Inning 2: The Market for Pro Sports
(Part 1 of 3)

Markets develop when buyers and sellers freely come into contact with one another. Every market has a “demand side” (buyers) and a “supply side” (sellers), and the interaction between buyers and sellers helps to determine prices. (More on this in Innings 4, 5, and 6.)

Sometimes markets are defined by geography:

• Local/regional markets—buyers and sellers live in the same city or the same part of the country;
  
  
• National markets—buyers and sellers live in different parts of the country;
  
  
• International markets—buyers and sellers live in different parts of the world.

And sometimes markets are defined by what is bought and sold:

• Product markets for goods and services;
  
  
• Labor markets for talents and skills;
  
  
• Financial markets for money.

The growth of spectator sports offers a prime example of how markets develop and why they evolve.

A. Take Me Out to the Ballgame

What’s the one thing a professional sports team can’t do without? Fans!

Talent is important; so is a big TV contract. A state-of-the-art sports facility is nice, too. But fans are the key to everything, and that’s why most pro sports teams are located in large metropolitan areas.

Look at it this way:

• Teams are selling a product;
  
  
• Fans are the buyers;
  
  
• The more people there are in a team’s market area, the bigger the pool of potential fans.

But the key word is “potential,” because potential fans won’t become actual fans unless they also have:

• extra money to spend on entertainment;
  
  
• enough leisure time to watch a game;
  
  
• the desire to spend some of their time and money on sporting events rather than something else; and
  
  
• a way to get to the game (a network of roads and public transportation) or a way for the game to get to them (newspapers, radio, television, and the Internet).

Most of these pieces started coming together during the second half of the 19th century when the United States entered a period of remarkable economic growth. Here’s the “short course” on how it happened.

Sorry, but we have to use the phrase “Industrial Revolution.”

Let’s face it, the Industrial Revolution isn’t a topic that’s likely to make anyone’s pulse beat faster. But if it hadn’t happened, the world would have been a very different place, and the market for big-time pro sports might never have developed.

What exactly was the Industrial Revolution?

Short answer: An extraordinary change in the way people produce things. It began in Europe during the late 1700s and soon spread to the United States.

Until then, people had worked in small units and used hand tools to produce things in limited quantities. Farm families grew their own food, built their own shelter, made their own clothes, and sometimes earned extra income by producing textiles or handicrafts.

And in cities and towns, artisans worked at home or in small shops to produce custom-made items—shoes, clothing, pottery, furniture—for local buyers. In fact, buyers and sellers almost always conducted their business in local markets because travel was slow, expensive, and risky.

Then came the Industrial Revolution, and life changed forever:

• People began to “go to” work. The production of goods shifted from households and small workshops to large mills and factories.
  
  
• Labor-saving machinery and new ways of organizing work made it possible for factories to manufacture things in much bigger quantities.
  
  
• Farms got bigger and more productive. Machinery and scientific techniques made it possible to produce larger crops with less labor.
  
  
• The world became a smaller place. Better transportation—railroads, steamships, canals, bridges—helped to cut shipping times and freight costs. And better communications—telegraph and telephones—helped to speed the transfer of information. Two examples from economic historian George R. Taylor illustrate the point:
  
  
  1. In 1817 the cost of moving freight from Buffalo to New York was more than 19 cents a ton-mile. In 1840, after the Erie Canal opened, the cost was less than 2 cents a ton-mile.
     
     
  2. In 1830, the cost of moving freight from Boston to Worcester, Massachusetts was 17.5 cents a ton-mile. In 1833, after the Boston & Worcester Railroad began operating, the cost dropped to 6.25 cents a ton-mile.

To understand how all this helped to create a market for pro sports, let’s take brief look at how the United States changed between 1800 and 1900.

The United States got a lot bigger.

Farm productivity increased.

Farming became less labor-intensive, crop yields went up, and crop prices went down.

Farm machinery made it possible to produce larger crops with less labor. (Advertising poster, 1871). Photo courtesy of State Historical Society of Wisconsin, McCormick-IHC Collection. Click on photo for a bigger image.

