Stefan Szymanski, the author of PLAYBOOKS AND CHECKBOOKS: An Introduction to the Economics of Modern Sports, tackles the economics of the exorbitant tickets to Yankee Stadium in this original article.

The House that George (and Michael) Built: New capitalism and Subprime Baseball

As we are entering a new era of capitalism, with tighter regulation of bankers and banking, federal oversight of the auto industry and public demand for higher moral standards from our business leaders, will the nation’s monopoly sports franchises start to come under pressure to clean up their act? Public reaction to the new Yankee Stadium is instructive. First, while the Steinbrenners claim that, unlike so many city funded stadiums and arenas, they are picking up the bill themselves, there was been widespread opposition to the deals that allowed them to issue $1 billion tax exempt bonds (entailing a tax subsidy of between $250 and $500 million) and to repay the bonds in lieu of (property) taxes. Moreover, there have been investigations claiming that the stadium was deliberately and misleadingly overvalued in order to make the deal to go through. Second, now the stadium is open, punters are baulking at paying the $2500 price tag attached to the premium seats, attendance figures are weak and there is talk of serious price discounting. Could the mighty Yankees, like a subprime borrower, end up being unable to pay their way?

There’s no question that the last 20 years has been a bubble economy for sports franchises. Between 1990 and 2009 the total value of Major League Baseball franchises rose from $3 billion to $15 billion. Over this period 21 new stadiums were built with over 50% of the money coming from the taxpayer- an estimated subsidy of over $4 billion. Much the same can be said of the NFL and NBA. How is that owners are allowed to get rich at taxpayer expense? The answer is not dissimilar to the explanation of the banking crisis. There, executives were able to take crazy risks knowing that they were too big to fail; exactly as predicted, the rest of us have been forced to bail them out. Likewise, the owners of major franchises know that we have nowhere else to go, they have a monopoly of what we want, and so we have to pay. Had Mayor Bloomberg not come up with a Yankees deal, it’s not inconceivable that the Yankees could have left town, the threat that sports franchises use everywhere to get more juice.

For economists, this is just old fashioned abuse of monopoly power, and for many years they have been calling for measures to bring them down to size. One solution is to break up the leagues into competing entities. Another is to copy European soccer leagues and create a system of promotion and relegation (sending poor performing teams to the minor leagues and replacing them with the best teams from lower leagues) which would entail abolishing territorial exclusivity, the cornerstone of their monopoly power. Over the last few years Stephen F. Ross and I have developed this proposal in some detail in a number of publications, but the argument has always foundered on the idea that it would be too dirigiste.  Either solution requires concerted intervention by government to ensure that the market works in favor of consumers rather than at their expense.

It’s still early days, but there are signs that baseball attendance in general is being hit by the recession. The evidence from Yankee Stadium seems to fit a wider pattern of resistance to high ticket prices, and discounting of ticket prices has been noted across the country. Were this to continue, the major leagues might end up, like the banks and the automakers, going cap in hand to government for more support. In the event that this was to materialize, government should be ready with a list of reforms that would be the price of their support. There should be recognition that the “owners” do not own the sport, but are trustees of the game, which they should leave in a better state than when they entered it. Criteria should be set against which performance is measured, such as the rate of growth of ticket prices or the number of fans watching the game. Ways should be found to recognize the voice of the fans, who cannot simply be told that if they are not happy they should take their custom elsewhere. Moreover, the owners should bear some responsibility for the “grass roots” of the game, supporting the playing of the game in schools and communities across the country. Most of all, the threat of relocation must be brought to an end. Blackmail is unattractive at the best of times, but when it comes to our national sports, it must be outlawed.