It's all about TV.
Why did the Los Angeles Dodgers just complete the most expensive trade in MLB history this weekend with the Boston Red Sox? The answer is a good lesson in sports and entertainment economics.
Responding to questions about the mammoth $260 million trade -- which, for the first time ever, included not one but two players with more than $100 million left on their contracts -- the Dodgers' chairman Mark Walter claimed "the value of this franchise is represented in the price we paid -- that
doesn't go up or down with one or two players' salaries."
Huh? Why is the owner of the Los Angeles Dodgers acting like he doesn't care about money? Maybe it's because he's crazy. Or maybe it's because he doesn't care about a particular kind of money -- the $400 million or so he'll spend on contracts between today and 2014. As it happens, that's the year the Dodgers are poised strike a new local TV deal that could make them the new money kings of baseball.
When you look at a baseball team like a business, you might first look at the stadium and players on the field, which you'd consider the main cost, and the people in the seats, which you'd consider the main revenue. But look closer and you'll see an announcer's booth and cameras around the field, which brings the game to an audience many times the size of the bleachers. Like any entertainment business, sports is all about attention. And there are a lot more people with couches and TVs than there are seats in a stadium.