Published April 01, 2013
Forget the wonky economic indicators like gross domestic product and the consumer price index; baseball and major concessions like beer and hot dogs might give a more relatable -- and reliable -- look at the American economy.
As most MLB franchises celebrate Opening Day on Monday, ConvergEx says lagging year-over-year ticket prices indicate a still-slumping economy, with attendance remaining off pre-recession highs.
The downturn continues to cut into bottom lines of ball clubs across the country, prompting teams to get more creative as they look to lure financially strapped fans to the arena.
“People don’t want to go to the stadium, pay a high ticket price, then get cleaned out when they go to the ballpark,” said Michael Cramer, former president of the Texas Rangers. “Until you have more disposable income, pricing is going to be a problem.”
Economists have long used metrics like GDP to gauge the economic roller coaster in the U.S. and around the world, but it helps to step out of the traditional box sometimes and analyze everyday trends that are more familiar to the average consumer.
The Economist's Big Mac Index, for example, takes an informal approach to the economy using the McDonald's (MCD) burger sold worldwide to gauge the purchasing power of currencies. It doesn't claim the index to be the go-to economic indicator, rather a "fun guide" to the value of global currencies.
With baseball’s lengthy season and its broad appeal in the U.S., a similarly informal look into America’s economy can be found when analyzing ticket and attendance trends within Major League Baseball and the concessions like beer and Cracker Jacks sold during games.
It’s unclear where the baseball season will go at this juncture in terms of attendance, but if Monday's lagging ticket sales are any indication, the outlook is grim.
Ticket prices for some of the hottest games on Monday were selling for less than they were a year ago -- an indication that consumers are continuing to hold back on discretionary spending as their disposable income declines.
At Yankee Stadium, for example, where the Yanks will host their rival Red Sox, tickets were selling in the mid-$200s range last week on TiqIQ.com, and some seats slumped to as low as $50 Monday morning. The same game at Boston's Fenway Park fetched a steeper $305 on average last year, according to ConvergEx data.
Nicholas Colas, ConvergEx chief market strategist, said the trend points to “heightened price sensitivity.”
Baseball is one of the many “off the grid” economic indicators developed by ConvergEx each quarter to give an out-of-the-box look at the economy. The company argues the American pastime gives an overall indication of the pace of the economic recovery due to its sheer length of season and widespread appeal.
An average MLB regular season lasts six or seven months, during which there are 162 regular season games, versus 16 in the National Football League. At the same time, baseball tends to cater to a relatively affluent demographic that includes middle- to upper-middle class Baby Boomers and families, giving a broad picture of the discretionary spending habits of a major chunk of the American population.
Unlike other leagues like the NHL that have been deemed recession proof given their high attendance rates throughout the recession (despite the lockout, more than half of the NHL's 30 teams enjoyed 100% home attendance at the start of the current season, according to ESPN.com data), baseball has struggled in that area, with swings in attendance closely reflecting the state of the broader economy.
Attendance crept 1.8% higher to a league average of 30,895 a game in the 2011-2012 MLB season. Industry insiders say last season's marginal improvement was more a reflection of softer ticket prices, which fell 2% year-over-year last season, rather than a notable gain in consumer sentiment. Meanwhile, attendance remained off the all-time high of 32,770 set in 2007 before the economy plummeted into the Great Recession.
“It’s likely that lower real ticket prices, even though reduced by less than a buck, had some impact on incremental fan attendance,” Colas said. “We’re slowly grinding our way back to the way of 2006 and 2007, but we aren’t there yet.”
Booze & Baseball
Inflation-adjusted ticket prices have been in a downtrend since 2009., with the average cost of attendance across the league last year falling to $26.92, which when adjusted for inflation is down from $27.47 in 2011 and $28.04 in 2012.
Revenue from ticket sales has been declining even longer, which has been cutting into the margins of the league’s 30 teams for years.
To give some perspective, attendance dipped a mere 0.8% when prices grew 6.8% during the 2008 season. Just a year later in 2009, however, attendance fell 6.8% when prices ticked up a narrower 3.5%. The downtrend continued through last season, with attendance only growing once prices were brought down to more affordable levels.
“Fans continue to be price conscious and may be unwilling to fork over the extra dough,” Colas said. It’s “bad news for owners who may be considering a price appreciation strategy to drive revenues in the face of the sport’s waning popularity."
Americans' disposal incomes have been hit hard amid higher payroll taxes and stubbornly high unemployment, which has been reflected in softer professional league ticket and concession sales.
Franchises that charge hefty fees may do so at the cost of their fan base, Cramer argues, leaving ball clubs in a conundrum: shave the price of tickets and concessions and take a hit on margins, or risk losing fans altogether.
“As long as we’ve got 8% unemployment, that’s a huge number of people that aren’t going to baseball games at least potentially compared with six or seven years ago,” said Cramer, who currently serves as professor of sports and media at the University of Texas at Austin. “Baseball and the other sports are going to suffer as a result.”
With 81 home games a season, franchises need to get creative to incentivize fans to visit the stadium. The Cleveland Indians, for example, cut the price on 12-ounce domestic beers to $4 this season, a sharp discount to the industry norm of $9 or more.
While the Indian's move may have partially been an effort to apologize for their dismal season last year (68-94), it’s also an effort to improve what was an even worse attendance rate of 46%, meaning less than half of the arena was filled on average at each of the franchise's home games.
Spokespeople from the Indians have said the cut was to ensure concessions don't serve as a barrier to the enjoyment of fans attending a baseball game live at Progressive Field.
Cramer said he sees more ball clubs following the lead of the Indians, adopting package deals around hot-ticket items like food and booze in an effort to lure people into the arena. Franchises may make a smaller profit on each beer or dog sold that way, but at least they can be assured fans will watch the game live rather than at home or at a cheap neighborhood bar.
“They are smart enough to understand it’s better to put bodies in the stands and sell something rather than nothing," he said.