Forbes has produced top-quality business journalism for more than a hundred years. Yesterday, the company released its annual report on the value and profitability of Major League Baseball franchises, including the Reds. It’s a project Forbes has worked on and perfected for more than two decades.

The report’s conclusion: No surprise. Ownership of a major league baseball team continues to be lucrative. According to Forbes, the average MLB franchise is now worth $1.78 billion, an 8% increase over last year.

In December, I outlined how baseball was awash in new money streams from gigantic multi-platform national media deals, Facebook and a subscription video service called DAZN. That doesn’t include revenue from newly legalized gambling on baseball, a gusher of money that has only begun to trickle in. These core assets are owned in equal share by each of the 30 teams.

Forbes: “The league’s ownership in Major League Baseball Advanced Media (100%), BamTech (15%), the MLB Network (67%) and league’s investment portfolio are included in our values, equally divided among the 30 teams. These three assets constitute over $400 million in value per team.”

The 2019 Forbes calculations of average team worth do not include the value of equity shares in regional sports network. Media ownership has become a big asset for more than half of all MLB teams, including the Reds. “Media revenue” is extra-valuable to teams because it does not have to be included with the “baseball revenue” turned over to the league for revenue sharing.

The Forbes report reveals an industry on a steady, upward trajectory.

The outlook for our hometown team is no less rosy.

Forbes estimates the Reds are worth $1.1 billion as of April 2019. That’s roughly a 10% increase over 2018. It’s the second year in a row the team has increased in value by $100 million.

The report is welcome, expected fiscal news if you have an ownership stake in the Cincinnati Reds. On the other hand, it does throw a bright spotlight on the awkward truth that Reds owners have continued to do quite well financially even as the team strings together 90-loss seasons.

From 2015-2018, the Reds averaged 95 losses a year. Yet over that same time period, the value of the franchise has nearly doubled, from $600 million to $1.1 billion. Again, that doesn’t count the club’s new FSO ownership share.

Process that last paragraph before reading on.

Beyond that, Reds fans will find a second, more explosive piece of news in the Forbes report. In addition to the club’s skyrocketing value, the local team enjoyed an “operating income” $37 million to the plus-side in 2018. Operating income = revenues – expenses.

If that’s accurate, it amounts to the largest annual profit for the Cincinnati Reds in team history, by far. A neat trick during a year when the Reds went 67-95 on the old ball field.

And that jaw-dropping number underestimates by more than half last year’s payout to ownership.

(Hope you’re back sitting down, at least for a second.)

Not included in the $37 million is the one-time $50-68 million cash payment every major league team received in the first quarter of 2018 for the league’s sale of BamTech shares to Disney. Wooo!

Also not counted by Forbes in operating income is the profit stream from the Reds’ (yet-undisclosed) equity share of Fox Sports Ohio won during negotiation of the rights contract a couple years ago.

So, let’s see. In one year (2018): $100 million in added wealth, plus $100 million in annual operating profits? Pretty soon we’ll be talking real money. Since it’s the start of racing season, we can lament how close the Reds were to the century-mark trifecta of a 100-loss team.

That situation demonstrates the startling disconnect between the win-loss and revenue-expense columns for MLB franchises. It’s an anomaly in the business world. The value of each baseball team depends hardly at all on its ticket and hot dog sales. Those quaint, local, analog receipts represent a limited and ever-shrinking fraction of a team’s gross revenue.

In the Reds case, despite another losing season and declining attendance, gross revenue grew to $257 million last year, an increase of $14 million over the previous year. Maybe that’s why those empty seats at GABP this month won’t necessarily set off alarm bells in the owner’s box.

Yes, Reds ownership did commit more money to major league player payroll in 2019.

That number is $126.7 million, net of the $7 million in Dodger cash. That’s about $25 million more than 2018 and $11 million better than the previous high in 2015. It’s a nice one-year increase and we don’t know if they reached their budget limit. Maybe there are plans to boost it even more in 2020.

But when you step back and take a careful look, $127 million is in line with the gradual payroll increases of 2009-2015. Nothing bold.

And yet, boldness was appropriate.

Let’s review. Since 2014, the value of the organization has increased from $600 million to at least $1.1 billion. Why is the Reds major league payroll on the same glidepath it was in 2014?

The $25 million bump is modest in the context of $100 million in 2018 profits.

The new Forbes report reinforces my December conclusion: Pleading small-market poverty for the Reds is a charade. Billion-dollar baseball teams that act small do so by choice, not fate. Reds ownership possesses the resources to scale bigger. If they don’t, it’s because of small thinking, not a small market.

