Baseball Economics Threaten Fans
by Glenn Dickey
Apr 07, 2005

BASEBALL FANS are taking a direct hit because the economics of the sport are so out of control, and the fans know it.

A recent Associated Press-AOL poll showed that 33 per cent of those polled thought that high player salaries were the biggest problem in baseball, 27 per cent listed steroids and 22 per cent thought high prices at the ballpark were the chief problem. Steroids is an off-season story that has been pumped by the media. By mid-season, when fans are involved in the games much more than off-field issues, player salaries and ballpark prices will be 1-2 on the fansí radar, and that order may be reversed.

It is not just the high prices that affect fans. Those teams with really low payrolls, because they have really low revenues, have no chance to win. The combined payrolls of Tampa Bay, Kansas City, Pittsburgh, Milwaukee and Cleveland donít equal the Yankeesí payroll, put at just under $206 million for 2005 by the Associated Press.

If you were picking a World Series team and had the choice of those five teams or the Yankees, what would be your choice? I thought so. You can put the next three lowest payroll teams, Toronto, Colorado and Washington in the pool with the other five and you still would have no chance of picking a World Series team.

Occasionally, youíll get an example of the ďMad BillionaireĒ owner who pours money into his team to get a winner, as Wayne Huizenga did with the 1997 Florida Marlins, who won the World Series, and Artie Moreno did with the Angels last season. But Huizenga dismantled his team after the í97 season. Moreno still has a high payroll, fifth in baseball, but his payroll is less than half that of the Yankees. Even then, Moreno is losing money, and who knows if heíll continue. Tom Hicks made a big splash with the Texas Rangers, including a record contract to Alex Rodriguez, but when that didnít produce a winner, he backed off. The Rangersípayroll is slightly less than the Aís for 2005.

Because management is important, lower-budget teams like the Aís and Minnesota Twins have enjoyed some success, but they canít afford to keep their teams together. A baseball man who spent some time on this, told me that, if the Aís had kept their stars from the 2002 team Ė Miguel Tejada, Tim Hudson, Mark Mulder Ė their payroll would now be $120 million, more than double what it will be for the 2005 season.

The general rule of thumb in baseball is that the break-even point for a teamís finances is a player payroll which is roughly half of total team revenues. In recent years, the Aís have tried to basically break even, so with a payroll of nearly $56 million, they are anticipating revenues in the $110-120 million range. They'd be looking at a loss of as much as $60 million with a payroll of $120 million, which is why they let Tejada go as a free agent and traded Hudson and Mulder.

THOUGH THERE is much talk of large and small markets, what really drives baseball economics is cable television, not market size or even attendance.

The Yankees, Red Sox and Mets have their own cable networks, and they have the three highest payrolls. Surprise!

The Yankees network spreads out over an area which includes Buffalo, though that city is actually closer to both Toronto and Pittsburgh. The Yankees have nine million subscribers paying $2 a month for their network, which also shows New York Knicks games.

The exact figures on the Yankees are not available, but itís possible to make an educated guess. Since their games are much more important to viewers than the Knicks game Ė and since they own the network Ė you can expected that they get $1.50 from each $2 subscription. They also have to pay the cost of televising games and servicing the network, but they have advertising which probably pays that.

If y0u multiply $1.50 by 12 months and nine million subscribers, you get $162 million. Even if you subtract $12 million for the costs of providing that service, the net would still be $150 million.

Compare that to the Giants and Aís. Again, exact statistics arenít available but from what Iíve heard, total television revenue (broadcast TV and Fox Sports Bay Area) for the Giants is probably in the area of $28 million. For the Aís, itís lower, probably in the $20-22 million range.

The Giants, who also have much higher ticket prices than the Aís and get more concessions/parking money because they own their park, have much more revenue than their cross-bay rivals, so they can afford some higher salaries; their payroll of $89 million plus is seventh in baseball. But even the Giants canít compete with the Yankees and Red Sox.

The Red Sox, who are really the New England Red Sox, not the Boston Red Sox, have 5.5 million subscribers at $2 a ticket. They may get an even bigger slice of the subscriptions than the Yankees because the other team on their ticket is the Boston Bruins, who didnít even play last year and, though they have always drawn well, are not a big TV attraction because hockey televises so poorly.

The Yankees and Red Sox also benefit from the passion of their fans, especially the Red Sox. Even transplanted New Englanders retain this passion. My friend Evan Martin, who works at the Market Hall fish market in Oakland, has images of the Jason Veritek-Alex Rodriguez dustup from last season on his legs - and he often scolds me for not writing more about the Sox.

You seldom find this kind of passion in Bay Area baseball fans. If FSBA tried to raise prices on their part of cable-TV bills to get more money to the Giants and Aís, there would probably be people who would drop the cable package.

BASEBALL HAS attempted to address this problem with increased revenue-sharing and luxury taxes, but these are Band-Aids on a giant wound. Yankee owner George Steinbrenner pays whopping penalties but still makes money. On the other end of the scale, the low payroll teams may still be losing money.

The only equitable solution would be a salary cap, which would set both minimum and maximum levels, as the NFLís cap does. Because of the salary cap, the NFL has been able to maintain viable franchises in smaller cities, The best comparison is probably Pittsburgh. The NFL Steelers were 15-1 in the regular season and played in the NFC Championship game. The baseball Pirates havenít had even a .500 season since Barry Bonds left after the 1992 season.

Insisting on a salary cap would bring a strike by the players, of course. NHL owners had the stomach for that, and it cost them a season. It also cost players a yearís salary Ė and the owners will still get their cap. There are lessons there for both owners and players in baseball. It will be interesting to see if they learn from them.

What do YOU think? Let me know!

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