The Captain's Blog

Over the last couple of weeks there has been a lot of debate about the value of home field advantage in baseball. The discussion was crystallized most recently when the Yankees rested key bullpen members in their first place showdown against the Rays, but it has really be going on since the advent of the Wild Card.

Yesterday, we wondered about the value of finishing first from an accomplishment perspective, but ultimately, that is a very intangible way of looking at the question. At SI.com, Joe Seehan looked at home field advantage from a competitive standpoint and came to the conclusion that it really wasn’t an advantage at all. According to Sheehan’s research, the number one seed has advanced to the World Series in only eight of 24 chances since 1998, when the current playoff format was established. What’s more, over that span, the home team has only gone 45-39 in all post season series, according to Sheehan. In other words, there really isn’t a home field advantage in baseball during the postseason.

There is at least one more vantage point from which to consider this question, and it could very well be the most important…Economics.

In the post season, gate revenue (i.e., attendance) is divided between the players and hosting team using the following format:

• Players: 60% of gate receipts from first three games of LDS and first four games of LCS and World Series; no contribution from other games.
• Home team: 40%* of gate receipts from first three games of LDS and first four games of LCS and World Series; 100% of gate receipts from all other games.

*A small percentage (approximately 1.5%) of LDS gate receipts goes to the umpires, while 15% of LCS and World Series gate receipts go to MLB.

On the face of it, there seems to be an economic advantage to having home field. But, is it real, and if so, how significant is it?

The first step in the process is to take a look at the potential revenue opportunity for each permutation (because home field in the World Series is based on the All Star Game, it is not considered in this analysis). Based on the chart below, we can see that as a series goes longer, the economic advantage shifts to the home team, especially in the LCS. However, it is also apparent that in shorter series, the visiting team stands to make more money.

Exhibit 1: Possible Gate Revenue Scenarios

	Three Game LDS				Four Game LCS
	Average Gate Per Game*	Total Revenue			Average Gate Per Game*	Total Revenue
Home	$2,500,000	$2,000,000		Home	$3,800,000	$3,040,000
Visitor	$2,500,000	$1,000,000		Visitor	$3,800,000	$3,040,000
	Four Game LDS				Five Game LCS
	Average Gate Per Game*	Total Revenue			Average Gate Per Game*	Total Revenue
Home	$2,500,000	$2,000,000		Home	$3,800,000	$3,040,000
Visitor	$2,500,000	$3,500,000		Visitor	$3,800,000	$6,840,000
	Five Game LDS				Six Game LCS
	Average Gate Per Game*	Total Revenue			Average Gate Per Game*	Total Revenue
Home	$2,500,000	$4,500,000		Home	$3,800,000	$6,840,000
Visitor	$2,500,000	$3,500,000		Visitor	$3,800,000	$6,840,000
					Seven Game LCS
					Average Gate Per Game*	Total Revenue
				Home	$3,800,000	$10,640,000
				Visitor	$3,800,000	$6,840,000

*Based on data compiled by Maury Brown, Bizofbasell.com (March 16, 2009)

An easy way to analyze the revenue potential for home and visiting teams is to look at best and worst case scenarios. As displayed in the chart below, being the home team in the LDS provides $1 million in greater guaranteed revenue , an advantage that can grow to as much as $5 million under a best case scenario. However, being the home team in the LCS has the potential to be even more important because although it does not provide an increased guarantee, it does offer a greater payoff in the event a series goes seven games.

Exhibit 2: Best/Worst Case Gate Revenue Scenarios

	Home Throughout	Visitor Throughout	Home LDS/ Visitor LCS	Visitor LDS/ Home LCS
Best Case	$15,140,000	$10,340,000	$11,340,000	$14,140,000
Worst Case	$5,040,000	$4,040,000	$5,040,000	$4,040,000

 

At this point, we still need to know the likelihood of each series going a particular amount of games. One way to determine that is by taking a look at past history. Unfortunately, however, there are only 12 seasons under the current format, so any conclusion will be compromised by the limited data available.

 

Exhibit 3: Length of LDS and LCS, 1998-2009

	Division Series				League Championship Series
Games	3	4	5		4	5	6	7
Total	19	18	11		2	9	6	7
Percentage	40%	38%	23%		8%	38%	25%	29%

 

Based on the distribution displayed above, we can now assign a likelihood to each of the permutations in the first exhibit. By simply multiplying each revenue scenario by its likelihood of occurring and then summing the different totals, we can estimate the average take for home and visiting teams.

Exhibit 4: Likely Case Gate Revenue Scenarios

	Home Throughout	Visitor Throughout	Home LDS/ Visitor LCS	Visitor LDS/ Home LCS
Likely Case	$8,321,250	$9,033,750	$8,637,917	$8,717,083

 

What do we have here? Apparently, when probability is factored into the equation, it appears as if the most advantageous financial position is for a team to be the visitor throughout the post season. The reason for this is kind of obvious. In the playoffs, the extra home game is back ended. Although that may be a competitive advantage, it actually gives the road team first crack at owning 100% of the pot. As a result, the home team’s greater reward, as defined by the best case scenario, comes at a small risk.

There are several flaws to these back of the envelope calculations, the most significant of which is probably the lack of enough data to provide confidence in defining the probability of each outcome. It would probably be better to use simulations for each of the teams potentially involved in the post season, but that’s really an exercise best left to individual teams assessing their respective opportunities.

Another thing to consider is this analysis only takes into account gate receipts. Other items like concessions and parking would also need to be factored into the equation. Because these items are not shared with the players, the revenue advantage would shift more toward the home team in the event of a short series.

Because the difference between home and road team gate receipts under “likely scenarios” is very small, the other factors in the equation basically dictate the advantage. In other words, the combination of the best case potential and revenue from additional sources means that there is a benefit to being the home team in the playoffs. Still, that advantage may not be enough to justify making a concerted effort to gain it.

Instead of trying to come up with various gimmicks to give teams an incentive to win their division and gain home field, perhaps the best approach would be to use the power of the purse. One possible solution would be to lessen the number of home games hosted by a lower seed, but that also has competitive implications, not to mention it deprives one fan base of seeing their team live (and possibly over saturates markets not know for selling out early round games). So, what could instead be done is maintain the number of home games, but adjust the portion that goes to each respective team. Obviously, the players still need to get their cut, but that doesn’t mean the teams can’t change how they divvy up theirs (and, if such a change needs to be a collectively bargained, an objection doesn’t seem apparent). MLB could institute a split in which the higher seed keeps all of its hosted revenue, while the lower seed is force to share theirs. Under a best case scenario, and even a likely case scenario, that could provide enough of an economic incentive for a team to go all out.

The most obvious criticism of such a format would be the wisdom of having the bottom line dictate the lineup, per se. But, if the desire is to incentivize winning as many games as possible, does the motive really matter? Instead of watering down the playoffs with an additional wild card, dangling a financial carrot might actually be the better option.