The Relationship Between Player Salaries and Ticket Prices

Picture credit score: © Jeff Curry-USA TODAY Sports activities

I believed we’d put this one to relaxation.

4 years in the past, I wrote this article in regards to the value of attending baseball video games. I concluded it thusly:

Decrease ticket costs could be good. However financial idea says it gained’t occur. The instance of groups which have lower payroll says it gained’t occur. And the fashionable ticket market, with ubiquitous resellers, says it gained’t occur. So don’t blame the gamers and what they receives a commission. They don’t have anything to do with it.

To be clear, I didn’t say something that hasn’t been mentioned for years and years about this matter. But someway, the lesson hasn’t sunk in.

I observed the most recent iteration a couple of weeks in the past. It went like this:

• Juan Soto turned down a 13-year, $350 contract supply from the Nationals.
• The price of attending a ballgame retains going up and up.
• Contracts like Juan Soto’s are the rationale the price of attending a ballgame retains going up and up.

This can be a defective syllogism. And keep in mind, everybody who confuses correlation with causation winds up lifeless. Nevertheless it’s additionally demonstrably improper. Let me mud off the argument. Once more. In hopes of placing it to relaxation. Once more.

Let’s begin with the sensible. If ticket costs are tied to participant salaries, they need to rise and fall with groups’ payrolls, like the way in which fuel costs rise and fall with the price of crude oil. If we’re saying groups cost extra when their payrolls rise, it also needs to be the case that groups cost much less when payrolls fall.

Listed here are the groups with the biggest payroll decreases from 2019 to 2021.

• Cleveland, 68 p.c, $151.3 million to $49.1 million
• Miami, 57 p.c, $74.7 million to $32.0 million
• Baltimore, 49 p.c, $82.7 million to $42.1 million
• Seattle, 49 p.c, $126.9 million to $64.1 million
• Texas, 47 p.c, $104.4 million to $55.2 million

We’re not speaking small decreases right here. These groups slashed payroll. If payroll drives what groups cost, we should always anticipate the price of attending every of those groups’ video games to have declined.

They didn’t. The typical ticket value (as calculated by Team Marketing Report) fell from $37.77 to $35.22 in Seattle and by 43 cents in Baltimore. That’s it. The opposite groups all raised costs regardless of participant payroll plunging by about half or extra.

And it’s the identical in MLB writ giant. Payrolls should not rising. They fell by 4 p.c in 2021, per Maury Brown at Forbes, to their lowest degree since 2015. You wish to know what number of groups charged much less for a ticket in 2021 than in 2015? Yeah, you bought it.

I can think about two objections to this calculation. The primary is, “Effectively, yeah, groups needed to cost extra in 2021 as a result of they needed to make up for losses in 2020.” Um, that’s not the way it works. If Ford or Pepsi or Chevron or IBM has a nasty yr, they don’t make up for it by jacking up costs the next yr. Had been they to try this, they’d lose market share. When you’ve got a nasty yr in enterprise, you’re taking your lumps and attempt to be taught from it. You don’t get to recoup it.

The second, extra refined reply could be, “Perhaps they realized their 2019 costs have been too low, and adjusted accordingly.” Once more per Forbes, Cleveland made $43 million (earnings earlier than curiosity, taxes, depreciation, and amortization) in 2019. Baltimore made $57 million, Seattle $31 million, and Texas $61 million. Solely the Marlins misplaced cash, barely, a complete of $6 million. Their mixed working margin (earnings divided by revenues) was a wholesome 13% (16% excluding Miami). That compares to 14% for MLB as an entire. Everyone however Miami had an important 2019.

So it’s clear that the excessive value of attending baseball video games is unrelated to what the Nationals pay Juan Soto. Why is that?

Right here’s the place I’ve to delve into some fundamental economics. For some merchandise, like gasoline, pricing is pushed by uncooked materials prices. That’s partly as a result of these markets are extremely aggressive. If my native Mobil is charging an excessive amount of, I can go to Sunoco or Hess or Citgo. What number of occasions have you ever pushed previous two fuel stations, throughout the highway from each other, and pulled into the one charging a penny much less per gallon? If their prices rise, they’ve to boost costs to remain worthwhile, however they’ll’t elevate them far more than their opponents. Free market competitors places a cap on costs. Similar with groceries, or electronics, or trainers. I’ll have a motive to decide on a sure retailer, like model loyalty, however by and huge, folks can select the place they make their buy.

You possibly can’t try this with the Mariners or the Rangers. You wish to go to a major-league sport, you’ve got one selection. The trade even has an antitrust exemption! Now, granted, all MLB groups face competitors from different types of leisure, like motion pictures and live shows and going out for dinner and staying at residence and watching the sport on TV (until you’ve got mlb.television, wherein case you’re blacked out). However for reside baseball, there’s just one selection. (Sure, I do know, New York and Los Angeles and Chicago, however the two groups are virtually by no means each at residence on the similar time.)

That doesn’t imply groups can cost as a lot as they need; there can be few takers at $1,000 per ticket. However they’ll cost the quantity that may maximize their earnings. That’s why they’ve instituted dynamic pricing. If I need a Seat 6 in Row C, Part 333 at Angel Stadium for the August 31 sport towards the Yankees, it’ll value me $160. That very same ticket, two weeks earlier towards the Mariners is lower than half as a lot, $78. Groups don’t use analytics only for the sport on the sector. Market evaluation helps them value their tickets at a degree the place they’ll take advantage of cash. They search the worth that’ll yield the very best earnings given market demand. Participant salaries don’t enter into that calculation.

And there’s another excuse they gained’t lower ticket costs: Resellers. If, come August, I actually wish to go to that Yankees sport, that seat in Part 333 could now not be obtainable. So I’ll go onto StubHub or SeatGeek or another website. Odds are, the worth can be higher than $160. Say it’s $200. That additional $40 is cash misplaced to the Angels. There’s enough demand for that ticket to go for $200, so by pricing it at $160, the Angels are leaving $40 on the desk. Had been they to chop the worth of that ticket to, say, $50, their foregone revenues rise to $150. Not solely that, it’ll create extra incentive for ticketholders to resell their tickets. Granted, not everyone will, however for individuals who determine they’d moderately pocket $150 on a $50 funding and keep away from Anaheim site visitors, they’re taking revenue away from the Angels and never making going to the ballgame any extra inexpensive. A $50 face worth ticket promoting for $200 isn’t any totally different from a $160 face worth ticket promoting for $200. If I wish to go to the sport, I nonetheless should shell out $200. I don’t profit, and neither do the Angels. Solely the unique ticket purchaser—maybe a big ticket dealer, with software program to quickly purchase up blocks of seats months prematurely—does, together with the reseller. For each groups and their followers, it’s a lose-lose.

There are financial causes ticket costs are excessive. There are sensible causes ticket costs are so excessive. What’s absent are participant wage causes ticket costs are so excessive. There’s no relationship. Ticket costs are primarily based on maximizing income, no matter expense. And if folks say to you, “Oh come on, you’re telling me that in the event that they lower participant salaries in half ticket costs wouldn’t go down,” inform them in regards to the Guardians and the Marlins.