July 16, 2020

It Could Have Been So Much Worse

April 23, 2010 by · Leave a Comment 

Joe Posnanski wrote this week about the release of full economic data on the business of baseball by Forbes Magazine.  I can barely balance a check book and maybe gate receipts, market valuations and operating revenues confuse me more than I know, but they look to be telling a fascinating story.  It’s about how major league teams that couldn’t get Aunt Addie out to a game emerged unscathed from the worst economic mess in recent history without TARP money or bailouts.

The data set that jumped out at me was the variability between Gate Receipts and Total Revenue for the thirty MLB teams.  Put another way, teams that couldn’t convince their relatives to come out to a game still were making good money at about the same rate as the Yankees.

For example, five teams generated less than $40 million in total gate for the 2009 season.  It is not difficult to guess who they were: Kansas City, Florida, Tampa Bay, Cincinnati and Toronto.  They are the teams who have suffered through more losing seasons than they care to remember with one exception–Tampa Bay–whose Tropicana Field is its own revenue detraction.

Compare the money those teams took in to the top five, the Yankees, Red Sox, Mets, Cubs and Phillies.  Every one of those teams took in four to five times as much money at the turnstiles, ranging from the Yankees’ $319 million to the Phillies $123 million.

TV revenues are far more important than gate receipts and Bud Selig’s regime of spreading that wealth is what comes through in the data.  The re-distribution of media income or all sorts–from rich to poor–can be seen by comparing total team revenue to team gate receipts.  The Yankees gate receipts of $319 million are just $122 million below their overall revenue total of $441 million.

The Kansas City Royals had gate receipts of only $37 million but total revenues of $155 million. The spread–$118 million–is remarkably close to that of the Yankees.  So how did a team that has such a paltry fan base find other ways to make so much money at about the same rate as the Yanks. They do it by inflating their overall income with revenue sharing.

It is not just the Royals.  The spread is remarkably consistent up and down the list of teams.  The Yankees and the richer teams should be compounding their advantage so that their overall revenue outstrips the Royals by huge amounts.  But revenue sharing is redistributing much of that money and diminishing the effect.

It becomes more obvious in each team’s pre-tax operating income–the closest thing to a profit available in the data.  The Yankees net income is $25 million, chump change for such a hugely profitable operation.  Yet the Marlins turned a cool $46 million in net operating profits.  Florida was able to take the lowest payroll in the game, the lowest gate receipts and turn a profit almost twice that of the Yankees.

It explains as well as anything why the large market teams like the Red Sox and Yankees are so upset with the effects of the current system.  They are bringing in all the money that goes to support the game overall, and small market teams are making almost as much money at the end of the day.  Although the Marlins have been competitive, other teams like the Royals lag at the bottom of the standings as well as in payroll while still making money.

But what of the recession?  What are the effects?  First, there have been no dire predictions by Selig about the economic status of the game.  More importantly, he has not talked about even one team struggling with cash problems–none, nada, nien–all of this in the worst economy since the depression.

There were two teams that reported losing money.  The Arizona Diamondbacks had a negative operating income of $-.6 million.  Given the accounting methods available to Major League teams, it is difficult to know whether Arizona actually lost money, but they didn’t lose enough to cry about.

The Tigers were the other team that reported a substantial negative operating income of -$29.5 million.  That is real money, but Detroit did not join teams like Cleveland in sharp cuts to payroll.  They were the only team with a significant negative in the worst period of overall economic distress since the depression, but they still seem to have the ability to support one of the largest payrolls in the game.

Prior to the various revenue sharing enhancements that Selig established over the last ten years, many of the smaller market teams would never have been able to weather a serious recession such as we have had.  The impact would have been so much worse on the small market teams and on the game overall.  It could have sparked talk again about contraction and teams borrowing money they couldn’t pay back.

All of that could have occurred with the game heading into a collective bargaining period.  Serious labor strife would have been almost guaranteed as the CBA expires in 2011.

The game is in better shape than it ever has been despite the economy.  At no time have the owners of all teams shared in the prosperity of the game so equitably.  It may not make John Henry and the Steinbrenners happy watching the Royals walk off with good money made on their team’s performance.  But the apple cart is feeding everyone handsomely.  Upsetting it would be a foolish move that helps no one.

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