The Business of Baseball: “Bean Berry Berry Good”

Let’s Do An IPO

Give me a major league baseball team, any team and if it were a publically traded stock, I’d buy the stock in a heartbeat. Why you ask? Who wouldn’t want to invest in a business where revenues are rising faster than inflation and costs are dropping? Yes, you heard that right. Costs in baseball are dropping.

Baseball may not generate the fan mania of the NFL but 162 baseball games in a regular season compared with only 16 in football, baseball is the advertising Mecca of America.

The current FOX/TBS/ESPN contract with MLB worth $12.4 billion is an eight-year deal that extends into 2021. This represents more than a 100% increase from the previous contract.

In 2016 the Los Angeles Dodgers doled out over $253 million in player salaries with the top five teams adding to a tidy $1.05 billion. That covers about 200 players, several of which collected over $25 million and one who was fired in mid season and is still collecting over $25 million in 2017.

Market Forces Are Correcting The Extremes

Since day one of free agency in 1974, baseball, to quote the Saturday Night Live character, has “bean berry berry good” to player’s salaries. In the last decade inflated annual salaries of $25-$33 million have been accompanied by contracts that extend well beyond a players prime.

Just look at the failed 10-year deal with aging New York Yankee Alex Rodriguez or Los Angeles Angels first baseman Alpert Pujols. The world watches to see the outcome of the Seattle Mariners decade long $240 million contract with Robinson Cano. He will be 42 years old when his contract expires in 2023.

The new business model has been tested and proven both by the Chicago Cubs and Cleveland Indians, last years World Series winner and runner up.

The Houston Astros are devotees of the new model as well. Over the past few seasons they have been drafting and developing young talent. Houston’s payroll at $118 million is about one half that of the Yankees. Last year Houston made it into the playoffs, New York did not.

Organic Growth Is The New Mantra

It is a whole lot cheaper for teams to find, sign and develop budding young stars. Baseball fans are reacting with excitement. Here is some simple math. The top five highest salaried teams in 2016 paid out an average of nearly $1 million per player.

Averages are often misleading. The top six players six players that happen to play on the teams with the highest salaries were paid over $30 million each. None of these players appeared in last years World Series.

The point here is the both the Cubs and the Indians committed themselves to a youth movement that is proving both cost effective and positively impacting outcomes. Others are smart enough to see the writing on the scoreboard.

For example look at this years youth infused New York Yankees. Throughout spring training and the first full month of the season, the Yankees had the leagues best won/lost percentage. There are the most players under 25 year old in the starting line up in several decades.

Better Than A Job At Google; And More Fun Too

The youth movement seems to be catching on and fans appear to be responding favorably. Look that the results in Chicago and Cleveland. Last year Cleveland spent less than $100 million to field their American League Championship team. Chicago was a bigger spender but that is because they blew the budget on several veteran free agent pitchers. So far this year, they are paying the price for all their Methuselah madness.

Yes it also costs to sign young talent as well and there is the risk that players will fail along the way. But the cost makes the risk worth taking. The 2012 draft class is now beginning to make their mark. The average cost of signing a first round draft player from 2012 averaged roughly $522, 000 per year over the life of their minor league careers.

From a business stand point this is a home run proposition. Any business that can cut labor costs in half and still keep jobs in America has a business model that attracts capital. So let’s get together and buy a team (the Miami Marlins are up for sale) or at least take one public.