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December 20, 2001

The Numbers (Part Three)

More Revenue

by Doug Pappas

Part One
Part Two

MLB's financial disclosures break down team revenues into five categories. Two, regular-season game receipts and local media money, were discussed in the first two installments of this series. The third column, postseason revenue, contains a few surprises:


Team                   Postseason Revenue

New York Yankees $16,000,000 Arizona Diamondbacks $13,000,000 Seattle Mariners $7,392,000 Oakland Athletics $2,686,000 Atlanta Braves $2,629,000 Cleveland Indians $2,000,000 St. Louis Cardinals $1,488,000 Houston Astros $519,000 Chicago Cubs ($17,000) New York Mets ($154,000)

That's right: even though they lost the World Series, the Yankees wound up with the most postseason revenue. Don't ask me how.

Almost as remarkably, two teams claim to have lost money on the postseason. The losses reported by the Cubs and Mets probably relate to the cost of selling tickets to games that were never played, but:

  • clubs already impose a nonrefundable service charge to cover such costs.

  • they earn interest on the ticket money before it's refunded or applied to 2002 season tickets.

  • other clubs in the same position report no losses.

The fifth column represents national revenue: income from the Fox and ESPN television contracts, the sale of licensed merchandise, and the like. Twenty-eight of the 30 teams received $24,401,000, while the two newest expansion franchises, the Diamondbacks and Devil Rays, got only $18,479,000. This shortfall, which has persisted since the teams began play in 1998, is properly considered part of their expansion fee.

Of note here is the ratio of national to local revenue. According to MLB, just 20.3% of MLB's total revenue--$720 million out of $3.548 billion--came from national sources. Increasing this ratio would be the most painless way to improve small-market competitiveness.

Overall, the fourth column--"Other Local Operating Revenue"--is the most interesting. This catch-all category includes concessions, parking, stadium advertising...and especially luxury boxes and club seats. The table below shows why clubs fight so hard for new parks.

Team Other Local
Operating
Revenue
Stadium
Opened
(Renovated)
Stadium
Owned By
San Francisco Giants $61,524,000 2000 Team
Seattle Mariners 56,211,000 1999 Government
New York Yankees 47,057,000 1923 (1976) Government
Cleveland Indians 45,295,000 1994 Government
Los Angeles Dodgers 41,100,000 1962 Team
New York Mets 38,162,000 1964 Government
Atlanta Braves 37,692,000 1997 Team
Milwaukee Brewers 37,010,000 2001 Gov't.: 64%, Team: 36%
Houston Astros 36,826,000 2000 Government
Colorado Rockies 35,197,000 1995 Government
Texas Rangers 34,561,000 1994 Government
Arizona Diamondbacks 32,970,000 1998 Government
Chicago Cubs 30,642,000 1914 Team
Baltimore Orioles 29,691,000 1992 Government
Boston Red Sox 29,485,000 1912 Team
Tampa Bay Devil Rays 28,633,000 1998 Government
St. Louis Cardinals 27,581,000 1966 Team
Pittsburgh Pirates 26,598,000 2001 Government
Chicago White Sox 26,291,000 1991 Government
Anaheim Angels 26,195,000 1966 (1997-99) Government
Detroit Tigers 21,018,000 2000 Government
Toronto Blue Jays 14,255,000 1989 Private
Oakland Athletics 13,932,000 1968 (1996) Government
Kansas City Royals 13,270,000 1973 Government
San Diego Padres 8,504,000 1969 (1997) Government
Philadelphia Phillies 7,739,000 1971 Government
Minnesota Twins 6,987,000 1982 Government
Cincinnati Reds 6,523,000 1970 (2001) Government
Florida Marlins 4,037,000 1993 Ex-Owner
Montreal Expos 2,829,000 1976 Government

Sources: MLB financial disclosures; Munsey & Suppes Ballparks site (www.ballparks.com).

Every team in the top half of the table either owns its park, plays in a stadium less than ten years old, or plays in New York. The Yankees and Mets both rank in the top six despite the relative age of their facilities and both are pushing hard for new taxpayer-subsidized stadia. Even after September 11, outgoing Mayor Rudy Giuliani was offering more than $500 million toward the construction of retractable-domed parks for each club, though there's virtually no chance the City Council will appropriate such funds any time in the foreseeable future.

For now at least, the most lucrative local venue is San Francisco's Pacific Bell Park, the first privately-financed ballpark constructed since 1962. Shortly after it opened, owner Peter Magowan told ESPN that the Giants were meeting their $20 million annual debt service from in-stadium advertising alone.

San Francisco's example has not, however, inspired other owners to follow this path. Why should they, when by threatening to move (or now, to contract) they can get the taxpayers to finance most or all the cost of their new park?

Seattle, which ranks second in local revenue, received $372 million in public money toward Safeco Field, then whined for years about the unfairness of holding the team responsible for cost overruns on the $517-million park. Despite the enormous subsidy, the Mariners keep all money from luxury boxes, advertising, concessions, and parking; they even have the right to all rents derived from non-baseball use of the publicly-owned stadium.

