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The Economics behind Portland and Baseball

August 27, 2009

By Patrick Emerson
Oregon Economics Blog

I came across an interesting post on the Portland Architecture Blog (where I indulge my fantasy life as an architect) which muses whether Portland has grown beyond the minor leagues. The idea, in essence, is that Portlanders are no longer in minor league sports because we have become a major league city even without the major league teams. It is an interesting notion but it made me think about another aspect of the economics of sports.

Winner-take-all markets are those in which extremely small differences in ability can lead to humongous differences in rewards (compensation). These markets are usually characterized by reproducibility of effort. Popular music is one classic example. It used to be that musicians had to preform live and necessarily to a limited audience. So a slightly more talented musician may draw a few more people in the audience, but the differences were small. With high fidelity recordings, suddenly the market was virtually unlimited and a slightly more talented musician could sell perhaps millions more than a slightly less talented one.

Modern sport shares this same aspect. Now that sports have become a global media phenomenon it shares the reproducibility aspect in that sports performances can be beamed into billions of households around the world. What this means is that small differences in ability – the difference between being a major league level player and a AAA player – may be very small, but the rewards that go to the slightly more talented player may be ten, one hundred, one thousand times greater than the rewards to the slightly less talented one.

This is all well-known now thanks to Bob Frank of Cornell’s Business School who (to my knowledge) coined the term. But what I wonder is how this translates to the demand for the goods whose markets are characterized by this winner-take-all aspect. [Perhaps this has been studied, but I am not aware of such studies] I wonder if consumers take short-cuts in deciding how to value such a product, and the short cut is that they make the assumption that these markets are efficient and if players are getting one hundred times the salaries, the product they are producing must be around one hundred times better. So it may be that the quality of the baseball played by the Beavers is just a tiny bit below the Mariners, but people look at the outsize salaries MLB players make and assume that the quality of the Mariners must be a lot better.

Now, even if true, this is only one difference that matters for demand. The modern major league ballpark is a far cry from PGE and offers a host of amenities not just the baseball, or as the Portland Architecture Blog wonders, maybe demand is wrapped up in self-image. But the baseball played on the fields is really not that different. So I wonder how reflexive is demand to the winner-take-all aspect of the market for players…

By the way, if this is true, what does it mean for MLS, where typical players don’t make that much more than their USL counterparts?

By Patrick Emerson
Oregon Economics Blog

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Discuss this article

John Fairplay August 27, 2009

I doubt there’s a AAA baseball team in the country that would win many games playing a Major League schedule. The talent difference between the Beavers and the Mariners is huge. This is because while the Beavers may have 2 or 3 players who are ready right now to compete at the Major League level, most are not. The teams would match up well in general defensive ability, but the Beavers pitching could not succeed against Major League hitters and the Beavers batters would have a tough time with Major League pitching. This is why you see Major League pitchers routinely shut out AAA batters during “rehab” starts they make when recovering from injury.

Zoe August 27, 2009

Is the talent really different? A lot of major league players go to the minors when they retire.

Nick Christensen August 28, 2009

It’s not just the level of talent, it’s the level of competition. At the end of the day, players in the minors aren’t playing to win — they’re playing to perform well. Wins and losses don’t count for squat — in fact, the goal for the typical minor leaguer, especially at Triple-A, is to *NOT* make the playoffs.

This year’s Portland Beavers don’t want to be in the midst of a five-game series against Reno next month, they want to be called up to San Diego when the rosters expand. And for the teams that do make the playoffs, often they’re filled with Single-A or Double-A players who were called up to fill roster spots because the best Beavers, the best Rainiers, the best RiverCats are all in Seattle, San Diego and Oakland respectively.

If you love baseball, the Beavers are a good thing. But if you’re interested in competition, minor league baseball isn’t for you. The only solution is untenable – abandon the current “farm system” for something more akin to Europe’s soccer promotion/relegation system. It would increase interest nationwide, but is impractical from a logistical standpoint.

Slick Rick August 28, 2009

Mr. Christensen you really took the fun out of the game with your honest shake down of how the game is played. As for me, I love the Beavers and I do not want to see them go. I went last week and they had 9500 people. Is that not enough to keep them?

Pounder August 28, 2009

Why is promotion and relegation impractical from a logistical standpoint?

