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At long last, Major League Baseball evolves from the rhetoric of A-Rod, steroids and Pete Rose to the official beginning of the Florida Grapefruit League and Arizona Cactus League spring training schedule.
It is amazing to remember that less than 20 months ago, Major League Baseball was at the labor abyss, threatening to shut the industry down, as many predicted Armageddon for the National Pastime. As the $3.7 billion annual baseball business continues its evolution toward reassuring stability and long-term growth, six key business questions remain.
1. Is revenue sharing good for baseball, or only for the Yankees?
As A-Rod dons his Yankee pinstripes, nearly one-quarter of the teams at the lowest payroll levels reduced their budgets even further. The Yankees and Devil Rays open the Major League Baseball season for real on March 28 in Japan.
Instructively, the gap between the payrolls of these two teams was $133 million last year, and obviously more this year. The Yankees paid approximately $50 million in revenue sharing last year, and nearly $12 million in luxury tax -- merely a cost of doing business. The team believes that the $15 million-$18 million paid to Rodriguez annually through 2010 is well worth the 22.5 percent paid to baseball as a whole.
On the other hand, revenue sharing is universally perceived as a step in the right direction. The 22.5 percent paid to the central fund this year will rise to 40 percent by 2006. Commissioner Bud Selig notes that 14 of the 30 teams received $260 million to improve their franchises.
The Cleveland Indians are a good example. The team has paid into the revenue sharing plan every year since 2000, including about $4.5 million last year. The Dolan family claims that much of the $60 million loss that the team has incurred since the ownership change of 1999 has been the payment into that pot. However, the family believes that the stability created by an attempt to level the playing field will make the franchise much more valuable over time -- hopefully offsetting the $325 million that the family paid for the Indians.
2. Will we ever see another quarter of a billion dollar contract like A-Rod's?
Believe it or not, salaries seem to be stabilizing, even though baseball's average salary last year exceeded $2.3 million per player.
Though a record high, it represented only a 3.3 percent increase -- the smallest since 1996. The Players Association hints at collusion, owners speak of compression.
However it is characterized, the mega contracts seem to be a bit smaller. The 65 cases where players actually went to arbitration this year produced a record $3.2 million average salary for players -- a $126 increase from last year. Led by the seven-year, $100 million deal given to Cardinals first baseman Albert Pujols, nine players received multiyear deals. Though up from five last year, it is below the 17 two years ago and 27 the year before.
While mega-deals will be commonplace, the $252 million deal given to A-Rod may vanish -- especially since the Rangers paid an average of $46.7 million per each of the three last-place finishes during his tenure. While the Yankees inherited a large obligation, they will likely pull in nearly $300 million in total revenue. They can probably make a profit, even after paying $70 million in luxury tax and revenue sharing.
The thing is, every year a new team and ownership group is willing to spend mega bucks in order to make a difference. New Anaheim Angels owner Artie Moreno targeted $147 million this year to sign five free agents. While a worthy attempt to dramatically re-brand his franchise, the move clearly provides more leverage to superstar players on an annual basis.
3. Will the average fan be priced out of attending MLB games?
Last month, the Red Sox raised their average ticket price for the ninth straight year -- now an all-time high of $44.37. Though spending freely for pitcher Curt Schilling (though losing the highly publicized A-Rod derby), many question whether this is a trend for all teams.
Average Major League Baseball ticket prices increased 40 percent over the last five years. Though nine teams have actually reduced some of their ticket price locations, 12 teams have created a program called variable pricing, where the value of tickets rises and falls depending on who teams are playing, what day of the week, and what bearing the game has in the overall pennant race.
More of these fan friendly ideas are needed in the future. It is also important to realize that the $19 ticket price is well under the $44 NBA average, $42 NHL average, and $50 average ticket price for the National Football League.
Still, the Toronto Blue Jays season ticket renewals are at 97 percent. The Mets announced that first-day ticket sales totaled $137,829, the second highest total for the opening day of ticket sales. The Baltimore Orioles sold 1,200 new season ticket packages since Feb. 7. Though obviously there are more regular season home baseball games, the price must be kept at a level where the average fan and "next generation" is able to watch America's Pastime live at the ballpark.
