Jayson Stark on Baseball Financials

[PBCMarlinsFan]

This is probably old news to some here, but I recently came across an article on by Jayson Stark on baseball financials. If this was discussed here already, go ahead and merge this with that thread. Otherwise, I thought I'd quote some relevant sections, though the whole article is worth reading.

 

If you live in Pittsburgh or South Florida, you've probably gotten so used to blaming The System for all your team's problems, there's an excellent chance you never noticed something every fan of these two "small-market" operations should know:

 

Your team collected more money this season -- before it ever sold one ticket -- than it spent on its entire major league payroll. In fact, it collected more than it spent on its major league payroll and its player-development system combined.

 

But it isn't just the Pirates and Marlins who are cashing checks larger than their payrolls before the ticket offices open. By some estimates, a third of the teams in the sport are doing exactly the same thing.

 

Our second conclusion: If you add in that local TV-radio money -- and if you add only that money -- you'd be astounded by how many clubs seem to be running up higher revenues than payrolls before they print a ticket. We've added up all the revenue streams. And here's what we found:

 

If we just use the raw numbers, it appears that at least 10 teams collected $90 million-plus this year before they opened their ticket windows, let one car into their parking lots or sold one slice of pizza.

 

That number, once again, was $90 million-plus. By at least 10 teams.

 

But not everyone in baseball thinks that's a valid figure. Some argue that $10 million of that $90 million-plus shouldn't count -- because each team is required to pay $5 million into a pension fund and another $5 million into an MLB operations fund.

 

OK, so fine. Make it $80 million-plus.

 

Whichever it is, we're convinced our estimate is on target. Do the math yourself.

 

• Central fund (includes national TV, radio, Internet, licensing, merchandising, marketing, MLB International money): Each team, from the Marlins to the Yankees, gets the same central-fund payout. And that check comes to slightly over $30 million per team if you deduct the $10 million in pension and operations fees, or just over $40 million if you don't.

 

• Revenue sharing: Only income-challenged teams get a revenue-sharing check. But you should never forget that those checks are a lot larger than your average rebate check from Target. This sport shared $400 million in revenue this year -- more than the gross national product of Western Samoa. Now every club's payout is different. But the five neediest teams -- which we believe to be the Marlins, Pirates, Rays, Blue Jays and Royals -- averaged somewhere in the vicinity of $35 million in revenue-sharing handouts per team. And that still left over $200 million -- more than $20 million a club -- for the rest of the "payees" to divvy up.

 

• Local TV/radio/cable: Good luck getting these exact figures. But we know that 29 of the 30 teams make at least $15 million a year in local broadcast money, and no team rakes in under $12 million. Obviously, some clubs collect much, much more than that. Or own their networks. Or both.

 

 

So our idea is: Why not extend the same choice to the teams that opt not to spend what other teams spend?

 

If the Marlins, Pirates or Padres think it's unnecessary to spend $70 million or $80 million -- or even $50 million -- on their big league payroll, hey, no problem.

 

Just tax them for it. That's all.

 

The rest can be found here -- http://sports.espn.go.com/mlb/columns/story?columnist=stark_jayson&page=rumblings091119

[poptart]

i do blame "the system". this bulls*** shouldn't be tolerated by the mlb.

and, as a marlins fan, think how amazing our team could have been the past few years if we had an $80mil payroll.

[BosnianBaller_]

i do blame "the system". this bulls*** shouldn't be tolerated by the mlb.

and, as a marlins fan, think how amazing our team could have been the past few years if we had an $80mil payroll.

 

 

well maybe some of those trades we made (hanley for example) might have never happened if we would have had a larger payroll. just sayin.

[Out of the Past]

I don't understand why MLB has revenue sharing if owners like Loria are allowed to pocket the money rather than spending it on payroll and player-development.

[Marlins2003]

I don't understand why MLB has revenue sharing if owners like Loria are allowed to pocket the money rather than spending it on payroll and player-development.

 

 

Probably, because they aren't. If you think those are the only two things baseball teams spend money on then you're part of the problem and not part of the solution.

