From: kbanaian@bernard.pitzer.claremont.edu (King Banaian)
Subject: Doubting Thomases (and Teds and Roberts and ...)
Summary: A final reply to critics of Financial World...
Keywords: Independent auditors, fraud, finances
Organization: Pitzer College
Date: Fri, 18 Dec 1992 18:34:55 GMT

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.  If you have 
Scully, please check out the operating statements he produces on page 118.  
These are derived from Roger Noll, who presented much of the research to 
Congress in those 1970s anti-trust hearings I mentioned in the last post.  
For 1983 (I'd be grateful if someone has a more recent figure) these were 
the cost figures for an average team (likely the totals divided by 26):

	Team:			       $10,665
	   inc.	Salaries	8,256
	Player Development		 2,180
	Team Replacement		 2,334
	Stadium Operations		 2,668
	Sales				 1,724
	General & Admin.		 2,449
	Spring Training			   414
	Misc.				   192
					------
				       $22,625
Figures in thousands.  "Team replacement" is the cooked figure for 
depreciation and would not be allowed in operating figures by the FW 
report.  Thus in that year we would get player costs of $10,665,000 
and non-player operating costs of $9,626,000, or about 48% of operating 
costs.  Thus the 50% is not an unreasonable estimate.	The estimates may 
include payments to the partners as salaries;  as Ted Frank will testify, 
the data you get in the discovery portion of a trial is almost always more 
detailed than what you get on an independent audit.  It'll take a similar 
lawsuit to the NFLPA suit to get that information.

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.  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.  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.  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.

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