Competitive Balance (July 25, 2003)

One thing that interests me is how some teams, like the Jays have to suffer playing in the same division as the Yanks and the Redsox. But how much is that suffering?

Using Voros' work from last year, he shows us what each team's "Base Revenues" is, a figure based on the "environment" it plays in, if they were playing .500 ball. He also shows that a marginal win is worth 2.655 marginal million $ of revenue. So, let's convert their base revenue into a base win total. This is essentially how a team should perform, based strictly on the potential available of their environment.

Base Wins	Team
99	New York (AL)
99	New York (NL)
88	Baltimore
86	Boston
85	Philadelphia
84	Anaheim
84	Los Angeles
83	Detroit
82	Texas
82	Minnesota
81	Seattle
81	Houston
81	Atlanta
80	Colorado
80	Oakland
80	San Francisco
79	Chicago (AL)
79	Chicago (NL)
78	Cleveland
78	St. Louis
78	Florida
77	Toronto
77	Milwaukee
77	Pittsburgh
77	Kansas City
76	San Diego
76	Arizona
76	Cincinnati
75	Tampa Bay
73	Montreal

That's quite an advantage the NY teams have. And that's a big slap in the face of Mets management that they can't do the job. (Though, the splitting of the territories is probably not done how it should be, with the Yanks really having a bigger piece of the NY territory. Same for the Cubs and Dodgers, etc.)

Look at what the Jays have to contend with. The Yanks at 99 wins, Baltimore at 88, Sox at 86, and the Jays are at 77. If you want to know how good the Jays management is doing, you should compare them to how much above 77 wins they get. Yanks get a 99 win (or more if the splitting with the Mets is changes) baseline.

So, what should we do? I'd put the NY teams, Boston, Baltimore, and Philly in one division. Montreal, Tampa, Cincy, Arizona, SD in another division. Let the rich fight the rich. Only one of them will make it out anyway to face one of the poor teams. Give everyone a fighting chance.
--posted by TangoTiger at 11:46 PM EDT

Posted 11:46 a.m., July 26, 2003 (#4) - tangotiger
  Thanks guys...

One thing that I would want to do as well is to add the "expenses". The cost of doing business in NYC is alot higher than in a typical city, so the potential net income, aside from salaries, is not as great as the revenue would suggest. This is complicated, especially if you try to figure out a cost for the ballpark.

[Comments removed]

Posted 2:38 p.m., July 29, 2003 (#7) - tangotiger
  What the Voros equation shows is that aside from winning, that all of a team's base revenues is inherent.

The only way to increase revenues (long-term anyway) is to put a product on the field that performs better than the competition.

Any short-term gimmick ("Come see our prospects!", "Come see our European players!", "Come eat our free food") will not impact revenues for an extended period of time.

(This is just like stocks where fundamentals will drive the price of the stock long-term, but the technicals will set the pace short-term. Fundamantels in a stock, its expected future earnings, is equivalent to the talent level of a team, its expected future wins.)

The one doubt I have is the linear relationship between wins and revenue (except for that curve at the end for the playoff-bound teams). I really expected something like an extra win would result in an increase in 2% revenue (that is, proportional to the base revenue), instead of the linear relationship Voros is presenting. This is what Palmer reported in the Hidden Game, and this is what I found in a very very quick look last year (where Palmer and I only looked at attendance, which is our best stand-in for revenue). And this is contrary to Voros' more detailed, but smaller sampled, study.

Posted 2:40 p.m., July 29, 2003 (#8) - tangotiger
  If not proportional to its base revenue, at least proportional to parts of its base revenue. And this may be where Jim is heading about a team being able to increase its revenues. I think they can only leverage a certain part of their base components, but they can't do anything, unless that leverage is based on the team winning.

[Comments removed]

Posted 4:29 p.m., July 29, 2003 (#10) - tangotiger
  Sure thing.. you are talking about making an investment. Let me spend 200 million$ on a new stadium, or let me spend 5 million$ on new luxury boxes, or let me spend 500,000$ on a new scoreboard. I can drive more people to come to the game, and that will drive more revenue to my team.

I can choose, or not, to spend those revenues on my team to sustain that increase in attendance.

So, yes, there is an extra way to get more revenue. You can either get more revenue by getting more wins from your players (which may or may not cost you more money), or you can get more revenue by paying for it now (spend 10 million$ in expenses, and hope to get 1 million$ in revenue each year for the next 20 years, which discounted at a certain rate might be worth 11 or 12 or 7 million$ in revenue). If I can leverage it right, spending that money can generate more revenue.