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Frobby

Fun with Forbes’ numbers

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You can break down the cost numbers a bit further by backing out our draft spend and out international spend.  After that, we may know what the GM and manager make, but we really don't have a good idea of total headcount in domestic and international scouting, the analytics group and the rest of the headcount on payroll.  

Also, on the revenue side, remember that in 2018, despite the years covered in the recent ruling, the RSC has determined the Os and Nats were each shorted about $15M in TV rights fees - which would have made the Orioles profitable as an entity.

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1 hour ago, hoosiers said:

Also, on the revenue side, remember that in 2018, despite the years covered in the recent ruling, the RSC has determined the Os and Nats were each shorted about $15M in TV rights fees - which would have made the Orioles profitable as an entity.

Yes, I was going to get into this.   The Forbes revenue and operating profit numbers presumably exclude (1) the additional rights fees that the RSDC has ordered MASN to pay to both the Orioles and the Nats, and (2) the Orioles’ share of MASN’s profits.     The RSDC ruling relates to 2012-16, not 2018, but we can “ballpark” that the O’s probably were underpaid by about $20 mm in rights fees, which puts them in the black.    We also can “ballpark” that the O’s probably received another $10-15 mm in equity distributions from MASN.     So, it’s not like they’re losing money.   But even with those additional payments, they’d be below the median in both total revenue and operating income.    

Also, keep in mind that about half the teams have an equity stake in the RSN that broadcasts their games; and about a quarter of the teams own a majority interest in the RSN.    So, in terms of their relative position within MLB, the O’s are far from the only team that has some revenue sources that Forbes doesn’t include.   
 

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7 minutes ago, Frobby said:

Yes, I was going to get into this.   The Forbes revenue and operating profit numbers presumably exclude (1) the additional rights fees that the RSDC has ordered MASN to pay to both the Orioles and the Nats, and (2) the Orioles’ share of MASN’s profits.     The RSDC ruling relates to 2012-16, not 2018, but we can “ballpark” that the O’s probably were underpaid by about $20 mm in rights fees, which puts them in the black.    We also can “ballpark” that the O’s probably received another $10-15 mm in equity distributions from MASN.     So, it’s not like they’re losing money.   But even with those additional payments, they’d be below the median in both total revenue and operating income.    

Also, keep in mind that about half the teams have an equity stake in the RSN that broadcasts their games; and about a quarter of the teams own a majority interest in the RSN.    So, in terms of their relative position within MLB, the O’s are far from the only team that has some revenue sources that Forbes doesn’t include.   
 

Your number includes the $108 million each team gets for the RSN's and the $91 million from the national contract?

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36 minutes ago, Going Underground said:

Your number includes the $108 million each team gets for the RSN's and the $91 million from the national contract?

Not sure what you mean by “the $108 mm each team gets for the RSN’s.”    The national TV money and other shared revenue is included.    Per Forbes:

“MLB’s central revenue (mainly national television money that is shared equally) was $2.76 billion in 2018.....

“Revenue and operating income (earnings before interest, taxes, depreciation and amortization) measure cash in versus cash out (not accrual accounting) for the 2018 season. Our figures include the postseason and are net of revenue sharing and stadium debt payments for which the team is responsible. Revenues include the prorated upfront bonuses networks pay teams as well as proceeds from non-MLB events at the ballpark. The nonrecurring $50 million each team received in 2018 from the sale of a stake in BamTech to Walt Disney was excluded, as were profits or losses from team-owned RSNs.”

https://www.google.com/amp/s/www.forbes.com/sites/mikeozanian/2019/04/10/baseball-team-values-2019-yankees-lead-league-at-46-billion/amp/

So, rights fees paid by RSN’s are in, profits paid by team-owned RSN’s are out.    We know from the MASN court case that the RSDC determined that in 2012-16 the Orioles were underpaid about $20 mm/yr in rights fees (roughly $39.5 mm/yr vs. $59.5 mm/yr), and were overpaid about $34 mm/yr in profits ($47 mm/yr vs. $13 mm/yr).    For more on this, see here: https://forum.orioleshangout.com/forums/index.php?/topic/36868-masn-the-veil-finally-lifts/&tab=comments#comment-2548649.     So on balance, the RSDC decision cost the Orioles about $14 mm a year in “real” revenue, but by Forbes method it will appear that revenues increased by $20 mm/yr (because they are not accounting for the $34 mm/yr reduction in profit from MASN).    Note that all this relates to 2012-16 and the numbers from 2018 could be a bit different, but probably not drastically so.

