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Part One
Part Two
Part Three
Part Four

The black hole of MLB’s financial disclosures is titled "National and
Other Local Expenses." This category includes all operating expenses
other than those associated with players on the 40-man roster. Legitimate
expenses in this category include salaries for managers, coaches, and
scouts; signing bonuses for draftees and foreign free agents; the farm
system; stadium expenses; front-office payrolls; and the cost of operating
Major League Baseball’s central office in New York.

Except for stadium expenses, these categories are largely the same from club
to club. Everyone has about the same number of coaches, maintains the same
number of minor league teams, and contributes the same to keep MLB’s lawyers,
lobbyists, and PR people working overtime to undo the damage created by
Commissioner Bud Selig’s every utterance. But as the table below shows, some
teams spend twice as much as others to perform the same tasks.


Team

Non-player
expenses

Operating
revenue

Percent

Seattle Mariners

$84,222,000

$202,434,000

41.6%

New York Yankees

$83,413,000

$242,208,000

34.4%

San Francisco Giants

$79,110,000

$170,295,000

46.5%

New York Mets

$75,195,000

$182,631,000

41.2%

Los Angeles Dodgers

$72,873,000

$143,607,000

50.7%

Colorado Rockies

$65,245,000

$131,813,000

49.5%

Atlanta Braves

$61,540,000

$146,851,000

41.9%

Pittsburgh Pirates

$58,463,000

$108,706,000

53.8%

Cleveland Indians

$57,870,000

$162,242,000

35.7%

Arizona Diamondbacks

$57,850,000

$125,132,000

46.2%

Texas Rangers

$57,806,000

$134,910,000

42.8%

Boston Red Sox

$55,799,000

$176,982,000

31.5%

Houston Astros

$54,266,000

$124,629,000

43.5%

Philadelphia Phillies

$52,996,000

$81,515,000

65.0%

Chicago White Sox

$50,648,000

$111,682,000

45.4%

St. Louis Cardinals

$50,442,000

$132,459,000

38.1%

San Diego Padres

$49,784,000

$79,722,000

62.4%

Detroit Tigers

$49,074,000

$106,791,000

46.0%

Anaheim Angels

$49,061,000

$91,731,000

53.5%

Milwaukee Brewers

$47,801,000

$113,350,000

42.2%

Toronto Blue Jays

$47,605,000

$78,479,000

60.7%

Baltimore Orioles

$47,059,000

$128,302,000

36.7%

Chicago Cubs

$46,886,000

$129,774,000

36.1%

Tampa Bay Devil Rays

$46,438,000

$80,595,000

57.6%

Florida Marlins

$46,204,000

$60,547,000

76.3%

Minnesota Twins

$44,305,000

$56,266,000

78.7%

Oakland Athletics

$38,761,000

$75,469,000

51.4%

Kansas City Royals

$37,126,000

$63,696,000

58.3%

Cincinnati Reds

$36,533,000

$70,887,000

51.5%

Montreal Expos

$35,014,000

$34,171,000

102.5%

AVERAGE

$54,646,300

$118,262,533

46.2%

Some of the differences make sense. Good teams generally spend more on
scouting and pay their coaches more. Investing in the farm system is among
the most cost-effective ways to improve any team, and the single best
investment any club can make is a top-quality front office. Despite their
cable-television riches, the Yankees staggered through the early 1990s
before the suspension of George Steinbrenner allowed Gene Michael and Bill
Livesey to lay the foundation for their latest dynasty. The difference
between a system run by Billy Beane and one run by Cam Bonifay is at least
$20 million a year.

Two of the three highest-overhead teams have unique expenses. The Mariners
paid $13.1 million for negotiating rights to Ichiro Suzuki, and the
San Francisco Giants must pay $20 million annual debt service on Pacific
Bell Park. They’re joined in the stratosphere by the Dodgers, who own and
maintain Dodger Stadium, and the two New York teams, whose executive offices
must feature 14-karat-gold plumbing fixtures. The Pirates’ high costs are
also presumably inflated by expenses related to the opening of their new
park.

Suspicious discrepancies abound. Although the Rockies, Cardinals, Orioles,
and Cubs all report comparable revenue, the Rockies spent $15 million more
than the Cardinals and $18 million more than the Orioles or Cubs. The Expos’
layout of $35 million is probably close to the minimum any club can
reasonably spend; plenty of teams spend $15 or $20 million more that that to
no apparent effect.

