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Talking Baseball

Your weekday baseball fix. Some days.



Posted by Dave on Monday, February 09, 2004

Flat-out: Trot Nixon Represents All That Is Good with the Red Sox

Trot Nixon recently re-signed with the Red Sox for three years 19.5 million. This deal replaces the equally good signing of Trot to a one-year deal worth 6.6 million. Trot's an invaluable member to the Red Sox both tangibly and intangibly. Quiz: Who was 7th in the league in runs-created per 27 outs? None other than Trotter. Check out who's above and below them. If you're too lazy to click the link, I'll give you a little hint: One makes 20 million a year (None other than Trot's teammate, Manny Ramirez) and the other makes approximately 25.2 million a year (Who could think this salary would befit anyone but ARod?). So, to recap, Trot makes approximately 14 million/year less than the guys sandwiching him in runs created per 27 outs. If that's not a deal, I don't know what is. Sure, he can't hit lefties, but I could probably count the number of good lefties in the AL on one hand (Jaime Moyer, Barry Zito, Mark Mulder, Jarrod Washburn, Mark...Buerhle?...). He may not be able to hit the lefty relievers either, but having Ellis Burks around makes his inability to hit lefties a lot more palatable.

Intangibles? He's got them all. He has an exemplary work ethic, is great with the glove (he certainly does not play a below-average right field), he's a gamer, and he's fantastic in the clubhouse. Never have I ever heard him maligned at a Red Sox game. For those that know Red Sox fans or for those that know of their reputation, this is no small fact. Pedro receives "Pussy!" for his frequent trips to the DL, Manny receives "Greedy Piece of Shit" for his contract, and Nomar who formerly received "Stop Popping Up Jackass" will now receive "Greedy Piece of Shit" (we're really creative in New England). With this contract, the fans can't even gripe about the money he's receiving (at least, not the ones that behave misanthropically toward baseball players). In addition, this signing again highlights quite possibly the team's greatest strength: Its general manager. Theo Epstein has made almost entirely good moves since filling the incredibly tiny shoes of Daniel IHateYou Duquette. This move is no different. He signed Trot to a contract that is decidedly below market value. He probably deserved about 9/year, but we took advantage of Trot's loyalty and we ended up signing him to a discounted contract.

"Dad, why do the Red Sox always raise prices?" "Son, they just want to maximize profit, worry not."

How often do you hear a conversation like this take place? Nearly never, would be my guess. Most fathers would likely reply: "Because owners are greedy." This may be true, and I can't argue with that. But, frankly, I don't blame them in the least for all these ticket price raises. CNN.com recently ran an article on how nearly all baseball teams raised ticket prices following last year. On the face, it's an outrage. There's enough money in baseball already. The owners are selling teams for increasing price tags, and the players, until recently, had been receiving astronomically high salaries (especially as compared with the other major sports). Still, the price for tickets to the ol' ballpark is being hiked ubiquitously. Actually, it's almost uniform throughout baseball - the Tigers are the only ones reducing ticket prices this coming year (Anyone want to take a gander why?). The article reports that 25 of the 30 teams (the Dodgers, Astros (this may have changed, please e-mail us about that...I think I saw something recently about it), the Orioles, and the Rockies join the Detroit in being the exceptions to the rule) have raised ticket prices. Why, if there's so much money already? Surely not inflation, these ticket prices are generally increasing faster than inflation is
Well, because there's more money to be had by baseball, in general. The owners would benefit from increased profits because their wallets would get fatter. As a result of increased profits, everyone would see larger salaries - GMs, scouts, PA announcers, stat-keepers, and, of course, the players. Even Baltimore, who is not raising ticket prices as a whole, is raising the prices on particular tickets. The Sox have raised them again this year, and they're now a perfect 5 ticket hikes in the last 5 years. Many articles will tell you that "it's basically supply and demand," but this isn't informative enough to explain why everyone can get away with these increased ticket prices. "Why isn't everyone revolting?" Some may wonder.

Again, my area of study (economics) makes this all very intuitive for me. Consider these two contrasting situations:
1. You have a form of entertainment that you thoroughly enjoy. You engage in the activity fairly consistently. You can purchase the means for the entertainment nearly anywhere. There are many different suppliers.
2. You have a form of entertainment that you thoroughly enjoy. You engage in the activity fairly consistently. You can purchase the means for the entertainment only through one supplier. This restricts your buying options to this one supplier.

