DRI-326 for week of 3-31-13: The Kansas City Star Meets Flexible Baseball-Ticket Pricing

An Access Advertising EconBrief:

The Kansas City Star Meets Flexible Baseball-Ticket Pricing

Economics is the formal logic of human choice. Newspapers report human affairs. Reporting the news affords endless scope for economics as a tool of explanation and analysis. Yet newspapers are notorious for their ignorance and mishandling of economics. Why?

One possible answer is deliberate misrepresentation and concealment of facts by the papers for ideological reasons. Another is simple error. The latter hearkens to the old maxim, “Never ascribe to venality that which can be explained by mere stupidity.”

Whatever the cause, examples of this phenomenon abound. A recent front page of the Kansas City Star offers fresh evidence of it. The subject is the pricing of baseball tickets by the Kansas City Royals.

Major-League Baseball Meets “Dynamic Pricing”

“Get Set for Big Swings,” shouted the front-page headline of the Star on Sunday, March 31, 2013. An overhead explained: “Royals Ticket Prices: Like airfares and hotel rates, they will fluctuate.” The subhead continued with: “Dynamic pricing, a fixture in the travel industry and growing more common in the entertainment world, has come to Kauffman Stadium. Below are prices for the same outfield seat to see the Royals in their first week at home – as of now.” The graphic chart showed a $54 price for the sold-out home opener on April 8, followed by prices ranging from $23 to $31 to the identical seat for subsequent games that week.

The article underneath, written by veteran staffer Mike Hendricks, contrasts the age-old procedure of fixed seasonal pricing for Kansas City Royals’ baseball games with its successor. So-called “dynamic pricing” is familiar to contemporary shoppers for airline and hotel reservations. Prices can fluctuate from day to day instead of from one season to another. Moreover, these daily fluctuations are not uni-directional; they will move up and down. That is something new for baseball fans – for decades, the only changes in official ticket prices have been upward ratchets from one season to the next.

Economists will immediately recognize that the term “dynamic pricing” is a misnomer – probably owing to (bad) advertising psychology. The precise descriptive term is “flexible pricing.” It implies the actual state of affairs, in which prices are responsive to changes in consumer demand. Failure to recognize and report this misnomer is the first of many depredations committed by the author of this piece.

The headline – “Get Set for Big Swings” – embodies a longtime Kansas City Star tradition: promising revelations that the accompanying article does not deliver. This constitutes lying to the reader. It is reasonable to suppose that Star readers resent being lied to and that this has contributed to the precipitous declines in the paper’s circulation and consequent ad revenue. The only “big swing” in price cited in the article occurs between opening day and succeeding games. One of the safest predictions about any Royals season is that the opening-day game will sell out and that attendance will immediately plummet thereafter. Given flexible pricing, it is therefore axiomatic that opening day will command a high price and that the price will thereupon fall. Maybe there will be “big swings” later in the season, maybe not. But the author doesn’t say that and offers no evidence that it will happen.

By any reasonable standard of journalism, this article is off to a miserable start.

Flexible Pricing of Baseball Tickets

The author’s vagueness on future price fluctuations is not surprising because his grasp of the basis for pricing is demonstrably shaky. Although the phrase “supply and demand” appears once in the article, its underlying logic is left to the reader’s imagination.

The importance of consumer demand to pricing is never mentioned, let alone explained. In this case, the supply of tickets is fixed – limited by the seating capacity of Kauffman Stadium. Thus, the economic logic of baseball ticket pricing comes straight out of the textbook diagram marked “Very Short Run,” in which the supply curve is a vertical line and price is completely determined by its intersection with the downward-sloping demand curve. In the very short run, economists teach, price is “demand-determined.”

Thus, price changes are caused by changes in demand. These are given very short shrift indeed by the author. His marquee explanation for the Royals’ new pricing strategy is that “the hotel and airline industries have used variable pricing strategies for years as a way to encourage customers to make their reservations early.” It is true that hotels and airlines do have one thing in common with baseball teams; namely, a fixed capacity (seating or lodging) that offers the constant incentive to keep capacity utilization as high as possible.

