Bob Welch sat at home in San Francisco, waiting to see where he would pitch next season and how many millions he would get. All around him he saw huge free agent deals being signed: as big as Darryl Strawberry's $20.25 million contract with the Dodgers and as mysterious as Matt Young's $6.35 million deal with the Red Sox.
Across San Francisco Bay, the Oakland Athletics consulted the statistics and made perhaps their most important lineup move for the 1991 baseball season: They decided to keep Welch, a free agent.
But the figures they considered may not have been Welch's 27-6 record or the Cy Young Award he won as the American League's best pitcher. Rather, the A's evaluated the spiraling salaries of the free agent market and their own payroll before agreeing last night to a four-year contract with the 34-year-old right-hander.
Financial terms were not released, but Welch is expected to command top dollar -- upward of $4 million per year. The A's payroll, at more than $30 million, already was the highest in the sport. In order to operate the franchise at a profit, ownership had to decide if success on the field is less important than profit off of it, that the role Welch played in the A's pennant-winning season could have been replaced more cheaply by other pitchers.
Apparently, the Athletics have determined that Welch's worth is too great, and that has provided a glaring reversal of baseball's new math. As salaries soar into the stratosphere, straining teams' abilities to turn a profit at their existing levels of revenue, clubs increasingly are making roster choices that have as much to do with the bottom line as they do with batting average.
Still, there is no sign the spending is slowing down. Since the season ended, the 26 teams have committed to nearly a quarter-billion dollars in long-term contracts on free agents or to keep their players from leaving. That sum is more than half last season's major league payroll.
The teams are gambling that the new players will pay for themselves by making the team more attractive to fans and television. "If you don't have a competitive team, a good team, attendance is even going to be worse," said Ewing Kauffman, co-owner of the Kansas City Royals, who have spent heavily on free agents this offseason and last. "So now you're forced to spend some money that isn't coming in in order to maintain a good team."
The Royals discovered the hard way last season that spending heavily on free agents doesn't always produce a winning record. They finished sixth in the AL West.
"Success is going to vary," Commissioner Fay Vincent said. "This year, the Pirates and the Dodgers, with reasonably low payrolls, have performed extraordinarily well, and some of the teams that have made big investments in the free agency market didn't do so well. I don't know what conclusion you can draw from that -- you can't. It's whimsical, which is baseball. But it does mean it's hard to manage in baseball."
The stakes are getting dizzyingly high. The average player salary rose from $46,000 in 1975 to more than $600,000 last year, and continues to climb. Such recent big-money contracts as Strawberry's five-year deal with the Los Angeles Dodgers, who have also given Brett Butler $10 million for three years; George Bell's $15 million over four years from the Chicago Cubs; Willie McGee's $13 million over four years from the San Francisco Giants; and Steve Sax's $12.4 million over four years to stay with the New York Yankees have helped drive the salary spiral still higher -- and renewed warnings from some team officials that the sport may be spending its way into bankruptcy.
But the contracts given to less successful players -- Bud Black's $10 million, four-year deal with the Giants and Young's $6.35 million, three-year pact with the Boston Red Sox have really brought the issue into question.
"The amount of money being paid is staggering," Red Sox General Manager Lou Gorman said last week, even as his team was about to close a deal with San Diego Padres free agent slugger Jack Clark. "It blows your mind. If it continues, some clubs are going to go broke."
Such warnings have been heard before, but these concerns are being raised at a time when it appears the sport's other gold mine, an impressive revenue stream, may be peaking.TVulnerable
The holders of the sport's TV contracts, CBS and ESPN, lost more than $100 million showing baseball last season after paying more than $1.4 billion for the rights to televise games over four years. CBS, plagued by poor baseball ratings last summer and a disastrous World Series -- only four games -- already has written off $170 million of its $1 billion share of the contract. Such problems could make it difficult for baseball to negotiate as lucrative a contract the next time around.
Meanwhile, nobody knows what effect the national economic slowdown will have on baseball attendance, merchandise sales and other forms of income. But it doesn't seem likely to be positive.
In addition, the 26 teams are liable for $10.6 million each as a result of an agreement to pay the players' union $280 million to settle the long-running collusion cases. That figure is far more than the $4 million per team believed to have been set aside for collusion payments and represents a big chunk out of the average team revenue of about $40 million a year. The collusion agreement also granted "new-look" free agency to 15 players.
No wonder, then, that Montreal Expos owner Charles Bronfman recently revived the idea of some sort of revenue sharing between owners and players to smooth out revenue disparities between teams in large and small markets and help control expenses -- the same suggestion that was a major cause of the bitter 32-day lockout that wiped out spring training and delayed the 1990 season.
And St. Louis Cardinals General Manager Dal Maxvill, whose team saved a whopping $41.5 million by letting go four of its veterans -- McGee, Vince Coleman, Terry Pendleton and Ken Dayley -- said recently that the free agent market has become "complete insanity."
