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Friday, November 30, 2007

Bases, Bats, and Bucks

It’s free agency season again in baseball, and the sport’s number one money man, Alex Rodriguez, was once again out on the open market. Was being the key word, as reports have him signing a new contract for a whooping 26 million a year. Not surprisingly there’s been a lot of questions as to whether it’s appropriate to pay anyone that much money to play “a child’s game.” My thoughts on the topic have largely centered on the idea that the deal was made in the free market so unless there’s some sort of market failure at play it must be fair.

So is there some negative externality at play that would allow us to apply a corrective tax worthy of bringing A-Rod’s mammoth contract back down to earth? I don’t see one. We define externalities as an unintentional effect of non-market interdependences. The contract itself is obviously market driven and if it’s having some previously unfathomed negative effect on parties who weren’t part of initial negations they’re hiding quite well because I certainly can’t think of who they might be or how they’re effected for the life of me.

The next question seems almost laughable, but is A-Rod a public good? Well he doesn’t even pass the non-rival portion of the definition, as only one team gets access to his services at any given time, so I think we can stop howling with laugher and move on.

Finally there’s the question of monopoly. A lot of people define major league baseball as a government sanctioned monopoly, but I’m not so sure because it really depends on how you define their market. Are they selling entertainment? If so there’s, obviously, many other providers. Perhaps we should narrow it down more and say they market sports. But again there’s several other competitors, including the NFL, NBA and NHL. Okay, okay I hear a few objections still that it’s not just a regular old sport, it’s baseball and there’s no substitute for that. Of course, then there’s little league, high school, college, and all the foreign professional leagues now available through the magic of satellite TV. I guess the MLB is only a monopoly if you’re willing to narrow your market to include only professional level baseball played in North America. And even if one chooses to define the market that narrowly, we’d be applying the term monopoly to the MLB organization which would give them all the negotiating power, likely leaving Rodriguez with a smaller contract then he deserves.

The simple truth is baseball players get paid a lot because consumers are willing to spend a lot on baseball. Think of all the money people spend on tickets, apparel, and basically anything you can cram a logo onto. Then there’s the ad revenue available to teams because so many of us are willing to watch on television driving up the price of that commercial time. And the better the team the more money we’ll spend. And of course the best way to improve your team is to get better players, and often the best way to do that is to pay them a heck of a lot of money. Baseball may be a sport to us viewers, but it’s important to keep in mind it’s a business to people involved.

-Jaeson Madison

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