Big TV Deals Not Destroying Baseball

Jeff Passan at Yahoo! Sports has a nice long rant up today about the evils of the LA Dodgers impending regional cable megadeal. I frankly don’t see what he’s getting so worked up about. Passan obviously knows a great deal about the business of baseball and the throws in a lot of interesting tidbits and salient points, but as for the raw emotion?? TV dollars aren’t killing the sport, come on.

July 18, 2011; San Francisco, CA, USA; San Francisco Giants fan holds up a sign that reads beat LA during the ninth inning against the Los Angeles Dodgers at AT

If rumors are correct I understand that the Dodgers deal would start at something like $150 million dollars per year and ramp up to at least twice that much by 2037 (though I suppose we won’t know any exact details until a deal is actually done). That’s big money – and significantly more than McCourt was looking to get when he still had some semblance of control of the organization (he has now been replaced). To add a reference point, the Tigers are estimated (by Forbes) to have had roughtly $217 million in total revenues in fiscal 2011-2012 – I assume that will be a bit higher this year with the World Series run. The Tigers don’t have an especially lucrative TV deal (though many small market teams have it worse) receiving $50 million per year from Fox Sports Detroit through 2017.

Passan’s two twin claims – and they are related – seem to be that A: Money itself is destroying the sport B: Deals like this tilt competitive balance, which is destroying the sport. Money, be it from TV or tickets or beer or what-have-you is squeezing fans and turning them away from the game. Impoverished small-market franchises cannot hope – whether they sell out every home game or not – to compete with the payrolls that these large-market TV deals can fund. Is any of that actually true?

I maintain that it is not, particularly in the case of TV. For one thing, TV and tickets are “substitute goods”. If I can’t afford four tickets to a game at Comerica Park (with seats that allow me to see the ball rather than just a player or two) I can watch the game on TV – or if I don’t have cable on someone else’s TV (or a bar’s TV). As such the availability of quality coverage acts as a brake on ticket prices and keeps the sport – as a whole – more affordable for all types of fans. These regional sports networks make their money in two ways – first they charge a subscriber fee, which sometimes everybody pays (if the channel is part of a basic package) and sometimes only diehards pay (if it’s a “premium” sports channel) – second, they charge for advertising. You, the fan, don’t pay for advertising. Whether AB InBev pays $20 million for it’s Bud Light ads or $5 million for it’s Bud Light ads you, the fan, are unaffected. More viewers means the network can charge more for ads. Higher fees means (particularly if it’s a premium channel) fewer subscribers, fewer viewers and less advertising revenue.

Now… it is possible that higher demand for baseball games on local cable would mean a slightly higher cable bill (though mostly it would mean more expensive ads and more revenues for the network) – but it does not matter how much the network paid for the rights, they will charge the “profit-maximizing” combination of fees and advertising rates. The only question is how much of those revenues (which are bound to be high in markets like LA or New York) flows back to the MLB franchise. Is the game better off with fat profits at the networks and limited revenues for the teams? The cost to fans will be completely unaffected – you are not and will never be gouged by the network because they paid the team a lot of money. You will be gouged by the network (mostly AB InBev will be gouged by the network) because they control your access to televised baseball.

Leaving aside whether you are personally hurt (in a financial sense) by floods of TV money I am aware that some people are simply offended by the fact that MLB players (and owners, etc…) make “unfairly” large amounts of money. I can’t really argue with that, though I would point out that most baseball players don’t make very much money at all – because most baseball players never make it to the majors. It’s only the top of the top that get the big bucks – which is basically the way things work for actors or lawyers too. It is true that baseball players get paid for doing something “fun” (that many of us would do for free) but I would also point out that the fact that they get paid and the way they get paid probably sucks an awful lot of the fun out of it. If a guy working at Red Robin makes a subpar burger – management is unlikely to notice and it’s inconceivable that he’ll be called out by the press and forced to explain what went wrong. A string of burgers that, though adequate, are not exceptional is unlikely to cost him his job.