(I could throw in a couple answers, but I want Nick’s opinion on this.)

I ask that because it’s the only way Portland will see MLB in my lifetime… and I figure on a good 40-50 years if I can help it.

MLB is a cartel. In most cases, to get in it, you need a publically funded stadium. The perception in Portland is that you need a retractable roof and crowds that don’t run off if the team sucks after 3 years, a strong possibility given baseball economics. Moreover, since local TV contracts are a major revenue source for baseball teams, the lack of a regional market is a major problem. Oregon has 4 million, maybe? San Antonio can muster a market of 5 million with a little work, and Charlotte can play to 10 million in North and South Carolina. To overcome that, Portland would need a stadium that offsets those revenue gaps, which is why PNC Park isn’t going to work in Portland… it’s not really working in Pittsburgh, despite that stunning view beyond the outfield. That’s why a stadium would push $700 million in Portland, and why Miami is dropping $600 million in mostly public funds to keep the Marlins.

I don’t see that happening. I don’t see the corporate support in town willing to help out.

For Slick Rick… getting 9,000 or more on fireworks nights isn’t going to help if there’s 2,000 or 3,000 in the stadium most of the rest of the time, and much less than that in April and May. Someone’s going to eyeball the new stadium in Tulsa soon and ask if AAA would be favored over AA down there… then we’ll see if the Northwest League or the independent Golden Baseball League inspires someone to build a park in the suburbs. That reminds me of one last note- many major league cities have independent teams in “minor league stadia” in their markets these days, in case anyone in Beaverton or Hillsboro thinks any stadium they build will be useless if MLB comes in. There’s always a group of price-conscious fans willing to accept an alternative.

Nick Christensen August 28, 2009

Rick –

Hopefully I didn’t cut your enjoyment of the game. I don’t doubt that the players here like winning more than losing — I’ve been in enough minor league clubhouses to tell you that losing wears on a team. But individually, and organizationally, the goal is development. Team third, player second, organization first.

Pounder – It sounds great, and I’d love for it to happen. But consider what it would take to make a real, bona fide relegation system:

1. Expansion to about 40 Major League teams, to water down the big markets (adding teams in NJ, Connecticut, the Inland Empire, etc.) and to expose more cities to Major League Baseball (San Juan, Monterey, Charlotte, Portland, Las Vegas, etc.)

2. Complete revenue sharing so that the Royals and Pirates have a *chance* at avoiding relegation. Also, finding a way to share major league revenue with Triple-A teams, Double-A teams, etc.

3. An entirely new farm system, probably with only 1 farm team per organization.

4. Renegotiation of stadium, television, union contracts.

It sounds great. Sounds *wonderful*. And I honestly think that the interest nationwide would soar — imagine living in Eugene, or Wichita, or Mobile, and knowing your team had a chance to make the majors *depending on your level of support*. With TV revenue-neutral, it’s all about fan-generated finances… tickets, merchandise, etc. Imagine if the Beavers actually had a chance at going up to the major leagues… A) PGE Park would average a pretty healthy sum through the season, and B) We’d find a way to fund a new ballpark and place it in a location that makes sense.

But that’s my pipe dream. Something tells me Bud Selig isn’t about to call me and ask about the logistics.

kennyboy August 28, 2009

wow…utterly inane and vapid article. please write about a subject that you know something about, or better yet, have a decent degree of expertise.

marketing 101:

football, baseball and basketball require now heavy corporate sponsorship to stay in business.

there is only one Fortune 500 company in Oregon.

the trailblazers are lucky to have an uber wealthy owner.

WordsOnAPage August 28, 2009

> …we have become a major league city even without the major
> league teams.

This is the stupidest thing I’ve read on a non-political blog in a long time. Major league teams make a major league city, major corporate sponsors make a major league city, major fan support makes a major league city.

> But the baseball played on the fields [MLB v AAA] is really not
> that different.

IANABF (i am not a baseball fan) but the baseball fans I’ve shared this quote with have enjoyed a good laugh.

> By the way, if this is true…

It’s not.

> …what does it mean for MLS, where typical players don’t make
> that much more than their USL counterparts?

The average MLS player makes $117,299. In the USL its around $22K. Google is your friend.

Zoe August 29, 2009

$22,000 a year? Now I pity these guys.

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