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6 THE GRANDSTAND PLAY

July 17, 1978
July 17, 1978

Table of Contents
July 17, 1978

Wimbledon
U.S.-U.S.S.R.
Money

6 THE GRANDSTAND PLAY

FACT: Ticket prices are determined by what the market will bear, not by player salaries.

This is an article from the July 17, 1978 issue Original Layout

BRING YOUR KIDS TO SEE OUR KIDS! cried the full-page ad run by the New York Mets last August. But the fans were in no mood for family reunions. Earlier in the season, the Mets had traded slugger Dave Kingman and disowned their original child prodigy, Tom Seaver, by sending him and his grownup $225,000 salary to the Reds.

So, with attendance tailing off like one of Tom Terrific's sliders, the Mets made their desperation pitch in print: "Our recent decisions were based in part on a determination to keep the prices you pay to see a game as low as possible. We don't think the practice of paying exorbitant sums of money to certain players in excess of that paid to others will continue in the long run. Frankly, we don't think the clubs will be able to afford it or, more importantly, the fans either; for it is they who will pay the increased price."

The Mets were guilty of committing two errors on the same grandstand play. First, the frequent claim that players' salaries are the sole or even the primary reason for raising ticket prices is simply not true. And second, the Mets did not become one of the most profitable teams in baseball over the last decade by letting low salaries determine ticket prices. More than most teams, they could have afforded to pay their players more and still have made a tidy profit without raising ticket prices. While moderate, the Mets' average ticket price last season ($3.58) was offset by the second lowest payroll ($1,469,800) in the National League. In contrast, the payroll ($2,444,700) of the highly profitable Dodgers was nearly $1 million higher—or the cost of four Tom Seavers—while Los Angeles' average ticket price ($3.59) was about the same as the Mets'.

Instead of turning the fans against the players, an ultimately self-defeating act, the Mets in particular and baseball in general would do better to promote the low cost of their tickets as compared with the average prices in the other three major sports. While football in 1977 charged $9.67 a head, and hockey and basketball tickets in 1977-78 cost $7.87 and $6.76, respectively, the fan can watch baseball this season for only $3.99.

If anything, the striking imbalance between the payroll costs and ticket prices of many teams suggests that high ticket prices are somehow holding down salaries. For instance, the Seattle Seahawks have one of the lowest payrolls in the NFL. So guess whose average ticket price ($11.79) is the highest in the league? Right, the selfsame Seahawks'. Of the 22 teams in the NBA, the Nets were No. 20 in salaries ($1,163,000) and No. 2 in ticket average ($8.58). And while the Toronto Blue Jays premiered last season with the lowest payroll ($858,000) among baseball's 26 teams, they craftily made the most of an anticipated box-office bonanza. As a result, the Blue Jays finished a rousing seventh in home attendance (1,701,052) and a fat-cat third in ticket average ($4.40).

And the most remarkable part of all is that, perhaps because they were so busy keeping salaries down and ticket prices up, the top-dollar Nets, Seahawks and Blue Jays neglected to maintain a firm grasp on another important area of their business. None of the teams finished better than next-to-last in its division last season.

In last place were the Buffalo Bills, the team that three seasons ago cited high operating costs, including Simpson's big salary, as the major reason it was forced to raise ticket prices. Now that O.J., who made a $733,358 bundle last year, has been traded to the 49ers, will the Bills roll back their prices accordingly? Was Simon Legree a humanitarian? Just as players' contracts are never renegotiated downward after a poor season, high ticket prices go only one way—up.

Except, that is, for one curious period in the mid-1950s when baseball's average ticket price fell 9%. Was it just coincidence that attendance also dipped during the same stretch? But there are grander conundrums that need solving, such as: about 30 years ago 35% of baseball's total revenues were allocated to players' salaries. Since then ticket prices have more than doubled, attendance has increased by about 200%, and TV revenues, which didn't exist then, have become a major source of income. Meanwhile, salaries have gone down to 26% of total revenues.

Could it be that there is some mysterious force other than salaries at work in ticket pricing, such as the desire to, ahem, increase profits? Economists who have studied the question from a dozen different perspectives all arrive at the same answer: yes, profits it is.

Revelation of revelations! The sports business, it turns out, is just like any other business, and the owners are just like owners everywhere. They try to keep costs down while pricing their product for maximum return. The Knicks' and Nets' ticket prices are higher than other NBA teams' because they operate in a market where the potential demand is greater; the expansionist Seahawks and Blue Jays are capitalizing on the honeymoon effect. Simple as that.

Certainly, player salaries have escalated markedly. But so, too, have revenues; and the implication that payroll alone dictates pricing is at best specious. Owners are not in the habit of spending any more money than they have to; otherwise, they never would have earned the fortunes it takes to buy franchises in the first place.

"If the Washington Redskins could increase total revenues over the long run by raising ticket prices," says an expert on sports business practices, "why should they fail to do so, no matter what happens to their costs? In fact, prices have been escalating rapidly in football ever since the merger of the AFL and the NFL was consummated, even though costs have not risen nearly so fast. It is perfectly rational for teams to be raising prices rapidly when demand is strong. That's just the way it is."

Why then the elaborate charade, the poormouthing, the secrecy, the contradictions? Partly it is because owners rely on the support of a notably fickle public, and it is bad form to come on like a common profiteer. And partly it is because that nasty word monopoly keeps coming up. No one ever said that owners are not entitled to earn a profit. But lately lots of people—the unions, the courts, the IRS and Congress—have been questioning how much profit is justified.

