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6:09:00 PM EST
Salaries and Ticket Prices
Returning to a theme I have addressed previously, about the misconceptions surrounding high player salaries and their implications for sports’ economic well-being, I wanted to say something about some recent comments by ESPN radio’s Colin Cowherd.
Here’s what Cowherd had to say in the wake of the Soriano mega-deal:
“I don’t begrudge him – it’s what the market will bear…but, who is paying for that? You are. Rush Limbaugh makes a lot, Oprah makes a lot, but that’s free…in pro sports, you directly pay for the product. Alfonso Soriano makes $16,000 an hour. I don’t begrudge him. Forty homeruns is nothing…steroids…in pro sports, we just get numb to all that, we get numb to the money.”
Then, moments later, now on a different topic (in his mind), Cowherd made an analogy between Howard Stern and USC. Stern’s radio stations, Cowherd said, were nothing without him, just like the Pac-10 in football was nothing without USC. Cowherd pointed out that the station could charge $2500 for a commercial when Stern was on (this was back in his early days as an AM star) but only $170 for everybody else.
Of course, Cowherd just said that radio/TV personalities are free, which makes no sense in the light of his comments about Stern, unless Cowherd is arguing that companies don’t pass on the costs of their advertising to consumers.
But, I’m just picking on Cowherd for his Stern comments. The real issue I want to raise is the relationship between salaries and ticket prices.
Here’s what Peter Abraham, Yankee beat writer for the Journal News had to say today about the Yankees’ possibly signing Andy Pettitte (Hat Tip/Big House Dog):
“By the time the Andy
Pettitte deal is done, the Yankees will probably pay him $16 million for one
year or $32 million for two.
I'm sure there will be those, here and elsewhere, who will bemoan that amount
of money.
Here is my question: What difference does it make?
Baseball teams have made a lot of money the last few years. Attendance is up,
souvenir sales are up, international business is lucrative, MLB.com is a cash
machine, several teams have their own television networks, etc. All that money
will either go in the pocket of the owner or his players.
If the Yankees said today that they didn't want Pettitte and would start Jeff
Karstens, the $16 million saved isn't going to charity. Ticket prices won't
come down. Everybody won't get a free hot dog. It will go in the vault of
Steinbrenner, Inc.
It matters not to me whether the billionaire owner keeps the money or gives it
to one of his millionaire players. I'd like to watch an interesting game and
have something good to write about. Win or lose, Andy Pettitte's return will be
interesting.”
Abraham’s comment about ticket prices not coming down is the key here. In the earlier article, I cited the work of Neil De Mause, whose field of schemes websites (linked to at the right) does a fabulous job of examining stadium and related issues sports economics issues.
In Baseball Between the Numbers, Demause examines whether player salaries affect ticket prices. To kill the suspense, the answer is basically no.
Demause notes that a watershed moment, economically speaking, in baseball history was the advent of modern free agency in 1976. Since that time, and adjusting for inflation, player salaries have increased 1,400%. By contrast, ticket prices have increased about 67%. Demause asks, “If owners are being forced to pay through the nose for their players, why wouldn’t they pass along the costs to the ticket-buying public?” Because, “[e]conomists have an answer for that. Baseball owners, like any business owners, are assumed to act as rational price-setters…they look at market research and then pick a price point for tickets that maximizes revenue, that price point being one where, if they tacked on another ten cents, they anticipate losing more from fans staying home than they’d gain in additional dimes.”
In other words, you raise ticket prices if you think you can get away with raising them (that is, fans will be willing to pay more) and you don’t, if fans aren’t. Demand drives prices. So, what’s driving player salaries? Well, the sportshas witnessed an enormous increase in revenues, beginning with cable television contracts, then more lucrative network deals, then the advent of modern stadia with luxury boxes catering to wealthy individuals and corporations willing to pay through the nose for the convenience and prestige associated with luxury boxes. With all the extra cash on hand, more money is finding its way into the players’ pockets.
Furthermore, as I noted in the above-mentioned post, sports marketing in the past fifteen years has increasingly centered on capturing the spending dollars of the affluent fan. Demause describes the “flood of money into the upper echelons of US society” due to a combination of sky-rocketing incomes for the better-off in American society and an enormous reduction in the top marginal tax rates under Ronald Reagan. The result: “leaving wealthy fans with refund checks that were handy for buying up all those luxury boxes and club seats.” Fans in the lower half of the income distribution are being increasingly priced out of going to games, but this is not due to player salaries. It’s a business strategy. Demause quotes University of Chicago sports economist Allen Sanderson, who says: “Ticket prices have also gone up rather dramatically at big-time college football and basketball programs, and salaries haven’t changed at all.”
Let’s bottom line this: player salaries do not drive ticket prices. It’s much closer to the mark to say that, on the contrary, high ticket prices (and attendant sources of revenue, extracted from fans directly or indirectly) drive high player salaries.
Cowherd’s not alone in his belief, of course. And, if he’s to be believed, he doesn’t even begrudge the players their money. By contrast, recent polls show that fans believe the number one problem in baseball is player salaries and, it would appear, this is connected to fans’ belief that those salaries are squeezing them at the box office.
The owners and commissioners have quite deliberately fed this misimpression, and sports media have failed almost completely to scrutinize it. Cowherd’s not wrong to say that the fans are paying players salaries. But, the key point is this: the owners have asked for the fans’ money and, having gotten it, have turned around and given a portion of it to the players. You’re not paying high prices in order to pay the players. You’re paying highprices to line the pockets of the owners. And, if the players were making less, as Abraham says, you wouldn’t be getting a refund.
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