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Tickets, salaries barely linked Experts say market, not pay, determines admission prices

THE BALTIMORE SUN

The explanation is so simple, few people give it a second thought: Big-league teams such as the Orioles are paying

millions more for their players, and must, therefore, charge millions more for tickets.

Not so fast. Economists who study sports say the linkage between ticket prices and player salaries is one of the most misunderstood elements of the game, up there with the infield fly rule.

Most fans have it backward: Increased ticket prices probably drive up salaries more than increased salaries drive up ticket prices, say experts.

"They are either independent of each other or the causality is reversed," said Allen Sanderson, an economist at the University of Chicago who has written widely on the peculiar economics of sports.

Sure, players are making a bundle. And owners are having to dig deeper to pay. The money has to come from somewhere, and ticket sales are a big part of a club's revenue, representing at least half of income in most cases.

So it makes sense that ticket prices are being driven up by the breathtaking escalation of player pay, right?

Wrong.

"Ticket prices are set basically on supply and demand," Sanderson said.

In fact, the more money that teams earn, from tickets or other sources, the more the players will eventually extract through free-agent negotiations or collective bargaining.

"The only rational way for a profit-maximizing organization to operate is to set its price at the point at which demand meets supply. What that price is has virtually nothing to do with what you are paying Cal Ripken or Mike Mussina," said Andrew Zimbalist, an economist at Smith College and author of "Baseball and Billions: A probing look inside the big business of our national pastime."

The only connection between tickets and salaries is indirect, Zimbalist said. Paying more for players tends to increase demand for tickets and the price that can be charged, he said.

"The theory is crystal clear, and anyone who understands economic theory would never contest it," said Zimbalist, who is also the co-editor of "Sports, Jobs and Taxes."

That's how capitalism works. The proof? Consider the situation reversed. If salaries fell, would ticket prices? Probably not.

"If Cal Ripken decided to play for free next year, it's not going to have any impact on ticket prices. They wouldn't go down," Sanderson said.

In fact, the average baseball salary did go down about 5 percent in one recent year, the post-strike season of 1995. But average ticket prices still managed a gain, albeit a small one: 1 percent, according to Team Marketing Report, a Chicago-based newsletter that tracks ticket prices in sports.

For that matter, ticket prices have gone up faster than salaries over the last five seasons. The average annual paycheck for a ballplayer has risen 23 percent, to $1.32 million. The average ticket is up 25 percent, to just under $12.

A notable exception: the Orioles, where a homegrown ownership group, led by Peter Angelos, bought the club and reversed previous owner Eli Jacobs' spend-thrift ways. The payroll has risen 160 percent since Jacobs' last year, 1993, jumping from $28 million to an anticipated $73 million for next season.

FTC In that time, the average price for a ticket has gone up only 62 percent, suggesting the two do not move in lock step.

At the opposite end of the spectrum is the Pittsburgh Pirates. That club, proclaiming fiscal duress, slashed its payroll by a third over the past three seasons. Tickets? Up nearly 4 percent. Similarly, Cincinnati cut its payroll by a quarter over the past two seasons, but increased ticket prices 5 percent.

It couldn't be any other way, Sanderson said. If a team charged more for tickets than fans were willing to pay, fans would stay away, attendance and revenue would drop, and the money available for salaries would plummet.

The Orioles would seem to be a classic example. The team has more than doubled its prices since moving to Camden Yards, giving local fans some of the highest prices in baseball. This week, the team announced it has raised prices 15 percent for the 1998 season, on top of a 19 percent increase this past season.

The response from the fans? They've complained all the way to the box office. The team has the equivalent of 29,000 full-season, season-ticket holders and a waiting list of 17,000 more. The waiting list for skyboxes, which, after recent price increases, now go for $75,000 to $175,000 a year, has grown to 40.

The price increase will net a little more than $7 million for the Orioles, after taxes and revenue-sharing are deducted. That's the cost of a single marquee player.

Other areas of revenue growth have played an equally important role in the Orioles' return to excellence: local radio and television deals, luxury seating and concessions.

All those factors have made the team one of the richest in baseball, and enabled it to spend more on players than all but one other club -- the Yankees -- last year. So has a commitment to winning. Revenues under Angelos have gone up 38 percent, but the team has gone from devoting about a third of its revenue to player salaries to about half.

The example is typical, Sanderson said: Higher revenue led to higher salaries, not the other way around.

"If I'm going to raise my price on hot dogs or tickets or widgets or anything else, I've got to find an excuse and be a victim because I don't want to say the truth: I'm raising prices because the market will bear it," Sanderson said.

If the revenue stops growing in baseball, so will salaries, he predicts. But there's no sign of that.

Sanderson says the real culprit in ticket inflation is the strong economy: It has put more money into people's pockets, which they have spent on all forms of entertainment, especially sports.

That drives up prices, especially in the monopolistic sports industry, where teams face limited competition.

"We're on this love affair with sports," Sanderson said.

Pub Date: 1/01/98

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