World Series financial scoreboard
By Vince Gennaro, Special to Yahoo! Sports
October 31, 2007
The dominance of the Boston Red Sox over the Colorado Rockies didn't end with the last out of the World Series. It should carry over into dollars and cents as well – although neither team is expected cash in on their October runs as much as might be expected.
Over the next five years, the Red Sox should realize a cumulative $45 million in additional revenue for achieving their second World Series championship in four years, while the Rockies stand to gain an estimated $30 million as a result of getting to the Fall Classic for the first time.
Neither figure is staggering relative to today's player salaries and team valuations. Denver's smallish market size puts a cap on the Rockies' potential take, and the team's disappointing performance against the Red Sox could dampen it as well. Had the Rockies won the championship, they might stand to gain an additional $10 million to $20 million.
The Red Sox have their own limitations to converting their title into an even bigger payday. They already play to capacity crowds at Fenway Park, which strips them of virtually any chance to increase ticket and luxury suite sales, and the financial gains realized from their 2004 championship diminish the impact of their latest accomplishment.
The "perfect storm" for creating financial value from a World Series title would be a large market team with available stadium capacity and a championship dry spell. The Los Angeles Dodgers, who played before 85% of capacity at Dodger Stadium in 2007 and haven't been to the World Series in 19 years, would have earned a $65 million payoff.
An in-depth analysis of the relationship between winning and earnings can be found in "Diamond Dollars: The Economics of Winning in Baseball," an innovative look at the business of baseball.
Over the next two months, the Red Sox and Rockies will begin to cash in on the additional fan interest they stimulated in October. With plenty of available seats at Coors Field, the Rockies will rely on a surge in ticket sales, while the sold-out Red Sox will rely more on their team-owned regional sports network to monetize the World Series' value. (See chart.)
The Rockies' payoff likely will follow the familiar pattern experienced by teams that have been absent from the postseason for many years. It started with a predictable chain of events: As fans scrambled to buy postseason tickets over the last several weeks, they undoubtedly were disappointed by the lack of availability through the team and the seat choices and pricing in the secondary market. Now that Rocktober has temporarily validated the team's entertainment value, a growing number of fans will want to avoid a repeat of the scrum for playoff tickets and buy full- or partial-season ticket packages for 2008, which they view as an "option" on future playoff seats.
This should lead to the Rockies cashing in much like the Detroit Tigers did after the 2006 season. The Tigers entered 2006 with about 9,000 season tickets sold, and their World Series appearance triggered a doubling of their season-ticket base for 2007. Even in football-crazed Denver, the Rockies are likely to turn this year's 14,000 season tickets into 20,000 to 25,000 next year, and that's on top of a substantial increase in single-game and group sales. Luxury suites can be another important revenue driver, particularly for a team such as the Rockies, who have room to grow in that area. A World Series appearance improves a team's status as an entertainment vehicle for deep-pocket and corporate customers, raising the demand for lucrative luxury suites.
The major benefit of a World Series berth is that it triggers a multi-year revenue stream. Even if the Rockies do not return to the postseason for the next five years, they will enjoy the residual effects of this run. They likely will experience a modest attrition rate each year, losing only a portion of their new-found season-ticket holders, particularly if they remain competitive. History shows that it takes five full years to lose the attendance and revenue gains generated by a trip to the Fall Classic.
In extreme cases, such as the 1997 Florida Marlins' broad sell-off of veteran players, the bond of trust with local fans can be broken and the financial benefits of a championship can dissolve in short order. Teams that invest much of their windfall in free agents and player development, such as the New York Yankees and Red Sox, can parlay one championship into a string of postseason appearances, creating a cycle of success.
Since the Red Sox have had 388 consecutive regular-season sellouts, they need to look beyond ticket sales to monetize the value of their title. They have the ultimate incentive: In order to do battle in the highly competitive American League East, they need every revenue dollar to fund their ongoing battle with the Yankees, their archrival and a financial juggernaut.
Typically, a hefty ticket price increase follows a trip to the World Series. In the wild-card era, teams that won the World Series raised their prices an average of 10.8 percent, considerably higher than the MLB average increase of 6.8 percent. For the Red Sox, this strategy may prove risky as they already have the highest ticket prices in baseball, with seats averaging nearly $48 each. However, it's likely that an aggressive hike would be tolerated by Red Sox fans – either current season-ticket holders or those waiting for a chance to watch games at Fenway. Even if the Red Sox break the $50 average ticket-price barrier for 2008, they won't be alone for long because the Yankees expect to raise prices beyond $50 with their move into a new ballpark in 2009.
