Braves Print Money for Liberty Media
Generally speaking, exactly how much money baseball teams make on an annual basis isn’t public knowledge. We can take a look at the sale of MLB franchises and know that when they are sold, teams generally make 8% annually after accounting for inflation. Profits are more difficult to decipher because owners don’t want to disclose just how much money they make, though they are sometimes quick to trumpet an operating loss. The absence of many owners claiming losses is arguably deafening, but in addition to that silence, the publicly traded Braves report their revenues every year. Over the last two seasons, they have provided Liberty Media with nearly $150 million in profits.
Baseball ownership hasn’t traditionally been an avenue for massive yearly profits. In 2001, MLB self-reported unaudited numbers to Congress after MLB’s antitrust exemption was threatened. They had announced that two franchises might be contracted, and that drew the ire of the elected representatives in Washington. It’s fair to take these numbers with a grain of salt, but on average, teams lost around $5 million per year from 1996-2001. MLB did not have a great television contract during that time, but revenues have skyrocketed since then, with significantly better TV deals (both locally and nationally) along with increases in attendance and ticket prices.
Even so, when Liberty Media purchased the Braves in 2007, it wasn’t necessarily an expectation that the club would turn a profit every year, at least according to Liberty Media CEO Greg Maffei a year ago. It was that lack of profits that made many speculate that Liberty wouldn’t be holding on to the Braves for a long period of time, but they’ve had a change in philosophy, with huge profits affecting their previous strategy.
A year ago, the Braves reported $442 million in revenue, with $404 million of that baseball-related and $38 million from business development on the real estate surrounding the stadium. Expenses are not separated in the same way, but that totaled $348 million, giving the team $94 million in profits before writing off most of that in amortization and depreciation to avoid tax liability. That amount likely includes a $50 million payment for the MLB sale of BAMTech in 2018. Compared to Forbes’ numbers, which do not include the $50 million from BAMTech, they estimated the Braves’ revenues at $344 million, which is fairly close to the quarterly report numbers and a profit of $71 million, which would also be right in line with the team’s report assuming that business development expenses were fairly close to revenues. Forbes’ numbers do come with some skepticism given the closed-off nature of MLB teams’ books, but they come pretty close with the Braves.
The 2019 season was another banner year for the Braves on the field and off. As Liberty explained in their release:
For the full year 2019, baseball revenue grew primarily due to increased ballpark operations revenue driven by higher attendance as well as growth in local and national broadcast rights. Development revenue grew modestly in the fourth quarter primarily due to increased retail tenant rental income. For the full year 2019, development revenue was flat despite the absence of revenue from the residential portion of the Battery in the current year due to its sale on October 9, 2018.
Baseball revenue grew from $404 million to $438 million. The team drew 100,000 more fans in 2019 and played an extra home playoff game. The comment regarding an increase in local broadcast rights is an interesting one. I had previously indicated that the Braves had one of the worst local television deals in baseball. The club was able to renegotiate their contract in 2013, and those negotiations were more fruitful that I had imagined. Per an AJC article by Tim Tucker:
“It’s … 83 million dollars, rising to, like, 113 (million) in 2028,” Liberty Media CEO Greg Maffei said during a presentation at the Moffett Nathanson Media and Communications Summit in New York last month. He later clarified that the final year of the deal is 2027.
That figure is roughly double my previous estimates and gives the Braves considerably more money to work with than once thought. The club’s profits ended up at $54 million, similar to the 2018 figure without BAMTech money. The team was able to turn a good profit despite a significant $74 million increase in expenses. From the release:
Revenue growth was more than offset by growth in operating expenses due to higher player salaries, increased baseball operations costs related to the new spring training facility and higher player development costs, increased obligations under MLB’s revenue sharing plan and higher concession related costs due to increased attendance.
Construction on the Braves’ new spring training facility began in late 2017 with public financing covering roughly half the total cost and the club responsible for an estimated $50 million. Team payroll increased close to $20 million according to our Roster Resource pages once buyouts are included. The “increased obligations under MLB’s revenue sharing plan” is another interesting wrinkle. The Braves jumped from a revenue sharing recipient in 2018 to a team paying into revenue sharing in 2019, one of 16 teams to do so (with the Mariners somehow also making that jump last year). While there are ways to massage revenue-sharing numbers with stadium debt and interest payments, it’s fair to assume that the Braves’ revenue in 2018 at around $350 million without BAMTech money was fairly close to average for MLB teams.
