Baseball's back but on going woes temper the joy in Mudville
The turnstiles are spinning again. Peanuts, hot dogs, and batting helmets are selling at the speed of a Dwight Gooden fastball. Fans are back, spilling into ballparks at a record pace. The strike is over. But baseball's basic economic woes remain.
Salaries are expected to continue to soar like pop flies. And with no significant sharing of television profits, it means the rich teams will get richer, the poor teams poorer.
Moreover, another strike may be looming.
``I think this industry will continue to be in trouble,'' says George Sorter, a New York University accounting professor. ``The sport's going to limp along and you'll have a repeat [strike] in five years.''
At one point Ernst & Whinney, a major accounting firm, reported a $66 million loss for baseball owners last year. But Mr. Sorter, hired by the owners for an ``independent'' review of their books, figures the 26 teams lost a total of $27 million. By either number, the owners are in foul territory.
For their losses, owners blame a 700 percent jump in player salaries since 1976, when bidding for free agents began.
The average salary is now $363,000, owners say. That has caused a tremendous drain on cash flow, they lament. Since 1976, ticket prices are up 80 percent -- just keeping pace with inflation. The average ticket goes for about $6.25. Many ballparks still have seats for less than $2.
The Major League Players Association doesn't buy the deficit argument -- its accountants calculate a $9 million profit for the 26 teams. The union, representing about 650 players, says some owners pack their books with salary write-offs and losses from other businesses. And they say owners can afford the higher salaries because of jumps in television revenue (the current six-year contract will bring in $1.2 billion) and the record attendance levels. The purchase price of a ball club has shot up, too, i ndicating that baseball is indeed a moneymaker, players say.
If owners are losing money, the players' union asks, how come the Detriot Tigers were bought for a record $53 million in 1983? Since 1980, 10 of the 26 clubs have changed hands.
Who's right? The haranguing over owner earnings (or losses) may never be settled. But a greater problem exists -- and both sides acknowlege it.
That is the widening gap between the haves and the have-nots -- those fat-walleted teams that can afford the superstars and those that cannot.
A baseball franchise has basically two revenue sources: the sale of broadcasting rights and ballpark admissions, including concession sales. Teams in large television markets such as New York, Los Angeles, Chicago, and Philadelphia, pull in big chunks of money from local broadcasts. ``The Yankees' television revenues are 10 times higher than Seattle's or Kansas City's,'' explains Glenn Wong, a professor of sports law at the University of Massachusetts, Amherst.
A large media audience will in turn pump up attendance at the stadium. The resulting prosperity of big-city clubs gives them the ability to buy the best ballplayers. Theoretically, that makes a winning team and boosts revenues further.
``It's a vicious cycle,'' explains Lou Gorman, vice-president and general manager of the Boston Red Sox. ``If you're winning, you're drawing. But it costs money to sign good players. If you don't sign good players, you don't draw.''
Boston, in a medium-size television market with die-hard fans, managed to clear $17,000 in profit last year -- on revenues of $24 million. ``Payroll is up again this year,'' Mr. Gorman says. ``We need to draw 2 million [fans]. But attendance is up, and if we can make a run at Toronto, we'll have a shot at it.''
But a slew of teams in smaller or less loyal markets are sinking fast. The Seattle Mariners and Pittsburgh Pirates both lost $6 million last year. Other foundering teams include the Cleveland Indians, San Francisco Giants, Oakland Athletics, and Texas Rangers.
The National Football League has dealt with the parity problem by splitting all television revenues equally and by requiring every team to have stadium seating for at least 50,000 fans.
And last year, the National Basketball Association got players to agree to a cap on salaries. ``The NBA salary cap controls the expense side rather than the revenue side,'' says Professor Wong.
The cap is figured by taking 53 percent of the NBA gross revenues (a historical ratio of salaries to revenues) and dividing it by the 23 teams. Each team has a salary cap, but it rises (as it did this year) if overall league revenues increase.
