Introduction: 

Throughout the late 20th century and the early 21st century, we have experienced the rapid commercialization of sports. A striking example was the recent IPL auction, where Rishabh Pant was sold to the Lucknow Super Giants for 27 crore ($3,122,490.09). Baseball has seen a similar financial boom, which can be attributed to its rapid increase in net worth. The Major League Baseball (MLB), founded in 1876, went from a net worth of $3.58 billion in 2001 to $11.34 billion in 2023. This raises a key question: Where does all this money come from? Throughout this article, I will explore the main drafting process for rookies, methods of revenue (for the teams and the league), and how contracts are formed: to explain how the MLB became a global economic powerhouse. 

 First-year player draft 

How does the signing process work and what makes it unique? The MLB has 3 different drafts, with different rules, for various reasons. In this section, I will explore the first year player draft: its history and how it works. The first year player draft, started in 1965, has been the main drafting process for amateurs ever since. At first, it was originally 20 rounds, with a total of 813 players being selected in the inaugural draft. Since then, after a large expansion to 40 rounds in 2012, the MLB draft was reduced to 5 rounds during the pandemic in 2020. Post 2021, the rounds of the draft were set at 20, with around 600 players being selected. Another key factor that makes this drafting process unique is the order. The 18 teams which didn’t qualify get first picks. Furthermore, to determine the top six picks, a lottery system was introduced in 2023. Moreover, the team with the worst records in the previous season has the highest chance of receiving a place in the top six. To prevent teams from losing on purpose if they get bad picks, MLB introduced a few new rules. Larger teams (Yankees, Cubs) can’t be drafted into the lottery in consecutive years, and smaller teams (Kansas City Royals) are prohibited from lottery selection after 2 years. If a team is ineligible for lottery selection and they don’t make the playoffs, they can be selected no earlier than 10th. Hence, this rule prevents repeated winners in the lottery. 

Team Finances: The Case of the Yankees 

To gain a good understanding of the economics behind the MLB, it’s crucial to look at the teams’ finances: Currently, the New York Yankees are the wealthiest franchise with a value of $7.55 billion. The questions that arise from this are: How are teams financed, and how do they generate such a large revenue? 

The New York Yankees have two main factors that contribute to this immense revenue: long-term sponsorship investments from companies and lucrative television rights.  One example of long-term investments in the New York Yankees is Starr Insurance, which is investing $25 million annually until the 2031 season. 

 In terms of television rights for the New York Yankees, they make up around 22% of their total revenue. Evidence of the large scale contribution television rights make can be seen by the long-term deal with YES (Yankee Entertainment and Sports) network, which will broadcast all games until 2042. The Yankees benefited heavily from this, earning $143 million in 2022. 

Fan attendance 

Furthermore, fan attendance generates significant revenue through ticket sales and parking fees, and concessions. When looking at ticket sales, prices range from $209 (Los Angeles Dodgers) to $69 (Miami Marlins), with ticket sales making up around 30% of the MLB’s total revenue. When thinking about the New York Yankees, their popularity and revenue were on full display when they sold a record breaking $345 million worth of tickets in 2022 (their most in a decade). When it comes to parking fees and concessions, they account for roughly 10 percent of the MLB’s total revenue. In 2024, the most expensive parking fee was $85 at Wrigley Field. 

Revenue inequalities 

From these stats, a key question arises: How do you breach revenue inequalities? One way that the MLB aims to do this is by distributing the revenue equally through “revenue sharing”. In revenue sharing, teams contribute 48% of their total revenue, which is then split equally. From this, each team receives around $110 million in revenue. 

MLB in terms of global sports and the revenue it generates 

So, how does the MLB rank in terms of global sporting leagues? When it comes to economic power, the MLB stands head and shoulders above most other leagues in the world (only behind the NFL). In terms of revenue, the MLB generates around $10 billion a year. However, in 2023, evidence of the growing economic power can be seen by the large increase in revenue ($10.32 billion in 2022 to 11.34 billion in 2023). In addition, the MLB’s television rights deals are among the most lucrative in the world, with broadcasters paying millions of pounds over a long period. In 2014, the MLB secured a major broadcasting deal with ESPN for games between 2014 and 2021, which was worth $5.6 billion. These deals dwarf the TV revenues of other major leagues, such as the Dutch Eredivisie, worth only £80 million. 

Contracts and salaries  

Once a player has been signed by a team, the team and the player must now agree to a contract. One of the main components of a contract is the salary, which decides how much a player will earn. As of 2024, the average player salary was $4.98 million. However, in the MLB, several factors decide the overall salary, such as the base salary (guaranteed money regardless of performance) and the signing bonus (which is the money paid to persuade players to sign the contract). Another key aspect of the contract is the duration. This decides how long a contract will last. Usually, in the MLB, the average contract is 6 years. However, if a team wants to retain a player beyond their contract duration, large investments are often made. An example of this was seen in 2021 when Fernando Tatis Jr signed a 14-year contract for the San Diego Padres. The contract was worth $340 million with a $10 million bonus, which suggests that teams are looking to make long-term investments. However, a contract is changeable and a key factor that influences the overall salary is the luxury tax (also known as the competitive balance tax). The luxury tax is a tax added to teams with payrolls (salary a player or coach receives) that exceed a certain threshold, with teams being taxed on each extra dollar. This threshold varies each year; in 2022, it was $230 million; however, in 2023 it was $233 million. For each year that a team crosses the threshold, this changes: There is a 20 percent tax increase if the threshold is exceeded once, 30 percent tax if the threshold is exceeded twice, and a 50 percent tax increase if the threshold is exceeded thrice.  If the team exceeds the salary cap by a very large amount then they face a supercharged tax: 12 percent tax increase if the threshold is exceeded by $20-40 million, 42.5 percent tax increase if the threshold is exceeded by $40-60 million (and 45 percent tax for all the years that the threshold is exceeded by $40-60 million after that) and if the threshold is exceeded by $60 million or more then teams face a 60% tax. 

Conclusion: 

So is baseball an economic powerhouse? Although it is not a frontline sport in America, baseball has turned into a financial giant and looks set to keep growing. Through effective marketing and TV contracts, baseball has expanded throughout the world, becoming popular in Asia and South America. Therefore, despite a decrease in revenue and viewership during the COVID-19 years, the MLB has flourished since then and is projected to continue expanding and solidify its status as a powerhouse in the global economy.