The Braves have a brand new stadium that’s going to contribute to increased revenues and their television deal is better than once thought, but overall, this is a fairly average baseball team in terms of revenue and attendance and they made more than $50 million in profits with an average payroll. We can talk about issues that make the Braves different and unique from other franchises, but their similarities are tough to ignore. The business of baseball has undergone a drastic change over just the last half-decade, and how that business is analyzed must change as well. MLB payroll has been mostly stagnant over the past four seasons as revenues have risen. Moralizing the issue might not be imperative to all, but when it comes to player moves, salaries, and team payrolls, recognizing it is a must for accuracy and truth.
Craig Edwards can be found on twitter @craigjedwards.
Is $50M in unspent profits really that significant? They had a payroll of $135M per the RosterResource numbers, and $144M per Spotrac (which had them at the 15th highest payroll). Had they spent all of that profit on MLB payroll, they still would have had only the 5th highest payroll in the league and been under the luxury tax threshold. This seems to support that they were spending more or less in line with revenue (assuming MLB teams will always try to operate in a way to generate some profit, especially a publicly traded one).
It means they are going to have a ton of payroll flexibility next year, if they choose to use it.
Melancon, Shane Greene, Hamels, Markakis, and Ozuna all fall off the payroll, and none of them are likely to be missed much, other than maybe Ozuna. That’s $65m in savings, and even if they have to give arb raises to Swanson, Camargo, Newcomb, and Soroka, I think they will have a lot of money left to spend.
Yeah, they definitely will. That seems like a good thing as opposed to a bad thing though.
Unfortunately they’ll give yet another extension to Markakis so Snirker can continue playing him every day over superior players.
Man, Markakis whiners are here too? Geez.
All of those guys you named have played baseball with the Atlanta Braves except Ozuna yet Ozuna is the only one that will be missed??
You assume they have no other sources of revenue that aren’t counted in these calculations. That is likely wrong. One problem the player associations have in sports where salary caps are set as a percentage of all revenues is that it hard to define “all revenues.”
They have a vested interest in the public (not to mention MLBPA) not finding out just how much money the team generates through ancillary revenue streams. Imagine how the next CBA negotiations would go if MLBPA found out that each team was making $100M off of, I dunno, air rights over the stadiums paid by United or something.
I’m just going by what the article reports, and wouldn’t assume they have other unreported revenue sources unless there is some reason to assume that. The reason the Braves finances are significant is they are publicly traded and so that’s why we have figures for them. They reported revenues from development surrounding the park.
Bravo, the only person that realized that, that was the important point. Public .
BATRA is a public company, so their books are open to the public and Craig provides the link. Provide some evidence of these “ancillary revenue streams” — what and how much they are — so that you’ll have more than your repetitive insinuations.
Craig is here to feed your suspicions anyway with howlers like this: “before writing off most of that in amortization and depreciation to avoid tax liability.” BATRA put ~$625M into Truist Stadium and Battery Park (Fulton County put in ~$425M into Truist), so D&A expenses are as legit as payroll as they are in every modern country in the world. The Braves had a great year on the field, opened a new stadium, and BATRA enjoyed huge cash flows as a result. Those cash flows are going mostly to amortize the $625M they fronted.
Minor correction: It’s Truist Park, which is in Cobb County – not Fulton.
Yeah.
“before writing off most of that in amortization and depreciation to avoid tax liability”
This line is so bad.
I know what you are trying to do here and it is very cringey.
As a publicly traded company, Liberty Media have to show their books and revenues must follow GAAP. Unlikely they are gaming it for public relations or even CBA purposes. They don’t have other entities that can earn the revenue instead of them, so the Braves revenue is legit.
This.
Plus the statement regarding the write off of depreciation/amortization doesn’t necessarily support the “they should have spent more because they profited”. First, GAAP depreciation does not equal tax depreciation, so that number could swing wildly depending on what the actual assets were and the book/tax difference for assets placed in service previously. Second, mapping profits to player spending isn’t ideal either; instead, you should compare cash flow to player payroll.
Absolutely correct.
Mr. Edwards does like to play fast and loose with facts.
This comment is nonsense. Obviously it would be Delta.
This is America, in this country people love to complain about how much money other people should be spending or shouldn’t be spending on something as long as it’s not theirs. it’s specifically mentioned in the Articles of Confederation, how it didn’t carry over to the constitution escapes me.
