Slow moving FA market, collusion?

[rluzinski]

I don't think we are seeing collusion, just caution. They are plenty of signings this off season that were at fair market price. If the unsigned players are asking for more than their current worth, they will have to lower their asking price. Players probably have a lower projected worth because teams have lower projected revenue.

 

On a side note, I'm always disheartened by how brainwashed some baseball fans. The owners have convinced them that the owners are the victims, while the players are evil for trying to get a contract proportional to their value to the owner. The players ARE the product, so why act suprised that owners are willing to pay them over 50% of their total revenue? They aren't being forced to, that's what they are worth!

 

I am no economist but I question whether most fans have even a basic understanding of all this. Some just can't get past the concept that someone could provide a service worth millions of dollars.

[Patrick425]

endaround[/b]]Agreeing to a contract is just so unfair!

 

The fact that the most important input in a baseball team only get 50% of the revenue tells you how much money owners are getting.

Players are not paid because of input. They are paid tons of money because they are hard to replace. Fans want to see the best talent on the field. Not everyone can play baseball at the MLB level. I also understand that a handful of owners are to blame for some of the outrageous contracts. I understand this and I have no problem with it. I have a problem with millionaire ballplayers who still feel that they are being treated unfairly or that they should have more input into the business of baseball.

 

What if baseball were to take a big hit in popularity for some reason? You never know what the future holds. Boxing and Horse racing use to be 2 of the 3 most popular sports in America. At the current time, baseball owners are reaping the rewards of their investments in a very popular sport. If the climate were to change. They would take losses. Not only in future revenue, but in investments already made. Players would only take losses when it comes to future pay. They take no real financial risks. In fact just the opposite.(See B. Zito and A. Jones). People who take financial risks take bigger hits when things don't turn out well and by the same token should reap greater rewards (vs. those who don't take financial risks), during successful periods.

[Invader3K]

Patrick, that is exactly right. More risk = more reward, just like in any business.

[endaround]

And MLB owners take on almost no risk. They get their stadiums paid for and the league would never allow a team to go bankrupt again, they'll pull an Expos first.

[Invader3K]

endaround, I dont' think that's really a fair thing to say. Let's pretend the economy is going to continue getting worse for a while...attendance would probably plummet at Miller Park. Consequently parking, concession, and advertising revenue would fall. Dont you think Mark Attanasio would lose quite a bit of revenue? Also, the value of his team would more than likely plunge. That's real financial risk right there.

 

You are probably right that MLB wouldn't outright let a team go bankrupt, but it's not like the Expos were in a good situation at the end of their lifespan...and the Nationals aren't exactly doing great right now, either, though that is probably due more to their management than any economic reasons.

[Patrick425]

And MLB owners take on almost no risk. They get their stadiums paid for and the league would never allow a team to go bankrupt again, they'll pull an Expos first.

Isn't the Cubs projected sale price around $900 million or something like that. That's not a financial risk?

 

It may be easy to "bail out" a team here or there like the Expos. However, if the industry goes south in general, there would not be a whole lot the owners could do to save their investments. To say the owners take on almost no risk is a bit of a stretch. If that were the case there would have been a lot more than 2 or 3 possible buyers when the Brewers went up for sale. I do know, however, that the players take no financial risk over and above what any American employee does.

[snyttri]

Baseball seems to have become a very low risk business once it got established. They are exempt from the anti-trust laws so that they can have a legal monopoly on MLB. The public subsidizes them with stadiums and tax breaks. Revenue sharing allows teams to sit back and collect checks without competing for the playoffs and still turn a profit. The Brewers weren't really competing for most of their history but were probably turning a profit just on the appeal of MLB itself despite what they told the public.

[snyttri]

I do know, however, that the players take no financial risk over and above what any American employee does.

 

The value of players is established in the marketplace. CC's value was established at $161MM. Using the same measurement for labor and capital is comparing apples to oranges.

 

Isn't the Cubs projected sale price around $900 million or something like that. That's not a financial risk?

 

That includes a stadium and a cable company. The sale was concluded during the worst economic conditions since the Great Depression so it shows there is probably not much risk.

