Major League Baseball's screwball economics

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

"Baseball has been declining in interest for some time in terms of the young male audience," says Patrick Rishe, an economist who studies sports at Webster University in St. Louis. "I think baseball is seen as archaic. The sport moves at a slower pace. Their athleticism doesn't jump off the screen. I think they have to find a way to speed it up."

But much like the Republican Party, the game is hamstrung by its sizable purist wing, those who believe the slightest change invites heresy. Meanwhile, the economic disparities continue to mount.

No one knows this better than the people of Kansas City. During the '70s and '80s, the Royals were a power on par with the Red Sox, despite playing in the country's 31st-largest market.

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."

"Stands were filled," says Joe Posnanski, the town's former dean of sports writers at the Kansas City Star. "Everyone talked about the Royals. It was really one of the best baseball cities in America at that time."

Yet Kansas City stopped playing for titles in 1985, just as the league's crevice between rich and poor was becoming too wide to jump. The Royals sunk to little more than schedule-filler, a talent farm for the rest of baseball.

Players like Carlos Beltran, Johnny Damon, and Zack Greinke "were traded before their contracts expired because the Royals said they could no longer afford them," according to Posnanski. "It started to feel like a vicious circle, and it depressed many Kansas City Royals fans."

He has no doubt that "if the Royals start to win, and win big, the young fans will get excited about them."

But that winning part is a big if. Local TV will bring Kansas City just $20 million this year. Even with an estimated $25 million in revenue-sharing, they're still at a four-to-one disadvantage against the Dodgers. Toss in a potential fan base that's but a speck of L.A.'s, and the Royals become a mom-and-pop clothier parked next to Walmart.

They might win a sale or two, even have a good year. But few succeed in business or baseball when the odds are this stacked.

Television's Strong-Arm Racket

The collapse of baseball's TV revenue won't come from die-hard fans. There's no indication that the sport's truest disciples won't pay more and more until there's nothing left.

The problem is non-fans, who are picking up most of the check.

Here's how it works: Just six companies control 90 percent of America's TV programming. And they won't let your local provider simply carry the channels you actually want to watch to keep your bill modest.

When Disney negotiates contracts, anyone who wants ESPN is usually forced to buy a bundle that includes lesser fare like ESPN Classic or ABC Family, whether they want them or not.

The same goes for programmers like Viacom. If you want Nickelodeon or MTV, you're also required to buy Logo and VH1 Classic, among the lowest-rated channels in television.

"It's incredible," says Matthew Polka of the American Cable Association. "If you want one popular channel, they make you take 10."

Most contracts require that all channels be included as part of a cable company's "basic" package. That's why your TV menu is loaded with shows about tow-truck drivers and women who make bras.

"It causes us to basically be forced to provide a bloated, expanded level of basic cable service," says Polka. "Our customers know that these aren't channels watched on a regular basis, but they still have to pay for the monthly subscriber fee. Because of your market power, you are essentially forcing me to carry channels I don't want."

Baseball rides comfortably in the back seat of this strong-arm game. According to the research firm NPD Group, the average cable or satellite bill will reach $200 by 2020. Half of that fee will go to sports. And everyone pays, because most providers are barred by contract from moving sports to a premium package.

That's why Fox can double its payments to carry the World Series. Though only 10 percent of America will watch, the remaining 90 percent will cover the freight.

Yet consumers have clearly tired of picking up someone else's check. During a single quarter in 2012, Comcast lost 117,000 subscribers. While such figures are cyclical, cable and satellite have lost customers nine years running.

What's worse for baseball, the largest exodus involves the young, who increasingly turn to cheaper fare like Netflix and Hulu. They're not just turning away from the game; they don't even want access.

But neither television nor baseball seems to notice these darkening skies. Take the country's most obsessive TV market, Los Angeles, where a school of piranhas has attacked the city's cable bill.

Not long ago, L.A. hosted just two regional sports channels. Soon there will be seven. The Lakers charge $4 a month. Fox bills $5.40 for its two channels. The Dodgers are expected to add another $5. And Bevilacqua just negotiated a stunning 500 percent increase for the Pac-12's media rights.

"There are no new pro or college games being created," says DirecTV's Dan York. "But what used to be delivered via two regional sports networks now seeks to be re-sliced into [multiple channels and] more costs for consumers. That's not a sustainable model."

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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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