The $25 Million Man

The Real Reason Baseball Players Are So Rich

It's baseball free-agent season again, and hot-stove scuttlebutt is all about whether MLB's new payroll tax will depress salaries. Signs are mixed so far—the Phils signing David "Not as Good as My Dad or My Granddad" Bell for four years and $17 million can't be a positive indicator—and the true impact won't be known until next summer, when hindsight will allow this winter's deals to be pigeonholed as either masterstroke or Vaughnian folly. But even if no one again matches Alex Rodriguez's $25 million a year for being the best young player in the game today—or even Sterling Hitchcock's $6 million per for doing, well, whatever it is Sterling Hitchcock does—it's hard to get worked up over exactly how many zeroes appear on paychecks, especially when the money is just siphoning between millionaires and billionaires. For most fans, one question still dominates: How did we end up in a world where one infielder makes more per game than nine families in 10 earn all year?

The answer is neither "the free market" nor "greed," no matter what you'll read in the sports pages. In fact, while most players would probably be loath to admit it, baseball salaries have been subsidized up the wazoo for decades. Among the notable unhidden hands at work in creating the $25 Million Man:

• Back in 1990, a man sold his stock in Harken Energy. The company went in the toilet shortly afterwards, but the man's money was safe—he'd used it to help buy a piece of the Texas Rangers, who just happened to be down the road from his house. Because the man was an amiable fellow, and his dad was the Leader of the Free World, his partners gave him 12 percent of the team, though he'd put down less than two percent of the purchase price. With Dubya at the helm—and team president Tom Scheiffer (now U.S. ambassador to Australia) in the Dick Cheney role, working the pedals—the Rangers sputtered on the field. But the new owners had their sights on bigger game: convincing the city of Arlington to shell out $135 million in sales-tax money for a spiffy new stadium—one of 15 new big-league parks built between 1989 and 2001, at a total public cost of more than $2.6 billion.

Gifted with a brand-new tourist attraction at public expense, the Rangers' financials went through the roof: In the first four years at the Ballpark at Arlington, team revenues rose 62 percent. Not only did this give the team's owners more money to throw at A-Rod (plus Andres Galarraga, Ken Caminiti, and other less successful imports), it actually encouraged them to spend more: If A-Rod draws another million fans to old Arlington Stadium, that's one thing, but at a new park where tickets average 20 bucks a pop, suddenly $25 mil a year doesn't look like such a bad investment. (The same mechanism is driving the Phillies' current free-agent splurge, in anticipation of a new stadium in 2004.) And without the largesse of local taxpayers, none of it would have been possible.

• Greedy players are often blamed by fans (and invariably by owners) for inflating ticket prices, but there's no evidence of this. Like any good business execs, owners charge as much for tickets as the market will bear, regardless of payroll expenses.

Lately, the market has borne a heckuva lot more: Even accounting for inflation, average ticket prices leaped 51 percent during the 1990s and are still on the rise. While overall interest in baseball is, if anything, on the wane—by 2001 a mere 12 percent of adults called baseball their favorite sport, a distant third to football and basketball—what has risen is disposable income, particularly among the affluent fans who are increasingly sports' target demographic.

While the median U.S. household gained $3400 in after-tax income between 1979 and 1997, the average household in the top 1 percent was a whopping $414,000 richer, thanks in large part to the tax cuts launched by Ronald Reagan and his cohort. That cash would come in handy for buying up those new luxury suites and club seats, resulting in grandstands that are markedly more exclusive: The only demographic segment to attend more games in the '90s than the '80s was households earning more than $50,000 a year.

• While mallparks and Reagan-omics are recent developments, two hefty props to baseball profits go back a half-century—and both can be laid at the feet of the Internal Revenue Service. When Joe MegaCorp plunks down $100,000 for a luxury box, he knows that he'll be getting back some of that money on tax day, thanks to rulings that sports tickets are an acceptable business-entertainment deduction. Though this was trimmed to a 50 percent deduction under Clinton, the fact that the federal government helps pay for baseball tickets at all has helped grease the skids for the $40 ducat. Baseball's other major tax subsidy is player depreciation, by which team owners can depreciate the cost of player contracts, as if second basemen were worn-out mechanical equipment. (Hold the Roberto Alomar jokes.) Since clubs can also deduct the costs of cultivating new talent—scouts, farm clubs—this amounts to double-dipping, but this is a long-established"standard practice" that the IRS doesn't seem to mind. And since the bigger the contract, the bigger the deduction, the feds' generosity has effectively propped up owners' willingness to pay sky-high salaries as well.

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