[nate82]

Well ticket sales is 100% profit to the owners. It basically costs $0 to print off the tickets and to sell them since you are making about 100 times the amount it costs to print those tickets. It is pure profit for the owners. Another thing that is pure profit for the owners is parking. Since the team already owns or rents the propert whatever the situation maybe the amount of parking is going to be more than what they are paying for the property.

 

The players salary and other salaries are not taken into account for the ticket sales because the salaries are already in the budget for the team. The salaries will get paid no matter what even if the team sells 1 ticket or 3 million tickets.

 

Now when you add in revenue sharing and TV contracts the team brings in even more money. Now start adding up all of the endorsement deals the team may get over the year. We haven't even taken into account all of the merchandise sales that the team will get yet either.

 

There is very little risk that owners take when purchasing any major sports team. The reason why there are not that many people buying sports teams is because of the capital it takes to run a sports team there are not that many people out there with the capital to take on buying a sports team. Baseball takes the most capital to run btw.

[Patrick425]

I do know, however, that the players take no financial risk over and above what any American employee does.

 

The value of players is established in the marketplace. CC's value was established at $161MM. Using the same measurement for labor and capital is comparing apples to oranges.

 

I'm not sure I understand your argument. Whether CC makes 161MM or 100K and regardless of how his pay is established, he has not taken any greater financial stake or risk in the "company" he works for than the guy who make french fries at McDonalds, unless I'm unaware of some investment that he has made in the Yankees.

[Invader3K]

Saying those things are "100% profit" is kind of naive. They have to pay the parking attendants, maintain the lots, and pay their ticket sellers, right?

[nate82]

Saying those things are "100% profit" is kind of naive. They have to pay the parking attendants, maintain the lots, and pay their ticket sellers, right?

Yes but they would pay them regardless if the tickets were being sold or not. Lets say in a given year it costs $200,000 to pay for all of the expenses for the tickets this includes all the employees, the cost to print the tickets, and to maintain the lots. Now lets say the average ticket price is $20 just to keep it simple and round. The team would only have to sell 10,000 tickets to cover the expenses. So the team would have to sell out the first game of the year and they are already making a profit after the first 10,000 tickets. Even if it would cost $1,000,000 to do this for the whole season it would only take 50,000 tickets to be sold to cover that cost. How many teams in MLB don't sell 50,000 tickets in a year? Everything after that expense is 100% pure profit.

 

There is no cost to print the tickets and to sell them. The expense of selling a ticket is zero and is 100% pure profit. When you compare the cost of printing, selling, and maintaining everything for that ticket the profits for those tickets is so much more than any cost incurred by selling the tickets.

[DuWayne Steurer]

MLB has higher operating costs than any other sports. Saying "ticket prices" and employees at the park is oversimplifying it to a staggering degree. Travel costs for 81 road games (or, if you will, roughly 27 road series), not to mention the associated cost of having 6 or more minor leage teams, scouts, advertising, and everything else that goes along with running a major leage team take a hefty bite out of profit. Calling anything over ticket sales as "pure profit" is simply not true.

[Roderick]

Saying those things are "100% profit" is kind of naive. They have to pay the parking attendants, maintain the lots, and pay their ticket sellers, right?

Even if it would cost $1,000,000 to do this for the whole season it would only take 50,000 tickets to be sold to cover that cost. How many teams in MLB don't sell 50,000 tickets in a year? Everything after that expense is 100% pure profit.

I think you are really underestimating the costs of things you think just happen for free. If the team doesn't have an exemption in place from the state, they are going to be paying quite a few dollars just on real estate tax on the land for the parking lot. That isn't including maintenance, (asphalt and repairs are not cheap) and labor to collect the tickets and clean the lot. Then there is the port-a-potties and dumpster costs. I'm sure there are other costs just to having a parking lot that one wouldn't think of until you were running it.