[Admin]

I don't understand why MLB has revenue sharing if owners like Loria are allowed to pocket the money rather than spending it on payroll and player-development.

 

 

Probably, because they aren't. If you think those are the only two things baseball teams spend money on then you're part of the problem and not part of the solution.

Seriously, 2003?

[poptart]

I don't understand why MLB has revenue sharing if owners like Loria are allowed to pocket the money rather than spending it on payroll and player-development.

 

 

Probably, because they aren't. If you think those are the only two things baseball teams spend money on then you're part of the problem and not part of the solution.

80 million dollars BEFORE A TICKET IS SOLD.

[Marlins2003]

I don't understand why MLB has revenue sharing if owners like Loria are allowed to pocket the money rather than spending it on payroll and player-development.

 

 

Probably, because they aren't. If you think those are the only two things baseball teams spend money on then you're part of the problem and not part of the solution.

Seriously, 2003?

 

Seriously Spike!

 

If haters like you had even the faintest idea of a) what it costs to run a major league franchise and b) the accounting process major league baseball goes through first for their own accountants and then every team (because of the anti-trust exemption MLB enjoys) is audited by the IRS following extraordinarily strict guidelines, not to mention the hundreds of people who in one way or the other have access to their financial information and the all that's needed is just whistle-blower, there is zero chance that "owners like Loria are allowed to pocket the money".

 

Not to mention Loria is not the owner, he's the managing partner and I think the number is now around 14 people and/or entities own a piece of the business, you are talking about a conspirarcy so enormous that it would be impossible to keep it secret were it happening.

 

But we've been through this a hundred times and you'll go to your grave lieing through your teeth about ownership and there is nothing I or anyone else can do to either change your mind or get you to stop so all I can do is refute you every time you do, just like when you used to say "Well Loria had a Rico suit against him" which was one of your usual half truths. Yes a RICO suit was brought BUT after two sets of arbitrators found for him and the other defendants, the judge hearing the case not *only* threw it out, but lectured the plaintiffs that "they had no one to blame but themselves..." for what had transpired.

[Admin]

Fortunately, you are one of very few people who believes the way you do. The rest of us live in reality.

[Marlins2003]

Spike you can believe whatever you want but slurring someone and accusing them of a felonious act are a different matter entirely. I believe the actual IRS auditing guidelines are still in the MB.com archives, I posted them here years ago, take a look at them and let us know how you think this fraud is being perpetrated.

 

There's a huge difference Spike between retaining earnings (if and when there are any) in the company for a baseball purpose and (an) "owner putting it in his pocket".

 

I have a suggestion, most of the minority owners from Montreal still I believe have an ownership interest in the Marlins, it shouldn't be hard to find their names and since they are some of the wealthiest people in Canada you shouldn't have any trouble reaching each of their offices. Why don't you ask them if Loria is "pocket(ing) the money" and see what response you get from them. Certainly they'd be most likely to know and the most angry it was happening, maybe you can break some really huge news when they decide to spill the beans on a guy they once sued. I can imagine more than a few of them would love to stick a knife in Loria's back if they had even the slightest inkling something illegal was going on.

 

But yet they are silent. Maybe you think they're getting $$$ under the table too. Then there's a the two guys from PBC who I think still have a piece, maybe they are getting a cut to keep silent. Wow the number of people who must be getting some if for no other reason than to just buy their silence just keeps growing.

 

I always wondered why if this was true why hasn't just one disgruntled junior CPA or some file clerk who didn't get the raise they expected or the review to which they thought they were entitled, or got booted for being chronically late hasn't come forward with a copy of cancelled check or a memo or something, anything to throw a little mud on the boss.

 

You get my drift? Good luck with those phone calls.

 

I'll leave you with one last thought. The Detroit Tigers put 2.5 million fannies in their seats last season, get revenue from every imaginable source, concessions, parking, merchandising, advertising, etc., and yet with all that dough (there's a pun in there) they are hemorrhaging like a dozen other major league baseball franchises. The Yankees, the Red Sox are cutting costs and they both have huge cable networks backing them up and are merchandising machines and sell-out almost every game. It's expensive and getting moreso running a baseball team, it's a lot more than onfield payroll and paying minor leaguers, I'm guessing even you know that.

