In an annual tradition that excites me almost as having pitchers and catchers report, Forbes released their valuations and rankings of the teams of major league baseball.
Money (pun intended) quote:
Early last season the Royals became the first MLB team to lose 600 games since the start of the 2004 season. The team averaged 97 losses a year from 2004 through 2010. Even though the Royals averaged just 20,191 fans (53% of capacity) per game at Kauffman Stadium in 2010 the team was profitable because it is among the biggest recipients of welfare from the league’s richer teams and fielded a modest player payroll ($72 million).
Let me bottom line this for you: The Royals are bad. They’ve been bad for a long time. Nobody goes to the games. And David Glass and his brood are still flush with cash. There.
None of this should surprise you. We’re fans. We know the team has been awful and we know that attendance is sparse – with the exception of dollar hot dog night and Cardinal games.
We’ve all suspected that Glass is making serious coin. Obviously, that’s something that doesn’t show up in the papers (like the standings) or it’s not something you can actually witness (like poor attendance.) Long time readers know, I’m all about the market and capitalism and people making as much money as they possibly can.
David Glass purchased the team for $96 million in 2000. Forbes currently values the team at a whopping $351 million. We should all be so lucky to have a 265% return on investment.
Here’s the Royals payroll from the last five seasons, compared with operating income from those years:
Now we begin to understand. While we’ve applauded Glass for green lighting payroll increases, he’s obviously doing so with the understanding that income remains consistent from year to year. The Royals have posted an operating income between $8 and $10 million each of the last five years.
Obviously, the Royals player expenses will shrink dramatically in 2011. After about $90 million in expenses (including bonuses and benefits) team payroll will open at roughly $35 million. Given that the Opening Day payroll last year was $70 million, that means around $20 million went to additional expenditures. Since the Royals don’t figure to be sending money in trades (since they don’t have any bad contracts – except for Kendall, naturally) and the potential bonuses are few and moderate, let’s just estimate an additional $10 million in expenditures. That would bump the Royals to a total of $45 million – or roughly half of their 2010 total.
That would put them in the neighborhood of the San Diego Padres – baseball’s most profitable team in 2010, with an operating income of $37 million. Of course, the Padres are in a larger market, but the similarities between the teams are notable. After maxing out at $90 million in player expenses for the 2006 season, San Diego held steady a couple of years before really slashing in 2009. Last year, their player expenses were at $51 million and revenues were at $159 million. Those numbers are extremely close to what the Royals will post in 2011.
According to Forbes, last season the Padres were gifted more than $30 million… And Moorad and Moores pocketed $37 million last year. It’s not difficult to understand why revenue sharing is so controversial. (Yes, I brought it up. No, I don’t want to get into that debate here and now.) Reduce that number just a bit because of market size, and it’s not outside the realm of possibility that the Glass family is set to realize a profit of nearly $35 million this year.
There are a couple of reasons to own a professional sports team. One is ego. Chicks like a guy who owns the team. Not surprisingly, Glass seems devoid of ego. Another reason is money. Clearly, you make some cash in this line of work. As I said before, I don’t begrudge the man his profit. But when you make too much money and your product isn’t very good, things can get kind of dicey.
Glass is a walking PR disaster, but someone should convince him to explain what he’s doing with the windfall he will realize this year. Spending more on the draft? Perfect. Expanding scouting operations in Latin America? Excellent. A simple promise to add payroll as The Process begins to show significant strides? Yes, please.
Right now, Glass is set to take a beating from the East Coast media and plenty of folks from Kansas City (I’m thinking talk radio bloviators) for slicing the payroll. I’m on record as supporting what Dayton Moore is doing, and as I said earlier, I’m all for someone making a profit. However, a baseball team and it’s fans have an emotional relationship – not a business one. The Royals need to get out in front of this and explain that despite what should be huge profits, Glass and Moore continue to position this team for the future. It’s a tough sell given the history of this team and regime. Still, they at least have to try. Stuff this crap about competing this year… Nobody with half a brain buys that. Continue to talk about the future. And tell us where the money will be spent.
Otherwise, it’s going to get rough.
Still, it’s a good time to be the owner of the Royals. A very good time.
The lesson from all of this? If you had $100 million rattling around your pocket in 2000 and didn’t try to buy the Royals (or just about any other similarly valued baseball team) you are a sucker.