posted
A quote from "bluetoelover" about player salaries and the rise of ticket prices:
"It creates anymosity between the players and the fan's who can barely even afford a ticket to the game and then the team spends that kind of money on the player all the while raising the ticket prices!"
I'll give that statement *partial* credit. In a sense, that's true. But the biggest reason between those two has to do with something very different.
Please (PLEASE!) pay close attention to what I'm about to tell you. If you can understand what you're about to read, then you will have no reason to discredit my *proof* with retarded comments.
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Another thing people complain about when it comes to baseball is that the $15-million-a-year player is making them feel the pinch at the ticket window. They say that baseball players make too much money and are making the games unaffordable.
The link between ticket prices and player salaries made headlines in 2000 when the Cincinnati Reds were on the verge of trading their star shortstop Barry Larkin to the New York Mets. Instead they reversed course and signed him to a three-year extension worth $27 million. In announcing the move to the public, Reds CEO John Allen made clear that while Larkin would almost certainly finish his career in Cincinnati, there would be consequences: "We may do something nobody has ever done. We've got to generate the revenues to pay for this."
The "something" Allen spoke of soon became clear: an unprecedented midseason hike in ticket prices to Reds games, setting off a bitter public squabble over greed, big contracts, and Larkin's aging bat. Critics said that that was proof of what they longed feared: When teams hand out megabucks contracts, they pass along their costs to fans at the box office.
Oh, really?
From 1900-1975, player salaries remained relatively low as owners used baseball's reserve clause to force players to sign for whatever management was offering, unless you wanted to take up a career selling vacuum cleaners. With the nineteenth-century reserve clause tying players to their teams for life, players had only one negotiating option: Hold out and hope that your owner blinked before your next mortgage payment came due.
As a result, major league salaries remained remarkably low by modern standards through the first two-thirds of the twentieth century. In 1970, they averaged less than $30,000 a year. That works out to about $150,000 in today's dollars -- a good living, but hardly an extravagant one for players whose big-league careers averaged only a few years in length.
Then came arbitrator Peter Seitz's decision in the Andy Messersmith case, which ruled that players could play out the "option year" in their contracts and become free agents, eligible to sign with any team. The owners promptly fired Seitz, but the genie was out of the bottle. The sudden free market in players sent salaries soaring, revealing the extent to which players had been underpaid in previous decades.
Since 1976, the first year of free agency, the average major league salary has skyrocketed from $51,501 to a once unthinkable $2,632,655. Even accounting for inflation, that's a 1,395 percent increase. The average baseball player now makes about SIXTY TIMES what the average U.S. family does. To put this another way, if the average U.S. family had seen its income rise at the same rate as big-league ballplayers, the average family would now rake in nearly $650,000 a year.
Ticket prices have also leaped, if less dramatically. In 1976, the average baseball ticket would have set you back $3.45. By 2005, it had risen to $19.82. While much of that was due to inflation -- $3.45 in 1976 had the buying power of $11.80 in 2006 dollars -- even after accounting for inflation, that's still an increase of 67.5 percent.
Let's take a closer look at the relationship between ticket prices and player salaries since 1976 (Table 1).
Table 1 Relationship between ticket prices and player salaries 1976-2007
NOTE: All figures in 2007 dollars.
Year -- Average player salary -- Average ticket price
Both salaries and ticket prices have gone up, true, but in anything but lockstep. In fact (in case you weren't paying attention), in the first twelve years of free agency, as salaries more than tripled, ticket prices actually went DOWN in inflation adjusted dollars (in 1987, it was $10.30, lower than the figures of 1985 and 1980). It's only been since 1990 that ticket prices have begun an upward march to match salaries, with a noteable exception in both categories in the strike-shortened 1994 season.
So what's going on here? If owners are being forced to pay through the nose for the players, why *wouldn't* they pass along the costs to the ticket-buying public?
Economists have an answer for that. Baseball owners, like many business owners, are assumed to act like rational price-setters. ("Rational" here just means selecting the price that makes them the most money. It has nothing to do with making sensible decisions about, say, signing Johan Santana.) As such, they look at market research on how much fans are willing to pay to see games and then pick a price point for tickets that maximizes revenue, that price point being one where, if they tacked another 10 cents, they anticipate losing more from fans staying home than they would gain in additional dimes.
When the cost of doing business goes up, they can affect prices -- witness, for example, debates in recent years over the impact of high oil prices on food and other goods that must be shipped by truck or plane. But it's not always that simple. Let's say, for example, you're building an automobile. If the price of steering wheels goes up, you might rationally boost car prices to compensate, figuring that you would rather have a bigger profit margin on fewer sales than sell more cars but make less money on each one.