[Admin]

I once again say, you dont find it odd that you are one of very few people who have this viewpoint of Loria? National media, the fanbase, other owners, etc are all wrong but ole Marlins2003 is right. Yep.

[Marlins2003]

I can send you a roll of quarters if you want to get started on those phone calls Spike.

 

I'm telling you there's a Pulitzer in it for you when you break this story open. Maybe even a guest shot on Oprah.

[Admin]

I think Stark is missing a lot of information that prevents his case from being convincing.

 

For example, he is making accusations (indirectly) but he provides no accounting information for other operating expenses outside of team payroll. He likely doesn't have access to this, nor should he. It seems like he's supeficially assuming that the team is handed $80 M from the league, earns several million in ticket sales, pays out $30-$40 million for talent and pockets the rest. The Marlins have to fund an entire minor league system, pay Dolphin Stadium rent, airfare, hotels, etc. This in itself is probably in the tens of millions of dollars.

 

This is a pretty bad accounting exercise. It's the same reason why those yearly Forbes studies for the "most profitable" franchises is nonsense.

[poptart]

anyone know how much money the marlins pay to use dolphin stadium and how much money they get from ticket sales? curious

[dgreco]

I think Stark is missing a lot of information that prevents his case from being convincing.

 

For example, he is making accusations (indirectly) but he provides no accounting information for other operating expenses outside of team payroll. He likely doesn't have access to this, nor should he. It seems like he's supeficially assuming that the team is handed $80 M from the league, earns several million in ticket sales, pays out $30-$40 million for talent and pockets the rest. The Marlins have to fund an entire minor league system, pay Dolphin Stadium rent, airfare, hotels, etc. This in itself is probably in the tens of millions of dollars.

 

This is a pretty bad accounting exercise. It's the same reason why those yearly Forbes studies for the "most profitable" franchises is nonsense.

 

 

Well if he wanted to do actual reporting he could request an audited report. Anyone can call and ask for an audited report. Also, to support Marlins if you do not know about accounting it is hard to justify what you are saying. Would this be possible before Sarbanes-Oxley? Possibly and only then. I am sure any of Deloitte, PwC, E&Y or KPMG are doing their personal books and would not risk the backlash to help out Loria. None of the Big4 want to end up like Arthur Andersen.

 

Like stated earlier, retaining some of those earnings is possible, but unless they are a consolidated/affiliated group they are paying ridiculous high taxes for retained earnings that are higher than the allowable threshold.

 

edit: Spike, figured if you didn't know SOX you could read up on it. So I added the link : http://www.gpo.gov:80/fdsys/pkg/PLAW-107publ204/html/PLAW-107publ204.htm

[Marlins2003]

anyone know how much money the marlins pay to use dolphin stadium and how much money they get from ticket sales? curious

 

 

I know they get scant little from skyboxes and club seats as that money is pledged to county bonds even though everyone thinks the Stadium was funded without government help.

[MarlinsLou]

I'll leave you with one last thought. The Detroit Tigers put 2.5 million fannies in their seats last season, get revenue from every imaginable source, concessions, parking, merchandising, advertising, etc., and yet with all that dough (there's a pun in there) they are hemorrhaging like a dozen other major league baseball franchises. The Yankees, the Red Sox are cutting costs and they both have huge cable networks backing them up and are merchandising machines and sell-out almost every game. It's expensive and getting moreso running a baseball team, it's a lot more than onfield payroll and paying minor leaguers, I'm guessing even you know that.

 

So let's say they got $80 in this supposed deal. Average ticket price was $18 million, times 2.5 million is $45 million. Concessions, parking, merch, whatever. I'm not doing an audit. Add that. So at minimum, we're looking at the supposed $80 million in "revenue sharing" and makes $45 million, plus who knows. Payroll was $115 million. Running the organization, who knows how much the farm and other payroll costs. Using this data, we can easily show that Detroit is receiving in $125 million plus beer sales/etc. I think it's pretty reasonable to think, mere beer sales and some other stuff is not going to cover all the other expenses in 'running the organization.' Your example doesn't support the argument the Marlins aren't bank rolling.

