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July 16, 2009
The Biz Beat
Baseball's Midseason Report Card
The year 2009 has been a ridiculously tough one for business, unless you happen to be a bankruptcy lawyer or maybe a psychic (supposedly they do very well when people are getting laid off). For its part, MLB has done its best to manage expectations, projecting huge declines in attendance, and beating the owners over the head with a don't-spend-too-much-on-payroll message during the offseason. If it all seemed like overkill, you can forgive Bud Selig and company for being cautious; according to some, baseball almost spent its way into contraction during the last recession, one that was far more mild than what we've been going through over the past year. So, with the first half officially in the books, how well have they actually executed?
To start with, attendance is down. No surprise there, and if anything, the numbers are actually beating pre-season expectations. Average attendance is down about 5.9 percent from this time last year (chronologically, not in terms of games played), from 31.7 thousand to 29.8 thousand per game. (For what it's worth, Darren Rovell has it at 5.5 percent, and Bob DuPuy says it's closer to 5.0 percent once you adjust for new capacities.) The biggest gainers: Kansas City, Florida, Texas, Minnesota, and Tampa Bay. The biggest losers: Washington, Detroit, the Mets, Houston, and San Diego. (Hat tip to BP data wrangler Bil Burke on the attendance figures).
Those numbers do tell us something, but there's a lot being left out. For one thing, prices are just as important as paid attendance, especially in a year where most teams have either cut or kept them flat. There are also suite and club packages to consider; the Mets and Yankees have both drastically increased inventory in this space, making regular ticket sales seem almost secondary.
Team Marketing Report's annual survey can help with some of this. Coming into the season, the average ticket price rose 4.8 percent year-over-year, to $26.46. But if we combine TMR's numbers with the first-half attendance data, the weighted average so far has actually been $28.72 (which makes sense, since large-market teams generally draw the largest crowds and have the highest prices). That's up from a weighted average of $27.02 at this point in 2008.
So if we multiply it out, total gate receipts (price x tickets sold) are actually similar to last year's, down just three hundredths of a percent. In other words, higher ticket prices may actually be making up for the decline in total attendance.
That's true on an aggregate level, at least. There are still those two enormous new elephants in the room. If we take the Mets and Yankees out of the equation, the average ticket price still rises, but only by about ten cents, meaning that overall revenue is still falling by about 4.3 percent. And even that number is being held higher by the other high-end teams; the Cubs, Red Sox, and Phillies have all raised their average ticket prices, without any negative impact on attendance.
The reality is that most teams are struggling. According to our revenue estimator, twenty teams have seen declines at the gate, led by Toronto, San Diego, Oakland, Cleveland, and Arizona-all of whom are down more than twenty percent from last year. (Note: Toronto may only be there because of their currency; TMR calculated their prices during the winter, when the loonie was much lower against the dollar than it is now.) Given that none of those teams look like they're going to be anywhere near a playoff spot, and the economy still hasn't rebounded like many had hoped, the year-over-year comparisons may only get worse as the season goes on.
If nothing else, that shouldn't take MLB by surprise, since the second half has always been the league's biggest concern. During the spring, all anyone wanted to talk about was a second-half recovery; if the economy could just pick up a little bit of steam over the summer, the theory went, baseball would be fine. For a while, it actually looked promising: the Dow and Nasdaq both made huge jumps from their March lows, indicating that the worst was probably over. But here we are in July, and unemployment is still sky-rocketing toward (and likely already past) ten percent. The markets are maintaining most of their gains, but the positive momentum has been mostly drained out of the system.
That's bad news for small-market teams who aren't in the playoff race. Attendance will usually drop off in the second half regardless, but with the economy still in the tank, baseball tickets are becoming more and more of a discretionary expense. That should put serious pressure on prices in a number of cities, and could lead to some very ugly numbers at year's end.
If there's a bright side to all of this, it's that MLB and the thirty teams are in a much better position to withstand this type of environment than they were even five or ten years ago. Most teams will likely remain profitable, which in itself should be a pretty strong endorsement of the sport's current economic system. As much as some are struggling, there are no rumblings about teams missing payroll, let alone going bankrupt or being contracted. (Not that contraction was ever a real possibility, but it's definitely a negative indicator when something that extreme can even be used as a bargaining chip.)
In the end, despite all of the negativity, I'm sticking with my prediction that industry revenue will actually be up this year. Attendance will likely be down more than six percent once the dust settles, but the new stadiums in New York should just about make up for that shortfall. Meanwhile, MLB Network is adding $200 million to the top line almost out of thin air, and MLB Advanced Media should at least see mild growth.* So while it hasn't exactly been a fun season business-wise, it could definitely be much, much, much worse.
*: I'm not overly bullish on BAM, at least not for 2009. In April, the company claimed 45 percent growth in "streaming subscriptions," but almost all of that can be attributed to MLB At Bat, which only brings in about $7 per user after Apple takes its cut. They also cut the price of their MLB.tv packages, meaning streaming revenue could end up being nearly flat. With ticket sales declining as well, BAM will probably have to lean on advertising and licensing, neither of which I would consider huge growth businesses in this climate.