Owners Losing Money? Don't Believe It!
Two months after Financial World estimated that Major
League Baseball earned $204.9 million last year, MLB claims it
actually lost $185 million in 1996. Owners have cited these
alleged losses to support their demands for everything from a
salary cap to new stadiums: these civic-minded businessmen say
that they can no longer subsidize our summer entertainment, which
will survive only if the players and the taxpayers open their
wallets and give generously.
Can they be believed? Well, MLB’s new chief operating
officer, accountant Paul Beeston, once admitted, “Anyone
who quotes profits of a baseball club is missing the point. Under
generally accepted accounting principles, I can turn a $4 million
profit into a $2 million loss, and I can get every national
accounting firm to agree with me.” Here are some of the
tricks owners have used to create phantom losses.
Depreciation of player contracts. When a franchise changes
hands, the IRS allows the purchaser to allocate half its price to
the value of player contracts, and depreciate this half over five
years. Thus if a team sells for $100 million in 1997, it will
report $10 million of depreciation in each year through 2001 --
artificial losses which reduce the new owner’s tax
liability without actually costing a cent.
Explaining away income. Wayne Huizenga recently placed the
Florida Marlins on the market, announcing that the team would
lose $30 million in 1997. Huizenga, who also owns the
Marlins’ stadium, asserted that the millions he received
from luxury box rentals shouldn’t count because it was used
to pay off the bonds issued to finance the park. If this is
correct, then your mortgage and car payments shouldn’t
count against your income, either. Try that one on the IRS...
Hiding income in related businesses. A favorite of large
corporations which own teams, this tactic shifts team profits to
other divisions of the same company. For example, when
Anheuser-Busch owned the Cardinals, the club received no money
from the beer and snacks sold at the park. The money a different
supplier might have paid the Cardinals for concession rights
instead went to Busch’s Budweiser and Eagle Snacks
The Atlanta Braves show how far this strategy can be taken.
Despite their high attendance, NL championship and national
cable-TV exposure, the Braves lost money in 1996, according to
Financial World. Since Turner Communications owned both the
Braves and WTBS, and investors watched WTBS’s bottom line
while ignoring the Braves, Turner kept Wall Street happy by
shifting at least $40 million in profits from the Braves to WTBS.
In fact, the Braves were paid less for their 120-game national
cable package (which earned higher ratings than ESPN’s
midweek games) than the Red Sox received for games aired only in
Loaning yourself money to buy a team. An ingenious way to
transfer funds from the team’s treasury to the
owner’s. If Bill Gates decided to buy the Mariners for $100
million, he wouldn’t write a personal check; instead the
franchise would be purchased by a corporation he owned. If Gates
contributed $100 million in capital to the corporation, its books
would look the same as if he personally owned the team -- but if
Gates instead loaned the corporation $100 million at 8% interest,
the Mariners would owe him interest of $8 million/year for as
long as he owned the club. Even if the Mariners had an operating
profit of $7.5 million, their books would still show a loss.
So if John Harrington asks you for a handout, just keep walking.
Give your money to the Jimmy Fund instead.
Copyright © 1997 Doug Pappas. All rights
Originally published in the August 1997 issue of Boston
Back to Doug's Boston Baseball
to Doug's Business of Baseball menu
roadsidephotos.sabr.org main menu