The Steroids Era Was Just Like The Housing Bubble: How MLB Incentivized Widespread FraudS

Excerpted from Twilight of the Elites, available now wherever books are sold.

The story of steroids in baseball is more often than not told as a morality tale with a rogues' gallery of villains—Roger Clemens, Alex Rodriguez, Barry Bonds—who are called out by a swarming press to be berated and humiliated, and to tearfully apologize for their sins and seek redemption. It's an emotionally satisfying drama, but not particularly edifying. Because the story of Major League Baseball isn't about any one person's misconduct, but the story of a systemic breakdown that created institution-wide incentives for fraud and a total failure of accountability. It is, in other words, the story of Enron, the story of the housing bubble and the crash, the story of much of the decade as a whole.

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To understand the steroids era, you first need to understand Marvin Miller, the man who turned the Major League Baseball Players Association into one of the country's most effective unions. For the majority of baseball's history, the players union was a toothless beast. Owners more or less owned players outright; they were able to trade, hire, and fire at will. There was no free agency, and though the league was quite profitable (the only legal monopoly in the country), most players merely scraped by, working odd jobs in the off-season to make ends meet. It was a classic system of exploitation, one the owners were single-mindedly committed to maintaining.

Enter Miller. "The beginning was absolutely the worst because to the hard-line owners of that day unionism was treason, there's no other way to describe it," Miller, now in his nineties and combative as ever, recounts. "For very wealthy people who owned franchises, baseball was a respite of the tensions and problems elsewhere; here you could control everything: no unions, a reserve clause that made the players prisoners, no grievance procedure, no salary arbitration, no nothing."

Then a respected labor representative for the United Steelworkers, Miller was chosen by a player search committee that was casting around for an effective leader with experience in contracts and pension plans. He immediately went to work impressing upon his players the rudiments of union consciousness—solidarity—and putting it into practice with a series of strikes. By 1968, Miller had negotiated baseball's first collective bargaining agreement, raising baseball's minimum salary for the first time in twenty years. Four years later the players struck for the first time. It would be the first of many. In each strike the union held, the owners conceded, and the players walked away with concrete and valuable contract improvements. If the median American wage earner had been able to join a Marvin Miller union, that wage earner would have seen his or her inflation-adjusted wages increase from $4,938 to $62,717 over the same period of time (1966 to 1982). Not surprisingly, the union became highly trusted by its members.

Then in 1985, in response to the union's victories, the owners engineered a conspiracy to steal back millions from the players. Meeting secretly, they struck a deal not to competitively bid for the services of free agents, artificially suppressing the salaries on the market. The union got wind of the arrangement, sued, and the owners ultimately ended up paying hundreds of millions of dollars to players in settlements.

The collusion episode confirmed for Miller's successor, Donald Fehr, that the owners were implacably intent on suppressing their members' salaries by any means necessary. "It poisoned the well of what was already a fairly toxic relationship," recalls former commissioner Fay Vincent. Vincent entered baseball from the movie business as the second in command to commissioner and former Yale president Bart Giamatti. When Giamatti died unexpectedly in 1989, Vincent took the reins. "The union-management problem dominated everything when I came to baseball."

What the baseball steroids scandal shows is that it's rather difficult to design a competitive system that heavily rewards performance and doesn't also reward cheating.

By the mid-1990s, having been bested and bested again, the owners resolved to precipitate a confrontation with the players they would finally win. In preparing for this fight, they came to see Vincent as an obstacle. In 1990, during a period of intense labor-management tension, Vincent had stepped in as a neutral third party, facilitating negotiations that ultimately avoided a work stoppage. This time, though, the owners didn't want negotiation. "They thought if they got into a major confrontation with the union, I might get involved and order them to make a deal or go back to work or permit the union to play," he told me.

If there was going to be a no-holds-barred brawl with the union, it was important that there not be an independent referee: The league's commissioner was empowered by the league's bylaws to act "in the best interest of the sport" even if that meant penalizing owners for misconduct, as Vincent did the Yankees' George Steinbrenner. (Steinbrenner had paid a small-time gambler $40,000 to dig up dirt on former Yankees outfielder Dave Winfield in response to Winfield suing Steinbrenner for breach of contract.) In other words, in an institutional landscape defined by a ceaseless war between labor and management, the commissioner stood as the only quasi-independent representative of the sport's long-term interests. He was the closest thing baseball had to a regulator. So in 1992, when Milwaukee Brewers owner Bud Selig led a group of owners in a putsch against Vincent, what they were doing was deregulating—putting one of their own foxes in charge of the proverbial henhouse.

