Examining the Financial Health of America's Pastime
Despite the cloud of suspected steroid use that continues to hover over baseball, the sport seems to be financially healthy — at all levels.
Representatives of Little League Baseball and Softball in Williamsport, Penn., the National Collegiate Athletic Association in Indianapolis and Major League Baseball in New York City, all report recent growth in revenue or profit.
So as the Detroit Tigers ready for their first post-season appearance since 1987—and the Chicago Cubs extend their World Series victory drought to nearly a century—now is a perfect time to delve into the numbers.
A record total of 74.9 million fans attended Major League Baseball games last season, representing a 2.6 percent increase from the previous record set in 2004. Attendance will at least match that amount this season, too. Revenue hit $4.5 billion in 2005, compared to $4.1 billion two years ago and a mere $1.6 billion just a decade ago.
A fat television contract, a jump in advertising revenue and a rise in merchandise sales are the main reasons for the increased wealth. The money is divided among all 30 teams, MLB spokesman Pat Courtney said.
MLB has come a long way since a strike ended the 1994 season and canceled the World Series, a decision that alienated fans for years. It’s doubtful players or owners would want to repeat that debacle.
The good news is that the $2.6 billion television deal with Fox that was set to expire after this season, was extended in July for another seven years. Terms of the deal were not disclosed, although it was reported MLB was asking for a 20 percent increase. That leaves the current labor agreement, that expires at the end of the year, in need of negotiating.
As for the approaching World Series, the games can generate an extra $150 million in ad sales and some extra income for the participating players.
“What you see in the players’ pool comes from the tickets,” Courtney said. “The Division Series is done one way and the League Championship Series and World Series is done another.”
During the divisional playoffs, a best-of-five series, the players receive 60 percent of ticket sales for games one through three, and the balance goes to each of the division series participants.
In the league championship, a best-of-seven-series, the players get 60 percent of ticket sales, and the remainder is divided equally among each participating team.
For the World Series, players get total ticket receipts from games one through four.
While the New York Yankees—buttressed by a league-leading $198.6 million payroll—are headed again to postseason play, the team no doubt will pay another luxury tax.
In 2005, the team paid $30 million, twice the entire payroll of the Florida Marlins. While baseball does not have a salary cap, unlike the NFL and NBA, it does have revenue sharing. Teams that pass a salary threshold pay the tax, which is distributed to smaller-market teams.
The idea is to make the league more competitive by giving teams the money to sign top free agents and prospects out of college and high school.
The old college try
At the collegiate level, the sport is doing quite well, said Dennis Pope, the NCAA’s managing director for baseball and football. That could not be said 10 years ago, however.
The College World Series is played annually in Omaha, Neb., and generates nearly $8 million in revenue, $2 million of which is profit, Pope said. While that pales in comparison to the $38 million the men’s Final Four basketball tournament brings in, the numbers are on the upswing.
Until the late 1990s, the NCAA would lose about $225,000 on the College World Series every year. But in 1998 the organization expanded regionals from 48 to 64 teams, creating more sites in which games are played and decreasing airline expenses. That year the NCAA turned a $400,000 profit. It’s been growing ever since. Eight teams make it to Omaha.
“We were able to create more regional sites, and that created more bus trips,” Pope said. “From then on we have continued to increase our nets receipts figure.”
Omaha has hosted the College World Series since 1949, and it has become part of the culture there. A study the NCAA had conducted showed the eight-day tournament brings in $38 million to the annual local economy, Pope said.
Last year, more than 310,000 people attended the event, crushing the old record by 50,000.
Little leaguers started playing in their own World Series two years earlier, in 1947, in Williamsport, Penn.
“The first year there were only three teams and it has mushroomed to what it is today,” said Chris Downs, spokesman for the not-for-profit Little League Baseball and Softball, which coordinates the event.
The organization hosts eight different World Series for 5- to 18-year-olds. But by far the most popular tournament is the one for 11-and-12 year olds.
In the beginning, only three teams participated, and they all were from the area. The budget since has grown from $90 to roughly $19 million, Downs said, and includes 16 teams. About 7,400 teams, however, enter the tournament at the district level in hopes of making it to Williamsport.
To enter, each league pays a $75 entry fee for each team it wants to participate. The money goes into a dedicated fund that helps pay for travel expenses.
The three-year television contract with ESPN and ABC to broadcast games totals more than $1 million. Negotiations are under way for a new deal to replace the current one that expired this year, Downs said. Television coverage began in 1963.
Fifteen corporate sponsors, including Wilson Sporting Goods, contribute financially as well.
The idea for a Little-League tournament came from Williamsport resident Carl Stotz, who wanted to replicate what occurs at the Major-League level. It’s hard to argue the success.
Said Downs: “The idea essentially came from his love of baseball.”
Written by Scott Olson.