Beyond The Hype: The Financial Crisis

By Diane M. Grassi
Updated: October 14, 2008

NEVADA — But wait!

Before you roll your eyes and click on another page, since you no longer want to hear any more about the economy and the $850 billion government bailout and how the American people just got played, it behooves you to know some basic facts relative to sports fans and more specifically as fans of Major League Baseball (MLB).

It includes knowing how the fat cats who own baseball teams are one in the same types as those who prevail over Wall Street. It does not take an economist to know that everyone has taken tremendous hits for months now whether it has been to fill up at the pump, paying energy bills or affording groceries, where there is no end in sight to rising prices. The average taxpayers know that their pocketbooks are much lighter these days and are angry.

They want answers!

But Wall Street and MLB have become nearly indistinguishable these days. When Wall Street tanks it not only has profound global ramifications but impacts the local economies ever more so, and as such the financing of MLB teams is entrenched in corporate sponsorships.

MLB has long enjoyed its own type of bailouts with public financing of its stadiums, but with corporate sponsorships now in jeopardy, maybe its billionaire owners will finally get a taste of their own medicine.

If You Build It They Will Come no longer applies in the economic landscape of 2008. And unlike prior recessions at the beginning of this decade, followed by a dip in the economy post-9/11, the turmoil in which Wall Street now finds itself cannot simply be explained away or spun by economic prognosticators.

And for fans who simply want to tune into a baseball game to put their worries on hold for a couple of hours, you cannot even get away from it. There was no greater reminder to fans of the bankrupt economy than during the first inning of Game 3 of the National League Championship Series (NLCS) on Sunday night at Dodger Stadium. Dodger second baseman, Blake DeWitt, hit a three-run triple into right field, where cameras zoomed in on the AIG sign on the wall in right field.

For those of you not yet caught up, American International Group (AIG), was bailed out by the U.S. Treasury a couple of weeks back to the tune of $85 billion and an additional $38 billion this past week was also added to its piggy bank.

The U.S. government now owns 80% of AIG and is its majority shareholder. And one would guess by extension that the U.S. taxpayers are now paying for AIG sponsorships throughout the sports world and in this case as subsidizers of the Los Angeles Dodgers.

And the Philadelphia Phillies, opposing the Dodgers in the NLCS, got some bad news last week too. Citizens Bank which has the naming rights for Citizens Bank Park, the stadium in which the Phillies play, is owned by the Royal Bank of Scotland, but another bank on shaky ground and whose assets are in freefall.

Think baseball is not a part of this whole mess? The owners of MLB teams within the past decade have retrofitted their revenue streams to the point that it now dictates who can actually get in to see a baseball game.

MLB has gone the way of the elite sports and caters to the elite. Working class people need not apply. Greed in the government, greed on Wall Street, greed in the sports industry and greed in MLB may destroy the whole house of cards.

And in that regard it may be a good thing for the middle class eventually. For when the elite stop paying for MLB, it might someday be rightfully returned to the fans.

Unfortunately, not before the bill comes due for those two new behemoth stadiums in New York City, set to open in April 2009. And with potentially 64,000 jobs that will be cut in NYC’s financial sector by 2010, the well heeled, expected to attend games, will be on the unemployment line instead.

What MLB did not foresee, much like its compatriots on Wall Street who bought up valueless mortgages, and pimped them off as viable commodities, was that such actions would have such a deleterious impact on their baseball revenues come next season, just a few months from now.

But while MLB Commissioner, Bud Selig, is wont to put on a happy face, sponsors and owners are more realistically waiting for the next shoe to drop, while no one from Wall Street to Capitol Hill has a clue.

What we do know is that since sponsorships, naming rights and broadcast rights are usually multi-year contracts, right now, the primary savior for MLB will be its broadcast partners.

But many financial service groups have either filed for bankruptcy or are close to it and waiting for their portion of the bailout money to kick in. In this recession, all bets are off.

So what does this mean for the average baseball fan? Well, in some markets the news is good, where teams are more dependent upon the fan base. But in the market of New York City, the average fan has already been displaced, due to the 47 luxury suites in the new Yankee Stadium and the 49 luxury suites in Citi Field, the Mets’ new home.