Much of the Yankees' local money is generated by MLB's most creative marketing team. George Steinbrenner signed a multimillion-dollar sponsorship contract with adidas that came close to, but didn't, overlap other companies' national licensing agreements with MLB. Later the Yankees entered into a cross-promotional deal with the world's most famous soccer team, England's Manchester United. Rather than blame the Yankees for developing new revenue streams, the other owners should ask why Major League Baseball Properties didn't get there first.

The #5 Dodgers exemplify another benefit of privately-owned stadia: the club has an incentive to invest in the maintenance and periodic improvements needed to keep the park economically viable over the long term. The #15 Red Sox, playing in 89-year-old Fenway Park, earned almost as much as the Orioles took home from nine-year-old Camden Yards, the model for modern park design.

Below Los Angeles on the list, many of the reported figures are most notable for what they don't include. During Commissioner Bud Selig's recent testimony before Congress, he swore up and down that MLB had provided all the information needed to evaluate its finances, even as he refused to allow Don Fehr to discuss additional data provided to the MLBPA in confidence. These additional numbers would help to explain some of the anomalies in the reported data.

The first time the owners opened their books, in 1985, the MLBPA retained Stanford economist Roger Noll to look for hidden revenue and excessive expenses. He found both. For example, the St. Louis Cardinals assigned all of their concession and parking revenues to a related company, removing an estimated $2 million from their books. It's impossible to tell from the figures released by MLB whether this practice has continued under the Cardinals' new ownership.

Thirteen years later, economist Andrew Zimbalist reviewed the Florida Marlins' claim to have lost $34 million in their World Championship season of 1997. Zimbalist found that Marlins owner Wayne Huizenga, who also owned Pro Player Stadium through a different entity, attributed about $38 million of luxury suite, club seat, parking, concessions, advertising, and naming-rights revenues to the stadium rather than the team. This finagling made a profitable venture appear to be hemorrhaging money, and was used to justify Huizenga's gutting of the team and subsequent demands for a new taxpayer-funded park. When Huizenga sold the Marlins, new owner John Henry inherited the revenue-sucking lease. As a result, the Marlins rank next to last in other local operating revenue despite playing in a modern facility.

Toward the other end of the list, AOL Time Warner, owner of the #7 Braves, is hiding tens of millions of dollars in superstation revenue. As noted in my last column, the money from national telecasts of Braves games isn't included in "local broadcasting revenue." "All other local operating revenue" is the only other category in which it could fall, but it's not here either: the Braves' revenues in this category are typical for a team in a new park. The Cubs may have similarly failed to report their income from national WGN telecasts.

The Tigers' figures also look highly suspicious. Playing in a new park loaded with luxury suites, food courts and related non-baseball amenities--even a carousel!--the Tigers claim to have earned $15 million less than the Brewers and Astros generated in similar new facilities. Tigers owner Mike Ilitch also owns a pizza chain and numerous other properties in the area around Comerica Park, providing ample opportunity to hide baseball revenues in other companies.

Remember when SkyDome was hailed as the future of stadium design? Five years after it opened, the government of Ontario sold it at a $450-million loss. Four years later the new owners filed for bankruptcy. The Blue Jays even threatened to move back to decaying Exhibition Stadium unless they received new lease concessions. Their stadium-related revenues now rank in the bottom third of MLB.

All of the eight teams below the Jays are either lobbying for new parks or have new facilities under construction. Although the home stadia occupied by the A's, Padres, and Reds have all undergone recent renovations, none benefitted the teams. Cincinnati lost 10,000 outfield seats when construction began on a new baseball-only park next door, while the Oakland and San Diego stadia were made more football-friendly.

No park is more football-friendly than the Metrodome, where the Twins labor under a horrendous stadium lease. Because the Metrodome was built in response to threats by the NFL Vikings to move, the Vikings get all the luxury-suite and related money. At the time the Twins were owned by Calvin Griffith, who stopped listening when he heard the words "free stadium" and never thought to read the fine print.

Finally, the Expos show that it's impossible to make money from the park without enticing more than a handful of people to pay their way in.

In my next column, I'll examine MLB's most visible expense, player salaries.

Doug Pappas is chairman of SABR's Business of Baseball Committee. His writings on the subject are archived at http://roadsidephotos.com/baseball/. Although his early professional experiences included helping the USFL win $3 in its antitrust suit against the NFL and watching Bowie Kuhn flee to Florida one step ahead of his bankrupt firm's creditors, he continues to practice law in New York.

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MORE BY DOUG PAPPAS
2002-02-04 - The Numbers (Part Six)
2002-01-24 - The Numbers (Part Five)
2002-01-12 - The Numbers (Part Four)
2001-12-20 - The Numbers (Part Three)
2001-12-12 - The Numbers (Part Two)
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