A Business Analysis of Asian Baseball Leagues

• Date: 01 January 2016
• DOI: http://doi.org/10.1111/aepr.12121
• Published date: 01 January 2016
• Author: Young Hoon Lee,Hayley Jang

A Business Analysis of Asian Baseball

Leagues

Hayley JANG and Young Hoon LEE†

Sogang University

This study reviews previous research on sports economics and applied descriptive analyses to

derive policy recommendations for the Korean Baseball Organization and the Nippon Professional

Baseball. We discuss various aspects of the contemporary baseball business, and compare them

with the American Major League Baseball (MLB). One distinctive characteristic common to both

Asian leagues is the governance structure, where member teams are owned by major conglomer-

ates. We explore this characteristic to assess the business objectives of the Korean Baseball Organi-

zation and the Nippon Professional Baseball, and find that their sources of competitive balance

differ from those in MLB. Our conclusion suggests that their business objective should begin to

move slowly toward one similar to that of MLB, and safeguards should be implemented to main-

tain a reasonable competitive balance. We also conclude that sports diplomacy and the creation of

international competition are important because international competition and the success of

national teams are critical for fan demand.

Key words: attendance, baseball business, competitive balance, fan loyalty, governance structure,

revenue sharing

JEL codes: Z20, L83

1. Introduction

The Japanese Nippon Professional Baseball League (NPB) and the Korea Baseball Orga-

nization (KBO) are now the second and third largest professional baseball leagues in the

world in terms of revenue-generating ability, after Major League Baseball (MLB). Con-

siderable research has focused on these two Asian baseball leagues (La Croix & Kawaura,

1999; Lee, 2004, 2006; Lee & Smith, 2008; Yamamura, 2011; Leeds & Sakata, 2012; Fort

et al., 2015; Humphreys & Watanabe, 2015). Scholars have analyzed various issues. For

example, La Croix and Kawaura (1999) examined how changes to regulations in the

players’ labor market affected the competitive balance (CB) in the NPB. Based on an

“uncertainty of outcome” (UOH) hypothesis, Lee (2004) analyzed attendance in the

KBO, MLB, and NPB empirically and obtained heterogeneous results across the three

leagues. However, to date, no scholars have conducted a comprehensive analysis of the

similarities and differences between the three leagues. The three leagues are similar in

many ways. Each league draws the largest attendance among the country’s domestic

sports leagues. All three are closed leagues, in which there is no relegation or promotion.

Labor market regulations also include common factors of reserve clauses, salary arbitra-

tion, and free agency.

†Correspondence: Young Hoon Lee, Department of Economics, Sogang University, Sinsoo-dong

#1, Mapo-gu, Seoul 121-742, South Korea. Email: yhnlee@sogang.ac.kr

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doi: 10.1111/aepr.12121 Asian Economic Policy Review (2016) 11, 95–112

© 2016 Japan Center for Economic Research 95

However, the two Asian leagues have distinctive characteristics that differ from the

MLB. Governance structure is one difference: teams in the KBO and NPB are generally

owned by major conglomerates, while teams in the MLB are independent firms. This dif-

ference means that they may have different purposes in the baseball business. Generally,

teams in the KBO and NPB have negative profits, but their balance sheets show them as

breaking even because of cash injections from their parent companies. These baseball

businesses are heavily dependent on the business of the parent companies, and then on

their countries’ business cycles. The once fast-growing Japanese economy has experi-

enced long-term depression since the early 1990s. The Koreaneconomy also expanded its

scale and scope with aggressive investment, and enjoyed leverage effects until the eco-

nomic crisis of the late 1990s. The economic system used by Korean firms, involving

large debts and large investments, was vulnerable to exogenous financial shocks. Now,

these firms put more weight on economic stability and profits than fast growth. These

shifts in economic regimes reflect changes in the business environment that member

teams in the KBO and NPB must consider.

In this study, we review previous studies on sports economics and apply descriptive

analyses to examine various aspects of the contemporary baseball business. We compare

governance structures, business objectives, revenue determinants, CB, and fan loyalty

within the three leagues from a historical perspective. Our objective is to derive policy

recommendations for the KBO and NPB, where regime changes are currently in progress

or are expected in the near future.

Section 2 provides a brief historical review and discusses player labor market regula-

tions. Section 3 discusses governance structures and the baseball business model. Section

4 discusses the size of the professional baseball industries. Sections 5 and 6 compare CBs

and fan demand (in particular, fan loyalty and habitual attendance) in the three leagues,

respectively. Finally, Section 7 presents policy implications based on the findings.

2. Brief History

MLB is one of the four major team sports leagues in North America and it has the

longest history. The National League(NL) was established in 1876 and the cur rentleague

structure of the MLB was formed in 1901 with the official formation of the American

League (AL). Currently, there are 30 member teams and 162 games in a regular season.

In 1901, the annual league attendance and average attendance per games (APGs) were

3,603,615 and 3235, respectively. By 2014, those numbers had increased to 73,739,622

and 30,345, respectively, and their average annual growth rates have remained high, at

2.68% and 1.98%, respectively. The current labor union for MLB players, the Major

League Baseball Players Association, was founded in 1953, and played an important role

in the introduction of a free agent system in 1976. After playing for six seasons, players

can declare themselves as free agents. The MLB has adopted a salary cap in the manner

of a “luxury tax” to prevent teams in large markets from acquiring most of the talented

players, which helps maintain a reasonable CB.

Business of Asian Baseball Leagues Hayley Jang and Young Hoon Lee

© 2016 Japan Center for Economic Research96