Steering wheels, though, are a *marginal cost*: If you sell fewer cars, you have to buy fewer steering wheels to put in them. Player salaries, however, are a *fixed cost*: If you sell only ten thousand tickets for Tuesday night's game, that doesn't mean you can employ fewer players ("You got a point there, National."). The price point you select for your tickets, then, should not change: If you're already charging the price that will bring in the most money, then raising ticket prices in response to increased player costs would be foolish. Conversely, if you think you CAN get away with charging more for tickets, you would be foolish not to do so, regardless of what you're paying your players.
(Of course, there is another factor at work here: If paying through the nose of players improves your team, that will likely increase demand for tickets and allow you to raise prices. But that's not "passing along" payroll costs, it's just the natural increased demand you get with a WINNING ballclub -- whether it's thanks to big-money free agent signings or to a bunch of stud rookies earning the minimum.)
The following is a quote from James Quirk and Rod Fort from their 1992 sports business treatise "Pay Dirt":
"Nobody has to force an owner to raise ticket prices if he is fielding a successful team with a lot of popular support and a sold-out stadium. Put another way, even if player costs did not rise, one would expect that ticket prices and TV contract values would rise in the face of increasing fan demand. On the other hand, if the team already is having trouble selling tickets, only sheer folly would dictate raising ticket prices."
This, apparently, is what was happening in the early free-agent era. Salaries went skyrocketing, but interest in baseball remained fairly low by modern standards. Team owners thus concluded that fans were already paying all they were willing to pay to see Reggie Jackson, regardless of how much he was being paid. Instead, owners just ate the new payroll costs, taking it out of their own pockets.
Around 1990, all this changed. Ticket prices showed little correlation with payroll in the 1970s and 1980s, but since 1991, the two have been closely synchronized: For twenty-four of the thirty major leagues teams, ticket prices and payroll since 1991 are HIGHLY related.
What changed? As it turns out, something did happen around 1990 -- on June 5, 1989, to be exact -- that caused baseball teams' revenue to begin a sharp upward spike. That's the day Toronto's SkyDome opened to the public. Whereas previous new stadiums had focused primarily on increasing capacity, SkyDome put its architecture right where the money was, featuring 161 luxury suites and unprecedented vast concessions concourses. (The two SkyDome elements that drew the most comment, after the retractable roof, were the $7 hot dog and the hotel beyond right field where guests could watch the Jays play from their rooms -- and, infamously, fans could watch the guests play from their seats.) Baltimore Camden Yards may have started the "retro" trend of modern steel-and-brick stadiums, but SkyDome was the first modern "mallpark."
Within two years, the Jays became the first team in history to crack the four-million mark in attendance. Suddenly every baseball bean counter began calculating how to replicate the marvel of the north.
In the stadium mania that followed in the wake of the SkyDome and its brethren, team executives discovered that fans would pay unprecedented prices to gawk at the new retractable roofs and sample the garlic fries. (Which is a story all in itself in a topic I'm thinking of posting in the future.) Here, for example, is a list of twenty biggest single-season ticket increases since 1991:
*Capital letters signifies a new stadium.*
1. DETROIT -- 2000 -- 103.0 PERCENT 2. SAN FRANCISCO -- 2000 -- 75.5 PERCENT 3. PITTSBURGH -- 2001 -- 65.3 PERCENT 4. PHILADELPHIA -- 2004 -- 51.3 PERCENT 5. HOUSTON -- 2000 -- 50.6 PERCENT 6. Cincinnati -- 2001 -- 43.5 percent 7. MILWAUKEE -- 2001 -- 39.2 PERCENT 8. CLEVELAND -- 1994 -- 38.6 PERCENT 9. TEXAS -- 1994 -- 38.6 PERCENT 10. Anaheim -- 2003 -- 35.5 percent 11. COLORADO -- 1995 -- 34.3 PERCENT 12. SAN DIEGO -- 2004 -- 31.9 PERCENT 13. Chicago White Sox -- 2001 -- 31.0 percent 14. ATLANTA -- 1997 -- 31.5 PERCENT 15. Baltimore -- 1997 -- 29.5 percent 16. St. Louis -- 1997 -- 28.4 percent 17. SEATTLE -- 1999 -- 27.2 PERCENT 18. Tampa Bay -- 2001 -- 25.0 percent 19. New York Yankees -- 1997 -- 24.9 percent 20. Oakland -- 2001 -- 24.0 percent
Eight of the top-ten single-season price hikes -- and ten of the top twelve, and eleven of the top fourteen -- came when a new team was moving into new stadiums. (The number-one team WITHOUT a new stadium is the 2003 Angels, who figured they'd cash in on their World Series trophy before Scott Spiezio turned back into a pumpkin.) The 1999 Mariners would've been placed higher on the list had Safeco Field not opened in July, meaning the numbers were watered down with a half a season at the Kingdome; ticket prices rose another 23.3 percent in the Mariners' first full season at Safeco Field in 2000.
