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The Economics of Baseball

Dan Tortorice

I was searching the New York Times, looking for something economic to write about. Not finding much, I went to the sports section ,where I found out that the Yankees are in the World Series again. I thought what any true New Englander would think: Yankees Suck. They suck because they’re where they are due to economic forces. Baseball is supposed to be about the best team winning; the Yankees’ success is about the wealthiest team wining.

Economists have noted that sometimes bigger is better. Sometimes being a large company gives you benefits that you can not have as a small company. A car company simply must be large in order for it to be profitable and to make more cars. When being large gives companies an advantage in an industry, the industry ends up only having a few companies in it.

Being big in baseball also gives you an advantage. Big in sort of a different sense, though. Being in a large market gives you advantages over teams in a small market. And just like a large car firm can drive small car firms out of the market by charging lower prices, a large market team gets so much more money that they can build a team against which smaller market teams can not compete.

Look at where most revenue from baseball teams is generated. One way is ticket sales. Being in New York, and surrounded by 11 million people, the Yankees can put a lot of people into their stadium. Even with the Mets as their competition, they still have access to many more people than Boston could ever dream of. Because of geographical forces and economic reality, the Yankees are going to make more money.

Local network television coverage is another major source of revenue. Yankees games are worth more to local networks, because, quite simply, more people watch them. The Yankees are going to get more money for their games from the local affiliates than say, the San Diego Padres.

More money wouldn’t be so important if it were not for another economic reality: money can buy players. Sure people have some team loyalty, and care about the fans a bit, but if you offer then enough money, you can usually convince them to play for your team. The teams with the most money attract the most talent and end up having the best teams. Then teams will lose to the Yankees, not because they cannot compete athletically, but because they cannot compete economically. That sucks, and it sucks more because it’s now a vicious cycle. The rich teams win more and more, become more well liked, and get a larger fan base. This brings in more money for the rich teams. Thus, in baseball, the rich get richer.

At this point you may be saying, but what about Seattle? They are small and they’re good. It’s true that small teams can get good players, but usually they can not keep them. Look at Pittsburgh in the late 80’s. One of the best teams in baseball, and Barry Bonds played for them. But slowly, the championship team was dismantled because the team just couldn’t generate the revenue needed to pay the players.

I said in baseball the rich get richer. It is also true that the poor get poorer. Teams, as much as we may love them, are still economic investments. And as such, owners try to increase the revenue they receive from the team. If you are one of those small teams that simply can not compete because you don’t have the money, it makes sense to spend as little as possible. It may be nice to pay the big bucks for one star player, but if your team is still going to be beaten by the teams that have eight star players, why do so. It’s better to just slash your payroll. Make your team the cheapest possible. If you are still going to lose, you might as well lose cheaply.

There is a limit to all of this. No one is going to come to your games if your team is a bunch of tee-ballers you pay in Pokemon cards. But you have the incentive to have the cheapest, and therefore worst, team that people can bear. They call baseball America’s pastime, and maybe that’s fitting because it’s driven by the forces of capitalism.