First Pitch: Major League Baseball is Thriving

17 Oct 2021

If you say that Major League Baseball is a broken sport, you’ll get a lot of responses about how much money the league makes, or anecdotes about high ratings during a recent playoff game.

Let’s be clear here: Two things can be true at the same time. Major League Baseball, the sport, is unequivocally broken. Major League Baseball, the business, is thriving.

The owners of Major League Baseball deserve credit: In the land of late-stage capitalism, where the only thing that matters is making money, they have been shown to be masters at maximizing revenue.

This used to be a game where attendance in the stadium was a massive driver of revenue. Attendance from 2015 to 2019 dropped 7.14%, per the Denver Post. That amounts to 5.2 million fans.

If a business lost 5.2 million paying customers in the span of four years, it would be cause for alarm. MLB’s average attendance has declined in all but two years since 2008.

This makes a lot of sense, when you consider what has happened in this country since that time. In 2008, we saw a huge recession that continued through 2009, which saw a massive drop in attendance.

MLB games are expensive. According to the Fan Cost Index, the average price for a family of four to attend a game is $253. That price has gone up 84% over the last 20 years.

Meanwhile, you can buy a big screen TV at Best Buy on Black Friday for less than $200, with a season pass to MLB.tv costing $106. And in today’s busy world, it’s often easier and better to watch at home.

With fewer people watching the games in the stadiums, MLB would want to see ratings at home increasing. That hasn’t been the case.

Forbes reported in August that MLB regular season ratings were down in 2021 from 2019. Granted, this comes after a pandemic, and viewership is changing. There’s also the possibility that more people are switching to digital streaming, with the rise of MLB.tv.

The MLB postseason last year saw record lows, which was a trend shared with a lot of sports leagues. The pandemic, once again, played a role in this. The current postseason numbers have been mixed, but much better results. Still games buried on TBS and FS1 won’t do the numbers that network television drew years ago.

MLB traditionally made money from fans in attendance. With fewer in attendance, you’d want more watching the game on TV. That also isn’t happening.

There’s so much good content these days. We watch TV to have something to discuss with other people. MLB, and every other sports league, has to compete against the endless offerings from Netflix, Disney+, Hulu, Amazon, Apple TV, and so on. There are only so many hours in the day, and how many are going to assign 3-4 hours a day to watch baseball?

From that squeeze comes desperate networks looking to find something that can contend in the content wars.

It would be easy to write an article about MLB the business also being broken. We could forecast doom from the decline in fans in the stands, or the decline in ratings. But that’s not what matters.

Money matters.

Prior to the 2020 postseason, MLB announced a new deal with TBS worth $3.75 billion dollars for media rights from 2022-2028.

At the start of the 2021 season, MLB reached a deal with ESPN for $3.85 billion for media rights in the same time period. In total, MLB is making an additional $248.6 million per year on their TV deals from 2022-2028 than their previous deals.

All around the league, there have been record local TV deals signed over the last decade as well.

The biggest advantage MLB has is that they put on a live product every single night in 15 different cities, during a time of the year when no other major sport is played. That makes them ripe for the current streaming wars.

The league is taking advantage of this, landing record revenues on the TV front. When they aren’t making money there, they are making money directly from fans for their streaming service.

The owners have also made money through investments that are adjacent to the game. Their streaming venture, BAMTech, landed a $600 million deal when Disney purchased controlling interest of the company.

MLB has a product.

Before the internet and cable TV, that product could mostly only be purchased at the stadium.

Cable TV brought a rise to bigger TV deals.

The rise of the internet has brought streaming deals. It has also led to streaming wars that led to bigger TV deals.

The entire focus of Major League Baseball, the business, is to monetize their product. They’ve been able to do that easily by transitioning from fans in the stadium to fans in front of TV sets or watching on phones.

I still contend that the game itself is broken. MLB’s product is one where large market teams have a significant advantage that allows them to perpetually be in contention, while small market teams operate in windows as “flavors of the week”. A few of those teams see the small market version of perpetual contention, which MLB can point to and say “Look, the Rays and A’s can do it, so why can’t every small market team?”

Let’s ignore markets for a second though, because once we’re on the internet or on cable and national TV, markets don’t matter. The numbers that evaluate those mediums come from the aggregate of all markets.

However, once the playoffs hit, most of the ratings come from the markets of the two teams playing.

It makes business sense for MLB to have their biggest markets always in contention. I’m not saying that this is the strict plan of baseball. I am saying that, with the trend of small market teams drawing lower ratings and having fewer people to sell to, MLB as a business would be stupid to adjust the league to reduce the chances that the Yankees or Dodgers will contend every year.

If you had a Rays/Reds World Series, you’d be drawing from two metro areas that combine for about 5.5 million people. New York’s metro area is 8.4 million alone. Having the Yankees in a playoff game can reach a city with more people and more potential baseball fans than two small market metro areas.

That means more consistent high ratings.

That means a product that can be shopped to TV stations trying to compete for eyes.

That means bigger and bigger TV deals, both locally and nationally.

Major League Baseball, the competitive sport, is broken. It’s not a competition for the big markets until the playoffs hit. The odds, meanwhile, are stacked against the small markets.

Major League Baseball, the business, has done a phenomenal job of marketing this broken competitive sport and maximizing their revenues. They’ve been proactive to the changes in how we consume anything, making up for the loss of fans with increases in revenue on the streaming and cable TV fronts.

Nothing will change on the competitive side until the business side starts to fail.

And with MLB locked in on the TV front through 2028, nothing looks to be changing anytime soon.

The best chance would come from the players association negotiating a new deal with the league for a higher split of revenues.

However, MLB is a master of using the public against the players.

This is a league that looked the other way on steroids, then threw the players under the bus.

This is a league that doesn’t pay their minor leaguers, while pushing forward the narrative about how those players are chasing a dream.

This is a league that publishes every single accounting dollar that a player could possibly make, while obfuscating the owner revenues.

Real quick: Can anyone tell me how much annual revenue the Pittsburgh Pirates make on their current local TV deal?

And yet, the instant a player is signed, we know immediately how much money they are being paid, along with every potential dollar they can earn.

And when the players threaten to strike, the average person knows exactly how many millions the player makes, while having to trust each MLB owner at their word that they aren’t making a dollar in profit.

In other words, I don’t expect the players to accomplish much this offseason, unless they’re willing to go up against MLB using the court of public opinion against them — which will be very strong in the current economic climate. A country that sees a recession literally every decade isn’t going to be open to hearing about millionaires arguing for a pay raise.

And the billionaires have managed to hide how much money they are individually making, while still showing that the league is making a lot of money.

Major League Baseball, the business, isn’t going anywhere. They are masters at moving with the trend of how people consume products.

That’s why it doesn’t matter that Major League Baseball, the game, is broken.

Major League Baseball, the business, can still sell a broken product for record revenues.