Are Baseball Teams Headed For Financial Ruin?

This flew under our radar, probably because we're obviously not in the habit of discussing pro basketball here, but a couple of weeks ago the NBA opened a line of credit totalling $200 million for teams to tap if they felt it necessary. The LA Times article says "12 teams that have expressed interest in the funds". But the very same day that article appeared, this Phoenix Business Journal article said:

The Phoenix Suns are one of 15 teams tapping into the NBA’s credit line, majority owner Robert Sarver confirmed Friday morning.

The Suns will use that credit line, which is secured through national television rights to games, and drop an existing line through a local bank. The team has used both lines of credit for the past five years.

There's at least one ominous sign in that quote -- that's half of the NBA teams that are in enough trouble to tap into a national line of credit (as opposed to a local line that they've used in the past). While the national TV rights deal runs for seven more years -- presumably, the economy will improve enough by then -- does this mean that MLB is next?

Some recent articles seem to give the indication that although a brave face is being put on by major league teams, there is crisis looming just under the surface. In last Friday's Wall Street Journal, there are details about the troubles the Mets and Yankees (as well as the Dallas Cowboys) are running into trying to sell the high-priced amenities in their new parks:

Public backlash forced New York Mayor Michael Bloomberg's office in January to give up, in exchange for cash, luxury suites the city had secured at the new Yankees and Mets stadiums. Bank of America recently ended negotiations with the Yankees over what would reportedly have been a $20-million-a-year sponsorship deal. Bank of America spokesman Joe Goode said the decision to walk away from the negotiations was due in part to the economic environment and "the mood of the country."

The financial sector, one of the hardest-hit by the economic troubles so far, provided quite a bit of the individuals and businesses who were expected to pony up the huge sums that the Yankees, for one, were asking for seats (some of the best seats at the new Yankee Stadium cost $2500. Yes, that's per game):

But the affordable seats are fewer and farther away. Mets tickets will start at $11, but there are 15,000 fewer seats in the new park than at Shea. The Cowboys will have seats that go for as little as $59 a game, but they're much farther from the action than in the old Texas Stadium. Mr. Jones notes the game can still be seen clearly on the video board. Even with slower-than-expected sales, the teams aren't lowering published ticket prices.

Jay Jaffe and a group of friends shared Yankees tickets for 11 years, but they won't be making the move to the new stadium. The 20-game packages of $25-a-game grandstand seats they hoped to get were sold out. Instead, the Yankees suggested $85 seats deep in right field.

"Literally, my words were, 'Are you f- kidding me?'" Mr. Jaffe recalls.

Sports executives acknowledge the current environment has disrupted their marketing plans. "If the economy were certain, these would've sold out in about six seconds," Mr. Trost said recently as he showed off the $500-and-up Legends Club.

"The problem is, people don't want to be seen in a space like this."

I suspect the New York teams will survive this; the only other teams that appear, at this point, to be recession-proof are the Cubs (who have already sold 2.7 million tickets at higher prices than last year), the Red Sox, both LA teams (the Angels, perhaps more than the Dodgers, especially after that ill-advised deal given to Manny Ramirez -- what happens if he sulks or gets hurt and the Dodgers collapse and their fans stop coming?) and maybe the Phillies, coming off their World Series win. Look, for example, at the Mets' ticket pricing scheme -- can you even decipher that? Including their two preseason exhibitions against the Red Sox, there are 168 different pricing levels. Insanity. Not that any of us really feels sorry for the Mets or Yankees.

And it's not the small-market teams that are going to hurt the worst; teams like the Padres and Pirates have shed payroll (or are trying to, *cough Jake Peavy cough*) enough so that they can probably make it through.

It's what we might call, in an analogy to college sports, the "mid-majors" -- markets that are larger TV markets, but don't have large, dedicated fanbases -- that may be in the most trouble. This includes teams like the Braves, Astros, Tigers (who raised ticket prices after having a terrible season in 2008 and being in a very depressed market -- idiocy, in my view), and others. Will MLB be forced to ask for a similar line of credit soon? And, given that MLB's TV contracts don't last as long as the NBA's (they expire in 2013), would they be able to secure as much money?

I don't profess to be an expert in these matters, but I did want to put this out here for discussion (which, I would ask, will please keep away from politics). There are good summaries of many of these issues at Field of Schemes, a site dedicated to reviewing various sports stadium... well, schemes. Among them is the idea, with the A's proposed stadium deal in suburban Fremont now dead, that the Oakland Mausoleum could be refitted for baseball exclusively (as the Angels' park in Anaheim was), if only the Raiders and 49ers would agree to share a "regional" football stadium.

Yeah, right. And just who is going to pay for such an edifice in today's economic conditions? I think it's time that both the owners and players who are the leaders and performers in all professional sports, not just baseball, wake up and realize that their financial model of the last 20 or so years just won't work any more, given the changes in the economy. They either have to make adjustments, or risk losing everything.

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