[biedergb]

I was in the economy in the 70's and early 80's. The 70's was minor compared to this. The early 80s were very tough, but totally different. Much of the suffering was regionalized. The Midwest lost tons of jobs, many of which went to the south. This potentially could end up being much worse. Back then you didn't have anywhere near the situation with foreclosures or banks holding such bad loans.

Not to mention the economics of baseball weren't close to what they are now. Average salaries in baseball are about 100x what the median income is in this country. Back then there were few millionaries and while the median income was about 1/3 what it is now, average baseball salaries were about 20-50x that. So the discrepancy is escalating.

 

The other factor is the players who are not being signed are aging veterans (ie Manny), players with injury history or variable performances, or one dimensional players (offense like Dunn, or defense like the handful of middle IF still out there).

 

The last slow down in the economy (about 2002) when the post-dot.com and post-9/11 economy saw a slow down in the FA market, and this economic crisis is bigger.

[logan82]

Even if the tickets are 100% profit, I think it is just wrong to assume that they don't count on that income to cover at least some of the player salaries. The TV and radio contracts are fixed income, but there is lots of money in naming rights, ticket sales and corporate sponsorships that could easily dry up in the next couple years.

 

The money for the big guys is still out there. It just looks like owners/GMs are finally realizing that big contracts for mediocre/flawed players is a bad investment.

[nate82]

I think you are really underestimating the costs of things you think just happen for free. If the team doesn't have an exemption in place from the state, they are going to be paying quite a few dollars just on real estate tax on the land for the parking lot. That isn't including maintenance, (asphalt and repairs are not cheap) and labor to collect the tickets and clean the lot. Then there is the port-a-potties and dumpster costs. I'm sure there are other costs just to having a parking lot that one wouldn't think of until you were running it.

No and you are missing the point here I guess I need to explain this more in depth. This is not about Operating Expenses. Whether or not the team sells tickets to a game they have to pay for the things anyways those things are not dependent on ticket sales. Ticket sales to produce and sell are a ZERO expense. Because there is no expense to produce or sell a ticket. This is why ticket sales are 100% profit because you don't pay for any expenses to get that profit.

 

Now the operating expenses when you look at a team is very low for attendants and other miscellaneous things compared to the real expenses of the team which is players salaries and other miscellaneous team expenses. Paying parking attendants and other people at the stadium 81 times a year is nothing really most of the jobs are around the minimum wage amount.

 

Again I am not talking about operating expenses I am talking about the cost to produce and sell the ticket.

[Invader3K]

I don't get how you can say "there is no expense to produce or sell a ticket." Maybe the tickets are very cheap to print, but there are still production costs involved. They also have to pay the sales people a salary or commission. So how can that add up to "100% profit." Things don't just happen in a vacuum, you know?

[nate82]

On the topic of the recession the New York Times has an interesting piece from an economist on this very issue with sports.

 

The question from a reader: "Pro sports have a variety of revenue streams, of course, including ticket sales, concessions, licensing, and ad revenue both from the broadcasting of games and via corporate sponsorship. Given the current economic hard times, how much pullback will there be in advertising and sponsorship as well as other revenues, and how broadly (and how long) will that affect sports teams?"

 

Answer: "Generally, the sports industry has been insulated from mild recessions. This is due to the fact that, depending on the sport, there are long-term contracts that guarantee revenues (e.g., four- or five-year television deals), and fans tend to give up other consumption before they cut back their consumption of sports. The present downturn is, however, both much more severe and likely to last considerably longer than the typical post-WWII recession. Moreover, the revenue-generating model in pro sports has been gentrified over the last 20 years, becoming more dependent on the sale of premium seating, corporate sponsorships, and catering - all expenditures likely to be more sensitive to economic conditions.

Baseball was the only thriving team sport during the 1930's. Its attendance fell 40 percent between 1930 and 1933. No one should assume that professional sports today will not be significantly impacted by the present crisis.

Some sports, like NASCAR, will be affected more acutely. NASCAR racing teams receive over 70 percent of their revenue from sponsorships and the lion's share of this is from the automobile industry. There will be a major impact here. Other sports - like the N.F.L., which receives over half of its revenue from national television deals that last through 2011-13 - will have a softer landing; but even in the N.F.L., certain teams will be heavily impacted.

