1. The Economics of Steroids (revised 8-Dec.-2008)

2. Background Anabolic steroids = a class of drugs that build muscle mass and can enhance athletic performance. –First discovered in 1930s; many legitimate medical uses, but many negative side effects. –Developed for commercial use in 1958; sold to bodybuilders, football players, weightlifters, etc. Late 1980s: allegations of steroid use in MLB –(the “Jose Canseco milkshake”) –Since 1990, illegal in U.S. except by prescription (Schedule III controlled substance). Widening allegations of steroid use in MLB since 1998 (McGwire-Sosa home run chase, Wells and Canseco books...) Most sports events and leagues have banned steroids by now.

3. Why would an MLB player use steroids? If steroid-aided strength improves your hitting or pitching, you’ll earn more. –Classic case: when steroid use greatly increases one’s home-run production. (Ex.: Sammy Sosa?) –Could be the difference between being in the majors or not. (Ex.: pitcher Jason Grimsley?) We can apply the “prisoner’s dilemma” from micro: it would be better if everyone played clean, but if others gain an edge by cheating, you are worse off (monetarily) if you play clean. –  The resulting equilibrium is bad for everybody, because everybody cheats and nobody gains an edge. If others are using steroids, temptation to use will be strong, especially if you might not be in the majors otherwise.

4. Why would owners or fans tolerate it? It seems that they do – fan interest (as measured by revenues) and team resale prices have grown rapidly during the “steroid era” (1998-present). Steroids are thought to boost home runs and offense, and (studies find that) more offense boosts demand for games. –Fans may disapprove of steroid use, but they like offense and winning. Extent of fan disapproval is uncertain: in a recent CBS SportsLine poll, steroid use was only the second-biggest problem in MLB cited by the public (after high salaries). –More offense  increased demand for MLB  more revenues for owners (and players)  A “market failure” – in this industry the owners, workers, and customers all like the benefits of steroids too much to do anything about them.

5. Why should we care? Beyond the obvious issues of cheating, integrity, etc. Many negative side effects, some of them... –severe (tumors, jaundice) –cosmetic (shrunken testicles, breasts, baldness) –psychological (extreme mood swings) –  This is a workplace-safety issue for athletes. Public health hazard: copycat steroid use by other people –An estimated 1 out of 29 twelfth-grade males said they’d used steroids in their lifetime. –1 out of 63 said they’d used them in the past month. –(source: 2004 survey by Monitoring the Future)

6. What is being done? Pre-2002: Next to no steroid testing or penalties. 2002-2006 CBA: light penalties, little testing. –MLB’s steroids scandal intensified during that time. –5-7% of MLB’ers tested positive in MLB’s own tests in 2003. –BALCO investigation  Bonds, Giambi 2005: Congress held hearings on steroid use in MLB. –Some talked of imposing new, harsher laws against steroid use in MLB. –MLB responded by toughening its steroid penalties a little, then a lot, in 2005 and making them part of the new (2006-2011) CBA. 50-game suspension for 1 st offense, 100 games for 2 nd, lifetime ban for 3 rd 2005-2007: Mixed progress. –Over 100 players, mostly in minors, have been suspended for steroid use since April 2005. Less than 1% of MLB’ers tested positive in 2005. –But steroid tests can still be evaded, with “masking agents,” etc. 2008: 3 major leaguers and 66 minor leaguers suspended.

7. The Mitchell report Dec. 2007: Lengthy report by former Sen. George Mitchell is released –Commissioned by MLB in March 2006 –86 current and former players named as steroid users Including superstar pitcher Roger Clemens Including 7 MVP’s and 31 All-Stars –Evidence was mostly hearsay. Only one active player (Jason Giambi) cooperated. Still, except for Clemens, virtually no players have sued. All players named got amnesty. –Made 20 recommendations; all were adopted. 2008 was first year under new drug-testing program. Annual report due out in Jan. 2009.