WalletHub: PSU prof Gerard Mildner answers questions about Major League Baseball
Author: WalletHub
Posted: June 5, 2015

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Ask the Experts

As baseball grows in popularity in the U.S. and abroad, issues related to the sport are bound to arise. For additional insight into the challenges facing the sport, frugal advice for enjoying the ballgame and predictions on which teams will triumph, we asked a panel of leading sports experts to weigh in. Click on the experts’ profiles below to read their bios and thoughts on the following key questions:

  1. What are the biggest issues facing MLB today? Where do the rise of regional sports networks and the emphasis being placed on modern stadiums rank?
  2. How do you think the Hall of Fame will treat steroid-era players? Who is more likely to be inducted: Pete Rose or Barry Bonds?
  3. What about gambling and fantasy sports? Is MLB embracing legalized gambling, at the very least in the form of daily fantasy sports sites like DraftKings and FanDuel?
  4. What is your take on the time-based contract structure used by MLB, as well as the various other spending constraints imposed by the league?
  5. Who are your picks to win the World Series, MVP and Cy Young Awards?
  6. What, in your mind, makes a good baseball fan? Which city has the best fans?
  7. What is the best way to enjoy a baseball game on a budget?

Gerard C.S. Mildner

Associate Professor of Real Estate Finance and Director of the Center for Real Estate at Portland State University

What are the biggest issues facing MLB today? Where do the rise of regional sports networks and the emphasis being placed on modern stadiums rank? 

Baseball has a unique position among the major sports in the USA in that much of the team revenue comes from ticket sales and local TV revenue that is largely held by each team, rather than shared as a league. By comparison, the NFL has a huge national TV contract and revenue is shared equally within the league. As a result, baseball teams have strong incentives to locate in the largest metropolitan areas. For the largest US metropolitan areas (New York, Chicago, Los Angeles, San Francisco, Washington-Baltimore), their size merits having two teams. 

This disparity in revenue causes talent within the major leagues to migrate to the high revenue teams. A player who generates a lot of wins will have an incentive to move (or be traded) to a team where extra wins generate higher marginal increases in revenue. Teams like the Yankees, the Red Sox, and the Dodgers routinely bring in high priced talent via the free agent market. 

As a result, Major League Baseball has a competitive balance problem. If too much talent flows to the top teams, they tend to dominate the pennant races and this leads to less interest among fans. If you look at the top teams in the divisions today, the Yankees, Nationals, Royals, Cardinals, Astros, and Angels, only the Royals and Cardinals come from small markets. You can even question if St. Louis is truly a small market in baseball, given the extensive fan support for the Cardinals in the rural parts of the Midwest. Personally, I'm waiting for Detroit to outperform Kansas City in the remainder of the season. 

The stadium issue is a related issue, in that teams experience higher attendance and higher ticket prices with new stadiums, and they like to see the public sector build stadiums at concessional rents. In the negotiation process, the teams emphasize the economic benefit to the community and the risk that they would relocate. This is a hard argument. Baseball is played 81 times per year and becomes an important part of the entertainment fabric of the city. However, the economic value to the city is only the marginal increase in entertainment value compared to the next best entertainment option for the fan (eg, a soccer game, a concert, a visit to a theme park, a dinner on the town). In addition, most baseball fans come from the metropolitan area and tourist attendance is often incidental to their visit to the city. If I visit San Francisco, for example, I might go to a Giants game or an A's game, but that wasn't the reason for my visit. 

As a result, I think the largest cities should play a harder bargaining game with their sports franchises, including baseball teams, with regard to stadium subsidies. A team like the Yankees or the Dodgers will never leave New York or Los Angeles, given the enormous value the city location brings to the franchise owner. Subsidies from the city for stadium construction should be minimal. For teams in all markets, I think a better strategy is to sell their stadiums to the team itself. That would put a valuable real estate asset in the hands of the tenant. If the Royals owned their own stadium, for example, they would have an incentive to remain in Kansas City, rather than relocate. If they left town, the value of their real estate asset (which is sport specific) would plummet. Moreover, they would have every incentive as a property owner to maintain the quality of the stadium to keep attendance high. Too often, publicly owned stadiums are allowed to deteriorate due to the low rent paid by the franchise. Or they were built poorly by the public sector in the first place.