For a growth business, a 12% operating margin wouldn’t be great, but for a sports team, it’s pretty good (as an aside, the $54mn figure is OIBDA, not net profit, or even operating profit, which was actually a $40 million loss). Also, expenses are not broken out, and they could include payments to other subsidiaries or an allocation of corporate expenses that might be too steep. So, the answer to your question is relative. If an owner is in it to make a profit, 12% might not be so great, but if they are trying to win and/or build brand equity, that’s probably a nice number to hit.
So, why would a big corporation like Liberty be interested in the Braves if their margins aren’t great? A few reasons. The first is the asset value promises an outsized return relative to earnings. The second is the operating losses accrued to Liberty via the Braves have value because of how they are generated. By recording losses due to non-cash expenses like D&A, Liberty can offset its corporate-wide profit. Basically, the Balance Sheet is used to lower the tax burden. Finally, sports teams have brand value that can be leveraged in other areas, such as the Battery Atlanta project.
Yeah, just assuming they actually had $54M left over after all expenses (which I realize you can’t assume), I’m not sure this report says anything alarming about the revenue split between players/teams. As a middle of the pack club in terms of payroll and revenue, this tells us that the high end revenue teams are probably pocketing a bunch (offset by revenue sharing though) and the lower revenue teams are probably struggling without revenue sharing. Aside from that, it seems like the middle market clubs being able to compete while staying in the black is a good thing for the sport.
The Braves are more like a top-10 revenue team than a middle-10. Also worth noting they are a net payer in the revenue sharing scheme. What the Braves’ financials show is baseball is a stable industry with a very strong cash flow profile and brand equity that can be leveraged across various other ventures. That stands in contrast to the idea that owners are over-burdened with costs and suggests players could be getting a larger share of the pie, and that will likely be the undercurrent of the upcoming CBA negotiations.
Hmmm. I’m not seeing that conclusion following from what you just said above.
I laid out several ways that the owner of a baseball team can be enriched even BEFORE factoring in their operating profit, which, at 12%, would be a very nice cherry on top. What about that makes you think teams do not have the capacity to spend more money? I guarantee they would be doing so if winning games was more closely aligned to their bottom line (the absence of which is a much larger issue).
For an “ought” take (what people “ought” to expect teams to do) this seems like a good one. Though arguably, as a publicly traded corporation, Liberty Media is extracting excess value that privately managed groups are unlikely to access (arguably). Basically, they’re gonna be better at making money off the team than (just an example) the Dolans
I think this is more or less the right take. I don’t think (most) teams are making huge sums of money, but it sure looks like there’s a bit more left on the table for players.
I would agree there is probably money being left on the table. I’m guessing a lot of that has to do with the top 5 revenue teams though (and it’s being exacerbated partly by the luxury tax), and less to do with a team like the Braves running a $54M profit. And it’s not clear to me that there’s anything egregious about a team or it’s ownership pocketing a profit in this range.
Egregious is a strong term, but if MLB teams want to on the one hand claim they are a public trust when it comes time to lobby for tax free financing or defend their anti-trust exemption, but then on the other hand assert their right to pocket profits on top of all of the other benefits that accrue to them, fans have every right to question the hypocrisy.
it does seem weird to me that the Braves are a middle of the road revenue team, and maybe there’s some value in thinking about why that is (pretty big local market, massive regional market where it was the only show in town for a long time), but feels like a talking chop post
I was wrong about that point, they were 9th in revenues on the Forbes list linked in the piece, though they only took in $130M more than the last place A’s, as opposed to how much less they took in than the Red Sox ($172M), Dodgers ($205M,) and Yankees ($324M). They appear to be further away from the very top of the league than the bottom.
Formula 1 is at 44ish million (though there’s a number I have zero trust in given how spread out that is internatiinally). Sirius is at FOUR HUNDRED FIFTY FOUR IN PROFIT (as of q3, first thing that came up when I searched it). Ironically, the Braves report massive losses for Q3 (think about why that is for a second).
Braves are a write off to lower liability, I think. It’s better when they win! Raises the floor. But F1 is their risky holding, and SiriusXM is the cash cow.
https://ir.libertymedia.com/news-releases/news-release-details/liberty-media-corporation-reports-third-quarter-2019-financial
Plus there is essentially a zero percent chance of failure. Worst case, the team might lose $10-20 million dollars in a year, but the team is never going to go bankrupt or cease to exist. And the value is almost guaranteed of going up.
Atlanta may also have a particularly healthy profit margin because they made the playoffs while having a mid sized payroll. This is a team with a lot of young, controllable talent and team friendly extensions (Albies, Acuna). Is $54m in profit really that obscene (the author called it “money printing”) for a team in such a healthy state? I’d imagine many franchises lose money when they have a team that’s performing poorly with a mid sized payroll, so 12% profit might be a high water mark for teams below the top 10.
Liberty Media intended on unloading the Braves as quickly as they acquired them but realized it was a winning proposition for them to field a winning team (source: multiple AJC interviews). Just given the past 4 or 5 years, they’ve been excellent owners of this team, investing in young talent and putting together consecutive NL East titles in a ridiculously competitive division. They have one of the best farms in baseball and one of the best competitive windows. I’m not sure how this qualifies as mediocre.
“Moralizing the issue might not be imperative to all, but when it comes to player moves, salaries, and team payrolls, recognizing it is a must for accuracy and truth.”
I don’t understand what role morality plays at all in discussing the inability of the MLBPA to negotiate competently. It provides a mechanism for people to paint players as victims of evil owners but waxing on about what one thinks is fair and just doesn’t improve player compensation one whit. It’s a disservice to the players who have a right to know they’ve entrusted their future to amateurs who have been had time and again at the bargaining table.
A simple timeline of CBAs with all the money the MLBPA has given away would do a lot to dispel the “evil owner” narrative. Thinking a luxury tax would increase spending. No ML contracts for rookies. Then hard-slotted signing bonuses. Limiting the amount that could be spent on international players and international amateurs. And then all of a sudden these young guys who had their first big paydays taken away are signing team friendly contracts because the financial security is a rational decision for them. Of course payroll stagnates under those conditions.
I completely agree with you. This is on the MLBPA. When I heard that the MLBPA had something like 5 guys in the negotiating table compared to about 30 guys from the MLB owners during the last negotiation, told me all I needed to know. The story I heard was that Tony Clark toured all the teams during the Spring Training to find out what players (especially veterans) wanted out of the CBA. They all insisted on lifestyle issues. Things like Hotel accommodations on the road; longer season so they can have more breaks etc. In return MLB shrewdly asked for things in return from the players. MLBPA was woefully under-prepared for the ramification of what they were asked to ‘give back’.
The consequences are clear now. The players oppose a salary cap on principle, so they could not ask for a salary floor. This had led to full on tanking by so many teams. The Luxury Tax proposals they agreed to, especially the escalator clauses, have made that a defacto salary limit anyway. That combined with the service time manipulations, slotting on the draft, limits on international free agent etc has made it really bad for younger players who are stars from getting their true value. And now that it is clear that the best years of a players career are from about 26-32 or so; all those mid-level veterans who used to get long term contracts are finding themselves completely shut out. The stars are still making their money. But when you see 100 free agents unsigned like last year; it is clear that the people who are most affected are the mid-level veterans.
If the MLBPA does not get a better bargaining unit for the next negotiation; this is completely on the players. Talking about evil owners etc., is not going to cut it.
The limits on the draft and international signings they agreed to are unconscionable.
They threw young players under the bus under the tgeory that teams would give the money to more free agents. At a time when even publicly available data proves that is the least effective use of team resources.
Limiting what young players earn is the main driver behind team friendly extensions so limiting pre-MLB earnings is helping teams squeeze young stars. Which in turn kills the market for older FA.
They were totally played.
“unconscionable”? Sorry but that’s just divorced from reality. Every major sport in this country limits the earning power of young players. Every one, baseball is hardly unique. And hell, plenty of major industries in our economy base pay on experience rather than on merit. I highly doubt you consider how teachers and firefighters are paid to be “unconscionable.” Limiting draft/international bonuses has done a lot to help competitve balance in every sport. As long as the trade off is that that money is re-directed to veteran players, I fail to see what there is to complain about. And MLB players have received a pretty steady share of revenue so your last claim is just false.
And if you want to talk “totally played”, go look at the new NFL CBA. MLBPA does a pretty darn good job in comparison
How many major sports have six-seven years of control over young players while paying minimal salaries? Minor leaguers signing bonuses support them through their “apprenticeships”. Plus three more years at league minimum. Always at the mercy of a crippling injury or being cut.
Makes early team-friendly deals awfully enticing. But what does the union do? Criticize the players for not playing high stakes russian roulette with their lives and help the teams limit the money they payout to sign players.
That is brain dead stupid.
The whole “they’re not union members yet” mantra is stupid. They’re in the exact same business and they’re not scabs. And when they most need the union the union blows them off.
If they were unwilling to make things better they should at least have refrained from making them worse. They didn’t.
What other sports have fully guaranteed contracts?
I remember hearing that Clark actually believed if you cap the top teams’ payrolls the other teams would be more likely to spend more to compete (i.e. the payroll gap would be smaller) and there would be more available free agents to smaller market teams.
You laugh now but it isn’t as ridiculous as you think it sounds ex post.
Players have seen how obscene Yankees can be with their spending and building a dynasty.
It isn’t hard to imagine how that would dissuade other owners from investing in too much since they cannot compete with the Yankees anyway.
And the fact is most players do not play for the Yankees.
Now that the Yankees can’t get away with paying to win, our owners would be more tempted to invest for a better chance at a title, no?
Or, they can do what most humans do: spend as little as possible and pocket the rest.
The rich are different, yes, but not *that* different. The days of Steinbrenner senior and Illitch are gone. Today’s owners prefer to make a profit to bleeding their pocketbook for “a piece of metal”.
The only reason Steinbrenner spend without limits was because he wanted a comoetituve team year after year and he didn’t know any other way to do if. Cashman knows a better way, though. And Steinbrenner jr agrees. Ditto in LA and Cubs-land.
Complaining that teams don’t spend enough ignores the simple fact that they don’t have to. They can field competitive teams year after year without enptying the bank.
And the union helped them get there.
Agree, except for this: “And now that it is clear that the best years of a players career are from about 26-32 or so”
Those are steep decline years for most players. Survivorship bias makes it seem otherwise.
There are two separate issues at play here.
1) The MLBPA negotiated a CBA that, through multiple mechanisms, distorted players values. And resulted in all sorts of issues, including: An artificial salary cap, Strong incentive to “churn” players on league minimum salaries, and a disappearing market for mid-tier free agents.
I believe you are correct that no moralizing is at play here. The Union negotiated a bad deal, and it’s on them. This is why the players should be angry.
BUT
2) MLB is a cartel. This results in a distorted market where access and labor costs are restricted, and prices are inflated, and allows for, among other things: A situation wherein an artificial salary cap, distorted labor costs, and no market for objectively valuable players, is even possible. The MLBPA should not be the proxy through which the customers, or “Fans”, get a good deal. This is why the readers of this piece should be angry.
For this issue, I believe “moralizing” should be at play, to the extent that a free market is a morally superior economic system to a cartel. In that it provides a wider opportunity for access to capital, is more likely to reward merit, and is generally superior for consumers. But now we’re getting into a “Marx, Keynes, and Friedman walk into a bar…” joke.
Not interested in watching a “free market” as entertainment. As a fan, I want to see talent divorced from wealth.
Obviously the Braves management has done a good job putting a good team on the field, but I do wonder how their management has escaped the wrath of the fanbase. They vacated a fairly new and fairly nice downtown stadium for the wealthiest suburb, which made it practically impossible for fans on the south side of town to attend games. They’ve also been awfully tight with the payroll despite having one of the strongest fanbases and media markets to draw from. If you care at all about cheating, they’ve also done their fair share of that with the international signing scandal from a few years ago.
I think they’re insulated from that blowback for a couple of reasons. 1. Because it’s a regional team and a ton of fans aren’t coming to games (and if you’re trying to get to the game from anywhere OTP, it’s largely easier to get to the new stadium). 2. The Braves have kind of confirmed it, but no one from south atlanta or around the stadium was going to games, and, 3. for a lot of reasons, the environment around the stadium sucked (and was perceived as unsafe, but eyeroll) 4. Apparently (and I dunno) Liberty tried to develop the area around the Ted and was turned down flat, and the fans more or less figured it was a matter of time before they built somewhere else.
on point 2: https://ftw.usatoday.com/2013/11/why-the-braves-want-to-move-in-one-ticket-sales-map
If the ratio of regional to downtown fans is big enough improving accessibility to the regional fans can easily offset downtown losses and more.
Other cities are different. It all hinges on weekday games: weekend games will always have good regional attendance but weekday games have to contend with rush hour traffic.
One easy example is Cleveland where the stadium is easily accessible from the south and western suburbs (since evening rush hour traffic runs in the opposite direction) and the stadium is close to the bulk of downtown corporate businesses so it encourages suburbanites to stay after work, spend money on bars and restaurants, and then hit a weekday game.
By all reports, the old Atlanta stadium traffic patterns weren’t terribly helpful.
