The Business of Baseball

Such current, popular, and reputable publications as Business Week , Forbes and Fortune , and the former Financial World contain annual financial data and other information about Major League Baseball (MLB) and the league’s franchises. Based partly on what these magazines published on professional sports, there are economists and various organizations that research and perform studies, and write articles, reports, and perhaps books that analyze the sports industry including the business of professional baseball.

Since the late 1990’s to early 2000’s, Forbes has published different types of financial information regarding the decisions, operations, and seasons of MLB and its member franchises. Editions of the magazine, for example, report actual or estimated amounts in millions for specific things like the gate receipts and debt-to-value ratios of each MLB team and averages for the league. Indeed, there are chapters in my baseball books that discuss the effects and implication of this data for the sport and its future. [1]

To inform readers and especially baseball fans about what is important and how to evaluate and measure the sport’s business, I created Table 1. It reflects, in total, how 30 teams performed financially as a group during five recent MLB seasons. Specifically for this essay, I selected four criteria that appeared in various articles published online in Forbes because they best reveal what occurred financially during and across these seasons in the business of baseball. The following is my interpretation of amounts in the table for MLB and results for a number of teams in the American and National Leagues (respectively, AL and NL).

Operating Income (OI). For various economic and sport-specific reasons, the total OI in MLB

Table 1 Financial Data
Teams Average Amounts, Five MLB Seasons

Note: Operating Income is earnings before interest, taxes, depreciation, and amortization. Player Expenses include benefits and bonuses. Revenue is net of stadium revenues used for debt payments. Value of teams based on their current stadium deal (unless new stadium is pending) without deduction for debt (other than stadium debt). Amounts are team averages in millions. Currently, financial data is not available for MLB’s 2011 season.

Source: See “The Business of Baseball” for different MLB seasons at Forbes.com .

Increased from a negative $39 million in the 2002 season to $132 million in 2004. As the U.S. economy recovered from a recession and the nation’s stock markets improved during this period, the majority of teams charged customers more for ticket prices to their home games although their annual attendances were stable at approximately 2.4 million per season. In 2002, 13 or 43 percent of the league’s franchises experienced operating losses.  Two years later, however, only the OI’s of the New York Yankees and Los Angeles Angels of Anaheim exceeded $19 million.

From the 2004 to 2006 season, MLB’s OI increased by $364 million or 275 percent but then remained relatively constant each season through 2010 (OI’s not available yet for 2011).

Despite a recession and volatile credit, housing and stock markets, baseball clubs continued to receive income from such operations as home games played at their new or renovated ballparks, money from contracts with television networks, fees from partnerships and sponsorships, revenue sharing, and other sources.

Accordingly, teams with the largest amounts of OI in seasons were, for example, the Baltimore Orioles at $34 million in 2004, Florida Marlins at $43 million each in 2006 and 2008, and the San Diego Padres at $37 million in 2010. In contrast to those amounts, payments for player’s salaries and other operating costs caused large negative OI’s for franchises like the Yankees in the 2004 and 2006 seasons, and Detroit Tigers in 2008 and 2010.

Player Expenses (PE’s): From the 2002 to the 2004 season inclusive, the league’s average PE’s increased by $119 million or 5 percent. Then in two, four, and six seasons after 2004, respectively, it increased on average per team by 10 percent, 17 percent, and less than 1 percent. In fact, during each of these three MLB seasons, PE’s of the Yankees ranked first and Boston Red Sox second while clubs with the smallest amounts were the Marlins at $31 million in 2006 and $45 million in 2008, and Padres at $51 million in 2010.

For various reasons, some NL and AL teams with relatively high (low) PE’s had under-performed (over-performed) in their regular season. Given an average winning percentage of .500, two underperforming teams each season were the New York Mets and Toronto Blue Jays in 2002, Arizona Diamondbacks and Seattle Mariners in 2004, San Francisco Giants and Baltimore Orioles in 2006, Atlanta Braves and Detroit Tigers in 2008, and the Houston Astros and Los Angeles Angels of Anaheim in 2010.

Alternatively, there were NL and AL teams with relatively low PE’s that won more than 81 games of their regular seasons. These included, for example, the Montreal Expos and Oakland Athletics in 2002, Florida Marlins and Minnesota Twins in 2004, San Diego Padres and Oakland Athletics in 2006, Milwaukee Brewers and Tampa Bay Rays in 2008, and Cincinnati Reds and Texas Rangers in 2010. Thus, other factors besides amounts invested in their players had influenced these 20 over-performing and under-performing teams.

Revenue: Table 1 contains the average revenue of MLB franchises for five seasons. These amounts increased by 17 percent from 2002 to 2004, 19 percent from 2004 to 2006, 13 percent from 2006 to 2008, and 5 percent from 2008 to 2010. The Yankees’ revenue ranked first each season followed by the Chicago Cubs, Red Sox, or Mets who placed second or third. Because they played their home games in ballparks within inferior or small baseball markets, or simply performed below .500, such clubs as the Expos in 2002, Twins in 2004, and Marlins in 2006, 2008, and 2010 each finished 30th in revenue.

Besides their market population and winning percentage, baseball franchises earned above or below the league’s average revenue, in part because of average attendances (AATT’s) and average ticket prices (ATP’s) at their home games. Indeed, the AATT’s and ATP’s of the Red Sox, Cubs, Mets, and Yankees exceeded the MLB average in each season of Table 1. For clubs with low revenue, their AATT’s and/or ATP’s ranked at or near the bottom of the league each season. Among this group were the Florida Marlins, Kansas City Royals, Pittsburgh Pirates, and Tampa Bay Devil Rays (renamed Tampa Bay Rays in 2008).

Except for below average performances of the Cubs in 2002, 2006 and 2010, and Mets in 2002, 2004 and 2010, the Red Sox and Yankees had winning seasons while the Rays finished above .500 in 2010 as did the Marlins in 2004 and 2008. The Royals and Pirates, however, won fewer than 81 games in each of these seasons. In short, the former group of teams earns considerably more revenue in their seasons than the latter group, which they spend to pay PE’s and other franchise expenses.

Value: Since this data reflects baseball’s business, the most important piece of financial information for current owners of MLB teams is the estimated worth or sales price of their respective franchise. Based on the average value of 30 teams during specific seasons, these amounts had increased by approximately 12 percent from 2002 to 2004, 29 percent from 2004 to 2006, 11 percent from 2006 to 2008, and 8 percent from 2008 to 2010. While the Yankees ranked first each season, the Red Sox, Mets, and Dodgers placed second, third, or fourth.

For one season or another, the least valued MLB franchises included the Athletics, Devil Rays (or Rays), Royals, and Twins in the AL and Marlins, Pirates, and former Expos in the NL. Furthermore, these clubs ranked below average financially in amounts of OI, PE’s, and Revenue. Although some of them occasionally won a division title and the Marlins a World Series since 2002, this group fails as enterprises from a business perspective given the financial data in Table 1.

To conclude, I encourage readers of this essay to study the business of baseball available in the literature. As a result, any differences between the performances, popularity, and economic success of MLB franchises will become more apparent and especially for die-hard sports fans that live in cities with big league teams and root for them to win games and championships.