Mariners 8th-most valuable franchise
Forbes team valuations are out. The team’s value didn’t go up much last year at all, but Forbes has them tied for 5th in revenue with $179m.
Value of the team? $428m.
I have some particular quibbles with the article and some of the conclusions, but let me just skip those and note this: for all the poor-mouthing the team does, they’re making money in two ways:
– the team’s profitable
– the value of the team continues to rise
A lot of the M’s whinging is like someone who owns a great stock — say it’s returned 10% on their investment annually — complaining that they’re only getting 2% dividends every year.
Now what’s really interesting about this is that two 90-loss seasons hurt them pretty badly: the value of the team didn’t go up that much since Forbes last looked at this. You can see that dropping attendance has had a real impact on the team’s finances. But if two years of horrible seasons means a 3% increase in value and $7m in the pocket, that’s not bad at all.
Update: Maury Brown’s got a nice article on what’s interesting in the Forbes numbers.
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The M’s seem like they are doing OK. Is it possible that the smallish 3% increase in value is the levelling off that would inevitably occur after the opening of Safeco and the 393 victories from 2000-2003? After all, the Yankees only increased by 8%, and they have been good over the last two years.
Derek, any chance we can get an analysis of what the current attendance trend could do based on last year’s valuation? Maybe if we assume that ticket sales loss directly affects merchandising and brand costs at the same rate (which is almost certainly a fallacy) but leave the TV numbers alone. If I remember correctly from looking at the small sample we have the M’s are currently about 6.6-7% under their attendance from last year. Could poor performance actually push them into the red?
Also more interesting than the profitablity is that the team only appears to get 63% of average return on player payroll investment…am I reading that correctly? Compared to Oakland’s 116% of average. We don’t just trail Beane…we trail even Baltimore.
Well, the team value is only meaningful to the owners when they sell it. (If your really expensive home keeps gaining in value that doesn’t help you pay the heating bill every month). Of course they could borrow against it, and have, but not for profit.
The revenue number is interesting, since that’s the essentially ultimate limit on their spending. The income number is even more interesting, though. It’s also the one that seems most questionable. Try sorting by that column in the Forbes article — it’s pretty interesting to see who comes out on top. And who comes out at the bottom. Which takes these numbers into fantasy, or at least “creative accounting.” But taking those numbers as they are, making 4% gross profit (EBITDA) on your revenue isn’t all that great for the entertainment industry, and making 2% on your equity is downright poor (well, given their debt it’s a little better, but not great).
Does anybody have an accounting of how much the current owners dumped into the team after buying it before it became profitable? (I know they had a round of “internal investment” where they all ponied up more cash) .
Depends on who ponied up the cash; I’m pretty sure it wasn’t equally. The Microsoft officers had the potential to do a lot, but it’s not clear they they had the motivation (as opposed to Microsoft insiders like Chris Larson who had lots of motivation but probably not as much Microsoft stock).
5th in MLB revenue, 11th in MLB payroll.
Oh yeah, Cleveland, the team the M’s like to make fun of? Led MLB in operating income: 34.6 million.
Something else to note- look how many TERRIBLE teams made money last year… and how many teams lapped the M’s in operating income. Maybe they aren’t good businesspeople, either, if they’ve been spending assloads of money to have a bad team that’s in the bottom 3rd of MLB in operating income- or are they taking money out to the partners?
Or to drive my point home even further:
(salary numbers are from here)
Cleveland’s 2005 Revenues: 150 million
Seattle’s 2005 Revenues: 179 million
Advantage: Seattle, 29 million
Cleveland’s 2005 Payroll: 42 million
Seattle’s 2005 Payroll: 88 million
Advantage: Cleveland, 46 million
I could demonstrate something similar for Texas as well; the difference between Texas’s revenue and Seattle’s revenue (+ 24 million in Seattle’s favor) > Texas’s payroll and Seattle’s payroll (+32 million).
