Documents leaked to the Associated Press suggest that the woeful Pittsburgh Pirates might have pursued a strategy of losing in order to maximize the team's profitability in the last three seasons.
By slashing its payroll to the bone, the league-worst Pirates have both controlled costs and qualified for maximum money under baseball's revenue sharing agreement, which taxes the highest-spending teams and distributes the money to the basement dwellers. Teams are supposed to use the revenue on new players, but the documents suggest Pirates' owners have either pocketed the money or used it to pay down debt on their new stadium.
If the Pirates' strategy sounds familiar, it's because it typifies the response of U.S. companies since the economic downturn. Corporate profits are soaring nationwide, but companies are sitting on their cash -- $1.8 trillion of it -- rather than hiring because demand is weak and debt overhang is scaring firms away from investments. Just like baseball's worst team, companies are keeping payrolls trim to boost earnings reports, and they're using their revenue to pay back the debt they acquired in the upswing rather than hire new talent. Sorry to say it, America, but these days we are all the Pittsburgh Pirates.
Is this analogy totally specious? Professor David Berri, president of the North American Association of Sports Economists, was polite enough to say no. "It's like when we pumped money into the banking system because we wanted them to lend it," he told me. "Instead, the banks said thanks for the money, but we don't feel like spending it. And lending froze."
Of course, he said, there are limits to the analogy. In capitalism, everybody knows the goal is to make money. In baseball, fans are told that the goal is winning games. The Pirates' real sin, Berri said, was to tell fans it was trying to build a winner while it focused on padding its bottom line.
"When you go buy a car you understand that they're trying to make money off you," he said. "But the owners are supposed to be building a winner, when they're just pocketing money from other teams [through the revenue sharing agreement]."
It's something of a trend. The lowest spending teams in baseball -- the Florida Marlins, Kansas City Royals, and Pirates -- are all taking in more in revenue-sharing than they're spending on players, and they all showed a profit last year, according to Bleacher Report. Aiming for profits rather than wins might be a trend in limited markets, Berri said. "If you go back to the Tampa Bay Buccaneers of the 1980s, I think they were doing the same thing. They were profitable losers every year. Then in NFL set a payroll minimum. And all of a sudden, they started winning."
Private companies would not benefit from any similar government fiat. Today's baseball story won't teach us much about how to solve the U.S. jobs crisis. It's merely an interesting insight into the increasingly common attitude of companies operating in a stressed market with significant debt.
This article available online at: