The Relationship Between Player Salaries and Ticket Prices


Image credit: © Jeff Curry-USA TODAY Sports

I thought we’d put this one to rest.

Four years ago, I wrote this article about the price of attending baseball games. I concluded it thusly:

Lower ticket prices would be nice. But economic theory says it won’t happen. The example of teams that have cut payroll says it won’t happen. And the modern ticket market, with ubiquitous resellers, says it won’t happen. So don’t blame the players and what they get paid. They have nothing to do with it.

To be clear, I didn’t say anything that hasn’t been said for years and years about this topic. Yet somehow, the lesson hasn’t sunk in.

I noticed the latest iteration a few weeks ago. It went like this:

  • Juan Soto turned down a 13-year, $350 contract offer from the Nationals.
  • The cost of attending a ballgame keeps going up and up.
  • Contracts like Juan Soto’s are the reason the cost of attending a ballgame keeps going up and up.

This is a faulty syllogism. And remember, everyone who confuses correlation with causation winds up dead. But it’s also demonstrably wrong. Let me dust off the argument. Again. In hopes of putting it to rest. Again.

Let’s start with the practical. If ticket prices are tied to player salaries, they should rise and fall with teams’ payrolls, like the way gas prices rise and fall with the cost of crude oil. If we’re saying teams charge more when their payrolls rise, it should also be the case that teams charge less when payrolls fall.

Here are the teams with the largest payroll decreases from 2019 to 2021.

  • Cleveland, 68 percent, $151.3 million to $49.1 million
  • Miami, 57 percent, $74.7 million to $32.0 million
  • Baltimore, 49 percent, $82.7 million to $42.1 million
  • Seattle, 49 percent, $126.9 million to $64.1 million
  • Texas, 47 percent, $104.4 million to $55.2 million

We’re not talking small decreases here. These teams slashed payroll. If payroll drives what teams charge, we should expect the cost of attending each of these teams’ games to have declined.

They didn’t. The average ticket price (as calculated by Team Marketing Report) fell from $37.77 to $35.22 in Seattle and by 43 cents in Baltimore. That’s it. The other teams all raised prices despite player payroll plunging by about half or more.

And it’s the same in MLB writ large. Payrolls are not rising. They fell by four percent in 2021, per Maury Brown at Forbes, to their lowest level since 2015. You want to know how many teams charged less for a ticket in 2021 than in 2015? Yeah, you got it.

I can imagine two objections to this calculation. The first is, “Well, yeah, teams had to charge more in 2021 because they had to make up for losses in 2020.” Um, that’s not how it works. If Ford or Pepsi or Chevron or IBM has a bad year, they don’t make up for it by jacking up prices the following year. Were they to do that, they’d lose market share. If you have a bad year in business, you take your lumps and try to learn from it. You don’t get to recoup it.

The second, more sophisticated reply would be, “Maybe they realized their 2019 prices were too low, and adjusted accordingly.” Again per Forbes, Cleveland made $43 million (earnings before interest, taxes, depreciation, and amortization) in 2019. Baltimore made $57 million, Seattle $31 million, and Texas $61 million. Only the Marlins lost money, barely, a total of $6 million. Their combined operating margin (earnings divided by revenues) was a healthy 13% (16% excluding Miami). That compares to 14% for MLB as a whole. Everybody but Miami had a great 2019.

So it’s clear that the high cost of attending baseball games is unrelated to what the Nationals pay Juan Soto. Why is that?

Here’s where I have to delve into some basic economics. For some products, like gasoline, pricing is driven by raw material costs. That’s in part because those markets are highly competitive. If my local Mobil is charging too much, I can go to Sunoco or Hess or Citgo. How many times have you driven past two gas stations, across the road from one another, and pulled into the one charging a penny less per gallon? If their costs rise, they have to raise prices to stay profitable, but they can’t raise them much more than their competitors. Free market competition puts a cap on prices. Same with groceries, or electronics, or running shoes. I may have a reason to choose a certain retailer, like brand loyalty, but by and large, people can choose where they make their purchase.

You can’t do that with the Mariners or the Rangers. You want to go to a major-league game, you have one choice. The industry even has an antitrust exemption! Now, granted, all MLB teams face competition from other forms of entertainment, like movies and concerts and going out for dinner and staying at home and watching the game on TV (unless you have mlb.tv, in which case you’re blacked out). But for live baseball, there’s only one choice. (Yes, I know, New York and Los Angeles and Chicago, but the two teams are almost never both at home at the same time.)

That doesn’t mean teams can charge as much as they want; there will be few takers at $1,000 per ticket. But they can charge the amount that will maximize their profits. That’s why they’ve instituted dynamic pricing. If I want a Seat 6 in Row C, Section 333 at Angel Stadium for the August 31 game against the Yankees, it’ll cost me $160. That exact same ticket, two weeks earlier against the Mariners is less than half as much, $78. Teams don’t use analytics just for the game on the field. Market analysis helps them price their tickets at a level where they’ll make the most money. They seek the price that’ll yield the highest profits given market demand. Player salaries don’t enter into that calculation.

And there’s another reason they won’t cut ticket prices: Resellers. If, come August, I really want to go to that Yankees game, that seat in Section 333 may no longer be available. So I’ll go onto StubHub or SeatGeek or some other site. Odds are, the price will be greater than $160. Say it’s $200. That extra $40 is money lost to the Angels. There’s sufficient demand for that ticket to go for $200, so by pricing it at $160, the Angels are leaving $40 on the table. Were they to cut the price of that ticket to, say, $50, their foregone revenues rise to $150. Not only that, it’ll create more incentive for ticketholders to resell their tickets. Granted, not everybody will, but for those who decide they’d rather pocket $150 on a $50 investment and avoid Anaheim traffic, they’re taking profit away from the Angels and not making going to the ballgame any more affordable. A $50 face value ticket selling for $200 is no different from a $160 face value ticket selling for $200. If I want to go to the game, I still have to shell out $200. I don’t benefit, and neither do the Angels. Only the original ticket buyer—perhaps a large ticket broker, with software to rapidly buy up blocks of seats months in advance—does, along with the reseller. For both teams and their fans, it’s a lose-lose.

There are economic reasons ticket prices are high. There are practical reasons ticket prices are so high. What’s absent are player salary reasons ticket prices are so high. There’s no relationship. Ticket prices are based on maximizing revenue, regardless of expense. And if people say to you, “Oh come on, you’re telling me that if they cut player salaries in half ticket prices wouldn’t go down,” tell them about the Guardians and the Marlins.

Thank you for reading

This is a free article. If you enjoyed it, consider subscribing to Baseball Prospectus. Subscriptions support ongoing public baseball research and analysis in an increasingly proprietary environment.

Subscribe now





Source link

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.