The Mets will have 10,000 less seats available to the public than Shea Stadium had. And the Yankees will have 5,000 less available public seats, with the average ticket costing $75.00; that’s before the $30.00 parking fee or food or concession costs.

The luxury suites at Citi Field are as high as $500,000.00 for the season, while the Yankees’ suites run between $600,000.00 – $800,000.00 for the season or 81 games.

And one of those suites will go for free for the Mayor of New York City, to boot.

But purchases of these luxury suites not only cost a fortune but are contingent upon multi-year commitments. And that could spell trouble for corporations cutting back on expenditures, personnel or even going bust.

For as much as the big-wigs in the sports industry would like you to believe that their industry will flourish in the down times, that was in the days when games were more affordable and when people could at least rely upon experts in the economy to be truthful about their life savings.

Since the finance industry outspends all others when it comes to sponsorships and naming rights for teams, it is perhaps a good thing that the Yankees and the Mets got theirs locked in before the biggest collapse on Wall Street in 70 years.

Bank of America not only gobbled up Merrill Lynch in the past couple of weeks, but committed to a $20 million a year deal sponsorship with the Yankees. And CitiGroup’s naming rights will adorn the Mets’ new house.

But other teams are holding the line with their fans such as the Seattle Mariners. They will not be raising ticket prices in 2009, more so because of the economy rather than finishing with the second worst record in MLB for 2008 by losing 101 games.

Washington Mutual Inc., the largest savings and loan bank in the United States, was bought by the government’s FDIC for a short time 2 weeks ago, and then was sold by the U.S. government to JP Morgan Chase & Co.

It was the largest bank failure in U.S. history — yet, Chase had just purchased Bear Sterns weeks before the Washington Mutual deal, which raised even more eyebrows on Wall Street.

Unfortunately, Washington Mutual is also one of the Mariners’ biggest sponsors. In addition, the economy in Seattle is struggling with a month-long strike by Boeing workers. That has impacted its suppliers and other corporations with which it does business in the region.

So, follow the money. Where Wall Street goes, so goes MLB. As these new team stadiums and other teams scramble for revenue streams, more and more teams will be competing for the same dollars in this new small world, especially in light of the middle class having been written off.

And with luxury boxes and field seats commanding thousands of dollars per game, at least in NYC, such expenditures will have to be justified to corporate shareholders and spending will be more scrutinized in the year ahead.

Down payments for season ticket holders as well as corporate commitments are due in the next few weeks for the Mets and the Yankees, and will lock in corporations to their multi-year agreements.

In fairness, there has been less disconnect from some quarters of MLB. MLB’s Senior Vice President of Corporate Sales and Marketing, John Brody, in an interview in late September with the Sports Business Journal stated that, “Anyone who says this isn’t a different time is either not in touch or not telling the truth. This is a different time and people are evaluating how they’re going to spend their dollars, not just for next year, but for next month.”

To put sponsorship spending in scope one only needs to know that General Motors announced it would not purchase any advertising time during the next Super Bowl in February 2009.

If that is not an ominous sign, it would be hard to say what is.

And finally, the disconnect between the federal government and the American people and the disconnect between Wall Street and in its ignoring the rules are now joined by the disconnect between MLB and its fan base.

But with the symbiotic relationship between Wall Street and MLB as monies dry up, both NYC teams may have overestimated the revenue they expected would never quit.

Maybe the Tampa Bay Rays will be the ultimate winners both on the field and otherwise when this whole thing shakes out. As they strive to reach the World Series and maybe eventually win it, a deal for the public financing of their new stadium has been put on hold indefinitely. And with a $45 million payroll they have little to lose as well.

The franchise can only go up in value from here on out.

But Seattle Mariners President, Chuck Armstrong, is rightfully cautious and may have said it best when he told the Seattle Post-Intelligencer in early October that, “I do have great trepidation over the economy.”

“If the good folks in Washington (D.C.) and NY don’t know what will happen, I’m not sure we at the Mariners should either. We’ll have to wait and see what happens after the dust settles.”