The Futility Infielder

A Baseball Journal by Jay Jaffe I'm a baseball fan living in New York City. In between long tirades about the New York Yankees and the national pastime in general, I'm a graphic designer.

Friday, April 21, 2006

 

Billion Dollar Babies

Forbes Magazine's independent survey of the game's financial landscape, "The Business of Baseball" report, was published on Thursday both at the mag's website and at ESPN. The report literally contains a wealth of information for any fan interested in the dollar signs which drive the game, and is required reading for any informed discussion on such matters. This is as good as it gets to counting the game's money.

Central to the report are the annual Team Valuation rankings. It's no surprise that the Yankees top the list as the game's most valuable franchise, but this is the year they've broken through the billion-dollar barrier. With an eight percent increase on last year's valuation of $950 million, the Yanks are now worth an estimated $1.026 billion. The Red Sox ($617 million), Mets ($604 million), and Dodgers ($482) are next in line, not particularly surprisingly. At the bottom of the list are the A's ($235 mil), Marlins ($226 mil), Twins ($216 mil) and Devil Rays ($209 mil).

Most surprising to the casual observer is probably the valuation of the Washington Nationals at $440 million, which ranks sixth. The Nats were valued at $310 million last year, which ranked 16th, and as the Expos, they were a lowly 30th at $145 million in 2004. So essentially, the move and subsequent (and agonizingly protracted) stadium deal have nearly tripled their value in just two years, which is pretty astounding and which explains, at least in part, why MLB was so driven to execute the first franchise move in over 30 years.

There's a ton of other info to glean from the report. As a whole, team values increased by 15 percent for the second year in a row, to an average value of $376 million. The Toronto Blue Jays value rose 34 percent last year (to $286 million), second to the Nats' 42 percent, and every team increased at least three percent. The report attributes revenue sharing as the main reason behind the increased values:
But the biggest story is the effect revenue sharing is having on the league's economic landscape. Most of the money comes courtesy of the New York Yankees, which paid a record $77 million toward baseball's revenue sharing system. The Boston Red Sox, baseball's No. 2 revenue sharer, paid only $51 million. Such generosity by Yankees owner George Steinbrenner, required by the league's rule that teams pay 34% of their net local revenue to help make poorer teams more competitive, is the reason why the Oakland Athletics, Minnesota Twins and Kansas City Royals increased in value by more than 20%.
That revenue sharing put the Yanks $50 million in the red in operating income last year; the Red Sox ($-18.5 mil), Mets ($-16.1 mil), Marlins (-11.9 mil) and Angels (-$2.6 mil) were the only other teams to post losses in that department. Overall operating income of the 30 teams shot up from $132 million to $360 million in just a year, so the next time an owner tells you salaries are increasing too fast as compared to revenues, they'll be talking to the hand.

The article notes how the Yankees drive the game's economics beyond revenue sharing:
For example, a visit by the Yankees can increase a home team's ticket sales by as much as 25%. And the Yankees account for 27% of all league merchandise sales, the profits of which get shared equally throughout the league to the tune of more than $3 million per franchise. In effect, much of the league operates as subsidiaries of the Bronx Bombers.

But don't feel bad for the Yankees or the Red Sox. They sit atop our rankings, worth $1 billion and $671 million, respectively, thanks to the revenue generated by their ownership stakes in regional sports networks. Steinbrenner's $62 million in cable money from the YES channel was by far the most in the league. Moreover, the Yankees will have a new cash-rich ballpark by 2009--perhaps adding another 20% to the team's valuation.
Anyway, the stuff may seem dry, but it's also fascinating at a certain level. Since Forbes is much more credible than any of the team owners, this report is an essential tool to combat the propaganda spread by Bud Selig and many of the game's other owners on teams' financial states; remember that as private entities, teams aren't required to report their finances, and many of them will dispute the numbers published here.

At the same time, the report can also be seen as a feather in Bad Rug Bud's bonnet. The game is in a remarkably healthy financial state, and the revenue sharing that Bud and other small-market owners have fought for tooth and nail over the past decade and a half has solidified the game's financial grounding.

Anyway, with the Collective Bargaining Agreeement set to expire this year, you can bet we'll be hearing a lot about such numbers in the coming months. Kudos to Forbes for putting them out on the table once again.

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