In the first situation, what I'm describing is your desire to play cards (playing cards, that is). No supplier has a tremendous amount of market share (that is, they don't control the playing card industry) because CVS or Wal-Mart could easily produce cards similar to the industry leader (I would think), Bicycle, at a lower cost. This is an example of a highly competitive market where profits have been mostly whittled away. Since everyone can buy the playing cards for the same inexpensive price, people who would pay as much as 50 or 100 dollars for a pack of Bicycles (honestly, if it came to that, I would still consider it if I had no other means to buy playing cards) don't need to. They get it for 3 bucks like everyone else. Since I would've paid 50 dollars for it, I have the individual consumer surplus of 47 (50 dollars (my willingness to pay for a pack of cards) minus 3 dollars (the actual price)). For playing cards, and for competitive markets in general, consumer surplus is generally high (a decidedly good thing, because if there are many consumers with my amount of increased welfare, society as a whole benefits) because there are many suppliers, forcing suppliers to keep their prices near their marginal costs (what it costs for them to produce each unit of their good (in this case, a pack of Bicycles)).

In the second situation, however, what I'm describing is the act of attending a baseball game (or any major-league sporting event, for that matter). There's only one place you can watch your favorite baseball team, and that's at Fenway Park (or wherever else). You can't go anywhere else. It's Fenway Park, or nowhere else. Sure, you can go see the Pawtucket Sox or the Portland Sea Dogs, but it's not even close to the same. In economics, what the Red Sox (or any other MLB team (except maybe the Yanks+Mets and the Cubs+ChiSox)) have is called a monopoly. This is because no one can compete with the Red Sox to provide the service that only the Red Sox provide. This puts the Red Sox in an enviable position. They can price their tickets wherever they want, while only worrying about the demand curve (the downward-sloping line of a graph with Price on the y-axis and Quantity Demanded on the x-axis (if that's too much, just consider "demand curve" the demand) and not worrying about competitors. This leads to a lot of the pricing strategies that many teams currently employ. For the different qualities of seats at the ballpark, the team will price differently. For example, if you're a businessman with a ton of money, you're willingness to pay is pretty high because 3 hours at a ballpark is a lot of time and you make a lot of money. Therefore, the Red Sox will sell 200 dollar (It's probably more) tickets near home-plate because they're willing to pay exorbitant fees in order to attend. Similarly, if you're me, the starving college student, you're not willing to pay 200 bucks, but you like the ambience. So, they offer me bleacher seats to me for 20 bucks. In this manner, they maximize profits by maximizing the amount they receive of each fan's willingness to pay in return for each ticket.

Well, they try to maximize, anyways. Baseball has been reluctant to raise prices given the bad publicity recently with regard to the strike and steroids. But, they've come to realize that with the other major sports steadily increasing prices, consumers continue to come watch sporting events - with their pockets stuffed with twenties. Baseball wants to maximize profits, and if the other sports have been successful in doing so even after ticket price hikes, then baseball will follow suit. Clearly, it's working. The Red Sox, who are admittedly an extreme example, consistently sellout even with consistent price increases on tickets. Management will continue to raise them until they feel they've surpassed the point where they're maximizing profits. But even outside Boston, there's still excess demand for these tickets, even with rapidly increasing prices. I don't blame owners for taking advantage of this at all. It's their prerogative, and they want more money, just like all of us.

What about alienating fans? This can be a problem. Although you may not see a decline in ticket sales, you may see a decline in other goods that are related to the team (Memorabilia, apparel, and TV-viewership (leading to a decrease in the TV-contract with the team)). Though this is a concern, I don't think it's a great concern. Your average fan doesn't hear about the price increases for tickets, and if they are season-ticket holders, they expect the ticket price increases. So, it's really of no great concern, in my opinion. Of slightly greater concern, however, is the perceived demand for tickets. If a team increases prices, people are less inclined to come, thus causing teams to stop selling out. When people hear that their team is not selling out or see that their stadium is relatively empty (Montreal) on game-day, they are less encouraged to come because they perceive demand to be lessened. You always want what you can't have, and a ticket to a sold-out Red Sox game looks a lot better than a ticket to a 1/3 full Olympic Stadium, regardless of ambience or team quality. One, last, thing. I wouldn't have tickets be priced in steps. Generally, if you go to a baseball game, you'll see the tickets priced by group (as seen here in Fenway (haven't I put this off long enough?)). My question is, why?! Why not sell each seat at different prices? Fans wouldn't notice the marginal differences between seats that are priced 15 rows up or 5 rows up, but you could find out how desirable these particular seats are and adjust pricing information accordingly. If nothing else, this would act as a mechanism for understanding demand at the ballpark much better. This suggestion would also help to increase profits, however. Having a spectrum of prices based on the quality of your seat makes perfect sense to me, and I'm amazed no team has employed the practice yet. If you have any questions about the technical nature of the article, you're welcome to contact us, which, of course, you can do just below - now that I'm finally done.


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