They went on to discuss how to fix it. Zierlein tossed out an idea: Once a team is mathematically eliminated from the playoffs, they no longer get to play the remaining games on their schedule. As a result of the new rule, owners would then lose money on every game they weren’t allowed to play. This would then force them them to make baseball-centered decisions throughout the year (to keep their team in contention), in addition to financial-centered decisions (to generate a profit).

While this option will never happen (although I love the thought of it, similar to Malcolm Gladwell’s idea for getting rid of the NBA Draft entirely), it does warrant an interesting thought on how, given a certain set of ground rules, people will act.

Major League Baseball

Major League Baseball is the perfect microcosm for this. The league itself is an entire “mini-nation,” a group of teams, officials, administrations, owners, stadiums, field crews, retirees, etc. that are all more or less governed by a body. This body sets forth a certain set of rules and all the inhabitants of the game must abide because those are the rules. It just so happens the rules that MLB have set forth seem to mimic the economic model of socialism. Let’s take a look at a financial aspect of one of those rules.

The Major League Baseball System

Baseball’s system works like this:

1. Major League Baseball has a Central Fund. This Fund is like a collective pot that MLB uses to distribute to all teams in the league. It exists for the betterment of the league as a whole.
2. The Central Fund is “the repository for revenue from such sources as the national television package and licensing.” (Quote from the New York Times.) This makes sense. The league as a whole profits from people watching the games on TV, from selling advertising, from the licensing of the clubs’ logos for apparel, etc. Theoretically, it would keep all the teams in the league helping out other teams in the best interest of the overall game and “mini-nation” of baseball.
3. It is important to note, though, each year all 30 teams must pay 31% of their revenue to this same pot. At the end of the year, the entire pot is then evenly distributed to all 30 teams.
4. For some teams, like the Pittsburgh Pirates, the amount they owe to the pot is about $45 million (31% of their $138 million in revenue in 2009). For other teams, like the New York Yankees, this amount is about $116 million (31% of $375 million from 2009′s revenue) or more than double what Pittsburgh will pay to the Central Fund.
   (You can view full revenue charts from 2009 on Forbes.com’s The Business of Baseball.)
5. Take the remaining 28 teams, repeat the math, take that pot total, divide it by 30 and distribute evenly, and you’ve got a basic understanding of the baseball model, or, in my opinion, a good example of the classic “socialist” model.

The Central Fund Payout

Bobby Abreau trots in after a home run against the Pirates in a 2008 game. Photo courtesy of goddam.

You can already start to see how this can get sticky. For example, the New York Yankees have an owner that’s willing to spend his entire checkbook on big name players, not only to generate a profit for himself (ticket sales, attendance, parking, vending, etc.), but also to stay in the playoff hunt. In his mind, playoffs equal better buzz equals ticket sales equals more profit for the team. The casualty? As their revenue goes up, so does the amount they have to pay to the Central Fund.

Other teams, such as the Pirates, seem to be slicing and dicing their payroll to get overall revenues down, thereby paying the least to the Central Fund, but still netting a good amount from the end of the year payout.

It’s a push/pull decisions made by owners. Ideally, owners make baseball-centered decisions, and while the profit for the team is important, winning a championship for your city on a decent payroll should mean the most.

The Numbers Speak for Themselves

Looking directly at the numbers based on 2008 revenues, each team received about $60 million from the Central Fund. This is based on 31% of each team’s revenue added up and then divided evenly among 30 teams. Comparatively speaking, that a net loss of $56 million for the Yankees, but a net profit for the Pirates of $15 million.

The Fan-Upsetting Poor Business Model in Baseball

As a whole, it should be directly noted that there is clear incentive to keep the margin between costs and revenue as large as possible, a basic fundamental of business. Unfortunately under the MLB system, the teams that win are typically closer to losing money than the teams that end up with poor records. The poor cities and the poor teams might actually be the richest on the books.

Jeffrey Loria, art collector and owner of the Florida Marlins. Photo courtesy of umpbump.com.

Take a look at this article on “The Florida Marlins Love Living on Welfare”. Among other things, author Maury Brown points out that Florida Marlins owner Jeffrey Loria had a 2008 overall payroll of $20 million. (That’s good for dead last, 30 out of 30.) In addition, the Marlins ALSO have the second-to-last attendance in the big leagues. (The only team worse? The Oakland A’s.).

In other words, the Marlins have no big players and no one’s coming to watch. If you’re a regular business and you’re employing second (or even third) rate people, the clients usually go elsewhere. If no one’s coming to your store, you’d be worried sick because you’re not selling.

Not so for the Marlins! As it turns out, the Marlins are the most profitable team in baseball with an operating income of $43.7 million. As the author Maury Brown puts it:

Cut your margins enough (low player payroll) and regardless of whether you have embarrassingly low attendance by rolling out a team of made up with what can best be described as replacement level players, take in a healthy level of revenue-sharing, and what you have is a prime example of Jeffrey Loria and David Samson living on corporate welfare. —Maury Brown, “The Florida Marlins Love Living on Welfare”

Why Baseball Represents the Failure of Socialism

At the end of the day, the Central Fund is meant to better the league as a whole. It allows for struggling teams with smaller payrolls to get some money from the bigger, badder teams thereby leveling the playing field, keeping the game interesting, and giving other cities and towns the chance to win. According to the true socialist model, those that produce less, receive less (albeit still receive).

