View on Contraction

Mark's View: Contraction's Effect

The long-awaited news from Major League Baseball came this week and it was a stunner. For a venerable professional league to eliminate teams in this day and age invited public acrimony and legal controversy. [click here]

Although it was not necessarily the way I would do it, contraction would eventually pass the legal challenges. Baseball does run as a cartel to be sure, but there is not mandate that an economically-strapped team continue to operate, causing losses for the others in the group.

What is the ideal? If baseball shared its revenues in a more equitable way, the two small-market teams could have survived. Local broadcasting revenues stay with the teams and the national TV and cable deals only provide so much revenue to share. This localism makes it difficult for smaller teams to keep talented players once they get on the free-agent market, so that the smaller teams serves as de facto minor league teams for the bigger ones. Look how many talented players left the Expos and the Twins.

But the fact is that baseball operates the way it does and so long as the decision does not violate contractual obligations, labor contracts or antitrust law, it would survive legal scrutiny. Baseball still retains a limited antitrust exemption, which could be jeopardized in Congress. The would affect the minor league system as we know it. But it is too early to tell how far that will go, especially in the post-September 11th environment. The minor league teams of the lost clubs will reaffiliate and if a team cannot do it, a cash settlement may occur.

But it is on the labor front, where the contraction decision is most intriguing. It may not be coincidence that the vote came just after the old collective bargaining agreement expired. The union, fearing for its existing players, has filed a number of grievances.

Most likely, a draft system for the players on the teams and a compensation package for players who are not picked would settle the issue. But the underlying shadow of free agency hovers -- and hovers not far from the horizon.

With more players out there, the availability of talent is greater, which would diminish the value of elite players. Look to see the going rate drop because of the expanded pool. That is why the decision could be a negotiating coup for the owners and could actually make for a more balanced competitive level. If that is the case, the owners will be dancing in the streets.