F.A.N.S., the consumer group formed by Ralph Nader to counter the "arrogance of the owners," is the most vocal critic of current ticket costs. "There is no competitive pressure to keep prices down," says F.A.N.S. executive director Peter Gruenstein. "The whole base of free enterprise is missing. Ticket prices have no relation to a team's operating costs, but only to what the market will bear.

"It's unfair because the customer has no choice. If G.M. charges too much for a car, a guy can go to Ford. But if a man doesn't want to pay 50¬¨¬®¬¨¢ more for a Reds ticket, when he knows that the team is making money faster than Pete Rose can spend it, well, he can't go to the other baseball team in town."

According to a F.A.N.S. study, the Reds and other pennant contenders are amply rewarded for their lavish player payrolls. For example, last season Dodger salaries ($2,444,700) were about $500,000 more than the league average ($1,907,350). But while they spent $537,350 more on talent, the Dodgers generated $5.7 million more than the average in gate and concession revenues—or a rate of return of 1,140% on their extra investment. By the same measure, the additional payroll investment made by the Reds ($852,450), Phillies ($1,590,550), Royals ($491,700) and Yankees ($1,566,975) produced returns of 400%, 206%, 180% and 89%, respectively.

Despite those big profits, all five contenders were among the 16 major league teams that hiked their ticket prices this season. And why not? The demand for tickets was there.

Not counting Bill Veeck and his royalties as a best-selling author, Cal Griffith and Walter O'Malley are the only owners who draw their sole means of support from the game. Like two diners eyeing the lunch check, each goes for his wallet only when the price is to his liking. For Griffith that is almost never. He plays the ticket-pricing/payroll game like no one else, keeping the Twins' ticket average ($3.69) a shade beneath the going rate and their salaries ($951,850) in the lower depths. "All these owners today are millionaires," says Griffith. "All, that is, except for old Calvin. I'm just trying to stay alive."

Old Calvin is surviving nicely, having turned an $800,000 profit last year. On the debit side, the Twins have lost 15 free agents over the past two seasons. Two of the defectors, Larry Hisle and Lyman Bostock, are now earning more than Cal's entire roster. Sensitive about his tightwad image, Griffith last winter gave MVP Rod Carew a $100,000 bonus and ran an ad thanking the fans for their support. The curtsy was a full-page portrait of Old Calvin smiling, sort of.

Shrewdie that he is, O'Malley is smiling for real, because his policy of offering big-dollar teams for cut-rate prices is paying off wondrously. After arriving in Los Angeles in 1958, he held to the same ticket scale, 75¬¨¬®¬¨¢ to $3.50, for 18 years before nudging it up to the current level of $1 to $4.50. Along the way he nurtured a whole generation of young bleacherites who last season came of age in the box seats as the Dodgers set a major league attendance record of 2,955,087. "The future of all pro sports has to do with building a grass-roots following, starting with the youngsters going to games with their parents," O'Malley says. "I would very much dislike to see those family groups priced out of the game."

Yet that is just what is happening elsewhere. Because a man has to ransom his firstborn just to buy an end-zone seat, family outings are almost unheard of in the NFL. The 55,031 tickets for Washington Redskins games are owned by fewer than 15,000 individuals, and no one below Cabinet level need apply.

After appearing in Super Bowl XII, the Denver Broncos put the crush on their season-ticket holders, requiring them to buy ducats to the second of the Broncos' two exhibition games this fall as part of a package that goes for a mile-high top of $173 per seat. And the money had to be paid in full by June 1, so that the team could bank it and get all the interest. The combination of ticket sales and TV money will give the Broncos an income of about $12 million before the first ball is kicked this season. "Frankly, this is a sport that's hard to screw up," says NFL Commissioner Pete Rozelle.

That's especially true when you are able to sell the best seats to corporations or other buyers who can write off the cost of tickets on expense accounts. In baseball, companies purchase 78% of the season seats. Congressman Joseph Fisher of Virginia has found that distressing. "A modest-sized firm may have 15 to 25 seats, and they use the tickets for business promotion pure and simple," he has said. "And when I think of this as against a genuine sports lover...being denied the chance to have a season ticket, I feel there is a public interest and an issue of some dimension."

So does Jimmy Carter. His three-martini-lunch tax-reform proposal includes what might be called the two-beer-and-a-dog rider. The cost of seats at sporting events should not be written off as a business expense, the President contends. Because roughly one-third of the tickets for major pro sports are purchased by businesses, including almost all the suites that ring many arenas, the teams are hollering "Foul!" Says Madison Square Garden's new czar, Sonny Werblin, "It's the stupidest tax ever. Remember the hotel tax? The city lost conventions. Hotels and restaurants folded. There's a whole history on this. It's not a guessing matter. If Carter's proposal goes through, we'll be out of business."

Have ticket prices gone about as high as they can go? "No," says Expo owner Charles Bronfman. "Has inflation gone as high as it can go?" But ultimately, as the Padres' Ray Kroc notes, it is the "fans who are in control. As long as people keep paying the high prices, they'll keep going up. When the point of diminishing returns is reached, the owners will know they've gone too far."

PHOTOARNOLD ROTHSome teams have sacked Joe Fan by selling their best seats to businesses for big bucks.PHOTOARNOLD ROTHPresident Carter wants to eliminate the loophole that allows plush box seats to be tax deductible.