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Baseball in the depression

2008 December 22
by Skip Sauer

Some important facts on the link between the economy and sports are reported by Patrick Saunders at the Denver Post:

In 1929, before the market crashed, major-league baseball ticket revenues were $17 million. By 1933, gate receipts had plummeted to $11 million. A big-leaguer made an average of $7,000 in 1929. That dwindled to $4,500 by 1936.

Obviously, the impact of the depression on the finances of a baseball team was severe. They were fortunate to operate under the reserve clause in those years, which limited the duration of player contracts to one year, making adjustment to declining demand much simpler.

A key quote in Saunders’ article is from Wharton’s Kenneth Shropshire:

“There is a level of sports exuberance that doesn’t go away. The apocalypse will come when we see an on-the-field impact for one of the big-three sports, and we haven’t seen that yet.”

This is key. If you love sports, the great thing about it is that the best players will remain on the field of play whether their value is $10mm per year or $2mm per year. In contrast to the monetary figures, baseball attendance held up well during the depression. This is because teams lowered prices in response to declining nominal demand. [Note that the aggregate price level dropped 25% between 1929 and 1933.]. This should not be taken as evidence that sports are “recession-proof” since the financial side of the operations are inextricably tied to the aggregate economy. But the primary monetary cost for the major pro sports is in the form of player talent. Since the players earn such large rents over their next best alternative, the games will go on as scheduled, with the same cast of characters. Provided price adjustment takes place, the on-the-field-impact should be minimal, at least for the big three.

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