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This week in “Last Week in BizBall”, revenue sharing, Qcue and MLBAM partner to promote “dynamic pricing”, plus the weekly tidbits
REVENUE SHARING
Due to the record amount of revenue sharing in MLB ($433 million of ‘09 revenues were redistributed) there is greater debate and concern within the industry over how that money is spent. Red Sox owner John Henry has been outspoken over how some “payee” franchises have remained consistently uncompetitive despite the substantial funds they receive from “payors”. During the offseason, the MLBPA, whose membership now earns the lowest percentage of league revenues amongst the “big 4”, reached an agreement with the Florida Marlins which ensures that more of their revenue sharing receipts will be invested in big league payroll. In this “post steroid” era, many player personnel decision makers view veteran players as risky investments. Alternatively, more and more clubs see investing in the Rule 4 draft and international free agents as the route to sustained on field success. LWIB, former Twins owner Clark C. Griffith argued in the SportsBusiness Journal that clubs should ignore the PA’s demands that more revenue sharing dollars should be invested in major league payroll.
Revenue sharing distributes more than $440 million a year. There is some criticism that some recipients keep too much of the money and do not spend it appropriately. The MLB Players Association claims that the money should be used for major league player salaries and has registered a complaint that compelled, it is said, one team to increase its team salaries.
The MLBPA’s position is in error. If the revenue-sharing money is spent on contracts with existing major league players, the sole effect will be inflated major league salaries and no improvement in competitive balance. If a low-finishing team with a low payroll was compelled to spend all of its revenue-sharing distribution on salaries, it would only raise the salaries of its team and would not necessarily allow it to sign another team’s player. Of course, the effort to sign another team’s player would result in a higher salary for that player, not guarantee the player would change teams, and, as all major league salaries are interrelated, the result is salary inflation, not improved competition.
The CBA stipulates that revenue sharing payees must use their receipts to improve their teams but the meaning of that is very subjective. Different payors have argued that investing in player development, paying down team debt or financing new stadium construction is in compliance with the rules governing use of revenue sharing receipts. MLBPA ED Michael Weiner recently commented when asked about revenue sharing that, “I believe all 30 major-league teams are trying to win but some are trying harder than others.” Despite those foreboding comments and the pressure brought upon the Marlins by the PA, Mr. Weiner so far has proven not to be intransigent on the issue. As per the CBA, the PA annually reviews the expenditures of revenue sharing receipts by “payors” and Mr. Weiner has accepted a significant reduction in the Pittsburgh Pirates major league payroll the past few seasons while they have simultaneously increased investments in the amateur draft and international player development.
With the current CBA expiring in December 2011, the issue of revenue sharing will (as always) be key. While commissioner Selig and his VP Labor Relations Rob Manfred promote and defend the record amounts of revenue sharing as the key to preserving and promoting competitive balance, it also serves to suppress player compensation. LWIB, Tom Van Riper reported on some recent remarks made by Standard & Poor’s managing director John Bilardello.
His take: Despite economic woes that have curtailed sponsorships and knocked ticket prices down for many clubs, strong league oversight through salary caps, revenue sharing and luxury taxes has played a big role in controlling costs (i.e. payrolls) and limiting damage to weaker franchises.
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S&P's debt ratings for the NFL, NBA and Major League Baseball remain investment grade, with the NHL "near investment grade." The one potential problem: players unions aren't fans of revenue sharing and luxury taxes, let alone salary caps, all of which have the effect of limiting player pay. All four leagues are gearing up for new deals following a decade in which industry revenue growth has outpaced salary growth, a reversal of earlier trends. No doubt the players will fight for more of a free for all, with fewer built-in incentives for teams to limit payroll. Potential rewards come with that outcome, but so do greater risks across the industry. A failed club means fewer jobs.
Has revenue sharing in MLB peaked? Will the current level be maintained or diminished? As industry revenues continue to grow and the percentage of it being spent on major league payroll declines, can Michael Weiner accept the status quo? Who has the leverage on the owners side, the Mark Attanasio’s or John Henry’s? We will know next year.
