Originally Written: January 2005
Professional sports leagues have always faced the fundamental problem of trying to ensure a healthy degree of competitive balance to maintain spectator interest. Foregone conclusions don’t tend to sell well in the sports business. Sport after all is, like life, an unscripted drama with uncertainty of outcome. We don’t want to know in advance who wins and loses. But, of course, in all professional sports leagues, some teams are much more likely to win than others. Financial disparities between teams are inevitable. Team revenue depends on the size of the fanbase, and that, in turn, depends on history and geography. Teams in big cities with a history of past success have a bigger potential market and are, as a consequence, more likely to have the financial wherewithal to be able to attract the best players and become sporting Goliaths. David-versus-Goliath contests will produce occasional victories for the underdog but unless there remains a reasonable probability of David winning, fans will stay at home and switch off the televised game, checking the news for confirmation of the expected result. A doomsday scenario maybe but one that professional sports leagues have been very alive to from their inception in the mid-19th Century.
Professional sports leagues have tended historically to adopt an interventionist approach to maintaining competitive balance. Many sports leagues introduced restrictions on the movement of players between teams to prevent the concentration of the best players at the bigger-market teams. The reserve rule fulfilled this function in Major League Baseball (MLB), giving teams the first right of refusal on the retention of their current players. The retain-and-transfer system in (association) football also protected the rights of teams to retain their players with compensation payable in the form of a transfer fee if the team sanctioned the player’s move to another team. Of course, these “player reservation” systems did not stop the best players moving from the smaller-market teams to the bigger-market teams. The economic incentives encouraging player mobility still remained so that the actual impact on the distribution of playing talent and competitive balance was always problematic. The restrictions on player mobility served mainly to restrict the ability of players to bid up wages. Some leagues also sought to affect the distribution of playing talent through a drafting system in which new young players are allocated centrally with weaker, less successful teams given preferential picks. As with the reserve rule and transfer systems, the main impact was the cross-subsidisation of smaller-market teams by the larger-market teams rather than greater competitive balance. Leagues have also instituted more direct methods of cross-subsidisation, traditionally through the sharing of gate receipts and, more recently, the collective selling of TV rights. However, the trend in most professional team sports around the world in the last decade or so has been away from league controls on revenue and/or player distribution. Partly this has been due to external pressures from the courts and regulatory authorities to remove restrictions on player mobility and limit league-wide commercial transactions. In Europe, the European Court of Justice instituted player free agency through the Bosman ruling in 1995. The EU Competition Commissioner has also taken a very pro-active role in opposing collective selling of media rights to exclusive buyers as in successive agreements between BSkyB and the FA Premier League. Internal pressures have also tended to lessen revenue redistribution between teams as the bigger teams have created breakaway premier/super leagues with greater control over their own revenues.
Whilst the movement towards greater laissez-faire arrangements in professional sports leagues has generated legitimate concerns about the increasing competitive dominance of the sporting financial Goliaths, there is a counter argument that is often overlooked. Competitive balance can mean competitive mediocrity. The more that teams are funded independent of their sporting performance, the more that incentives to aspire for sporting excellence may be dulled. In European leagues, the threat of relegation maintains incentives for weaker teams and boosts fan interest through the added significance of “relegation battles”. In the North American major leagues, however, the problem is potentially more widespread. There are perennial losers, the doormats for the successful dynasties, but it is not always clear-cut whether the doormats are a product of inherent small-market disadvantages or of a more deliberate strategy of the owners to maximise financial performance at the expense of sporting success. Indeed the player draft can introduce rather perverse incentives that it may be better to finish last rather than second last.
