How MLB Roared Back After 1994 Strike With Revenue Up 400%
Never let the facts get in the way of a good story. And there is a good story to tell about Major League Baseball’s resurgence 20 years after a seemingly devastating player strike began on August 12, 1994. This strike did something that World War I, World War II, Vietnam or September 11th could not – it forced the cancellation of the World Series for the first time in 90 years. Per-game attendance plummeted 20% in 1995. Given the unprecedented circumstances that caused the strike, how did the league recover?
The most common narrative is that MLB capitalized on its stars to entice fans back to the ballpark. First, the league relied on Orioles’ infielder Cal Ripken Jr. breaking the hallowed consecutive games played streak when he passed the New York Yankees’ “Iron Horse” Lou Gehrig during the 1995 season. Then, in 1998, MLB promoted the duel between Mark McGwire and Sammy Sosa as they chased down the single season home run record. By 2001, San Francisco Giants outfielder Barry Bonds put an exclamation point on baseball’s power surge by blasting 73 home runs in ballparks throughout the country, leaving the records of Babe Ruth and Roger Maris a distant memory.
The only problem with this story is that it turned out to be too good to be true. While stars did play a major role in MLB’s rise after the strike, they also could have sunk baseball. Many of the stars of the late 90’s and early 00’s, including McGwire, Sosa, and Bonds, have been linked to using performing enhancing drugs (PEDs). In 2005, All-Star first baseman Rafael Palmeiro defiantly told Congress while under oath that he never took PEDs, only to have a positive drug test that same season. More recently, Most Valuable Player award winners Alex Rodriguez and Ryan Braun admitted to using PEDs after previously denying taking these drugs.
Fallen stars, however, have not led to a fall in MLB’s profits. While overall league attendance has consistently increased since the strike, MLB has only more recently reached a “Golden Age“ in attendance. According to MLB, the “10 best-attended individual seasons” occurred from 2003-13. At the same time, annual baseball revenues have soared from $3.6 billion in 2003 to over $8 billion in 2013 (revenues were $1.9 billion in 1993). Forecasts put revenues as high as $9 billion in 2014 or only $1 billion less than the NFL’s 2013 annual revenue.
If relying on star power did not fuel MLB’s long-term success, then what has led to the league’s meteoric rise since the strike? It starts with maximizing new technologies. Even though he claims he has never sent an email in his life, MLB Commissioner Bud Selig has presided over the growth of one of the leading digital and mobile companies in the world, Major League Baseball Advanced Media (MLBAM). Originally created in 2000, MLBAM centralized all digital and mobile activities for the league into one organization led by Bob Bowman, who has increased revenue to an estimated $800 million in 2014. Among MLBAM’s many innovations, it became one of the first sports organizations to provide out-of-market broadcasts of games through MLB.TV to fans that lived far away from their favorite teams. It also created the MLB At Bat mobile application to enable users to stream out-of-market games on their mobile devices while also providing unique content customized for the mobile experience.
MLB has been at the forefront of integrating technology with the in-stadium experience whenever possible. The league recently introduced the iBeacon system to improve the audience experience while at the ballpark. Created by Apple, iBeacon uses Bluetooth technologies to send messages to mobile devices depending on their location in the stadium. Teams can now send specific promotions based on a fan’s past behavior at the ballpark. They can also provide fans with opportunities to improve their stadium experience by offering them the ability to purchase seat upgrades when they arrive at a game.
MLB would likely not have been in a position to use iBeacon technology without building or making significant upgrades to its ballparks. Since 1994, 60% of MLB teams have built new stadiums with many using public financing to help build these venues. The latest example is the Atlanta Braves, who reached an agreement in 2013 with Fulton County to fund a new stadium after only playing for 17 years in Turner Field, which was originally a publicly funded venue built for the 1996 Olympics. The only baseball teams with unsettled stadium situations reside in Oakland and Tampa Bay.
Even while prioritizing the building and enhancing of its venues, MLB was also quick to recognize the importance of media rights deals. In particular, baseball teams were among the first organizations to either sign lucrative local television deals with regional sports networks (RSNs) or build their own networks to broadcast games. The Red Sox were one of the first teams to air its games on an RSN when the team broadcast most away games in 1984 on New England Sports Network, which is majority owned by the Red Sox. The New York Yankees took things to another level when it launched the Yankees Entertainment and Sports Network (YES) in 2002. More recently, the Los Angeles Dodgers signed an agreement with Time Warner Cable that will pay the team $8.35 billion over 25 years. The Los Angeles Angels, San Diego Padres and Texas Rangers all have secured RSN agreements worth at least $1 billion.
There is a question of whether RSNs can afford these agreements. For example, Time Warner has struggled to reach deals with cable and satellite providers to carry the channel with Dodgers games because of the significant increase in costs to customers. Comcast SportsNet Houston, 45% owned by the Houston Astros, filed for bankruptcy this year after failing to get widespread carriage pacts in Houston. However, MLB teams will likely continue to receive large sums of broadcast dollars because they can provide RSNs with a significant amount of new and live television content throughout the year.
While successful on a regional basis, MLB often suffers from comparatively lower national television ratings that could prevent it from signing lucrative new media rights deals in the future (MLB’s current deals with ESPN, Turner and Fox extend past 2020). Other challenges: the decline of youth participation in baseball, especially in African-American communities, has threatened MLB’s ability to grow the sport. In addition, MLB faces a continuing concern with the length of its games. While many baseball purists are content that games take three hours to complete, MLB has a hard time attracting new fans to watch or attend games given the relatively slow pace of play. These issues, combined with the rise in popularity of sports such as soccer and lacrosse, means that baseball will continue to face new and growing competition for its audience.
Despite these challenges, MLB is in a far stronger position now than when the players took themselves out of the ballgame in 1994. Stars did help raise the profile of MLB immediately after the strike and 20 years of work stoppage-free baseball made a difference (there were eight work stoppages between 1972 and 1994). However, it was the organization’s strategic choices that enabled the league to recover. Even as it faces future competitive threats, MLB has become a star business in today’s sports industry.