Innovations and Value Creation in Major League Baseball, 1860–2000
Total Page：16
File Type：pdf, Size：1020Kb
Innovations and Value Creation in Major League Baseball, 1860–2000 AYA S. CHACAR London Business School WILLIAM HESTERLY University of Utah ‘The one constant through all the years Ray has been Baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt, and erased again, but baseball has marked the time.’ (Terrance Mann, played by James Earl Jones, in the movie Field of Dreams). ‘I take it as given that markets provide efficiency and innovation. The question then becomes, where would you oppose a market? For example, I oppose a market in professional baseball. I do not care about other sports, but in baseball I value equity and tradition more than efficiency and innovation. I would like to see the cities own the teams, with revenue sharing and no free agency for players. That would lead to team continuity and to fewer advantages for big-market teams. In education, I also value equity. However, in contrast with baseball, I do not dismiss innovation and efficiency. In baseball, if there is no innovation, and the quality of play holds steady, that is acceptable. Not so with education, where I believe that we need progress.’ (Arnold Kling, 2000) Professional sports leagues are important businesses in developed nations. They are also relatively large businesses. In Major League Baseball, for example, both attendance and television revenues have passed the billion-dollar mark, while some franchise values are nearing the same threshold. Moreover, these professional sports leagues have significance beyond economics; they are an important phenomenon from a sociological standpoint as well. Arguably, there are few, if any, other industries where the general public follows the daily activities and transactions of the industry as closely as those of professional sports leagues. Such importance is reflected in the massive public subsidies granted in the last decades to build stadiums and arenas in many cities. Despite this importance and high visibility, professional sports leagues have received little attention from Business History, Vol.46, No.3, July 2004, pp.407 – 438 ISSN 0007-6791 print/1743-7938 online DOI: 10.1080/0007679042000219184 # 2004 Taylor & Francis Ltd. 408 BUSINESS HISTORY organisational scholars. This is unfortunate since, given their well-documented histories, professional sports leagues provide an exceptional opportunity to learn about issues such as innovation, institutionalisation and change. Among professional sports leagues, Major League Baseball (MLB) in the US is particularly noteworthy of study, since it is probably the first successful modern professional sports league in that country and many of its conventions were adopted by later leagues. Hence, MLB developed an organisational form that has become institutionalised in the US. Moreover, as reflected in the above quotation, Major League Baseball is often depicted as the epitome of consistency in American life. Indeed, many baseball fans and authors are traditionalists. These traditionalists view the game as an unchanging anchor in American life and like to hold on to the images of the pastoral myth that baseball evokes. Some of these, like Kling, are also anti-change, or what Postrel describes as stasists.1 Not only do they view baseball as an unchanging constant throughout the industrial age of the US, they also argue emphatically that baseball should resist change. Important questions are suggested by those who maintain baseball’s constancy. First, does the reality match the rhetoric? Is it true that baseball has maintained a pristine form that has been largely unaffected by innovation? Unfortunately, innovations in Major League Baseball have never been documented in a systematic way, despite claims about it being the ‘father’ and ‘inventor’ of the league model. While thousands of books have been written about baseball, not a single one has focused on innovation.2 Second, is innovation necessary for success or is tradition a more important resource in this case? While most tend to think of innovation as beneficial, several scholars have in fact argued about the benefits of constancy. For example, some population ecologists have argued that replication ability is essential for success, as such, change and innovation will create ‘liability of newness’ hazards to organisations.3 This research aims to address in a systematic fashion the above questions about variation, causes and consequences regarding innovation in major league baseball. After compiling and analysing the data that is available about innovation in Major League Baseball from its inception to the present, we are able to draw some conclusions about innovation in baseball. First, while the traditionalist’s views on baseball’s constancy have some grain of truth to them, they are, at best, outdated if not inaccurate. We show that baseball has been anything but a constant from the inception of the National League (NL), the precursor of MLB, in 1876 to the present and argue that innovation has influenced the way baseball has evolved both as a game and as a business. We also argue, however, that the rate of innovation has varied dramatically over time. This variation in innovation rates corresponds to three eras or regimes that have occurred in the Major League Baseball industry. We label these eras as the emergence and fermentation era, where the league model emerged and was refined; institutionalisation, when innovation slowed down and resistance to change was very high; and the renaissance era, when innovation at the league level resumed. We are also able to draw some clear conclusions about the consequences of innovation in baseball. MAJOR LEAGUE BASEBALL 409 Despite the prevailing rhetoric about constancy as a key to baseball’s success, our evidence clearly shows that innovation has had a positive economic impact on Major League Basketball. A final set of questions concerns why such dramatic variations in innovation have occurred during baseball’s history. Innovation was to some extent driven by different forces in the three eras. Much of the variation, however, may be explained by employing and extending new institutional reasoning. While innovation was indeed beneficial in the early days of Major League Baseball, it led to the legitimisation and institutionalisation of its rules and practices. Such institutionalisation then lead to a lack of innovation and resistance to change which is somewhat consistent with the expectations suggested by institutional theory. Once organisations become highly institutionalised, they become highly resistant to innovation. Changing such institutions is a process that is little understood,4 with most institutional theorists maintaining that changes or innovations occur when institutionalised organisations are exposed to dramatic exogenous shocks. These shocks render ineffective the long accepted ways of doing things,5 and thus lead organisational participants to question taken for granted understandings and try new forms, routines or solutions. In this case, even the woes of the Depression were not an effective impetus for change, but, rather, changes came from the actions of entrepreneurs who demonstrated their value and created enough competitive tension for other teams to adopt these innovations and eventually accept innovations as a potentially beneficial activity. We expand on our thesis below and present extensive evidence of innovation in Major League Baseball, drawing on numerous historical accounts and archival sources of the baseball industry from the 1870s to the present.6 When possible, we also show the financial gains that can be imputed to each innovation.7 For the purpose of this article we consider as innovations changes that originated in the baseball sector or changes that were first introduced elsewhere and then adopted by MLB teams. One caveat is in order. It is likely to be impossible fully to represent and discuss in a single article all the changes occurring during professional baseball’s 125-year history. Nevertheless, we are confident that we have captured the major areas of innovation and change. II The roaring success of the first professional team, Cincinnati’s Red Stockings, encouraged other teams to pursue commercialism openly, eventually leading to the professionalisation of baseball and the formation of the National Association of Professional Base Ball Players in 1871 (NAPBBP). In those early days, even the best teams found it difficult to make money because of bidding wars for players that often wiped out profits, and high instability and low reliability of competing teams, which meant that scheduled games were often cancelled because one of the teams was a no-show. In an attempt to solve these problems, William Hulbert, assisted by Harry Wright, founded the National League, which 410 BUSINESS HISTORY led to the collapse of the NAPBBP in 1876. They resorted to experimentation and innovation. In the process, the NL developed the model for the modern professional sports league, and superior league policies. The leagues also introduced major changes in labour policies and game rules. After the 1901 merger with the American League (AL), formerly Western Association, innovations slowed down dramatically but the newly formed MLB saw its team adopt steel and cement ballparks, which became landmarks of the first half of the twentieth century. Other innovations were also initiated by individual teams, with some spreading to the rest of the league. While it is hard to quantify in monetary terms all of the