The result was an unprecedented boon for baseball owners, whose revenue soared from $1.35 billion in 1990 to $4.27 billion in 2004. Players benefited as well. While rising player salaries MAY drive up ticket prices, that does not explain the whole story. More ticket revenue means more money in the pockets of owners, money that quickly found its way into the pockets of the Barry Bondes and Alex Rodriguezes (not to mention the Pat Meareses and Craig Counsels) of the baseball world. Even more importantly, more expensive tickets make the rewards of spending on players MUCH greater: If Alex Rodriguez puts an extra half-million fans in seats each season, you can afford to spend more on him if those fans are sitting at $30 seats as opposed to $10 ones.
That said, we canNOT pin the blame for ticket-price hikes on new stadiums. Why not? Because the twelve teams that did not move into new homes raised ticket prices by an average of nearly 50 percent, after inflation, between 1991 and 2005. Clearly something else had changed. Fans became more willing -- or more able -- to pay higher prices to attend a baseball game.
The easy explanation is simply that "demand for baseball rose." Unless you are a particularly literal-minded economist, that does not explain much. For that matter, recent decades have seen the steady decline of baseball's popularity compared to other sports: By 2001 a mere 12 percent of adults called baseball their favorite sport, a distant third behind football and basketball.
Yet the interest in sports -- or at least *spending* on sports -- has gone through the roof. As University of Chicago sports economist Allen Sanderson notes, this has driven up revenue, and ticket prices, across the board. Some of this, certainly, was the result of the 1990s economic boom, which put more money in the pockets of affluent fans who are increasingly sports' target demographic: "Ticket prices have also gone up dramatically at big-time college football and basketball programs, and salaries haven't changed at all. Certainly people in the upper half of the income distribution the last twenty years have done quite well. Those in the lower ranks have not, but those are not the ones that are going to sporting events."
This flood of money into the upper echelons of U.S. society was unprecedented in recent memory: While the average U.S. household gained $3,400 in yearly after-tax income from 1979 to 1997, the average household in the top 1 percent of the population made a whopping $414,000 more each year. Compounding the effect were the massive income-tax cuts put in place during the 1980s, when the top tax bracket fell from 70 percent to 35 percent, leaving wealthy fans with refund checks that were handy for buying up all those new luxury suites and club seats.
The result is that grandstands are now markedly more exclusive: The only demographic segment to attend more games in the 1990s than the '80s was households earning more than $50,000 a year. In the late 1990s, economists John Siegfried and Tom Peterson spent fifteen months poring over consumer-price-index surveys to determine the income levels of buyers of tickets to sporting events and found that the average ticket buyer's income was nearly TWICE the national average. And, notes Siegfried, since the survey EXCLUDED corporate buyers and luxury-suite holders, the true figures was likely even HIGHER.
(Am I good, or what?)
In effect, lower-income fans were being squeezed out by the big spenders, for whom dropping $75 to watch a ballgame from a padded seat with waiter service was suddenly not unreasonable. Sanderson describes this process as "trading up." He explains, "Just as we trade up from Sears or Penny's to Nordstrom's, we're trading up in what we want to see in a game, but we want to see a game while eating a better brat." Another way to look at it is that when they design their new stadiums, the teams themselves are "trading up" from bleacher bums to the well-heeled.
In another industry, this increase in high-end demand would lead to an increase in supply -- as it apparently did in, for example, the movie business, where competition from new theaters and the home video market left movie ticket prices rising no faster than inflation throughout the 1990s. Of course, that doesn't work in the closed world of baseball: You can open another two hundred Nordstrom's, but you can't add two hundred teams to the AL East.
The same can be said, incidentally, for those other hallmarks of modern baseball, the $7 beer and high cable-subscription rates. Just like ticket prices, these are unaffected by fixed costs like player salaries -- fans are not more willing to open their wallets at the concession stand just because the third baseman got a raise -- but do reflect the sport's structural status: If you want to watch baseball on TV or intake watery Bud at the ballpark, there's only one game in town. So when fans' wallets are newly abulge, prices can be expected to rise accordingly.
MY FINAL WORD:
If you're angry about those $30 nosebleed tickets, better blame the Ronald Regan or the nation's ongoing affair with garlic fries and cupholders than player salaries.