19 Responses

  1. matt hendley

    This right here is why i am not accepting the ‘we need to keep it cheap’ argument for not signing good players to long term deals

  2. Old-school

    The issue is who do you spend money on? Does a 5 year 100 million contract to Dallas Keuchel fix this team? I’ve argued a 2 year high AAV to kimbrell would dramatically improve the bullpen. Would AJ Pollock and $60 million have been a game changer? The Reds wanted to maintain payroll flexibility in 2019 because they needed more data on a lot of their own young players. Spend money, but make sure it’s on your core young players – Suarez was a great investment- or on reasonable assessment on a player bouncing back- Sonny Gray.

    Extending Luis Castillo and making a big splash in FA this off-season would be next steps. – Gerrit Cole or similar. If Nick Senzel is not the next CF, then that is an obvious need.

    • Amarillo

      I agree with this. Winning might correlate to payroll size, but drastically increasing payroll just for the sake of increasing payroll doesn’t automatically make the team better. We gave a 3 Mill contract to Jose Iglesias and he has provided significantly more for the team than say Chris Davis’ 160 Mill.

      We are paying Matt Kemp, what, 14 Million? You could make a good argument that removing him from the team right now would make the team better. Let’s say we found a team that would take on his whole contract, that would put our payroll back under that previous high mark but we might have a better team.

  3. Hanawi

    Maybe the Reds should take a cue from the Braves deals and offer Castillo and Senzel $21 million over 7 years. That Albies deal is going to end up one of the worst ever signed for a player.

  4. Amarillo

    That’s estimated value, not cash. It’s not like they actually have a Billion dollars on hand to spend on payroll. Could we afford to spend another 15 or 20 Mill on someone like Kimbrel? Yeah. But even the numbers you presented aren’t close to high enough to realistically up the payroll to the luxury tax level. The owners are by no means hurting whatsoever, but they don’t get absurdly fat until they sell the team.

    • Owen Pickford

      This is an obviously bad argument, like someone with a million dollar home pleading poverty.

      Wealth is cash. Most straightforwardly, you can sell shares and get cash. But wealth might even be more valuable than cash.

      Because it had future earning potential. You can borrow again your wealth and often, write off the cost of interest or losses.

      • sixpack2

        No, it is right on, as you can borrow against value that is true, but then that becomes a debt that requires payback. How many people blow up their credit cards with debt and the only thing left is bankruptcy.

      • Amarillo

        The argument is this “The Reds should increase payroll because the estimated value of the team is increasing” The teams estimated value, and their amount of cash on hand for expenses such as payroll are mutually exclusive. Can they afford to increase it some? Yes, absolutely. Can they afford to spend as much as the Yankees? No.

  5. Sliotar

    I agree with the author that it is a golden age to be in MLB ownership.

    Changing of international signing bonuses, analytics skewing the rosters to being younger and cheaper…..television networks desperate for live programming in an era of viewership on demand and cord cutting. All have played their parts.

    However, in this piece, there are revenues conflated with one another, and competitive landscape items missing. Not to mention ignoring possibility of multiple ownership structures, and tax events from mixing revenues from different “buckets.”

    As a side project, I evaluate companies for former hedge fund guys. If I presented this piece to them for serious consideration, I have no doubt they would fire me for wasting their time, and not covering all the bases in rushing to a conclusion….”Reds should spend more on payroll.”

    • Sliotar

      In the Forbes piece, based on “Revenue from ballpark, local TV and radio, before revenue sharing and ballpark debt payments, 2018 season” …. Reds are bottom 5, under $150M. Cubs are in top 5, over $400M.

      IMO, the most encouraging thing from the entire Reds organization in 2019, on-field, off-field, anywhere…. has been the multiple tidbits about the minor league teams’ procedures and operations getting aligned.

      The Reds have to maximize their talent development, under MLB’s current system.

  6. BK

    I think this your best article on this subject. A couple of thoughts:
    – the multi year growth of the Red’s franchise value is impressive, year over year valuation and revenue growth are pretty comparable with other companies; overall economy is pretty healthy. Context is very relevant.
    – with the Reds minimizing payroll over the last couple of years, they absolutely should record an operating profit. Noteworthy, they’ve made some capital expenditures with some portion of that income such as installing player tracking systems at their minor league affiliations.
    – as noted, player payroll jumped significantly this year. As I recall, you weren’t too warm on signing Kimbrel earlier this year—i still think he’d worth at least a couple of games this year, but who knows what he’s willing to sign for. I do think the Reds have room to grow payroll and break even so I think it’s fair to watch for this over the next couple of years. Last year’s payroll (~$101M) plus $37M in operating income would imply a break even payroll in the range of $135M to $140M.
    – gate revenue is still about 20% or in the upper teens of total revenue based on internet estimates (~$30/attendee for ticket, parking, food). This represents one of the best potential levers to boost annual revenue if the Reds can get back to the mid two million range for attendance (perhaps $25M/year growth potential) which would leave them trailing similar Central division competitors such as Milwaukee and St. Louis.

    Again, I enjoyed the article, thanks!

