JC Bradbury on the Financial Impact of the Mitchell Report

The Mitchell Report (which you can read HERE) on steroids in baseball is THE story in sports today.  Tyler Cowen of Marginal Revolution linked today to the following column written by Steve Walters (posted at the WoW Journal in June).

Rocket Science: Clemens and ‘Roids 

And today, JC Bradbury posted a very good column on this subject at Sabernomics. For those who don’t want to follow the link, here are Bradbury’s thoughts on the long-run impact of this issue (his table didn’t quite make it).  And in case you were wondering, I don’t agree just because he mentions our research (okay, that’s part of it).

The Financial Impact of the Mitchell Report

Yesterday, I was asked to appear on television to discuss the financial ramifications of the Mitchell Report. Alas, I was bumped, but that won’t stop me from discussing the issue here. Take that TV! (I am kidding.)

Fans didn’t learn of steroid use in baseball on December 13, 2007. Though there was some talk of it in the 1990s, my recollection is that fans and the media began to express negative opinions about performance-enhancing drugs in the game following Barry Bonds’s 2001 season, in which he hit 73 home runs. Wikipedia seems support my memory reporting that Bob Costas referred to the time in baseball as the “Steroids Era” in a June 2002 interview.

Since that time, fans have not turned away from baseball, as the table below reports.

Year	Revenue	% change	Attendance	% change 2002	$3.4	---		67,944,392	--- 2003	$3.9	14.71%		67,630,048	-0.46% 2004	$4.3	10.26%		73,022,976	7.97% 2005	$4.7	9.30%		74,915,264	2.59% 2006	$5.2	10.64%		76,043,904	1.51% 2007	$6.1	17.31%		79,484,718	4.52% Average		12.44%				3.23%  Sources: Sporting News, The Lahman Baseball Database, and Baseball-Reference.com

The table indicates that MLB has been doing quite well for itself despite the steroid accusations that have been surrounding the game during this time period. Revenue growth had averaged 12.44% a year since 2002. Attendance has grown an average of 3.23%, with MLB breaking attendance records each of the past four seasons. Now, this is not to say that steroid fears haven’t inhibited further growth; however, you know economic times in baseball are good when Bud Selig is admitting it.

“When you look at the final numbers and you see what’s happened, it’s remarkable. There are times, honestly, when I have to pinch myself to make sure all of this is happening. … Growth and revenue, growth and profitability; it’s just been really, really good.”

Despite the tough rhetoric, fans don’t turn away from the game when players and owners do things that fans don’t like. The work of Martin Schmidt and David Berri on the impact of labor stoppages on fan attendance shows that fans are quick to return to the sport despite promises not to do so. Here is my summary of the paper from several years ago, and here is a more recent discussion by Berri. They also have a chapter on the subject in The Wages of Wins. In summary, fans have demonstrated that they will talk the talk, but not walk the walk when it comes to strikes and lockouts. I think this work translates to the steroid issue, and is even more applicable. As a fan, the lack of baseball upsets me far more than steroids, so I suspect any impacts would be less than those where the games cease.

Thus, I doubt that there will be any blow-back from fans. They have long known that steroids have been in the game and don’t appear to have turned away from it. If anything, it’s given baseball more publicity. The Mitchell Report might make some fans think that if many players are using, then the overall harm from steroids is less than they had anticipated. After all, even if they think Bonds was using performance-enhancing drugs, maybe his home runs off of Denny Neagle and other pitchers occurred on equal footing.

I do think that there will be some damage to individual players. My guess is that Eric Gagne won’t be doing any more trash bag commercials. However, this will just transfer the endorsement revenue to players lacking similar allegations. And maybe some advertisers will steer clear of baseball teams and players altogether. But, given that revenues and attendance have not been suffering in the “Steroids Era”, I think the losses range from minimal to non-existent.

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