Industry expanded.

Belmont Nail Works, mid-1800s. Photo courtesy of Prints and Photographs Division, Library of Congress. Click on photo for a bigger image.

The United States became much more urban.

Urban and industrial growth created a bigger pool of potential sports fans. (Washington Street, Boston, 1904). Photo courtesy of The Boston Public Library, Print Department. Click on photo for a bigger image.

Rising farm productivity and rapid industrial growth triggered waves of migration to American cities. Most of the newcomers were attracted by the prospect of earning steady cash in factories and offices. Some came from the American countryside, where rising farm productivity had created a labor surplus. Others came from foreign countries where there were limited opportunities for economic or social mobility.

“Real” wages increased.

Time out for an explanation: The dollar amount on a paycheck—also known as the nominal wage or money wage—doesn’t always reflect a person’s actual buying power. That’s why economists often focus on the “real” wage, which measures the quantity of goods and services a paycheck will buy.

When the 19th century began, most people made their living as small farmers or artisans. And for many of them there was no such thing as a “steady income.”

Farmers were always at the mercy of insects, blights, or bad weather. And even in the best of times, cash was so scarce that people often resorted to barter.

One of the major economic changes to come out of the Industrial Revolution was an increase in jobs that offered people a chance to earn steady cash wages.

The average “money wage” for American workers was actually lower in 1900 than in 1865. But in “real” terms, they had more buying power—they were able to buy more stuff with the money they earned.

 

Average Annual Earnings for Nonfarm Employees, 1865 and 1900   Money Wage Real Wage 1865 $512 $328 1900 $483 $573

Why did real wages increase? Two main reasons:

1. Economies of Scale
   
   The savings—or “economies” —that resulted

   Cotton mill, Adams, Massachusetts, 1910. Photo courtesy of Prints and Photographs Division, Library of Congress. Click on photo for a bigger image.

   from large-scale production helped to lower the cost of food and manufactured goods. Labor-saving machinery, standardized parts, and better organization made it possible for factories and farms to reduce their “per unit” costs. Mills and factories were able to produce more yards of cloth at a lower cost per yard; more tons of steel at a lower cost per ton; more pairs of shoes at a lower cost per pair. Farmers were able to produce more bushels of wheat at a lower cost per bushel or more bales of cotton at a lower cost per bale.
   
   
2. Markets expanded and competition increased.
   
   Faster, cheaper transportation made it possible for farmers and manufacturers to connect with consumers in distant markets. The result was more competition among sellers; more choices, greater variety, and lower prices for consumers.

More Leisure Time

Thanks to the increase in “real” incomes, people could afford to work fewer hours. They could afford to “buy” more leisure time.

The necessary pieces for a pro sports market were falling into place:

• Urban and industrial growth created a bigger pool of potential sports fans; and
  
  
• The increase in “real” wages gave fans enough extra time and money to spend on entertainment.

Only one piece was missing.

Getting to the Game

Trolleys, subways, and better streets helped to expand the market for pro sports by making games accessible to more fans. (Trolley Track Construction, Malden, Massachusetts, 1902). Photo courtesy of The Boston Public Library, Print Department. Click on photo for a bigger image.

In the mid-1800s, a trip to the ballpark required dedication and endurance. Fans who didn’t live within walking distance, faced an odyssey of train rides, ferry crossings, and horse-drawn coach trips.

In order for pro sports to prosper, getting to the game had to become easier. The solution came in the form of public transportation systems.

Urban growth had created the need for a quick, affordable way to move lots of people over longer distances. City governments and private companies responded by building networks of electric trolley car lines (late-1880s) and subway tunnels (late-1890s and early-1900s).

And of course, the same streetcars and subways that carried people to work also helped to expand the market for pro sports by making games accessible to more fans.

 

Electric Street Railways, 1890-1937 Year Number of Companies Miles of Track 1890 789 5,783 1907 1,236 25,547 1922 1,200 31,264 1937 478 14,214 All statistics in this section: Historical Statistics of the United States, Colonial Times to 1970, U.S. Department of Commerce, Bureau of the Census.