SBJ/November 26 - December 2, 2001/Opinion

Low ethics, low profit; Does MLB understand?

There's a lesson for all of us in Major League Baseball's decision to contract by folding two as-yet undisclosed teams — a lesson about making ethical business decisions.

Wait a minute. Don't turn the page just yet. SportsBusiness Journal hasn't made a sharp turn to the left.

At Indiana's Kelley MBA Academy, we teach several standards of ethical conduct. They include my favorite, maximizing profits within the limits of the law.

Basic jurisprudence and economics teach us why profit maximization is ethical conduct. There is compliance with society's mores, as expressed in its laws. Profit maximizers help allocate society's scarce resources to their most efficient uses and, thereby, increase total wealth in a society.

Further, the market disciplines firms that are perceived to act unethically. Customers, suppliers, employees and other stakeholders often refuse to do business with firms that do unethical acts. The bottom line: It is difficult to maximize profits unless one takes into account the concerns of everyone who has a stake in the firm.

This is the lesson that Major League Baseball may not yet have learned. Many fans, employees, suppliers, sponsors and other stakeholders believe that their interests have not been considered by Major League Baseball.

The players' union was not consulted. The doomed teams have not been identified, placing front-office employees, stadium ushers and concessionaires in limbo, not knowing whether their jobs and contracts will be terminated. Sports merchandise retailers near baseball stadiums, who will lose fan traffic from 81 home baseball dates, are also affected by contraction. Even executive talent, which business schools like Kelley are training to enter the sports field, will view jobs in and connected to baseball as more risky, thereby reducing the supply of executives to the industry.

Once a sports business knows the interests of its stakeholders, it can propose alternatives that attempt to satisfy all those interests and, more important, lead to the promised land of profit maximization. The temptation is to think that any problem has only two solutions, but usually there are many.

For example, instead of choosing merely between contraction and no contraction, Major League Baseball could consider moving the unprofitable franchises, giving them three years to improve their financial position before contracting or helping the teams to build stadiums that will attract more fans and increase revenue streams. There are many other reasonable options. Which is the best for baseball will depend on the facts and the interests of its stakeholders.

Major League Baseball may have already considered the interests of all its stakeholders and all the reasonable alternatives for dealing with the struggling franchise problem. If so, it has an increased chance of acting ethically and maximizing its profits and the profits of its teams. That positive result is especially likely if Major League Baseball discloses publicly all the alternatives it considered and all the facts justifying its decision to reject other options and to contract.

If not, Major League Baseball risks alienating its stakeholders and damaging the game's economic footing for years to come.

Thomas Bowers is co-director of Indiana University's Kelley MBA Sports and Entertainment Academy.

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