SUMMARY POINTS

The MLB Updated Supplement expands to 2000 and 2001 data included in the Report of the Independent Members of the Commissioner’s Blue Ribbon Panel on Baseball Economics, dated July 2000, which examined MLB’s current economic structure and its effects on competitive balance.

The gap between the “Haves” and the “Have Nots” Continues to Grow.

MLB’s economic condition has not improved significantly in the past two years, and in some ways may have worsened, despite continued robust revenue growth. Structural flaws in MLB’s economic system identified by the Blue Ribbon Panel remain, and the revenue and payroll disparities, competitive imbalance and operating losses these flaws foster have generally continued. As industry revenue has risen from $1.38 billion in 1995 to $3.55 billion in 2001, the gap in local revenue and payroll between the high-revenue clubs (the “Haves”) and the low-revenue clubs (the “Have Nots”) continued to grow. In 2001, for example, the Montreal Expos had local revenue of $9.8 million and a payroll of $30.6 million. The New York Yankees had local revenue of $217.8 million and a payroll of $120.9 million.

The Lower Quartile Clubs Cannot Compete for Postseason Berths and Success.

From 1995 through 2001, a total of 224 MLB postseason games were played. Five clubs whose payrolls fell in the lower half of the industry qualified for the postseason, winning a total of five games. None advanced past the Division Series. No team outside the top payroll quartile has won a World Series game during this period. The seven-year post-season record is 219-5 (a .978 winning percentage) in favor of the top two payroll quartiles.

The “Caste System” in MLB Remains.

A minority of MLB clubs have the resources to sign premium free agents—including players they developed and would like to retain—or to sign the top amateur or foreign players. This ongoing “caste system” of clubs stratified by revenue and payroll disparities was described by the Blue Ribbon Panel: “MLB is now essentially divided into three groups of unequal size: 1) clubs that expect to reach and perform well in the postseason; 2) clubs that hope for an occasional ‘dream season’ to reach the postseason; and 3) clubs that know going into spring training that they will not make the playoffs.”

Limited Revenue Sharing and “Luxury Tax” Have Not Effectively Moderated Payroll Inflation.

Average club payroll increased by 17 percent in 2000 and 13.1 percent in 2001. The average club payroll has grown 98.4 percent from 1995 ($33.12 million) to 2001 ($65.72 million). The increase in Quartiles I and II remains greater than that in Quartiles III and IV, perpetuating the “caste system.”

Industry Profitability Remains Dismal, and Industry Debt Has Soared.

Only two of the 30 MLB clubs (Yankees and Indians) showed an operating profit over the period 1995-2001. MLB clubs had an average operating loss of $46 million over that period, and total industry operating loss was $1.4 billion. MLB clubs’ long-term debt, excluding guaranteed player contracts for future seasons and deferred compensation, has reached dangerous levels, exceeding $3 billion.

The Cost of Competing Inevitably Continues to Drive Up Ticket and Concession Prices.

The soaring cost of fielding a competitive team inevitably causes an inflationary spiral in ticket and concession prices, threatening to “price out” families that traditionally have been MLB’s core audience. As the Blue Ribbon Panel’s Report warned, failure to implement an economic structure that fosters better competitive balance could jeopardize MLB’s future popularity and growth.