By Noris Constant Ventura
Economist, Balance of Payments Statistics Division
Central Bank of the Dominican Republic

It is well known that baseball is the main sport in the Dominican Republic, avidly followed by a lot of people. This sport goes beyond being an entertainment for Dominicans, as it is a business that crosses the borders of our country and generates large sums of money annually. These revenues have a positive impact on the Balance of Payments, in which were recorded US$1,771 million as a direct entry of baseball in 2010-2013, representing 98% of revenues from compensation of employees in the Balance of Payments.

The business

The historian Rob Rock, PhD from the University of Pittsburgh and author of several publications on baseball history, at a meeting on Global Foundation for Democracy and Development (FUNGLODE) in 2012, said: “The Dominican Republic is the largest source of talent to the big leagues outside the United States, it does not compare with any other nation, represents the largest concentration of talent in baseball history”.

Rob Rock claims are warranted by the presence of the teams in the Dominican territory. At present the 30 major league teams have academies established in the Dominican Republic, far exceeding their presence in other countries, among them Venezuela, which currently has just five in the entire country.

Although the main focus of the academies is to prepare the talent for career, the country benefits from the presence of them. According to the study prepared by the Major League Baseball (MLB) Office in the country, entitled “Economic Impact of MLB in the Dominican Republic”, in its 2013 edition, that sane year was recorded an amount of approximately US$20 million, only for operating expenses of academies. To this are added the jobs created by baseball academies and the consumption contributed to GDP.

All schools (some more stringent than others) include educational programs for players: high school, English courses, lessons for life after career, incentive programs to help their communities, among others. This contribution in education is very important given that, according to the MLB Office, less than 5 percent signed players reach the majors, so this is a baseball contribution to improving the opportunities and development of hundreds of young Dominicans.

According to the 2013 study, prospects were paid US$56.4 million in respect of or signing contract bonuses. An additional US$3.2 million was spent to run the Dominican Summer League, which was created in 1985 as a development platform for prospects who had no visa to travel to the United States.

The higher income perceived in the Dominican economy is the money invested by the players with major league contracts. In the study conducted by the previously mentioned MLB Office, it was estimated that 30 percent of gross wages go directly to the Dominican economy (see Table 1). The content of the study explains that this figure is conservative. In a visit by experts from the Balance of Payments Subdivision of the Central Bank of the Dominican Republic (BCRD) to the MLB Office in the country, a source of this office explained that a conservative figure was taken due to the diversity of cases existing regarding what the players decide to do with their income.

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The items where comes the money of the players include investing in real estate, social recreation business, charities, among others. It is also necessary to emphasize that a lot of players, once retired, return to the country and bring money to invest. Considering this information, it is not unreasonable to think that the proportion of direct reinvestment in the Dominican economy is closer to 40 percent. At the same time, regarding the salaries of minor leaguers, an estimated 80 percent goes directly to the economy, most of it entering through remittances.

Undoubtedly MLB teams invest heavily in the Dominican Republic, but it is important to consider whether we can sustain this income level in the years to come. There are many factors that encourage teams to invest in the country, but the most powerful of all is the performance of Dominican players.
Someone might argue that Dominican Republic has many players of high performance because all baseball academies have a presence in the country. However, we must understand that this is a business and MLB investors are rational agents seeking to maximize the return on their investment. If it were not for the sustained quality of Dominican players, baseball teams would be changing the destination of their funds to countries with better return of investment.

Considering the above, it is possible to argue that, in the future, income from the baseball business for the Dominican Republic depend on the country’s ability to continue producing successful players in MLB. Therefore, it is necessary to analyze the trend of Dominican players in the majors.

First, let us look graphically the historical diversity by ethnicity in the MLB:

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Source: NBC Sport, Baseball Data

Let us note the participation of foreign countries:

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Source: Bronxbanterblog, with data from Baseball Reference

As we can see in the graphs, since the mid-nineties Latinos, after whites, have the highest representation in MLB. Also, and more importantly, we note that from all of foreign players, the Dominican Republic has led in the percentage of representation for 30 years.

Now if we want to know whether the Dominican Republic will continue to lead in participation, a powerful tool is the annual report by the prestigious magazine Baseball America. This magazine produces since 1990 various listings of the top prospects to play in the majors. Its most comprehensive list is “Baseball America Top 100 Prospects”, in which the top 100 prospects, regardless of team or nationality, are included.

The statistic that best indicates the quality of a player in the Major League is the famous “Wins Above Replacement” (WAR). This statistic comes from the sabermetrics community effort* to determine the contribution of a team player.

Relating this statistic to Baseball America, it is extracted the fact that 80 percent of the players who have been among the top 100 players in MLB (according WAR) in the last 10 years, have been too on the list of “Baseball America Top 100 Prospects”. This indicates that the player who appears on this list is of high performance. Importantly, these players, on average, take about five years to settle in the majors.

Finally let us see how the Dominican prospects have performed in the list of Baseball America in the last decade:

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Source: Baseball America magazine

Noting these data we noticed that during the last decade the Dominican Republic has maintained a strong share in the list, averaging 9.4 percent. We also note that participation has been increasing, with 8.8 percent in 2004-2008 and 10 percent in 2009-2013.

These data indicate that the Dominican Republic is not only maintaining its share in quantity but also in quality, an important aspect to continue to attract investment of US franchises. Importantly, although it has maintained the quality, there are threats to the sustainability of production.

On the domestic side, irregularities with the signings have always been a problem for the forgery, the low educational level in the Dominican rural areas (which require teams to invest in educate them) and a legislation that in any way restricts the activity performed by MLB in the country. On the external side, there is the case of Venezuela as an alternative to the scouts. However, the growth of baseball companies in this South American country has not affected the Dominican Republic as much as has affected Puerto Rico, who passed from being among the first places to have a very poor participation.

It should be noted that, due to the political situation in Venezuela, the conditions to operate in that country are not favorable. There is also the case of the Cuban players, who are highlighted with high performance, but with a very limited amount compared to the Dominican Republic and Venezuela. An eventual opening of the Cuban government represents a chance for teams to invest in that country, which might adversely affect the participation of Dominicans in the Majors.

Baseball has a strong impact on the Dominican economy by the income generated and the projection is that it can sustain the level of income in the next 5-10 years. The long-term sustainability will depend on overcoming internal problems and adapting to possible external threats arising, but we must recognize that while the production of high performance players (which continue to be the main factor) remains, the Dominican Republic will remain the destination par excellence for MLB investment.

 

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