Getting in and out of the Ted wasn’t terribly different than getting in and out of Chavez Ravine, and Chavez is literally the worst stadium I’ve ever had to get in and out of. Ted was differently terrible, and in many ways truly hard to fix because of the traffic patterns around Atlanta. So if you were going down there, you were going to sit for a long time.
I think maybe if the neighborhoods around the Ted had been more…. amenable to redevelopment they might have tried. just because of the changing nature of that part of town. But when you look at that season ticketholder map, why bother?
Be wary of how the Braves apply amortization and depreciation. While there are accounting rules that they’re legally required to follow, those rules give broad discretion on amortization and depreciation. Before the new stadium, the Braves used that discretion aggressively to minimize tax liability. Since taking on the stadium debt, they’ve been careful to leave some profit. Why? MLB has a debt rule that limits a team’s stadium debt to 12 times its annual profit. The stadium debt has floated around $600M as they’ve paid down the debt from one phase and taken on new debt for the next phase of the Battery development around the stadium. They have to keep about $50M in profit on the books to keep in compliance with the debt rule.
Depreciation used to be called “cost recovery” which is a more apt term because it is the requirement to recover costs over time (depreciation) rather than the year incurred (expense). Tax depreciation and GAAP (financial statement) depreciation are not the same thing. All publicly traded companies use different methods for financial statement purposes and income tax purposes based on the different rules required for each. The tax law allows “bonus depreciation,” i.e. up-front recovery of costs, and “accelerated depreciation,” i.e. the depreciation of non-real estate (technology, cabling, etc.) on faster-than-straight-line terms. There is absolutely nothing wrong with minimizing tax liability within the construct of the tax law and it actually more closely mimics reality to say that the value of many assets “wastes” more in the early years than a straight-line method.
True, but the fact remains that by accelerating depreciation so as to minimize tax exposure, the team is effectively increasing it’s “profits” in future years. Just because the team isn’t realizing the gain this year, doesn’t take away from the fact that there is a gain, and the associated fact that the owner(s) of the team are making lots of money by taking it. If MLB wasn’t a cartel, maybe the team would be forced to spend that remainder on growth, instead of stockholder compensation. In the private world, a business is free to spend as much as it wants on shareholder compensation, we all know the details… investor incentive through dividends/buybacks versus the demands of market competition incentivizing re-investment, etc. But MLB continuously argues that it’s a public trust, thereby insulating the owners from downside risk. Therefore, the naked pursuit of upside payout, as if MLB were a truly private enterprise, is offensive to the customers, who bear the extra cost. Those customers are us.
I don’t believe the terms are as interchangeable as you are using them. Taxable income, upon which income tax is computed, is not the same as “profits” recorded on a financial statement. The information above is looking at the team’s financial statement profits, not their taxable income (which would include accelerated depreciation). Yes, there is a financial statement benefit to paying less income tax, but they are not the same thing. Accelerated depreciation exists to provide a stimulus that encourages business owners to spend on capital improvement; one can debate whether it is an effective or appropriate stimulus, but it is a stimulus nonetheless. Either ways, teams have to book “deferred tax assets” and “deferred tax liabilities” for any current or future tax benefit or cost from timing differences (i.e. differences in the years in which expenses are recognized).
You’re missing the point. The technical differences between different ways of SHOWING income aren’t at issue here, except to the extent that wading through them to see if there is actual positive cash flow for the organization can be difficult. Whichever way you slice it though, it is apparent that THE BRAVES ARE PAYING OUT GOOD RETURNS TO INVESTORS. In addition to all of the other benefits of owning a team, namely inflation of the asset value, lots of debt flexibility, and prestige, there is extra money left over at the end of the year.
Now, there are two ways a business can use extra money left over at the end of the year. 1) stakeholder payouts (Dividends, Buybacks, Bonuses… Extravagant Christmas Parties?, etc.) and 2) re-investment (improve staff, improve equipment, purchase other businesses, research and development, etc.)
Unfortunately, because MLB *IS* a cartel, there is no chance of any individual team being competed out of existence, and therefore, there is no downside risk to sub-optimally paying out ownership as opposed to research and development. We have been shown this in Miami and Los Angeles, where owners walked away with hundreds of millions, if not billions of dollars in profit, after years of abusively low re-investment, even getting to the point where they were essentially forced out by the other members of the cartel. If Apple wants to pay out to shareholders, great, go nuts, business judgment rule. But MLB is not a private enterprise (because the owners keep asking not to be) so they shouldn’t get to enjoy the same defense.
