Has Major League Baseball Hit a Foul in Its Recent Skirmish with Online Fantasy Leagues?Published: June 14, 2006 in Knowledge@Wharton
Sometimes, brawny lawyering can make for a feeble -- or at least self-defeating --business strategy. So it appears with Major League Baseball's decision to square off with CBC Distribution and Marketing, an online baseball fantasy-league operator based in St. Louis, Mo. For several years, CBC paid a fee to the Major League Baseball Players Union for the right to use players' names and stats for its virtual leagues, in which fans draft pro players onto imaginary teams and then compete with each other based on their players' statistics, even executing trades as the season wears on. Outfits like CBC calculate each team's performance and tote up the imaginary leagues' standings. Professional players' names and statistics appear on these firms' web sites, and fans often pay to play.
But last year, Major League Baseball Advanced Media paid $50 million for the Internet and wireless rights to the names and stats from the union. It then told CBC that it wouldn't renew its multiyear license.
That's when CBC decided to sue Major League Baseball, saying, in effect, that the First Amendment gave it the right to publish the information, and that the players' names and stats are part of the public domain, available for anyone to use for free. Not surprisingly, the League's Internet arm disagrees, countering that when used commercially in anything besides the news -- in this case, online gaming -- the names and stats are its property. The League also has said that its players have a "right of publicity" that entitles them to control and profit from their fame, and that it acquired that right through its license.
"This lawsuit isn't about First Amendment rights or the ownership of statistics," says Jim Gallagher, a spokesman for Major League Baseball Advanced Media. "Fantasy games such as those operated by CBC ... use and exploit in a commercial manner the names, likenesses, performances and other personal attributes of professional players."
The League isn't trying to drive any company out of business, he insists. It just wants more control over how companies use its information and images. It hopes to "revitalize baseball fantasy games by licensing to companies that are willing to spend some money and develop new games that will appeal to baseball fans at all levels." Too often in the past, game providers have catered to hardball junkies and thus discouraged more casual fans from playing, he says. As a result, the number of fantasy baseball players has stagnated at about five to six million. "We would like to see that double in the next couple of years," he adds.
Although Major League Baseball has the right to try to protect its property, by picking a fight with CBC, it risks alienating fans, damaging its brand and sacrificing future revenues for a small gain, say Wharton faculty and other baseball spectators. "Even if Major League Baseball has the legal right to do this, they are stupid to," says Wharton marketing professor Pete Fader. "This is a sport that has all the Barry Bonds and steroids junk going on. And now people are talking about how greedy Major League Baseball is. The League doesn't want that. The upside potential isn't worth it." (Bonds is the San Francisco slugger who is chasing Hank Aaron's home run record and has been accused of taking performance-enhancing drugs.)
Dan Hunter, a Wharton legal studies and business ethics professor, agrees that the League's stance in this case is a big error. "They're wrong at law, and they're on the wrong side of the future. They can't win this one." In a wired world, people expect to be able to reuse and remix digital content, he points out. "It's information sharing, which we see everywhere on the internet. And it's at odds with the concept of, 'This is ours. Get your dirty mitts off it.'" Instead of blocking companies from using its stats, the League should encourage the practice and thus create a bigger pool of passionate fans and a larger market for its broadcasts and products, he says.
If this dispute seems like it would interest only the geekiest of stat-obsessed baseball fans, understand that fantasy leagues -- they're also called "rotisserie leagues" -- are a big business. Obscure outfits like CBC aren't the only companies that run fantasy leagues: Yahoo, ESPN and CBS all do as well, and they account for about $1.5 billion in spending a year, says Alan Schwarz, a writer for Baseball America magazine and author of The Numbers Game, a history of statistics in baseball. They have given baseball a badly needed public-relations boost and reinforced a lot of fans' links to the game. "There is no question that fantasy leagues have helped baseball maintain and cultivate its popularity over the past 10 to 20 years through a lot of downtimes, mostly due to labor strife," says Schwarz. "Fantasy leagues have given people a great reason to pay attention every day."
No Clear Precedent
From a legal point of view, neither side seems to have a bulletproof argument: Similar prior cases have gone both ways. The National Basketball Association, for example, lost when it sued Motorola to prevent it from broadcasting scores and news on pagers. But back in the 1950s, a judge ruled that Topps Chewing Gum couldn't issue baseball cards without players' permission, saying that the players had a right to control the commercial use of their identities.
Despite the inconclusive precedents, Ken Shropshire, director of the Wharton Sports Business Initiative and a legal studies and business ethics professor, understands why the League is taking its steely stance. "You must be careful about appearing to waive any rights and sending the correct message about how you're going to protect your property," he suggests. But like Fader and Hunter, he wonders whether baseball's legal brawling will end up undermining its business goals.