But does that money affect competitive balance? Of course it does. Baseball is not “fair”, it has never been “fair” and it will never be “fair”. It is – nonetheless – the most intrinsically fair of any major professional sport. Why? Because so much of what happens on a baseball diamond is fundamentally random and so much of what it take to succeed is hard if not impossible to repeat. Basically the job of a baseball player is to do all of the right things precisely the same way every time. He may only succeed 80% of the time and if he does succeed there may be only a 40% chance that something good will come of it. And that “good thing” may mean little or nothing depending on game context beyond his control. As a result – you can’t just be good at baseball and win all of the time. Awful teams win a significant percentage of the time. Historically great teams lose in the playoffs. If there was a strange rule that gave a wild card spot to the worst team in each league, those teams would occasionally win the World Series as a result. Payrolls help, but unlike (I would argue) football, basketball, hockey or soccer, baseball can achieve an admirable degree of parity even without anything approaching payroll equality. With perfect revenue and payroll parity, success could come only through luck and clever management – as it is badly run big-market teams can paper over bad luck and inept front office decision-making to field a decent team.

The effect of revenue inequality is somewhat mitigated by revenue sharing (30-some percent of local revenues redistributed) – though since these funds are not related in any way to wins or fan enthusiasm they don’t always give owners an additional incentive to spend (see Loria, Jeff). But – since a chunk of big new TV deals gets redistributed, everyone (including Detroit) is going to be getting a present when the Dodgers sign that deal. The new CBA toughens luxury tax penalties for high payrolls – dollars redistributed to “poor” teams and makes it more difficult to gain an edge in amateur signings by throwing money at the problem. Some well run “poor” teams have taken advantage of that ability to reallocate resources to signing bonuses, but “rich” teams have done the same to prop up farm systems despite trading away and sacrificing pick after pick. I wouldn’t argue that the new CBA makes the playing field less fair (though it seems geared to help out poorly run clubs).

I would even go so far as to argue that parity – or at least more parity than we currently have – wouldn’t actually be good for the game. It might be good for, say, Royals fans – but not the game. Big markets have more actual and potential fans – that means that when big-market teams do well (and small-market teams do poorly) there is actually more aggregate fan enthusiasm for the whole sport of baseball. You may have noticed that TV ratings for World Series games are better when you have two big-market teams than when you have two small-market teams. That’s why. There aren’t enough people in and around Kansas City to get excited about baseball in the first place.

You may have also noticed that TV ratings for the World Series aren’t all that great compared to those for other sports – particularly considering the number of fans that actually go to games and watch local games through the whole season. Baseball fans are primarily fans of their teams and only their teams – there aren’t so many fans of “the sport”. I’d go so far as to say that it would probably be good for “the sport” if we had more fans who loved “the sport”, like those who watch NFL games all Sunday whether the Lions are playing or not. That would mean more fans in unserved or underserved markets. If you’re from Oklahoma City… who’s your team? Do you care what goes on in the MLB at all? For one thing, more fans of the sport would probably mean better ratings for nationally televised games – and those revenues are redistributed fairly to all 30 franchises, just like in the NFL. Fans of “the sport” have to like the sport – obviously – regional TV deals have little to do with that, but they also like stars and they like dynasties. Diehard fans are probably the only folks reading this, but those who are not diehard fans like to be able to have some idea what is going on even without devoting much energy to following the sport. Big team, big star, together for the long haul is a recipe that works for appealing to casual fans

The Yankees have won a lot of championships – but they were winning more when we had more payroll parity than they have lately. You don’t have to like Derek Jeter (and his fat contract) or Alex Rodriguez (and his fat contract) or the fact that the Yankees can afford to pay them big bucks year after year and keep winning. But… your team still has a decent chance of beating those Yankees, particularly if the guy nobody ever heard of that made a deal with the devil for an 8-win MVP season happens to play for you. More often than not – even with the ridiculously distorted payroll playing field – big-money teams like the Yankees (and now the Dodgers) aren’t inevitable champions but rather the imposing straw man for the scrappy little guy to take down. If you were going to make a movie about the scrappy Tigers pulling themselves together for a championship run, would they have to go through the Padres, Mariners and Twins to win it all? Of course not. And if they did, it wouldn’t be very appealing to casual fans either. Things are just fine the way they are and a little more cash won’t do any damage.

I’d also add that – based on the local and redistributed revenues that I would expect the Tigers to take in next year – that mid-market team could “afford” a payroll at or very close to the luxury tax threshold so long as the team makes another deep playoff run and Mr. Ilitch is willing to accept a zero return or trivially small return on his investment [and we all know that he is]. What more do we need from baseball?