Financial Losses and Innovations: How Baseball Came through the Depression

In 1929, the average major-league team pulled in $758,000 in revenue, of which $88,000 fell to the bottom line as profit. Four years later, during the depths of the Great Depression, revenues had fallen all the way to $430,000, and profits had turned to losses of nearly $100,000. By 1939, however, most teams had recovered: revenues returned to pre-Depression levels at $761,000, while profits were back to $63,000. Using a wide array of sources, David Surdam examines the causes and consequences of this financial roller coaster: the response by major-league teams on both the revenue and expense side of the ledger; the effect of new innovations such as night baseball, radio, and the farm system; and the importance of overall league revenue sharing. Surdam also looks at the effect of the economic disruption and the various responses on baseball’s competitive balance, not just in the narrow sense of the standard deviation of team winning percentages, but in how individual teams took advantage of the new environment.

As attendance collapsed and the Depression deepened, major-league teams did not reduce ticket prices, instead assuming that fans would simply purchase less expensive seats. The attendance rebound at the end of the decade seemingly validated the owners’ ticket-price strategy. They were not faced with the public relations disaster of raising prices in a still struggling economy. Players’ salaries also remained unexpectedly high during the Depression when compared to drop in revenues, the average payroll falling from $235,000 in 1929 to $189,000 in 1933. Furthermore, by 1939 payrolls had rebounded to $228,000. It is not unique to baseball that salaries are less volatile than revenues or profits, but, as Surdam writes, the owners’ reluctance to cut salaries further “is a mystery, given their strong bargaining position” (90).

The Depression also offered a unique environment for the rapid growth of the farm system as we know it today. During the 1920s, major-league teams had spent huge amounts of money purchasing players from the minors. With the onset of the Depression, the lower minor leagues were particularly desperate for an infusion of cash, and thus were willing to surrender much of their autonomy for financial support. Despite the objection of Commissioner Landis, the major leagues changed their roster rules to make owning a minor-league team more advantageous. The change allowed major-league teams to control more players, with the added bonus, as Surdam shows, that farm systems did not significantly decrease profits.

The majors helped the weaker franchises by introducing gate-sharing, which distributed gate revenues to both the home and visiting teams. At a time when ticket sales made up the vast majority of a club’s revenue, splitting this income between the high- and low-attendance clubs made a big difference in the solvency of the struggling franchises. Surdam highlights this impact, noting that in the 1930s National League teams shared around 23 to 26 percent of their gate revenue with the visiting squad—roughly 10 percent more than during the much more prosperous fifteen years after World War II.

One of the many strengths of the book is Surdam’s discussion of baseball’s competitive balance during the Depression. He recognizes that the spread between teams in any given year is at least as important as the change in standings from one year to the next. Whether a team finishes twelve or twenty games back is not nearly as relevant as whether it can compete the next year.

One of the tenets of recent baseball analytical scholarship is the significance of regression toward the mean. Over time, teams will revert toward .500 unless otherwise acted upon. Surdam, however, makes the profound observation that “aside from variance due to surprising performances and injuries [and changes to the relative economic standing of the teams], the relative position of most teams would attain an equilibrium over...