Fantasy games, in particular, can help a sport because they deepen existing fans' involvement, and as in any business, that's far easier than winning new customers, he says. Baseball, especially, needs the boost because it's losing the interest of young people and minorities. "The new fans are going more to the National Football League and basketball," he notes. Even Nascar, long a regional favorite in the South, has gone national and is outdrawing baseball.
In addition, even if the League is right legally, it's risking a lot for a relatively small return, says Mike Haupert, an economist at the University of Wisconsin-La Crosse who studies baseball. In the short term, it may pick up bigger licensing fees and exercise greater control over the use of its numbers. "But Major League Baseball is a multibillion dollar business, and this is a few million -- a trivial addition to its revenue," he notes.
And the cost of those revenues -- the alienated fans -- could translate to fewer dollars in the future. As a result of their annoyance with the League, "some fans may subscribe to fewer tickets and podcasts and buy fewer [team] yearbooks," he points out. People assume that fantasy players are baseball nuts and thus can't be turned away from the game, but Haupert suspects that many of them are "people on the margin" of fandom. "This is about being social with other people, not being diehards." In other words, they might be easy to run off because they can have their sports appetites satisfied by the NBA, NFL or even the National Hockey League.
That describes fantasy-leaguer Frank Maley, a magazine editor in Charlotte, N.C. Mainly a basketball fan, "I wouldn't care at all about Major League Baseball but for fantasy baseball," he says. After friends invited him to join their league, he began to follow baseball more closely, checking out more game broadcasts and tuning in regularly to the news on ESPN. He says he doesn't care about the CBC spat -- at least for now. "I see it as a fight between two business entities, and it hasn't impacted me. But if I have to pay more to play, I might start blaming everyone involved."
In theory, the League's stance could lead to fewer fantasy-league providers and thus less competition and higher prices for players like Maley. For now, though, the games remain affordable. Yahoo's entry-level game, for example, is free. The online company charges for use of its premium service.
Unlike Maley, Abraham Wyner, a Wharton statistics professor, does count himself among the hardcore baseball fans -- and he's annoyed that Major League Baseball is trying to close out operators like CBC. "Not only is it wrong to try to trounce on these guys, but it's bad for baseball," he says, arguing that the League needs to do everything it can to hook a new generation of fans or risk falling further behind other pro sports. "My kids aren't as passionate about baseball as I was. I didn't have video games at age 8. I played baseball, flipped baseball cards and read the sports pages. For my son, baseball has to compete with a lot of really compelling stuff. The more you can network technology into something as fundamental as playing and watching sports, the more you will convince kids to watch."
Wyner started playing in a fantasy league last year, after he began a research project on baseball statistics. Just as his Wharton colleagues predict, it has deepened his and his friends' involvement with the game and increased their baseball-related purchases. "I never went to a baseball game with my friends [from Philadelphia]," he says. "But now that we're playing in a fantasy league, we're going to games together." They attended three or four games last year and two so far this year. One of his friends also subscribes to satellite radio so he can listen to its baseball broadcasts.
Open-source, or File Sharing?
Of course, not all fantasy-league fans are business school professors and baseball fanatics. These more typical players may not care who operates their fantasy league as long as someone does, says Eric Bradlow, a Wharton professor of marketing and statistics. "I don't think there's any brand equity in the site that runs your rotisserie league." If Bradlow is right, then the League's effort to restrict access to its numbers may hardly make a ripple beyond law school seminars and business school case studies.
But Hunter is just as convinced that the League's legal stance will have unexpected and unwelcome ramifications. It might, for example, discourage the sort of innovation that has made some segments of the economy so vital.
By comparison, consider the open-source software movement and open-source programs like the Linux operating system and the Firefox browser. Programmers around the world are free to offer improvements to them and frequently do. As a result of this far-flung network of collaboration, these so-called freeware programs have developed a passionate worldwide following. As with the software industry, innovation in the use of baseball statistics could come from unexpected quarters, not just from blue-ribbon behemoths like Yahoo and ESPN. Those innovations could inspire the same sort of following that freeware has.
Another argument in the League's favor is that it must respond aggressively to unauthorized use of its information or else it will find itself in the same predicament that the music industry faces. This line of thinking says that, if the League doesn't fight back, it will see its business eaten away just as the music business has been by file sharing.
Music publishers, of course, hit file-sharing sites like Napster with lawsuits. That has driven a few high-profile sites out of business but otherwise seems to have done little to stem the music industry's decline. Still, their response was natural and, in some ways, more justifiable than Major League Baseball's, Hunter says. "The music industry's main business is selling the stuff that people were giving away for free. The main business of Major League Baseball isn't selling stats. It's selling the live feeds of the games."