Not dollars: profit. That’s what it really comes down to.
Next year, regardless of whether or not the things Mayor Richard M. Daley actually happen regarding huge layoffs, whether or not Cook County starts an economic ripple of reduced spending, whether or not the Big 3 go under, you’re going to see some strange behavior next year at Clark and Addison and 35th and Shields.
The initial thought is that teams are simply going to shed payroll and freeze ticket prices to accommodate fans’ tightening budgets and maintain the attractiveness of baseball as a way to spend consumers’ entertainment dollars. They look nice, and they suggest that execs are sensitive to their audience and local fanbase, but the fact is, these are more PR moves than actual budgetary needs.
All but the most ignorant economists and politicians agree we are in a recession right now, and that most business are at least in some kind of trouble. But most businesses are not like professional sports, either. For example, while ticket sales might be the most obvious source of revenue they are actually one of the smallest – the real money is in in-stadium sponsorships and promotions, TV and radio deals, and merchandising. The first two are long-term, guaranteed contracts while the third boasts such a notoriously high profit margin that baseball can take quite a hit in terms of units sold and still cover its rear end.
Case in point: MLB.com this week was offering authentic jerseys, traditionally one of their biggest moneymakers, at 30% off, and replicas at 40% off. On the surface this sounds like what a lot of stores and retailers do around this time of year as a loss leader – mark something down a lot to get consumers buy other, bigger-ticket items. However, jerseys are among MLB’s biggest-ticket items and studies have shown the concept of a loss leader doesn’t apply in nearly the same way to the world of online shopping. If they can turn one of their biggest moneymakers into a crazy promotion, how bad a storm can they really be bracing themselves for?
Many executives will use this winter and much of next season to cut staff and justify low-ball offers to players (or as a vehicle for avoiding free agents altogether). In reality, baseball teams are a long-term investment and MLB has put itself into an almost failproof position by setting up its revenue streams accordingly. Some teams may lose money in the short term, but this also happens even in the best of boom years (i.e. the 1997 Florida Marlins). In fact, you may see some of the smarter clubs use the economic situation as a way to increase profit by lowering operating costs substantially. The Florida Marlins, no matter how much they complain about their stadium and poor attendance, are still profitable before even a single ticket is sold thanks to their broadcasting contracts and MLB’s revenue sharing program.
What people also forget is that for most baseball franchise owners, their teams are not really a primary source of income but an addition to a huge investment portfolio. A gamble, really – but one they can afford to take and one they can afford to weather the storm with.
Todd Kaplan is a sports marketing consultant based primarily out of Miami, FL and originally from Westmont, IL.