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The Business of Major League Baseball.

By Gerald W. Scully, Chicago: University of Chicago Press, 1989, Pp 212, $24.95.

GERALD SCULLY, a Professor of Management at the University of Texas at Dallas, has written a careful, detailed analysis of the economics of baseball. Any lingering doubts that one may have nurtured that baseball is merely a sport are shattered by this expose" written in the manner of an industry study.

This book is not for those interested in the personal indiscretions of baseball players. Rather, it is a painstaking, detailed study relying on economic theory and statistical analysis that covers seemingly all aspects of the baseball performance of the players and the profit performance of the owners. The data are presented in the numerous tables and charts throughout the volume.

Scully has a hard task. He needs to explain the economics and statistical methodology to the uninitiated and explain baseball terminology to those unfortunates who are not versed in the intricacies and jargon of the game. Although he generally does quite well, many technical terms are unexplained, including marginal revenue and marginal cost, slugging average, and earned run average. A glossary of economic and baseball terms would have been helpful.

The book is divided into three parts. Part I focuses on how the rules of baseball have evolved during the past 120 years, with the emphasis on raising spectator interest in the ballpark and, in recent decades also through radio and TV. Scully argues persuasively that the team owners determine the rules of the game and that rule changes are made with their financial bottom line in mind.

Scully presents detailed discussions of the effect on player performance of such rules as the number of strikes and balls, the height and distance from home plate of the pitcher's mound, the varying size of the strike zone, and most recently the designated hitter rule in the American League. Interesting facts emerge. For example, in the 1870s there was a 9 ball, 3 strike rule, and in 1893 the distance from the mound to home plate was moved in stages from 45 feet to the current 60 feet 6 inches. Scully shows how the introduction in 1973 of the designated hitter rule by the American League resulted in more hits per game, thereby increasing the number of runs, and increasing attendance in American League games. We are not told, however, why this apparently cost-effective rule change has not been adopted by the National League.

Part II is on the supply and demand for baseball, and the profits of the firms (teams). The analysis of demand for attendance at home games is the least satisfying part of the book. Curiously, the analysis is done for the twenty-six teams in only one year, 1984, and the small sample size may be responsible for the poor precision of the estimates. More serious, however, is that a single equation model is used to estimate the elasticity of demand. Price is not exogenous to the industry or individual teams, and a two-equation model is needed.

Scully steers the reader through the arcane world of baseball accounting. Most baseball clubs are privately owned, so that financial data are not publicly available. Scully argues convincingly that favorable treatment of team assets (primarily player contracts) under the depreciation provisions of the tax law, the underpricing of TV, radio and cable broadcast rights to the team's parent company (now a common practice in baseball), the underpricing of advertising for other products of the owner (e.g., beer), and other accounting techniques are responsible for converting a highly profitable enterprise into one that appears to be breaking even or incurring losses.

The most lively section of the book is Part III, the analysis of the baseball player's labor market. Baseball salaries sky-rocketed in recent years. Reggie jackson's princely sum of $135,000 in 1974 (about $300,000 in 1988 dollars) pales in comparison to the 1988 average of $450,000, with nearly sixty players receiving 1 million or more. Free agency enabled players to obtain salaries that more closely approximated the impact of their performance on team revenues. Scully shows how the reintroduction of collusion among the owners has lowered the ratio of salaries to the player's contribution to team revenues.

There is a brief but lucid analysis of discrimination against blacks in baseball. Blacks apparently still are required to have higher performance records to be hired and retained. However, salary differences have disappeared for black and white players of equal performance. Scully acknowledges no satisfactory explanation for the positional differences between blacks and whites, where blacks are overrepresented in the outfield and underrepresented as pitchers, catchers and second and third basemen. There is unfortunately no discussion of discrimination against other minorities, including Hispanics.

The final substantive chapter is devoted to what must be the unsung hero of baseball - the manager. When a team is successful the players get the credit and the manager is in the background; when a team is not successful the manager gets his walking papers. Yet, if failure rests with a manager, so too must the successes. Using a sophisticated statistical technique, Scully measures the manager's efficiency by examining the ratio of batting and pitching performance relative to wins. By this measure the three most efficient managers in the 1960s and 1970s were Earl Weaver, Sparky Anderson and Walt Alston, none of whom had any significant major league experience as players ! There is, however, a problem with the statistical technique. It works well to measure plant efficiency if, for example, the objective is to minimize the input of iron and coal in producing steel. But minimizing the team slugging average and strike-out-to-walk ratio relative to wins is an index of squeaking through to a win. The missing dimensions are the ability of the manager to maximize batting and pitching performance, given the exogenously determined ability of the players on the team and the ability to identify and attract quality players. Considering the contribution of managers to wins, and hence to team revenues, they are grossly underpaid (median 1987 season salaries: $175,000 to $200,00).
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Author:Chiswick, Barry R.
Publication:Business Economics
Article Type:Book Review
Date:Oct 1, 1990
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