February 2006

Baseball’s Economic Initiatives

by Eric Gartman

            It may seem like ages ago, but it was only a few years back when the economic imbalance between the rich and poor teams was widely viewed as baseball’s biggest problem.  The steroid scandal that has swept over the sport has almost completely blotted out our memory of this issue.  The continuing Congressional hearings, revelations of past use of performance-enhancing drugs by players like Jose Canseco, violations by active players like Rafael Palmeiro, and grand jury testimonies by stars like Barry Bonds and Jason Giambi have captured the public imagination in a way that economic issues never could. 

Still, we should not forget about monetary considerations.  Whether or not certain teams can hope to compete for financial reasons is an important issue.  In a 2002 article I wrote for the Baseball Guru, I argued that baseball should take three steps to correct the economic imbalance: 1) Teams should continue to build new fan-friendly stadiums to increase attendance and ensure long-term viability, 2) Baseball should move the Montreal Expos to Washington DC, and 3) Baseball should increase is revenue-sharing percentages (Here is the article: (http://baseballguru.com/egartman/analysisericgartman02.html).  Since then, baseball has undertaken all three initiatives.  How has this changed the financial structure of baseball?

 

Building New Stadiums

            Since 2002, three new franchises have opened new stadiums: Cincinnati in 2003, and San Diego and Philadelphia in 2004.  Both Philadelphia and San Diego experienced immediate boosts, with attendance in Philly jumping from 2.2 million in 2003 to 3.2 million in 2004, the highest ever for the franchise.  Attendance fell to 2.6 million in 2005, but this was still higher than any season before the 1995 strike.  San Diego also enjoyed a huge gain in attendance, with 2 million fans going to see the Padres in 2003 to 3 million in 2004, by far its highest ever single year total.  San Diego also drew an impressive 2.8 million fans in 2005.   Both facilities were designed for baseball-only, a departure from their predecessors.  Both parks received excellent reviews, with San Diego’s Petco Park being named by Joe Mock’s Baseballparks.com as the New Park of the Year for 2004  (see the review at: http://www.baseballparks.com/Petco.asp).  Cincinnati didn’t do quite as well, partially hampered by poor on the field performances, but also by the fact that the Great America Ballpark isn’t as impressive as Petco and Citizens Bank.  Attendance rose from 1.8 million in 2002 to 2.3 million in 2003 and 2004, but fell to 1.9 million in 2005.

            The result of these three new stadiums at this point seems to be long term competitiveness for San Diego and Philadelphia, but continued difficulties for Cincinnati.  Part of the reason can be traced to demographics.  Philadelphia is one of the most populous metropolitan areas in the country with 5.4 million people.  It is therefore not surprising that once the Phillies got a nice new park to replace the dingy Veterans Stadium that they would fairly quickly become financially sound.  Cincinnati, on the other hand, is home to only 2 million souls, one of the smaller markets in baseball.  San Diego, with 2.8 million people, is on the smaller side, but not too small to compete, especially with a lovely new park. 

            My conclusion?  We are seeing a continuation of the trend I first noted in 2002: “We clearly see that new parks have a major effect, turning some cites around, and helping nearly all the others. But in terms of addressing baseball’s economic imbalance, new parks can’t turn Milwaukee, Pittsburgh, or Cincinnati into New York…Other solutions must be found.”  So how have the other solutions worked?

 

Moving Franchises

            In 2005, baseball returned to Washington DC.  The moribund Montreal Expos finally packed up their bags and headed south to greener pastures.  In 2004, the Expos, splitting time between “home” games in Montreal and Puerto Rico, drew an anemic 748,000 fans, dead last in the majors.  Indeed, since 1998, the Expos drew under a million fans every year except once, when they managed to draw 1,025,000 in 2003.   On top of the weak attendance, Montreal had an ugly stadium and little television revenue.  Clearly a change was long overdue.  Baseball finally relented and the Expos headed to Washington DC.  How did the Expos do in their first year as the Washington Nationals? Very well indeed, drawing a robust 2.6 million fans, good enough to place 11^th out of the thirty major league teams. Moreover, the Nationals future seems bright, with a large and fairly wealthy population of 4.7 million, a much larger television revenue than Montreal ever had, and the possibility of new stadium in downtown Washington, DC, complete with the luxury suites that account for such a large portion of the new parks’ revenues. 

            Will other franchises be able to follow the success of the Expos moving to Washington?  At this point, there is no clear successor to Washington DC.  No other city with such a large population is without a baseball team.  The closest candidate right now is Portland, Oregon.  With 2.1 million people, Portland is larger than several major league towns.   There has been an interest in acquiring a baseball team in Portland, but there are still ownership and stadium issues.  Portland may be a home for another franchise in the future, but not in the next couple of years. 