 

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17 minutes ago, Frobby said:

Not sure what you mean by “the $108 mm each team gets for the RSN’s.”    The national TV money and other shared revenue is included.    Per Forbes:

“MLB’s central revenue (mainly national television money that is shared equally) was $2.76 billion in 2018.....

“Revenue and operating income (earnings before interest, taxes, depreciation and amortization) measure cash in versus cash out (not accrual accounting) for the 2018 season. Our figures include the postseason and are net of revenue sharing and stadium debt payments for which the team is responsible. Revenues include the prorated upfront bonuses networks pay teams as well as proceeds from non-MLB events at the ballpark. The nonrecurring $50 million each team received in 2018 from the sale of a stake in BamTech to Walt Disney was excluded, as were profits or losses from team-owned RSNs.”

https://www.google.com/amp/s/www.forbes.com/sites/mikeozanian/2019/04/10/baseball-team-values-2019-yankees-lead-league-at-46-billion/amp/

So, rights fees paid by RSN’s are in, profits paid by team-owned RSN’s are out.    We know from the MASN court case that the RSDC determined that in 2012-16 the Orioles were underpaid about $20 mm/yr in rights fees (roughly $39.5 mm/yr vs. $59.5 mm/yr), and were overpaid about $34 mm/yr in profits ($47 mm/yr vs. $13 mm/yr).    For more on this, see here: https://forum.orioleshangout.com/forums/index.php?/topic/36868-masn-the-veil-finally-lifts/&tab=comments#comment-2548649.     So on balance, the RSDC decision cost the Orioles about $14 mm a year in “real” revenue, but by Forbes method it will appear that revenues increased by $20 mm/yr (because they are not accounting for the $34 mm/yr reduction in profit from MASN).    Note that all this relates to 2012-16 and the numbers from 2018 could be a bit different, but probably not drastically so.

 

Sorry it was $118 million for local shared revenue. It is for all local revenue not just local TV revenue.

n Major League Baseball, 48% of local revenues are subject to revenue sharing and are distributed equally among all 30 teams, with each team receiving 3.3% of the total sum generated. As a result, in 2018, each team received $118 million from this pot. Teams also receive a share of national revenues, which were estimated to be $91 million per team, also in 2018.

 

https://www.baseball-reference.com/bullpen/Revenue_sharing

 

n Major League Baseball, 48% of local revenues are subject to revenue sharing and are distributed equally among all 30 teams, with each team receiving 3.3% of the total sum generated. As a result, in 2018, each team received $118 million from this pot. Teams alsoreceive a share of national revenues, which were estimated to be $91 million per team, also in 2018.

 

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8 hours ago, Going Underground said:

Sorry it was $118 million for local shared revenue. It is for all local revenue not just local TV revenue.

n Major League Baseball, 48% of local revenues are subject to revenue sharing and are distributed equally among all 30 teams, with each team receiving 3.3% of the total sum generated. As a result, in 2018, each team received $118 million from this pot. Teams also receive a share of national revenues, which were estimated to be $91 million per team, also in 2018.

 

https://www.baseball-reference.com/bullpen/Revenue_sharing

 

n Major League Baseball, 48% of local revenues are subject to revenue sharing and are distributed equally among all 30 teams, with each team receiving 3.3% of the total sum generated. As a result, in 2018, each team received $118 million from this pot. Teams alsoreceive a share of national revenues, which were estimated to be $91 million per team, also in 2018.

