Halftime Sports

The Cap: Despite Signs of Apocalypse, Baseball is Okay

October 23, 2015


KPT Sports

Halftime Sports Editor Matt Jasko examines the intersection between finance, economics, and athletics in his segment, “The Cap.”

The New York Mets are in the World Series.  Following decades of underperformance, disappointment, and just sheer folly, the other New York team is, for the next 12 months, the National League pennant winner. And in just a few short days they will have a chance to win it all against either a team that hasn’t won the series since the 1980s or one that they’ll need to cross the national border to play.

Yes, there are reports that a flying pig will be tossing out the first pitch of Game 1, shortly following a snow angel competition in Dante’s seventh level of Hell. I have begun the process of zombie-proofing my room and have stored enough food and water to hunker down until reinforcements arrive in a few months.

But kidding aside, despite these signs of an apparent impending apocalypse, doomsday is far from near for America’s Pastime. In truth, the theories that Major League Baseball’s success is declining are as unfounded as any doomsday preparations one may be inspired to make as a result of the New York Mets reaching the World Series.

Those who argue for the so-called decline of Major League Baseball’s success point to one primary statistic trend time and again—the television viewership rankings of the World Series over the past 30 years. The numbers appear to be damning—in 1986, the most-viewed World Series in history, the New York Mets and Boston Red Sox drew an average of 36.370 million people to the television screen over their seven-game series. As a relative standard of comparison, the most recent World Series, the 2014 seven-game contest between the San Francisco Giants and Kansas City Royals, drew only 13.800 million viewers (The Sports Business Daily). This comes out to a 62% decrease in World Series viewership over the time period.

But if these numbers told the whole story and the MLB’s success is in fact declining, then we would surely see these severe repercussions in the annual revenue reports of each individual team and the league as a whole. Here’s where the argument for a decline of baseball becomes a massive train wreck.

In 1985 the average (mean) MLB team was worth $66.80 million dollars as a nominal value (EH.net). On an inflation-adjusted basis the CPI indicates an inflation rate of 121.1% between 1985 and 2015, giving us a value of $147.72 million in today’s money.

However, fast forward to today and you will find the average MLB team is not worth $147.72 million. Not by a long shot. Rather, the mean MLB team value is $1.2 billion in today’s dollars (complied based on Forbes statistics).

Inflation-adjusted teams are worth 712% more today than they were in 1985. On a nominal basis we can extrapolate compounded annualized growth rate of 10.11% from this data. As a relative of comparison, over the same period the nominal compounded annualized growth rate of the S&P 500 grew 8.27%, the Dow Jones Industrial grew 8.77%, and the Nasdaq grew 10.00%. The average MLB franchise has outperformed all of the major United States equity indexes over the past 30 years.

Furthermore, this trend continues with regard to the league as a whole. In 1995, the earliest year for which we have definitive league data (at which time the average World Series viewing was still 30 million) inflation-adjusted league revenue was $2.67 billion in 2014 dollars. In 2014 the league cracked $9 billion, a 337% total inflation-adjusted growth. Using the 1995 dollar-value of $1.8 billion for 1995 revenues, Major League Baseball has a compounded annualized growth rate of 8.38% over the past two decades. By comparison the compounded annualized growth rate of the S&P 500 was 7.15%, and the Dow Jones had a compounded growth rate of 7.16%. Even the Nasdaq, which benefited most directly from the greatest single-decade increase in technological capacity in the history of mankind, only turned an average rate of 9.16%, modestly out-performing league revenues. (However, if we look at average team franchise values over this period we find a compounded growth rate of 12.64% over the period, a healthy cut above all the indexes, Nasdaq included.)

So what does all this say? Contrary to popular opinion, professional baseball is not a dying business in the United States; rather, it is a thriving model that has consistently outperformed all of the major equity indexes commonly thought of as the gold-standards of large-cap business.

In response to those who point to the World Series viewership numbers, the statistics can be explained by an overall change in television. In the 1980s, the high point of the viewership numbers, fans did not enjoy 100s of channels and the ability to pay to watch literally any MLB game at any time as they can today. Rather, they were lucky if they could get their home-town team’s game on their basic cable.

Today, not only do teams like the Yankees own television networks, but online streaming, a plethora of national providers contrasting from a single game of the week, and expanded local coverage make it possible to watch an exponentially greater number of games. With the supply exponentially increased, it is expected for relative demand to decrease on a per-unit basis.

Furthermore, the increased ability to watch a local team as opposed to being pigeon-holed into watching a national games of the week has fostered an increased affiliation between fan and team, which has hence led to a less-necessitated affiliation between fan and league. If you have the ability to watch your team whenever you want, there is no need to substitute in teams you have less interest in.

The final factor explaining this phenomenon is the fact that there are now many ways to follow a game rather than just television. Sitting at home from the comfort of your couch you can still watch the World Series if your team is in it, but if teams you have only a modest interest in are playing you can check score updates on ESPN, get play-by-play on social media, or be talking to your friend half-way around the world who is watching the game. The fact that you have likely already taken advantage of the ability to watch games during the regular season increases your propensity to choose one of these alternatives under many post-season scenarios.

All of these factors help explain why national television broadcasting rights to MLB games increased $728 million last year (Forbes) despite specific individual games like the World Series games being less appealing. In 1986, at the height of World Series viewership, total (not national-only) league television revenue only equaled (not increased) $619.19 million in today’s money. Hence, a notable but standard increase in today’s national television contract value would have more than doubled the existing total television contract value 30 years ago. More fans are paying more money to watch more games, and only taking into account a small sample of hand-picked games completely misses this trend.

So when the World Series gets started next week, relax, sit back, and enjoy it. Maybe even go old-school and watch a couple games on your television. And rest easy, because the two things we Americans love—baseball and business—are still a powerful tandem.  



More: ,


Read More


Comments 1

  • I was out last night in new york. Went to several bars, mets-royals was on everywhere but nobody was watching. No interest, no passion, no buzz whatsoever.Anywhere. That’s even more true during the season. The fact is baseball is not a big deal any more and its cultural relevance is continuing to diminish. The sport has been hockey-ized. Teams and players are beloved locally but none are all-important national themes. There are no Lebrons or Mannings or Ronaldos in baseball. Face it, the sport is on the decline.