Forbes.com has published its annual list of franchise values for major league baseball clubs, and the Detroit Tigers’ franchise value has increased from $1.125 billion to $1.2 billion over the past year, which ranks 18th among the 30 MLB teams. That’s the good news.
The bad news is that the Tigers posted an operating loss of $34.6 million in 2016, more than any other team. Detroit is one of five franchises that suffered an operating loss for the year, while the average MLB franchise had a net income surplus of $34 million. The Los Angeles Dodgers ($20.5 million loss), Miami Marlins (-$2.2 million), Baltimore Orioles (-$2.1 million) and Kansas City Royals (-$900K) were the other net losers in 2016.
The Tigers had revenues of $257 million in 2016, which ranked 15th among the 30 baseball franchises. This includes $73 million in gate receipts, according to Forbes.
Franchise values continue to climb steadily upward across major league baseball which has grown into a business with annual revenues over $10 billion. Values range from $3.7 billion for the New York Yankees, to $825 million for the Tampa Bay Rays. The late Mike Ilitch bought the Detroit franchise in 1992 for $82 million.
The average MLB team is worth $1.54 billion, 19% more than one year ago. Values were driven higher by new local television deals that are increasing at roughly a two-fold rate, surging profitability, and the escalating value of Major League Baseball Advanced Media, the Internet and technology arm of MLB.
There are a few reasons why the Tigers lost money in 2016:
1. Payroll is up. The Tigers paid over $212 million in salaries and benefits for the players on their 40 man roster, and were one of six clubs to pay a luxury tax in 2016. The Tigers paid $4,032,747 tax on a payroll of $212,044,266 with a $189M threshold and a 17.5 percent rate as a first-time payor, according to Cot’s Contracts.
The Tigers’ payroll is over $215 million for tax purposes for the 2017 season, including $19.5 million for three players who are no longer with the team (Prince Fielder, Mike Pelfrey, and Mark Lowe). The club will pay a 30 percent tax on every dollar above the threshold of $195 million for the current season. Over $47 million in salaries will come off the books after the current season, putting them well below the tax threshold, but they will lose players in right field, a backup catcher, and closer.
2. Attendance is down for the third consecutive season, from 3.083 million fans in 2013, to 2.494 million in 2016. That’s equal to a decline from over 38,000 fans per game to 31,000 over a four year span. Missing the playoffs also deprives the club of a number of packed houses and all the ticket sales, parking revenue and concessions that come with winning. The Tigers fell from third in attendance in the American league in 2013 to seventh in 2016.
3. Local television revenues are relatively lower as other clubs sign bigger and bigger contracts with regional sports networks. The Tigers extended their contract with Fox Sports Detroit for ten years in March, 2008, although the deal may not expire for another few seasons. Other clubs have negotiated new local television contracts in the interim, cashing in on skyrocketing prices for broadcast rights. At least 15 clubs have negotiated an ownership stake in their regional sports network.
The club receives $50 million per season from their local television contract, which is steady over the life of the agreement, and they receive the same share of national television revenues as the 29 other MLB clubs. Fangraphs estimates the local television revenue for MLB clubs with the Tigers coming in 10th on the list. A new television contract promises to be very lucrative for the club.
The Tigers ranked third among MLB teams in terms of television ratings in 2016, an increase of 11 percent over the previous year. The club ranked first in ratings in 2013. There has been a correlation between the team’s record on the field and attendance as well as television ratings.
The Tigers face the challenge of remaining competitive on the field while reducing payroll, not only to avoid paying a luxury tax, but to return the club to profitability. It costs money to win, but it also pays to win, as fans pay to see a winner and advertisers pay for viewership.