February 11, 2013

Bizball

Are the Astros Really Losing Money?

by Maury Brown

Depending on what you read, clubs in Major League Baseball are either making a massive profit, breaking even, or, if you listen to the owners, often running in the red. Since baseball is a private industry, trying to determine the truth is a matter of educated guessing, wild hyperbole, or a case of “no comment” coming from the league and clubs.

So when an owner talks about the financial status of the club he runs, it prompts a fair amount of discussion. As we’ve seen with the leaked financial documents from the likes of the Marlins and others, the truth typically is on the side of ownership not only making a profit, but a handsome one at that.

The next chapter in this ongoing conversation comes via the Houston Astros and their owner, Jim Crane. Brian T. Smith of the Houston Chronicle tweeted on Saturday that Crane said, “As a franchise, [the] Houston Astros have lost money the last five seasons.”

There are some very important semantics that need to be taken into account regarding that statement. The key word to latch onto is “franchise.” If you look at only the revenues and costs that the Astros themselves must cover, I can see very easily how Crane’s statement can be accurate. This includes only revenue streams attributed strictly to the club, such as gate receipts (attendance), television revenues (local/regional reached by the club), concessions, parking, suites, and other sources of that nature. In looking at player payroll and attendance in the final years of the Drayton McLane era and in the first year of Crane’s ownership, you’ll find that Crane has a good case. As he said upon purchasing the club, “The way we’ll approach it moving forward, and they’ve already started that, is get the payroll lined up with the revenue that’s coming in and continue to build our farm system. With the trades that have been made, we’ve got some very good prospects. I think you’ll see some more of that.”

So, Crane was speaking about club-controlled revenues. In order for his statement to hold true in the aggregate, the Astros’ own losses would have to also exceed their revenues from national broadcast deals, MLB Advanced Media, and other league-wide sources, not to mention the revenue-sharing checks that the organization has recently collected. Once you account for all of that, you’ll notice that the Astros are actually pulling in a hefty sum:

Centralized Revenue

National TV

The rest of this article is restricted to Baseball Prospectus Subscribers. Not a subscriber? Click here for more information on Baseball Prospectus subscriptions or use the buttons to the right to subscribe and get access to the best baseball content on the web. Cancel anytime. That's a 33% savings over the monthly price! That's a 33% savings over the monthly price! Already a subscriber? Click here and use the blue login bar to log in. 11 comments have been left for this article. BP Comment Quick Links code of conduct randolph3030 (17064) Is there anyway to tell how much of the debt has been written onto the franchise's books? Is it possible that Crane put that $220m loan on the Astros? Or even all $330m? The Glazer family did that when pruchasing Manchester United so the Glazers, personally, had very little exposure to the risk while the club assumed nearly $1b in debt. (I'm not a finance guy, so forgive me if I've used some terms incorrectly.) Feb 11, 2013 08:48 AM link rating: 0   boards (10244) I would think that the Astros are the primary debtor but that Crane and his group made some personal guarantees. Feb 11, 2013 09:00 AM link rating: 0   boards (10244) Maury: Nice article. One question. Are the revenues from MLBAM and MLB Network gross revenues or net of expenses? In the overall scheme of things, MLBAM would still be a huge cash cow but I would think that continuing developmental and operating expenses for that venture would be substantial. Either way, still a huge profit. Thanks. Feb 11, 2013 08:59 AM link rating: 0   Maury Brown BP staff (29778) This is a great question. The SBJ article simply says that MLBAM revenues in 2011 were at $685 million. It does not specify with net of expenses. This would hold true of other streams, as well. The estimates on MLBP and revenue sharing were based on the leaked financial docs for the Marlins and Rays. I was conservative in my estimates because of factors such as you mention. For others reading, this is not an exacting set of numbers. Unless the Astros and MLB are willing to release financial figures (you may all sit down and have a good laugh on that one), this is a case of using available figures to derive a balanced look at the streams that are available to clubs, such as the Astros. One thing to mention... No one has asked Crane just how deep the losses have been. The question becomes, how did a club get so far out of skew that the massive cuts that have taken place doesn't absorb any costs. If the Astros are the model, then 90% of the league would be running in the red and we all know that's simply not the case. Feb 11, 2013 09:27 AM link   rweiler (21660) You can always tell when a sports team owner is lying about the teams profitability; his lips are moving. It's always struck me as odd that people can simultaneously believe that people are rational, profit maximizing robots and at the same time believe that successful businessmen are willing to pay hundreds of millions of dollars for a money losing business with, according to them, no hope of ever turning a profit. Feb 11, 2013 08:59 AM link rating: 4   jsdspud (51937) I would think that Revenues for MBLAM mean gross revenue before expenses. Usually, when talking profits (revenue minus expenses) the terms net profit or net income are used. Feb 11, 2013 09:38 AM link rating: 0   jedjethro (39654) This guy can be a successful war profiteer, but is unable to be a successful baseball profiteer? It's a shame he couldn't translate his business skills from life and death to an arena of even more national importance. Feb 11, 2013 10:01 AM link rating: 4   lonndoggie (69180) I didn't see a mention for operating expenses--e.g., what it takes to keep a ball park and team running. You did mention front-office personnel salaries as not included, but those would be dwarfed by, for example, utility bills for running a ballpark. Add to that the army of workers that staff the park, spring training facilities, capital investment in all manner of equipment, and so on. It wouldn't shock me to find out that operational expenses were in the tens of millions. Add to that non-trivial debt service, that some of these revenue streams are gross, not net, and I can see how an owner could say with a straight face that he's losing money (which may be owner-speak for "not making as much as I'd like"). Feb 11, 2013 10:37 AM link rating: 1   Maury Brown BP staff (29778) Fair enough. But, I'd like to hear from Crane (or for that matter Loria) as to why their clubs are bleeding red in the markets they exist in. By population, Houston is the fourth largest market in the U.S. By DMA, it ranks 10th. But, in doing further research, here's some data that supports Crane.... The lease payment on Minute Maid Park is $3.4 M, paid semi-annually to the Authority (two payments of $1.7M).... The Tenant (Houston Astros) is responsible for all costs associated with the operations of the "Leased Premises and Concession Improvements"... The Tenant is responsible for the following: (a) “Perform all Maintenance and all Capital Repairs, or cause the performance of all Maintenance and all Capital Repairs, necessary to keep and maintain the Leased Premises and Concession Improvements in a First Class Condition and in a manner reasonably consistent with other Comparable Facilities; and (b) Maintain and keep, or cause to be maintained and kept, the Leased Premises and Concession Improvements in a clean, neat and orderly condition given the nature and use of the Leased Premises and Concession Improvements.” Feb 11, 2013 11:29 AM link   lonndoggie (69180) Thanks for that. Still a lot of operational expenses to be accounted for, but even so, you'd think it wouldn't be that hard for an owner to at least break even. BTW, you can bleed red in large markets by (a) not having good TV contracts, and (b) not drawing because you have a poor team. Had friends in Houston years ago that joked someone there was trying to have his car stolen so he could collect on the insurance. Parked it in a bad part of town, windows down, keys on the driver's seat. To sweeten the deal, he put two Astros tickets on the dash. When he came back the next day, the car was still there--with four Astros tickets on the dash. Feb 11, 2013 12:02 PM link rating: 6   rweiler (21660) Always keep in mind that Frank McCourt bought the Dodgers for $421m, the team 'lost money', primarily due to multimillion dollar payouts to various McCourts, and then was ultimately sold for $2B, a nifty profit of $1.6B. I think all of us would gladly 'lose' as much money as Frank McCourt. 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