Another impact of heightened fan interest is a boost to broadcast ratings. The Rockies may have less to gain because they are under contract with Fox Sports Net Rocky Mountain (FSN-RM) until 2014 in a deal that originally was for $200 million over 10 years. FSN-RM is also a minority owner of the Rockies, having purchased an estimated 10 percent to 15 percent of the team for about $20 million in 2004.
Some broadcast contracts include a modest bonus clause which kicks in when a team reaches the postseason, but the resulting revenue would pale in comparison to what the Red Sox stand to gain through their team-owned regional sports network, the New England Sports Network (NESN). By having an 80 percent ownership stake in NESN, the Red Sox have directly connected revenues to their on-field success.
While the Rockies probably need to wait until their contract with FSN-RM is up to renew at a higher fee and capture the value of higher ratings, the Red Sox's ownership stake in NESN allows them to share directly in increased advertising revenue. The Red Sox can also benefit if NESN raises subscriber fees, since the World Series victory makes the Red Sox (and therefore NESN) an absolute "must have" for all cable and satellite distributors in New England. With an anticipated growth in subscriber fees, households and ad revenues, this year's World Series victory could translate into an eventual $30 million increase in the asset value of NESN, 80% of which directly benefits the Red Sox.
A deep playoff run brings mixed news for the team's corporate sponsors. Their ads will be viewed by many more fans and their brands will be held in higher esteem because of the association with a winning club, but their sponsorships will cost more when their contracts expire because other brands and businesses might be anxious to take their place.
Merchandise sales also will spike as fans want to be seen in their winning team's logo and gear. Despite pitcher Curt Schilling's uncertain future with the Red Sox, for example, fans will view a jersey with his name on the back as a direct connection to the memories of the 2004 and 2007 championships, serving as a not-so-secret handshake with their brethren of Red Sox Nation. The DVD of the championship run will be in high demand, and everything bearing a Red Sox logo should get a lift, especially merchandise that is World Series-specific.
Virtually every component of a team's revenue equation – ticket sales, television contracts, advertising rates, corporate sponsorships and merchandising – experiences a shot of adrenaline as a result of a World Series appearance. But what causes fans and sponsors to spend more to support a winner? There is no shortage of theories and studies.
One popular theory is that it takes winning to bring aboard the casual or "bandwagon" fans that swell ticket sales and broadcast ratings. And studies show that athletic success triggers the brain to produce feel-good hormones that enhance self-confidence. Although it may not be rational, fans respond to wins and losses as if theyparticipated in the competition. Add to these theories the fact that people desire to be part of social organizations – especially ones held in high esteem – and we can begin to understand why winning a championship, or getting close, has such a dramatic impact on a franchise. Fans think of their championship team as a high-quality product, leading to more demand and greater revenues, the same as with most other consumer goods.
The financial reward for reaching the World Series, or even the league championship series, is an important driver of a team's financial performance and has a far-reaching impact on front-office decisions. It often serves as the primary financial motivation to add a key free agent at what may seem to be a steep price. That's why a player's dollar value to a team is highly situational. If he is perceived to be the last piece of the puzzle that elevates a team into the postseason and triggers a potential $20 million to $50 million revenue stream, he'll merit the big bucks. This helps explain teams' behavior in the free-agent market – the clubs that drive up the bidding believe they are in the hunt for a playoff spot and a potential jackpot.
However, there is no guarantee that teams will spend their World Series gains on payroll. The Red Sox paid players $143 million in 2007 – second only to the Yankees – and it marked a 12 percent increase from their championship 2004 team. The Rockies, however, ranked 26th out of 30 teams with a $54 million payroll. Teams on average spend 49 percent of their revenue on payroll, yet the Rockies spent only 28.4 percent of their revenue on players – ranking next to last in baseball.
Postseason baseball is a moneymaker for any team. While owners dream about the glory of holding a championship trophy in a champagne-drenched locker room, the smile they wear may be an acknowledgement of the financial payoff just around the corner. Yet the windfall can be mitigated by many factors, and the exuberance in Boston and Denver might be tempered when the dollars are finally tallied.
Vince Gennaro is a consultant to several Major League Baseball teams and the author of "Diamond Dollars: The Economics of Winning in Baseball," an innovative look at the business of baseball. This followed a 20-year career at PepsiCo, where he was president of a billion-dollar division. Gennaro teaches a graduate course on the business of baseball in the Sports Business Management program at Manhattanville College.
Updated on Wednesday, Oct 31, 2007 7:35 pm, EDT