Teams are preparing to throw truckloads of money at free agents like C.C. Sabathia and Manny Ramirez, seemingly oblivious to the financial crisis facing the rest of America.
When next season’s free-agent signing period opened on Friday, MLB teams responded like there was no financial crisis plaguing the rest of America: The Yankees offered pitcher C.C. Sabathia $140 million over six years, and the Dodgers began talks by offering Manny Ramirez $55 million for two seasons.
But are these teams being fiscally responsible, or smart for investing in their product?
Some people in Major League Baseball say their products are recession-proof; that in bad times people will step up and buy a pair of tickets to a game. This may be historically true — we’ve not done any deep analysis — but today’s baseball economics are not the same as they were back during the last deep recession in the early 1980s. Back then team fortunes were closely tied to gate receipts, but today’s baseball machine relies on cash flows from many different sources, including corporate sponsorships, apparel licensing and media revenues. Fans may not stop going to baseball games because of the economy, but they may be more willing to forgo that $7 hot dog or $8 beer. And businesses hit hard may have no choice but to scale back on their sponsorships.
That’s why some on baseball, like Commissioner Bud Selig and Mets GM Omar Minaya, warn against too much irrational exuberance this offseason: “The industry as a whole has to be a little bit on hold. Historically, sports has been immune from some factors in the economy. But this one is to be something like a perfect storm,” Minaya told The New York Times. That message doesn’t seem to be reverberating among Minaya’s fellow GMs: Red Sox Larry Lucchino says there will be some "crazy competition" for free agents.
Peter Gammons argues topline free agents won’t be affected; the real casuality will be second-tier veteran free agents who will sign for a lot less money in January.