Despite decreasing national television ratings, MLB projects to finish with revenues between $8-8.5 billion at the end of 2013.
I spoke with Forbes‘ Maury Brown – who published the report on MLB’s record-setting revenue on Dec. 17 – about the seeming contradiction of a sport that’s never been more profitable, but yet has arguably never been less popular.
The full interview with Brown can be heard on my Red Sox podcast, “Without a Curse,” this week. A portion of the conversation is below:
Alex Reimer: You published a report in Forbes a couple of weeks ago, which said MLB would end 2013 with revenues between $8-8.5 billion. It’s a staggering figure, especially when one considers the league’s sagging attendance numbers and television ratings. How does a sport generate record-setting revenue when it arguably has never been less popular?
Maury Brown: Well, we could have a solid debate about this.
Attendance has been ostensibly flat. … But baseball has had new stadiums opening up, and although the honeymoon period for new stadiums has dwindled as of late, they still are an influence.
So baseball has basically toed the line. They had a record number of rainouts; it was just a little bit short of the record from the last decade. They were mostly in the spring, but those things always come into play.
The biggest reason, obviously, is the incredible explosion in television right’s revenue – both at the local level for teams, and the national money that will begin to kick in next year. It wouldn’t surprise me if in a year or two – three or four at the most – that baseball potentially catches up with the NFL in terms of gross revenue. Some teams will have more than others, but as a total bucket of money coming into the league, it’s pretty healthy.
AR: Looking at the value of the television contracts – both nationally and locally – I think a lot of it has to do with the climate of TV in the era of DVR and Netflix. I think professional sports are arguably the TV industry’s most valuable asset, which is why they’re paying for it.
MB: I absolutely agree, that is the reason. We always talk about the [declining] ratings for baseball and what not, and there’s some truth to that. It’s not the same as it used to be. You can’t argue that point. But the thing that the networks continue to like about it is that they will win the ratings battle almost hands-down whenever it’s sports.
So of course you’re going to have people like FOX, ESPN and TBS who want to get in on that; even if the ratings are declining, it’ still one of the last bastions of live entertainment in the DVR era. People want to see sports live. They like the drama of it, and don’t like to DVR it for the most part. That’s a win for baseball … and any kind of professional live sports programming is going to continue to see those benefits.
AR: We talk about the record-setting revenue, and how it only projects to increase in the foreseeable future with all of the television contracts and money that surrounds the game. But I don’t think there’s any arguing that there are still issues that plague Major League Baseball.
Though it’s easy for them to point at their year-end balance and say, “We have $8-8.5 billion in revenue, we’re not doing anything wrong,” I think that would be whistling past the graveyard. It would be akin to those on Wall St. who ignored the warning signs in the late 1990s and early 2000s before the recession of 2008. So how proactive do you think Major League Baseball has to be [to improve the game] despite the record-setting revenues?
MB: The biggest problem you get is a change in the behaviors of the average fan. It no longer reaches the younger demographic due to the pace of the game and lateness of the games. So, they need to speed the game up.
But overall, the game actually caps itself fairly well. You’re going to have some teams that are going to be able to blow enormous amounts of money – whether it’s the Dodgers, Yankees or whatever the flavor of the week is – teams can spend pretty lucratively now. But the reason why this has changed dramatically in the last five to 10 years is you’re seeing teams that are now able to retain the talent that they have.
When you start to [see teams] wrap up the talent that they develop … it thins the free agency pool. When you thin the free agency pool, supply and demand will give into some pretty outlandish contracts on the face of it. But that’s really just a change in the market.
If you want Robinson Cano in Seattle, Wash., and you’re [competing with] New York, N.Y., then you have to offer $240 million to get that guy to travel up there and play in that market. It’s really changing that way. There’s so much money flowing in, though, that teams are basically just writing off the tail end of some of these longer contracts that you’re seeing.
AR: So would you agree that we can no longer compare free agent contracts that were signed 10 years ago to contracts that are signed now, because it’s just on a completely different scale?
MB: Absolutely. Fans need to – and this is something that those who follow the game closely have figured out – adjust what’s market value based upon on that market that year. It changes every single year … the value in terms of players changes based upon [teams’] cash flows.
I’ll go back to Cano, and he’s a great example. I don’t like the deal because of the timing of it for the Mariners. I don’t think that they have enough development around [Cano] to do much with him. But if you want a player of that magnitude, you have to offer that kind of money. People start bemoaning whether these are good deals or not, but it’s all relative.
I don’t know if [the contract] is going to be good for two years or five years or seven years. I doubt very seriously that anybody thinks that Robinson Cano is going to be worth the money he will get paid at the end of the contract. But the point is, the Mariners need to improve themselves. They’ve had horrible attendance numbers. … They’re coming into new money since being a majority partner in Root Sports Northwest. The Mariners have money to blow all of a sudden … and now they have to do something and make a big splash with it.
The issue is when you have teams doing what the Marlins did, which is just ridiculous. They blew a bunch of money right away on [Jose] Reyes, [Mark] Buehrle, etc and then they unloaded them midseason before they did something with them. Those are the deals that are just bad and stupid, and those are the things that you have to watch out for.
And I’ll come back to the Yankees, look at the things that the Yankees are doing right now. The Yankees were swearing up and down that they need to get under the $189 million luxury tax threshold, and are going in the opposite direction. They’re doing long-term deals, because they have the money. But it was an internal thing that they set. But I don’t know if they looked at what happened with the Red Sox and said, “We can’t have this. We’re going to lose even more fans if we do this now.” So, I guess they’re changing their direction and are doing things a different way.
AR: Do you think this increased revenue around the game increases or decreases parity?
MB: The economic parity has definitely shifted. National TV money has doubled, and everybody has more money to spend. But that’s relative. Everybody across the league gets that money.
The difference now is – and it’s been going on like this for a long time – the teams that have more money to spend can plug holes faster and sign longer-term deals so they’ll be competitive for longer periods of time.
The league likes to see a five-year development cycle for all teams. No team should be hanging around at the bottom of the standings for more than five years. So you can’t fully expect – just based upon the number of teams and players that are available – that all teams can be equally competitive. You just can’t have 30 World Series champions.
So teams are going to cycle down and fans should expect some teams to do that. But how long teams hang down there is the issue, like the Pirates and the Royals.
The deal is “smart money.” I talked to Stan Kasten – who’s the current president and CEO of the Dodgers – at [last year’s Winter Meetings]. Stan had been the president of the Braves when they were starting to pull out of their malaise, and then he was president of the Nationals when they were rebuilding after the Expos. And I said, “Stan, you’ve never been in this position before, when you’ve had so much money at your disposal.”
He said, “Well Maury, it never hurts to be rich.” He goes, “But you have to be smart first.”
Money doesn’t buy World Series championships, but money gives you flexibility. That’s your parity problem. Teams will be able to have more risk aversion. They’re able to make mistakes … and these are the things that you will have to constantly deal with.
But there’s no excuse for any team in major league baseball – when it makes sense – to say they don’t have money at their disposal to make themselves competitive. It’s just how long they can remain competitive, and how often they can [spend].
Photos via AP, Getty Images and Charles Wenzelberg/New York Post