Hotels and airlines, though, commonly suffer the peak-load problem. Their capacity is insufficient to handle demand at its very highest point(s), but too great to utilize efficiently much – perhaps most – of the time. Since the late 1980s, the Royals have suffered from inadequate capacity about one day each season – opening day. In recent years, they have had a hard time giving away tickets to late-season games – and that is not hyperbole. In any case, baseball teams simply do not suffer the kind of scheduling problems endemic to the airline and hotel industries. Business travelers or vacationers on strict timetables are key components of airline and hotel demand, but much less important to baseball teams. Even allowing for the Royals’ atypical status as a regional franchise, buying weeks or months in advance usually provides little value to fans and little convenience to the team.

Why Now? The Timing of the Shift to Flexible Pricing

Mel Brooks’ famous protagonist Maxwell Smart on the classic TV series Get Smart once responded to a villain’s derisive defense “You’re not going to try to convict me on that flimsy evidence, are you?” with the rejoinder “No, I’ve got some more flimsy evidence.” Similarly, the author buttresses his non-explanation of Royals’ ticket pricing with more flimsy evidence. “Of all professional sports, major-league baseball teams have the greatest challenge in selling tickets, given the number of seats [and] games played,” gravely declares a “market analyst” employed by a ticket reseller.

But when baseball was truly America’s national pastime, its long season and big edge in games played was not viewed as a disadvantage. On the contrary, it was cited as a+ leading factor in the economic advantage enjoyed by baseball. Pro football, basketball and hockey were second- and third-string sports, miles behind baseball in income and prestige. Owners envied baseball its long season, which provided a tremendous opportunity to generate revenue. Baseball’s only rival as a leisure-time activity was the movies, which were probably the true national pastime.

No, the long baseball season is only a drawback when the team is a poor attraction. 1985 marked the Royals’ last post-season playoff appearance – they won the World Series by overcoming 3-1 deficits in both post-season playoffs – and they have threatened to return only in 1989, 1994 and 2003. They are the deadbeats of major-league baseball. Their 27-year absence from the playoffs is by far the longest of any team in North American professional sports.

Of course, this begs the question of why the Royals have chosen to introduce flexible pricing now, at this particular point in their history. As it turns out, it is not pure happenstance. Flexible pricing is one of various types of pricing alternatives to single pricing. The common feature behind all these is motivation – the seller’s desire to increase total revenue and profit by charging multiple prices rather than just one.

That motivation stems from more than merely the desire to profit from multipart pricing. Conditions have to be right in order for the alternative scheme to work. The different prices must be designed to gain from differing characteristics of different buyers or different conditions existing among the same buyers at different times. Either way, the firm must have the ability not only to identify the differences but to act upon them. When it does that, it is engaging in price discrimination.

Baseball teams already strive to segment different groups of buyers and charge them different prices to watch the same baseball game. That is the purpose behind different seat categories such as general admission, reserve seats, box seats, field level, upper level, stadium boxes and luxury suites. Each seat category is geared to a different category of buyer and priced accordingly. The general admission tickets are geared toward low-income fans and students. Outfield general admission is the farthest away from the action and is also geared toward the low-income fans who might otherwise not attend games if not for the affordability of a low price. Luxury suites are reserved for corporate clients and millionaires who can afford to plunk down five figures to reserve a season ticket in relative luxury. Box and reserve seats are targeted toward upper-middle-class fans that want a good seat and can afford to pay a price slightly above general admission.

This system has long been in effect in baseball and other sports. It is familiar throughout the entertainment industry. The Star article cites the symphony – an art form whose legendary disdain for solvency seemingly places it above the vulgar domain of commerce and profit. Yet the time-honored seating divisions separating dress circle, orchestra, ground floor, loge or mezzanine and balcony represent the same price-discrimination segmentation of demand practiced by sporting events.

Flexible pricing takes the idea of differential demand in a different direction. Rather than focusing on demand differences among consumers at the same point in time, it considers fluctuations in demand that affect all categories of buyers – but at different points in time. For example, instead of targeting different groups of buyers, segmented by income, it targets different games that support a higher price. These are late-season games when pennant races and individual honors such as batting championships and pitching titles are at stake. These games should command premium prices, as long as the team can stand up under pressure. For over two decades, the Royals did not play such games because they were never in contention that late in the season. Consequently, there was little purpose in setting up flexible pricing because the team would not benefit that much from flexibility. There was little additional pricing strategy the Royals could use to enhance their revenue; all they could do was get what little they could from the standard price-discrimination techniques. The introduction of inter-league play did briefly inject some novelty into the schedule, particularly by adding an interstate rivalry with the St. Louis Cardinals, the Royals’ 1985 World Series opponent. This allowed the team to give flexible pricing a tryout last year in Cardinals’ games.

