The most widely spread mistruth in sports is that baseball owners are all about profits. They are not. In fact, like you discussed, I believe the opposite. If we're speaking in terms of total profits over the lifetime of the owner, MLB owners like Chris Ilitch actively work against their own interests, by instead choosing to consistently operate the team in a way that maximises profit realised today, then taking that same strategy tomorrow, and every day, infinitely. Paradoxically, maximising profit on each individual day is not the way to maximise lifelong profit, so I can definitively conclude that MLB owners are not strictly in the business of maximising profits.
This is why the teams that have private equity behind them, who are ACTUALLY profit maximisers, tend to splurge for FAs, while the traditional owners are the cheap ones.
As you brought up, MLB owners operate their teams as if they are assets that are about to be flipped, with the absolute deference to immediately realisable profits, but they never actually flip them. This raises the question of why these teams operate this way. If you plan to hold onto the team (as Chris Ilitch has done), why spend the last eight years operating as if the team is one month from being sold?
It's hard to know the answer to that question. There's always the Soccernomics explanation (that sports to these owners are small apples in revenue terms, allowing for more inefficient business behaviour). In English, this is basically accusing baseball owners of not running their teams well, because even if revenue (not profit, just revenue) goes from $400M to $500M, that is still chump change to them. Most baseball owners are involved with businesses that can double that number at least every year. Perhaps in those other businesses, they feel the need to profit maximise, just not in baseball, because the money (relative to the other business interests of a billionaire baseball owner) is still so small.
That's one explanation. Another is just that these owners that have inherited the teams they run are just idiots that don't know how to profit maximise. Chris Ilitch didn't build Little Caesar's after all. Mike did that. All Chris has to know how to do is not run the business off a cliff. This explanation could explain why the self-made entrepreneur type of owner is consistently better at it than the son/daughter who inherited the team type of owner.
Now that we've confirmed that the owners are not adequately profit maximising, the buck falls on baseball itself. Why is this allowed?
Baseball has gone a long way towards fostering this culture of 'efficiency,' largely (in my opinion) in an effort to reduce leaguewide payroll. Big playoffs (allowing one more cheapskate team like Detroit in every year) moved the game in this direction, the increased draft choice disincentive to sign FAs moved the game in this direction. There are other things I can bring up. I won't name them all, but it's clear that baseball itself (the league office and the league culture) likes this direction, despite it neither being the profit maximising strategy nor the entertainment maximising strategy. This is why rules around ownership will never change to lessen this kind of behaviour. Why would they do that when ever since Rob Manfred became commissioner, they have consistently been changing rules to encourage this kind of behaviour?
Why is that?
Quite honestly, your guess is as good as mine. I don't know why baseball wants things to be this way. I don't know why the league office aided in this effort instead of pushing back against it. I don't know how the promise of winning more games while not making any less money consistently fails to push owners to the so-called dark side of actually trying to win. I don't want to call everybody involved an unintelligent human who either doesn't know or doesn't care how to maximise their own money, but what other choice do I have? What other rational explanation is there?
Like you said, if these teams ever actually got sold, this behaviour would make some sense, but since they never do, why operate a baseball team like an investment asset that you're hot to get off of?
Thanks for reading and your thoughtful comment, Robbie.
I believe there is a combination of nitwittery, risk aversion, and myopia at play. Contrary to theoretical economics, the average person does not act rationally and certainly does not possess perfect information.
A few owners are profiting handsomely as their other businesses decay (Nutting as a newspaper guy is the primary example). Ego also probably keeps him in this cycle, rather than selling and taking the profits to put into better investments.
As a Tigers fan, you hit the nail on the head. It's especially difficult to believe they haven't made any sort of move to lock up the younger position players, especially Riley Greene, beyond the deal they made with Colt Keith last year. For a mid market team, the goal should seemingly to be like the Nationals of the 2010s, maximize your draft returns, lock up who you can, then make the type of signing they made with Scherzer while on the upswing.
Yes, this is a key point. If you want to be “more efficient,” rely more on homegrown players etc—ok but then lock them up a couple years before they are truly breaking out. Skubal two years ago, Greene before last year.
The Braves are doing this brilliantly. Then they also add via trade and smart FAs.
I just can’t take Chris I seriously given what he’s (not) done.
Fantastic read here.