A more laissez-faire league structure can incentivise the sporting Davids to be more innovative in finding alternative competitive strategies to take on the Goliaths. Two recent books on the MLB provide persuasive arguments in support of the potential benefits of less
league intervention. Fetter’s, Taking on the Yankees: Winning and Losing in the Business of Baseball, 1903 to 2003 (Norton, New York, 2003), charts the various innovations in the MLB which has been the most laissez-faire of the major leagues with limited revenue redistribution and the first to go through the player free agency revolution. Fetter shows how the New York Yankees themselves were innovative when they first emerged, taking the lead in separating field-coach and player trading responsibilities. Thereafter the Yankees became the Goliaths to be challenged. Fetter looks at how the St Louis Cardinals pioneered the farm system for developing young players in the interwar period. After the war MLB franchises spread west taking advantage of the booming west-coast economy to leverage favourable deals from cities such as Los Angeles and San Francisco desperate for major-league status to complement their economic success. The decamping of the Yankees’ long-term local rivals, the Dodgers, from Brooklyn to Los Angeles, set a precedent that other weaker MLB franchises sought to emulate and continue to do so as witnessed by the recent relocation of the Expos from Montreal to Washington DC. New stadium construction and stadium redevelopment, often partly or wholly financed by cities eager to attract and retain MLB franchises, have also helped teams improve their economic potential. Of course, all of the major leagues have fostered the bargaining power of their franchises vis-à-vis host cities by ensuring significant excess demand in the franchise market with the number of cities potentially able to support major league teams exceeding the actual number of franchises.
One of the most fascinating innovations in the last few years in the MLB is the management strategy adopted by the Oakland A’s detailed in the national bestseller, Moneyball: The Art of Winning an Unfair Game by Michael Lewis (Norton, New York, 2003). The Oakland general manager, Billy Beane, an ex-major league player himself, has adopted a much more “scientific” approach to player recruitment, team tactics and player valuation by employing player performance statistics in a much more systematic manner than any other MLB team had ever done so. One of the major changes has been in the approach to spotting potential draft picks, with a greater emphasis on college players with known playing records rather than high-school kids where judgments inevitably are much more subjective. Beane himself was the epitome of the high-school star that looked every bit a major leaguer of the future but never quite lived up to those expectations. The culture clash between the “shirts” and the “suits”, the old and the new, is illustrated wonderfully when Beane meets his scouting staff, mainly ex-pros with a very intuitive approach to spotting talent, to discuss strategy for the annual player draft. Beane dismisses his scouts’ own recommendations and their objections to his draft picks, mainly college students who had previously failed to be drafted, with the wonderful put-down line, “I’m looking for a major-league player, not someone to model jeans”, a reference to the ownership of the Oakland A’s by the Levi-Strauss family. Despite the vocal opposition throughout the MLB to his approach, Beane has seen the A’s enjoy considerable success, regularly advancing to the post-season playoffs on a wage budget only around one-third of that of the Yankees. And Beane and his backroom staff have become hot recruitment targets of other MLB teams.
Is the Moneyball philosophy transferable across the Atlantic to European team sports? It is no accident that Moneyball is a MLB phenomenon for two reasons. First, bat-and-ball games are much more amenable to player performance measurement. More complex team games such as football and rugby involve a huge range of different types of player actions and interdependency effects that make it much more difficult to attribute and measure the overall contributions of individual players. But player tracking technology is becoming more widely used in football and rugby by many of the top teams and video analysis is a standard part of the modern coach’s toolbox. The other factor that has influenced the emergence of the Moneyball philosophy in the MLB is the separation of the responsibility for player trading from responsibility for team selection and tactics. Moneyball is a front-office-driven phenomenon with the opposition coming from field coaches and ex-pros. Such a separation of responsibilities is not yet widespread in European football particularly in the UK. The notion of a director of football with responsibility for player transfers still provokes considerable controversy although several leading continental clubs such as Real Madrid have operated such a system successfully for several years. The Moneyball philosophy should appeal to the smaller Premiership teams such as Bolton Wanderers and Charlton Athletic, looking for innovative, low-budget ways of competing with Manchester United, Chelsea and Arsenal. Clubs are increasingly using the player performance statistics provided commercially by ProZone and the Opta Index. It remains to be seen if football clubs can develop systematic and successful player trading, wage remuneration and team selection strategies based on player performance statistics akin to the Oakland A’s. But one lesson is clear from the Oakland experience. If you do develop a successful strategy, keep it secret and don’t write a book about it until it’s obsolete. Otherwise your competitors will imitate it and hasten its obsolescence.
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