The Tampa Bay Rays Make Another Run
The Tampa Bay Rays are definitely an economic anomaly in Major League Baseball (MLB). As of July 30, 2013, the Rays are in first place in the American League (AL) East, sitting just a half game above the Boston Red Sox in an exciting pennant race. Yet the Rays payroll of only $57 million pales in comparison to $159 million payroll of the Red Sox (source). This is not another Moneyball story, rather, the Rays just seem to have a really good farm system that keeps producing productive players. This is a story about the Rays attendance and poses the question how long can the Rays ownership survive in Tampa Bay? Stuart Sternberg, owner of the Rays, was quoted in 2011 as saying
“When I came in here in ’05 and ’06, I saw the stars, and I was confident that we could put a winning product on the field — and I was told by you guys and others that all we needed was a winning team. Well, we won. We won. We won. And we won. And it didn’t do it.”
Sternberg is referring to profit when he referred to “all we needed was a winning team”. Sternberg made significant investments in talent for the start of the 2007 season and the payroll jumped to $57 million. The results began to show in the 2008 season when the club won 97 games, clinching the Eastern division pennant but losing the World Series in 5 games. Unfortunately the tremendous success did not translate into fan interest and the club experienced only a modest improvement in revenue for 2008, but did move up somewhat compared to the MLB average revenue. The Rays made the playoffs again in the 2010 and 2011 seasons with the payroll reaching $80 million in 2010. But revenues did not keep up and profits shrank to levels below the 2005 season (it is quite likely that the Rays benefited from baseball’s revenue sharing agreement much more in 2005 than in 2010). By the end of the 2011 season, Sternberg gave in and cut the Rays payroll to $40 million.
The Rays are a strong contender in 2013 to win the AL East pennant and move into the playoffs. Sternberg upped the payroll by acquiring all-star reliever Jesse Crain from the White Sox on July 29 and they appear to be gearing for a pennant run. Unfortunately Ray fans have not responded at the gate. Per game attendance is down by 2,860 from the 2012 figure and the Rays have the second lowest attendance in MLB (source) only slightly above the far-worse performing Miami Marlins, despite the Rays having a better winning record compared to this point last season. What gives in Tampa?
The standard economic model of a professional sports league is not working in Tampa. Revenue is a function of winning in that model, so attendance should be surging and so should revenues at the single equilibrium the model assumes. Putting aside the notion that Sternberg only receives utility from the satisfaction from winning (see the quote above), the model needs to be overhauled. Or does it? It is simple to augment the standard model to generate more than one winning equilibrium: small market clubs can have a low and a high winning equilibrium, but only the low equilibrium achieves the globally highest profit. Steve Easton and I generate such a result in our forthcoming book (Springer) that is based on our 2010 paper published in the Journal of Sports Economics. The burning question is why a profit-maximizing owner would wish to move to and stay at the high equilibrium, even though it is only a local profit maximum? Revenue sharing helps the Rays for sure, but that can’t be enough. We suggest some answers, citing the Hubris effect, the desire to have the local government build a new stadium, or that owners care more about maximizing the sale value of a club rather than current profits. If all this fails, then Rays fans had better start supporting the team or the team could leave (maybe the fans don’t care). All good for me since there are rumors of a potential owner with deep pockets owing a team in Montreal. Les Expos?