Once the owners ditched Vincent, they went right after the union. In the summer of 1994, they demanded a number of preposterous concessions from the players, and after a series of acrimonious back-and-forths, the union struck. Four weeks into the strike, new commissioner Selig declared that the rest of the season, including the World Series, would be canceled for the first time in the game's 113-year history. Though the owners got the showdown they wanted, the outcome they'd hoped for eluded them. In the end, the union and management agreed to a contract and the union marched on, unbroken.

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Drugs have always been a part of baseball. It's no small thing to play 162 games in 180 days as major leaguers are expected to, and a little chemically created energy was viewed as a necessary boost. For decades, "greenies," or amphetamines, were ubiquitous in major-league locker rooms. In the 1980s, the league wrestled with something of a cocaine epidemic among its players. (There's also the amazing and surreal tale of Dock Ellis pitching a no-hitter in 1970 for the Pittsburgh Pirates while tripping on LSD.) But while steroids have been part of other athletic endeavors for years—the biochemically engineered East German Olympic team, modern track and field, and cycling, just to name a few—before 1989, they remained largely absent from baseball.

Then things changed. During the World Series–less October 1994, President Clinton signed into law the Dietary Supplement Health and Education Act of 1994 (DSHEA), which created an unregulated carve-out of the FDA's jurisdiction for the nutritional supplement industry. One of the areas that experienced the most explosive growth was weight-lifting supplements sold in stores like General Nutrition Centers.

With legal weight-lifting supplements now available, the line between banned and legitimate substances became somewhat blurred, and supplements made their way into locker rooms. Players union president Donald Fehr points to supplement deregulation as the root of baseball's problems with banned substances. "As long as we have this enormously unregulated [supplement] industry in which there is little or no federal inspection," he said in 2009, "you'll have these kinds of problems."

But DSHEA was just one component. Even before its passage, a few steroids pioneers had entered baseball and, like successful entrepreneurs who'd soon find their product aped by the competition, changed the league forever. The most famous of these is José Canseco. In his controversial (though in retrospect largely vindicated) memoir Juiced, Canseco describes his own personal steroids learning curve. As an undersized minor leaguer, Canseco had good speed and a graceful swing but little else. In his hometown Miami, while still in the minors, he hooked up with a weight-lifting buddy who got him access to a variety of anabolic drugs.

An environment as intensely competitive as baseball produces a very rapid and intense form of evolution: those who do not perform quickly find themselves back in the minors, while those who succeed are imitated. Under these conditions, adaptations spread quickly: when players notice a technique, strategy, or piece of equipment that gives a fellow player a competitive advantage they appropriate it for themselves. This happens with everything from elbow pads, which sluggers now use to protect their exposed arm as they crowd the plate, to the kinds of gloves they wear and bats they swing.

This sort of adaptive drive is at its strongest when there are massive piles of money at stake, and in the world of poststrike major-league baseball, few achievements brought in more money than hitting home runs. All players had to do was look at Canseco.

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In 2002, Selig and the players union finally agreed to a preliminary testing regime. During spring training the league would administer a completely anonymous test as a kind of diagnostic look at just how pervasive the drug use had become. If more than 5 percent of players tested positive, then automatically a more stringent (and not anonymous) testing regime would kick in.

At the time Kelly Wunsch was a middle reliever for the Chicago White Sox and, somewhat unusually for a relatively new player like himself, the team's union representative. Wunsch was a member of what might be called baseball's forgotten middle class. He recalls that during his early years in the league, his steroid suspicions were largely focused on pitchers of comparable skill. "The people . . . that organizations are holding up as comparable to me in contract talks: Joe Blow makes this much money and you're 6 mph less than him, same number of appearances, smaller number of strikeouts. And when you begin to get a strong suspicion about those guys, it begins to dig at you."

So in the spring of 2003, as the first round of diagnostic testing was about to begin, Wunsch started discussing the drug testing policy with fellow players, and they happened upon a novel strategy. According to the rules set forth by the union and management, if a player refused to actually take the test, it would count as testing positive. Wunsch and a few teammates who weren't on performance-enhancing drugs realized that if enough of them refused the test, they'd push up the number of positive results and greatly increase the likelihood that the 5 percent threshold would be met and automatically kick in a testing regime.