But prior to the 2013 season, the Royals beefed up their pitching staff. They acquired ace starter James Shields and starter/reliever Wade Davis from the Toronto Blue Jays and starter Ervin Santana in another trade. This transformed the league’s worst pitching staff into a potentially serviceable one while retaining their current offensive strength, spearheaded by all-star Billy Butler and Alex Gordon. Shields is currently pictured on Sports Illustrated’s cover, highlighting the magazine’s baseball pre-season issue. For the first time in years, the team seems able to contend for a playoff berth.

At lastthere is a prospect that late-season games may be competitively meaningful. Opening day may not be the only sellout game on the schedule this year. Thus, an effort to milk more box-office revenue from those games makes sense, since there is more potential revenue to seek.

In theory, flexible pricing benefits teams whenever there are substantial fluctuations in demand from game to game. Various factors other than competitive performance might influence the amplitude of demand over the course of a season. Weather is the most obvious; Kansas City is subject to cool Springs, hot Summers and brisk Falls. A spate of unseasonably bad weather might give the team a chance to head off bad attendance by offering offsetting discounts to fans. Games for which announced starting pitchers are marquee players will generate stronger demand.

But these subsidiary factors will become more important when core demand for tickets is strong. The improvement in the Royals’ competitive position was clearly the driving factor in the team’s change in pricing policy.

Baseball, Politics and the Star

One would suppose that an above-the-fold, front-page article would command the full attention and premium resources of a metropolitan newspaper. Yet none of the real considerations found their way into the Star‘s story on the Royals’ ticket-pricing change. Aside from simple incompetence, how can we explain this?

The Star is a left-wing newspaper. That encompasses more than merely a capsule summary of its editorial stance. Ideology infects every aspect of the newspaper’s operations, from coverage to reporting to editorials to op-eds to advertising. It permeates not only the editorial page but the front page as well. It infiltrates the sports pages, the entertainment section and even the comics. It also affects how the paper treats the Royals.

Sports teams have grown accustomed to public subsidies. These take various forms. Most commonly, they include stadia built and maintained at taxpayer expense – including periodic repairs, refurbishment and reconstruction. That does not mean there are not quid pro quo, though. It is tacitly understood that the team and its employees are to back the multifarious public projects launched by the local political establishment with endorsements and campaign cash.

The newspaper, as the establishment’s informal public-relations and promotion agency, treats the Royals with due deference. The team is viewed as a kind of quasi-public utility – an economic and psychological necessity that is not so much too big to fail as too important to fail. The newspaper sees the team’s economic interactions as gifted with remarkable generative powers – multiplier effects and such – that are really beyond the reach of any mortal business firm. But the Royals have a tacit left-wing seal of approval, which means that they are assumed to be above such vulgar considerations as profit. That is why the economic rationale for flexible and multipart pricing never reaches the tender ears of Star readers.

To the Star, the Royals are not so much a sports franchise as a political franchise and ideological asset. No information potentially damaging or embarrassing to that franchise – no matter how newsworthy – will pass unfiltered through the Star to the general public.

How has the new pricing regime been received by fans? “So far there hasn’t been much of an outcry here or anywhere else.” (21 of the 30 major-league baseball teams have now adopted some form of flexible pricing, the article discloses.) Why not? Again, the article’s author’s lips are sealed on this matter. But the answer is clear. The rise of ticket brokers and a legal secondary market for tickets, cultivated by firms like Stub Hub, has prepared the ground for flexible pricing. In other words, the free market is way ahead of Royals’ management. The author, a faithful Star minion, holds no brief for freedom or free markets and saw no reason to enlighten readers on this point.

The Economics of Flexible Ticket Pricing

The point of the Star‘s story is obscure. The headline promises “big swings” in ticket prices, but the article doesn’t provide any, nor does it suggest any real basis for them. It seems clear that something pretty new and different has come to baseball ticket pricing in particular and to professional sports in general, but the author either doesn’t know what it is or doesn’t want to reveal it. At this point, it is necessary for economic logic to take the tiller of the story in order to bring us to a coherent destination.

