Screwball Economics: As another season begins, MLB faces an unsustainable future, and you're picking up the tab
Illustration by Tim Teebken

Police in riot gear guard the dugouts, preparing for the worst with German shepherds at heel. This is Philadelphia in 1980, after all.

It's the bottom of the ninth. Two strikes. Two out. Bases loaded.

Human rocket Willie Wilson of the Kansas City Royals hugs the plate, dressed in full powder blue, a color fancied by baseball teams and wedding parties of the era.

See a larger version of this week's cover.
Cover illustration by Tim Teebken

His nemesis this evening is Phillies closer Tug McGraw, whose fame will later be overshadowed by that of his son, country singer Tim McGraw. The screwball artist fires a pitch letter-high, but Wilson can only flail. Kansas City's insurgency is repelled. The Phillies win their first World Series since forming during the Chester A. Arthur presidency.

A record 54 million people tune into the game that night. It will be perhaps the last time baseball can legitimately call itself America's national pastime.


The Great Leap Downward
Fast-forward to the fall of 2012. Marco Scutaro cracks a tenth-inning single into the wet outfield of Detroit, nudging the San Francisco Giants to a World Series sweep. The Nielsen ratings will soon reveal how far baseball has plunged.

An average of just 12 million people tuned into the 2012 Series — a collapse of nearly 80 percent from McGraw's heroics three decades earlier. In head-to-head competition, a regular-season NFL game will lap the Series by 10 million viewers. The geek comedy The Big Bang Theory will pummel it by 5 million.

Even the investigative drama Person of Interest — featuring "a software genius and an ex-CIA operative who work together to prevent violent crimes before they can happen" — will best the Series by 2 million viewers.

Commissioner Bud Selig has little to say about this spurning of affections. This flight of fans, after all, is very old news.

Last October's contest marked the seventh straight Series to produce record-low ratings. Baseball's defenders have tried to explain the numbers away, citing late East Coast start times, an outbreak of entertainment alternatives and the favored wail of curmudgeons everywhere: that a younger, lesser generation of men prefer to whack pixelated zombies than witness the splendor of Pablo Sandoval going yard.

Others claim the Tigers and Giants failed to ignite the country's passion. "I am of the belief that the matchup of the World Series is always important," says professor Wayne McDonnell Jr., known as "Dr. Baseball" for his study of sports at New York University.

But of America's three major sports, only baseball needs excuses.

The NFL's ratings remain on a march to the heavens; 108 million people watched the last Super Bowl. Viewership for the NBA finals — though reduced from the days of Bird, Magic and Jordan — is once again climbing skyward.

Meanwhile, baseball's ratings continue to plummet, irrespective of month or matchup. Those record-low Series of the last seven years featured the game's biggest attractions, from the moneyed villains of Boston and New York to storied franchises like St. Louis and San Francisco. None stanched the bleeding.

Regular-season games have declined equally. FOX's Saturday audience has gone down an average of 800,000 since 2001. Sunday-night ESPN telecasts have shriveled by a million viewers in just the past six years.

In any other industry, such staggering drops would raise alarms of a rotting ship. One might presume that TV execs are screening Selig's calls. But the exact opposite is happening.

ESPN, FOX and Turner recently struck deals that double their annual payments to MLB. The Los Angeles Dodgers will soon ink a 25-year pact for local rights that's worth an estimated $7 or $8 billion.

If it all seems incongruent, born of the same economics that brought you bank bailouts and the housing crisis, that's because it is. Baseball, you see, is expecting you to pick up the tab.

"It's an unsustainable model for sports rights to escalate at a pace that's exponentially higher than wages for families," says Dan York, DirecTV's chief content officer. "It's coming to the breaking point."


Banking on the Slowest Falling Star
Inside broadcasting's executive suites, the Holy Grail has a new name: "appointment TV," considered the last defense against a fierce and fast-encroaching enemy, the DVR.

The problem for networks is that viewers are no longer showing up when they're supposed to. Instead of planning Tuesday nights around, say, Justified, people are recording shows to watch at their convenience. And unless they have a fondness for commercial interruptions, they'll be fast-forwarding through their daily regimen of Geico ads. Which makes Justified less valuable to advertisers.

Human nature, however, isn't partial to watching a baseball game three days after it's played. Viewers still want to see it live, even if it means opening their homes to Flo from Progressive.

"Live sports and a few other events, like the Oscars, are still must-see programming," says Maureen Huff of Time Warner Cable, the company soon to be writing those very large checks to the Dodgers.

Advertisers also see sports as the best weapon for reaching young men, who are known to have a special gift for eluding commercial reach. Never mind that baseball's youthful audience has gone AWOL. More women age 50 and older watched the last World Series than did men under 49. But compared to babe cops and reality fare, the game's ratings practically shine.

"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."

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 its 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, San Antonio and Green Bay 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.

"Baseball has been declining in interest for some time in terms of the young male audience," says Dr. Patrick Rishe, an economist who studies sports at Webster University. "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.

"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 Beltrán, 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 LA'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 ten."

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, LA 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."

Yes, the die-hard Dodger fan will readily fire up his debit card to cover the impending $200 tab. But the team's broadcasts average just 100,000 viewers. That means the remaining 5.6 million LA households with cable must be convinced to pay the same to catch such searing drama as Vanderpump Rules and Confessions: Animal Hoarding.

