The argument for socialism in professional sports is really simple – if you let the top market teams keep all of their cash and don’t constrain their spending then they will obtain all of the top talent and the same group of top tier markets will have a huge advantage every single year. As a result of this, professional sports are highly socialist in nature. We cap salaries, we redistribute revenues, we unionize the workforce, etc. It just makes sense.¹
With the World Series wrapped up and the Chicago Cubs overcoming their 108 year drought, it’s interesting to note that the Cubs winning isn’t really that surprising. The reason is simple – money. Despite a revenue sharing program baseball remains a sport that gives a huge advantage to top market teams with a huge payroll. Yes, we all became enchanted by the idea of “moneyball” and sabermetrics and all that crap, but the fact is, if you don’t have the money you don’t have a very good chance of winning.
In the last 20 years just one team with an 80th percentile payroll has won the World Series. On average, if you’re not in the top 50th percentile of highest payrolls your odds of winning are close to nil. The 2016 Indians, with the 24th ranked payroll in MLB would have been just the second team in 20 years to win the championship with such a low payroll. In other words, they were at a huge disadvantage from the start. And one could easily argue that that became even more heavily skewed as the season went on as the team with perennially deep pockets was able to trade away a huge amount of value for Aroldis Chapman who played a key role in their championship run.²
This lack of parity in MLB isn’t necessarily a problem of course. I mean, I don’t mind watching the same 5-10 legendary franchises beat eachother’s brains in every single year. In fact, I kind of prefer that to seeing two no-name teams with no history go at it. But that’s not the issue here. The issue is a general lack of fairness in sport. It just seems unfair that the Yankees, the team with the greatest history and highest revenue can literally buy their way to winning records year after year. This isn’t some innate talent they have. It’s just legacy and location. And of course, MLB has no real incentive to change the structure. Greater parity probably dilutes the product for the reasons I mentioned. So they’re incentivized to avoid this sort of parity. So, in a weird way, a part of me says “who gives a damn” about all of this anyhow. Part of me wants it to be fair, but part of me doesn’t. So, you get into this messy discussion about the “right” level of redistribution and I would be lying if I said I have the right answer.³
So, I’ll have to wrap this up leaving you hanging. I have to get to the closest casino as soon as possible so I can lay down a bet on the Dodgers, Red Sox and Cubs in 2017….And besides, the footnotes in this post are better than the post itself.4
¹ – The economy really isn’t that different, however, it’s harder to judge the “winners” and “losers” every year so it’s difficult to rationalize the argument in the economy as easily as it is in professional sports. More importantly, the economy doesn’t easily translate to our sense of “fairness” in the same way that professional sports do. Yes, we want the economy to operate fairly, but we also want to feel like we’re earning our keep. Of course, quantifying the fairness of this distribution system is uniquely challenging and probably explains much of the current economic angst we see.
² – I have to admit that I was reveling in last night’s near meltdown by Chapman. Not because I am a jerk (well, maybe). But because I found an incredible sense of pleasure thinking about the article I would write about how the wealthy team tried to buy their way to a championship with a late season pick-up of Chapman only to see their high priced star fail them at the most inopportune moment….
³ – Yes, I know I can’t answer the question in the title of the post. BUT…we can again go back to the economy here. We want the economy to become “fair”, but at what cost? Of course, if we make everything perfectly fair then we dilute the product. The incentive structure gets totally messed up and really smart productive people feel no more valuable or incentivized than ignorant unproductive people. And over time the product veers closer to something that resembles the output of the ignorant and unproductive because there’s no value in being smart and productive. But again, quantifying the tipping point is difficult if not impossible.
4 – Just kidding. Gambling is bad. Don’t do it. Also, these footnotes aren’t that great so why are you still reading?
NB – In the interest of full disclosure – my equation for rooting for pro sports teams is rather simple these days. I find the team with the lower payroll and root for them. I have become so emotionally detached from pro sports thanks to the perpetual losers in my hometown of Washington DC that the only way to make it enjoyable is to root for an underdog team that I know will usually lose. In doing so, I remove all emotional investment except for the outlier joy I occasionally feel when the underdog overcomes the odds. It’s basically an emotional hedge so that I never get too invested in the event. This not only distances me from the ups and downs many sports fans feel, but also saves a huge amount of time over the course of pro sports seasons as I truly don’t care who wins 99% of the time.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.