Will flexible pricing produce higher or lower prices than the old seasonally fixed pricing method? The short answer is: Both. But that’s not a satisfactory answer. The precise answer is that price will be closely attuned to demand on a game-by-game basis, rather than a yearly basis. (We should bear in mind that there are as many separate “demands” as there are ticket categories – that was true under the old system and remains so under flexible pricing.) From a fundamental economic perspective, that is a good thing.

The article is woefully ambiguous on this point. It first informs us (correctly) that “the prices…will fluctuate day to day, and across all sections based on supply and demand.” (This is the article’s only reference to supply and demand.) It then continues by revealing that “fewer than half the seats in your average ballpark are occupied by fans who have bought season tickets,” thereby setting a “challenge for baseball clubs…to attract casual fans who want to see a game or two during the year.” And “free bobbleheads and ‘buck nights’ only go so far in building attendance numbers.” So far, so good – flexible pricing’s raison d’être is improving ballpark-capacity utilization.

Sure enough, a company called Qcue, headed by entrepreneur Barry Kahn, sold the San Francisco Giants on the concept of flexible pricing on a trial basis in 2009. It yielded a 20% increase in sales of the seats in sections picked for the trial. Today, the company works with two-thirds of major-league clubs and has achieved revenue increases of between 5% and 30%. “That’s ticket-revenue dollars, not an increase in the number of tickets sold. However, that tends to go up, too. Dynamic pricing doesn’t necessarily make it more affordable to attend a ball game than before, but it can.”

This burbling incoherence is typical Star analysis. If attendance is increasing across the board and the only thing that’s changed is prices charged, then the prices must be falling on net balance. That’s the Law of Demand at work. The questions are: What makes them fall? When do they fall? Do they ever rise? When is the best time to buy? And – the $64,000 question – is flexible pricing a good thing overall for baseball fans and for the rest of us?

The article implies that midweek games will carry a lower price tag. It is certainly true that, all other things equal, the demand is greater on weekends when kids and working parents are less encumbered by obligation. But that is a comparatively minor factor in segmenting demand.

High-demand games are special occasions – opening day, marquee players or teams appearing – and pennant-race games. A computer algorithm will alert team officials to opportunities for price increases, which will be implemented electively. It is these games in which Royals’ sales director Steve Shiffman’s advice to “buy early, save money” makes sense. Not only will buying early get the best price, it will also avert the possibility of a shutout; e.g., failure to “score” a ticket at all due to unavailability.

The rest of the time, buying early benefits the team, not the fan. A baseball ticket, like a stock option airline seat or radio advertising time, is a wasting asset whose value expires when the game’s first pitch is thrown. (More precisely, it plummets dramatically, expiring completely at about the fourth or fifth inning.) As game time nears, the holder will likely accept successively lower prices rather than see it expire unused. This is particularly true of sports teams, who have a vested interested in filling seats to increase the incomes of concessionaires. The rise of ticket brokers has complicated pricing for team management, who are extremely reluctant to stimulate price wars lowering seat prices too much. Thus, the Royals advertise the season-ticket-holder’s discounted single-game price as their rock-bottom price. But from the fan’s standpoint, there is no point in transacting before this price is offered and no reason to rush once it is in place – for garden-variety, low-demand games.

Thus, the brave new world of flexible baseball-ticket pricing does demand that fans distinguish between high-demand and low-demand games, in order to get the best price. But this should not tax the capabilities of any experienced fan or intelligent non-fan. As a practical matter, it will not severely disadvantage even the most incapable consumer until and unless the Royals become contenders.

Is flexible pricing economically efficient? Flexible pricing brings the number of tickets fans wish to purchase in each seat category closet to equality with the number available, using price as the coordinating mechanism. This is another way of saying that the amount of alternative consumption fans are willing to sacrifice to get a ticket (their demand for it) is closer to the amount they have to sacrifice (determined by the ticket price). Equality between those two things constitutes the famous economic condition called “equality at the margin.” It is one good way of defining economic efficiency. Thus, the verdict on flexible pricing and economic efficiency is favorable.