4. Will some struggling teams make it?
Every sport goes through a period of franchise uncertainty -- though baseball has a number of teams in flux. The Milwaukee Brewers were put up for sale by the Selig family. The $110 million debt load may make the team difficult to sell. However, the team receives upwards of $20 million in revenue sharing, while pairing its payroll to around $30 million until the sale is completed.
Even with the off-field problems, the Brewers sold 36,000 tickets on the first day of February sales, representing the largest single-day sale since 2001 -- the inaugural season at Miller Park. The world champion Marlins have a looming mid-March stadium deadline that may go a long way toward determining the team's future in South Florida. The Expos remain "baseball's team, on the move until their ultimate relocation fate is decided, potentially even this summer.
While individual teams attempt to become more financially secure, Major League Baseball is attempting to expand its revenue stream. The sport signed over 30 percent more corporate sponsorships in the last two years than ever before, and deals like the Reebok $500 million, five-year merchandising arrangement will help in the long-term.
Teams are becoming creative as well. The Texas Rangers signed a five-year sponsorship with the Medical Center of Arlington, paying them about $500,000 annually and providing free healthcare to the players, their families, and front office staff. As revenues get tighter, these kinds of creative deals are even more necessary (both at the team and league levels) to avoid passing even more cost of doing business on to the ticket buying public).
5. Do new stadiums solve the economic problems in the long-term?
Baseball is almost finished with its latest round of stadium deals. Eighteen renovations or new deals have been done at a cost of over $3 billion -- second only to the National Football League. Last year, Great American Ballpark opened in Cincinnati, and the honeymoon may continue for the Reds. Last week, the team sold out 16,700 Opening Day tickets in 16 minutes, setting a club record. Over 59,000 single game tickets for the remaining schedule were sold in seven hours.
April 8 marks the opening of the $450 million Petco Park in San Diego. The Padres face a pleasant problem of providing enough tickets for all season ticket holders -- including 2,500 holders of the 20-game mini-season ticket package who recently learned that they will not be able to purchase their expected opening game tickets.
In Philadelphia, the $458 million Citizens Bank Park opens on April 12. The team has sold 21,800 season ticket "equivalents" for the inaugural season. Importantly, the franchise has also sold nearly all of their 70 suites, ranging from $115,000 to $200,000 annually.
From the larger perspective, stadium controversies remain in Kansas City, Oakland, Minnesota and Florida. In each case, naysayers cry over the expenditure of public money. Supporters claim that the 256 spectator and entertainment facilities that have been built since 1993 reflect a national trend.
Clearly, the stadium controversy is ongoing in at least four Major League Baseball markets.
6. Can the next television deal continue to bail out baseball?
The $2.5 billion FOX/ESPN deal represents a lion's share of the $3.7 billion annual revenue for the sport. FOX claims to have taken a $225 million write-down on its contract last year, and 24 percent less viewers watched the World Series as compared to the year before. Still, over $126 million fans watched the Fall Classic, generating over $135 million in ad revenue. A pro season with A-Rod should add to the excitement this year, just in time for future television negotiations to begin.
Individual teams are diversifying as well. The Angels are seeking to televise almost all of their games, negotiating a series of deals under which broadcasts could air on as many as eight stations. They are also planning to air 10 to 12 games on Spanish language stations, and are attempting to expand even more. Obviously, the game needs to diversify its demographics and to get younger. Over 47 percent of the World Series audience remains over 50 years old. As the FOX Family Channel and the FOX Kids Network seek to bring baseball to the "next generation", the industry overall must help (earlier starting times, swifter games, and the like).
Overall, Major League Baseball seems healthier in these six areas, though the new season will not be without its expected turbulence (the steroids testing issue, the winding Pete Rose Hall of Fame journey, and other headlines will no doubt continue).
Mostly, however, the mega salary storms may be left "in the dugout" -- at least for a while. On May 12, the baseball world will focus on the Central Baseball League Ft. Worth Cats. In addition to selling 55 game mini-plans last week, the minor league team announced an "A-Rod Appreciation Day." On that day, some tickets, concessions, and merchandise will cost $2.52; one fan will receive $252 for the best sign (an obvious play on the A-Rod $252 million).
Baseball, are you listening?