  7. Cyrus

    If everything you have written is true, where does that place the Reds amongst the other MLB franchises in terms of 2018 net income and assessed value?

    I ask because I’m assuming the Reds are in the bottom half when slotted into the entire group of MLB teams.

    If that is true, then it means many other teams are in even better shape when it comes to 2018 net income and overall value.

    So why aren’t these other teams spending more to get better? I mean, if the Reds appear to have this kind of excess “cap space”, wouldn’t many other teams have even more? And yet what we have seen almost across the board is a reluctance from teams to throw big money at free agents.

    To further my point, if there is a national boom in the housing market, everyone sees a step-up in the appraised value of their homes if they want to take out a mortgage. But the same home in a Cincy suburb is like the Reds versus that home in L.A. which is like the Dodgers…big difference in appraised value due to location. But I don’t think we are seeing these other teams spending anywhere near the levels their net income/value indicates they could spend.

    There have to be other things at play or maybe all the owners are collectively cutting back (sarcastic remark).

  8. Curtis

    Congratulations to the ownership group! Being a business owner is a about making money, whether it is a lemonade stand or a major league club. It isn’t the owners fault that players haven’t lived up to.their potential, or that a long list of injuries have occurred. Huge payrolls do not equal championships, and that has been proven over and over again. Bad scouting and player development sure does make losing teams. So instead of laying all the blame at the foot of Capatailism let us look at the failures from top to bottom.

    • Alex

      I think thats the point of telling article. It is looking at the top and saying, the reds were not well run, even in the most basic sense of having major and minor league alignment, something so basic it’s laughable, and yet they still made money.

      I think just equating this article to spending more on payroll misses the real point Steve is making. Dick Williams wants you to think, as he stated at the ASB last year, that more fans at the ballpark will lead to increase in payroll spending. When in fact, no matter who shows up or doesn’t, the team is making money and increasing in value.

      I’m not blaming capitalism because owning a team isn’t capitalism at all. It’s corporate welfare at it’s most ridiculous. Good Capitalism is having a good product and making money. The reds have a bad product, something like 8 losing records in 11 years, and we’re extremely poorly ran in the process and still made money hand over fist.
      Owners of MLB, NFL you name it are looked at as Titans of industry and capitalism. Yet, when left to their own devices, they have set up a socialistic system of revenue sharing and corporate welfare.

      This article, IMO, is about much more then payroll. It is about the increasing separation between putting a good product on the field and making money.

      I have an entirely business relationship with the reds. Bandwagon fans don’t exist, it’s a $14 beer $8 hot dog business relationship. Put out a good product, I’ll buy it. Don’t guilt trip me with fan loyalty trying to get me to spend my hard earned dollars on a crappy product to prop up some billionaire who doesn’t understand basic tenants of running a sports franchise.

      Baseball 101: align your major and minor leagues, it’s not exactly a billion dollar idea.

  9. lost11found

    Said above, but value does not equal cashflow…never has never will.

    I do like that you highlighted the 25mil additonal payroll, but to say that because of 100mil additional operating profit/money (2/3’rd of which is one-time source) the payroll should have increased more is a stretch. My company doesn’t increase payroll that fast compared to profits(25%) since its not just payroll but benefits too (perhaps that’s different in baseball), but we also have to remember that the 37mil of additional year-to-year operating money have to cover non-baseball roster payroll raises/bonuses, facilities improvements, and other capital expenditures.

    I do not doubt that the Reds and other teams make good money, but the link between P/L and baseball roster payroll isn’t as direct of a link as it might seem.

  10. sixpack2

    Steve, Value does NOT equate to profit and loss. It only means it you sell you have made a lot of money. Could the Reds spend more, most likely yes, but they do not have or ever will have a 250 Million Cable contract like the Yankees. (big market clubs).

    • vegastypo

      Hmmmm. The way I interpret things, the Reds are going to make a ton of money either way.

      Big Bob promised fans a winner. I don’t recall much winning going on. In fact, I don’t recall much “trying” to win. Just keep losing while raking in maximum profit. (I’m still smarting from the Reds losing their starting left-fielder years ago on Opening Day and not bothering to try to replace him with a talented player. Stuff like that.)

      I don’t expect Bob or the other owners to lose money in the process, but if spending more on the product can actually — gulp — provide some winning baseball, wouldn’t there still be enough left over for ownership profits?

  11. renbutler

    I gotta admit, I expected a lot of rich bashing and anti-profit tirades in the comments, based on my experiences in the rest of the Internet.

    I am pleased that there are several intelligent rebuttals to a flawed (but generally non-polemic) article, instead of the usual knee-jerk reactions and ideological warfare that you find throughout the web. Not that RLN, as a fan site, would normally be overrun by that nonsense, but this article could have opened the door to some ugliness.

    Anyway, nicely done, RLN readers.