This is good for everybody because we all have a stake in using what we have to make each other as well off as possible. It’s good for taxpayers because baseball is publicly subsidized, but the presence of subsidies doesn’t make the case stronger. In fact, the subsidies themselves are inefficient and should be ended – that would make things even better. (Sports meet none of the textbook criteria for subsidy and none of the claims to economic exceptionalism advanced in their behalf.)

If prices sometimes go down but sometimes go up, how can we claim that fans, per se, are better off? Prices go up when people value a ticket than they value the alternative consumption that the ticket’s price embodies. Flexible pricing enables us to sort out the cases when this is true from the cases when it isn’t true. In the old days, we needed illegal ticket scalpers to do that. Now ticket brokers can do it, but not as well as when the team gets involved in the process, too.

If the Royals benefit from flexible pricing, doesn’t this mean that fans must lose? Both entities can’t benefit at the same time, can they? The left-wing, socialist concept of exchange as a power relation implies that trade is a zero-sum game in which the gains of one party are the losses of the other. Mutually beneficial voluntary exchange benefits both parties to the exchange, and when the gains from trade are increased the gain can be divided to benefit both traders. This needn’t be true in every transition from inefficient to efficient conditions, but there is no reason to doubt its occurrence here.

Perhaps the most concrete way to drive home the importance of this principle is by stressing the fact that the benefits of sports teams are heavily location-dependent. If the Royals move away from Kansas City and operate elsewhere, most of the benefits created by the team will flow to sports fans in that new location. Allowing the Royals to maximize the benefits they earn from the value the team itself actually creates will maximize the chances that the Royals continue to operate in Kansas City. The current system strives to keep the team in town by giving them subsidies extracted from non-fans based on phony economic value not really created. Baseball fans deserve to get the value they want and are willing to pay for – not value extorted from unwilling third parties who gain nothing from the team’s presence.

DRI-266 for week of 1-20-13: Drug-Taking Sports Stars: Is the Problem Morals or Incentives?

An Access Advertising EconBrief:

Drug-Taking Sports Stars: Is the Problem Morals or Incentives?

The recent confession by Tour de France winner and cancer-survivor Lance Armstrong that he took performance-enhancing drugs while competing is the latest of many revelations of illicit drug-taking by sports heroes of this or the previous generation. For the most part, public reaction has been highly adverse. For example, pitcher Roger Clemens and home-run hitters Barry Bonds and Sammy Sosa were all denied admittance to baseball’s Hall of Fame despite playing credentials that should have assured them instant acceptance by voters.

On the surface, these phenomena may seem straightforward. Athletes ostensibly compete on their physical merits. Use of specified drugs such as steroids (in baseball and football) and chemical blood-additives designed to increase endurance (in cycling) are banned because this is deemed an artificial enhancement of performance. In addition, the proscribed drugs are declared dangerous to the health and well-being of the athletes themselves. The players violated the rules and should suffer punishment (Armstrong’s loss of Tour de France titles and Olympic medal) and psychic pain (public censure and denial of post-career honors).

Closer inspection clouds every part of this picture. It also reveals many more pairs of shoulders on which to heap blame for these outcomes. Some of them rest on the

bodies of sports owners and managers. Millions more belong to sports fans.

The “Cheating” Athlete

It might be tempting to assume that drug-taking athletes are cheating because they acquire an unfair advantage. But a study of the record in cycling, for example, suggests that Lance Armstrong began blood doping in “self-defense;” i.e., in order not to lose by default to competitors who were already treating their blood. The history of competitive cycling since 1972 records a plethora of positive drug tests and admissions of drug use, mostly illicit but sometimes legal. (In 1984, The U.S. team employed blood transfusions as a device to improve stamina; the following year, the U.S. Olympic Committee declared the practice illegal.) Hardly a year in the last four decades has passed without multiple revelations of this sort.

Moreover, Armstrong’s televised confession to Oprah Winfrey portrayed him as the “ringleader” of a group of blood-doping cyclists (his USPS teammates). Thus, he gained no competitive advantage over them. From his perspective, he was striving for parity with foreign teams for whom doping was commonplace. And when everybody is cheating, there is no “unfair” advantage conferred, unless you view variations in the doping process itself as advantageous.

