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Apr 05

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What explains baseball’s massive revenues?

A chart prepared by businessinsider.com indicates that MLB grossed about $7.7 billion in 2012, well behind the NFL (about $9.5 billion) and well ahead of the NBA (about $4.3 billion). Businessinsider does not specify which sales are included as part of these totals (tickets, television contracts, licensing and merchandising, etc.), so the totals may very well be different under varying definitions of “league revenue.” But let’s assume that the figures are prepared on an apples to apples basis.

The hard numbers suggest that MLB is more popular than the NBA. Based on my own experience, I find this surprising. Baseball seems like a sport that was created for a different time, a time when people had an extra four hours on hand several days a week to spend at the ball park. Don’t get me wrong, I enjoy an evening at the stadium a few nights each year. But the games are long and far from action-packed. Outside of opening day, games against rivals or big names, the pennant races and the World Series, most baseball stadiums have massive excess capacity on any given night.

What then explains baseball’s huge revenues, a full 80% greater than NBA revenues? General popularity, of course, has to be one contributor. If the sport had no fans, it would have no revenue. Seasonal factors may help explain it as well. The NBA season extends through the time-constrained holiday season in November and December each year, a time of year when it is more difficult to find time for sporting events. By contrast, baseball starts in April and ends well before Thanksgiving. Time just seems more plentiful during the summer months. Football overlaps the holidays as well, but requires less of a time investment from the serious fan – only one game per week instead of multiple games per week in the case of baseball and basketball – so this seems like less of a concern.

Perhaps the biggest factor is volume. MLB plays a huge number of games: About 160 regular season games, as compared about half that many basketball and only 16 for football. In addition to having twice as many games in a season, the games runs longer at about 3 hours for baseball and 2.3 hours for NBA games, on average. The longer game time means more opportunities for advertising and television contracts. Under total hours of regular season game time, MLB (Over 7,000 hours per season) trounces the NBA (2,700 hours) and the NFL (760 hours). Stated otherwise, MLB has 2.6 times the regular season airtime that the NBA has and nearly 10 times that of the NFL.

Revenues per hour of game time reorders baseball and basketball. The NFL makes about $12.4 million per hour of game time, and the NBA is second at $1.6 million, a full 60% more than MLB ($1.0 million per hour).

About the author

Eric Madsen

Mr. Madsen is a Chartered Financial Analyst (CFA) charterholder and a Manager at Fulcrum Inquiry, a finance and economics consulting firm that performs economic damages analysis involving commercial litigation, financial investigations, business valuations, and forensic accounting. He also holds an MBA from the UCLA Anderson School of Management and a B.S. in Economics. He conducts expert analysis in finance and economics. Mr. Madsen may be contacted at 213.787.4122 or at emadsen@fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2013/04/what-explains-baseballs-massive-revenues/

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