Wednesday, January 21, 2009

Current Economic Issues in Baseball

When I was in transit over the past couple of weeks, I had the opportunity to sit down and write up a response to some of the economic troubles that the common fan brings attention to with baseball. These opinions come on the heels of large December spending and increasingly expensive ticket prices. Common fans do not like to see these two combine and when they do, their pessimism is hard to respond to. In a time where the entire country has felt the recession to an extent, fans are more deterred than ever. Baseball is an escape from the negativity of the world and I don't expect that to change, though perhaps the way that fans access the game may drastically change.

The future of baseball and all of the entertainment industry moneymakers is successful use of media and new media. I have tried to give myself a glimpse into this by blogging and learning how online networks grow. The development of strong fan connections can be made through building a bridge from the team to the fans. Player participation in blogs such as Curt Schilling's "38 Pitches" became a huge hit in the Boston area and with other dedicated fans by giving them an opportunity to interact with the pitcher. Now front-office staff members blog, chat online with fans and make public appearance to help increase communication. This area is something that is going to explode once teams figure out a way to get players with star power to maintain communication with new media outlets. Minor League teams will also use new media, but in vastly different ways as the team itself, not the players, is what the fans identify with. By going out into communities with marketing street teams and perhaps blogging by team officials or members of the coaching staff, communities can become more familiar with their teams.

A current issue in baseball according to the average sports page reader is that salaries of players are soaring above acceptable rates. With players receiving average salaries over 3M and several free agents signing contracts this offseason that will pay the player in excess of 20M per season, I can see how people would deduce that there is a problem (I used to agree as well -- Until I read Marvin Miller). However, the teams and players have come very close to balancing the share of the revenue stream. At an average of 3M, the 750 MLB players earn 2.25B in total. It is estimated that the league earns around 5B in revenue now, so the league and the players are very close to splitting revenues evenly, which is the ideal situation for a fair league and players union. Where fans are right is that teams continue to attack the average consumer's wallet with pricing. In 2009, I would have to imagine that teams will show their rates of ticket inflation because of current economic conditions. Teams not in Boston, New York, Chicago or Los Angeles will probably see a decline in gate attendance, season ticket holders and corporate accounts. Smart teams should consider price changes now to favor consumers and businesses who may not be able to afford multi-million dollar suites in 2009. This is certainly a current issue that will have to be solved through pro-active pricing schemes. Minor league baseball may reap the benefits of this situation in the MLB with more people choosing to go to the cheaper game closer to home.

A former issue that appears to be getting solved is that of competitive balance. Even though the Pittsburgh Pirates and Kansas City Royals have put together one winning season combined since the 1994 strike, there have been plenty of examples of small market teams finding success in spite of big spending teams. Credit the Brewers, Rays and Twins for being playoff caliber franchises in 2008, when the Mets, Yankees and Braves were not. Baseball is now run by executives that are constantly under close surveillance with success being measured almost exclusively by the wins and losses from year to year. It takes a strong mind and desire for success to win now and the Rays, Brewers and Twins used innovation in their resources better than the Mets, Yankees and Braves in 2008. Truly, winners are determine by two things in the modern era of baseball: (1) bankroll; and (2) capacity of the organizations leadership. When the "Blue Ribbon Panel" discussed competitive balance in preparation for the 2002 Basic Agreement, bankroll determine winners in post-strike baseball. Between 1995 and 2001 the New York Yankees played in the World Series five of the seven series, winning four of them. Parity was at an all time low. By creating tax thresholds and a substantive revenue sharing system in the 2002 Basic Agreement, the MLB gave some spending power back to small-market teams. At the 2006 update to the agreement, the tax thresholds were increased and the revenue sharing percentages dropped 3%. In my mind, this hits small market franchises hard, as teams like the Yankees stand to benefit as much as 20M from the 2002 agreement and the 2006, while the Pirates or Royals lose out on 5-7M. By general observation, this allows the Yankees to sign Mark Teixeira and it keeps the Royals from signing a useful bat to help their anemic power from 2008. The true spirit of the game is to have winners based on the ability of management and in order to keep that, the MLB must not lower revenue sharing percents again.

Overall, baseball is in great position now that they have passed the steroid-era. Looking ahead to a future far less clouded than other professional sports is another big plus (NFL -- Player's Rights; NBA -- Globalization of the game, players leaving to play in foreign markets; NHL -- Re-Establishing a fan base and solving collective balance problems) for baseball. I have extremely high hopes that 2009 will bring cost conscious clubs continued success and that consumers still can to come out to the old ballgame.

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