The Business of Baseball

Forbes comes out every year about this time with it’s annual "The Business of Baseball." It is a nice resource to get an idea of what teams are worth, what type of revenue they generate, and what kind of profit teams are making. Never quite sure of the accuracy of this. Hard to know given teams are generally privately owned. We do get some insight with the Atlanta Braves being owned by Liberty Media, a publicly traded company. When you compare Forbes to what Liberty Media releases there are some differences. In the most recent release, they have the Braves with a franchise record $588M and an income of $71M. These are different from what Forbes estimates, they have the Braves at $425M and $51M respectively. There could be some differences in methodology that account for this. For example, Liberty reports that $588M as "Braves-related income." That could include income in other areas of Liberty that are there because they own the Braves but not directly Braves income. Kind of how I have felt about the Tigers and Ilitch holdings. Tigers are often not profitable on the Forbes list but have always felt there were revenue streams (like parking for example) that Ilitch Holdings gets because it own's the Tigers but do not go directly to the Tigers. Nevertheless, it is probably the only source we have regarding the finances of the individual teams other than the Braves. Plus, I do think it provides some useful information. So let’s delve further into the numbers.

Below you will see a spreadsheet with the operating income of the 30 teams for the last 12 seasons. One quirk with Forbes is that since this comes out every March, they report everything with a year date the year they publish it. But revenue, operating income, and player expense were from the year previous. My spreadsheet corrects for that.

What is interesting to note is that 6 teams have ran a net negative income over those 12 years, the Tigers being one of them. If you eliminate the COVID year (2020) then only three teams run a net negative: Tigers, Mets, and Marlins. Can’t do that in the real world but it does illustrate the fact that the Tigers have not been a profitable franchise over the past several years in total. Sure some of that is due to the spending of Mike Ilitch and the after affects of that when the team was no longer contending. The other issue is revenue, and the Tigers are not a high revenue team. Last year they were #26 in revenue. And over the preceding years, outside of 2020 and 2021, revenue has been relatively flat. Lingering payroll issues, lack of profit over the last year, and a relatively flat revenue stream suggests some good reasons why the Tigers were not very active in the FA market this past off season. And unless something positive happens in that revenue stream going forward the Tigers probably will not be big spenders in the free agent market going forward. The only way that changes is if Chris Ilitch decides to not just spend like his father, but maybe more like Steve Cohen. Essentially, the Tigers are a small market team revenue wise. Tied for the bottom in revenue in the AL Central with KC. Smaller market teams like Pittsburgh and Milwaukee have higher revenues than the Tigers.

Looking at revenue further, the Yankees are, of course, tops in baseball with $657M. Half the league however, earns less than $300M. The lowest is Oakland, at $212M. Thus, the Yankees earl 3x what the A’s do. In an uncapped sport, that is a huge advantage. 7 teams earn over $400M (Yankees, Dodgers Red Sox, Cubs, Braves, Giants, Astros). So 7 teams earn double or more what the A’s earn. Yea, they need to fix their stadium issue or move. But it also points out the massive gaps in revenue between the richest and poorest teams in baseball. I have actually did a spreadsheet on revenue and income as well as player expense and calculated non-player expense/operating expense for each team over this 12 year period. It is a busy spreadsheet so did not include it. One thing I found is that the operating expense for most teams is running low to mid $100M. Mets, Yankees, Dodgers, Cubs and Red Sox being the outliers. So most teams run their teams outside of payroll within a $50M or less window.

The other thing that jumps out at me is the whole issue of tanking. Many expect the lower revenue teams to spend more in order to compete. With revenue the way it is, that is a hard ask. Pirates certainly could spend more. One of the more profitable teams over the past 12 yeas from a smaller market, $429.6M. That is more than some of the rich clubs. Also, they make a profit every year except 2020, and they lost the least that year. Made $52M last year. Sure, they could spend more but even if they added all profits to their payroll that would only bump their payroll to $133M. That would only put them in the middle 1/3 of team payrolls and still be over $100M less than the top 4 payroll teams from last year. Hard to know if spending more would make them more competitive or not. It could and would probably make their fan base think they are at least trying. But still are not going to be able to compete with the top clubs spending wise. Money does not buy championships per se, but it does certainly increase the odds.

