,
23 tweets,
6 min read
Read on Twitter
Yesterday, Forbes released its annual business of baseball report. See here for analysis: captainsblog.info/2019/04/10/mlb…. What follows are some key points. forbes.com/mlb-valuations…
MLB op. profit topped $1bn for first time, with 7 teams >$70mn, including the Red Sox, who had by far the highest player expense in the game. Interestingly, Boston’s $63mn increase in revenue was offset by $41mn more in player costs, and the net result was a small drop in EBITDA.
The Red Sox example shows how the financial side of the game is divorced from the competitive side. Boston was basically penalized for trying harder to win. That’s why I think the MLBPA should strongly advocate for a system like this: captainsblog.info/2019/02/02/sol…
The Dodgers recorded the largest profit in the game on modest revenue growth. How? By slashing player costs. LA has cut payroll+lux tax by 33% since 2015 and gone from spending 85% of revenue on payroll in 2013 to just 36% last year.
Just behind LA in terms of EBITDA was the Phillies. Where did the “stupid money” the Phillies spent this winter come from? An operating profit of nearly $100mn in 2018 and $270mn over the last three years.
The Cubs recorded just as much EBITDA as the Phillies over the past three years, which makes you wonder why ownership claimed to have no more money when their profits have also been pretty “stupid”. How would Kimbrel or Keuchel look in Chicago right now?
Mid to small market teams with high operating profit that did not spend this winter include Atlanta and Milwaukee, which each netted about $70mn in EBITDA. Again, with Keuchel and Kimbrel an ideal fit in both places, it’s hard to explain their lack of interest.
Two of the 3 teams to record an operating loss in 2018 (Orioles and Marlins), actually increased profit significantly, narrowing much larger losses from 2017 despite stagnant revenue. More examples of how tanking can be very good for business.
Blue Jays are an enigma. Revenue and op profit seem too low for its market (basically Canada), but Rogers has such a large media umbrella, with ownership of so many content destinations, it makes you wonder if Jays are treated as a loss leader with redirected revenue recognition.
On the revenue side, the Yankees’ $668mn net figure is over $100mn more than second place LA. The Yankees’ revenue advantage is almost as large as ever, and that’s after netting out about $130mn in PILOTs and revenue sharing. 
In each 2-team market, one team dominates. The Yankees nearly double the Mets revenue, the Cubs two-thirds more than the ChiSox and the Dodgers 58% more than the Angels.
For the league, Forbes estimates about $9.9 billion in net revenue and $10.1 billion gross, of which about 73% is derived locally. That’s why you should laugh when someone points to national TV ratings (~15% of league revenue) when assessing the health of the game.
Enterprise values were up across the league by 8%, with Yankees gaining the most at 15%. Though EV is a paper number, the higher it is, the more capacity an owner has for borrowing. So, though it may not be a gain until sold, owners can benefit from leveraging the team.
Keep in mind that Forbes does not factor team owned equity in RSNs, or other related businesses into its EV calculation. So, teams like the Yankees, which derive revenue in other businesses (and there are many), are benefiting financially in ways not captured by this analysis.
Shifting focus to the Yankees (see here for more detail: captainsblog.info/2019/04/10/yan…). The Yankees’ payroll/revenue dropped to 27%. That was lower than every team but the White Sox.
What would it have taken to just get the Yankees to the league average payroll/revenue rate? About an additional $100mn, or roughly the AAVs of Harper, Machado, Corbin AND the associated luxury tax.
Granted, Forbes pegs the Yankees’ operating profit much lower than other big market teams, but that begs the question: if not spending money on players, where is the Yankees revenue going?
The Yankees likely spend more on things like analytics and scouting, but that wouldn’t come close to closing the $100mn gap. It would be interesting if an intrepid reporter with good sources could come up with an answer to that question.
Some possible explanations for the Yankees EBITDA gap could be very high salaries paid to partners (including Hal) or investments in things that drive revenue (into other businesses), but do not contribute to on-field performance.
Regardless, Yankees enjoy tax advantaged financing (which it nets out of rev sharing) and a protected market that Forbes estimates accounts for almost half EV. That so many fans accept the team’s relative under investment in payroll is bewildering.
It's also odd that a local reporter hasn't explored the topic of the Yankees' finances more closely. At the very least, there is interesting information to unearth as well as important questions that the organization should be called upon to answer.
Also, anyone concerned about players’ reduced share of revenue should direct their focus toward teams like the Yankees (in fact, the Yankees first and foremost). After all, if the Yankees spent to the league average, players would immediately gain 1% of the total revenue pie.
Finally, if you are interested in comparing how teams have spent relative to payroll over the last 17 years, click here captainsblog.info/2019/04/11/his…: The charts, like this one, are interactive.
