Major League Baseball (MLB)

Paper Summary:

The paper examines how Major League Baseball (MLB) generates $3.5 billion in annual revenues and how the economic turmoil the sport has undergone recently has attracted a great deal of attention both because of its huge fan following as well as the fact that it's an integral part of American culture. It evaluates how the range of different rates on return on investment for different teams is too large and blames it on competitive imbalances caused by a few very rich owners and a widening of what the industry classifies as "local revenues." It shows how if MLB continues to see uncontrolled rises in its fixed and variable costs, several teams may just have to raise ticket prices, which will not bode well for an industry that is already witnessing demand elasticity and will likely, in future, experience price elasticity as well if raised ticket prices lead to a resulting negative trend in total revenues. It concludes with how MLB needs to be thoroughly overhauled using basic fundamental economic principles of controlling variable costs and providing a level playing field so that the performance of the smaller teams picks up and the demand to watch them win also grows.

From the Paper:

"MLB is also subject to the concept of "time cost" and consumer choice, at least perceptually given its discrete and isolated actions and long pauses as compared to the more action packed sports of football and basketball. This is especially true given the far faster paced lifestyles of today and is likely to have an even bigger impact in future as the natural effects of time and demand elasticity kick in as well over the longer run.

MLB's turmoil has also been caused by cash strapped owners who are probably feeling the pinch of the "opportunity cost of equity capital" as a lot of owners are "not as liquid as they were five years ago, annual losses rise to $10million, $20 million or more" (MSNBC Web site)."

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