Big news this week as Forbes released their annual look at the valuations of baseball teams. I know, I know… Financials, dollars, blah, blah, blah. This may not be the most exciting post you’ll read this week, but to me, how the Royals (and other teams) go about their business is as important as the prospect rankings. We’re a small market. This stuff matters.
Anywho, included in the report was something that should have made you sit up and take notice, no matter how you feel about ledgers and spreadsheets. Here, according to Forbes, were the most profitable teams in baseball in 2011:
So the Glass family banked a cool $28.5 million last year. Wow.
As always, we need to have a little perspective. How does that number compare to past seasons? Here’s a table going back the previous five years.
Why the huge leap? According to Forbes, revenue went up only a million dollars last year. From $160 million in 2010 to $161. Most of it has to do – as Clark mentioned yesterday – with payroll. The Royals saw their expenditure on player contracts nose dive thanks to the trade of Zack Greinke, the retirement of Gil Meche and the overall youth movement which featured cost-controlled contracts. And like Clark said, they didn’t go cheap. They went young. Big difference.
What’s interesting, there’s very much a plan in place about the amount of money ownership would like the Royals to post in the Operating Income side of the ledger. It seems extremely obvious the Glass family would like to hit an operating income number somewhere close to $10 million. Hey, I’m a free market capitalist. Glass owns the team, it’s his right to make money. It’s a good thing he’s turning a profit. As long as he sinks that windfall into an area of the team. Maybe hire a few more scouts. Or beef up the Latin America academy. Hell, he could reseed the Little K.
Besides, where ownership really makes their money is in the value of the team. About 10 years ago – when Glass officially bought the club – the Royals were valued at just under $100 million. Glass paid $96 million. Of course, there’s the whole situation with the Kauffman Trust and the question of whether or not the Glass family can make a profit, but throw that out for just a moment. Under normal circumstances, if Glass put the team up for sale right now, he could expect a profit of at least $255 million.
For 12 years of ownership. That’s $21.25 million per year. The value of his initial investment has returned over 350%. You know how everyone thinks they should have bought Apple stock 12 years ago? If you couldn’t get in on Apple, you should have bought yourself a baseball team.
Looking ahead to 2012, I don’t expect the Glass family to rake in a similar profit. If only because the payroll is going up. Thanks to Cot’s Contracts, here are how things stand with my mythological 25 man roster.
My roster has 12 pitchers and 13 hitters. I left Chris Getz and Danny Duffy off the list, as I think both open the year in Omaha. The more I think about it, Bourgeois and Maier are backups in the outfield, Betancourt is the super utility guy (ick) and Pena/Quintero are the catching tandem. I’ll also go out on a limb and hypothesize that the Royals will assign specific catchers to each starter like they did last year. It seemed to work well enough. That gives Pena three starters and Quintero two. Or vice versa. Giavotella opens the year as the starting second baseman, but loses his job to Betancourt in May.
For the rotation, while I still have serious doubts, Mendoza has certainly earned a shot. The starting five looks like Hochevar, Sanchez, Chen, Paulino, Mendoza. Your bullpen has Broxton as the closer and Holland as the set up man. I’d flip-flop that, but you know that the Royals love Broxton’s
pants experience. Crow is in the setup mix. Mijares is a definite lefty and Collins is forcing his way into the conversation, but for now I’m leaning Teaford. The pen rounds out with Coleman.
Or the Royals could deal for a 5th outfielder and blow up my whole roster.
(By the way, the payroll also includes Sal Perez and Joakim Soria, who will open the year on the DL. Players with guaranteed contracts who start the season on the DL are counted as part of the Opening Day payroll.)
So it looks like the Royals Opening Day payroll will be right around $60 million. That’s up from last year’s $36 million. And pretty darn close to their all time record of $72 million set on Opening Day 2010. See how that works? Low payroll means increased profits. And I don’t even have an accounting degree.
So if we’re still thinking about profit, by boosting payroll by $24 million, most of that will go away. If I were a betting man, I’d say that at this time next year, Forbes will peg the Royals at around $8 million for Operating Income in 2012.
In other words… Back to normal.