In the baseball negotiations last week, owners took a swing at cutting salary expenses while players pushed for television revenue sharing. But neither was a hit. The final strike settlement provided no formal funding for weak teams. Many baseball owners balk at the idea of sharing their local television profits with other teams. Yankee owner George Steinbrenner has called it ``creeping socialism.''
One solution is to let the struggling teams move to more prosperous cities. At least half a dozen cities would welcome a team.
But baseball commissioner Peter Ueberroth doesn't cotton to the idea of moving teams around. He has, however, has made some effort to share the wealth. He's negotiated agreements with several superstations -- such as Atlanta's WTBS and Chicago's WGN -- to share a small portion of profits from their broadcasts into other teams' markets.
Meanwhile, baseball salaries will continued to rise, most observers predict. ``The players didn't give up anything really,'' says Wong of the strike settlement.
The owners didn't get a salary cap and adding one year to the arbitration procedure will just slow salary hikes, not freeze them.
``I don't think we've reached a peak in salaries. You may see a slowdown in the percentage increase -- perhaps 10 or 20 percent instead of 30 percent a year. But the only ones that can stop the craziness is the owners,'' he says.
But Wong doesn't think the owners are in as dire straits as they say.
``They don't have the obvious distress signs of the United States Football League and the North American Soccer League.'' He acknowledges some clubs are losing money, but points out that they are compensated by the rising price of a franchise.
``You buy a team for the same reason you buy real estate. It's not a great cash cow, but appreciation makes it a valuable investment. So you lose a couple of million, don't make a profit every year. In the long run you make money,'' says Wong.
Take the Red Sox. Bought in 1978 for an estimated $18 million, some say they could be sold at $50 million today. And when a team is bought, 50 percent of the purchase price can be deducted in the first five years.
``As long as the value of the franchises climb, the salaries will climb,'' Wong predicts.
The bidding up of team prices has been due in part to broadcasters buying clubs.
In addition to tax write-offs, the teams provide lucrative prime-time programming. Five media firms have a stake in baseball franchises now. Three are majority-owned: the Atlanta Braves by Turner Broadcasting Systems, the Chicago Cubs by the Tribune Company, and the Philadelphia Phillies by Taft Broadcasting Company.
``They buy for the advantage of having very good programming and as a result may be willing to pay more than the market rate,'' Wong says.
Other corporate owners can use their clubs as a means of reaching a target audience for their products. For instance, beermaker Anheuser-Busch owns the St. Louis Cardinals. And John Labatt Ltd., a large Canadian brewer, has used its stake in the Toronto Blue Jays to advertise its beverages on television.
Still, George Sorter at New York University says a baseball team on its own remains a questionable investment: ``It's clearly not an economically rational investment. The real rate of return has been negative or infinitesimally positive.''
He points out there are much better tax shelters than a baseball franchise.
And if the Reagan administration's tax reform passes, baseball tickets bought for business entertainment purposes will no longer be deductible. By some estimates, business buyers constitute 50 percent of ticket sales.
As for appreciation, Sorter calls the current bidding up of teams' purchase prices ``a shaky foundation for an investment. I really think you have to look for other motives for buying ball clubs.''
Such as? ``It sounds bad but I don't think they own clubs as an investment. They want to be owners because they love the sport, the prestige, etc., etc., etc.''
Indeed, George Argyros, majority owner of the Seattle Mariners, has said: ``I had already done a lot of things for profit, so I was looking for something that had more than economic rewards.''
One hopes the Mariners are providing Mr. Argyros with abundant intangible returns, because the team now has a deficit of about $21 million. GRAPH: The broadcasting revenue gap (Selling price for 1985 radio and television broadcast rights -- in millions) New York Yankees $14.0 million New York Mets $12.1 million Minnesota Twins $2.0 million Seattle Mariners $1.6 million $16
0 Source: Broadcasting magazine