Now I am picking on the Pirates somewhat, but many of the lower revenue teams certainly do not have that much wiggle room to just add a ton of payroll and still make a profit. 4 of the lowest 10 revenue teams lost money last year, and a fifth, the Rays, made less than $10M last year.

Tanking isn’t the issue it is made out to be. It is driven by the fact that baseball teams have widely divergent revenue and payrolls are not capped. There is a revenue sharing program in baseball but it is clear that it does not put teams on anything close to equal footing. In comparison, the NFL has a cap and has a lot more of its revenue derived from national sources. The lowest revenue team in the NFL is the Detroit Lions at $425M (those would be 2021 revenues) and that would be good for 5th on the current MLB revenue list. The highest revenue team in the NFL is the Dallas Cowboys at $1.087B. The next team on the list is the Patriots at $651M. So the Cowboys earn 2.5 x what the Lions earn but that isn’t that important since the cap keeps the Cowboys from outspending everyone else. Anyone doubt Jerry Jones would spend like crazy if there wasn’t a cap? Even the #2 team the Patriots only out earn the Lions by 1.5 X. And in the NFL, EVERY team makes money. Bucc’s were the least profitable at $62M. Lions made $89M. I know, comparing apples to oranges but the national revenue streams and the cap certainly do level the playing field. A lot of parity in the NFL because of it. So the Lions only excuse is their own ineptness.

So what does this all mean? I don’t know if it means anything. Might just mean it is what it is. But it at least suggests that anti-tanking measures are not going to have a profound affect. Sure, some low revenue teams can spend more if they chose to. But that is not going to have that much of an affect on the competitive balance in this league. Low revenue teams need to be able to build through the draft and wise trades because they cannot afford to do it via free agency. At best, they can afford to add a key piece or two via free agency to a core ready to win. You also cannot expect low revenue teams to spend all their profits on player salaries to satisfy the anti-tanking crowd. Team owners do have a right to make something on their investment. Steve Cohen can spend a big chunk of his own money if he wants, that is his right. But that should not be the expectation for owning a baseball club. Penalizing low revenue teams for not spending by taking draft picks or their revenue share isn’t going to work either. Taking money from teams that don’t have it isn’t going to suddenly make them spend. At best a modest salary floor might help but could also encourage some teams to spend down to the floor and not up to it. And if a team isn’t making money then how can they be penalized for not spending to the floor?

A salary cap probably isn’t the answer either. Certainly the MLBPA isn’t going to go for any type of cap. Even if it did it is unlikely going to be set low enough to level the playing field. It would just constrain the highest spending teams, blunting their ability to build via expensive free agents, something the MLBPA would be dead set against. They fought hard for free agency and will fight tooth and nail against anything that restricts it.

This is likely a problem that there is no real good answer. Revenues are too disparate. Penalizing teams for being poor is not the answer. Baseball teams generate a lot of revenue locally, much more than football or basketball. Unless all revenue, local and national are shared equally could you get to a point of having a more level playing field. Not something the Yankees, Dodgers, Cubs, Red Sox and a few other teams would likely go for either. If baseball is to not only survive, but thrive, there has to be an allowance for teams to build through the draft and trades because they cannot afford to spend big in free agency. This at least gives low revenue teams a shot at building a team that can be successful. Certainly teams like Tampa and Cleveland have been successful at this even if they have not won the ultimate prize. Baseball would like to expand. Asking new teams not only to shell out money to buy into the league but to then spend a lot of money on players to satisfy the anti-tanking crowd would be prohibitive. Most of the potential sites for expansion are not the largest metropolitan areas, so new clubs will likely be on the lower end of the revenue scale, not the higher.

In the end, baseball will be better off accepting some of these realities. If national revenues grow to be a greater proportion of a team’s revenue (and local revenues less) then we might see some of this change. Until then having pathways to success for low revenue teams is critical. Narrowing them or shutting them off because we think they should spend more is not the answer. If anything, those pathways need to be widened. And for Tigers fans, we need to accept the fact that the Tigers are a low revenue team. They are a small market club regardless of how big the Detroit metro area might be. And we should be prepared for them to act like a small market team.

Of note, if you click on the team name, you can get a lot of other information like owner, year team was purchased, stadium info, key partners, etc.

This is a FanPost and does not necessarily reflect the views of the <em>Bless You Boys</em> writing staff.