If there is no injury done to the competitive nature of the contest, then sports consumers are not injured by athletes’ behavior – or rather, they are not injured qua consumers. Apparently, athletes’ behavior as role models is at issue. Fans are so shocked and disappointed by Lance Armstrong’s oft-repeated denials of wrongdoing that they demand recompense in the form of financial and social punishment. But this position places an impossible burden on the athlete. It clearly doesn’t apply to the lesser competitors who cheated before Armstrong did but who weren’t cancer survivors or photogenic enough to attain “role model” status. The athlete is punished for doing his job too well and because he has attained celebrity status.

The clinching argument against the moralistic approach is that it cannot possibly work. Look at it from the athlete’s viewpoint. By cheating, he is in a “heads I win, tails I break even” position. What was Lance Armstrong’s alternative? “Not cheating” would have reduced him to also-ran status. He would never have gone on Oprah because he would never have had occasion to do so. Don’t be tempted to think that having to spill your guts on Oprah’s program is the ultimate in personal humiliation. Being unknown would have been worse than anything he has undergone lately. Cheating at least gave him his many moments in the sun, plus world fame for as long as his luck held – and remember, he had the chance that it would hold for the rest of his life.

Current indignation against Armstrong asks us to simultaneously believe that: (a) with hundreds of millions of dollars at stake, athletes will (b) stoically refuse to serve their individual and team interest by “cheating,” (b) thus insuring that their athletic endeavors will end in comparative failure and obscurity, even though (c) they are likely to escape immediate detection and may well avoid detection indefinitely. This defies credulity.

The Tacit Role of Owners and Managers

Nobody has alleged that athletes were ordered to take steroids or performance-enhancing drugs. A reflexive assumption might be that this absolves sports team owners, managers and promoters of blame for the scandals. Depending on how we define the notion of “blame” in this case, that may not be true.

One might well maintain that the decision to introduce chemical substances into one’s body – whether for medical or other reasons – is a decision resting with the individual alone. This stand has a lot to recommend it – legally, morally and practically. But it is not the one we actually take. The law does not leave such decisions to individual judgment and conscience, nor do sports teams treat it as a matter of indifference. Of course, teams have a vested interest in the physical health and performance of athletes, so they have a legitimate reason for establishing drug-testing and policing policies. With modern athletic labor markets featuring players’ unions and free agency, the interests of athletes with respect to these policies are supposedly represented.

In fact, management has let down athletes not through its actions but through a failure to act. Athletes face an inherent incentive to take certain drugs and management faces an incentive to tacitly allow this, whatever its stated policies may be. If the actions of Armstrong, Clemens, Bonds, Sosa, et al are problematic – that is, if they are legally and/or morally wrong and worth discouraging – then the onus rests with the rule makers to design a credible system of disincentives and preventions that truly prevents performance-drug taking by athletes. The law may look lightly on a failure to act, but economics takes account of alternatives to action, since these may be the costs and benefits that motivate the actions of individual producers and consumers.

Management benefits from the productivity of labor; in effect, that is what companies buy (or rent) when they hire workers. Steroids or performance-enhancing drugs increase productivity. (While there is debate on this point, it is mostly over the magnitude of this effect, not its existence. If these drugs did not enhance performance, athletes wouldn’t take them.) They may well have deleterious effects on the health of the user, but these only show up later, after the athlete’s productive career is over. Management does not take these effects into account. (In contrast, smoking marijuana or cocaine may well damage the athlete’s current performance, so management has every reason to proscribe these activities.)

When baseball players began using steroids, team owners and managers had every reason to suspect the truth but little reason to act on it. A surfeit of home runs would do attendance a world of good. If the steroids made little difference in performance, then no harm would be done – well, not for years, anyway, until the players’ health began to deteriorate. By the way, the same thing is true about non-drug training, conditioning and technical innovations that increase speed, power, strength and the number of concussions and other injuries. To the extent that improvements in popularity and revenue outweigh higher team medical bills, incentives favor yielding to these trends rather than fighting them.

It is true that policies are in place now to prevent, or at least expose, illicit use of performance drugs by athletes. But those procedures don’t work. Armstrong has now admitted to doping during each of his seven Tour de France victories. Blood doping is universally acknowledged to be part of “the culture of cycling.” The history of drug testing in baseball is a history of denial, positive drug tests, suspension, reinstatement, recidivism and repetition ad infinitum.

