How much profit is reasonable?

[Frobby]

I’m writing in response to a series of posts by AnythingO’s, including this one:

“Revenue has been about $250 M for awhile, Operating Costs are  about $100 M, Expenses are about $20 M about Salaries so about $75 M, that leaves about $75 M which needs to Cover JA's profit whatever that may be. The leftover can be added to $75 M, ME ain't gonna go crazy unless JA accept less profit or Revenue increases.”

https://forum.orioleshangout.com/topic/47129-espn-top-100/page/12/#comment-2869425

The posts were based on the numbers published by Forbes, which we all understand are not necessarily reliable and are incomplete.   But, they’re all we really have, so let’s work with them.  

Back in 2019, using the Forbes numbers from the 2018 season, I put together a spreadsheet of all 30 team’s numbers.  What I found was (among other things), the mean operating income for the 30 teams was $39.6 mm, and the median was $32 mm.   There were a small handful of large market teams with operating income that year that exceeded the $75 mm number that AnythingO’s projected for the O’s this year: LAD $95 mm, PHI $94 mm, BOS $84 mm, CHC $87 mm, CWS $76 mm.  The other 25 teams were below that, most of them by a lot.   

I’m sure if I looked at a five-year window, I’d find that individual teams’ operating incomes fluctuate a lot.  But based on this look, I personally don’t think it would be reasonable at all for the O’s to be taking operating income of $75 mm+ on an annual basis.   If that’s the plan, I’d say the owners are being extremely greedy.   They haven’t done it in the pre-2018 period, and in my opinion they shouldn’t be doing it now.  I was okay with them doing it during the rebuilding phase, but now that they’re in position to compete, I expect them to spend what’s necessary to do it, and if they don’t, that’s on the owners.  

 

[forphase1]

First, we don't know the real numbers, so obviously there is speculation here.   That said, the small business owners that I know strive to have a profit margin of 15-20% after all expenses have been paid.   That target is often not reached of course.   That money gets split up between planning for future growth of the business and to pay the owners.  Using the 20% number to keep it easy,  that's 50M on 250M in revenue.  15% would be in the 37.5M range.  So yeah,  if they are pocketing $75M, that appears to be higher than what it should be.   But I wish we had the real numbers to know just how out of line they are,  if at all. 

[Can_of_corn]

10 minutes ago, forphase1 said:

First, we don't know the real numbers, so obviously there is speculation here.   That said, the small business owners that I know strive to have a profit margin of 15-20% after all expenses have been paid.   That target is often not reached of course.   That money gets split up between planning for future growth of the business and to pay the owners.  Using the 20% number to keep it easy,  that's 50M on 250M in revenue.  15% would be in the 37.5M range.  So yeah,  if they are pocketing $75M, that appears to be higher than what it should be.   But I wish we had the real numbers to know just how out of line they are,  if at all. 

I'm sure the media will get a look at those numbers really soon.

[Too Tall]

Here we go again. Speculation. Whatever - what are we going to do? Root for another team?

Let's see. The Orioles have bad ownership - a family that is in court. A son suing his mother and brother. An ownership spokesman that needs lessons in public realtions. MASN is a joke and in court. You can't make this stuff up! We all want new ownership yet have no control over the issue. And, if we ever saw the books and didn't like them, what ya going to do - who ya going to call?

Yet, in spite of this ridiculous soap opera, the team I think we do root for that's on the field this year may be good and worth talking about - except of course for Frazier.  

[Roll Tide]

So, I went to 10 games last year.

I will watch games on tv but have decided that I’m not buying anything else Orioles until a new lease is signed. 
 

I don’t trust John Angelos any more than Peter. We know the last several years with the payroll low they’ve been making bank. And that’s not counting what is being pulled out of MASN.

Im hoping someone approaches Georgia with an offer she can’t refuse. And once in for all we will be done with the Angelos family.

 

 

 

[spiritof66]

A couple of comments first. Having worked with the Forbes figures many times, I believe Forbes' estimates of revenues are pretty good. All 30 teams largely get their revenues from the same kinds of sources, and  it's possible to extrapolate from the information that's available and to estimate comparatively what teams are taking in. An exception is Forbes' exclusion of teams' profits from their ownership interests some of them have in regional sports networks, which at least for the NYYs and the Red Sox are probably pretty substantial. The Orioles and Nats pose an additional problem: I don't know what Forbes is doing about their cable rights fees. Forbes' expense numbers are more dubious: I think they're largely guessing at teams' expenses other than player payroll. I don't know, for example, how much some teams, like the Orioles, pay each year to service debt, or whether an estimate of debt expense is included by Forbes.  Lots of other team expenses -- like salaries for non-players, travel, spring training, international scouting and training, IT --  are pretty hard to see or estimate, and may differ among teams by quite a bit. I just don't now, and I don't think Forbes does, either. So I think it's pretty speculative to say that the Orioles are making $75 million a year after expenses.

