McLane to sell Astros ???

[Old School]

Astros owner says he may sell team if no labor deal OK'd

By RICHARD JUSTICE
Copyright 2002 Houston Chronicle

Astros owner Drayton McLane Jr. said Tuesday he will sell the team and leave baseball if the labor dispute between the game's players and owners doesn't result in a system more equitable to mid- and small-market franchises such as his.

McLane said he has lost about $105 million in cash since buying the franchise from John McMullen for $115 million in 1993 and is projecting losses of $5 million or more this season.

"I have clearly said that there has to be a solution when we sign the new agreement -- whether it's signed in two months or two years," he said. "There has to be a new system. Otherwise, there's no point in me staying in."

Asked specifically if he intended to sell the franchise if he wasn't happy with the new labor agreement, he said: "Absolutely. There's no point. What makes it no fun are the financial losses. Here we are trying to beat the Arizona Diamondbacks, the Los Angeles Dodgers, the New York Mets and the Atlanta Braves, and all those teams have payrolls of $90 million or better. We've got a $64.7 million payroll. And based on that $64.7 million payroll, we're going to lose about $14.5 million this season (after depreciation and amortization are figured, the actual cash loss will be around $5 million)."

However, McLane made it clear he hopes to remain in the game and he believes that, unlike previous negotiations, the owners are unified enough to gain concessions from the Major League Players Association as negotiations enter a critical phase.

"I'm an optimist by nature," he said. "When you have 30 owners, you have people with a lot of different interests, but the commissioner has the power to make a deal."

McLane's comments are the latest salvo fired by management in recent days. Last week, commissioner Bud Selig said two teams have such severe financial problems that they were in danger of not finishing the season. One team, he said, might not even make its next payroll.

That team, the Detroit Tigers, did pay its players Monday, but Selig insisted the problems he described were real.

Since allowing owners to speak publicly on labor matters, they've come forward to detail their losses and the need for significant changes in the labor agreement.

"Drayton tells me precisely the same thing he has told you in almost every telephone conversation," Selig said. "There's rarely a conversation in which he doesn't give me that message. I'm not only not surprised, but I hear it from a lot of other owners. I hear it all day long. I know the kind of money Drayton has lost. I know certain people will dispute the numbers, but they're real. When people without an agenda examine the numbers, they come to the same conclusion."

At issue is the disparity that developed during the 1990s as construction of new ballparks and signing of lucrative cable television contracts created a gulf between teams at the top like the Yankees and Mets and teams at the bottom like the Twins and Royals.

"When we first got here," McLane said, "the top teams were the Yankees and Mets at around $110-$130 million in revenues. I thought, `Man, if I can get $130 million in revenues, we're going to run with the big boys.' We moved into the new stadium, and all of a sudden, we had revenues of $135 million. Unfortunately, our expenses, especially our salaries, also went up."

The current labor agreement expired after last season, but in the wake of the Sept. 11 attacks, owners and players put their differences aside and agreed to play one more year under the old system.

Now, they're girded for another war.

With eight work stoppages -- either an owner lockout or a player strike -- since 1972, they seem headed down a familiar path.

At issue is revenue sharing and a luxury tax. Teams share about 20 percent of their local revenues. Owners would like to increase that amount to 50 percent. Players, fearing a drag on salaries now averaging $2.4 million per year, have offered to increase shared revenues to 22.5 percent.

Owners also are insisting on a 50-percent luxury tax on payrolls above $98 million. Players have said they're flatly against a luxury tax.

Other issues, like a worldwide draft and steroid testing, are on the table, but revenue sharing and the luxury tax are the primary issues.

The players are considering a late-season strike, probably in the last two weeks of August, because they believe the owners will attempt to unilaterally impose their system during the offseason.

By striking late in the season, they believe they have the most leverage to force the owners to make concessions. By that time, they've collected most of their salaries. Meanwhile, the owners still have a huge chunk of their revenues on the table in the form of ticket and television money from the World Series and playoffs.

Because there historically has been such bitterness in the negotiations, some in the game believe a strike could once more wipe out the playoffs and World Series, just as a 1994 walkout did.

Donald Fehr, executive director of the players union, declined to comment on McLane's statements.

[Major]

At issue is revenue sharing and a luxury tax. Teams share about 20 percent of their local revenues. Owners would like to increase that amount to 50 percent. Players, fearing a drag on salaries now averaging $2.4 million per year, have offered to increase shared revenues to 22.5 percent.


This tells you how serious the players are about negotiating. After 6 months, they've agreed to share an extra 2.5% of team revenues. WOOOHOO. :rolleyes:

Go on strike. Break the union. Get it over with and fix baseball.

