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Baseball Economics

by Matt Smith

The global financial crisis is inescapable.  When we’re not dealing with the everyday consequences of it ‘affecting everything’ we’re being bombarded with news stories telling us that it’s ‘affecting everything’.  It’s a wonder any of us bother getting out of bed in the morning.

The world and his dog (on a string, as proper leads are an extravagance in these credit crunch days)  are busy mournfully explaining that baseball is far from immune from these troubles and the MLB owners/GMs are unsurprisingly at the front of the queue pleading poverty.  For some, the idea that egotistical, overpaid prima donna sportsmen are going to take a hit is a small source of consolation.  Not for me though.  Whether player X gets $12m per year instead of $15m doesn’t make much difference to me.  My concern is that baseball is one of the great distractions from the ‘real world’ and I want it to stay that way. 

I’m not ashamed to admit that my position on all of this is partly due to my overwhelming lack of interest in (and knowledge of – though the two go hand-in-hand) the economy.  I’m fine when it comes to the everyday side of money.  I’ve always been mindful of following general good house-keeping rules like watching the pennies, not buying what I can’t afford, keeping on top of the bills etc.  But when the ubiquitous Robert Peston starts discussing collateralised debt obligation and mortgage-backed securities, my eyes glaze over and I find something better to do (i.e. watching paint dry).  Guilt normally gets the better of me and I make the effort to obtain a basic idea of what the financial experts are wittering on about, but that’s as much as I can take. 

‘Leave me alone: I choose blissful ignorance’.

However, all of the big complicated stuff that I can’t be bothered to properly understand does have an effect on everyday life, much as I’d like to deny it.  Therefore to some degree you can’t help but consider the effect it’s having on baseball.

An article by Maury Brown on BaseballProspectus (subscription only – more on that in a moment) does a great job of detailing how the economic crisis has affected things in the States.  As with Premiership football, a significant amount of MLB’s revenue is in the form of multi-year TV contracts that will help to shield the teams from the worst of the crisis, but other forms of revenue may be much harder to come by.  A number of clubs (including the Red Sox and the Reds) have already announced that ticket prices will be frozen for the ’09 season, while the marketing teams may have to work harder than usual to sell the executive suites and corporate boxes.

Both New York teams have new stadiums and the novelty factor, plus the mass market of the Big Apple, should keep the customers flooding in there.  It was revealed this week that they will both have one less luxury box to sell as the New York Mayor and his cronies allegedly milked them for the perk in return for various concessions, such as extra parking spaces.  The most annoying part of the report shows the then Deputy Mayor Dan Doctoroff crying in an e-mail: “We are giving them how much money? For whatever it is, we should get the tickets for free.”  “We” are giving them money?  Anyone would think it was coming straight out of his personal piggy bank, rather than it being tax-payer’s cash.  These will be the same tax payers trying to find the funds to attend a game or two to cheer on their lifelong team while the Mayor is wining and dining at their expense.

Tax-payers in the U.S. will also be delighted to know that CitiGroup, having been bailed-out by the U.S. Government, will still be paying the New York Mets an annual sum of $20m for the next twenty years for the naming rights of their new stadium.  The staggering 53,000 people who have just been made unemployed by the same company will be equally happy.  Some baseball organizations, the D-Backs and the Blue Jays, have also started to lay off staff.

From our British perspective, most of these factors won’t have much of an impact on our baseball-supporting lives (save for the sympathy felt for those who’ve lost their jobs).  However, there is one major aspect of the recent economic crisis that even I have felt compelled to learn more about: the exchange rate.

For years, we have been able to enjoy the fact that a strong pound against the dollar has made buying from the States a relative bargain.  Now that the pound has plummeted, that advantage has decreased by a sizeable amount.

Take the MLB.com multimedia subscriptions as an example. The prices stayed the same in 2008 as they had been in 2007, which was great news for everybody, particularly as the package had been enhanced by several new features that promised an improved service (use of Microsoft Silverlight, 1.2MB streaming etc).  Due to the exchange rate, the Premium package priced at $119.95 amounted to £61.61 back in March: a fantastic deal for British fans. 

The economic climate is clearly making every business think twice about putting prices up, not least due to the negative publicity such a move is guaranteed to cause.  Whether MLB.com will freeze their prices for a third successive year is not yet known (you can buy the ’09 Premium package as an Xmas gift for the same price right now).  What we can say with complete certainty is that us Brits will be paying a not insignificant amount more, regardless of any increase on MLB’s part. 

At time of writing (the dollar/pound rate is constantly changing) $119.95 works out at £82.14.  In other words, in just nine months the cost has gone up by a full twenty quid (basically one-third).  And if it continues in this way, by the time we are looking to subscribe next March we could be facing a bill of £100.  Should MLB decide to increase the price (possibly by adding in new features and changing the content of the packages on offer) then we could be left with paying double in 2009 than we paid in 2008.

As Charlie Brown would say: “Good grief!”

This is a factor that will impact every purchase of baseball-related goodies from the States.  So, the Baseball Prospectus subscription that allows you to read Maury Brown’s article (and much more besides) that cost £18.37 for the year back in March would now cost £23.94.  BP’s premium subscription has gone up five dollars since then as well, to $39.95, so make it £27.36 instead.

Buying MLB team-related clothing directly from the States has always involved paying a fair amount more than simply putting the listed price through a dollar/pound converter.  The shipping costs are often joined by import VAT and/or customs duty, which can add up to thirty per cent on to the initial price.  That’s the initial price that has increased by a significant amount this year thanks to the changing dollar/pound rate.

What this all means is that if you spent £100 on baseball goodies from the States this year, the same purchases next year would cost you at least £30 more simply due to the exchange rate.  We have to put this into some context: those halcyon days of early 2008 prices were a real boon for us.  We were greatly enjoying ‘jam yesterday’, if you will, and getting $1.78 per pound is still a very good deal.  But it’s something worth considering when you start thinking about budgeting for next year.

Everyone who is planning for the near future will be taking stock of the current prices of the essentials and cutting down on (or completely cutting out) the items that they could live without.  The simple truth is: several of my annual baseball-related purchases amount to essentials in my book, not least the annual MLB.tv subscription. 

We’re going to have to pay more for these products, but the extra expense will be worth it.  While others are reading about dire financial predictions and being bamboozled by complex economic issues, we’ll be watching Tim Lincecum striking out the side at AT&T Park, Albert Pujols launching a moonshot into the seats at Busch Stadium or B.J. Upton making a spectacular diving catch in centre field at the Trop.

The price of glorious escapism may be going up, but it’s never been worth the money quite as much as it is today and will continue to be in the coming months ahead.

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1 comment

Joe Cooter December 11, 2008 - 12:09 pm

Well so much for economics. The Yankees just signed Sabathia for 7 years and $161 Million. WOW.

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