More important, I don't think there's any standard for "normal" or "typical" profits earned by MLB teams. In most instances, the sole or controlling owner of an MLB team isn't in it primarily for profits. Profits were important to past generations of owners, who made their living solely or in large part from their teams -- Comiskey, Griffith, Veeck, Yawkey, Stoneham, O'Malley, Ebbets, those guys. It's dangerous to generalize, but most of the current generation of owners are rich guys who made (or inherited) and in many cases are still making very large amounts of money outside of baseball. They're looking to benefit from owning teams other than from receiving distributions from the team's profits. Wealthy groups or individuals pay hundreds of millions or small numbers of billions to buy into this exclusive club because it makes them, justifiably, feel important -- minor and in some cases major celebrities in their teams' cities and, if they stick around for a while and make some noise or win a World Series, maybe around the country.  These very rich people want to test their ability to put together a winning team (including hiring the right "baseball people" and firing the wrong ones) in this challenging, highly visible environment. Apart from profits, owners can install themselves (and in some cases their relatives) as team executives, presumably at high salaries (Do you guess that John Angelos is earning more as Orioles CEO than he could elsewhere? I do.) and to charge to the team the expenses of traveling all over the country to watch the team play and attend LB meetings.

Sure, owners want to make profits, but many of them aren't fixated on those profits, especially those who can write off losses against enormous earnings elsewhere, and it seems that many of them are willing to reduce or forgo profits when they think a pennant is in sight. The wealthy people who buy these teams could earn much higher profits by investing in their own businesses or in other astute ways -- they all are rich enough to have access to high-yielding private equity investments that aren't available to us plain folks. They're looking, as I said above, for another way to have fun and test their mettle. And when a rich person or group invests in an MLB team, they do so with a high degree of assurance so far that the team can be sold at a profit when they call it quits. So far as  I know, it's been a very long time since anyone lost money buying and selling an MLB team -- maybe CBS in 1973, when it sold the NYYs to a group headed by Mike Burke and including George Steinbrenner for $10 million, $3.2 million less than it had paid in 1964. The conventional wisdom long was (and I assume still is, though I've been far away from this stuff for about a decade, and was never all that close to it) that when it's time to sell there will always be "one more schmuck," or a few or even many of them bidding against one another, who will be willing to pay much more for a team than the previous owner paid, and a much higher multiple of the team's profits than would be available elsewhere.  Unlike profits that the owners may have taken during their ownership, profit from the sale will taxed at the lower capital gains rate.

What's happened  to the Orioles is unusual in today's MLB -- I can't think of another recent example. The majority owner used his resources from a highly successful business to buy and run the Orioles. He no longer can operate either. He made no provision for succession in the non-baseball business, which no longer generates cash and soon will be liquidated or sold for a pittance. The Angeloses have little beside the team to generate income, so they may need profits from the team, or at least they can't afford to lose much. I don't know how much profit is "right" for the rebuilding Orioles. I know only that it grinds my gears to think that, while maintaining a low, low payroll and having killed gate receipts by purposefully fielding a terrible team, the Orioles -- and in particular the talent-less rich kid who serves as the team's CEO -- may be pocketing substantial amounts from the team's profits with no intention to re-invest them.

There's obviously a lot of speculation  here. It's comforting to know that we'll soon learn more about what profits the Orioles have earned and where the money has gone. That happens next week, right?

[AnythingO's]

I’m sure if I looked at a five-year window, I’d find that individual teams’ operating incomes fluctuate a lot.  But based on this look, I personally don’t think it would be reasonable at all for the O’s to be taking operating income of $75 mm+ on an annual basis.   If that’s the plan, I’d say the owners are being extremely greedy.   They haven’t done it in the pre-2018 period, and in my opinion they shouldn’t be doing it now.  I was okay with them doing it during the rebuilding phase, but now that they’re in position to compete, I expect them to spend what’s necessary to do it, and if they don’t, that’s on the owners.

I don't disagree at all with your take. My only point was if Revenue stays about $250 M then there is about $75 M to cover profit and increased salaries. If JA is good with a $25 M profit then there will be about $50 M to add to the salary pool. If he wants $50 M in Operating Income then there is only $25 M additional for salaries over the $55 I estimated.    

[Since1984]

Personally, I believe the Owners are pocketing money to hold onto team ownership (and don’t want to sell). This scenario will be pronounced if they stay cheap the next two offseasons.

MASN rights might not be as profitable now and that enters into the equation of not spending good money this offseason. The O’s showed up ahead of schedule, as competitors !

Based on the history of this team, they are committed to funding all of the fundamental aspects to a well run organization . Time will tell of these aspects this time next year!
 

[Moose Milligan]

*yawns*

[Can_of_corn]

Who was it that was saying the O's were effectively a public institution and that the ownership shouldn't make any profit at all on them?  I think it was back in the waning days of Dan's reign. 

Good times.

[Sports Guy]

How ever much they can..provided that they put the resources in the team they should be.

[Moose Milligan]

18 minutes ago, Can_of_corn said:

Who was it that was saying the O's were effectively a public institution and that the ownership shouldn't make any profit at all on them?  I think it was back in the waning days of Dan's reign. 

Good times.

That's some hippie ****.

[Can_of_corn]

1 minute ago, Moose Milligan said:

That's some hippie ****.

Yep, even under the Communists you know the guy in charge would be skimming 4%.

[sevastras]

I don’t care how much they make in profit if the product keeps me coming back. I also have a brand loyalty that has been instilled since childhood, so the leeway I give is quite substantial. It is like cigarettes, I am addicted so I will put up with the garbage for a long time before I quite completely rather than switching brands. (I don’t smoke). That said, I own businesses and know that between taxes and creative accounting you aren’t going to see much profit on paper or in reality depending on the year. 

[O's84]

4 hours ago, Can_of_corn said:

Who was it that was saying the O's were effectively a public institution and that the ownership shouldn't make any profit at all on them?  I think it was back in the waning days of Dan's reign. 

Good times.

JTrea?