One needn't be an economist to know this won't turn out well.


Baseball is Introduced to Reality
Baseball may be sick, but the prognosis isn't terminal. Average per-game attendance was 31,000 last year, not far below pre-recession days. Better still, polling shows that Latinos, the country's fastest-growing demographic, are also the game's biggest fans.

Posnanski notes that teams have agreed to share Internet revenues, meaning there may come a day when the Pirates and the Royals won't have reserved seats at the kids' table come playoff time.

Yet it's more likely that consumers and the cable industry will force baseball to confront its decaying foundation. And if they're successful, the cost to true fans will rocket.

Companies such as Time Warner Cable have begun to use their own market power to fight back, offering cheaper, mostly sports-free deals for those tired of paying for games they don't watch. Time Warner's TV Essentials package comes in at less than $50, says spokeswoman Maureen Huff, and is "designed for people who are just kind of feeling the economy." Most telling: It doesn't include ESPN or other sports channels.

Cablevision is the biggest threat looming off baseball's stern. Earlier this month, the New York provider filed a federal anti-trust suit against Viacom, claiming that in order to carry Comedy Central and VH1, it was forced to buy channels like Logo and Palladia as well. According to the suit, Cablevision could always reject these demands. But Viacom wanted a $1 billion penalty in exchange for any exercise in free will.

If the court rules against Viacom, cable and satellite may finally be able to offer packages to suit any price or taste. Baseball's welfare payments from non-fans will corrode. And with an audience in decline, remaining subscribers will be forced to spend that much more to compensate. Suddenly, that $200 bill could look like a going-out-of-business sale.

A dying game will be introduced to Economics 101. It won't be a pleasant encounter.

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7 comments
mekra
mekra

It's weird to reference new media and not take it into account.  MLB.TV delivered 127.2 million streams in the first two weeks of 2009.  It's hard to casually find statistics about the subscriptions last year, but that 127.2 million number was a 136 percent increase from the previous year.  Attendance has also risen steadily at MLB stadiums.  Check out the wiki for record-setting home attendance; most of the numbers are in the 2000s (decade, I mean).  http://en.wikipedia.org/wiki/Major_League_Baseball_attendance_records

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

That's just plain wrong.  The MLB added a one-game wildcard last year in both divisions and updated several rules before the start of this season--notably a rule on balks, which was certainly imposed to speed up the game.  There's also talk of eliminating the intentional walk.  

That wildcard game drew only 4.6 million viewers--to TBS, which considered it a smash success.  You also make a lot of choice comparisons between a series of games to ratings for a single game championship like the Superbowl, which is especially hard to swallow given how the Giants crushed the Tigers last year.  Lots of people didn't continue watching the blowout, but that's true of any sports event.

You're also wrong about salaries determining championships or the Cubs would have won one by now.  Plus, the Yankees suck this year, and they're pouring money into their team.  The Dodgers are good, but they were beaten by a smaller payroll.  The A's made it to the postseason on a pretty light budget.  And about that "faster route of free agency"--ask the Marlins how that works out.


I just don't think that this editorial was well researched or reported.  

egolterman
egolterman topcommenter

Taxpayers here are picking up 'more' tabs than others paying off Ballpark bonds from hotel- motel tax for 30 years-commitments made by government officials based on inclusion of Ballpark Village. o taxpayers get a cut of all the new parties, banquets and special events revenue the Cardinals are loading into the Ballpark? Will they get a cut out of the beer sales from Phase One-Village?  May be baseball is heading toward a cliff but Cardinals owners cleared $20 million last year. That does not include the increase in value of their stock. And, they keep the ticket-tax revenue? 6 million a year.  Are you kidding me? Mayor Slay-take the sheriff over there, get that money and hire another 100 police officers. Ticket tax revenue is not to be kept by entertainment venues, producers or franchise owners. Make the rounds of all  and get it.

auxarcs
auxarcs

The MLB players union is the strongest and most unified union in sports. They would not sit still for salary reductions. No facts can change their belief in "habeas wampum" which means, "you have money, now give it to me!" Like the auto workers union that insisted, "it's not our fault the company gave us a contract they can't afford", they would rather destroy their business than compromise. I don't see how the ticket prices can go any higher, so MLB will need to go into bankruptcy,  or get the government to bail them out. If the players' union has contributed enough money to politicians, the governent will bail out MLB. The government auto company bailout helped the union by preventing GM and Chrysler from going into bankruptcy court to reorganize their businesses and renegotiate unsustainable labor contracts.

auxarcs
auxarcs

It's true that baseball doesn't draw as big a TV audience than football, but more people play various forms of baseball, softball, wiffle ball, t ball, kick ball, than any other sport. In that sense, baseball is still America's pastime. 

kevinalbright8
kevinalbright8

The author seems to think that merely the price of tickets and beer would skyrocket if TV money decreasaed dramatically. I don't see some sort of epic collapse of baseball, because player salaries would be slashed.  There would definitely be a big struggle, but baseball is not on the verge of falling off a cliff.

egolterman
egolterman topcommenter

@kevinalbright8 Yes and there is no way the City should have given up the ticket tax revenue to them, or the Fox, or now to the Blues. That's pure theft. And with Village a decade late and nothing like what gov officials were 'sold', the County should stop payment on  the Ballpark bonds, and refer the bondholders to the boys in Cincinatti for the payments.

 
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