Forbes just published its annual valuation of Major League Baseball clubs, with the Stros rating a solid 11th among the 30 clubs at an estimated $442 million, or a bit more than a 1/3rd of the value of the top-ranked Yankees and about 60% of the value of the second-ranked Mets and Red Sox. The Texas Rangers are valued at about $80 million less than the Stros. Craig Depken provides some heavy duty analysis of the numbers and comes to the following conclusion:
In the business of baseball, especially in an era of free-agent salaries and the luxury tax, the more the team wins, the lower the profits. What’s going on? The source of this conundrum is the diminishing returns to quality on the revenue side: marginal improvements in team quality do not increase revenue as much. On the cost side, marginal improvements in team quality become ever more expensive.
What does this say about the public subsidies given to the various sports franchises?
We have taken tax revenues to subidize the cost of the teams to build venues in which to operate. Had tax dollars not been used, the teams themselves (like most other private businesses) would have been responsible for finding suitable accomodations in which to conduct business. Once the team revenues were made availabe to player salaries instead of facilities, the monies were then spent on increasing less productive expenditures.
If the public was not subsidizing the MLB facilities, teams would have to have to be more careful with the resources they had to work with, as less revenues would be available for player salaries. Therefore, the only conclusion that can be arrived at is that public subsidies for MLB (if not all pro sports) leads to teams sqandering monies on unproductive player contracts.
Why again are we using public tax revenues to subsidize professional sports?
Charles, you are correct that there is really no good moral justification for using tax dollars to promote a private enterprise such as a local sports team, at least to the extent that we do it in the U.S. Much the same dynamic is at work in regard to subsidizing minor league professional sports (i.e., big-time college football and basketball), where huge amounts of revenue are generated through payments that have tax benefits tied to them.