The Baseball Strike of 1994: Good or Bad?

As a baseball fan the year 1994 is somewhat an enigma. The hope for the future was grandiose and widespread and the view towards greed made fans bitter and pessimistic. Looking back to that year, and analyzing the results on baseball since then, are logical places to go when trying to understand the economics of the game today. What were the reasons for the shutdown? What were the results? How has baseball been ultimately affected? It is these questions that are worth pondering to see where baseball has been and where it's going.

Back in 1994 it was assumed by many that baseball's economic situation was dismal or even fatal. Many fans and some owners were lamenting that small, or what I call "poor", markets were failing to compete reasonably in the marketplace. These smaller or less affluent franchises were increasingly crying the blues when discussing finances and profit. It was mentioned that rich markets, like the Yankees and Red Sox, were making tons of money while other markets, such as Montreal and Kansas City, were losing millions. It was said that something had to be done to correct the disparity. What was the disparity, and was it severe enough to warrant changing the rules of the game? It is here that the "strike" of 1994 begins.

In baseball, it is easy to get lost or buried in complicated calculations or complex analyses. The desire here to keep it simple is a difficult but important task. How does one research and explain the problems with money that MLB faced back in the early 1990s? There are two factors to keep in view here: payrolls of the teams and the competitive balance. In the NFL, NBA, and now in the NHL, competition has been placed to a somewhat parity level by issuing salary caps and taxes/revenue sharing. No longer are teams in those sports just permitted to spend what they want and how they want. There are limits to how far one franchise can go.

Baseball, however, has never been able to agree on something like this. In fact, some owners have been quoted as saying that they didn't care if some franchises suffered or even failed. This is a strange idea coming from such a longstanding and successfully organized sport as professional baseball. Since the NFL and NBA committed themselves to some control on salaries and revenue sharing those sports have proven to be highly successful, more so now than before. What would baseball gain by utilizing such tools?

The answer is in the method of analysis. If we are to explore what the results have been of the 1994 shutdown and the subsequent settlements, we need to find the data that can contribute a logical but simple answer. I start with the USA Today's database on salaries and payrolls. There are other sources we can use but this one is simple and understandable. Teams are ranked according to recorded numbers quoted as to what they would spend each year. The dollar amount is included making it easy to compare the progression of spending going on in baseball. I went back to the year 1988 to see what trends were identified before the shutdown and to then see if there was something different happening afterwords. The results were surprising to some degree.

Prior to 1994 small or "poor" market teams were very competitive. The analysis shows the winners and the losers, and the numbers of fairly clear. Small market teams such as the Cincinnati Reds and the Minnesota Twins were winning pennants and World Series. It was still likely that big spenders such as the Toronto Blue Jays and the Baltimore Orioles were still competing and winning their share but that big spending was no guarantee to winning a championship. The variety of teams winning was interesting and considerable. Looking at division winners in those years reinforces the point that other teams like the Pirates and Royals were competing on the field without spending tremendous amounts of money.

The losers were also various. The years between 1988 and 1993 showed many different last place clubs in both leagues. On particular example was the Orioles, who were near the top of the list in payroll. They went from last in their division to second in one year while the Chicago Cubs went from first to next to last in the same time span. Although it was written in the press that several teams were losing money, the argument can be made that teams spending big money were not necessarily winning all the time, as the Yankees showed in 1990 ( they were fifth highest in payroll but ended dead last in their division). The point has also been repeated many times that the books are not always disclosed as to how much the teams have made in "secret" revenue of various kinds.

However, the year of 1994 obviously put all of this to a halt. First of all, one particular team, the Montreal Expos, were arguably having their best year ever in 1994. Since that time the team has filed for bankruptcy, been sold to MLB, and been moved to Washington D.C. Their financial situation has cause them to exist near the bottom of the list in payroll ever since. The team has ended at or near the bottom of their division every year since moving (2005).

The Kansas City Royals is another example of how the strike affected an otherwise seemingly competitive franchise. Prior to 1994 Kansas City ranked normally in the middle of the pack in payroll, reaching the very top in 1990. Since then they have joined the Montreal/Washington franchise in low payroll, or at least in the bottom ten. They have not competed in those years with the exception of the 1995 season. They have finished in last place in their division seven times in those years, fighting it out in some of those years with the Detroit Tigers, a team that has not been spending much money in most of those years until recently.

The most glaring example is the Pittsburgh Pirates. A proud and tradition-ridden club with a long history of batting champs, their demise started prior to the 1994 strike. As early as 1992 they were able to spend enough to keep a team on the field that would win three division titles in a row during the early 1990s. Since then they have had sixteen losing seasons in a row, with a couple flashes of competition in years where they were able to finish high in a weakened division. They are on course to have their 17th and major professional sports record losing season in a row this year. They have, since 1994, ranked very low almost every year in spending.

What about the winners? Has spending correlated into winning championships and pennants? Before 1994 it has already been established that poor markets could still win titles, but since then it has increasingly become apparent that spending at least gives franchises a better chance of getting into the post season. Examples of this are the New York Yankees, the Boston Red Sox, the Atlanta Braves, and more recently the Anaheim/Los Angeles Angels. The glaring example of failure in turning large payrolls into winners has been the New York Mets, who near the top of the list consistently but have only made the Series one year in that time.

Probably the most arguable assumption since 1994 is that the franchises consistently spending more are getting into the playoffs more frequently than the low spenders. Boston, New York, Atlanta and St. Louis have been keeping in the top ten in payroll and are making the playoffs in most years. The Yankees last year became the first team to reach the 200 million level in spending on payroll. Comparing that with the 1993 amount of over 41 million represents a huge jump in expenditures by a few of the teams.

So, the question is: did the 1994 strike cause this disparity or was this a natural trend that would have occurred anyway? The numbers suggest that baseball was crawling along on its own without any harm being done by greedy owners, but after 1994 the greedy increased their spending and buying over the poorer markets. Although there is no definitive proof that high payrolls have resulted in more championships, it is increasingly obvious that some teams have not been able to compete at all, in the marketplace or in the field. The last few years have shown that a two tier system exists financially in the two leagues, with the American League spending more per team.

Here is the problem though. Are the teams that are spending little but sometimes winning beating the odds, or is there something else here at work? Mismanagement may be one answer. In the business world the most common failure cause of businesses is poor management. This can represent some of the effects seen in certain franchises such as Pittsburgh. It doesn't answer all of the questions but presents a start. More analysis is forthcoming in how spending money in baseball affects the playing field.

Recently some debate has been coming forth on whether or not teams are losing money, like they say. Merchandising is a difficult factor to put into the mix when examining a franchise's books. It has been therefore suggested that poor markets are not really losing money but are not spending it on payroll and other areas. This would throw a wrench into the argument, for sure. Franchises like Kansas City, Pittsburgh and Washington D. C. will be worth watching to see if changes of strategy or management will bring them back to the winner's circle. One thing is certain, baseball is not losing attendance from the matter. It is still the national past time.

For more information, see http://content.usatoday.com/sports/baseball/salaries including salaries and payroll figures.

Other source; ESPN Sports Almanac, 2000 - 2009 (yearly), Ballantine Books, New York. Section: baseball.