Sympathizing with management as innocent victims of cheating by athletes requires us to believe that (a) management was unaware of cheating even though the essence of their role demanded that they know of it, and (b) management disapproved of cheating even though they stood to gain from it. This parlay is wildly unlikely.

The Role of Sports Fans

Having viewed the matter from the perspective of athletes and owners/managers, we must now shift focus to fans. The notion that fans have any responsibility for outcomes may strike many as quaint – after all, fans are the consumers whose desires are being fulfilled. It is athlete’s (and owner/manager’s) job to satisfy the fans, surely, not vice-versa.

That much is true enough. Fans have no legal or moral obligation to feel sorry for or even contemplate the fix players are in. Fans have the right to criticize erring athletes in any way. But we should consider the propriety of that criticism.

Having leaned heavily on the Armstrong case, let’s turn to the example of Barry Bonds and Sammy Sosa. After 1994, major-league baseball was reeling from the fans’ adverse reaction to the players’ late-season labor walkout that year. In 1994, the World Series was cancelled for the first time since 1904. Attendance subsequently fell off the table. At this point, most teams were still heavily reliant on turnstile revenue for the bulk of their income – unlike today when skyrocketing license fees from broadcast rights and product sales have supplanted attendance as the dominant income source. Thus, owners were desperate to lure fans back into stadia.

And, by an astonishing coincidence, something very strange began happening in 1995. Players started hitting home runs. Lots of players. Formerly weak-hitting infielders suddenly started hitting 20-25 homers per year. Solid power hitters started hitting over 40 homers per year. And the 50 home-run barrier – previously the exclusive preserve of the game’s great sluggers – suddenly became paper-thin and permeable. Between 1965 and 1990, only three players hit more than 50 home runs in a season. Beginning with Albert Belle in 1995, it suddenly became commonplace. A journeyman power hitter named Mark McGuire, whose best total was 49 in his rookie year but whose power totals had declined thereafter, reversed course explosively to hit 52, 58, 70 and 65 homers between 1996 and 1999.

The culmination came in 1998. A little-known Chicago Cub named Sammy Sosa, who had never previously hit more than 40 home runs, began chasing the sacrosanct 60-home-run mark previously reached only by Babe Ruth (60 in 1927) and (in a slightly longer season) Roger Maris (61 in 1961). Matching him stride for stride was McGuire, formerly of the Oakland Athletics, now a St. Louis Cardinal. McGuire ended up with 70, Sosa with 66, so both men smashed the previous records to smithereens.

Further stretching coincidence to the breaking point, both Sosa and McGuire both put on over 50 pounds of muscle prior to donning their power suits. Adding muscle mass is the primary attraction of steroid use.

As fans, what were we to make of this series of events? In the 1920s, when New York Yankees Babe Ruth and Lou Gehrig were dueling for home-run leadership of baseball’s American League, they were physical marvels whose combined home run totals often exceeded those of any other team in the league. Indeed, in 1921, Ruth’s 59 homers alone were more than any team in the American League other than the Yankees. But after 1995, home runs multiplied like bacteria in a Petri dish. It was too much to swallow to believe that everybody had simultaneously metamorphosed into a power hitter at once.

But, incredibly, that is what almost everybody did believe. The few voices of doubt were drowned out in the crescendo of cheers for McGuire and Sosa. Fans had demonstrated conclusively that they preferred a thrilling, entertaining lie to mundane truth. That is, they preferred watching steroid-bulked stars bash out home runs to facing up to the fact that the home-run derby had been contrived. “Fans,” in this context, includes the sportswriters who were ideally placed to observe and evaluate the players “before” and “after” their drug use.

This makes the current tone of shock and disapproval seem disingenuous, to say the least. In law, there is a principle requiring a plaintiff to show that he sought to mitigate damages in order to retain eligibility for full recovery. Here, in order to register sympathy for fans and disapproval of steroid-using athletes, there should be a showing of damage suffered by the fans and specification of the rational alternative open to the guilty athlete.

The incentives are equally one-sided for owners and managers. Revenue is suffering. “Not cheating” – e.g., explicitly recognizing and punishing drug use – leaves them out in the cold, with only their integrity to keep them warm. “Cheating” gives them their fans back and their lost revenue returns. The likelihood that this money will be clawed back later is effectively nonexistent. To an economist, it is easy to predict how management will behave.

