High baseball salaries may pay off for clubs Game's best players boost gate, economists say

April 08, 1992|By Jon Morgan | Jon Morgan,Staff Writer

Hard as it is to believe, Cal Ripken really might be worth $10 million a year.

At first glance, the pay scales of baseball, which topped out this year with Ryne Sandberg's $7 million contract, seem out of control, an escalating spiral that keeps ticket costs rising.

But specialists who study baseball finances say the skyrocketing salaries are grounded in solid economics. Teams such as the Chicago Cubs can and do pay Sandberg's tab because the second baseman is bringing in that much revenue and more, they say.

And there is every reason to think the salaries -- which now average $1.08 million a year -- will continue to rise. Ripken's contract with the Orioles expires after this season, and he is considered likely to reset the salary scoreboard, possibly hitting $10 million.

There could be some dire consequences from the payroll race. Small-market teams -- such as the Orioles -- eventually might find impossible to afford good players. And fans, already enduring steep increases in the cost of attending games, could get so turned off by the pay that they stay home.

But there's little evidence that either is occurring.

"It's not madness. It is an entertainment business, and these are the inputs in a very labor-intensive industry," said Gerald W. Scully, author of "The Business of Major League Baseball" and a professor of economics at the University of Texas at Dallas.

Though the contributions of any one player are tough to isolate, a number of economists have tried over the years, and the results generally uphold the players' contention that they are earning their keep.

Scully wrote what is considered a ground-breaking study on the subject, published in American Economic Review in 1974. He devised complicated formulas to determine the contribution a player makes to team revenues, something economists call "marginal revenue."

He found that, in general, even mediocre players tend to generate revenues in excess of their salaries over the course of a career.

"The owners are not foolish. They sometimes overbid, but it's not clear on average that they overbid for free agents," Scully said.

Robert A. Baade, chairman of the economics department at Lake Forest College, has taken Scully's analysis a step further with a ,, more elaborate computer model taking into account market size, team performance, player performance and other factors.

His conclusion: Some players are overpaid in an economic sense, but most are not.

Some positions, such as pitcher, lend themselves to such analysis better than others. The Texas Rangers, for example, average about 5,000 more fans for games in which Nolan Ryan is pitching, according to club spokesman Larry Kelly.

Spread over 20 starts, that adds up to 100,000 extra tickets sold, or about $1 million a year in revenue. That doesn't include the contributions he makes to television ratings, team image, concession sales and, most important, his team's record. All the experts agree that the most important factor in a team's financial success is its performance on the field.

Ryan's salary is about $4 million a year.

"In an economic sense, a star baseball player is no different than a highly paid TV star or movie star," said Ron Shapiro, the Baltimore lawyer who represents a number of superstars, including Ripken, Kirby Puckett and Eddie Murray.

"Players who are free agents don't spend a lot of time analyzing profitability factors, because they figure the clubs that are bidding on their services are going through that kind of analysis," said Shapiro, who declined to discuss Ripken's or any other client's pay.

Gene McHale, former president of the New York Yankees, said: "It's gotten to the point now that there's so many guys getting this kind of money that you don't know anymore how a particular signing will affect receipts."

McHale was with the Yankees from 1972 to 1986, when the team often was accused of bidding up player salaries. The team's signing of free agent Catfish Hunter in 1974 for $578,200 was viewed with derision by some other owners.

But, McHale said, the Yankees drew 10,000 to 15,000 more fans to games Hunter pitched.

"There's a lot more revenue in baseball than there used to be, but the salaries have gone so far that they have outpaced revenues. Something's got to be done," said McHale, now a consultant with his own firm, American Sports Associates.

Teams are beginning to take action, trading players who aren't covering their high salaries, said Glenn M. Wong, director of the sports management program at the University of Massachusetts.

The Pittsburgh Pirates, last year's National League East champs, are without three high-priced players: Bobby Bonilla, John Smiley and Bill Landrum.

"I see more moves being made with the bottom line in mind," Wong said.

That could be good or bad for Ripken. The Cubs could afford Sandberg's pay because the team plays in a big market capable of generating large crowds and lucrative television and radio contracts.

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