The Numbers (Part One): Gate Receipts

(Ed. Note: Doug Pappas is the chairman of SABR’s Business of Baseball
Committee and a highly-regarded analyst of the game’s economic issues. This
is the first of a series of pieces he will be doing analyzing the game’s
finances.–JSS)

Shortly before Commissioner Bud Selig’s testimony before Congress on
December 6, Major League Baseball released the most detailed summary of team
finances since the antitrust hearings of the 1950s. The complete summary
can
be found here.

According to the commissioner, MLB somehow managed to lose $519 million in
2001 despite record revenues of more than $3.5 billion. This claim was met
with derision by virtually all independent observers. They note that
franchise values have not fallen, and that even the owners of "failing"
teams like the Expos and Marlins won’t sell out unless they can remain in
baseball with some other team.

Are the books cooked? If so, how? What can we learn from the owners’
disclosures, be it what they want us to know, or what we can find by reading
between the lines or putting the numbers in a fairer context?

This is the first in a series of analyses of the owners’ financial
disclosures. It begins with the left-most column, entitled "Regular
Season Game Receipts." Although the scope of this category is not
defined, it seems to include revenue from ticket sales but not
luxury-suite rentals.

As such, it’s one of the least controversial parts of the table. Gate
receipts are easy to calculate, and hard to manipulate through related-party
transactions. This column provides a rare direct look at a category of
revenue which economists must usually estimate from two imperfect measures,
attendance and average ticket price.

Attendance can mislead because of the different pricing strategies adopted
by teams. Some teams price their tickets low to fill the stands, while
others, playing in smaller parks that often sell out, take more money from
fewer fans. In 2001, these extremes were represented by the Boston Red Sox
and Los Angeles Dodgers. With the cheapest bleacher ticket at Fenway Park
costing more than a field box seat at Dodger Stadium, Boston earned $39
million more at the gate despite playing before 400,000 fewer home fans.

Average ticket price is calculated on the unrealistic assumption that the
team sells every available ticket at its face value. In fact, all teams
discount some of their seats through group packages, "family
nights," or other promotions. When the park is half empty, the mix of
tickets actually sold can be quite different from the theoretical mix.

The table below, in which clubs are ranked by total game receipts,
calculates the actual revenue per ticket generated by each major-league team
in 2001. The right-most column shows how this figure differs from the
average ticket price calculated by Team Marketing Report for use in its
widely-reported Fan Cost Index.

Sources:

Receipts: MLB financial disclosures.
Attendance: STATS, Inc.
Average ticket price: Team Marketing Report 2001 "Fan Cost Index"
survey.

For four teams–the Giants, Astros, Blue Jays and Devil Rays–actual revenue
per ticket was at least 10% below the theoretical average ticket price. By
contrast, the Reds, Phillies, and Angels earned at least 10% more than
expected. Errors of this magnitude can throw off estimates of a club’s
profitability by $5 million or more.

The Yankees’ rank should be no surprise: the combination of third-highest
attendance and second-highest ticket price is hard to beat. However, The Red
Sox’s second-place finish casts doubt on the need for a new Fenway Park. The
majors’ smallest, most-expensive park already exemplifies modern stadium
design philosophy, which creates scarcity (and with it, higher ticket
prices) by reducing the number of available seats.

The Cardinals’ seventh-place finish underscores the depth of local support
for the team. In a division featuring three brand-new parks, a fourth under
construction and the gem known as Wrigley Field, St. Louis had a $15 million
revenue advantage over any of its rivals.

Below the eighth-place Braves, most of the remaining teams form revenue
clusters. The #12 Dodgers have no business in this crowd; given their
dominance of MLB’s second-largest market, their high attendance and
relatively low revenue suggest that Dodger tickets are underpriced.

The five teams in the middle of the pack send a sobering message to the
"if we build it, they will come" school of new-stadium advocates.
Among the Astros, Pirates, Diamondbacks, Brewers, and Tigers, the D’backs’
four-year-old Bank One Ballpark is the oldest facility, yet all of these
clubs earn far less than at least one divisional rival.

The next tier includes the Padres, Reds, and Phillies, all of whom will soon
move into new parks. If the group above them provides any precedent, they’ll
get only a $10-$15 million boost at the gate. The Angels’ #23 rank suggests
that the Angels’ marketing department may have come from Euro Disney, while
the Blue Jays’ paltry take illustrates how far a team can fall once the
effects of a new park wear off. The on-field success of the A’s is reflected
in the turnstile count, but not yet in the team’s bank account.

The usual suspects bring up the rear. Even in this company, the Expos stand
out: total attendance barely half of the second-worst club, gate receipts
$10 million lower than anyone else’s. Thirteen minor-league teams played to
larger average crowds. A relocated Expos franchise would be worth upwards of
$200 million in Washington, D.C. or northern Virginia, even if it had to
play at RFK Stadium for the first few years. Does anyone believe Bud Selig’s
testimony that MLB has no legal obstacle to such a move?

In my next column, we’ll visit the magical world of local TV and radio
contracts, where eight-figure sums can vanish in the blink of an eye…

Doug Pappas is chairman of SABR’s Business
of Baseball Committee. His writings on the subject are archived at
http://roadsidephotos.com/baseball/.
Although his early professional experiences included helping the USFL win $3
in its antitrust suit against the NFL and watching Bowie Kuhn flee to
Florida one step ahead of his bankrupt firm’s creditors, he continues to
practice law in New York.