RECESS FOR BASEBALL?

Is baseball recession-proof? Past good fortune during economic downturns might need to be re-examined in light of new realities.

by Peter Bernstein

Baseball has been on a good run of late. Revenues have doubled since the start of the decade and player salaries have risen almost as much. A-Rod can finally afford that Corvette he's been eyeing! But things aren't so great for the non-National Pastime set. Whether we are technically in a recession or not (GDP was up 3.3% last quarter), there's no doubt that rising gas prices, rising unemployment and falling home equity are squeezing consumers.

But is baseball feeling it?

The conventional wisdom says no. Baseball, if not recession-proof, is believed to be recession-resistant. There are several reasons why. The sport has diverse sources of revenue, some of which like TV contracts are long-term deals (the current one with FOX runs through 2013) are not subject to short-term economic variations. Perhaps more important, fans are loyal. A bad team might keep people away, but a bad economy probably won't.

Past evidence mostly supports this view. During recessions, attendance dips but only by about one percent. Crucially, when the economy recovers, the fans come back. The 1991 recession was typical. Per-game attendance fell 1.7 percent in 1992 but came back strong in 1993 as baseball added two new teams. (The sudden rise in home runs that year was likely also a factor, but that's another topic.)

The 2001 recession, however, was different. Average attendance dropped more than 6 percent in 2002 and fell again slightly in 2003. The decline was much greater than in previous recessions, even though the 2001 economic dip was relatively mild.

A key difference between 1991 and 2001 was ticket prices. Back in 1991, the average ticket price for a major league game was $8.64 while the average hourly earnings of so-called blue-collar workers was $10.52. ("Blue-collar" is a class of workers officially called Non-Supervisory/Production Workers.) By 2001, ticket prices had more than doubled but hourly earnings hadn't, meaning that workers were then earning 23 percent less per hour than the cost of an average ticket. Major league baseball was no longer a cheap way for the working fan to spend his money or his time.


Since 2001, the average worker has fallen further behind and their average hourly earnings are now 29 percent less than the average cost of a ticket. Throw in the tripling of gas prices in the last few years and there just aren't as many dollars left over for fun at the old ballpark, especially when most people are driving to get there.

The early returns on what some call the current recession should have baseball concerned. Average attendance through late August was down slightly from last year's full-season average. Fourteen franchises are averaging fewer fans this year than last, and five teams are looking at double-digit drops. Team performance explains the declines in Cleveland, Seattle and San Diego, but that doesn't explain why average attendance is down in Los Angeles, St. Louis and Minnesota. Barack Obama's first-place Chicago White Sox are averaging seven percent fewer fans than last year, when they went 72-90! Things may pick up as we head down the stretch, but with more than half of the teams effectively out of the play-off race, many stadiums will be filled with empty seats in September.

If history is a guide, 2009 will suffer more than 2008 because the biggest drops in attendance usually come the year after a recession begins when season-ticket holders rethink their decision to go all-in for their team.

And the long-term prospects for the game aren't as rosy as people believe either. Since going to 30 teams in 1998, MLB attendance has grown an average of just one percent per year. The sport has been making money not by drawing a lot more fans, but by drawing different fans—businesses that are willing and able to pay top dollar to have their place at the ballpark.

The sport has been making money not by drawing a lot more fans, but by drawing different fans—businesses that are willing and able to pay top dollar to have their place at the ballpark…(But) the shifting focus to the corporate fan/dollar increases the sport's vulnerability to a downturn.

Noted sports economist Andrew Zimbalist, Jr. points out that the shifting focus to the corporate fan/dollar increases the sport's vulnerability to a downturn. The spending on company season tickets, luxury skyboxes, in-park advertising and sponsorships could dry up amid corporate lay-offs and falling stock prices. Recent controversies about the exorbitant cost of PSLs, or Personal Seat Licenses, underscore this.

Perhaps this will all prove to be a temporary set-back and by 2010, forgotten. After all, the fans always come back, and even if they don't, teams can just keep raising prices a little higher each year. Well, maybe. We've already learned that tech stock prices don't always go up and home prices don't always go up. Everything hits its limit eventually. This may go down as the year in which baseball loses its special hold on people and has to start scrapping for its slice of the consumer dollar, just like any other business in America.

It's not A-Rod in a Cutlass, but it's something the league should consider.

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TO READ ABOUT HOW FRANCHISES ARE CUTTING COSTS, CHECK OUT "THIS JUST IN" FROM THE CURRENT ISSUE OF ESPN THE MAGAZINE, HERE.

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