The NY Giants, for instance, are building a $1.6 billion stadium with the Jets. Much of the financing for this facility has come from auction-rate bonds, a market which collapsed and, consequently, interest costs exploded. The Giants lost their protection from this interest rate explosion when Lehman Brothers went bankrupt. Some estimates have put the Giants cost at near $100 million from the Lehman collapse. A team in the W.N.B.A. closed its doors, tournaments have been eliminated from the L.P.G.A. tour, and the Arena Football League has suspended its next season. N.B.A. teams have used deep discounts on tickets to maintain attendance. The offseason players' market in M.L.B has been somnambulant.

The question of how deep these cuts will go and how long they will last is an imponderable. One might as well ask Ben Bernanke or Hank Paulson these questions about the U.S. economy. The answers depend on macropolicy in the U.S. and the rest of the world, as well as currently unknown behavior in financial markets. What we do know is that the sports industry will reflect, perhaps with some moderation, the vicissitudes of the overall economy."

[nate82]

I don't get how you can say "there is no expense to produce or sell a ticket." Maybe the tickets are very cheap to print, but there are still production costs involved. They also have to pay the sales people a salary or commission. So how can that add up to "100% profit." Things don't just happen in a vacuum, you know?

Ugggg. Fixed costs = costs you pay no matter what it doesn't matter if 1 ticket is sold or all of them are sold the fixed costs are paid anyways. They have no bearing on the tickets being sold. Replace profit with income if you don't like the word profit. Since profits and income are basically the same thing. You make income you make a profit no difference really other than someones definition of what profit and income mean.

[Kricket755]

Nate, I am not sure I totally understand the point yet. Let me know if I am on the right track. Maybe a comparison of me having a brand new BMW that I make monthly payments on monthly. It doesnt cost me anything (besides gas) to go out and take a ride in my car, so each ride is "free", despite my payment still being made every month. I think calling all ticket sales "100% profit" is still a little misleading.

[Invader3K]

Uh...profit is your gross income, minus expenses. You get that, right?

[nate82]

Nate, I am not sure I totally understand the point yet. Let me know if I am on the right track. Maybe a comparison of me having a brand new BMW that I make monthly payments on monthly. It doesnt cost me anything (besides gas) to go out and take a ride in my car, so each ride is "free", despite my payment still being made every month. I think calling all ticket sales "100% profit" is still a little misleading.

No that isn't a good comparison at all. A better one would be me growing some vegetables in my backyard and then selling them to you. I already pay taxes on the land I am using so it doesn't matter if I grow those vegetables or not I am still going to have to pay the land taxes anyways. 100% income right there from the sale of the vegetables.

 

Uh...profit is your gross income, minus expenses. You get that, right?

I have a different definition of what profit is to me. Profit is what you take in before expenses and taxes or operating income or whatever you want to call it. I probably should have just used income then there wouldn't have been as much confusion.

[Invader3K]

No that isn't a good comparison at all. A better one would be me growing some vegetables in my backyard and then selling them to you. I already pay taxes on the land I am using so it doesn't matter if I grow those vegetables or not I am still going to have to pay the land taxes anyways. 100% income right there from the sale of the vegetables.

 

Uh...profit is your gross income, minus expenses. You get that, right?

I have a different definition of what profit is to me. Profit is what you take in before expenses and taxes or operating income or whatever you want to call it. I probably should have just used income then there wouldn't have been as much confusion.

You understand that no business in the United States works in the way you're suggesting though, right? And yes, income would be a much better word, since by its definition profit only comes after expenses.

[nate82]

You understand that no business in the United States works in the way you're suggesting though, right? And yes, income would be a much better word, since by its definition profit only comes after expenses.

Yes but I don't use income or profits when talking about gains or losses. Operating income and other defintions are what I use to define what the company has made or loss. Profits and income are one in the same to me. Income has a lot of definitions and different terms defining which stage it is in. Profit is money coming and income is money coming. They are both broad terms and are interchangeable. Profit can come before expenses and after expenses.