Major League Baseball's screwball economics

As another baseball season begins, MLB faces an unstable future — and you're picking up the tab

"It's kind of counterintuitive," says Paul Sweeney, a media analyst for Bloomberg Industries. "It's just that sports are kind of less bad. They're doing better than other programming."

You can't blame baseball for cashing in on this backhanded blessing. After all, when your customers willingly pay $8 for a lukewarm Budweiser, it's safe to assume they'll buy anything at any price.

Baseball is "in a fantastic position," says Chris Bevilacqua, a New York media consultant. "It's going to continue."

Major League Baseball Commissioner Bud Selig
Mookiefl via Flickr
Major League Baseball Commissioner Bud Selig
Webster University  economist Patrick Rishe: "I think baseball is seen as archaic. It moves at a slower pace. Their athleticism doesn't jump off the screen."
Tom Carlson
Webster University economist Patrick Rishe: "I think baseball is seen as archaic. It moves at a slower pace. Their athleticism doesn't jump off the screen."

He should know. Not long ago, the Texas Rangers were a color guard for mediocrity at both ballpark and bank. But even as they were emerging from bankruptcy, Bevilacqua negotiated an estimated $80 million annual deal for local TV rights. He arranged another $60 million a year for the feeble San Diego Padres.

"It's like any other market," he says. "The markets go up and down. In the case of media and sports rights, they very rarely go down."

He's right. Or at least that's been true in the past.

Bob Gessner knows the drill. He's president of MCTV, a cable provider in Massillon, Ohio, that carries Cleveland Indians games. For the past decade, the Tribe has been a woeful club, losing games and fans with equal facility.

"In a year when the team does well, the reset [for broadcast fees] is due to the team doing well," says Gessner. "When the team is doing poorly, the rates will jump just as much because they need money to rebuild the team."

Cable and satellite companies grudgingly succumb, no matter how illogical the deal. Every provider feels forced to carry the same channels, lest customers flee to a competitor.

With no one saying no, the networks see sports as a no-lose racket, with ESPN as its piper. The sports channel charges cable companies $5 a month per customer, by far the highest monthly fee in national television. While that may seem a pittance, it's big money when spread over the 100 million U.S. households with pay TV. And it's made the other big boys envious.

NBC and CBS have launched their own sports channels. Another from Fox is on the way. Even regional sports channels are starting to broach that $5 mark. Their bet is that viewers will always be willing to pay more. And more. And more.

Economics on the ground say otherwise. Today, the average TV bill rests at $86 per month, about half of which pays for sports programming. That's more than double a decade ago. So it's no coincidence that the cable and satellite industries have been jettisoning customers for nine years straight.

The new round of deals promises to hasten these unpleasant trends. "I can't tell you what will be the trigger," says Matthew Polka, president of the American Cable Association. "But I am certain that at some point in the very near future, that balloon will burst."

And when it does, baseball will take the brunt of the explosion.

Fixed Odds and Fleeing Fans

To understand baseball's decline is to appreciate its awkward relationship with the very thing it sells: competition.

The NBA and NFL, those exemplars of socialism, share most of their revenue, realizing that for their sports to thrive nationwide, Green Bay and San Antonio must get the same cut of hope as Boston and Chicago.

Yet baseball hews closer to raw capitalism, where the big crush the small with painful regularity. If you're a fan in Miami or Denver, that's not entertainment; that's everyday life.

On opening day next year, the Dodgers' local TV contract will pay for their entire $200 million-plus roster — the highest in baseball — before they sell a single ticket, hot pretzel, or warm Pepsi.

Across the country in Minneapolis, the Twins' deal will be enough to cover the salary of their best player, catcher Joe Mauer — with perhaps a weak-hitting infielder to spare.

Though baseball has long played with a rigged financial deck, it's about to get perilously worse.

The game, of course, does its best to subdue such talk. The surest way to keep front-office types from the phone is to request an interview to discuss how the latest local TV deals will affect competitive balance. The Padres, Dodgers, Cardinals, Twins, Brewers, Indians, and Pirates all declined comment for this story.

Selig's office isn't any more effusive. "We are going to take a pass on this one," says spokesman Matt Bourne.

Still, it's safe to say that these fixed odds have deposed generations of fans in smaller cities across the land. In any given year, half the teams are in the midst of three- to five-year rebuilding projects, since they're financially barred from the faster route of free agency. At the same time, the league has done little to make all that losing bearable.

While the NBA and NFL constantly remake rules for speed and action, baseball's last significant change was the designated hitter. In 1973.

The result has produced a spectacle once described by the Boston Globe's Ray Fitzgerald as "six minutes of action crammed into two-and-one-half hours." Forgive young men for preferring Call of Duty or football by the time the Fall Classic rolls around.

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13 comments
Quaker2001
Quaker2001

Yet another person who looks at World Series ratings and thinks the game is dying.  Take a look at local TV ratings and the new TV contracts you're talking about and then tell me the game is dying.  And if baseball is really dying, apparently the execs at ESPN and Fox didn't get the memo where they DOUBLED their rights payments to MLB.