 

Think it does, because that article shows the Marlins only generating 72M in local revenue, but their overall revenue is 224M. While the Yankees local revenue(717) is higher then its actual revenue(668).

Edited by Scalious

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The Yankees more than cover their payroll from gate receipts. To me, that alone means that baseball is a completely different business for them than it is for a team like the Orioles and most other teams.

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I wanted to come back to the topic of non-player expenses, where the Orioles ranked dead last.    There’s clearly some noise in that data.    The Yankees had over $400 mm in non-player expenses, while the Dodgers were second at about $250 mm.    Everyone else was under $200 mm with most teams in the $95-125 mm range.   

So what’s going on with the Yankees?   You can’t tell me they spend four times what other teams spend on scouts, analytics and the like, or that any expenses like this could add up to $400 mm+.

My guess is that it has something to do with the way Yankee Stadium is financed.    

 

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22 minutes ago, Frobby said:

I wanted to come back to the topic of non-player expenses, where the Orioles ranked dead last.    There’s clearly some noise in that data.    The Yankees had over $400 mm in non-player expenses, while the Dodgers were second at about $250 mm.    Everyone else was under $200 mm with most teams in the $95-125 mm range.   

So what’s going on with the Yankees?   You can’t tell me they spend four times what other teams spend on scouts, analytics and the like, or that any expenses like this could add up to $400 mm+.

My guess is that it has something to do with the way Yankee Stadium is financed.    

 

Chartered flights. Luxury accommodations. Cashman's Zabar's tab.

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On 12/27/2019 at 10:47 AM, Frobby said:

I spent a little time putting together a spreadsheet of some of the income/expense numbers published by Forbes for 2018, so I could compare the O’s to other teams.     I note, up front, that I don’t consider their revenue and operating income numbers to be that reliable, as I believe they omit equity payments from team-owned RSN’s, obviously a huge factor for the Orioles.    But, I worked with what I had.

I added one line item for each team: non-player expenses.    That is derived from a simple formula: Revenue - Operating Income - Player Expenses = Non-Player Expenses.    This should include all the front office expenses, scouting, development, analytics, Latin American operations and other “infrastructure.”

Here is where the O’s ranked in various categories, with some commentary.   Keep in mind this is 2018.

Revenue: $251 mm, 26th in MLB, ahead of only Kansas City, Tampa Bay, Miami and Oakland.    It is only 38% of the revenue earned by the Yankees and 49% of the revenue earned by Boston.    The league-wide mean in this category was $330 mm and the median was $289.5 mm.

Operating income: -$6.5 mm.    The O’s were one of only three teams operating in the red in 2018, the others being Toronto and Miami.   The mean operating income was $39.6 mm and the median was $32 mm.

Player expenses: $161 mm, 13th in MLB in 2018.    Forbes’ figures include not only salaries, but benefits, so they run higher than the payroll figures you read elsewhere.    In any event, $161 mm in player expenses for 47 wins is laughably bad.   The mean player expenses were $156 mm and the median was $157.5.    

Non-player expenses: this is the category I calculated as explained above.    The Orioles were dead last in this category in all MLB, at $96.5 mm.     The mean was $133.8 mm and the median was $113 mm.   So if you want proof that the Orioles weren’t spending enough on infrastructure, there it is.    It will be interesting to see how much this figure is increased when Forbes publishes its 2019 figures.    I will make a separate post getting into this topic in a little more detail.    

Gate receipts: $42 mm, 26th in MLB, ahead of only Cincinnati, Oakland, Tampa Bay and Miami.   By comparison, the Yankees had gate receipts of $284 mm and the Red Sox $221 mm.   The mean in this category was $94.1 mm and the median was $71.5 mm.

I have a number of thoughts and comments on this data that I’ll post later.     These include some thoughts on how MASN impacts these numbers, and some of the “noise” in the revenue and non-player expense figures league-wide.    But the raw numbers are pretty interesting in and of themselves.    

Thanks for posting this.

