Baseball economics at the advent of Depression Economics

Paul Krugman's the famed macroeconomic main point in his book Depression Economics:

"means that for the first time in two generations, failures on the demand side of the economy--insufficient private spending to make use of the available productive capacity--have become for a large part of the world." the clear and present limitation on prosperity."

As reported by Al Yellon in today's home post:

He also noted that the economy is affecting almost every team, even the Yankees. This surprised me and most in the room, but he explained that the Yankees had been having trouble selling some of their suites (even hiring a real-estate firm to help) and so thought they needed to make a splash with all the signings they made, in order to drum up desire for those suites after they missed the playoffs. Other teams have been affected, as teams like the Diamondbacks have had layoffs.

We all knew these tough economic times were going to affect sports teams sooner or later....the president of the Arizona Diamondbacks explains why 31 employees were let go from their front office...The Arizona Republic calls that a nine percent reduction in staff

As I have stated before baseball is not immune to the macroeconomic trend and in that realm they are part of a micro economic sector fighting for every diminishing entertainment-(pastime) dollar spent. (An anecdote, I was at a previously popular pizza place Thurs night that used to have lines out the door just 2 years ago and that night served less than 6 tables.)

In short this is called deflation-era economics defined as a reduction in consumer or wholesale prices, and historically is more than just a temporary decline or market correction. Juxtapose this with the recent statement at a Global Economic Trend Analysis by Mike Shedlock:

"Is there anyone who still does not understand that talk of 'inflation' by officialdom is just a red herring intended to distract us from the far more dangerous dragon of deflation?" 

And in this light was how I came across a report on an unprecedented meeting Selig held with MLB executives and Paul Volcker, currently the leader of President-elect Obama's Economic Counsel, where Selig didn't say what the content of the presentation expressed but said:

"He gave his usual extremely well-given presentation about the economy," Selig said. "As you know, he's an advisor to President-elect Obama. He's a former fed chairman and everything else. It was a most interesting view on the economy and all of its manifestations....

Selig declined to elaborate on Volcker's remarks, but he said a message had obviously been sent to the owners....He gave a report on the economy that I thought the clubs would find interesting."...Selig said he could not predict how baseball's revenue will track in 2009.

"This is November and there's no sense," Selig said. "I can't read what's going to happen next year. I have no idea. And in truth, and in fact, nobody knows what's going to happen. If you watch business channels and read The Wall Street Journal every day, nobody really knows. That's why I brought Paul Volcker in to give his insights. Let everybody make their own judgments."

What does this portell?

What I am alluding to is a very interesting crossing of competing interests in a time of deep macroeconomic change. How this trend  effect the Cubs 100 year question or quest to win another World Series? This quest is longer than we experienced the last Great Depression. Ironically it was during the '30's when the Cubs were dominant in the NL, winning the pennant in 1929, 1932, 1935 & 1938 but losing to the NYY's twice and the Tigers and A's. Was that because the Cubs and other big market clubs, (Detroit, Phila, StL & NY) had more money to spend on talent?

What is intriguing is that it appears certain that this year the Cubs will have a club record payroll and possibly the largest in the NL exceeding $135M and apparently a similar commitment locked in for next year. Simultaneously, one can presume that deflationary economics will invade the baseball business from both a revenue and cost basis, now starting to show up in FA demand and roster value of prospects. Peripheral FA or role players are signing for less than recent trends.  How this new trend will effect the rest of the '09 Cub roster makeup this year is quite interesting for as a fan the economics and commitment of management offers a special opportunity to build a relatively stronger club than its division or league rivals.

As reported by 08Cubs post to Al's Convention Report

although I thought they were dealt with in a reasonably straightforward and honest manner. A couple of nuggets – the season ticket waiting list just hit 100,000 people

Thank you 08Cubs, for this nugget for it told me that the Cubs believe they have enough pent up demand to raise ticket prices and sell out at 100% for possibly these two years even with an eroding market. This is important since revenues are the fuel to spend money on payroll. In short, it appears the Cubs might have a flexibility advantage not having to rely on big ticket sale of suites as a primary revenue stream by selling traditional turnstyle seats.

Finally back to the biggest rumor/decision---Peavy. This is again an alignment of the planets moment; Padres are working aggressively to deflate their payroll liabilities, are locked in a NTC where Peavy has one choice and thus a diminished trading leverage. Of course this means the new ownership must sign off on the liability '10-'13, this not an easy call--but like the NYY thinking it might be the final marketing push to sell out '09's remaining seats. If I were them I would try to pre-sell '10 as soon as possible 

For them what happens if the current unemployment trend continues at 600,000 added per month? That is 7.5M in 2009 on top of 2.7M in ,08 and ironically a similar trend that happened between '29-32 where 16M became unemployed. Selling tickets in '10 might be about lowering ticket prices which will mean a squeeze.

If the deflationary trend is too much for the new ownership the Cubs will not sign off on the Peavy trade or look to sign a FA like Wolf and go with Marshall. BTW I think Harden is the 25 start rotation pitcher (5th starter), while whomever is the supposed 5th starter will be slated to start 35 starts.



This is a FanPost and does not necessarily reflect the views of SB Nation or Al Yellon, managing editor (unless it's a FanPost posted by Al). FanPost opinions are valued expressions of opinion by passionate and knowledgeable baseball fans.

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