What Next for Baseball? (last revised 12/11/2008)

Some Issues That Lie Ahead Competitive balance –Is it good enough? Probably – revenue growth has been strong. Standard deviation of winning percentages? –Good (fairly low) in , though high in Relation between payroll and winning? –Regular season: still positive, smaller than many think, smaller than in late 1990s »Virtually zero in American League in 2008 – fluke? –Postseason: somewhat smaller correlation, thanks to extra division and wild card Standard deviation of payrolls? –Worse (higher) in (41%) than in 2002 (36%), but … –About the same (34-35%) if you drop the outlier (Yankees) Dynasties / repeat champions? (What people notice most?) –Eight World Series winners in past nine years ( ) –Strong element of luck here. Consider: recent Yankee dynasty ( ) »Stdev. of winning % was as good then as it is now! »It occurred during the wild-card and extra-division era (1994-) –Will it get better? Changes to marginal tax rates should help, but how much? New rule allowing union grievances against poor teams that pocket their shared revenue might help.

Other issues (cont’d) TV/radio/Internet viewership –Big new contracts Seven-year deal with FOX and Turner, –$3 B total  $14 M per team per year Eight-year deal with ESPN, –$2.7 B total  $11 M per team per year XM satellite radio deal: $2 M per team per year –New “cash cow”: MLB Advanced Media (Internet) –“Migration from broadcast [free] to cable [pay] TV” Bad for baseball’s mass fan base? World Series and All-Star Game ratings keep dropping

Other issues (cont’d) New ballparks? New cities? –Yankees’ revenue advantage could become staggering with new stadium. Will revenue sharing keep pace? –Stadium construction craze may have run its course. Most teams have new stadiums by now. What about the ones that don’t? –Taxpayers are increasingly resistant to paying for new stadiums, but stadium subsidies continue. »Current norm seems to be mixed public and private financing. »Revival of failed Senate bill to remove tax exemption for sports stadium bond interest? –MLB teams have long threatened to move if public won’t pay for new stadiums. »Finally happened with Expos. »  More teams might be moving to cities that will pay for new stadiums. Recession’s impact on public financing of stadiums? –Zimbalist: “stadium gentrification” may hurt baseball’s mass fan base (not enough “cheap seats”)

Other issues (cont’d) –Player salaries Have grown much more slowly than revenues –Salary share of revenues: »59% in 2002 »41% in 2007 –Average salary grew 3.6% in 2008 »Slowest growth in 4 years (declined in 2004) »Average salary = $2.9 million Big contracts are still being signed, but in real terms those of winter still hold the records. –A-Rod’s $25 M would be $30 M in 2008 dollars –Jeter’s and Manny’s $19-20 M would be $24 M Recession is likely to have impact on new contracts before long.