Exploring the Economic Impact of Promotion and Relegation in Major League Baseball (MLB)

My Prompt:

What would the economic impact be on Major League Baseball if they instituted promotion and relegation between the major and minor league systems similar to the promotion and relegation system used in European Football / Soccer?

ChatGPT:

Instituting a promotion and relegation system in Major League Baseball (MLB), similar to the system used in European soccer, would have significant economic impacts. Here are some potential effects:

Positive Economic Impacts:

1. Increased Fan Engagement: Higher Attendance: More meaningful games towards the end of the season could drive higher attendance for both MLB and minor league teams fighting for promotion or battling relegation. Broadcast Revenue: More competitive games would likely attract larger television audiences, increasing broadcast revenues.
2. Greater Competition: Parity: Teams would have greater incentives to invest in talent and development to avoid relegation, potentially leading to a more competitive league overall. Meritocracy: Promotion and relegation reward performance, which could lead to more efficient allocation of resources towards developing competitive teams.
3. Minor League Value Increase: Revenue Growth: Minor league teams, especially those in the top tier of minor leagues, could see increased ticket sales, sponsorships, and media rights as they become more competitive and gain the possibility of promotion.

Negative Economic Impacts:

1. Financial Instability: Revenue Volatility: Teams facing relegation could experience significant revenue drops due to lower attendance, sponsorship, and broadcast deals in the lower division.
2. Investment Risk: Owners might be hesitant to invest heavily in teams with the risk of relegation, which could lead to overall lower investment in the league.
3. Impact on Small Markets: Economic Disparities: Smaller market teams might struggle more to compete, potentially leading to a cycle of relegation that could harm their long-term viability and local economies.
4. Brand and Franchise Value: Depreciation: The value of MLB franchises could decrease due to the risk of relegation. Investors and owners typically value stability and guaranteed revenue streams, which are compromised by the threat of relegation.
5. Operational Challenges: Logistics: Implementing promotion and relegation requires a restructuring of the minor leagues and a potential overhaul of the scheduling, travel logistics, and player development systems. Player Contracts: Player contracts and agreements would need to be renegotiated to account for the new system, which could be a complex and lengthy process.

Mixed Impacts:

1. Merchandising: Short-term Boost: Teams fighting for promotion or against relegation might see a short-term boost in merchandise sales. Long-term Effects: However, teams relegated to lower divisions might see a decline in merchandise sales.
2. Sponsorships: Higher Stakes: More competitive games might attract more sponsors. Uncertainty: Sponsors may also be wary of associating with teams that could be relegated.

Conclusion:

While a promotion and relegation system could introduce exciting changes and potentially increase competition and fan engagement, it also carries risks of financial instability, investment challenges, and operational difficulties. The overall economic impact would depend on how well MLB and minor league systems manage these changes and mitigate the associated risks.

ME: My Immediate Reaction to the Prompt:

Even though European Clubs see a significant decrease in revenue after being relegated, subjectively it feels like the historical concerns addressed might be a bit short sighted for the following reasons:

1. I'd have to believe the collective values of all franchises, media rights, sponsorship, merchandise, etc. would grow at a higher rate than they already are. I believe they have done so in European Soccer. Even for clubs that have experience relegation.
2. I have to believe that an aggressive profit sharing solution would/could reduce any short term downside risk of shitty MLB teams taking too much of a hit when relegation occurs.
3. I am assuming that current owners would take even more ownership interest in minor league teams, because of the potential value increase.
4. Like European soccer I'd have to believe that a great deal of new investors and PE would jump at the chance to invest in lower tier / minor league teams: You know Lebron would definitely buy the Toledo Mudhens and Ryan Reynolds would do the same thing he is doing in European Soccer.

I realize it can be very scary to implement something that could potentially up-end your billion dollar investment (i.e. baseball owners), but I have to imagine there is a scenario where the ROI makes sense.

I would love to see the same analysis done for the MLS. However, given the long standing system that is in place with minor league baseball, I'd have to believe it is easiest to adopt there.