“There’s a sucker born every minute.” Generally attributed to PT Barnum, the quote seems to be the motto by which MLB owners live by as they continue to fleece the general public year after year. The basis of their argument is that they cannot afford the money required to pay players their true worth, nor can they afford to build new stadiums alone.
For the better part of the past 20 years practically every owner has built a new stadium that relied heavily on government handouts to pay for these mini-castles. They cite three arguments.
“Touting new stadiums as a way to generate local economic development has three main arguments.
- “First, there will be many jobs (albeit temporary) created just to construct the stadium.
- Second, the stadium’s daily operation will create other more permanent jobs that will enhance local tax revenues through increases ticket sales, concessions sales, and income taxes from new employee wages.
- Third, and perhaps most importantly, the presence of a new stadium and the people it attracts will indirectly spawn ancillary development such as new restaurants and retail outlets.” [1]
However, as the results from these new stadiums proved unreliable or even inaccurate there was a noticeable shift in the arguments used to persuade municipalities to pay for part or all of the new stadiums. Stadiums began to be marketed as important to a city’s identity, not for their tangible improvements they brought, but for their intangible benefits, of moral, pride and community spirit. [2]
Economist after economist has demonstrated that their argument does not hold up under financial scrutiny, but the psychological barrier of losing a team has been too much to overcome.
More recently, in the battle over how much to pay players when they reach free agency, we hear these same arguments; owners don’t have the financial capacity to pay the players true market value. Consider the new contract given to Mike Trout for $430 million over 10 years. After doing the analysis, he is being paid about half of his true net worth (WAR is valued at $8M per win; Mike Trout averages about 8 WAR per year, so he is worth $80 per year.)
As a direct consequence of this logic, ownership groups rake in record profits year after year. It has gotten to the point where the average family has been priced out of attending an MLB game. The industry is now a $12B a year entity.
The question that I want to answer is, “Do the owners have a valid argument when it comes to asking for government handouts and paying players their true worth or are we being duped by a greedy bunch of billionaires?”
Consider the following numbers:
- 5.6 billion
- 5.1 billion
- 4.2 billion
- 300 million
The sum of those figures, 51.2 billion represents the amount of money that each MLB club receives from ESPN, FOX, Turner and DAZN over a 7 year period for the right to broadcast or stream MLB games on national TV networks and streaming platforms. When divided by 30, this yields a $72 million windfall for each club before one single ticket is sold!!
Aside from the TV contract, there are other revenue streams available to the owners such as monies generated from tickets sold, food & beverages consumed, parking and souvenirs that fans buy when attending a game. Consider these numbers:
- 16.2 million
- 24.3 million
- 32.4 million
- 32.4 million
The number above represent in order, the monies collected for tickets, food & beverage, parking, & souvenirs. They following assumptions were used,
- 81 home games
- 20,000 fans in attendance (equates to 1.6M in attendance)
- $10 / ticket
- $15 / food & beverage
- $20 parking
- $20 souvenirs, scorecards, programs, etc.
Granted, this estimate errs on the conservative end. Overall, it creates an additional $105M.
Finally, we should consider the additional revenues brought in by naming rights, luxury box sales, radio broadcast rights and local advertising, but these figure vary wildly between the different markets. In addition, owners generate revenue when their stadium is utilized for special events, concerts, etc. Let’s allocate another $25M a year to account for these “miscellaneous” revenue streams.
At the end of the day, suffice to say, we can claim that each team will generate approximately $200+ million in revenue each season.
On the other side of the ledger, excluding player salaries (which we covered above) we need to account for other operating expenses. These include,
- Administrative costs
- Real Estate costs
- Stadium debt payments
According to Forbes [3], we can estimate operating income from a high of $95M to a low of $5M. We will split the difference and use an average of $50M.
When you do the math, there is no team that is remotely close to losing money.
Still think your team has a valid argument when it comes crying for a tax bailout from your local government to build a new stadium? I would argue that the numbers say otherwise.
The final insult comes whenever a team is sold. According to Forbes [4], the least valued franchise, the Oakland A’s are worth $1B. Imagine getting a check for $1B when you sell your team. Is there a better investment vehicle for the average billionaire?
Footnotes:
[1] The Economic Impact of Baseball Stadiums on their Surrounding Development, https://surface.syr.edu/cgi/viewcontent.cgi?article=1270&context=honors_capstone
[2] The Economic Impact of Baseball Stadiums on their Surrounding Development, https://surface.syr.edu/cgi/viewcontent.cgi?article=1270&context=honors_capstone
[3] Forbes, https://www.forbes.com/mlb-valuations/list/#header:operatingIncome_sortreverse:true
[4] Forbes, https://www.forbes.com/mlb-valuations/list/#header:operatingIncome_sortreverse:true
Copyright 2019 by Robert Fox. All rights reserved.
Disclaimer: This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner. They do not represent the view of those people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything.
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