................................................................................. 78 (III) VerDate 31-AUG-2001 07:21 Sep 08, 2001 Jkt 074416 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 E:\HR\OC\A416.XXX pfrm04 PsN: A416 VerDate 31-AUG-2001 07:21 Sep 08, 2001 Jkt 074416 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 E:\HR\OC\A416.XXX pfrm04 PsN: A416 BASEBALL’S REVENUE GAP: PENNANT FOR SALE? TUESDAY, NOVEMBER 21, 2000 U.S. SENATE, SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS, AND COMPETITION, COMMITTEE ON THE JUDICIARY, Washington, DC. The subcommittee met, pursuant to notice, at 10:00 a.m., in room SD–226, Dirksen Senate Office Building, Hon. Mike DeWine, (chairman of the subcommittee) presiding. STATEMENT OF HON. MIKE DeWINE, A U.S. SENATOR FROM THE STATE OF OHIO Senator DEWINE. Good morning. Let me begin by welcoming ev- eryone here this morning. As you know, we have convened this hearing to examine the issue of competition in baseball. We have reached a point in the game where growing revenue dis- parity among teams in Major League Baseball is creating a sport of haves and have-nots, a sport where teams with the biggest bucks can buy the best players and control the game. Unless baseball ad- dresses these increasing income inequities, America’s pastime, as we know it, will simply no longer exist. The simple fact is this: There is a direct relationship between the levels of revenue teams bring in and their ability to compete on the field. As revenue disparity increases, competition decreases. High- revenue teams can simply outspend the others. Just compare this past season, the year 2000, and compare open- ing day payrolls to year-end team standings. For example, in the American League East, the New York Yankees, with the highest opening day payroll of $92.5 million, won this year’s World Series. The Minnesota Twins, on the other hand, the team with the lowest opening day payroll of $16.5 million, finished dead last in the American League Central Division, and also had the second worst record in all of baseball this year. And as sports fans know, those were only the opening day figures. The opening day figures of the Yankees at $92 million, and it was not too long after that that they went over the figure of $100 million. The story is similar in the National League, where the Braves, with an $84.5 million payroll, finished first in the East Division, while the Pirates, for example, with a $28.9 million payroll, placed second to last in the Central Division. This seems to indicate that while the boys of summer certainly still play for the pennant, right now some Major League Baseball (1) VerDate 31-AUG-2001 07:21 Sep 08, 2001 Jkt 074416 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\A416.XXX pfrm04 PsN: A416 2 owners are out to pay for the pennant, and to pay big. This fact convinced Baseball Commissioner Bud Selig to create a blue ribbon panel to examine the situation and consider methods to restore rev- enue balance and healthy competition. The panel’s report, which we will be examining closely today, shows startling facts about the state of competition in baseball, though most baseball fans didn’t need a blue ribbon report to know that teams in smaller markets simply cannot compete against those with big payrolls. Still, it is my hope that this hearing today will help galvanize public opinion and compel the owners and the players to act in the best interest of baseball. With the release of the Blue Ribbon Panel’s report, we have reached a crossroads between baseball as it is and baseball as it should be. Today, utilizing the bully pulpit of this subcommittee, I hope that we can do more than just simply talk about the problems in regard to baseball. Today, it is my hope that we can take a first step toward real action to save baseball. Two members of the Blue Ribbon Panel—George Will and former Senator George Mitchell— are here with us today, and we certainly look forward to their testi- mony. Now, there is no question that baseball is a serious business. Its impact on our economy is significant and certainly growing every year. As with any major multi-billion-dollar enterprise, the Federal Government has a role, although certainly a delicate one, in mak- ing sure that businesses are run in a manner that is consistent with the law and is good for the consumer. As far back as 1922, when the Supreme Court granted baseball an exemption from Federal antitrust laws, and most recently in 1998 when Congress modified that ruling, the Federal Government has monitored the business of baseball. And this certainly isn’t the first congressional hearing on the state of competition in baseball. In fact, many of Congress’ hearings on baseball were held by this very subcommittee, the Antitrust, Business Rights, and Competi- tion Subcommittee. As many fans of baseball know, one of the more memorable exchanges took place in this very subcommittee be- tween Estes Kefauver and Casey Stengel. And we will not today go through that interesting exchange, but as I can tell by the smiles around the room, everyone remembers or has seen newsclips of that very, very interesting exchange. Today’s hearing comes at a time when revenue disparities among major league teams are reaching unprecedented levels, threatening the health, the popularity, and even the integrity of the game itself. You can see one of the root causes of this disparity by look- ing at local broadcasting revenues, which vary widely between teams located in small and large media markets. Although the estimates of local broadcasting revenues vary, Broadcasting and Cable Magazine in a March 27 article of this year reported that in the year 2000, the Cubs earned $55 million and the Braves $54 million from local broadcasting revenues, reve- nues gained through broadcast TV, cable and radio. The Reds and the Brewers, Mr. Selig, two teams that you and I are pretty famil- iar with, on the other hand, earned $6 million and $4.6 million, re- spectively, at least as this was reported in that magazine. VerDate 31-AUG-2001 07:21 Sep 08, 2001 Jkt 074416 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 E:\HR\OC\A416.XXX pfrm04 PsN: A416 3 Additionally, there are enormous differences in total revenue be- tween the richest and the poorest teams, and those gaps keep growing and growing. According to Andrew Zimbalist, an economist at Smith College, the total revenue gap between the richest and poorest teams in 1989 was about $30 million. The recent Blue Rib- bon Panel report found that in 1995 the gap grew to $73 million, and in 1999 the gap reached $130 million. Again, this is the gap between the richest and poorest teams.