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Congressional Hearing on Baseball Contraction

Aired December 6, 2001 - 13:47   ET


JUDY WOODRUFF,CNN ANCHOR: When Major League Baseball owners voted last month to eliminate two teams before next season, there were some members of Congress who took notice and decided they wanted to introduce legislation to do away with baseball's 79-year-old antitrust exemption, exempting them from antitrust laws that effect everybody else.

We are seeing hearings that got underway just a few moments ago in the United States House of Representatives. We missed the chairman of the House committee, Representative James Sensenbrenner of Wisconsin. We are now listening to Bud Selig, who of course is the baseball commissioner.


BUD SELIG, MAJOR LEAGUE BASEBALL COMMISSIONER: ... and those payrolls continue to escalate. But not advancing in the playoffs, the payroll and performance correlation is unmistakable and powerful. As the attached chart one, over there, shows, the 2001 playing season, there now have been 224 post season games in the past 7-year period.

Still, no team other than in the top one quarter of pay rolls has won a single World Series game. Teams in the lower half have now won five play off games out of 224 games, representing a mere 2 percent, but none has advanced beyond the first round. Baseball's financial losses and overall economic stability are even bleaker now than they were in the summer of 2000. Although revenue continues to grow, so do losses.

As the attached chart 2 shows, cumulative operating losses over the 7-year period have grown to almost 1.4 billion dollars. And now only two teams have been profitable at operation basis over that period. The Cleveland Indians and the New York Yankees. In fact, even respected outside observers are concerned about our, in quote marks, "successful clubs."

For instance, just this week the head of the sports group at Lehman Brothers was quoted in the "Sports Business Journal" as follows about the Cleveland Indians: "The Indians are not a basket case franchise. They maximized all their venue revenue," he said. "They have a good competitive team. They are not at the top of the payroll heap and still they are not making money. Where does that leave most of the other clubs?" I met with all the clubs last week in Chicago and also a month ago and told the club owners I would present to Congress the same numbers that our clubs recently reviewed. This is the time that Major League Baseball has come to Congress with financial numbers as detailed as these, including individual club financial results.

Let me point out just a few of these numbers for you on the attached chart 3, and urge that everyone take time to study what we have presented. Although this year's audits are not yet final, the consolidated loss for all 30 clubs in 2001 will be approximately $519 million; 25 clubs lost money and five made money this year. The consolidated loss from just baseball operations alone will be approximately $232 million.

When the net interest expenses added to this number, the loss becomes nearly $345. The interest I speak of relates predominantly to debt that is staggering in its own proportions. The total industry debt is currently over $3 billion as shown in chart 4. If you add deferred compensation and future, guaranteed obligations to players, that number approaches $8 billion. Needless to say, these numbers are the highest in baseball history. And incredibly they are still growing rapidly.

Two of baseball's bankers spoke to our clubs at our meeting last week and underscored the severity of this situation. I have read that the union and its accountant will be skeptical about these numbers. I'm here to tell the committee that union has had these numbers. That these numbers have been audited repeatedly. And that the union has represented that it accepts the veracity of the numbers we have presented.

The union has had club financial data since the mid 1980s. Since 1985 the clubs have provided the union with audited financial statements from each club. Uniform financial questionnaires prepared by each club and the industry's's consolidated financial statement. Since 1997, we have also provided the union with the results of the separate revenue-sharing audits that are done of each club's books, each year, by Price Water House Coopers.

Finally, the union has a right under our collective bargaining agreement to conduct its own audit of any of the clubs revenues. It has never done so. As part of my submission, I have provided three pages describing the financial information that has been presented to the union.

The idea that somehow what I have presented today is not an accurate picture of the industry's economics is sheer nonsense. Anyone who would state otherwise is just plain misinformed or, frankly, is engaging in deliberate misstatement.

In examining baseball's competitive and financial issues, it has become clear that there are clubs that generate so little in local revenue, that they have no chance of achieving long-term competitive and financial stability, as shown in chart 5. Revenue-sharing alone will not enable certain clubs to be viable over the long-term. We believe certain clubs have no prospect of long-term competitiveness on the field or financial viability off the field. That is why baseball has made the decision to contract by two teams, without having finally decided which teams they will be.

Baseball has made this decision because the local revenue generated in these markets simply insufficient to justify our continued investment in these markets. As you saw from the numbers, we have one team that receives 80 percent of its total revenues from central baseball and others that receive more than 50 percent. Much has been written and said on the subject of contraction since I announced it a month ago, and quite candidly, much of it is simply wrong.

As an example, baseball has been criticized for simply proceeding with contraction without consulting the player's union. Nothing could be further from the truth. We first broached the subject of contraction with union leaders early this year, and continued to discuss it with them throughout the year. The union has clearly been kept informed that contraction was an option we were considering. And we have begun bargaining over the effects of contraction.

It is also said that baseball should not contract its troubled franchises but should relocate them. We have looked at the possibility of relocation and have not ruled it out in the near future. It is not, however, an immediate answer to the problem that we are trying to solve.

In weighing various relocation possibilities, it has become clear to us to that moving a club during this off season, given our current industry economic environment, would merely be substituting one problem for another problem. Again, although we are very proud that no club has moved for 30 years, we may well find that relocation can become one part of our overall solution in the very near future, but it is not the answer to the problems we are facing this year.

Members of this audience body and the press says that baseball needs to share more local revenue. Governor Ventura has said many time that baseball needs to get its house in order by having more revenue sharing and some form of salary restraint. Let me address both of these points.

First, baseball shares more revenue now than many of you and many of our fans seem to realize. This year, approximately $167 million in local revenue will be directly sent from the top clubs to the bottom clubs. In addition, more than $700 million in national revenues are divided equally among the 30 teams. The 167 million is the highest level of local revenue sharing that baseball has ever had. And is far times more than we have had only five years ago. But we fully agree -- I repeat, fully agree -- that we should be sharing more local revenue. Our clubs are willing to do so.

It must, however, be negotiated with the players union, which has resisted substantial increases in revenue sharing. Let me repeat. The owners want to share more revenues and the union, at this point, has been unwilling to agree to a very meaningful increase. Let me be candid, Mr. Chairman...

WOODRUFF: We are listening to Bud Selig, who is the commissioner of Major League Baseball defend the decision by the Major League owners last month to eliminate two teams, the Minnesota Twins and the Montreal Expos, because if you have been listening, you heard him describe how much money Major League Baseball is losing, saying they are entirely within their rights to get rid of these two teams.

As you can imagine, it is a highly controversial decision. In just a few minutes, we do expect to hear, among others, from Minnesota Governor, Jesse Ventura, as well as others. We are going to continue to monitor these hearings before the House Judiciary Committee on Capitol Hill.

We will bring you other commentary and testimony before that committee.




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