As for my last proof that I'm 100 percent correct about yet another topic, look at what happened in the wake of the Red's Larkin fiasco. The team held off on price hikes until the end of the season, then jacked them up by 43.5 percent the following off-season -- only to see the attendance plummet from 2,577,371 to 1,879,757, wiping out any potential gains in revenue.
posted
I guess we can all agree that raising ticket prices bares little resemblance on how much the players are paid. I do have a closing argument that serves as the icing on my cake just in case there's still someone who still doesn't see the light.
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CLOSING ARGUMENTS
How many times have you heard owner say that they'll be raising ticket prices because of escalating player salaries? These ownership pleadings are then dutifully regurgitated by much of the local media and assimilated by fans as an economic truism.
Actually, this supposed relationship is little more than folklore. To be absolutely certain, historically rising ticket prices tend to accompany increasing payrolls. But just because two things move up together, it doesn't mean that one causes the other to go up (Duh!).
One of my favorite apocryphal stories relates to the tale of a man who lives next to the railroad tracks. Every morning his alarm wakes him up at 8 o'clock and, after washing his face, he opens his bedroom window. Within minutes, a train comes roaring by. Does the act of opening the window cause the train to pass?
Anyone with the answer?
Suppose you own a local sports team and you want to maximize the return on your massive investment. How high should you set your ticket prices?
Luckily for you, you have me to answer those questions for you. I'll tell you the answer and it won't cost you a dime. You set your ticket prices to maximize the total revenue from gate, plus net concession sales, parking, and signage at the stadium. This maximizing price is determined by the fans' demand to watch your team play live games in person.
Let me give you an example: Suppose that the team's financial officer presents the following estimates for ticket demand.
- At the average price of $9, the team will sell 42,000 seats a game, generating $378,000 in gate revenue. - At an average price of $10, the team will sell 40,000 seats a game, generating $400,000. - At an average price of $11, your team sells 35,000 seats per game, taking in $385,000. - At an average price of $12, you will only sell 30,000 seats and take in only $360,000.
Ignoring concessions, parking, and signage revenue for simplification, the team will maximize its revenue (and stadium profits, because the extra cost of having an additional fan in the stadium is close to zero) when it charges an average ticket price of $10. The result is entirely dependent on the structure of fans' demand for tickets.
Fans' demand, in turn, is determined by the success of the team and its individual players, by the facility where the team plays, by the efficacy of the team's public relations in the community, by the economic conditions in the area, by the intensity of local sports culture, and by the weather, among other things. It does NOT depend on whether the team pays its shortstop $3 million or $5 million a year. Do you have any idea how childish that sounds?
Give me a break.
Based on perceptions of fan demand, the profit-maximizing owner will set the team's ticket prices. If the owner resigns a star player for a higher salary and then raises the team's ticket prices to recoup the extra salary expenses, then the owner will no longer be maximizing the team's stadium revenues and profits. In the earlier example, if the owner raised the team's average ticket price from $10 to $11 because he is paying his shortstop an extra $2 million, stadium gate revenues would fall by $15,000 a GAME; concessions, parking, and signage revenue would also decline. That is, by setting ticket prices in response to raising a player’s salary instead of fan demand, the owner is shooting himself in the head.
However, as I stated in the first post of this topic, there is one exception to this analysis. If higher salaries also mean BETTER players or players with more charisma (the Mets are a great example of that), then fan demand may go up along with team payroll. Or if the owner *convinces* the media that he must raise prices to cover the higher salaries, and then the media convinces *the fans* (even if the team stinks), then the fans willingness to pay higher ticket prices (fans' demand) may increase. In this case, YOU can thank the local sports reporter and NOT the star player for the more expensive seats. In other words you have been made to look like mindless sheep who have been steered into whatever direction you were told to be in. They have turned you into their patsies. Ticket prices and player salaries, then, may be indirectly related.
Higher ticket prices in the 1990s, however, have had more to do with the gentrification of stadiums than the increasing popularity of the sports themselves. On average, new facilities built in the past 10-15 years have been financed with approximately two-thirds of the money coming from the public coffers. The public money, in turn, generally comes from sales taxes or lottery funds -- revenue sources that disproportionately burden lower-income groups. Since the incremental benefits from new facilities go mostly to high-income and corporate fans (not to mention to the teams' owners and players), it makes more sense to finance construction out of ticket (user) taxes or personal seat licenses than out of general sales levies
FINAL WORDS:
The bottom line is that the fans will pay one way or the other. Blaming the players is extremely childish and makes LITTLE sense.
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Since I'm right about this, I don't know how I can be wrong about the salary cap issue.
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