You may be right that the balloon will burst when it comes to cable/satellite programming costs, but baseball won't take the brunt of it.  The sport is doing just fine and is in no way dying

vespa50sp
vespa50sp

Whatever. I'm not a major league baseball fan and don't have cable, so I'm not chipping in on the cable bill anyhow. I have netflix and pay per show/movie on Amazon for what I really want to see. I wish government would stop buying into subsidies for these teams however.

Dapper
Dapper

Terrible article. MLB actually has more parody in the playoffs and World Series in the past 10+ years than the NFL or NBA in their respective playoffs and championship games. The writer neglected to even google the past participants of the championship games for these major sports leagues to see that difference in parody. Terribly written, terribly researched. The article stereotypes young American men and baseball fans. The only real insight comes when he considers the growing Hispanic demographic of baseball fans. One only needs to the slightest bit observant during a summer in the Twin Cities to see the local interest in baseball.

Chubby
Chubby

Seriously? Please find someone who understands a tiny bit of the game to write about it. Also, if you want to talk about welfare and subsidies, lets talk about the NFL and NBA as well. How much in taxes will the citizens of Mn pay for the Vikings as opposed to the Twins? I can't even elaborate on the statement about baseball not changing since the introduction of the DH. It's just too stupid. This article is so contrived and ridiculous and lacking basic sense or journalistic integrity.

Chubby
Chubby

A dying game? Seriously? Oh my god, this is the dumbest article by CP yet. You need to do a little more research into the dirty NBA and equally disgusting NFL. Do you know why Baseball hasn't changed the game since the Designated Hitter, which is still disputed by fans? Because it doesn't have to!!! Morons!

cjlund
cjlund

Man alive, where do I begin on this? Advertisers pay a premium for live events, and will continue to. You can't just bring up the rising cost of TV as a way to overcome that, because the ad revenue will always be there. A TV spot for the world series will get significantly more than one for an episode of The Big Bang Theory because people will just DVR the show, a thing that you actively mention. You also didn't research Major League Baseball all that well, or you'd know that there is revenue sharing, just not for TV rights. If you knew this and chose not to mention it while explicitly discussing revenue sharing, you are A Bad Journalist.

Steinhausenn
Steinhausenn

"You can't blame baseball for cashing in on this backhanded blessing. After all, when your customers willingly pay $8 for a lukewarm Budweiser, it's safe to assume they'll buy anything at any price."

Wrong.

What is safe to assume is that the writer finds it convenient to generalize and stereotype the fan base.

Quaker2001
Quaker2001

One more note to the author.. if you're going to blame baseball's economics for what's happened in Kansas City, who should we blame for the success with small market teams like Oakland and Tampa Bay?  Not like they have a lot of money to spend or big time TV contracts, yet they seem to be doing just fine.

MNjoe
MNjoe topcommenter

@Dapper I think it's a very good article - and you should look up parody and parity before you accuse someone of terrible writing.

KoWT
KoWT

@Dapper Did you just use "parody" when you meant "parity"?  I'm gonna go ahead and call a Freudian Slip on that one.

MattyK
MattyK

 Agreed. Despite the rhetoric, for the last 8 years Tampa Bay has been perennially squeezing the big spenders in NYY and BOS out of their playoff spots. See also Baltimore, Oakland, and San Diego making playoffs the last few years. St. Louis has won more titles in the last ten years than the Yankees. Its a golden age of parity right now. The reason Kansas City hasn't been in the playoffs in decades is because they suck at building a good team. Not a year goes by that a small market team doesn't make a good run at the playoffs or in them.

Ticket sales remain strong, people still love the experience of going to the ball game. Minor league revenues have increased as well. The NFL is desperately trying to force an international audience, the MLB has had one banging on the doors for decades.

It is true that the TV contracts may someday bust soon, but even if the popularity of the sport has waned among a traditional young white male demographic, the fan base continues to be solid. The TV contracts and ratings are going to become problems in the future, but baseball is a game enjoyed best live, and of all the major sports its the best to listen to on the radio. I think MLB is uniquely poised to do well with its internet content; the hardcore fandom is already very engaged with MLB through blogs and social media, and the MLB streaming options blow the other major sports out of the water. The future of baseball is safe even if/when the TV contract boom goes bust.

MNjoe
MNjoe topcommenter

@Chubby And where in the article does it say "dying game?'  I thought it a very well-writen article that brings up some interesting points about declining viewership and the TV/radio deals affecting what a team can afford to do. The Cubs deal with WGN finally comes to an end after 2014 and there's a lot of speculation on what will happen. Try to contribute something positive to the conversation rather than calling people morons.

cjlund
cjlund

This also neglects that it's becoming far more common for baseball teams to own their own TV networks, like the Yankees do with YES, making subscription fees less of a concern as teams feast ont he advertising revenue of a captive audience.

 
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