Game Theory

Baseball looks headed toward another labor showdown that will result in a lot of disenchanted fans, but more importantly to baseball, many, many lost dollars in revenue.  This type of zero-sum game - one side wins, the other side loses - between the owners and players will be especially costly because if the owners lose, they will likely be severely penalized for unfair labor practices and if the players lose, their earning potential will be severely curtailed.

It's kind of ironic, then, that a story about the man who pioneered modern gaming theory, John Nash, would come to such acclaim in the same year his theories could offer the proper solution.  In short, the theory demonstrated in "A Beautiful Mind" could be the very thing that saves baseball both money and prestige.

The theory is simple.  Let's say you have 4 guys in a bar who are each looking for female companionship.  Five women walk in: 4 blondes and a stunningly beautiful brunette.  The first instinct of each of the guys is to go after the brunette.  After all, she's the most attractive.  However, if all 4 guys go after her, none are likely to end up with her; their efforts will largely cancel each other out.  Worse still, the 4 blondes will perceive that they are viewed as sloppy seconds, and will be less receptive to the guy' efforts to woo them.  So in the end, no one wins.

However, if the guys decide to go after the blondes first, there's enough for each of them to interest one.  The women will feel more open to their efforts because they have obviously passed up a potentially better opportunity in favor of their charms.  So almost everyone gets what they wanted: a companion for the evening.  Except the brunette.  But that's no biggie because everyone knows that Lois Lane is waiting for Superman anyway.

All that to say that if baseball's combatants give in to the lowest common denominator, they might all end up with what they want.  So what do they all want?  The small markets want more money, the larger markets want cheaper stars, the players want to preserve their power and all the owners want to put some kind of restraint on salaries

Share revenue to start.  But not like other sports where they put everything into one pot and split it up evenly.  Currently, teams don't share any of their local TV revenue and only a portion of their gate revenue: 30% in the AL, 40% in the NL.  What baseball should do is include all local revenue in the sharing but allow teams to keep 60% of it's own income and split the other 40% into 29 equal parts.  Sorta like the IRS does with our taxes.  This way, the biggest markets still get the most money because they still earn the most, as they should because they paid for that right by buying a team in a large market.  And teams like, say, Milwaukee, get more than they normally would if left to their own devices.  However, this would not remove the incentive for teams like Milwaukee to maximize their own local revenue streams, because that would still be where they earn the bulk of their income. They would not be getting such a big piece of the New York or LA pies that they could just sit back and coast on someone else's good marketing.

To demonstrate, I'll use a 10-team league, all hypothetical, of course and the make the split 50/50 (for ease):

Team            income                    amount of income
Name         (in millions)              with revenue sharing
New York         100         50 + 4.5 + 4 + 3.5 + 3 + 2.5 + 2 + 1.5 + 1 + .5 = 77.5
Chicago           90         45 + 5 + 4 + 3.5 + 3 + 2.5 + 2 + 1.5 + 1 + .5   = 68
Atlanta           80         40 + 5 + 4.5 + 3.5 + 3 + 2.5 + 2 + 1.5 + 1 + .5 = 63.5
Philadelphia      70         35 + 5 + 4.5 + 4 + 3 + 2.5 + 2 + 1.5 + 1 + .5   = 59
St. Louis         60         30 + 5 + 4.5 + 4 + 3.5 + 2.5 + 2 + 1.5 + 1 + .5 = 54.5
San Francisco     50         25 + 5 + 4.5 + 4 + 3.5 + 3 + 2 + 1.5 + 1 + .5   = 50
San Diego         40         20 + 5 + 4.5 + 4 + 3.5 + 3 + 2.5 + 1.5 + 1 + .5 = 45.5
Cincinnati        30         15 + 5 + 4.5 + 4 + 3.5 + 3 + 2.5 + 2 + 1 + .5   = 41
Pittsburgh        20         10 + 5 + 4.5 + 4 + 3.5 + 3 + 2.5 + 2 + 1.5 + .5 = 36.5
Montreal          10         5 + 5 + 4.5 + 4 + 3.5 + 3 + 2.5 + 2 + 1.5 + 1   = 32

The 60/40 split would be more agreeable and in the end more profitable, as teams would have less money coming from other teams, but still enough to even the playing field somewhat.  A spending floor could be instituted at the upper end of the lower third - in my example, it would be 30-33 million - to make sure that teams tried to maximize their local revenue and not simply get a free ride from the larger markets.

The next step would be to abolish arbitration and reduce the service time to be eligible for free agency from 6 years to 4.  Currently, players are eligible for arbitration after 3 years of service and gain free agency after 6. Those 3 years after arbitration eligibility are where many players are able to use an independent arbitrator to artificially inflate their salaries beyond what they might get on the open market.  So while the player's union would be conceding that tool that average players take advantage of, the best players would gain the ability to make more money as a free agent, sooner.  And while on the surface it would appear that ownership would be giving up a lot, in fact, they would gain much more than they lost. Sure, they would face the risk of losing out on recouping their investment in the farm system by not extracting as much value from their young stars as possible, but they would gain a greater pool from which to fill their rosters, thereby reducing their overall team salary.

If you've ever played fantasy baseball, especially in a keeper league, you understand this kind of inflation.  In most leagues, owners will overpay for the stars and pay minimal salaries for mid-level players in the end game.  However, more often than not, those end game players earn far more for the dollar than the superstar players.  In fact, profits for those end game players are often overwhelmingly positive, while superstars rarely earn much more than they're paid.  And if they crap out, the salary risk was minimal.  The more keepers that are allowed in a league, the more this is true, as those stars who aren't protected are even more sought after.  The fact is, the more options an owner has for the same production, the more likely he's going to pay the actual value of a player than some inflated cost.  So what a real baseball owner would lose potentially risking the free agent loss of a Vlad Guerrero, he would more than make-up in the relatively cheap acquisition of 4 or 5 other players who's sum production is likely to far exceed that of the one superstar.

So there it is.  The small markets gain increased income, the large markets gain league stability and and a damper on salaries on the upper echelon players because more would be available.  Each player gets the opportunity sooner to maximize his potential earnings on his own terms.  Owners would also find some appeal in the fact that agents would lose some of their leverage because there would be so many more available players comparable to their clients, thus driving down the salaries of mid-level players.  But most importantly, everyone would gain the peace of mind that there wouldn't be a labor war that would cripple the industry and potentially relegate it even further off the mainstream.

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