In other words, this “Hey, the Mariners are signing all these family-friendly veterans in order to maximize their profits?” meme we keep hearing? It’s very likely to be bunk. The fact is that it’s a well-supported argument that this is a counterproductive strategy for maximizing operating income, which is something I have argued for a long time. If they were really counting beans, they’ve have gutted the team ala Cleveland and cut salary.
joser – not sure what you meant about the franchise value only being meaningful if they sell it.
Simply because an asset is not in cash, doesn’t make it any less an asset or return on investment even if they don’t sell it.
I only say that because I see it mentioned often in the context of labor agreements and owner’s claiming poverty. I don’t know if that is the context that you are going for or not.
But just like anyone’s stock portfolio, any value increases aren’t cash unless you liquidate it, but it is profit.
And if they were spending MORE than their income, but the franchise value climbed even higher than that, it is still worth it to ownership.
In other words, it’s not valid for owners to try and hide or dismiss rising franchise values as irrelevant.
I use your post only as a starting point, I have no idea if that’s what you meant or not.
#1: Yankees … have been good over the last two years.
Good by whose’s standards? Maybe Howard Lincoln’s but not Geoge Steinbrenner’s.
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Come on, dudes, you know better.
Should I post on topic? Ah, well…
Yeah, the behavior DOESN’T fit the bean counter mode. Always thought that they have the best will in the world, but don’t have a clue on how to do it or make appropriate risk assessment. (That be-good-enough-to-compete-but-not-spend-enough-to-win-it-all argument doesn’t convince me…almost all the owners are COMPETITIVE in a business sense. I don’t see ANY of them as being content to let the cash roll in and not make an effort at winning the whole thing–that’s just foreign to their mind set)(Now, being good baseball people….I think THAT’s foreign to the the owners’ mind set…).
Now baseball responds. Apparently unable to resort to bald-faced denials that Forbes got anything right, they say, “However close and lucky they may get in aggregate,” the numbers contain material misstatements in “individual instances.”
Given that the Mariners have probably shared more of their finances publicly than most clubs, thanks to the PFD, I would guess that they’re not one of those instances.
I love the MLB response. “Lies! Lies! All lies! Ignore the man behind the curtain! Bud Selig wears fine Italian silk suits!”
Notice the five teams operating losses — the two NY and LA teams and the Marlins. The Marlins you can probably attribute to their miserable stadium deal, but the other four are all the big spenders who sink massive amounts of money into salary every year.
OTOH, Kansas City is reported at a $20M operating profit while inhabiting Milton’s desk in the sub-basement of MLB. I wonder how much of that is luxury tax.
I wonder why the CBA wasn’t written so that the teams getting the luxury tax were required to spend all that money on salary.
#17: The three teams at the bottom in operating income also effectively own their TV networks, which leaves lots of room for, ah, creative accounting.
You are, by the way, confusing revenue sharing with the so-called “luxury tax.” And the CBA does say that teams getting revenue sharing need to spend the money to improve their product on the field. But that’s obviously being ignored in many cases. And the MLBPA will never agree to a specified number for a salary floor because then they would be on the slippery slope to a salary cap.
Except that they’ve already agreed to a salary cap.
But we’ve had that argument over and over before.
w/r/t MLB’s denials — this is probably the least vehement denial they’ve issued in recent years. It would seem they realized that their previous blanket denial + attack the source refutations only seemed to encourage people to give them a serious look.
#19: Would you feel better if I said “hard salary cap?” You can think of the luxury tax as a “soft” cap, I guess, but it doesn’t seem to do much to hold down the Yankees’ payroll.
On the Mariners valuation…
I suspect that it will drop further if the losing attendance woes continue. They were ranked 5th last year with an operating income of $10.8 million, and percent of change from the year prior at 5%.
And, they were ranked 5th the year prior to that, and a sizeable valuation increase of 29%.
I don’t see them gaining back any ground this coming year. There is nothing discernable in terms of on-the-field performance or deals which might raise revenues further to the point of tipping the scales dramatically.
Oh… and thanks for the link to the article on The Baseball Journals