Earlier this month, an article was published on The Business Journals’ blog “On Numbers” that stated that Denver is the most overextended market for professional sports in the United States. Of particular interest to fans of Cleveland sports, though, is perhaps the fact that #2 on the list in none other than Cleveland.
According to the article’s author, G Scott Thomas, Cleveland has a deficit of $71.445 billion in terms of personal income to total break even point for one team each in the NFL, the NBA, and MLB. When I first saw this article, I can’t say I was completely shocked. I’ve been pondering for the past couple years whether the rapidly declining population of Cleveland is eventually going to make it unsuitable to have 3 sports teams.
Heck, already the Indians play to criminally tiny crowds and we’ve yet to really see the impact of losing LeBron to the Cavs (thanks to last year’s season ticket renewals being due before “The Decision”). So maybe that time is here already, I thought. But I wanted to look a little deeper at what these numbers mean. So let’s read what Thomas says about this study first:
On Numbers analyzed 85 metropolitan areas in the United States and Canada to determine if they have the financial ability to support professional teams in baseball, football, basketball, hockey and soccer.
The Denver area would need total personal income (TPI) of $209.3 billion to provide an adequate base for its five existing teams, according to the study. (TPI is the sum of all money earned by all residents in a given year.) But Denver’s actual TPI is $121.9 billion, yielding an income deficit of $87.4 billion.
This shortfall doesn’t necessarily mean that any of Denver’s teams will move or fold. But it’s a reliable sign that those teams can expect continued volatility in attendance and revenues.
Nineteen other markets are overextended, based on estimates by On Numbers. Among them are five areas with TPI deficits larger than $50 billion: Cleveland, Pittsburgh, Tampa-St. Petersburg, Kansas City and Milwaukee.
The first question this raises is whether taking Total Personal Income is really a proper way to gauge sustainability in sports. But before we even get that far, let’s first take a closer look at these numbers themselves.
According to the study’s data methodology report, they used multiple factors including team revenues and average ticket prices to figure out each sport’s break even point. They found that the break even point for a MLB franchise is $85.4 billion per season, for an NFL team is $36.7 billion per season, and for an NBA franchise is $34.2 billion. Adding those three numbers to represent the Indians, Browns, and Cavaliers and you get the $156.3 billion that Cleveland needs to break even.
From there you merely subtract that number from each market’s TPI to find the surplus or deficit that every market has. So in this case, according to the US Bureau of Economic Analysis the Cleveland-Elyria-Mentor MSA had a 2010 TPI of $84.854 billion. Subtracting Cleveland’s 3 sports teams from that leaves us with the reported $71.445 billion deficit cited in the article.
There are several problems I have with this methodology, however. First of all, the Cleveland metropolitan area is bigger than just the Cleveland-Elyria-Mentor MSA. In my opinion, if you’re going to use MSAs rather than just each city’s incorporated population, then you need to include both the Akron MSA ($26.667 billion TPI) and the Canton-Massillon MSA ($13.514 billion TPI) with the Cleveland MSA.
Adding the three MSA’s together, you get a TPI for the entire Cleveland metro area of $125.035 billion. This then leaves Cleveland with “just” a $31.265 billion deficit. While still overextended (according to this theory), this would place Cleveland in a slightly more comfortable position of 11th on the list, in between Cincinnati ($37.524 billion deficit) and Buffalo ($30.874 billion deficit).
However, the bigger problem I have with this article is the very principle itself, that Total Personal Income is a suitable sole measure of a market’s ability to support its sports franchises. First of all, there seems to be no accountability for regional differences in cost of living. While cost of living might be reflected in the TPI figures, it is ignored by the irrational decision to use the same break even numbers for every sport and for every market.
For example, there is absolutely no way it costs the same amount of money for the Indians to break even in Cleveland as it does for the Yankees to break even in New York. This is going to be the same for every sport, meaning that Cleveland’s relatively low cost of living is likely to reduce the overall deficit.
There are plenty of other factors that this study fails to take into consideration. Corporate partnerships is one, but another major factor is each team’s stadium situation. Some sports franchises are handcuffed by bad stadium deals and/or unfavorable lease agreements with the cities or ownership groups.
Cleveland is fortunate from this standpoint, too, in that the oldest stadium in actually Jacob’s Field, which opened in April 1994 (The Q shortly followed that October). And though none of the stadiums are owned by the teams themselves, we’ve also not heard any outward complaints from the teams that their lease agreements are unfavorable.
Ultimately, I still believe Cleveland may some day be in trouble with having three sports teams if the city and state leadership is unable to turn around some of the economic problems with NE Ohio. I worry what a lockout will do to the strong local support the Cavaliers have built in recent years. I worry about whether MLB’s ridiculous economic system will some day make a team in Cleveland no longer work at all.
But I don’t believe that Cleveland is overextended to the tune of a $71 billion deficit as this market reports. We know the Indians are tight on revenues due to declining attendance and other factors. We know the Cavaliers were not extremely profitable even when LeBron James was here, due in part to high payroll. But I don’t get the sense that Cleveland is under any imminent danger of losing one of its teams. Certainly not on the basis of just measuring personal income of the immediate Cleveland MSA.