The League Baseball Is The Only Major American Sports League

It is generally assumed with sports teams that the more you pay, the more you win. Without further insight this sounds like a logical statement. But is it factual. Of the four major American sports leagues all but one have a salary cap. A salary cap is defined as the maximum amount a team can pay in player salaries before they are required to pay a luxury tax. Major League baseball is the only major American sports league to not utilize a salary cap, thus making it an exemplary model to investigate the abstract of this paper. There are several factors that determine the payroll of an MLB franchise such as media rights, concession sales, and ticket revenue. Media rights are not equal for all teams, thus some teams may have an unfair†¦show more content†¦As alluded to earlier, MLB franchises are awarded exclusive rights to broadcast games in their local markets creating a monopoly in the franchise s immediate area. It must also be taken into account that when comparing att endance averages and price comparisons that not all ballparks have the same capacity or have equal numbers of choice seats. Nor do they share the same number of seats where there may be obstructions and prices are discounted. It must also be noted that not all markets are equal in terms of population and demand for sports entertainment when there are other professional sports franchises in that local market. With those disclaimers in place we can now analyze if ticket demand is elastic, unit elastic or inelastic. II. Elastic Demand Analysis Applying what is known about micro economic theory we can equate that in a MLB team s local market the team is a single product firm and that it will maximize profits when the additional cost of production is equal to the added revenue from selling the product (marginal cost = marginal revenue). When a team sells more tickets, its revenue will increase, unless the team decreases ticket prices to sell more tickets than the revenue will be offset by the reduced ticket price. When the demand for tickets is elastic, lowering ticket price will cause revenues to increase, since marginal revenue will be positive. When the demand for tickets is unit elastic, revenues will neither