Major League Baseball presented the Major League Baseball Players Association this past week in their meetings that MLB projected a $640,000 per game loss if there were no fans allowed in the ballparks and teams had to pay the players pro-rated per game salaries. That was reported by Ronald Blum of the Associated Press over the weekend. Even in that report that was leaked we immediately saw that Major League Baseball wasn’t exactly being truthful with their numbers. Within the presentation it noted that the “loss” didn’t include media distribution from MLB’s central office that totaled $1.34 BILLION. That’s not a rounding error, that’s 34% of their claimed losses they didn’t include in their numbers.

This morning we saw two different writers tackle the funny accounting presented by Major League Baseball. Rob Mains at Baseball Prospectus got pretty thorough with his take. For some background, Mains background is in finance – here’s his description of his former career:

I had a career on Wall Street recommending the stocks of for-profit healthcare companies to mutual funds, hedge funds, and pension funds. I’m as capitalist as they come. But one of the things I learned on my job was that you should never, ever, take anything management says at face value. I’m going to analyze this as I would any company document.

He goes through multiple of the revenue source claims from MLB in the presentation and notes the errors in nearly every single one that they presented. He also notes that there’s a huge issue in what MLB claims they have in operating revenue versus what Forbes estimates they have in operating revenue. The difference between the two numbers? $1.25 Billion.

Mains gets pretty in depth with the issues he sees in how Major League Baseball is presenting the information. He closes out the article with this:

The reason these nitpicks are important: they portray MLB as sloppy, ignorant, and/or deceptive. It doesn’t matter which one. MLB is a private company and is not subject to the same reporting requirements as the companies that I followed. But how comfortable would you be negotiating with a party that makes representations like these? When it claims that it made one-sixth the income in 2019 that a reputable third party has reported?

You can get away with this sort of thing if you’re doing PR. It’s unacceptable in a negotiating document. The presentation that AP reported is full of omissions and misinformation. It’d be rejected by the professional investors I knew. Presumably, the MLBPA will have the same reaction.

There’s a lot of ways accounting can be used to claim things that aren’t necessarily true. There seems to be a whole lot of that going on with what MLB is trying to sell according to Mains based on what information he’s been able to see of the leaked presentation document. But he’s not the only one that looked deeper at it. Over at Fangraphs, Craig Edwards took a look, too.

His approach was a little bit different than that of Mains, noting things like the $425,000,000 teams are saving this year in the draft and international signing period this year, allowing it to be deferred to both 2021 and 2022 – but is for some reason included in the loss column for this year.

Edwards also notes that MLB is cutting their local TV deals in half in their presentation, but noted that there’s been no talk – at least publicly – that the regional sports networks are asking for a 50% discount if only half a season is played. He also noted that the big losses on those are from big market teams that own large chunks of their regional sports networks, so even if teams were asked to “give back” half of their yearly broadcast rights fees, with teams owning parts of those networks, they get back money given to them from themselves.

The biggest issue for the owners from Edwards standpoint is if something happens and they can’t have a playoff. That is a scenario where the owners truly would lose money. But he believes based on the publicly available information that if the playoffs were to be completed as scheduled, there might not even be any losses (as a whole – some teams would lose money, some teams would make money) for the owners.

Take a deep dive into both articles if you’d like, but both come to a pretty clear conclusion: The owners aren’t being remotely close to truthful about how much they’ll lose in 2020 if they play a season as proposed.

12 Responses

  1. Stock

    The way I see it the owners are right. If a team averages 2.5 million a year (I think most teams do now and the average is probably there) and a team makes 20 per ticket sold (I think it is far greater than this) that comes to $640,000 per game.

    I am not really sure how the owners can make money this year unless the players give in considerably. The players are the ones who insist on playing in their hometown. She should share the risk of not having a post-season. My guess is if they did and knew how much it would cost them they would be playing in Florida/Arizona. The season may start in July but to think no teams will incur any Covid 19 cases without a total quarantine is naive.

    I don’t think there will be a post season with the current format. The NBA was shut down when the virus wasn’t spread throughout the nation. This won’t work. Trevor Bauer will be one of the many to pay the price. He will be a FA but he will sign for maybe $5 million next year? Time will tell.

    • Michael Smith

      12 teams out of 30 had over 2.5mm in attendence with #13 just a bit below.

      • Stock

        Average Attendance last year was 2.3 million.
        That means Average ticket prices have to be less than 22 per game.

        The Reds have 10 price points for season tickets depending upon the quality of the seat. 6 of the 10 are greater than 22 a game. My guess is the Reds have some of the cheaper tickets in the majors and easily less than 50% of the Yankees and Dodgers. I still believe MLB loses $640,000 in revenue fro every game with empty seats.

  2. Stock

    Maybe I am reading something wrong but it seems like Doug is making it sound like baseball is trying to hide something here. That 1.34 Billion is a loss in revenue. The way I read it is each team loses 640,000 + $551,440 in per game revenue. That makes for about $1.2 million per game.

    What everyone is ignoring is the 2021 impact. Does everyone really believe fans will pack the stadiums next year?