Unfortunately, the Braves are the only team with publicly accessible financial statements, so mucking through them and using anecdotal evidence when a comprehensive analysis would ordinarily be required, is the only way to make this point.
So what is your solution? Allow an unlimited number of teams to join MLB? The Erie Sea Wolves (great stadium, btw) are going to compete with and displace the Pirates?
Hold an auction every off-season to allow the highest bidder to claim each MLB team?
MLB is no more of a cartel than McDonald’s. You have to qualify to own a franchise, and once you do, its up to you how to make a profit. You don’t get to open a store right next to an existing one. If that makes you unhappy, you can always start your own chain/league, like the AFL.
“If MLB wasn’t a cartel, maybe the team would be forced to spend that remainder on growth, instead of stockholder compensation. ”
Seriously, you have no idea what you are saying. In a free market, which you espouse, no one is forced to spend money on anything. You apparently want to force teams to never make a profit, yet are against any kind of regulation. Those two concepts cannot coexist.
Ad Hominem attacks are to be avoided, but there is no way around it for me here… YOU are the one who has no idea what you’re saying. MLB *IS* a cartel. If you think that statement is wrong, you are free to either 1) continue being wrong, or 2) educate yourself as to why you are wrong. Those are the options.
For example: “MLB is no more of a cartel than McDonalds”
This statement is WRONG, MLB is an industry, whereas McDonalds is a business. If McDonalds came to an agreement with Burger King, Wendys, Popeyes, Sonic, KFC, etc. etc. etc. to NOT COMPETE WITH EACH OTHER. And then that organization figured out a way to destroy any outside competition that didn’t agree to the same deal, THEN the fast food industry would be a cartel. It’s not a difficult concept to understand. Really, it takes careful reading of a paragraph or two of well written text.
How about “Designing Sports Leagues as Efficient Monopolists Rather than Inefficient Cartels” by Stephen F. Ross and Stefan Szymanski. This piece even contains a description of a number of non-cartel sports leagues, and how they are superior to cartels, specifically for the customers.
Your premise that I want to force teams to never make a profit is also false, and a misunderstanding of my statements. It seems to be a strawman that is driving you to *want* to disagree with the basic premise that MLB is a cartel. I don’t care at all how much money a team makes. I care that the system operates under an economic model that notably takes advantage of the customer. I care because I am a customer. I think it’s fair to assume that everybody reading and commenting on this piece is a customer.
I work for a company and they don’t have to pay me more because they make more. I’m just sayin…
Yeah. That is the point I don’t understand from these posts.
Of course, the team can “afford” to pay some player extra $20M or whatever.
First of all, what does that even mean?
If the Braves made $50M last year, it means they can “afford” to spend $50M more?
So what, the goal is to spend as much as you can until the profit goes to zero?
Because… it is not your money?
Does that mean, when the Marlins reportedly lost $50M in 2018, they should slash payroll by $50M next year to compensate for that?
Apple could “afford” to triple all its workers’ salaries since they are making $100B in profits every year.
Nobody really thinks that would be a good idea.
Congratulations, you’ve discovered stock grants/options
wait is it ok for Liberty Media to give players stock options (or just straight up grants) as compensation? Deferred or otherwise? Because they should do THAT.
I’m sure teams would be happy to allow players to enjoy the upside as long as they were OK with downside of owning a corporation. Do you think players want to find out they owe their employer $5M at the end of a terrible financial year?
The players get guaranteed long-term contracts — unheard of in most of the world — in exchange for missing out on the upside if the team happens to crush it financially in a given year. You can’t have it both ways.
The reporting above is a bit misleading. According the press release, the Braves group made a $32 million loss in 2019 after an $8 million gain in 2018. Correctly stated, the Braves earned $94 million in 2018 Adjusted OIBDA (Operating Income Before Depreciation and Amortization) and $54 million in 2019 Adjusted OIBDA, which is essentially saying the team generated that much in terms of cash flow during the year. The business did not earn accounting profits as D&A and stock compensation are still real costs, just paid differently (though I’m not exactly sure what the Braves are depreciating that’s $70+ million in annual costs). Focusing on OIBDA (which is more commonly known as EBITDA, but doesn’t include interest expenses in this case) is good, and I’m glad you’re doing it, Craig. But it is inaccurate to call it “profit.” There’s an old saying that “Net income is what you say it is”, and that applies here.
Might the $70M be debt service?
Regardless, with big business, net is whatever they choose to extract. Free cash is what they have to play with after the non-negotiables are covered.
