Whatever Happened to Synergy? MLB as Media Product

Abstract

The years 2003 and 2004 were years of divestiture. In a reversal of since mid-1990s, news focused on unlinking of media and sports ownership. In a short period of time, Major League Baseball owners approved Frank McCourt as new majority owner of Los Angeles Dodgers after he purchased team from News Corp. (i.e., Rupert Murdoch). In 2003 Walt Disney Company, one of News Corp.'s primary rivals in global media business, sold reigning world champion Anaheim Angels to Arturo Moreno. Time Warner put Atlanta Braves on seller's block and cut team's payroll to attract a buyer. (1) This new trend away from joint ownership of media and sports is not limited to baseball. Time Warner, for example, has sold Atlanta Hawks (NBA) and Thrashers (NHL). Disney, currently fighting a hostile takeover by Comcast cable television giant, is attempting to sell Mighty Ducks of Anaheim (NHL). Even in nation's largest and most lucrative media market, YankeeNets, brainchild of George Steinbrenner (and another source of millions of dollars of revenue for Yankees), has sold New Jersey Nets to a Brooklyn developer. (2) In this article we will offer an analysis of these recent moves. Why has there been a reversal of what seemed a logical trend: joint media/sports ownership? Does this signal a return to individual ownership mythologized by mainstream media and most baseball fans? Or do these deals reflect new kinds of relationships between corporate media and sports franchises? Whatever reasons for recent divestures, how will they affect operation of teams and their relationships with changing media landscape? THE LOGIC OF VERTICAL INTEGRATION Vertical integration (VI) is one of oldest operational goals in capitalist economics. VI essentially is control of all levels of supply chain from ownership to consumer. For media corporations this means control of (1) production, (2) distribution, and (3) exhibition (P-D-E). Despite conventional wisdom of current multinational corporations that VI is necessary for companies to compete, until quite recently vertical integration was regarded as something to be avoided because of its negative effects on consumer. (3) For decades U.S. government based many of its policies on assumption that a vertically integrated market structure is bad for public because of its anticompetitive nature. The control of each element of P-D-E chain leads to a market structure with high barriers to entry for new competitors. The negative implications of VI have been rationale for antitrust actions against many corporate schemes. In 1948 Paramount decision, motion picture studios had to divest their ownership of theaters. (4) In 1960s Justice Department refused to allow International Telephone and Telegraph (ITT) to acquire ABC. (5) Today such decisions look like ancient history as vertical integration is often seen as necessary for large corporations to compete in a global marketplace. The rhetoric of corporate consolidation has replaced the public interest as mantra for government regulators. Professional sports leagues and their member teams were exempt from many antitrust regulations, even before market mania of last twenty to twenty-five years. MLB has had an explicit exemption from most antitrust concerns since 1922. (6) The Sports Broadcasting Act of 1961 granted an antitrust exemption for all professional leagues in developing policies on television and radio. (7) These longstanding exemptions and new tolerance of vertical integration encouraged sports leagues, a legalized cartel, and media firms, a semilegalized cartel, to make a series of deals to enhance their relationships. One of key differences in media and sports combinations is toward backward vertical integration. …