CSS Button No Image Css3Menu.com

Baseball Prospectus home
  
  
Click here to log in Click here for forgotten password Click here to subscribe

<< Previous Article
Premium Article Transaction Analysis: ... (03/04)
<< Previous Column
Premium Article Squawking Baseball: No... (02/18)
Next Column >>
Squawking Baseball: At... (03/11)
Next Article >>
Prospectus Q&A: Jonath... (03/05)

March 4, 2010

Squawking Baseball

LA Story

by Shawn Hoffman

the archives are now free.

All Baseball Prospectus Premium and Fantasy articles more than a year old are now free as a thank you to the entire Internet for making our work possible.

Not a subscriber? Get exclusive content like this delivered hot to your inbox every weekday. Click here for more information on Baseball Prospectus subscriptions or use the buttons to the right to subscribe and get instant access to the best baseball content on the web.

Subscribe for $4.95 per month
Recurring subscription - cancel anytime.


a 33% savings over the monthly price!

Purchase a $39.95 gift subscription
a 33% savings over the monthly price!

Already a subscriber? Click here and use the blue login bar to log in.

Did you hear? The Dodgers are getting cheap. Really cheap. By 2018, they'll be spending less than the Royals on payroll, all while pocketing about $300 million in profit. If the team doesn't do well, so be it—people will come to the games anyway, because in the history of sports (and particularly in Los Angeles, where there's little else to do), there's nothing that fans enjoy more than a rich team that doesn't spend.

Now back to reality, where the only thing more ridiculous than that scenario is that the LA newspapers actually seem to think it's plausible.

Here's the quick back story: last week, Jamie McCourt included some documents in a court filing that detailed a pitch the Dodgers made to some Chinese investors that would have resulted in a wide-ranging partnership, including the Dodgers, a Chinese soccer team, and an English Premier League team. Within that pitch were some financial projections going as far out as 2018, when, supposedly, the Dodgers plan on spending $125 million on player payroll—or about $7 million less than they did last year. This despite anticipated revenue growth of over 80 percent between now and then.

Before I get into all the ways that those numbers are preposterous, let's first look at some interesting things that we actually did learn from these documents:

  • The Dodgers spent $128 million on player compensation in 2007, and $123 million in 2008. These figures were supposedly 46 and 42 percent of annual revenues, respectively. Doing some quick math, that means the Dodgers pulled in $278 million and $293 million the last two seasons. (For what it's worth, Forbes had them at $224 million and $241 million in those years. If the Dodgers' figures are pre-revenue sharing, and Forbes's are post-revenue sharing, it's possible that their estimates are at least somewhat close.)

  • The Dodgers' average ticket price was $29.40 in 2007. They sold 3.86 million tickets, meaning ticket sales accounted for about $113 million, or 41 percent of that year's total revenue. Forbes had their gate receipts at $103 million, and total MLB gate receipts at 36 percent of the teams' revenue.

  • We know that the Dodgers' attendance declined by about 130,000 from '07 to '08, which, if ticket prices were held constant, would have resulted in a loss of about $3.8 million. And yet, revenue was actually up for 2008, which means that if everything else stayed constant, the team made somewhere around $20 million during their playoff run that season. (The Dodgers didn't make it in '07, but went to the NLCS in '08.) Don't take that estimate too seriously though, as we have no idea how their other businesses did in those years.

  • The Dodgers modeled in a $53.50 average ticket price in 2018, which, assuming four million in attendance, results in $214 million in gate receipts. That's 40 percent of their projected $529 million, or about the same as it was in 2007—meaning they expect all of their other businesses, including MLB's central fund, to grow at the same 80-percent rate.

Now, on to the ridiculous parts. Based on their "projections," the Dodgers will be spending 25 percent of their revenue on payroll in 2018. For comparison's sake, that's about what the Marlins have been spending lately, based on Forbes's estimates. Not only would they get absolutely destroyed for this politically, it doesn't even make economic sense; there's a reason teams generally spend about half of their revenues on major-league players, instead of just cutting costs and pocketing whatever they can. There are huge rewards for fielding a competitive team, both in terms of operating profits and franchise value, particularly in a market like LA.