 

Marlins get $80 million, have $16.50 average ticket times $1.3 million fans is say $21 million. Marlins are making let's say $100 million just based on "sharing" and gate. Our payroll is $35 million. Is it costing the Marlins $65 million to run everything else? I find that hard to believe. The Marlins have a much better chance of making a profit than the Tigers based on these numbers. Granted, I don't know how much the Jacksonville Suns costs the Marlins, and neither does anyone. But it seems to me after eliminating payroll and coming up with a very basic ticket sales price, the Tigers are spending to much and that's their problem. So this really leads to the core issue

 

Is this $80 million figure correct? If it is, Loria is without a doubt making profit. Hopefully which is all going into the stadium, but I can't speculate what he does with it.

 

For the most part, I tend to agree with you that Loria isn't "that bad" and he's doing what he can with the lack of revenue. But if these figures are even remotely true, even half way, it pretty much shows the Marlins are more than likely making a profit. I don't know how you can argue against that.

[dgreco]

I'll leave you with one last thought. The Detroit Tigers put 2.5 million fannies in their seats last season, get revenue from every imaginable source, concessions, parking, merchandising, advertising, etc., and yet with all that dough (there's a pun in there) they are hemorrhaging like a dozen other major league baseball franchises. The Yankees, the Red Sox are cutting costs and they both have huge cable networks backing them up and are merchandising machines and sell-out almost every game. It's expensive and getting moreso running a baseball team, it's a lot more than onfield payroll and paying minor leaguers, I'm guessing even you know that.

 

So let's say they got $80 in this supposed deal. Average ticket price was $18 million, times 2.5 million is $45 million. Concessions, parking, merch, whatever. I'm not doing an audit. Add that. So at minimum, we're looking at the supposed $80 million in "revenue sharing" and makes $45 million, plus who knows. Payroll was $115 million. Running the organization, who knows how much the farm and other payroll costs. Using this data, we can easily show that Detroit is receiving in $125 million plus beer sales/etc. I think it's pretty reasonable to think, mere beer sales and some other stuff is not going to cover all the other expenses in 'running the organization.' Your example doesn't support the argument the Marlins aren't bank rolling.

 

Marlins get $80 million, have $16.50 average ticket times $1.3 million fans is say $21 million. Marlins are making let's say $100 million just based on "sharing" and gate. Our payroll is $35 million. Is it costing the Marlins $65 million to run everything else? I find that hard to believe. The Marlins have a much better chance of making a profit than the Tigers based on these numbers. Granted, I don't know how much the Jacksonville Suns costs the Marlins, and neither does anyone. But it seems to me after eliminating payroll and coming up with a very basic ticket sales price, the Tigers are spending to much and that's their problem. So this really leads to the core issue

 

Is this $80 million figure correct? If it is, Loria is without a doubt making profit. Hopefully which is all going into the stadium, but I can't speculate what he does with it.

 

For the most part, I tend to agree with you that Loria isn't "that bad" and he's doing what he can with the lack of revenue. But if these figures are even remotely true, even half way, it pretty much shows the Marlins are more than likely making a profit. I don't know how you can argue against that.

 

Do not forget they are leasing at Dolphin Stadium and every figure that has ever been made public is that they are only receiving between 1 and 2 million dollars in profit. If that is so you are looking at $81.5 million total with a payroll of $35 million, that leaves the team at about $45 million to run the rest of the system. Not only are they running the system but they are paying everyone who is employed with them also. So when the Jacksonville Suns have a person cleaning the stadium afterwards they are paying. I know that is a de minimis in nature, but when you add it all up it does build. You then have scouts, a gm, other executives, a legal team, an accounting team. That all adds up and out of that $45 million if they only end up with 10% to 15% of that it really isn't drawing a profit.

