Baseball on the Brink: Is MLB’s economic structure sustainable?

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Los Angeles Dodgers fan Douglas Magana holds a copy of Los Angeles Times while looking for autographs from players leaving Dodger Stadium in Los Angeles on Wednesday night, Oct. 28, 2020, after the Dodgers returned from Arlington, Texas, where they defeated the Tampa Bay Rays in the baseball World Series. (AP Photo/Damian Dovarganes)

America’s trademark game is in trouble. In most successful sports leagues, there is a strong positive correlation between league success and consumer engagement in their market. With Major League Baseball (MLB) revenue breaking records and reaching $10.7 billion league-wide in 2019, how can league popularity be declining? How can the average age of a baseball fan be 57 years, roughly 15 years higher than other major sports and increasing every year with dismal interest rates among young people? Has the MLB proved that an entertaining product on the field is not a part of their bottom line? In other words, is baseball dying? 

Aside from the fact that even baseball greats like Sandy Koufax and Don Drysdale have stated on numerous occasions that the sport they love is hard to watch currently, the business of baseball has also been displaying some subtle but alarming warning signs.  

A few telling reasons for such harsh criticism from both avid fans and critics alike are statistics that depict how a third of all at-bats ended in strikeouts, high-risk maneuvers like hit and run usage hovering around all-time lows, the pace of the game being horrifically slow and crowd hype being absent at live games due to increasing numbers of empty seats. In 2018, per game attendance dropped to its lowest point since 2003 and then 2019 followed it up with another 14% decrease. A big part of this decline in attendance and general fan engagement is the distribution of talent around the league which creates sparsely distributed pockets of baseball interest around the country at best. The lack of legitimate parity in the league, due to insufficient salary cap regulation, has killed competition, resulting in teams routinely losing more than 100 games in the season and driving away more potential fans in an already dwindling market. Teams who are not able to generate fan interest because of the lack of talent on their rosters are now looking for other revenue streams, namely corporate sponsorships, and it is working to the benefit of the league and the detriment of the players and fans.  

A market is made up of buyers and sellers. In this case, the MLB is the seller, the fans are the buyers and the players make up the labor. The players benefit as a direct result of how much money they contribute to the cumulative MLB revenue pool. When the capital gains from non-baseball-related income streams supersede on the field baseball profitability, it directly limits bargaining power for the players themselves, reduces their salaries and subjects them to almost monopsony-like labor leverage. A monopsony is defined as a market situation where there is only one major employer. In this case, the MLB has access to the entire pool of labor. This limits the negotiating power of those in the labor market, resulting in fewer work benefits and sometimes reduced pay. Consequently, the MLB Players Association has said the average player salary has now dropped in back-to-back seasons and will only dive further with the novel coronavirus stalling attendance revenue altogether.

Los Angeles pitcher Mike Trout walking across the field at an Orioles game. Trout is the highest paid MLB player, with a yearly salary of $33 million dollars. Despite Trout’s high salary, the league is reallocated funds for salaries and revenue. (Photo by Keith Allen/Wikimedia Commons)

It is very difficult for unions such as the MLB Players Association to combat this disparity in league profits to benefit themselves because they are contributing less and less to the net income of the business. It is critical to understand that baseball players are highly specialized athletes that train their whole lives to get to the big leagues. They are not overly flexible in their marketable skill sets which further reduces their negotiating power when the excitement of their game is generating less revenue.  

The MLB makes boatloads of money from side deals such as from selling BamTech for a massive windfall, partnering with casinos, Korean conglomerates and various other corporate partners. These sponsorships, television media and supplemental business engagements currently make up over 70% of net revenue.  

This statistic begets an important question: Why would foreign companies take such an interest in the MLB over more popular American sports?  

The heavy reliance of the MLB on corporate endorsement makes the league a perfect gateway for foreign corporate entities to access the American consumer market. The league divides this money into a central fund revenue that helps compensate for unsuccessful franchises and prevents franchise values from plummeting. Forbes estimates that about $2.76 billion was reallocated around the league as part of this revenue sharing plan in 2018. It is critical for the league to protect franchise net values because this serves as a key metric in enticing more corporate investment, especially those from foreign nations.  

With the NBA experiencing difficulty in foreign relations, the NFL not gaining footing abroad and American soccer not even being in the same stratosphere of other leagues, baseball has seized a financial opportunity through the scope, not magnitude, of its following. Baseball, even with its declining popularity, is more global of a sport than people realize, but this opportunity seems to only be benefiting the owners in the present.  

As the business model of the MLB continues to incentivize investing in creating more corporate connections rather than prioritizing the quality of baseball on the diamond, fans become the biggest losers. Coca-Cola canceling its sponsorship with the MLB for the 2020 season is simply a grim microcosm of what is to come if the power players in baseball don’t get back to catering to the fans that drive the industry forward. Once fans stop tuning in, the economic system of baseball collapses. Fan engagement is the bottleneck in the MLB owner’s game, but it is doubtful they really care about preserving baseball for generations. For example, Jeff Loria, former owner of the Washington Nationals and Miami Marlins, nearly tanked both organizations financially while maintaining his own golden parachute. These teams are merely short-term investments to cash in on for the owners, but what does that mean for baseball, its culture and its fans? 

2 COMMENTS

  1. Really interesting. Not a baseball fan but I can see how it’s one of the more global sports and how it profits more off of that than it does locally.

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