More Meaningless Losses for MLB

On November 27, Commissioner Bud Selig told a press conference, "The economics of our business have greatly deteriorated. We have a loss this year over $500 million. Twenty-five of the 30 clubs lost money. Debt has risen to a record level."

The occasion for this press conference? To announce that the owners were so happy with the man who had led them into this sad condition that they had extended Selig's contract through 2006 and given him a substantial raise. Welcome to the magical world of baseball economics.

Several days later, Selig released a package of documents which purportedly showed how in 2001, MLB lost $519 million despite record revenues of more than $3.5 billion. (A complete set of these documents is available for download here.) Presenting these figures to Congress, Selig assured his questioners that "you have all the statements, all the numbers," even as he refused to let the MLBPA discuss a more detailed breakdown of MLB's finances provided to it in confidence. No one outside Selig's inner circle of sycophants was persuaded.

For starters, over $175 million of these "losses" aren't losses at all, but "non-operational charges such as amortization of debt." "Amortization of debt" is the tax break which allows the purchaser of a major league team to attribute half the purchase price to the acquisition of player contracts, then write off the value of these contracts over five years. Since these writeoffs are used to offset the purchaser's other income and thereby reduce its tax liability, these "$175 million of losses" are more accurately described as an economic benefit worth $60 million or more.

Another $112.5 million of "losses" consists of interest expenses. These include the money YankeeNets used to acquire the NHL New Jersey Devils, as well as the money Carl Pohlad, Disney and News Corp. "borrowed" from themselves to acquire the Twins, Angels and Dodgers, respectively. Even the real borrowings are irrelevant to the clubs' operating performance, and should be ignored for purposes of evaluating the owners' cries of poverty. If an owner allows his club to become as debt-riddled as Bud Selig's Brewers, that's his fault, not the industry's.

That leaves $232 million of claimed operating losses. MLB insists that "uncontrollable" player salaries are forcing clubs into the red -- but their own documents belie this claim. Between 1995 and 2001, the years for which MLB has released team-by-team data, MLB's total revenues rose 156%. Over that period, player salaries increased by 113%, while other expenses jumped 134%.

Selig has never explained why, if Those Greedy Players are bankrupting Major League Baseball, its own figures show that MLB's revenues have risen faster than expenses, and non-player expenses have risen faster than player salaries. But when Forbes concluded that MLB actually made $76.7 million rather than losing $232 million, Selig's spokesman accused Forbes of practicing "the type of journalism one expects from a supermarket tabloid."" That prompted Twins player representative Denny Hocking to observe, "Gee, should I believe a magazine that spends 365 days a year researching finances, or someone who has zero credibility?"

The most noteworthy component of MLB's financial disclosures was a partial breakdown of team-by-team revenues and expenses. Masochists will note that the 2001 Sox actually had a higher payroll than the three-time defending world champion Yankees. On the other hand, the Sox' front office was fairly economical (or the Sox' nonprofit ownership less greedy), with operating expenses well below those of their large-market rivals. The combination left Boston with the majors fourth highest expenses, well behind the Yankees and Dodgers and slightly less than the Mets.

On the revenue side, with considerable help from NESN, the Sox' media revenues trailed only the Mariners and the two New York teams. Although their sky-high ticket prices allowed the Sox to earn more at the gate than anyone except the Yankees, their 15th-place standing in "other local revenue" -- mostly luxury boxes, club seats, advertising, concessions and parking -- explains why ownership remains determined to renovate or replace Fenway.

The bottom line: even in a disappointing season in which an overpaid roster missed the playoffs, the Sox reported an operating profit of $2,712,000. But that doesn't include more than $16 million in revenue sharing payments When they're factored into the equation, Boston claimed to have lost $13,726,000 in 2001...and with revenue sharing certain to increase whenever a new labor deal is reached, these "losses" will only grow.

Is this believable? Not if you look at what actually happened. Three separate bidders offered at least $700 million for the Sox. Even if the Sox' share of NESN accounts for half the bid price, three sophisticated businessmen were willing to spend $350 million to acquire a business that lost $13 million in 2001, can expect higher losses in future years, and must soon invest in a new or heavily modernized ballpark.

Either Bud Selig and the owners are lying about MLB's finances, or John Henry, Charles Dolan and Miles Prentice have all gone insane. It's your call...

Copyright © 2002 Doug Pappas. All rights reserved.
Originally published in the May 2002 issue of Boston Baseball.

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