Thursday, August 15, 2013

Chicago Baseball Team Financials

I recently wrote a series of three posts that are related:

Since I have a significant Chicago readership thanks to these guys, it makes sense to view these trends with regard to the Cubs and White Sox. In the free agent post I only discussed in depth those free agents who signed contracts of four years or longer, butthis chart lists EVERY Cub free agent signed since 2001:

Players highlighted in yellow are contracts of four years or longer. There are a total of 89 free agents listed here, and while only six were big contracts, none of these contracts can be said to be game-changing. Alfonso Soriano, Aramis Ramirez and Ted Lilly played significant roles in the Cubs' 2007 and 2008 seasons, but a strong argument can be made that ANYONE can help a team get swept in the playoffs two years in a row, but that's just being cynical.

A more realistic view of how the Cubs used free agency is they did what most teams do, plug gaps in the hope that a better alternative will present itself. For example, in 2003 no splashy contracts were signed, but players who had roles in the Cubs reaching the playoffs, primarily Tom Goodwin, Troy O'Leary and Mike Remlinger were signed. None of these were stars, but they filled gaps (relief pitching, fourth outfielder, left-handed pinch hitter) that existed and weren't expensive. In this regard free agency wasn't the swing-for-the-fences-and-pray method of team building that Jim Hendry was widely accused of using as much as an efficient manner to fill short-term gaps that the minor leagues can't. As the shortcomings of the Cubs minor league system became more apparent free agent signings increased, and no one can objectively state the big contracts were a success--in my mind, they were 3-for-6 (and before you go nuts, be sure to do a THOROUGH check of Aramis Ramirez and view his split data in every way possible--other than the first half of 2010, he DID deliver value). Of course, it's the failures we remember the most, and to be bluntly honest, there's few winners in here anyway, at least for more than a year.

The White Sox took a different approach:

The Sox had the same 3-for-6 rate of big contract free agent signings, but unfortunately one of those three is Adam Dunn, whose 2011 season was historically awful. Let me state it this way:

There have been approximately 87,000 seasons of baseball played by just over 18,000 players since organized baseball began in 1871. Of those 87,000 seasons, Dunn's 2011, in terms of WAR, was the 12th-WORST IN BASEBALL HISTORY.  That's bad.

The Sox only signed 37 free agents during this period and were just as judicious as the Cubs in signing players for low dollars and shorter terms. They certainly received pennies from heaven with Estaban Loaiza's 2003 season and the roles Jermaine Dye and Dustin Hermanson played in 2005 were unexpected and important. The Sox showed a greater willingness to sign older players like Omar Vizquel and Octavio Dotel, but they didn't hamstring themselves with long, bad contracts. That's why they don't necessarily have to spend years in the wilderness--they ARE old and bereft of minor league talent, but they're not weighted down with bad money--for example, here's what they have on the books going forward:


2014--5 players, $46.8 million guaranteed (Dunn, John Danks, Chris Sale, Alexei Ramirez and Jeff Keppinger)
2015--4 players, $34.8 million (Dunn drops off)
2016--2, $24.4 million (Danks and Sale)
That gives Rick Hahn tremendous flexibility to reallocate money to the minor leagues and international acquisitions. That type of growth takes longer but can produce more sustained success. It's the method the Cardinals have taken, and unless dramatic decreases in performance or injuries occur, they're poised to be successful for the next 3-5 years, and in ANY sport, no team can have windows much longer than that.

 



And I know, you want to know who those players WORSE than Dunn were:

Rk Player WAR/pos Year Age Tm G PA AB R H 2B 3B HR RBI BB SO SB CS BA OBP SLG OPS
1 Jerry Royster -4.0 1977 24 ATL 140 491 445 64 96 10 2 6 28 38 67 28 10 .216 .278 .288 .566
2 Jim Levey -3.9 1933 26 SLB 141 567 529 43 103 10 4 2 36 26 68 4 6 .195 .237 .240 .477
3 George Wright -3.7 1985 26 TEX 109 395 363 21 69 13 0 2 18 25 49 4 7 .190 .241 .242 .483
4 Jose Guillen -3.3 1997 21 PIT 143 526 498 58 133 20 5 14 70 17 88 1 2 .267 .300 .412 .712
5 Hughie Miller -3.3 1914 27 SLM 132 533 490 51 109 20 5 0 46 27 57 4 .222 .264 .284 .548
6 Lou Piniella -3.1 1973 29 KCR 144 553 513 53 128 28 1 9 69 30 65 5 7 .250 .291 .361 .652
7 Jim Levey -3.1 1931 24 SLB 139 540 498 53 104 19 2 5 38 35 83 13 8 .209 .264 .285 .549
8 John Misse -3.1 1914 29 SLM 99 361 306 28 60 8 1 0 22 36 52 3 .196 .281 .229 .509
9 Pat Rockett -3.0 1978 23 ATL 55 157 142 6 20 2 0 0 4 13 12 1 2 .141 .212 .155 .366
10 Tommy Thevenow -3.0 1930 26 PHI 156 624 573 57 164 21 1 0 78 23 26 1 .286 .316 .326 .642
11 Hunter Hill -3.0 1904 25 TOT 135 554 509 37 104 9 1 0 31 17 42 14 .204 .236 .226 .462
12 Adam Dunn -2.8 2011 31 CHW 122 496 415 36 66 16 0 11 42 75 177 0 1 .159 .292 .277 .569
13 Willie McGee -2.8 1999 40 STL 132 290 271 25 68 7 0 0 20 17 60 7 4 .251 .293 .277 .570
14 Billy Hatcher -2.8 1992 31 TOT 118 444 409 47 102 19 2 3 33 22 52 4 8 .249 .290 .328 .618
15 Dan Meyer -2.8 1978 25 SEA 123 478 444 38 101 18 1 8 56 24 39 7 3 .227 .264 .327 .591
16 George Scott -2.8 1968 24 BOS 124 387 350 23 60 14 0 3 25 26 88 3 5 .171 .236 .237 .473
17 Milt Stock -2.8 1924 30 BRO 142 607 561 66 136 14 4 2 52 26 32 3 8 .242 .277 .292 .570
18 Ed Gagnier -2.8 1914 32 BTT 94 360 337 22 63 12 2 0 25 13 24 8 .187 .219 .234 .454
Provided by Baseball-Reference.com: View Play Index Tool Used
Generated 8/15/2013.
That's some rarefied company.