That is how Amazon built their empire: by reinvesting all their free cash into growing the company instead of calling it net and giving it to the government. They rewarded stockholders with higher (monetizable) stock prices. They reported net gains once in a while to prove to doubters that they could and are only reporting big nets know because their computing services subsidiary is generating so much free cash they literally can’t invest it fast enough.
All these companies are doing is playing the financial game by the rules congress laid down. Very different than a mom and pop retail storefront.
If the $70 million is debt service (as in interest costs) they shouldn’t put in their financial release as D&A. I can buy that there is significant depreciation on their stadium assets, and also maybe that some portion of their revenues are pre-paid and capitalized and then need to be amortized, but I was surprised by such a big number.
What is a Cartel?
Most businesses increase their customer base and their profits honestly through:
-continual innovation to improve products or services
-sales and marketing showing the genuine benefits of their products or services
-keeping costs down so they can offer competitive prices.
A cartel exists when businesses agree to act together instead of competing with each other. This agreement is designed to drive up the profits of cartel members while maintaining the illusion of competition.
There are certain forms of anti-competitive conduct that are known as cartel conduct. They include:
-price fixing, when competitors agree on a pricing structure rather than competing against each other
-sharing markets, when competitors agree to divide a market so participants are sheltered from competition
-rigging bids, when suppliers communicate before lodging their bids and agree among themselves who will win and at what price
-controlling the output or limiting the amount of goods and services available to buyers.
Why Are Cartels Illegal?
Cartels are immoral and illegal because they not only cheat consumers and other businesses, they also restrict healthy economic growth by:
-increasing prices for consumers and businesses through artificially inflating input and capital costs across the supply chain, including the cost of buildings and equipment rent, interest and decreased opportunities over the life of an asset
-reducing innovation and choices by protecting their own inefficient members who no longer have to compete so don’t bother to invest in research and development
-reducing investment by blocking new industry entrants that might invest in opportunities, economic growth and jobs
-locking up resources because they interfere with normal supply and demand forces and can effectively lock out other operators from access to resources and distribution channels
-destroying other businesses by controlling markets and restricting goods and services to the point where honest and well-run companies cannot survive
-destroying consumer confidence in an entire industry sector, including creating negative consumer sentiment towards law-abiding businesses that are not involved in cartel conduct.
-increasing taxes and reducing services by targeting the public sector and extracting extra costs paid for by all consumers through rates and taxes
-decreasing infrastructure by rigging bids in public infrastructure projects which inflates costs and ultimately reduces the public sector capacity to invest in beneficial projects.
Source: Australian Competition and Consumer Commission
TLDR:
MLB is a Cartel. Cartels are bad because they effectively steal money from everybody who isn’t in the Cartel. MLB is stealing your money by being a cartel. Every time a team gets the public to pay for facilities, MLB is stealing your money. Every time a team isn’t as good as it should be because expenditure limits are set artificially low with respect to revenues, MLB is stealing your money. Every time the league doesn’t expand despite there being sufficient talent to support expansion, MLB is stealing your money.
Sports leagues argue that they must be Cartels, because they couldn’t support themselves, or define the parameters for competition, without being a Cartel. This argument is unambiguously false. Sports leagues shouldn’t be Cartels. People should be angry that sports leagues continue to be Cartels.
First, there is a difference between the League and the 30 teams. Second, as regards “cartels,” you keep on using that word. I do not think it means what you think it means.
It means exactly what I think it means. And I didn’t write the definition above. That sports leagues are organized as Cartels isn’t an opinion, let alone my personal opinion… its just a fact that’s been well understood for a long time.
Reference, for example, Forbes Magazine, Jan 14 2013, “Why American Sports are Organized as Cartels”
Fordham Law News, April 6, 2016, “Is the NFL the Largest Legal Cartel in America?”
These are just the first results in a basic google search… probably would have taken less time than a snarky reply.
Ooooh, here’s a pretty simple phraseology… “By their very nature, sports leagues are cartels that exclude competition from other companies.” Dr. Gerald W. Scully
I find it… Inconceivable?… that you think MLB isn’t a cartel.
MLB is the organization that the members of the cartel created to organizationally manage the cartel. It is distinct from the 30 teams… not sure what your point is here.
Relax, Francis. Sports were formed with the idea of creating a level playing field to measure athletic talent and determination — not to measure business acumen. If watching corporations compete for money is your thing, you’re free to watch CNBC 365 days a year.
For the love of God/god, please stop capitalizing “Cartel.”
It seems like the author would be much happier if the Braves were operating as a non-profit.