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LWIB: A New Generation of "Well-Paid Slaves" in MLB?, Will Einhorn bring the "Extra 2%"to the Mets?, plus Tidbits PDF Print E-mail
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Pete Toms Article Archive
Written by Pete Toms   
Tuesday, 31 May 2011 07:49

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall“, a new generation of “well-paid slaves”?, will David Einhorn bring the “Extra 2%“ advantage to the Mets?, plus tidbits.

A NEW GENERATION OF “WELL-PAID SLAVES”?

I’ve written here many times about the present and future of player recruitment in the Dominican Republic. There are several notable aspects to this matter. As the number of American boys playing baseball steadily declines, MLB franchises are increasingly reliant on acquiring talent abroad. MLB is eager to expand the Rule 4 draft (aka amateur draft) to Latin America both to control steeply increasing signing bonuses for international free agents and to foster greater competitive balance. (I’m sceptical about the latter) Player development in the Dominican Republic is, by all accounts, corrupt. Bonus kickback schemes have cost some senior level player development executives in MLB their jobs and federal charges have been laid. MLB clubs have invested millions of dollars in prospects whose ages and identities were eventually found to be fraudulent. Steroid use amongst players trained by buscones is believed to be rampant, with positive tests in the Dominican Summer League commonplace. Both the MLB Scouting Bureau and Department of Investigations are now active, on the ground, in the DR. Whether or not MLB is working with, or against, the buscones, is a matter of opinion. There appears to be agreement, in principle, between MLB and the PA that the introduction of a so called “worldwide draft” is a good idea. But the particulars of negotiating such with the respective governments is much more complex.

Aside from the industry nuts and bolts debates about reforming player development in the Dominican Republic, there is an ongoing political and social debate amongst baseball’s chattering classes (which I am a member of). In December I brought attention to a pair of reports in the New York Times (here and here) questioning if Americans are exploiting impoverished Dominican boys and their families. About the two Times reports, I wrote; “The first described wealthy Americans investing in Dominican baseball academies with hopes of earning commissions of up to 50% on contracts signed by the prospects with MLB franchises. It was difficult to interpret the report as anything less than a plantation metaphor. The second described loans made to Dominican boys and their families by baseball super-agent Scott Boras. In this instance it was difficult to interpret the report as anything less than Dominican baseball playing boys as indentured slaves.”

That first Times report identified former Yankees Chairman Steve Swindal as one of the investors in a new Dominican baseball academy, which operates independently of MLB. LWIB, Liz Mullen reported in the SportsBusiness Journal that Swindal’s group is seeking to acquire player agency heavyweight SFX Baseball for a reported $40 million. In turn, the agency would be merged with his existing Dominican academy (Pan American Sports Group) to form a new entity. According to Liz, Swindal‘s group is prepared to offer $40 million to acquire SFX Baseball. Again, according to Liz’ report, PASG’s academy trains boys aged 14-16 (the Times report speculated there were boys as young as 13 housed at such academies). All MLB franchises operate academies in the DR, but the players must be a minimum of 16 and their stay is limited to 30 days. While many will question the ethics of Swindal’s vision, the potential business upside of the proposed new entity is obvious. Liz obtained a document being circulated to potential investors which states, “Creating a holding company that owns (the player rep firm) SFXBB and PASG will benefit both entities,” “SFXBB will have unparalleled access to recruit top Latin American prospects, earlier than any other agency presently has.” Just as Scott Boras stated that players whose family members received loans from his agency are under no obligation to retain him when a MLB club attempts to sign them, Swindal stated that PASG trained players will be under no obligation to sing with an SFX Baseball agent.

While the optics of wealthy Americans effectively taking control of the lives of impoverished 14 year old boys in a foreign country are ugly, does it differ from what the buscones have done for decades? And, are MLB’s Urban Youth Academies no different, in principle, than Dominican academies? And would implementing the amateur draft in the DR change any of this? Should MLB lobby the Dominican government to sanction only their academies, shutting down the Swindal’s and buscones? Or is this a controversy created by liberal pundits? As I pointed out in December, Jeffrey Standen, professor of law at Willamette University, argued that wealthy Americans investing in Dominican baseball academies is not exploitative but rather “empowering“. Standen argues that similar private investment in impoverished domestic communities would result in a reversal of the trend of fewer African-American players in MLB.

Ironically, if U.S.-born baseball players could borrow against their "sports capital" as do players from outside the country, then we might see a change in baseball's dearth of African-American players. The very restrictions that Major League Baseball imposes on U.S.-born players effectively diminish the supply of minority players. American players cannot become professionals until they are age-eligible and are drafted or signed after the draft. As a result, American-born ballplayers must delay their professional careers, and may only negotiate with one team when they begin it. These rules lower the compensation for novice professionals, and thus raise the cost of entering the occupation. With no outside funding permitted to amateurs, young baseball players must rely on their families or their own wherewithal to undertake the considerable expense of training. Is it any wonder that U.S. minorities are disappearing from the major leagues?

