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September 7, 2012

BP Unfiltered

Economists Warn: All Baseball Clubs To Face Bankruptcy

by Sam Miller

From the Pittsburgh Press:

University of Pennsylvania economists warn that major league baseball payrolls may triple in the near future, threatening every team with the "spectre of bankruptcy."

"Pressure will come from the non-superstars," said Jim Eshoff and Chris Ritz, economists for the university's prestigious Wharton School who say they are card-carrying baseball fans.

They said the salary glut will have dire effects on the health of major league franchises, even the healthiest.

"If competition is only a reality among a certain few teams," they said, "the fans and their dollars may go elsewhere.

"No team is immune to the spectre of bankruptcy," the economists said.

-- April 20, 1977 --

Sam Miller is an author of Baseball Prospectus. Follow @SamMillerBP
Click here to see Sam's other articles. You can contact Sam by clicking here

11 comments have been left for this article.

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TimLandry

(495)

I was reading it - and thought "OK - these new TV agreements MAY cause problems" and then I saw the date! I was 31 when that was written. I can assure you and the authors that the number of bankrupt baseball clubs has been TINY LOL

Sep 07, 2012 12:56 PM

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rating: 4

Richard Bergstrom

(36532)

Well, it was just a year or two after free agency, right? Very little TV revenue, no online revenue, fewer major league teams/divisions/playoffs and there were few $100 tickets or $100 replica jerseys back then.

Though, in effect, an economist with that kind of prediction will eventually be right because eventually every sport will go bankrupt, eventually every person will die, the universe will burn out, etc.

It's a pity Matt Swartz isn't still around since I believe UPenn is his neck of the woods and he has a degree (PhD?) in Economics.

Sep 07, 2012 13:09 PM

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rating: 0

akcolonial

(37887)

That is pretty bad economics. Those rules created a free market for baseball talent, versus the previous system that held salaries below their true market value. Paying players their true value doesn't mean bankruptcy, because presumably teams are rational and will not make contract commitments beyond their means.

Sep 07, 2012 13:23 PM

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rating: 1

(27400)

Moreover, ever since then the league has been implementing rules to discourage the wealthiest teams from distorting the system in a way that would be uncompetitive, which was the underlying concern as I understand the economists. Not necessarily that Club X will write contracts they cannot pay, but that if the richest teams hog all the talent, Royals fans will stop going to the ballpark, eventually destroying the team's finances regardless of their wage bill.

Sep 08, 2012 12:38 PM

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rating: 0

Ben Solow

(35415)

I agree -- the main point is that quote "'If competition is only a reality among a certain few teams,' they said, 'the fans and their dollars may go elsewhere.'" MLB, especially under Selig, clearly agrees with this and has taken numerous steps to balance the playing field despite free movement of talent. Fans like winning, but they also like uncertainty over the outcome of a game/series/season (one reason why people start leaving the park before games finish).

Sep 08, 2012 20:52 PM

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rating: 0

Sharky

(12101)

Awesome. U.S. economists and they spell it "SPECTRE".

Bond: "Do you expect me to talk?"
Goldfinger: "No, Mr. Bond, I expect you to die!"

Sep 07, 2012 14:28 PM

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rating: 8

sharbrough

(11654)

Oh my god. Teams will face $6 million payrolls? Doomed. We're Doomed!

Sep 09, 2012 08:22 AM

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rating: 2

Richard Bergstrom

(36532)

I'm sure no team minds facing the Astros.

Sep 09, 2012 18:26 PM

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rating: 1

Hudson Belinsky

BP staff

(62929)

I understand where these folks were coming from. This is before the rise in TV and other media revenue which boost public awareness and perception of the product. These researchers miscalculated the perceived value of going to the ballpark to experience the event, thinking that fans wouldn't be willing to consume a game for three hours when they could see a movie for a fraction of the price.

So long as fans value that experience as highly as they do, baseball is going to be just fine.

Sep 10, 2012 09:30 AM

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Richard Bergstrom

(36532)

Were there any 70s movies worth watching that weren't porn?

Sep 10, 2012 10:18 AM

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rating: -1

BarryR

(1188)

While some might prefer the 1930s, the 1970s is probably the best decade for movies. Just a partial list:

The Godfather
The Godfather II
Star Wars
One Flew Over the Cuckoos Nest
Chinatown
A Clockwork Orange
Annie Hall
Jaws
Network
Rocky
The Exorcist
Dog Day Afternoon
Animal House
Monty Python and the Holy Grail
Blazing Saddles
Saturday Night Fever
Mean Streets
Cabaret
Nashville
Days of Heaven
Day For Night
The Candidate

And some damn fine porn: The Devil in Miss Jones

So yes, there were some movies worth watching. Repeatedly, in many cases.

Sep 10, 2012 16:20 PM

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rating: 2

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