That's why you see so few teams keeping their payroll constant over a long period of time. In the 25 years for which we have reliable payroll information, only 11 teams have had a lower payroll than they did 10 years previously, and the great majority of these have been bad teams from the last few years (a slow growth era) who were competitive in the late '90s (a boom era). No surprise that the 2006-08 Marlins take the top three spots, as they were three of the leanest teams, relative to their competition, in modern history:

Team Year Payroll Year Payroll Difference
Marlins 2008 $21,811,500 1998 $41,322,667 -$19,511,167
Marlins 2007 $30,507,000 1997 $48,583,000 -$18,076,000
Marlins 2006 $14,998,500 1996 $31,132,000 -$16,133,500
Orioles 2009 $67,101,666 1999 $80,605,863 -$13,504,197
Rangers 2009 $68,178,798 1999 $76,709,931 -$8,531,133
Padres 2009 $43,333,700 1999 $49,768,179 -$6,434,479
Orioles 2008 $67,196,246 1998 $72,355,634 -$5,159,388
Blue Jays 1995 $45,719,500 1995 $50,590,000 -$4,870,500
A's 2001 $33,810,750 1991 $36,999,167 -$3,188,417
A's 2002 $40,004,167 1992 $41,035,000 -$1,030,833
Royals 2003 $40,518,000 1993 $41,346,167 -$828,167

Note that of those eleven teams, only the 2001-02 A's made the postseason, and we know the story with them. Remember that league revenue more than doubled in both the '90s and this past decade, so teams that stayed flat over a 10-year period were essentially cutting their payroll in half, in real dollars. If MLB really does grow by 80 percent, as the Dodgers project, they would likely be in the bottom five in payroll by 2018.

Can you imagine the Dodgers spending less than the Royals and the Pirates? Me neither.

I've written this umpteen times already: big-market teams are smart to spend lots of money on players, since their potential returns are so high. This is even baked into our GM rankings; given their incredible earning capacities, teams like the Yankees and the Dodgers would get hammered if they didn't have high payrolls.

Needless to say, it would be a terrible business decision for the Dodgers to do this, and I'm inclined to believe that that the invisible hand wouldn't even allow them to: unless they're really terrible, the marginal gain of spending that extra 15-20 percent of revenue on player payroll will always exceed the marginal cost. And I'm sure they know this. Unless they're all on some kind of psychoactive drug cocktail, or possibly preparing for the next round of MLB collusion, there's no way those projections are anything but a sales tool, pitching an investor on what they think he'll want to hear.

Shawn Hoffman is an author of Baseball Prospectus. 
Click here to see Shawn's other articles. You can contact Shawn by clicking here

Related Content:  Dodgers

19 comments have been left for this article.

<< Previous Article
Premium Article Transaction Analysis: ... (03/04)
<< Previous Column
Premium Article Squawking Baseball: No... (02/18)
Next Column >>
Squawking Baseball: At... (03/11)
Next Article >>
Prospectus Q&A: Jonath... (03/05)

RECENTLY AT BASEBALL PROSPECTUS
Premium Article Transaction Analysis: Live That Fantasy
Premium Article Pitching Backward: Brandon McCarthy and the ...
Premium Article Transaction Analysis: Bringing the Band Back...
Premium Article Raising Aces: Best and Worst Mechanics: NL W...
Premium Article Transaction Analysis: Catchin' Relief
Premium Article Transaction Analysis: Martin in Miami, Nate ...
Premium Article Transaction Analysis: Padres Wish Upton a St...

MORE FROM MARCH 4, 2010
Premium Article Transaction Analysis: F-Lop'ping Around
Fantasy Article Fantasy Focus: Center Fielders
Fantasy Article Team Health Reports: Milwaukee Brewers
Contractual Matters: NL East

MORE BY SHAWN HOFFMAN
2010-03-25 - Premium Article Squawking Baseball: How the NFL is Destroyin...
2010-03-18 - Premium Article Squawking Baseball: Sports TV's Golden Age
2010-03-11 - Squawking Baseball: At Bat 2010
2010-03-04 - Premium Article Squawking Baseball: LA Story
2010-02-18 - Premium Article Squawking Baseball: Non-traditional viewing
2010-02-11 - Premium Article Squawking Baseball: Valuing Franchises
2010-02-04 - Premium Article Squawking Baseball: The Best and Worst GMs o...
More...

MORE SQUAWKING BASEBALL
2010-03-25 - Premium Article Squawking Baseball: How the NFL is Destroyin...
2010-03-18 - Premium Article Squawking Baseball: Sports TV's Golden Age
2010-03-11 - Squawking Baseball: At Bat 2010
2010-03-04 - Premium Article Squawking Baseball: LA Story
2010-02-18 - Premium Article Squawking Baseball: Non-traditional viewing
2010-02-11 - Premium Article Squawking Baseball: Valuing Franchises
2010-02-04 - Premium Article Squawking Baseball: The Best and Worst GMs o...
More...

INCOMING ARTICLE LINKS
2010-04-11 - Premium Article Squawking Baseball: Forbes' 2010 Team Valuat...
2010-03-18 - Premium Article Contractual Matters: NL West Projected Payro...