The Economic Case FOR Steroids in Baseball

Everyone who is a sports fan could not escape the news over the weekend that Alex Rodriguez, 3B for the NY Yankees, tested positive for two banned substances (both steroids) in 2003, when he was playing SS for the Texas Rangers. His name was one of 104 that appeared on a list of players who tested positive during that season, and the ramifications of all those positive tests was increased and public enforcement of drug tests in MLB the following year. The fact that A-Rod's name was leaked to the public by four anonymous sources and published by Sports Illustrated was not all that shocking; enough allegations had been made against A-Rod throughout the years that he had to defend himself by denying his steroid use in an interview with Katie Couric.

No, the surprising thing for me was that A-Rod almost immediately went on air in another interview, this time with ESPN's Peter Gammons, and admitted he cheated by taking steroids in 2001, 2002, and 2003. Well, he claimed to be off the juice in 2003, but then there's the case of his failed drug tests that year.

Even more surprising for me was the reason why A-Rod said he cheated:

"When I arrived in Texas in 2001, I felt an enormous amount of pressure. I felt
like I had all the weight of the world on top of me and I needed to perform, and
perform at a high level every day."

Why did A-Rod feel all the pressure to perform? When he left Seattle and signed the richest contract in the history of Major League Baseball, it was for 10 years and $252 Million to play SS for the Rangers. That's an awful lot of pressure, an awful lot of zeros to justify on a yearly basis. For the first time, a player came right out and admitted what everyone always understood as the underlying reason for taking performance-enhancing drugs (PED): ECONOMICS.

Keep in mind that A-Rod had all the tools necessary to play and be a star at the MLB level. He was not some no-power, good glove middle infielder in the years leading up to 2001. In 2000, A-Rod was one of the last stars left on a Mariners team that previously dealt LHP Randy Johnson and CF Ken Griffey Jr. to other teams. That season, he hit 41 HR, had a .316 BA, and became the only SS to have 100 runs, RBI, and walks in a single season. This is not some player past his prime or struggling in Double A or Triple A to make it to The Show; in 2000, A-Rod was in the prime of his career.

Much the same can be said of Barry Bonds, as well. Bonds, of course, has already been convicted of using PEDs in the eyes of the baseball public, despite his protestations otherwise. Bonds, even before he sought out the services of the Bay Area Laboratory Co-Operative (BALCO), was one of the all-time best outfielders in MLB.

Why on earth would these guys risk their reputations, their long-term health, and their shot at immortality (the MLB Hall of Fame) when all those things were in reach? I think economics has a great deal to do with it.

Baseball, when it comes to player contracts and guaranteed money, is somewhat between the extremes of the NBA and NFL. In the NBA, players have truly guaranteed contracts that will pay them for the life of the contract, even if the player is sitting on the bench. In the NFL, no contract is guaranteed past a given Sunday. I'm fairly well convinced that was why Shawne Merriman tried to tough it out and play on two bad knees in September, even after he was told by several doctors that he needed season-ending knee surgery to save his career. In MLB, player contracts are fairly well guaranteed, but either side can request salary arbitration to either increase or decrease the salary based on the past season's performance.

Baseball is not like some sports, when an athlete might have just one really good shot at winning a gold medal and securing lots of money in endorsement deals. How many track and field stars did we see in Beijing who came up just short of achieving their lifelong dreams? I would argue the economic case for cheating in track and field is far, far greater than it is in baseball or football.

Cycling is another case where the athletes have been doping for decades, but for different reasons. Sure, the leader of a cycling team can make several Millions of dollars while on contract with the team. The domestiques, however, make far less, although I think their salaries are still in the six-figure ranges. This article from WSJ sheds some light on cycling salaries, which typically are closely guarded (subscription req'd). No, the real reason why cyclists abused EPO for so many years, and why they still look for ways to cheat the system today, is because it is such a grueling sport. The attitude has been, "everyone else is doing it; if I want to survive in the peloton, I have to do it, too."

Let's get back to baseball. When all the talk about PEDs in sport revolved around Barry Bonds, I wondered whether it made economic sense for him to sacrifice his long-term health for a few more seasons of muscle. When Bonds left the Pittsburgh Pirates to sign as a free agent with San Francisco, his contract was a then-MLB record $43.75 Million over six years. That's a paltry $7.29 Million per year. When Bonds re-signed in 2002 (during or shortly after the time he is suspected of using PEDs), SF gave him a five-year, $90 Million contract. That's an average of $18 Million per year. In 2005, Bonds earned $22 Million, second only to A-Rod. In 2006, he earned $20 Million, and in 2007, he earned $15.8 Million. That's an awful lot of money that can be used to pay for any type of health issues Bonds might face (if any) as a result of using PEDs. The cost-benefit analysis is pretty straightforward here.

A lot of the MLB players who have been outed for using PEDs, either by Jose Canseco's books or by The Mitchell Report, have said they used PEDs only to help come back from an injury faster. Andy Pettitte was one of the players who took that path. Many of the players suspected of using have only denied the allegations, despite any evidence to the contrary. Roger Clemens and Rafael Palmeiro fall into that camp. Before A-Rod, however, no one admitted that one reason they used PEDs was due to financial or economic concerns.

On a macroeconomic level, the supply and demand of hugely talented baseball players is partly to blame for the high salaries for star players. There is little doubt that Tom Hicks, the owner of the Rangers, overpaid to secure the services of A-Rod in 2001. But the price he was willing to pay was driven up by the perception that A-Rod was the centerpiece of the World Series championship-winning club he wanted to build. Put in microeconomic terms, the marginal utility Hicks expected to receive by employing A-Rod must have far outweighed the opportunity cost of hiring other free agents.

There is little doubt, after listening to A-Rod's confession yesterday, that he felt the pressure of all those expectations to perform. He didn't put it in economic terms, per se, but he did say he felt the "weight of the world" on his shoulders.

Another way of looking at the same issue is to view a player's performance in the year leading up to free agency, often called the "contract year." Almost invariably, the player in a contract year performs far above his statistical averages, all in hopes of landing a bigger contract worth more money at the end of the season. In MLB especially, free agents who just landed a new contract with a new team tend to disappoint during the life of that contract. Kevin Brown and Mike Hampton jump to mind.

What's the alternative, then? Can we ever get back to a time when player salaries did not engender such on-field performance swings? I don't think so, and I don't think we necessarily want to see players earning the pauper wages they once did, way back when. About the only thing that can be done, and what MLB is finally doing, is setting up strict drug enforcement regimens to catch and punish the cheats. The MLB drug testing policy could be much stronger, yes. But at least they now realize how far-reaching PEDs were in baseball, and how damaging to the sport they are.