The more money we can lure into investments in young athletes the better and more numerous those athletes will be. The fact that Dominican players are receiving direct funding from American interests will only further promote the Dominican player and further disadvantage the American one. Expect to see even fewer American-born players from impoverished backgrounds make it to the major leagues.

Steve Swindal, baseball plantation owner or provider of opportunity?

SELECT READ MORE TO SEE DETAILS ON DAVID EINHORN AND THE METS, PLUS THIS WEEK'S TIDBITS

DAVID EINHORN

MLB, like the other North American “stick and ball” leagues, does its best to promote/impose competitive balance/parity/mediocrity via the likes of the reverse order draft, free agent compensation (not to the free agent, but the team losing the player), revenue sharing, the Compeititive Balance Tax (de facto, MLB’s salary cap) divisional alignment (including the wild card), centralizing revenues (national TV, digital, MLB Network, secondary ticketing)…so, where and how, can a franchise gain a significant and consistent competitive edge over its competitors? Should you hope that your favourite team is owned by a fantastically successful Wall Street investor? Jonah Keri argued pretty much just that in his book, The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First. According to Jonah, former Wall Streeters Stuart Sternberg, Andrew Friedman and Matthew Silverman completely turned around the on field fortunes of the woefully inept Tampa Bay Devil Rays simply by being smarter than their competitors (or most of them). In Jonah’s telling, the Wall Street experience of the aforementioned management group was crucial in readying them to compete in MLB. (I can’t find a quote because I don’t remember where I put the book when I returned from Mexico last month)

As you all know, LWIB saw another wildly successful Wall Streeter, David Einhorn, set to join the ranks of MLB ownership, in a minority position. Again, you know that Mr. Einhorn came to an agreement with the Mets owners that could eventually see him become majority owner. That is likely dependent on how successful Irving Picard is in suing the Mets majority owners for $1 billion. Lets assume that Mr. Einhorn is eventually majority owner of the Mets. Might he also be able to identify “the extra 2%” and make the Mets a regular playoff contender again? LWIB, the SportsBizblog wrote:

The track record of hedge fund owners in professional sports is generally a good one. Whether it's the application of lessons learned in the hedge fund business, the ability and willingness to spend the necessary time to lead the organization - since most of them are billionaires and have the luxury of time, or it's the knack for picking the right personnel, the track record holds up across sports. In baseball, there is John Henry, whose Red Sox broke an 86 year drought two years after he bought the team. In basketball, there is James Pallotta, a member of the ownership group of the Boston Celtics. In hockey, you have Philip Falcone, who owns part of the Minnesota Wild.

TIDBITS

  • Should we expect more, perhaps a full slate, of primetime baseball on Fox next season? (Anybody know how the Fox affiliates would react to that?) LWIB, the Sports Media Watch blog reported that May 21 ratings for MLB on Fox were the highest they’ve been in years. “Regional MLB action featuring Mets/Yankees earned a 2.8 final rating and 4.551 million viewers on FOX May 21, up 65% in ratings and 82% in viewership from afternoon coverage last year (STL/CHC*: 1.7, 2.504M). The 2.8 rating is tied as the highest for regular season baseball on FOX since July 2008 (BOS/NYY*: 3.0). (HT Fang’s Bites)
  • If you are interested in the debate over “blocking the plate”, Brian Goff has an interesting post at The Sports Economist blog.
  • I don’t receive NESN per se on my cable package. However, I do receive the occasional Red Sox game on NESN when it is simulcast on a Rogers Sportsnet channel. I most enjoy the Red Sox on NESN when Don Orsillo and the Rem Dawg get the giggles. So, I hope the rumour that Don is leaving NESN is false. (HT Fang’s Bites)
  • I’ve mentioned before here that MiLB president Pat O’Conner would soon need to decide if he would seek another four-year term (this term is his first). LWIB, Josh Leventhal reported that O’Conner announced he will seek a second term. As Josh has previously reported, some of O’Conner’s more ambitious initiatives such as partnering with MLBAM to form BIRCO and the Vero Beach Sports Village, have not been popular with some owners but O’Conner should easily be re-elected.
  • LWIB I learned that there is a baseball player agent named Bill Rose. I also learned that Mr. Rose owns a small part of the New York Yankees. The MLBPA is reviewing Rose’s application for recertification. Some agents think Rose’s situation is a flagrant COI. Others, including Gene Orza, believe rival agents have only become concerned about Rose’s role as owner since he started representing more high profile players. Read Liz Mullen.

Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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