The union strongly resisted drug testing and only agreed to the 2003 trial under intense public pressure. "The baseball union—to their credit—take kind of the NRA-type stance on just about anything that places any restrictions on players," said Wunsch. "Their ultimate position is zero restrictions. If you give [the owners] an inch, they'll take a mile. With some precedent. This game used to be run by the owners, and the players were like cattle."

Wunsch's informal organizing among his fellow White Sox began to gain momentum, but being a dutiful union representative, Wunsch thought it would be a good idea to run his idea past the officials there. He called up Gene Orza, the union's number two official. It was, Wunsch recalls, "like walking into a buzz saw."

Orza argued that Wunsch and his co-conspirators' actions violated the entire democratic ethos of the union. "A handful of guys can't make a decision for a whole union," Wunsch recalls Orza arguing. "At the time I should have shot back [that] the guys who are doing the drugs are making the decision for the whole union." Wunsch got off the phone and dropped the idea. He and his fellow White Sox took the test. Of course, even with them taking it, and even with the advance warning of the test making it exceedingly easy to beat a positive, a full 7 percent, 103 players out of 1,438 tested, tested positive that spring. A new testing regime was triggered automatically.

The Steroids Era Was Just Like The Housing Bubble: How MLB Incentivized Widespread FraudS

Years later, when the steroids scandal broke completely out into the open, politicians, particularly Republicans, took great delight in savaging the players union for engineering the fraud. But management and the union were equally complicit in the entire undertaking. Nearly every single chronicle of the era is consistent on this point. "The owners had been smart enough not to chase steroid use out of the game," observed Canseco, "allowing guys like McGwire to make the most of steroids and growth hormone, turning themselves into larger than life heroes in more ways than one. The owners' attitude? As far as I could tell, Go ahead and do it."

The report on steroids commissioned by Major League Baseball, produced by former senator George Mitchell, concluded more or less the same thing: "There is validity to the assertion by the Players Association that, prior to 2002, the owners did not push hard for mandatory random drug testing because they were much more concerned about the serious economic issues facing baseball."

A 2003 postseason scouting assessment of Dodgers star pitcher Kevin Brown speculated about "what kind of medication he takes" and noted: "Steroids speculated by GM." Brown was never, apparently, confronted about this suspicion and was later traded to the Yankees, which continued to pay his annual salary of $15.7 million. One imagines there were quite a few similar memos written during that time.

The reason for the laissez-faire approach to drug use is blindingly clear: the steroids era was a lucrative time for baseball. In 2007, as the widespread steroid use was coming to the surface, MLB broke its attendance record for the fourth consecutive season. That same year, revenue for baseball's thirty teams went up by 7.7 percent, to $5.5 billion. In 2007, the average team was worth $472 million, up a whopping 143 percent since 1998. Players were making money, and so were the owners. The entire sport was caught up in a home run bubble. Like the peak years of the housing boom, the players and owners were all making far too much money to trouble themselves with the massive fraud that was driving the profits.

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In twenty-first-century America we fetishize the athletic model of ceaseless competition and meritocratic ascent. Every two-minute biographical package during the Olympics tells the story of some hardworking athlete from the middle of nowhere who woke up early, trained late, and bested her peers to rise to be the best in the world. But what the baseball steroids scandal shows is that it's rather difficult to design a competitive system that heavily rewards performance and doesn't also reward cheating.

Of course, not every institution designed along competitive meritocratic lines devolves into widespread cheating and systemic fraud. Two main disincentives stop people from cheating, even under intense competitive pressure to do so. The first is the existence of ethical norms, whether social or individual. The second is fear of getting caught, and the sanction that might result.

Baseball players before 2003 had nothing to fear from regulation or league policing, since there was absolutely no testing in place. It was impossible to get caught, and the league sent the message from the very top that it would not only countenance but greatly reward those who cheated. This official license to cheat began to shift the norms in the league; as more players began using drugs, the moral condemnation that might once have attached to cheating dissipated. Cheating will always be present in any competitive environment to some degree, but systemic corruption comes about when it moves from anomaly to norm.

The Steroids Era Was Just Like The Housing Bubble: How MLB Incentivized Widespread FraudExcerpted from Twilight of the Elites: America After Meritocracy by Christopher Hayes. Copyright © 2012 by Christopher Hayes. Excerpted by permission of Crown Publishers, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.