Then there’s the Athletics. Only three clubs spent less on their front
office, yet only one club had a better record in 2001. The A’s aren’t
skimping on the essentials: their farm system remains strong, their
mid-level executives are being hired away and promoted by other clubs, and
with the Bay Area’s high cost of living, they can’t be underpaying their
clerical employees relative to other organizations. Yet the average club
spends almost 50% more than the Athletics to achieve far less. If every club
were to reduce its non-stadium-related overhead to Oakland’s level, MLB
would save more than $500 million. That they haven’t is strong evidence that
MLB is exaggerating its financial difficulties. (More on this below.)

In fact, Selig’s numbers can hide a multitude of accounting tricks, such as
expenses unrelated to baseball or intended to benefit the owner in other ways.
While insisting that the numbers given to Congress
and the public told the full story, Commissioner Selig refused to let the
MLBPA talk about such expenses. Perhaps he’s learned from the owners’
experience in 1985, when Commissioner Peter Ueberroth directed the owners to
open their books to the MLBPA without such a strict confidentiality
agreement. The MLBPA consultant, Stanford economist Roger Noll, found the
following items in the clubs’ 1984 books:

  • The Yankees’ books included $700,000 of depreciation on a hotel owned by
    the club, and the club spent twice as much as the average club on travel.

  • The Cubs, whose owner also controlled the city’s dominant newspaper and
    independent TV station, spent three times the MLB average on advertising.

  • The White Sox, who owned their own pay-TV outlet, spent $700,000 on
    interest and production costs for these cablecasts while receiving no rights
    fees in return.

  • The Athletics’ owner used the team as an investment vehicle, reporting
    on the team’s books a loss of $831,000 from the sale of marketable
    securities.

  • The Orioles spent $2 million on stadium expenses unrelated to baseball
    activities.

  • The Dodgers paid their executives four times the industry average, and
    twice as much as any other team.

Are clubs still playing such tricks? There’s no reason to believe they
aren’t, particularly since MLB refuses to let those who have seen behind the
reported numbers talk about what they found.

Even MLB’s own figures provide damning evidence that MLB has grossly
exaggerated its economic problems. One of the recent disclosures was an
"Updated Supplement to the Report of the Independent Members of the
Commissioner’s Blue Ribbon Panel on Baseball Economics." This document,
which purports to document how spiraling player salaries have caused
mounting losses, actually shows that over the six years covered by the
report, non-player expenses have risen faster than player salaries
.

The figures for revenues, player salaries and operating losses in the table
below (all dollar figures in thousands) come from this report; the "other
expenses" column was computed from the other numbers.


1995

1996

1997

1998

1999

2000

2001

1995-2001

Revenues

$1,385

$1,775

$2,067

$2,479

$2,761

$3,324

$3,548

+2,163

% Increase

28%

16%

12%

11%

20%

7%

+156%

Player Salaries

$927

$939

$1,116

$1,272

$1,490

$1,743

$1,971

+1,044

% Increase

1%

19%

6%

17%

17%

13%

+113%


Other Expenses

$784

$1,033

$1,127

$1,345

$1,497

$1,666

$1,809

+1,025

% Increase

32%

9%

19%

11%

12%

9%

+134%

Claimed Operating Losses

($326)

($197)

($176)

($138)

($226)

($85)

($232)


Source: MLB Updated Supplement to The Report of the Independent Members of
the Commissioner’s Blue Ribbon Panel on Baseball Economics, December 2001.

Think about it. MLB admits that its annual revenues have risen 156% since
1995–an extra $2.1 billion per year for the clubs to spend. MLB’s numbers
show that the players have received less than half of this new money, while
over this six-year period, non-player operating expenses have risen 134%, or
more than $1 billion.

Where is this money going?

We know where it’s not going. Teams aren’t operating more farm clubs.
They haven’t doubled the salaries of their scouts, ticket agents, or
secretaries. Stadium rents haven’t doubled. With inflation running only 17%
from 1995 to 2001, clubs aren’t paying twice as much for supplies and
equipment.

If, as the owners claim, MLB is hemorrhaging money, why haven’t they tried
to stop the bleeding? Why are non-player expenses continuing to increase far
faster than inflation? Why won’t Bud let anyone who knows the facts talk
about these costs?

Unless and until the owners provide credible answers to these questions,
their claimed "losses" are about as believable as Enron’s
September 2001 financial statements.

Next time: revenue sharing, team profitability and even more irrelevant
"losses."

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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