Privacy or Profits? Major League Baseball’s Dilemma

Lost amidst the brouhaha of repeated allegations of steroid use among bicyclists at the Tour de France was a surprising announcement from the world of professional baseball. Namely, Major League Baseball Commissioner Bud Selig declared that mandatory drug testing for human growth hormone would soon be instituted at the minor league level.

Human growth hormone testing? How is that different than steroid testing? And why institute testing for it at the minor league level when far more profits are placed at risk by public disgust about player drug use at the major league level?

The answers to these questions reveal much about baseball’s business priorities, and about its long term stormy relationship with its own labor union. Despite the damage that has been done to baseball’s reputation by the alleged drug use of some of its most famous players of the past two decades, Selig still finds himself uncomfortably caught between a rock and a hard place when balancing the conflicting priorities of privacy and profits.

Solutions That Cause Problems

Ironically, the issues of steroid use and labor union strife have been intertwined for many years within professional baseball. Although some sports analysts credit the historic 1998 home run battle between Mark McGwire  and Sammy Sosa as the event that restored fan popularity after a bitter labor strike cancelled the World Series for the first time in nearly a century, allegations of steroid use by both players later caused great controversy and rekindled baseball’s labor disputes.

These new arguments focused on the labor union’s contention that mandatory steroid drug testing violates the privacy rights of the ball players. Selig took the contrary position, however, arguing that steroid use threatens the fans’ faith in the competitive balance of the game and thus may threaten its profit base as well unless addressed via mandatory testing. Labor chief Donald Fehr nevertheless maintained that the players’ personal rights to privacy are a far higher priority than profits.

Selig unilaterally imposed mandatory drug testing for steroids on minor league players, as was his right under baseball’s collective bargaining agreement. Later, when numerous stars of major league baseball fell under suspicion of (or admitted to) steroid use, Fehr and the player’s union finally agreed to permit steroid testing at the major league level.

Nevertheless, similar controversies are now exploding over mandatory testing for human growth hormone, which requires a far more physically invasive blood test for detection than the urine test utilized for steroids. Professional baseball therefore continues to wrestle with the irony of  a terrible dilemma; namely, that the very artificial drugs that help players become more physically powerful and thus more exciting to spectators also undermine the game’s fundamental integrity and principle of fair play. In other words, the very drug use that makes professional baseball more popular and thus more profitable in the short term may actually result in the destruction of the sport in the long term.

Time Horizons

American business history, of course, is filled with stories about firms that made decisions for short term profit, only to find that those very decisions damaged their long term prospects. The American automobile industry, for instance, spent years focusing on Sports Utility Vehicles, pick-up trucks, and large sedans, only to belatedly learn that those gas guzzling vehicles would become terribly unpopular when gasoline prices soared well past $4 per gallon in the United States in 2008.

Likewise, during the past decade, profits earned by American residential home construction firms grew in exponential terms with the advent of easy mortgage credit and lackadaisical credit checks. But then, when over building led to an over supply of houses and a price collapse, the era of universal home ownership came to a crashing halt.

On a more optimistic note, American business history is also replete with stories about firms that bravely adopted strategies that pinched their profits in the short term and yet enhanced their market positions in the long term. Apple, for instance, refused to accede to demands to increase computer sales volume by licensing its proprietary operating system to other computer manufacturers; this decision paid off in the long run when Apple successfully managed to increase volume by transplanting simpler versions of its system into newly developed iPods, iPhones, and iPads.

Similarly, basketball star LeBron James’ decision to sign a relatively brief three year contract extension with the Cleveland Cavaliers in 2006 allowed him to depart that midwestern American city and sign a far more lucrative deal with the Miami Heat last month. Although he broke the hearts of thousands of long-suffering Cleveland sports fans by doing so, most sports commentators acknowledge that he is well positioned to enhance his own long term profits by doing so.

A consistent theme pervades all of these examples; namely, that the very priorities that enhance an organization’s short term profits may be detrimental to its long term profits, and that the reverse may be true as well. Bud Selig may need to make note of this truism, and to act accordingly to establish baseball’s priorities in terms of profit time horizons, in order to ensure that his drug testing policy is a successful one.