From: g_waugaman@nac.enet.dec.com (Glenn R. Waugaman)
Subject: Re: Baseball finances query
Organization: Digital Equipment Corporation
Date: Tue, 15 Dec 1992 22:04:34 GMT


In article <789@blue.cis.pitt.edu>, genetic+@pitt.edu (Dr. Dave) writes...
>Could someone answer some or all of the following questions for me?
> 
>	2. What fraction (or total $) of baseball's annual revenue currently
>	   comes from local TV contracts?

From the 1991 figures released yesterday by the commissioner's office, 
local TV and radio generates $307.4M, or 20.0% of total operating 
revenues of $1537.4M.

>Using numbers from a year or two ago, and making some conservative guesses,
>we get the following:
> 
>	Total annual revenues for MLB:	$1.5 billion
>	Total annual player payroll:	$600 million
>	Non-payroll expenses:		$150 million or less
> 
>Thus, we have 26 teams (then) clearing $750 million or more in profits every
>year.  That's about $29 million per team per year.

I don't know where you came up with the $150M in non-payroll expenses.  
I'm not going to pretend that baseball's figures weren't cooked to some 
extent, but that's only $5.75M in non-player payroll expenses per team. 
It's not even close.  FWIW, here were the revenue and expense numbers
from 1991, according to MLB: 

	Operating Revenues		Amount		Pct.

	Regular season gate rcpts.	$ 523.0 M	34.02
	Spring training gate rcpts.	$  13.0		 0.85
	National broadcasting		$ 351.0		22.83
	Local television and radio	$ 307.4		20.00
	In-park concessions, net	$ 131.0		 8.52
	Advertising and publications	$  37.2		 2.42
	Parking, net			$  17.5		 1.14
	Stadium suite rentals		$  18.6		 1.21
	Copyright Royalty Tribunal	$  13.2		 0.87
	Amortization of amounts rcvd.
	   in 1989 relating to network 
	   telecast agreements		$   9.8		 0.64
	Playoffs and World Series	$  13.2		 0.85
	National licensing		$  55.4		 3.61
	Other baseball-related expenses $  46.9		 3.04

	Totals				$1537.4			


	Operating Expenses		Amount		Pct.

	Major league player costs	$ 728.5 M	50.65
	Team operating expenses		$ 116.5		 8.10
	Scouting and player dvlpmnt	$ 187.2		13.02
	Stadium operations		$ 140.9 	 9.80
	Marketing, publicity, etc.	$  65.5 	 4.55
	General and administrative	$ 179.3 	12.46
	Office of the Commissioner	$   8.5 	 0.59
	Player Relations Committee	$   4.9 	 0.34
	Major League Scouting Bureau	$   3.3 	 0.23
	Umpire Development		$   3.8 	 0.26

	Totals				$1438.4 M

	Operating Profit		$  99.0 M


>Now, what would have to be true in order for there to be, say, four teams
>actually losing money in a given year?  Let's say only 4 teams below break-
>even, with total losses of $10 million.  That leaves $760 million split 22
>ways among the remaining teams, or an average of $35 million in profits.
> 
>What kind of revenue-sharing of local TV revenue would be necessary to balance
>the competitive field?  Let's suppose that 1/3 ($500 million) of all revenues
>are from local TV contracts.  Let's suppose further that this money starts
>getting split 70/30, with the home team keeping 70%.  As a result, $150M goes
>into a pool, to be split evenly among the teams at $5.8 million per team.
>Here's what would happen to local TV revenues of teams:
> 
>	Before		After
>	------		-----
>	  $0		$5.8M
>	 $2M		$7.2M
>	 $4M		$8.6M
>	 $10M		$12.8M
>	 $15M		$16.3M
>	 $20M		$19.8M
>	 $30M		$26.8M
>	 $50M		$40.8M
>	 $70M		$54.8M
>	 $100M		$75.8M
> 
>Now, assuming that the other $1 billion in revenue is shared evenly, that's
>$38.5 M per team.  So, we're looking at $44.8M in revenues for even a team
>that has *no* local TV contract, and at least $47M in revenues for a team with
>a small local TV contract.  The Yankees are still looking at > $75M per year.
>Big-market teams still have incentives to pursue larger contracts, while small
>market teams can compete for free agents and remain solvent.  ($45 million is
>enough to pay everyone on your 24-man roster $1.5M per year and still have
>$9M left in profits; average major league salaries run just under $1 million
>these days...)
> 
>Clearly, even *mild* sharing of local TV revenues would remedy all of the 
>problems in distribution of the wealth that are currently plaguing baseball.
>There's nothing new or communistic about the idea: they've been doing it for
>decades with gate receipts, merchandising, and national TV money.  After all,
>it takes two to tango, and nobody's gonna pay big bucks to watch the Yankees
>take BP all summer on MSG network.

By your numbers, assuming massive profits, this might work nicely.  In
reality, average team profits are certainly no more than $10M (baseball
says they're less than $4M), and local TV and radio contracts are only
worth about $300M-- the $150M above represents a much bigger chunk.  I
also think that you'll find that there's a fairly large disparity in other
revenues, especially gate receipts, but those revenues would be generally
proportional to the size of the local TV deals so the sharing of TV
contracts still helps/hurts the right guys.  What I don't think you'll see
is the Yankees giving up $20M-$25M of their local TV revenues.  They might
be a franchise that could still clear a profit after such a reduction, but
not much of one... 

---
Glenn Waugaman
Digital Equipment Corporation
Littleton, MA
g_waugaman@nac.enet.dec.com
---
Newsgroups: rec.sport.baseball