MLBAM PARTNERS WITH QCUE
Dynamic pricing, aka variable pricing, software company Qcue announced a partnership LWIB with Major League Baseball Advanced Media (MLBAM) and their ticketing subsidiary Tickets.com. TicketNews.com has the press release here.
Qcue, the leading dynamic pricing engine for live events, Tickets.com and MLB Advanced Media (MLBAM), the interactive media and Internet company of Major League Baseball, have teamed up to offer their baseball clients a real-time pricing platform that ensures tickets are accurately priced to reflect consumer demand of the games.
Ticketing software companies such as Qcue provide teams with software which continually adjust the price of tickets according to a broad number of factors including day of week, weather forecast, opponent, standings, recent team performance, starting pitcher(s), etc. The San Francisco Giants used the Qcue dynamic pricing software last season to manage approximately 2,000 seats of inventory. This season the Giants are using dynamic throughout their ballpark. However, clubs are not practicing “dynamic pricing” in the truest sense. In order to maintain “price integrity” for season ticket holders, an artificial price floor is in effect. Some question if MLB is positioned to benefit from dynamic pricing. Eric Fisher reported for the SportsBusiness Journal in May.
The top concern surrounding dynamic pricing, not surprisingly, is the potential impact on season-ticket holders, still the lifeblood of all sports ticketing. While prices do move up in high-demand situations — generating predictable complaints of teams being exploitative — it’s the downward price movements for lower-demand games that actually create the bigger business threat.
If prices drift down to points at or near what season-ticket holders paid, what then are the advantages of paying for an entire package of games? Fans have already begun for several years to cherry-pick desired games on the secondary market.
“Price integrity without a doubt has been the No. 1 discussion point or concern on this topic,” said Derek Palmer, Tickets.com chief commercial officer.
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“For a majority of teams, you have to be very careful, and this probably isn’t a space you want to play in. And if you’re still dictating [price] floors, it’s not really dynamic pricing,” said Lou DePaoli, Pittsburgh Pirates executive vice president and chief marketing officer. DePaoli has approached the issue from several angles during prior stops with the NBA, Florida Marlins and Atlanta Spirit ownership group. “But in baseball particularly, there are more weekdays than weekends, and more bad teams than good teams. So without a really super premium on your best series, you probably aren’t going to be able to make up the [lost] revenue.”
THE WEEKLY TIDBITS
- There are lies, damn lies and…attendance figures. Keen observers of professional sports (major and minor leagues) view announced attendance figures very skeptically. We all know that there are three different measures of attendance, tickets distributed, tickets sold and butts in the seats. Due to relatively newfound revenues in local cable TV, luxury seating, digital media (MLB.com) and MLB Network, MLB is less of a “butts in the seats” business than in previous eras. However, ticket sales remain the single largest source of revenue in MLB. LWIB, Bill Shaikin (HT Buster Olney) reported for the Los Angeles Times that the divorce proceedings of Dodgers owners Frank and Jamie McCourt have revealed the number of “no shows” at Dodger Stadium in recent years. According to a court filing, the “butts in the seats” count at Dodger Stadium last season was 3.11 million, or 17% less than the 3.76 million tickets that they sold. According to the report, a 15-20% “no show” rate in MLB is typical. As well, the court filings revealed that Dodgers experienced a 14% decline in season-ticket sales from 2007-2009 (26,941 to 23,300)
- Some miscellaneous local TV numbers LWIB. Everybody loves a winner as is evidenced by the increased ratings for the Reds and Rangers this season. John Kiesewetter reported that, “Fox Sports Ohio says Reds game viewership is up 49 percent from last season.” Evidently the Reds TV ratings are fourth highest in MLB this season, trailing only the Cards, Phillies and Twins. Barry Horn reported that post All Star Game ratings for Rangers games on Fox Sports Southwest are almost double their pre All Star Game average. The July 22nd Rangers/Angels game drew the best rating for a Rangers game on Fox Sports Southwest in six seasons. (HT Fang’s Bites for both those links) The Sports Media Watch blog relayed via SportsBusiness Daily that, “Cardinals games are averaging a 9.7 rating this season, best in baseball. Meanwhile, Twins telecasts are averaging a 7.9 rating on Fox Sports North, up 28% from last year, and the second-highest average in baseball.”
Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.
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