Baseball Revenues

In the process of writing a post on free agency trends I realized I needed to understand team revenue streams. There's a common theme that baseball as a sport is flush with cash and that new local TV contracts like the one the LA Dodgers recently signed will provide even more, creating a new bonanza for free agents. All of this may indeed turn out to be true, but it's very important to know how teams make their money, and that's not easy data to come by. This data from Deadspin is out of date by about four years but still gives an excellent illustration of team revenue .

This chart is from the 2009 Angels:

There is data from 6 teams, and I'll explain each category and what I THINK (strong emphasis on this--I could be wrong) it measures.

1. Gate--in the Angels case, this amounted to just over $100 million, or 42% of Angel revenue. Some teams broke out revenue for suites and parking, which is also part of this category.

2. The MLB TV contract amounted to around $38 million, or 16% of revenue. The local contract was worth almost $46 million, or 19% of revenue. There is quite a range of values in national TV contract value over the 6 teams that I don't fully understand, but taken together, TV deals bring in about 35% of Angels revenue.

3. All teams break out concessions differently, and I grouped food, beverage and merchandise together for all of them, to the extent I could tease it out. In the Angels' case it amounted to almost $16 million, or 6% of revenues.

4. Advertising was close to $17 million, or 7%. 

5. Other can be anything but since it's a relatively small slice for all teams, it's not important.

6. The playoff breakout is fascinating as 9 Angel playoff games (only 5 at home) amounted to 5% of revenues. The documents also list expenses and playoff expenses were around $2.7 million. It truly DOES pay to make the playoffs.

Two things jump out:

1. Fans always say "We pay dem player's salaries!" In the Angels case, fans account for about 58% of revenue (gate, food/beverage, ALL other and ALL playoff revenue)--it would appear that fans pay a little over HALF of player's salaries.

2. The TV data is quite likely very out of date. A post by FanGraphs' Wendy Thurm suggests the Angels local TV deal with Fox Sports West is worth $150 million. I will categorically state that if the $150 million figure is accurate it is one of THREE worth  more than $100 million. I'll return to this point later.

This is the 2008 Pirates:

The Pirates didn't break out TV contracts by source, and in 2008 that probably wasn't a bad idea. Even now they're tied with the Marlins for the smallest local contract at $18 million from something called Root Pittsburgh. They're poised for a decent run of success but aren't primed to turn that into increased local TV revenue as they're locked into their deal through 2019.

An additional item is the share the Pirates received as a small-market team, around $39 million or 27% of their revenue. Granted, in 2008 the Pirates were the smallest of the small markets, drawing no one to their games with a bare-bones payroll as they attempted the Herculean task of rebuilding through their farm system, but this illustrates a tale of two teams--the Angels, with around $240 million in revenue vs. the Pirates with around $146 million, of which only around $100 million was generated by their own operations. 

This chart is adapted from data from Forbes and compares team's TOTAL TV revenue (from both national and local sources) to payroll:

This is very current TV deal information and suggests teams aren't wallowing in TV money and looking for places to spend it. This table gives context to the change in TV revenue in just the past four years--it HAS occurred, but isn't the sea-change it's portrayed to be. The news of the mega-deal the Dodgers signed has been extrapolated to ALL of baseball, and that's simply not going to be the case.

Back to the charts--this is the 2008 Rays:

I don't know if it's by default or design, but it's an interesting cross-section of teams that are shown--big market, small market, good, bad, etc. The Rays are the poster children that prove good baseball does NOT a priori create increased attendance. Like the Pirates the Rays got 25% of their revenue from revenue sharing and had total revenue even less than the Pirates--and this team WENT TO THE WORLD SERIES. Another way to view this is to recognize their $17.6 million in playoff revenue was around 40% of the revenue generated from 81 home games during the regular season. The $21 million in TV revenue is now around $50 million according to the chart above, giving some hint of the growth in TV revenues in these past four years--positive, but not earth-shattering.

The next three charts are the 2008 Mariners, 2009 Rangers and 2009 Marlins:

The Marlins chart might be their high point for some time to come as their attendance has plummeted. Even in 2009 almost half of team revenue came from revenue sharing, a sure sign of a team taking full advantage of the rules to extract revenue from other teams and do absolutely nothing to return that revenue to the field. Then again, in the Marlins' case, why bother--fans accounted for less than half of revenue (47%).

This table puts all the data presented in one place:

 

The take-home message is very simple--this new era of large baseball contracts is predicated on the idea that new and extremely lucrative local TV contracts are just around the corner. It is very possible the Chicago Cubs will indeed sign such a deal when their contract with WGN expires after 2014, but part of the value of their current deal is WGN's national platform, which isn't guaranteed if the Cubs develop their own network. If they can capitalize on Wrigley Field renovations and have a competitive team by 2015, these factors could carry over to a very lucrative TV contract--Chicago is the #3 TV market. It's  possible, but by no means guaranteed.

Both New York and Los Angeles teams, as well as Texas and Seattle have lucrative local TV deals that are likely as good as they will get--they'll improve incrementally over time, but not dramatically. Boston could see an increase but already receives almost $80 million. The rest of the teams are just dreaming if they think they're going to see 9-figure local TV deals, which is why a new golden age of free agency isn't just difficult for me to believe, but downright preposterous. Baseball revenues HAVE increased dramatically over the past 10 years or so, but this is the peak--absent completely unknown sources of new revenue, this is it, and Dustin Pedroia and Chase Utley prove this with their new contracts. They're both generous but neither the Red Sox or Phillies broke the bank. They did this for two reasons:

1. They understand that paying big money to players much over 32 or so is a real gamble

2. They know there's no imminent magic source of new money

The incomes for these 6 teams range from less than $100 million for the Marlins to over $240 million for the Rangers. In a sense many of these revenue streams are fixed--only attendance can dramatically change, and teams that are currently filling their stadiums don't even have that possibility. In the next post, I'll try to wade through these 6 teams' cost structure, which won't be as easy, but it will show a very important point, one not often heard in any sport:

There's a big difference between revenue and PROFIT

All of these teams showed a paper profit, but the greatest was in the $25 million range--one big-ticket free agent signing makes that disappear, but that's a different post.