Earlier this year, as part of a project that has gotten sidetracked, I did an analysis of the 2018 Forbes numbers. I'm not at home and don’t have access to that stuff right now, but from memory I pretty much did Frobby did, with a few differences noted below.

While working with the Forbes numbers, I concluded, I guess based on what I can remember from my extensive work with business valuations years ago, that it's more meaningful to look at the average of a team's multi-year numbers than to focus on a single year. That should create a more meaningful picture of things by reducing the effect of single-year aberrations -- maybe important and maybe not, depending on what you're looking for. However, that conclusion, combined with my antiquated and awkward relationship with spreadsheets, slowed me down quite a bit. 

Forbes has been presenting these annual MLB valuations for over 20 years. I have been following the Forbes numbers, and reading about them, for the past six or seven years, and I am confident that they have been pretty accurate in recent years -- maybe not precise, but close enough for use when you’re looking for patterns and making  comparisons.

The big exception is that, as Frobby (and Forbes) point out, Forbes ignores the revenues some teams derive from owning all or part of the regional sports networks that pay them rights fees to carry their games. (That omission tends overall to reduce the relative revenues and profits of larger-city, higher-revenue franchises.) We know from the MASN case that MLB permits team-owned RSNs to divert a portion of the value of teams' rights fees to the RSNs. I’m surprised that Forbes hasn’t by now made team-by-team estimates of annual revenues from ownership of RSNs where that’s applicable. Maybe next year.

In any event, instead of ignoring this revenue source, a couple of years ago I made crude (and conservative) estimates of teams’ revenues from their RSN ownership, and added that estimate to the revenues for each team that owns an RSN. I have no illusion that those guesses are accurate, but I suspect they’re more accurate than the zero that Forbes and Frobby use.

The other difference between my methodology and Frobby’s is that I used player payroll numbers from a different source, I think Spotrac. I can’t remember why.

I agree with Frobby that there are lots of things you can do with these numbers, and I only scratched the surface. A few general  observations for now, though.

In my opinion, while the ability of an MLB team to compete successfully depends on a number of factors, the two most important are (a) its potential to generate revenues when it is well managed, and (b) the potential of its divisional rivals to generate revenues.

Estimating a team’s potential revenues is complicated, but the Forbes numbers provide a way to move toward a reasonable approximation: take the average revenues (plus an approximation of revenues from RSNs) over the past X seasons (five seems like a reasonable number) and weight the more recent years. That doesn’t work very well in at least two types of situations: teams whose revenues have been depressed in some years because of poor management (the Mets, Marlins and possibly the Orioles are examples), and teams that chose to allow their revenues -- and their costs – to be reduced in some years as part of a rebuilding process. Those teams' historical revenues need to be adjusted when you compare them to other teams', and I haven’t figured out how to do that.

I have posted in the past some interesting (to me, anyway) numbers that the Forbes figures make readily accessible: the average price of each ticket sold (a team’s gate receipts, per Forbes) divided by that team’s home attendance for the same year. Teams in areas with relatively large populations, high wealth, and lots of corporate headquarters and a concentration of service (financial, law, consulting and accounting) firms get more per ticket -- a lot more in some areas.

Though I haven’t studied it, it's my belief that, while a team's paid attendance rises and falls based on the team’s on-field success (with a time lag), its average ticket price for a given year is affected only slightly by recent on-field performance. If that’s so, then a team’s average ticket prices over, say, 10 years should reflect primarily factors that it can’t easily change: the demographics (including population, wealth, baseball tradition, competition for entertainment/recreation from other teams and activities) of its city and the surrounding area, and (especially in two-team cities) the location and appeal of its stadium and the nature of its fan base. That is, a team's average price per paid patron should correspond closely to its potential ability to generate revenues.That’s something I hope to look at after a lot more thought.

I’ll try to get back to these numbers after the first of the year and post some additional observations. But, as I said, I'm pretty slow with  spreadsheeting stuff.

Thanks again, Frobby.

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