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What does baseball’s recent spending tells us about the economy?

{ Posted on Dec 22 2010 by Marcus Alston }

The Yanks, Texas and Phillies all showed that they were willing to offer big bucks for Cliff Lee which I take as a good sign for the economy.  But is it really, or does it show that only the baseball owners are making money now?  Or are they bullish about the future?  Or off their (John) rockers?

Well, it turns out that baseball owners are doing quite well financially despite the bad economy.  Despite overall stadium attendance being down in 2009 by 6.58% according to bizofbaseball.com, revenues hit a record high of $6.6 billion.  Additionally according to Forbes, baseball owners reported record operating income as well, averaging $17.4 million per team.  At the same time, Forbes reports that Major League Baseball total salaries dropped $25 million, which is only the second decline since 1995.  Player costs for 2010 reportedly increased slightly, with the average salary per player at $3,340,133.  Whew, I remember Nolan Ryan going over the $1 million per year mark in 1979 (a 3 year, $3.5 million contract) and Dave Winfield’s then crazy $2.5 million per year deal in 1980 (10 years, $25 million ).

Baseball attendance for 2010 was nearly flat, down a .6%, but total gross revenue reached $7 billion–another record.  So who pulled in the most revenue?  The Yanks lead all teams every year in revenue.  2010 revenue stats don’t seem to be official yet, but in 2009, the Yanks pulled in $441 million, followed by the Mets in second at $268 million.  The lowest team in revenue was the Florida Marlins ($144 million), followed closely by the Pirates at $155 million.  However, don’t cry for the Marlins.  They manage their money well, penny pinch, have a low pay roll and lead the league in profit (operating income) at $46.1 million, followed by the Red Sox at about $40 million.

There were 2 MLB clubs that saw operating losses in 2010. The Diamondbacks (-0.6%) and the Detroit Tigers ($29.5 million loss).  Only 9 clubs saw their value decline according to reports.  Finally, the Rangers and Yanks lead the league in debt at $105 and $89 million respectively.

Even with all the spending that has gone on this free agency off season by owners, teams have to be wise.  The Phils loss of All Star outfield Jason Werth to the Washington Nationals who signed him to a 7 year $126 million contract helped the Phils afford to pay for Cliff Lee.  Werth made $7 million in base pay with the Phillies in 2010.   Also, to improve their budget, the Phillies have been rumored to be considering trading pitcher Joe Blanton and or outfielder Raul Ibanez to further reduce payroll.

Conclusion.  Financially baseball is doing just fine despite a tough economy.  With attendance holding steady in 2010, baseball has increased prices on consumers in order to pay for their spending sprees.  According to Team Marketing Report’s exclusive Fan Cost Index for 2010, the average ticket price for all teams increased 1.5%.  That’s the smallest increase since 1991.  But before you get too excited, Major League Baseball’s average ticket price increased 10.9% in 2008 which was the steepest increase since a 12.9% rise in 2001.  Average ticket prices increased by 5.4% in 2009.  MLB also relies heavily on television revenue to pay for its spending.  Television networks rely on commercials to pay for their MLB deal and other expenses.  Fans of course watch the commercials and buy products. 

You can see the cycle– fans are indirectly financing the baseball spending spree one way or another—either at the ball park or at the store.  The fact that fans continue to do this and baseball has a renewed confidence on this source of income evidenced by their recent spending on free agents this year means to me that many baseball executives are bullish on the economy and betting that the fans will continue to be able to afford to support baseball.

Yes baseball is making money.  Yes, they appear to be bullish about the economy.  Yes they believe fans will continue to make money too and be able to afford to go to the game and or buy advertised products at the store.  I take this as a good sign that baseball believes our economy is recovering.

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