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Experts Say Demand, Not Higher Salaries, Drives Up
Baseball Ticket Prices

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April 01, 1999|BILL SHAIKIN | TIMES STAFF WRITER

Kevin Brown is not an idiot, but you might have guessed otherwise from the gasps and snickers that greeted his answer. As the Dodgers unwrapped their $105-million purchase before the local media, someone asked Brown how he felt about signing one of the contracts that could force ticket prices beyond the reach of many fans.

"I have never believed that players' salaries are directly related to ticket prices," Brown said.

Not related? Salaries go up, so team revenues must go up, so ticket prices must go up, right?

Wrong, according to economists. Teams that blame escalating salaries for escalating ticket prices are simply using players as a handy scapegoat, University of Chicago economist Allen Sanderson says.

And how does Sanderson evaluate Brown's assessment?

"He's basically right," said Sanderson, who lectures and writes on the economics of professional sports.

"Player salaries have virtually no impact on ticket prices. Ticket prices are set by what the market will bear. After that, it's a matter of who gets the money, [Dodger owner] Rupert Murdoch or Kevin Brown."

Remember supply and demand from your economics class? A team would raise ticket prices, regardless of player salaries, only if it believed fans would pay the higher prices. In economic jargon, a team would raise ticket prices only if it believed demand would remain strong at the higher prices for a fixed supply of seats.

"If I'm an owner and I have to justify this to my season-ticket holders, I have to blame somebody," Sanderson said. "I can't stand up and say, 'The ticket prices are going up 19% next year because you'll pay it.' "

During a winter in which the Angels signed Mo Vaughn for $80 million, the team hiked ticket prices and included this statement in the announcement: "We are committed to providing the best product we can, which is a consistent, championship-caliber baseball team. To do that in this day and age makes it necessary to expand the payroll. One of the only ways to help offset that increase is through ticket pricing."

The Angels supported their statement with a chart that reveals a strong correlation between player payroll and ticket prices.

Sanderson and Stanford economist Roger Noll acknowledge the correlation but suggest the Angels and other teams confuse cause and effect. To the extent that one may cause the other--and economists debate that--higher prices lead to higher salaries, not vice versa.

After all, the Angels raised ticket prices before they signed Vaughn. The Dodgers raised prices before they signed Brown.

"The reason teams are willing to pay so much is because their revenues can support it," Noll said.

The New York Yankees receive nearly $50 million a year in cable television revenue, covering much of their payroll before a single fan enters Yankee Stadium. But the next five highest payrolls, according to the chart, belong to teams with new stadiums that double as virtual cash registers and provide funds to buy players.

If higher salaries indeed produced higher ticket prices, then the Yankees or Baltimore Orioles--and their $74-million payrolls--should have charged the most for their seats last year. The highest ticket prices, however, belonged to the Boston Red Sox, driven by high demand (intense local interest) and low supply (the smallest stadium in the major leagues).

The Red Sox increased their average ticket price 16% this year, to $23.84. Vaughn spurned a $63-million offer from Boston and fled to Anaheim, replaced to some degree by Jose Offerman at $26 million. The archrival Yankees finished 22 games ahead of the Red Sox last year and added superstar Roger Clemens this year, and yet ticket sales in Boston are up "something like 35 to 37%," Red Sox Vice President Larry Cancro told Baseball Weekly.

Still not convinced? Consider the opposite: If higher salaries truly drove ticket prices higher, then lower salaries would drive ticket prices lower.

"Suppose right now you reinstated the old reserve clause," Noll said, citing the rule that restricted player movement and thus depressed salaries before free agency, "and player salaries dropped 50%. Will the Angels reduce their ticket prices? The answer is no."

Real-life proof? The Minnesota Twins slashed their payroll by about half this year. The Twins froze ticket prices.

"If Kevin Brown wanted to pitch for the Dodgers for free, ticket prices wouldn't fall," Sanderson said.

The average player salary fell 5% in 1995, the only decrease in the past 12 years. The average ticket price, however, rose 2%. In the three subsequent seasons, the average salary jumped 26% and the average ticket price jumped 28%.

Teams can stimulate demand for tickets, certainly, by signing top players. However, as superstar salaries hit the stratosphere, the days of teams signing marquee players who can generate enough revenue to offset their cost are fading fast.

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