When it comes to unpopular industries, few would top the toxic status that accompanies the tobacco industry. Controversy has seemed to haunt the business ever since a flurry of lawsuits brought many unsavory industry practices to light. Since that time, ever-increasing legislation, the burdensome Multistate Settlement Agreement, and a greater focus on personal health in the United States have caused a steep decline in overall smoking rates.
However, in recent years a pickup in the rate of smokeless tobacco products has been a boon to companies such as Altria Group (MO), Reynolds American (RAI), and Lorillard (LO). As consumers have become more health conscious and cigarette taxes have continued to increase, more individuals have been giving up the habit. However, a greater proportion of young adults, particularly males in the 18-26 age group, have taken up smokeless tobacco to get their nicotine fix. Although tobacco advertising has been banned in the United States, there has been one place where smokeless tobacco’s visibility remains high, on the diamonds of Major League Baseball. Many believe that this unspoken advertising for the product has been one of the contributors to popularity among younger fans.
In an effort to further discourage tobacco use, United States Representative Henry Waxman has called on Major League Baseball to ban the use of the product in dugouts and on the field due to the its health risks and the influence of on-field usage on children. Waxman, who heads the influential House Committee on Energy and Commerce, which oversees most professional sports, has referenced the existing sportwide ban on cigarette use as well as the current minor league ban on smokeless tobacco use. The U.S. House, while not yet threatening to legislate on the matter, is strongly encouraging Major League Baseball’s owners and the players union to cover the matter during the current negotiations for a new collective bargaining agreement.
Therein lays the challenging part of the matter. The Major League Baseball players union has made it clear that it has no intention of allowing its members to be subject to any further encroachment by the owners on what substances the players may or may not be allowed to use while playing. With over one-third of players estimated to use the product during games, the matter is far from settled. In light of the negativity that resulted from the publicized steroid hearings on Capitol Hill, the players union is unlikely to go out of its way to help in the matter. Even so, after all the harmful exposure the sport received from its stonewalling throughout the steroid era, the sport’s management may be in a good position to press its players harder on the issue. For the tobacco companies this would be another blow to the public’s image of tobacco use. For now, the image of healthy and active professional athletes partaking of smokeless tobacco is a good counterbalance to the images of mouth and throat cancer, which have served to discourage smokeless usage in the past.
During the short term, the news of a banning of the substance on the field would give some negative publicity to the tobacco companies. However, the long-term effect on sales will likely be minimal. As is, very few tobacco companies or professional baseball players actively promote the presence of smokeless tobacco in the game of baseball. In the past, when baseball stars such as Babe Ruth and Mickey Mantle were paid endorsers for cigarettes, such a ban would have taken a significant toll on the potential return of these advertisements. Now, most smokeless tobacco companies tend to utilize more general ads focusing on active young adults to promote their product. Furthermore, with the current regulations severely limiting the industry’s advertising and product strategies, any negative publicity from a total ban will likely have a negligible impact on sales.
Of greater concern to the companies involved is the pending action regarding menthol-flavored cigarettes, which would curtail demand from one of the few avenues of profitable growth for tobacco industry participants. Although still allowed, it seems inevitable that the Federal Drug Administration will move to regulate menthols, one of the few flavored offerings available in the cigarette niche. An extenuating circumstances complicating the matter is the perceived socioeconomic implications that would accompany the banning of menthol flavoring, as these varieties tend to be more popular among lower income smokers.
No matter the delay, all signs seem to indicate that the market for cigarettes is eroding, due to tightening legislation and regulations destroying demand, and evidence pointing to higher mortality rates among smokers. All of this should further encourage the continued shift by tobacco companies into the smokeless tobacco market. With cigarettes continuing to come under regulatory duress, most of the tobacco companies’ bottom-line growth in coming years will be dependent on how well they can continue to increase the sales of smokeless tobacco products. All told, even if Major League Baseball does go along with Congressional pressure and eliminates smokeless tobacco completely from its product, demand for the product is unlikely to be severely affected. More of a threat would be any limits on the sale of flavored smokeless tobacco. These options, which have yet to face any significant regulatory hurdles, represent the best avenue for tobacco companies to gain new customers.