The most widely spread mistruth in sports is that baseball owners are all about profits. They are not. In fact, like you discussed, I believe the opposite. If we're speaking in terms of total profits over the lifetime of the owner, MLB owners like Chris Ilitch actively work against their own interests, by instead choosing to consistently operate the team in a way that maximises profit realised today, then taking that same strategy tomorrow, and every day, infinitely. Paradoxically, maximising profit on each individual day is not the way to maximise lifelong profit, so I can definitively conclude that MLB owners are not strictly in the business of maximising profits.
This is why the teams that have private equity behind them, who are ACTUALLY profit maximisers, tend to splurge for FAs, while the traditional owners are the cheap ones.
As you brought up, MLB owners operate their teams as if they are assets that are about to be flipped, with the absolute deference to immediately realisable profits, but they never actually flip them. This raises the question of why these teams operate this way. If you plan to hold onto the team (as Chris Ilitch has done), why spend the last eight years operating as if the team is one month from being sold?
It's hard to know the answer to that question. There's always the Soccernomics explanation (that sports to these owners are small apples in revenue terms, allowing for more inefficient business behaviour). In English, this is basically accusing baseball owners of not running their teams well, because even if revenue (not profit, just revenue) goes from $400M to $500M, that is still chump change to them. Most baseball owners are involved with businesses that can double that number at least every year. Perhaps in those other businesses, they feel the need to profit maximise, just not in baseball, because the money (relative to the other business interests of a billionaire baseball owner) is still so small.
That's one explanation. Another is just that these owners that have inherited the teams they run are just idiots that don't know how to profit maximise. Chris Ilitch didn't build Little Caesar's after all. Mike did that. All Chris has to know how to do is not run the business off a cliff. This explanation could explain why the self-made entrepreneur type of owner is consistently better at it than the son/daughter who inherited the team type of owner.
Now that we've confirmed that the owners are not adequately profit maximising, the buck falls on baseball itself. Why is this allowed?
Baseball has gone a long way towards fostering this culture of 'efficiency,' largely (in my opinion) in an effort to reduce leaguewide payroll. Big playoffs (allowing one more cheapskate team like Detroit in every year) moved the game in this direction, the increased draft choice disincentive to sign FAs moved the game in this direction. There are other things I can bring up. I won't name them all, but it's clear that baseball itself (the league office and the league culture) likes this direction, despite it neither being the profit maximising strategy nor the entertainment maximising strategy. This is why rules around ownership will never change to lessen this kind of behaviour. Why would they do that when ever since Rob Manfred became commissioner, they have consistently been changing rules to encourage this kind of behaviour?
Why is that?
Quite honestly, your guess is as good as mine. I don't know why baseball wants things to be this way. I don't know why the league office aided in this effort instead of pushing back against it. I don't know how the promise of winning more games while not making any less money consistently fails to push owners to the so-called dark side of actually trying to win. I don't want to call everybody involved an unintelligent human who either doesn't know or doesn't care how to maximise their own money, but what other choice do I have? What other rational explanation is there?
Like you said, if these teams ever actually got sold, this behaviour would make some sense, but since they never do, why operate a baseball team like an investment asset that you're hot to get off of?
I can't answer that.
Thanks for reading and your thoughtful comment, Robbie.
I believe there is a combination of nitwittery, risk aversion, and myopia at play. Contrary to theoretical economics, the average person does not act rationally and certainly does not possess perfect information.
A few owners are profiting handsomely as their other businesses decay (Nutting as a newspaper guy is the primary example). Ego also probably keeps him in this cycle, rather than selling and taking the profits to put into better investments.
Passionate and intelligent. Well done!
Thank you and thanks for reading, Mark.
As a Tigers fan, you hit the nail on the head. It's especially difficult to believe they haven't made any sort of move to lock up the younger position players, especially Riley Greene, beyond the deal they made with Colt Keith last year. For a mid market team, the goal should seemingly to be like the Nationals of the 2010s, maximize your draft returns, lock up who you can, then make the type of signing they made with Scherzer while on the upswing.
Yes, this is a key point. If you want to be “more efficient,” rely more on homegrown players etc—ok but then lock them up a couple years before they are truly breaking out. Skubal two years ago, Greene before last year.
The Braves are doing this brilliantly. Then they also add via trade and smart FAs.
I just can’t take Chris I seriously given what he’s (not) done.
Thanks for reading, Jim.