November 16, 2007
Players Underpaid?
Baseball reported revenue of 6.075 billion dollars yesterday. Adding up the major league salaries reported here, I get about 2.5 billion, so 41% of revenue goes to salaries. A few years ago, salaries accounted for 55% of revenue. During the 2002 contract negotiations, players were trying to get a fixed amount of revenue, but were afraid the loss of revenue due to a strike would wipe out the gain:
In other words, if players manage to make salaries account for 60 percent of baseball revenue, up from 55 percent at present, they could still end up worse off if baseball's revenue plunges.
We don't hear players complaining about this much, however, since the growth was so big that they are very happy with the increase in their salaries. However, it does appear there's plenty of money available for salaries to go much higher.
Posted by David Pinto at
12:03 PM
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I assume that this does not count minor league revenue. Does anyone what the costs of running a minor league system are and how they are distributed between the MLB club and its affiliates? It seems the player salaries are carried by the big club. What about coaches and parks?
The other way to look at this is the descrepancy between 41% and 55% means there is room for ticket prices to go down (or fewer adds in broadcasts) - but I'm not going to hold my breath.
Curt Schilling commented on this in the am on his blog. Even with all of this income the Red Sox still increased ticket prices 9% for next year.
http://www.fenwaywest.com
What this also says is, that ticket prices are inflated. The price could be lowered, and still leave teams making a profit. In fact, they'd possibly make more money with slightly lower prices, since it would encourage more fans to buy in. Smaller profit margin, leads to more overall profits through larger sales.
But a lot of stadiums are selling out every night, or close to it. (Like the Red Sox, I imagine). So why lower prices?
The Red Sox, Yankees and a few others will sell out every game almost regardless of the price they charge, so they should set the price as high as they dare. Sucks for the fans, but they put an insanely popular product on the field, and the system is set up to reward them for it.
It might make a difference for other teams, but I'd bet that most teams have done some internal math to set their prices in the first place. (To paraphrase the West Wing, if they could lower prices and make more money, they'd do it; they'd be a hero to the fans and who wouldn't want that?)
With the Yankees and Red Sox jacking up prices and still selling out, it seems like there's a lot of money in selling premium TV / internet-video packages to people that don't want to pay for tickets but are still fanatics. I know MLB and teams are working on that.
Bear in mind that each team's percentage spent on player payroll differ and there are likely to be significant differences among team. Also bear in mind that player payroll while the largest expense component is not the only component. Looking at the amount spent on payroll is not very informative about how good MLB's profitability is as a whole and is certainly no indicator of how any individual team is doing financially.
