Baseball - General / Reds - General

Major League Reds Making Money

Forbes Magazine has released it’s annual “Business of Baseball” article and announces that Major League teams enjoyed record profits last season, which of course everyone “inside” the baseball industry denies…yet they won’t open their books for study.

One public story, the divorce of the Dodgers owners, may be a huge opportunity for the world to understand baseball finance and how these teams “manage their books.” If you have an interest in where the monies actually go, this may be a story to watch.

As for the Reds, here are some quick charts to compare the Reds to other Major League teams. This chart shows an estimated current value of the Reds; Forbes estimates it at $331 million, or about $60 million more than the value when Bob Castellini bought the team three years ago. The table shows the Reds were 15th in baseball with operating income of $17.8 million last season alone.

This page discusses the Reds’ organization itself. Even with the nearly $60 million increase in value over the past three seasons, Forbes estimates the Reds lost 3% of their value last season. Nine consecutive losing seasons will do that to a franchise; the Reds averaged 21,579 fans per game last season, the lowest total since 1986. The article also mentions five expensive contracts on the books that have not yet paid off in turning the team around.

One really interesting piece in the article: the Chicago Cubs, St. Louis Cardinals, and Houston Astros are listed as three of the top eleven most valuable teams in baseball. The Reds are 25th. The team with the highest operating income? The Florida Marlins with $46 million. The Marlins’ player expenses for 2009 were $48 million. The Marlins finished second in the Eastern Division with 87 wins last season.

3 thoughts on “Major League Reds Making Money

  1. I’ve posted on this topic before. Steve, in my opinion, you missed one of, if not, the most important piece of information. The Reds’ debt to value ratio is 12%!!! Think of it this way. The Reds have a credit card with a $331 million credit limit, yet the Reds have a $291,280,000.00 available balance.

    Having a debt value that low means two things. First, the Reds spend a smaller proportion of their revenues on paying back debt than do 25 other clubs. Second, the Reds have sizeable assets which can be borrowed against.

    Not only could the Reds spend more on players as a percentage of total revenues if they chose to, but if the Reds really wanted to, the team could take out a loan in order to finance player acquisitions.

    • Steve, in my opinion, you missed one of, if not, the most important piece of information. The Reds’ debt to value ratio is 12%!!!

      I really didn’t miss it myself…I was hoping others would see this without me saying it.

      I’ve been saying for years that the Reds have tons of money to spend, if they want to. And, if you’ll notice, the Reds’ franchise is estimated to have actually lost value last year (3%). The franchise has gained $60 million in the three years that Castellini has owned the team, and that was including the 3% loss last year.

      That means the losing is killing the ownership value now, too. The pressue to win should be on the upswing, but it starts with ownership allocating more resources to quality players, scouting, player management and development. The Reds have lost some of their goodwill gained from the new stadium from not winning right away, and, keep in mind, the economy has hit the industrial midwest rather hard. Those things have hurt some operating income, but we were still 15th in baseball (thanks for the donation, New York Yankees).

      However, to regain value, they need to win. The Reds need to spend some money and invest in the team…it will only pay off for the Reds ownership team as fans come to the ballpark, buy concessions and souvenirs, and have pride in their team.

      And, to RCR’s point…they need to find out what the other teams are doing and invest in the RIGHT players…don’t use conventional wisdom…invest in whose going to contribute the most and the longest and be an impact on the team…no bandaids…

  2. @davidmp2: I’m not sure how much leveraging they would want to do. That would just magnify the losses on poor personell decisions, e.g. Willy Traveras.

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