Baseball's New Austerity
In the midst of a recession that has baseball team owners worried about ticket sales, the free agent market is flooded with players
The idea for "Baseball's New Austerity " came from BusinessWeek reader Nathan Skousen, who is a business intelligence analyst for The Generations Network in Provo, Utah.
Dodgers shortstop Rafael Furcal was unsuccessful on the free agent market this winter and is returning to Los Angeles for less money in 2009. Harry How/Getty Images
The U.S. recession won't cause major leaguers to trade their stirrups for sandwich boards, but the economic climate is affecting U.S. sports franchises. Nowhere has the new austerity been seen more than in baseball's free agent market.
Just as banks are carefully navigating the financial landscape, Major League Baseball club owners are being relatively stingy with their wallets. "I think there is so much gloom and doom and so much negative rhetoric out there that it would be impossible for the teams not to show some economic restraint," says Alan Nero, a Chicago-based agent and managing director for baseball at Octagon Worldwide, a Norwalk (Conn.) sports marketing firm that represents athletes.
Robert Stavins, a professor of business and government at Harvard University, predicts a drop in single-game sales but not a decrease in season-ticket sales. "Generally speaking, sports are not a necessity of life," Stavins says, adding, "There's a family that's going to go to one game a year" instead of two.
With that prospect in mind, wary owners, fearing half-full stadiums, are scouting less expensive talent. Many older pitchers may enter spring training without a contract and, although the league is well past winter meetings, the free agent list is still well stocked. "I've been doing this 30 years and I've never seen it this slow," Nero says.
Big-name players like outfielders Adam Dunn, Bobby Abreu, and Derek Lowe would probably agree. This winter, all three stars have been hanging around like kids at a pickup game, hoping to land a suitable deal. Chicago White Sox shortstop Orlando Cabrera is sprucing up his rÉsumÉ by offering to play second base. Rafael Furcal, who earned $15 million last year as the Los Angeles Dodgers' shortstop, swam out into the free agent waters, found them frigid, and returned to L.A. with his blue hat in hand, taking a $5 million pay cut.
In the National Football League, the Detroit Lions are cutting ticket prices, while the Minnesota Vikings, New Orleans Saints, and St. Louis Rams are all freezing 2009 prices. The Washington Post reported Jan. 9 that despite being ranked the second-most valuable franchise in the league, the Washington Redskins laid off 20 employees, including its salary-cap analyst.
The Pittsburgh Pirates have kept prices flat for the past seven seasons, a streak they will extend to eight. Nearly half the league's franchises are freezing or cutting ticket prices, including Atlanta, Houston, San Diego, Oakland, and San Francisco. The last time Major League Baseball ticket prices decreased was in 2002, when the average dipped from $18.99 to $18.31. In 2008, the average ticket cost $25.43. Even in Boston, where the cost of a seat at Fenway Park has escalated for more than a decade to an average of $48.80—tops in the majors—ticket prices are frozen.
The New York Yankees, notorious for the size of its players' paychecks, keep spending, while asking fans to do the same. With a new, upscale stadium opening this spring, Yankees games will likely be packed—and will need to be to support the contracts of a few key acquisitions. The Yankees signed first baseman Mark Teixeira to an eight-year deal worth $180 million and pitchers C.C. Sabathia and A.J. Burnett to a total of 12 years at $243.5 million collectively.
While most baseball players and their agents are finding the 2009 offseason hard to love, this owners' market is an aberration from two decades of escalating salaries. Arbitration and an uncapped salary model have taken baseball far from the days of the 1980s, when club owners discussed salary caps and actually sought to limit contracts to no more than three years.
Just as hard times produce business casualties, teams with cash stand to benefit from recession bargains. Olney points to Boston as one deep-pocketed franchise likely to find advantage in the current era. "The Red Sox are absolutely loaded," he says.
Spielberg is an intern at BusinessWeek.com .