From: thf2@ellis.uchicago.edu (Ted Frank)
Newsgroups: rec.sport.baseball
Subject: Re: Doubting Thomases (and Teds and Roberts and ...)
Keywords: Independent auditors, fraud, finances
Date: 18 Dec 92 23:08:22 GMT
Reply-To: thf2@midway.uchicago.edu
Organization: University of Chicago Computing Organizations

In article <kbanaian.116.0@bernard.pitzer.claremont.edu> kbanaian@bernard.pitzer.claremont.edu (King Banaian) writes:
>Friends,
>
>	I don't mind skepticism, but I think you've gone a little too far 
>here.  I went back to two sources for confirmation of the relatively even 
>split of expenses between player and non-player revenues.  

You mean expenses.

Player salaries have increased faster than the rate of inflation.  Is
there any reason, ex ante, to think team expenses not going to salaries
have?

Your Noll numbers, dating from 1983, show average non-player expenses to
be about $10 million.  The Financial World figures, half of which are
clearly cooked in every sense of the word, range from $18 million to
$42 million for 1991.  (I guess the average would be $25-30 million,
as that's the average team salary cost.)  

I claim that these numbers are either (1) overestimates, or (2) show
where fat can be cut.  If these teams could be run for $10 million in
1983, there's no reason they can't be run for less than $20 million in
1991.  The 1983 market is *different* than the 1991 market.  Who was
earning more than $2 million in 1983?

It's clear that many of the numbers *do* end up being overestimates.  What
reason have we to think that non-player expenses are correlated *by team*
with player expenses?  By year?  Even in the midst of collusion, and then a
huge windfall television contract?

>Now the only difficulty I have with these figures is that I believe Noll's 
>access is from the Ernst & Whinney reports made to the team owners.  
>(Scully reports Noll as a private source;  all my Noll articles state 
>his source as the E&W reports.)  Those data might be the cooked figures.  

Scully comes out and says the numbers are cooked, and even goes line by
line to show where.  That's my recollection from reading Scully.

>FW report that they have used independent sources.  They are selling the 
>database they used for these estimates (plus the other major sports) for 
>$5000.  That is clear evidence that this is an independent analysis.  

Hey, I can do an independent analysis also.  The numbers they've published
publicly don't make sense.  

>E&W 
>would never sell the baseball data.  What I can imagine (I've done this in 
>my own consulting, without a twinge of guilt) is that FW may have lacked 
>non-player cost data for these teams where you report exact doubling.  They 
>checked out the teams they had, the historical record, and decided to drive 
>the non-op estimate off the player cost figures (for which they had reliable 
>figures).  It was, IMNVHO, a reasonable assumption for them to make.  

I disagree for the reasons stated above.  

>The purpose of their study was to estimate franchise values (BTW, Ted, the 
>lowest was $75m, for Montreal), not to accurately demonstrate the profits of 
>each team.

Computing franchise values from revenue streams is like trying to calculate
what 19th-century impressionists will go for on the open market based on
bond price fluctuations.  It's purely a function of how many rich men want 
to buy sports teams and how many sports teams there are out there to buy.  
The days of the Bill Veeck/Calvin Griffith type owner who had 100% of his 
net worth locked up in his team are over, for better or worse (or both).

>	And we got into all this because Dr. Dave posted some guesstimates 
>for team revenues and costs.  My point was that the non-op he guessed at 
>were very much below recorded experience.  The critics of my post seem to 
>have the view that if one number is estimated, everything else is in doubt.  

Well, no.  I, as a critic, feel that if one number that can range from
thirty to seventy percent of a team's cost is *guessed* at, rather than
"estimated", the *results* are in doubt.

Furthermore, it's not just the cost figures.  John Palmer convincingly
demonstrated that the Braves hide about $10-$20 million in television
revenue by vertically integrating, and my guess is that the Cubs do
pretty close to the same.

>You can believe what you choose;  as there is no other independent source 
>for these figures, I put my faith in them.

Hey, I'm an independent source.

In other news: management's chief negotiator, Richard Ravitch, gave
federal and New York state agencies 60 days' notice for a possible owner
lockout, as is required under the National Labor Relations Act.
-- 
ted frank                     | thf2@ellis.uchicago.edu 
standard disclaimers          | void where prohibited
the university of chicago law school, chicago, illinois 60637