 

Revenue-Sharing

            In August 2002 MLB and the Player’s Union reached a deal in which the percentage of revenue-sharing of local income rose from 20 percent to 34 percent, which was an annual net change from $169 million to about $258 million annually going from rich to poor.  In addition, baseball instituted a luxury tax to cap team salaries, which has been respected by all teams except the Yankees.  Moving the Expos to Washington has also helped revenue-sharing, as a team that collected money will now become a team that hands out money.  Has this helped the lower-revenue teams?  It is difficult to say because of the widely different won-loss records of the teams in question.  The Tampa Bay Devil Rays have still never had a winning season since their inception in 1998.  The Pirates and Brewers still haven’t had winning seasons in recent memory.  The Reds and Royals have struggled.  But the Twins, A’s, and Marlins still managed to put winning teams together, indicating that money isn’t the only factor in a team’ success.  

 

The Have-Nots

            The teams that were in the biggest financial straits several years ago were, in no particular order: 1. Tampa Bay Devil Rays 2. Oakland Athletics 3. Cincinnati Reds 4. Pittsburgh Pirates  5. Milwaukee Brewers 6. KC Royals 7. Florida Marlins 8. Minnesota Twins 9. Montreal Expos. 

The Expos are no longer on this list, and is questionable whether Oakland ever should have been on this list (See Oakland’s attendance record at: http://www.kenn.com/sports/baseball/mlb/mlb_oak_attendance.html).  That leaves only seven teams.  The two cities with the biggest upsides are Minnesota and Florida.  New stadiums have been proposed in both cities, but have not yet received approval.  Things may be coming to a head in Miami, with the Marlins lease at Pro Player Stadium ending in 2010.  To be successful in South Florida a retractable-roof stadium is a necessity due to the rain and heat.  But these domes are expensive, and a deal has yet to be reached.  If it is not, Florida may well be the next team to move.  Should Miami receive its dome, however, with a population of 5 million people there is a very good chance it will bring in large crowds and be baseball’s next success story.  The Marlins drew over 3 million people in their first season, and they may be able to reclaim the crowds, but folks aren’t willing to put up the weather.  Attendance figures bear this out, with attendance bottoming out at measly 784,519 in 2002. 

A similar situation exists in Minnesota.  A target of contraction by MLB in 2002, the Twins have brought in more fans with winning teams.  Still, attendance is generally under 2 million a year.  The biggest single factor is probably the Metrodome, an ugly throwback to another era.  While fans across the country revel in their glorious baseball-only stadiums, Twins fans must endure an awkward football-baseball hybrid.  Negotiations are under way for a new baseball-only facility, and if it passes, baseball in Minnesota will most likely be guaranteed for the long-term.  With a population of around 3 million, Minnesota is a good bet for healthy attendance figures.

             Three of the franchises in question- Cincinnati, Pittsburgh, Milwaukee- have built new stadiums that have helped boost attendance, but this has not ended their financial troubles.  These are all smaller cities.  Milwaukee is by far the smallest MLB town with only 1.5 million people.  There are several larger cities in the US that do not have baseball teams.  By building new stadiums, all three towns assured that baseball will stay for the long term, as well as register a moderate increase in attendance.  But these cities will always have a hard time keeping up with the big boys.  The same might be said of Kansas City, which already had a lovely baseball only stadium, but still struggles due its small population.

            That leaves Tampa, with a population of 2.4 million.  Tampa drew over 2 million only one time, in its inaugural year of 1998, and attendance has averaged around 1.1 million in the last few years.  There are two reasons for this poor attendance.  First, is the team’s weak performance on the field.   Second, the Tropicana Dome is not a good place to watch baseball.  Unfortunately, there are no plans right now for new baseball-only facility.  A new stadium would certainly help, but Tampa would most likely be akin to the franchises in Cincinnati, Pittsburgh, Milwaukee, and Kansas City:  viable, but marginally competitive.  

            Thus as I see it, two cities, Minnesota and Florida, hold the future in their own hands.  A new stadium will help turn these franchises around like new stadiums have in Cleveland, Texas, Baltimore, Seattle, Houston, San Francisco, San Diego, and Philadelphia.  That leaves only five cities that are handicapped by their small size: Tampa, Cincinnati, Pittsburgh, Milwaukee, and Kansas City.   But these franchises problems are partially self-inflicted, a result of bad baseball moves.  Signing free agents like Derek Bell, Jeffrey Hammonds, Greg Vaughn, and Jose Canseco limited what these teams could do.  These teams need to start helping themselves.  Still, there could be some more revenue-sharing.  If these two steps are taken, we may not hear of economic imbalance again for a long time.  There is still some more work to be done, but the crises of contraction, the vagabond Montreal Expos, and not enough revenue-sharing have passed.  Baseball should be proud of its record.  Indeed it is a measure of the success of baseball’s economic initiatives that we don’t hear much about monetary issues anymore.  Hopefully in a few years we will be able to say the same about the current steroid situation.