Sympathizing with fans demands that we believe that fans never suspected the existence of cheating concurrent with its incidence – and that their innocence was justified and reasonable. It seems clear that fans were innocent, but naively so. That is, they did not take reasonable precautions to safeguard their innocence with a little skepticism, logic and investigation. Any clear-eyed observer knew that cheating was occurring in cycling and baseball.

A Victimless “Crime?”

When I steal bread from somebody else, my consumption rises and the victim’s falls; I am increasing my welfare by decreasing theirs. It is much harder to find that sort of crime in the actions of drug-taking athletes. If there is any physical harm perpetrated, they do it to themselves. This may not be admirable but it is scarcely criminal.

The benefits to “society” from performance-drug taking by athletes are obvious. Fans went crazy during the McGuire-Sosa home-run duel of 1998; attendance went through the roof throughout baseball. Even some people who did not like baseball or who knew little or nothing about the game followed the race to 60 home runs and beyond. It is reasonable to believe that if people really rejected performance drugs as a means to this end, they would have objected at the time. Their claims of betrayal 15 years after the fact mean little.

We have noted that performance-drug taking does not affect competitive outcomes when everybody is doing it – and the incentives pulled insistently in that direction. The real harm done to competition was to intertemporal competition – between today’s players and those of yesteryear, between the drug-taking athlete and the record book. Baseball, in particular, has nurtured a longtime love affair with tradition and the greats of days gone by. The Babe Ruths, Ty Cobbs and Lou Gehrigs suffer an intrinsic disadvantage from being dead and unable to improve on the records they hold, while each generation gets another crack at them using better nutrition, better training methods and better living through chemistry.

The problem is that sorting out proper from improper ways of record-breaking amounts to historical protectionism. It cheats present-day consumers of thrills to protect the dead. It is the duty of historians to burnish the memories of the past. They can do it without the adverse economic fallout that comes with protectionism.

Fans are the consumers of the sports product. Consumption is the end-in-view behind all economic activity and consumer will is sovereign in markets. Fans deserve to get the sports product they want. But the evidence suggests that they want contradictory things. On the one hand, they want the thrilling product produced by drug-taking athletes. On the other hand, they want to nourish the fantasy that athletes are all-American boys, a la Jack Armstrong. Fans can want in one hand and spit in the other, but they can simultaneously enjoy both of these things only temporarily.

Owners, managers and promoters are the people best placed to evaluate consumer objections in the sports market; their livelihoods depend on giving fans what they want. If management detects true opposition to performance drugs, it should institute credible measures to forestall their use by players. That is, it should not only prevent drug use but plausibly advertise its willingness and ability to forestall it. Up to this point, credibility has been lacking. We must assume this is because management believes that fans want the excitement performance drugs create more than fans want drug-free sport.

The French philosopher La Rochefoucauld called hypocrisy the tribute that vice pays to virtue. The mere fact that people behave hypocritically does not mean that they really want vice outlawed and virtue made mandatory. The combination of lavish praise for past drug takers and sententious lectures sent their way today is about as convincing as dying declarations of regret by inveterate smokers who demand that cigarettes be banned. In their youth, their cigarettes could have been withheld only by prying them from their cold, dead fingers.

The proverbial man on the street is apt to react bitterly to the Lance Armstrong scandal: “What really gripes me about it is the way he lied and lied all those years.” But the essence of the Lance Armstrong narrative is the fairy-tale outcome of Lance Armstrong, cancer-survivor who became a champion athlete. The only way Armstrong could achieve it was by cheating and the only way he could preserve it was by lying. Absent those, there never would have been a Lance Armstrong story in the first place. And the evidence suggests that the athletic dishonesty was collective, not purely individual.

The evidence on its face says that the public wants the excitement of sports. But most people seem to want it in the form of a fairy tale, in which the base commercial motivations of everyday life are absent or, to be more precise, present but disregarded for noble reasons. That is impossible because it is precisely those base commercial motivations that ensure the thrilling excitement in the first place.

Sports are no different from any other human enterprise. They require the motivations, pricing valuation and information discovery of markets in order to function well. The self-interested motivations and incentives of human behavior drive marketplace activity. The pretense of separation between sport and commerce is delusive. And the realization of delusion is invariably painful. Athletes are now feeling the brunt of our pain.