The leaders of the players' union, of course, don't buy ownership's argument. "This is not an industry that's looking over its shoulder to see if it's going to survive tomorrow," said Donald Fehr, executive director of the Major League Players Association.
Indeed, the Associated Press recently reported that baseball had made a total profit during the 1989 season of $214.5 million -- about as much as the two previous years together. Sources say the total profit for the 1990 season was more than $100 million, on cumulative revenue of about $1.3 billion.
But a handful of teams in major markets -- the New York Mets, New York Yankees, Los Angeles Dodgers and Chicago Cubs -- account for much of the total profit because their revenue from local television rights fees is much greater than those in smaller markets, while expenses are more or less the same.
That leaves 22 teams to divvy up the rest, indicating an annual profit of a few million dollars at best for each. Four teams lost money in 1989, according to figures obtained by the AP; Vincent says five to 10 teams lost money in 1990. Among the losers: the Montreal Expos, Pittsburgh Pirates, Kansas City Royals, Seattle Mariners and Cleveland Indians.
"There are clubs that haven't made money in a number of years. So baseball is very popular, and there are reasons to be concerned," Vincent said. "I think what we're saying is that if we see the iceberg out there and we're on the Titanic, we have two choices: We wait until it's right on top of us before we do something -- we hit it before we do something -- or we say it's there and we want to deal with it. We've got two courses. I prefer the latter."
As part of the new collective bargaining agreement, the owners' Players Relations Committee and the Major League Baseball Players Association will announce on Monday a joint economic study committee to investigate the sport's financial future.
Big Market, Big Pond
While teams must be competitive with each other on the field, an objective that costs as much in salaries in Milwaukee or Baltimore as it does in New York or Los Angeles, there are huge differences in potential revenue.
"The really major challenge for baseball is to protect the ability for all of the teams to compete with each other in the field when the economics of player compensation are such that it may be very difficult for the smaller markets to meet those payroll levels," Vincent said. "There are a number of franchises that have a very difficult time competing with the economic clout of the big-city teams."
Even eschewing the free agent market and attempting to compete with younger, cheaper players is no guarantee of financial success. Under baseball's labor contract, players with two-plus years in the big leagues are eligible for salary arbitration that can greatly inflate their pay, and they can become free agents and let all teams bid after six seasons. Therefore, unless a team is constantly turning over its players, its payroll may rise inexorably and dramatically -- especially if those players are particularly talented.
"There are certain things in the system that will inherently lead to higher salaries," said Larry Lucchino, the president of the Baltimore Orioles. Even the spendthrift Orioles have dipped into the free agent market, signing aging former Red Sox star Dwight Evans to a relatively conservative one-year contract that could be worth as much as $1.3 million.
One small-market team facing the challenge of affording rising salaries on a limited revenue base is the Seattle Mariners, one of the sport's fastest-improving teams. Over the next couple of years, the Mariners will have to pay young superstar Ken Griffey Jr. and a collection of pitching prospects salaries equal to what teams in much bigger markets would pay -- or risk losing the players.
"It doesn't matter that our revenue base is X and theirs is Y," said Jeff Smulyan, the radio mogul who is the Mariners' principal owner. "We can't say to Kenny, 'We're only going to pay you $800,000, even though you could make $6 million in New York.' "
"They have some very good young pitchers, they have young Mr. Griffey," Vincent said. "It's important for them to be able to retain those players, build fan allegiance, build a franchise. If they can't afford to pay what the bigger markets are going to pay for one of the players, then the smaller markets become feeders for the bigs, and that changes the whole texture of baseball."
The players' union is skeptical. "It depends on how you define 'haves' and 'have-nots,' " Fehr said.
'Expect Not to Lose Money'
There already are examples of teams making roster decisions based on profit and loss figures. The A's, who lost more than $60 million over seven years before finally turning a small profit in 1988, decided to save money last winter by not re-signing three free agents -- designated hitter Dave Parker, pitcher Storm Davis and infielder Tony Phillips. "We made choices last year that many people predicted would lead to our demise," said Sandy Alderson, Oakland's vice president for baseball operations.
But the A's, considered baseball's best-run organization, had the best record in baseball last season before losing in the World Series. And the tough choices on Parker, Davis and Phillips saved them $5 million -- about 10 percent of their annual revenue of $50 million. The A's used the money to give big contracts to several of their remaining veterans, including Jose Canseco, Rickey Henderson and Dave Stewart -- and now Welch -- and to get an extra draft pick and the money to sign a potential star, high school pitching phenomenon Todd van Poppel.
The A's face a particularly wrenching budget readjustment as their payroll grows from $21.6 million to about $35 million with the signing of Welch. Team officials say they will cover the increase by raising ticket prices, improving broadcast revenue and plowing this year's small profit back into the operation. "We expect to make a profit this year and we expect not to lose money next year," Alderson said.