[Marlins2003]

The people who want to believe that a grand conspiracy exists are never going to be convinced otherwise regardless of the realities presented. The best seats one could argue, club and boxseats are dedicated to paying off stadium bonds which by any stretch of the imagination is a ton of dough. dGreco makes the best argument for why the conspiracy is fallacious - no professional inside or outside the company would participate in the fraud that would occur if the managing partner was siphoning off large sums of money and you need both those people's expertise and approval.

[...]

Would this be possible before Sarbanes-Oxley? Possibly and only then.

 

Nope. Sarbox has nothing to do with this, Sarbox applies to publicly-traded securities. The Marlins are not a publicly held company, they issue no equity securities required to be registered and, just like every other private company, they are not required to provide any financial reporting whatsoever to the public.

 

They are a private company, which is why Stark has no idea about what he is yapping about as he has no financial information other than basic revenue-sharing data that MLB has chosen to make public. Just as the various know-nothings on this board who scream "Loria is pocketing millions" have no idea what they are talking about.

[MarlinsLou]

double posted. just deleting this.

[MarlinsLou]

I'll leave you with one last thought. The Detroit Tigers put 2.5 million fannies in their seats last season, get revenue from every imaginable source, concessions, parking, merchandising, advertising, etc., and yet with all that dough (there's a pun in there) they are hemorrhaging like a dozen other major league baseball franchises. The Yankees, the Red Sox are cutting costs and they both have huge cable networks backing them up and are merchandising machines and sell-out almost every game. It's expensive and getting moreso running a baseball team, it's a lot more than onfield payroll and paying minor leaguers, I'm guessing even you know that.

 

So let's say they got $80 in this supposed deal. Average ticket price was $18 million, times 2.5 million is $45 million. Concessions, parking, merch, whatever. I'm not doing an audit. Add that. So at minimum, we're looking at the supposed $80 million in "revenue sharing" and makes $45 million, plus who knows. Payroll was $115 million. Running the organization, who knows how much the farm and other payroll costs. Using this data, we can easily show that Detroit is receiving in $125 million plus beer sales/etc. I think it's pretty reasonable to think, mere beer sales and some other stuff is not going to cover all the other expenses in 'running the organization.' Your example doesn't support the argument the Marlins aren't bank rolling.

 

Marlins get $80 million, have $16.50 average ticket times $1.3 million fans is say $21 million. Marlins are making let's say $100 million just based on "sharing" and gate. Our payroll is $35 million. Is it costing the Marlins $65 million to run everything else? I find that hard to believe. The Marlins have a much better chance of making a profit than the Tigers based on these numbers. Granted, I don't know how much the Jacksonville Suns costs the Marlins, and neither does anyone. But it seems to me after eliminating payroll and coming up with a very basic ticket sales price, the Tigers are spending to much and that's their problem. So this really leads to the core issue

 

Is this $80 million figure correct? If it is, Loria is without a doubt making profit. Hopefully which is all going into the stadium, but I can't speculate what he does with it.

 

For the most part, I tend to agree with you that Loria isn't "that bad" and he's doing what he can with the lack of revenue. But if these figures are even remotely true, even half way, it pretty much shows the Marlins are more than likely making a profit. I don't know how you can argue against that.

 

Do not forget they are leasing at Dolphin Stadium and every figure that has ever been made public is that they are only receiving between 1 and 2 million dollars in profit. If that is so you are looking at $81.5 million total with a payroll of $35 million, that leaves the team at about $45 million to run the rest of the system. Not only are they running the system but they are paying everyone who is employed with them also. So when the Jacksonville Suns have a person cleaning the stadium afterwards they are paying. I know that is a de minimis in nature, but when you add it all up it does build. You then have scouts, a gm, other executives, a legal team, an accounting team. That all adds up and out of that $45 million if they only end up with 10% to 15% of that it really isn't drawing a profit.

