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Sporting Econ 101: MLB Thrives in Ever-Changing Sports Market

Baseball is intertwined with the story of modern America. It started during the Industrial Era, turned professional in post-Industrial America, survived two World Wars, desegregated, and has become a symbol of American enterprise. Major League Baseball’s vast wealth isn’t like the NFL’s unparalleled rise or the NBA’s 21st-century explosion. The MLB has been making money like this before our parents were around. 

The sport of baseball was created in 1845 by the New York Knickerbocker Club. Member Alexander Cartwright came up with the idea of a sport involving hitting a ball with a bat. Before this concept, the widely-accepted theory was Army officer Abner Doubleday created baseball around 1836 in Cooperstown, NY – the Baseball Hall of Fame site. Before Cartwright formed the early version of baseball, its origin was rooted in Medieval, Industrial, and Victorian-era bat games. The first baseball game was played in 1846. 

Professional baseball made its debut in 1871. The early years of baseball established aspects we know today: the American and National Leagues set up some of the earliest and most iconic franchises in American sports history. It culminated in the ultimate showdown: the World Series. The first World Series occurred in 1903, won by the New York Highlanders, the team that later became the New York Yankees. 

Major League Baseball has grown into an institution. It’s the 2nd-most valuable sports league in the world, only behind the NFL. The financial growth coincides with 20th-century America and the postwar economic boom. In 2023, the game will be more diverse and richer than ever. 

Photo courtesy San Diego Padres

The MLB makes money through media rights deals, concessions, advertising, sponsorships, and stadium experiences.

Even as the sport has suffered a decline in viewership over the past decade, people still flock to the ballpark in summer. It’s an experience that can only be felt live and in person. 

In 2022, MLB and ESPN reached a new media rights deal that will pay $550 million annually. On top of that, Fox signed a $728.6 million per year deal, including exclusive coverage of the World Series. Turner Sports inked a $470 million/year deal for games on TBS. And just last year, MLB earned $55 million and $30 million from streaming deals signed with Apple and NBC, respectively. Apple TV and Peacock, the companies’ respective streaming platforms, have the rights to broadcast live games like Friday Night Baseball. 

These deals have worked like a charm. MLB posted record revenues in 2022, generating around $10.8 billion in the first post-COVID season. That beats the record for 2019’s revenue. That’s despite two seasons with pandemic-related closures and a labor dispute before the 2022 season.  

Teams make money through revenue-sharing. TV money is split between the 30 clubs at the end of each season. Each team has local sponsorships and advertising to supplement income.

The stadium and ticket sales are other ways teams make money. Even with a declining interest among a changing fan demographic, team value is up 12% in 2023. The three most valuable ball clubs are the New York Yankees ($7.1 billion), Los Angeles Dodgers ($4.8 billion), and the Boston Red Sox ($4.5 billion). 

Photo courtesy New York Yankees

You don’t need numbers to tell that MLB was already financially successful by the 1970s as record attendance was set. Everyone played baseball. Kids collected baseball cards. Movies, TV shows, comic books, and advertisements featured baseball players and the game. Baseball was the king of American sports. So why is MLB behind the NFL now?

The 2000s ushered in a new era for baseball. More data-driven approaches to the game replaced the old ways of doing things. Steroid scandals altered the landscape. Pitching became more important than batting. Team strategy often revolved around having many strong arms but less action. Fans became less interested. Attention shifted to more action-filled sports like football. The MLB was looking for its “shot-clock moment,” something that speeds up the game while making it more engaging for fans. 

In the 2023 season, Commissioner Rob Manfred introduced rule changes regarding infield shifts and a pitch clock. It’s made the game faster and more exciting. Stolen bases are up for the first time in over a decade. Pitchers no longer take 3 minutes to throw a single pitch. This change quickly resulted in increased viewership.

Let’s talk about the players: the MLB is one of the few (and maybe only) North American sports leagues that don’t have a salary cap. Years ago, the players’ union decided against a cap. So, team management can dish out a certain amount of payroll. Star players receive big money, medium players get a respectable salary, and low-tier players get the lowest amount. 

Photo courtesy Los Angeles Angels 

Instead of a salary cap, MLB has a luxury tax.  A Competitive Balance Tax is used to limit spending on player salaries. Teams that go over the CBT threshold have to pay a tax to the league for every season they are over the tax threshold. It keeps the parity between teams in more significant and smaller media markets.  

Even as the sports media landscape changes, the MLB remains solid. It likely won’t ever be on the verge of financial distress, even as player salaries have skyrocketed.

Los Angeles Angels phenom Shohei Ohtani is the highest-paid MLB player, earning over $70 million yearly from salary and endorsements including New Balance.

Even with some labor disputes, the MLB is still thriving and will continue for years.


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