This chart shows Cubs and Sox revenue from 2000-2012:
The blue bars represent Cubs total revenue and team payroll, the black the Sox. The lines depict operating income for each team, showing that the Cubs have been profitable this entire period and getting better, but still, $30-35 million a year isn't what it seems. All this data was amalgamated from Forbes data, and I'm pretty sure this figure is earnings before interest, taxes, depreciation and amortization (EBITDA)--what income statements I've seen (they can be seen in the baseball expense post) suggests about half of operating income is taken up by these accounts, meaning the Cubs probably net somewhere in the $15-17 million range. Not bad, but still, it's not a printing press. The Sox, after a rough beginning in the 2000s are comfortably profitable but less so than the Cubs and will likely remain so unless something significantly alters the dynamics of Chicago fandom.

Revenue is more than just tickets:
There was no ticket data from 2011, but this chart speaks volumes when properly understood--any difference in revenues between the Cubs and Sox are due to ticket sales. For example, in 2012 the Cubs had total revenues of $274 million and ticket sales of $132 million, or approximately 48% of revenue was generated from ticket sales, meaning that around $142 million came from other sources--local and national TV contracts, concessions, merchandise, parking and who knows what else. The Sox had total revenues of around $216 million, of which $61 million came from ticket sales, leaving around $155 million from other sources. In other words, almost all of the difference in revenues is from gate receipts, and this is critical--attendance really DOES matter.

But not as much as is generally stated in the media. In 2012, the Cubs were fourth in all of baseball in total revenue and gate receipts--not bad for a team that lost 101 games. The Sox were right in the middle, 14th in revenue and 16th in ticket sales, but it's a difficult argument to state that $200+ million in revenue isn't enough to run a team--in recent years teams spend approximately 50-55% of revenue on payroll, which suggests the Sox can very comfortably support a $100 million payroll if they wish. Attendance does matter as the Sox are down around 1,700 fans a game in 2013, but that will amount to at worst around a $15 million decrease in gate receipts (and that's the VERY high end)--that's not chump change, but it's still only about a 7% drop.

I'll finish with one last chart, showing the revenues of the other Chicago pro franchises:

In case it isn't obvious, Bears and Bulls revenues were fairly equal at the turn of the century and stayed that way even as the Bulls entered their fallow period. It wasn't until around 2003 that NFL revenues began to separate from the rest of the major leagues to the point where there's really three tiers of major sports--the NFL, the other three and the minor sports, but that's a different post. 

People write about free agency, and people write about team finances, but rarely make the leap and put them together. That's what I attempted to do with these past four posts in addition to showing revenues for the Cubs and Sox, because we all hear the same thing--the Cubs are a "rich" team and the Sox are some poor lesser-loved relation that is cash-strapped and one step away from insolvency. That's not true--the Cubs DO make more money but nothing like double or triple what the Sox make, more like about 25% more. One last chart should put this in context--this shows the 30 MLB teams and their 2012 Forbes financials:
 
The Cubs are comfortably nestled in with the highest revenue teams in baseball, and improvements to Wrigley and new local TV contract will only increase that revenue, but they (and every other baseball team) derive their income from numerous sources OTHER than ticket revenue, and when that is understood, then EVERY TEAM IN BASEBALL can spend as much as they feel they need to be competitive. When a team like the Rays can still bring in $167 million in revenue with no one attending the games, then all teams have hope.

2 comments :

  1. So the Cubs doubled the Sox in revenue from ticket sales, yet the Sox generated 13 million more from non-ticket revenue.

    IMO, that tells me a videoboard and additional signage in the outfield will probably net the Cubs 50 to 75 million a year. And I'd guess that is conservative.

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  2. Get your Cubs game tickets today at Cubs Tickets and catch your first glimpse at the new roster!

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