    Some will stay away because they are going to be cautious about returning.
    Some will stay away because of finances. My guess is that the unemployment rate next summer will still be greater than 10%.

    Prediction: Biggest FA class in MLB history next winter because teams will not put out an arbitration offer for so many players.

    • Mark Moore

      Interesting thought. So we’d see the biggest ever DFA class. That would really make the FA market a scramble. Kind of like a weird version of musical chairs.

  3. ClevelandRedsFan

    The 640,000 actually sounds very accurate. Even in small markets, parking alone can cost $20. Add in concessions, merchandise, etc and it’s very reasonable that the average revenue per fan is at least $20. Even $25 feels conservative.

    2.3 million in attendance is about 28,000 per game. At $25 a ticket, that’s $700,000. Big market teams are likely 2-3x with increased attendance and prices. For example, if you increase to 40,000 in attendance at $50 per ticket, you’re looking at 2 million total. (Kick rocks, Yankees.)

    Now that is just revenue and not profit. There is a lot more than minimum wage folks selling beer to pull off an MLB game. That’s much harder to calculate.

    • Tom Reeves

      Yeah, loss revenue doesn’t necessarily mean loss profit – it might and it probably does.

      The teams will have fixed costs. Contracted salaries, depreciation, base stadium costs, etc. are the highest likely fixed costs. These costs may be negotiated down in the truncated season but they still exists and are significant. I’m guessing that MLB fixed revenue streams are designed to cover fixed costs. But, everyone is taking a haircut so the fixed revenue may not cover fixed costs.

      After fixed costs are covered by revenues, then you have variable costs. The variable costs could be calculated as cost per game. How much does it cost to produce a game. That’s compared to revenue per game and a margin over variable costs is determined. Here’s where the teams may go negative. Seats, concessions, and advertising revenue will be way down. A loss revenue of ~$600-$700k per game sounds about right.
      We don’t know the costs per game. However, with less games to dilute fixed costs, the fixed costs become a much larger part of the per-game cost structure.

      Then, you have costs incurred in 2020 for the team that are investments for the future. Player development and capital investments will likely get slashed this year.

      Finally, we don’t know how well MLB is insured for this sort of business interruption or how long insurance claim(s) may be tied up in litigation. It could be that MLB has some of the lost revenue potentially covered but it may not be known until its litigated.

      No one publicly knows the exact cost structure of each of the teams so it’s hard to project if any of the teams will eek out a profit. The Castellinis have long maintained they run the Reds to break even. My guess is that after fixed costs and variable costs are covered, any excess revenue that has normally been put toward long term investments – player development, investments in analytics, capital projects at the stadium, and saving for “go-for-it” years like 2020 – is greatly reduced or gone.

  4. RedNat

    Stock brings up a good point regarding 2021. If there is not a 2020 mlb season, 2021 season will really suffer. Even if there is a vaccine and fans in the seats the interest in the game will be so low. Even a scab season with minor leaguers would at least create some momentum for 2021. I still think baseball is still in the best position of all sports to survive coronavirus especially if it becomes an endemic disease. But the owners have to get a product out their This Year.

  5. Colorado Red

    Less profit is not a loss.
    I in a full season, I would 30,000,000, and now I only break even, I did not lose 30 mil.
    The statement was a bold face lie.

  6. CFD3000

    Three comments, all summarized by this conclusion: the owners need to stop whining, start negotiating in good faith and make sure that money isn’t the thing that kills baseball for 2020.

    1. Math.
    82 games for the season
    $1,000,000 average revenue from fans per game (I’m rounding well up)
    15 games per day
    Total revenue from fans: $1.23 Billion. Sounds like a lot.
    30 teams
    $41M per team (lost revenue, lost profit is less)
    Conclusion: Franchises are worth billions. Are you really going to jeopardize the long term viability of your billions dollar asset for, say, $30M in lost profit?

    2. Business
    Who says you have to make money every year from that asset you bought? I thought the mantra was “Capital takes risks, Capital deserves rewards.” You do know what risks are, right?
    Conclusion: Play ball

    3. Long term
    If billionaire owners shut down the season over a potential $30M loss, how much less will they make in 2021 and beyond because they’ve disenfranchised many of their fans? Not a good look.
    Conclusion: Play Ball

    I’m not saying the season should absolutely happen. There are a lot of non-monetary issues and obstacles. But if it doesn’t happen because the Owners were penny wise and pound foolish and dug in over money? That’s the wrong answer gentlemen. Work it out.

  7. Michael Smith

    So many questions and so few answers. How many teams own all the parking around the stadium? They are losing the money with an empty stadium whether they play or not, if they do not play any games they will lose all of their media money.

  8. Steve Schoenbaechler

    Some of this can be perspective as well.

    For instance, when the owners like to make an argument on how much they are paying in baseball salaries, the owners will be more likely to use the “average” salary. But, with the hyper-salaries of some players like Trout and Harper, the “average” gets scewed big-time.

    The players would rather look at the “median” baseball salary, which is the “middle value” of all salaries in the league. This value would be much lower than the average since the hyper-salaries can’t skew it.