However, as the perversity of human nature wanders in, the system begins to break down. As one writer put it:

Socialism … (is) a way of distributing goods and services. At their ideal implementation, socialism and laissez faire capitalism will be identical as everyone will produce exactly what’s needed for exactly who needs it. In practice, both work sometimes in microeconomic conditions … and they fail for the same reason: Human pervserity. Too many people don’t like to play fair, and both systems only work when everyone follow the same rules. Socialism vs. Communism

Baseball is a true microeconomic environment. It is a way of distributing goods and services (and revenue!) with the exact intention of producing exactly what’s needed to get it to the teams that need it. But once human nature takes over, the system that was once ideal (but is dependent on human actions) begins to degrade. Owners manipulate it to make money for themselves. Cities suffer because their teams aren’t doing well. (The Tampa Bay Rays went to the World Series in 2009 but are still handedly in the bottom 20% of the league in overall value.) People begin to get disenfranchised with the game as a whole. The casual fan begins to disappear and raving fans of baseball remain limited.

I’m not a political person by any means, but if I were to have the option to test out socio-economic systems before implementing them, baseball has provided me that with socialism. And until the majority of people can put other people before themselves (which, I would argue, goes against human nature), the system seems flawed. The fans—the ones generating the money—are losing. When the fans lose, baseball loses.

But I don’t want to talk about those moves because, quite frankly, I’m not happy with the state of baseball affairs right now. The Yankees and Cardinals are great, while the Nationals have a better second half winning percentage than the Astros: .444 v. .442! I want to be a little negative and comfort myself by talking about the Five Worst Trades and/or Acquisitions this year.

5. Nick Johnson (to the Marlins)/Freddy Sanchez (to the Giants)

Nick Johnson

Freddy Sanchez

Here’s the only number that matters with these two guys: 13. As in the number of games played with their new ball clubs. The moves looked good at the time with both teams needing offensive help. What the Marlins and Giants ultimately did was give up prospects for guys to chill on the DL. If these guys can get healthy in September and produce, they can be taken off this list. But with both players not scheduled to be ready to go when they are eligible to come off the DL, this seems unlikely.

4. John Grabow and Tom Gorzelanny (to the Cubs)

John Grabow

Tom Gorzelanny

This move isn’t here because the players involved in this deal aren’t doing well individually. Grabow hasn’t allowed a run in 13 innings for the Cubs and Gorzelanny has provided solid innings as well. The players the Cubs traded—Kevin Hart and Jose Ascanio—are not faring well at all in Pittsburgh. Hart’s ERA is over 6 and Ascanio is on the DL. In theory, a great trade for the Cubs.

What does give me great pleasure is that, since this move, the Cubs have gone a paltry 11-18 and watched their half game division lead go crashing down to a 10.5-game deficit behind the front-running Cardinals. I guess Hart just made the other players around him want to win, whether he was doing well or not.

3. Russ Ortiz (to the Yankees/Rockies/Chula Vista?)

Russ Ortiz

This is really just time for me to complain about Russ Ortiz. When he was released by the Astros on July 30, he hadn’t won a game as a starter since April 26. In his last 5 starts with the Astros, he pitched 21.1 innings allowing 28 ER. That’s good for an 11.81 ERA! Why any team would even waste a spot on him is beyond me. Instead, the Yankees gave him a minor league spot—but was promptly released. The Rockies were said to be interested, but thought way better of it. He is an ultimate waste of time. (David’s Note: Fall from grace: In 2006, Ortiz made $7,875,000. In 2007? Just $380,000.)

2. Scott Rolen (to the Reds)

Scott Rolen

This was almost my number 1. This move truly, truly baffled me. Look at the Reds: They’re a young team building for the future who aren’t even close to being in the playoff hunt. Why would they trade two young, highly touted pitching prospects in Josh Roenicke and Zach Stewart for a 34-year-old 3B with a history of injuries and is due 11 million dollars in 2010???? I don’t know how Dusty Baker OKed this move. And to add injury to insult, Rolen has already been on the DL since joining the Reds.

1. Jarrod Washburn (to the Tigers)

Jarrod Washburn

And congratulations to the Detroit Tigers for the worst move of the year! You could argue that putting Dontrelle Willis on the mound was the worst move, but trading for Mr. Washburn is inexplicably worse. (This one particularly stings me as I have Washburn on my fantasy team.)

You can’t blame the Tigers for thinking this move would be good as Washburn looked to be making a case for comeback player of the year. He had an 8-6 record and the third lowest ERA (at 2.64) in the hitter-heavy American League at the time of the trade. But since becoming a Tiger, Washburn has posted a 1-2 record with a 6.81 ERA. Ouch! It’s hard to say what the problem is: not as strong of outfield defense, too much pressure, Jim Leyland not as cool a manager as Don Wakamatsu. Regardless, Washburn is not nearly the pitcher the Tigers hoped they would get.

Mug shots courtesy of ESPN.com.