Does all of that cost $45 million though? Running the farm systems, paying all employees, marketing, legal, accounting, signing draft picks, paying the scouts, etc. And really that's the low money of "what's leftover." Are those operation THAT large of a cost? I'm asking, I really have no idea. Because I mean, the farms do bring in ticket revenue too which has to be added to the pot making them kind of neutral. Is everything here really adding up to some very high 30, 40, 50's million in money?

 

If that can be shown, sure. I have no problem. I really don't have a huge problem with Loria as I said. But just realistically speaking, when I see $80 million rev sharing, and it's likely they tac on another $30 million in ticket sales based on 1.3 million fans numbers. If payroll is $35 million, are they really spending $75 million on infrastructure? I can't fathom that, and the leftover is "profit." And if that profit is $20-30 million, cool if that is going right into the stadium. I'm into longterm Marlins baseball versus keeping Cabrera and Uggla despite how much that sucks in the short term. But it's really hard to juggle all of these figures. If revenue sharing is that high and money isn't going directly into the stadium (i.e. the business), Loria has some explaining to do.

 

I agree with 03, if he was pocketing 20 large a year, someone would say something. It's to large of an operation to cover that much of a money trail. So really, either that $80 million revenue sharing number is drastically wrong, or, the "infrastructure" costs of a baseball organization are astronomical in nature making 'profit' negligible.

[Nny]

Because I mean, the farms do bring in ticket revenue too which has to be added to the pot making them kind of neutral.

 

 

Could be mistaken but I'm pretty sure that owners of minor league teams are responsibile of stadium upkeep ect, so they make the money from revenue from the the MILB team. It's more-so a trade off, the MLB team pays players to play for the MILB team in exchange for having a league for the players to learn in.

 

if wrong someone correct me though

[Admin]

I think the problem is that people are making assumptions without having seen any of the actual financial information (that Loria has no obligation to divulge to the public).

 

If you want to engage in accounting exercises based upon data made available, I would consider the 2003-2005 years. The Marlins were actually signing veteran players to multi-year deals (Lowell, Castillo, Gonzalez, Lo Duca, Delgado) and payroll rose to around $60 million. The Delgado signing indicated that Loria did want to win and was willing to spend money to do it.

 

However, don't forget that after 2005 the Marlins were reporting nearly $20 million in losses which is what provoked the "market correction." Did Loria suddenly become black-hearted overnight (leading him to sell off the veteran talent and cut payroll) or could there actually have been budgetary needs?

 

I think that entire scenario (regarding Delgado) is an indication that the Marlins just don't have the revenue coming in (by their own hand or the MLB) in order to sustain a payroll above the $40 million range and not operate at a loss.

 

The only thing that confuses me is why Loria did not foresee a shortfall and went to the trouble of signing Delgado long-term (raising the payroll to $60 million) in the first place. My guess is that this was somehow tied to the gloomy stadium situation at the time.

[...]

the Marlins just don't have the revenue coming in (by their own hand or the MLB) in order to sustain a payroll above the $40 million range and not operate at a loss.

 

I think you're correct and further that it's not at all necessary to know the numbers behind any given team (good thing, too, since there's no way we'll ever know them in any detail.)

 

Ink-stained wretches like Stark love obvious, cheap, bash-the-rich shots like "$90 million-plus before they open their ticket windows." Except that about half of all MLB teams have a payroll of about 80 million or less. That fact alone makes it clear that actually operating a MLB franchise is a very expensive proposition, over and above player costs.

 

The real value of a MLB franchise is the long-term value built over time. Over 20 years, it can be in the HUNDREDS OF MILLIONS of dollars.

 

Many owners are in hock up to their eyeballs for the money used to buy their team. That means that massive yearly operating losses (in some cases, ANY operating loss) can't be tolerated. Since it's in the interest of every owner to maximize team value, every one of them has VERY strong incentives to spend as much as possible to that end without putting themselves in financial jeopardy. And, so they do, within their individual constraints and appetites for risk, whatever they may be. Some are better at it than others.

 

But, to think that ANY owner will act contrary to their own interest in achieving that overall goal is nothing short of idiotic. To think that half or more of them would do so is totally delusional.