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.

Addendum: I just received the following blurb in an e-mail from Sports Business Journal.

Marketers said that despite the release of the Mitchell Report detailing the use of performance-enhancing drugs in baseball, they “aren’t likely to be scared off the sport in general,” according to Thompson, Kang & Jones of the WALL STREET JOURNAL. GM’s three-year MLB sponsorship expired at the end of the ’07 season, and the company is “now in talks” with league on a new deal (WALL STREET JOURNAL 12/14).

5 Responses “The Financial Impact of the Mitchell Report”

  1. Marc Schneider says:

    Totally agree, JC. People don’t even mind if the players are murderers if they can play. When Leonard Little returned to the Rams after serving a light sentence for driving drunk and killing someone,he was warmly received by the fans. The only real sin to fans is losing. If people are so shocked after years of hearing about steroid allegations, they need to get their heads out their asses.

  2. Ron says:

    I would date steroids concerna back to the homerun chase in ’98 and the flap about McGuire using andro.

  3. JC says:

    While there was some discussion of steroids, I do not recall the feelings becoming so strong until Bonds came along. After all, people still cheered when McGwire broke the record, even after the andro incident.

  4. Edward says:

    When the story of one of Radomski’s first and most loyal clients’, Lenny Dysktra, use of performance enhancing substances surfaced, the reaction in the Philly area was minimal. Mitch Williams, one of Dykstra’s closest friends, laughed about the Dude’s weight oscillation. I remember a similar, benign reaction to the Alex Sanchez incident. Though the ’93 season was Dykstra’s most productive year by far, Philly fans (myself included) were ignorant in their bliss of the Phils winning their first division title in 10 years. I think the effect ’94 strike somewhat quelled whatever steroid controversy may have surfaced. Barry Bonds and Roger Clemens are simply victims of circumstance and that’s unfortunate.

  5. Marc Schneider says:

    Well, Bonds is considered a prick (a judgment with which I agree) and that had a lot to do with it. I don’t think it was his race, but if a more popular player had broken the record, I think people would not have cared so much about the steroids. On the other hand, I think McGuire’s reputation and stature has suffered, especially since his Congressional testimony. I also think that people know more about steroids now or at least have read more. I suspect that 10 or 15 years ago, the use of steroids might not have appeared to be as serious a matter as it does now.