Some Economic Thinking about Baseball

FSN and the Mariners announced an extension to their television deal. Starting next year FSN will broadcast all available Mariners games, at least 150 (Fox and ESPN will broadcast some). This is a huge reason why the team can compete. Local revenues are vastly more important to MLB teams than NFL teams. The market for Mariners games on TV in Seattle is huge, and FSN pays up. Between a few states and Canada, FSNW reaches 3.4 million and the M’s will continue to have an advantage for the next few years. It isn’t wasted money either as the team led the league in local TV ratings for 8 straight years between 1996-2003.

Elsewhere, an estimate by Vince Gennaro, writer of Diamond Dollars, which took a look at the marginal revenues of winning in baseball, estimates that the Red Sox will accumulate $45 million from their title, and the Rockies $30 million. The estimates, I believe, are for the next 5 years and don’t include 2007 revenues. This is how a guy like A-Rod or Santana might be worth $20-$25million, and why every year people scratch their heads at a few FA signings. If your team is sitting at the 87-90 win level, an extra couple of wins could increase your chances at the playoffs/World Series or at least a pennant race by a good margin, and revenue increases as well. When all you need is a couple of wins, those free agents get more and more enticing.

Lastly, Michael Lewis (Moneyball) published an article in the NY Times against revenue sharing. He notes that clubs like Tampa Bay and Kansas City are using the money as a revenue source rather than building their clubs. His argument is that (remember Microeconomics!) the marginal revenue of a win does not justify the marginal cost required to obtain said win. Increasing spending to increase revenues cuts away at the revenue sharing check. An exception to this rule of pocketing money is the Rockies, who increased payroll $15m after their $16m revenue sharing check. I hate revenue sharing, and it pisses me off that every year that bastard Selig talks about how much parity there is, and how necessary revenue sharing is. Ask a fan from Toronto how much parity there is. I am pretty sure Selig’s definition of parity is that the Yankees did not win the World Series.

To be fair, Lewis assumes the only way to improve a team is to spend money on free agents at the Major League level. It is very possible and could help a club more to spend that money on signing bonuses and international scouting instead and Lewis fails to address this. Nevertheless, he brings up some good points.

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