[ROXRAN]

You must destroy before you can fully repair...so go head, DESTROY Baseball! Do it, GAWEDDeMiT!!!!:mad:

[kidrock8]

This is the best news I've heard as an Astros fan in a long time. Sell the team Drayton!!!

My only question, is why he would sell the team while MLB is on strike. That could only kill the franchise value.

What's funny is that moneybags is bitching about how much money he lost, but what moneybags doesn't realize is that he can recoup his loss, as well as make a profit from selling the team. He bought the Stros for around 130 million in 1992 or 1993. If he sold the team right now, he'd probably get anywhere from 350 to 400 million. McLane will be wiping his tears with 100 dollar bills.

[Refman]

kidrock--

Why should Drayton (or anybody else) be expected to lose money in a venture? Sounds like sour grapes because he has been successful and made a lot of money earlier in life. Drayton is by far the best owner this team has ever had. Anybody who has followed the team since the 1980s knows that.

Major--

I agree with you completely. Couldn't have said it better myself.

[rezdawg]

Originally posted by Refman
kidrock--

Why should Drayton (or anybody else) be expected to lose money in a venture?

You cant actually believe he has lost money. When talking about losing money he means that he expected to gain 20 million dollars this year. Instead, he gained 15 million. That comes out to a loss of 5 million.

The guy is not actually losing money out of his wallet, he is just getting less than he hopes.

SELL SELL SELL!!!! WOOOHOOO!!! Drayton, get your ass out!!!

[Major]

You cant actually believe he has lost money. When talking about losing money he means that he expected to gain 20 million dollars this year. Instead, he gained 15 million. That comes out to a loss of 5 million.

And you base this on what, exactly? :rolleyes:

[rezdawg]

Its just my interpretation of it. Not really based on anything. I just refuse to believe that he is actually losing money. Its ridiculous, IMO.

[Refman]

You accuse the guy of lying on a hunch with no facts or numbers to back it up? Geez...

[ESource]

Originally posted by Major
[/B]
Go on strike. Break the union. Get it over with and fix baseball. [/B]
Break the union! Break the union! Break the union!
Blow it all up, start from scratch, and see if they(owners and players) can keep from f#$@ing it up again!:mad:

[rezdawg]

Originally posted by Refman
You accuse the guy of lying on a hunch with no facts or numbers to back it up? Geez...

You actually think baseball owners lose money?? C'mon man. Have you seen the revenues they get?? With over 3 million fans that attended Astros games and bought cokes, hot dogs, beer, etc..., you really think McLane lost millions??

Also, my friend's dad does advertising work with Drayton. The guy does not lose money.

[Refman]

Aramark gets the concession revenue. They pay Drayton an annual fee to be able to control that line of business.

Also, my friend's dad does advertising work with Drayton. The guy does not lose money.
When your friend's dad is Drayton's accountant, then I'll be more inclined to give it credence.

[rezdawg]

Refman, go ahead and keep thinking that poor Drayton has lost money every year for the last 9 years.

[Refman]

You've given me no reason to believe otherwise. Oh yeah, I forgot that your friend's dad is an ad man. My father in law is a doctor, but I don't want him planning my retirement fund.

[rezdawg]

Originally posted by Refman
You've given me no reason to believe otherwise. Oh yeah, I forgot that your friend's dad is an ad man. My father in law is a doctor, but I don't want him planning my retirement fund.

He is an ad man for Coca Cola. He is very close to Drayton. The money that Drayton makes is enough to cover his costs. He does not lose money.

[Refman]

Oh, somebody who isn't even tied to the organization...I feel better now. :confused:

[rezdawg]

Originally posted by Refman
Oh, somebody who isn't even tied to the organization...I feel better now. :confused:

They are business partners.

[EddieWasSnubbed]

Drayton should sell the team...Did you hear what he pulled with our picks this year...."I dont have enough money to sign our first, third, fifth, eighth or ninth round picks this year." They were mocking us on Baseball Tonight saying how pathetic Drayton is.I Agree.

[x34]

Wasn't there a clause in the stadium deal stipulated that Drayton would agree to keep the team in Houston for 30 years? If he did end up selling the team, would the new owner be bound to the same agreement, or could he sell to anyone he wanted?

[Refman]

They are business partners.
And apparently let their ad guys know the financial skinny on their clients. :rolleyes:

...."I dont have enough money to sign our first, third, fifth, eighth or ninth round picks this year."
With there about to be a major change in the collective bargaining agreement, he'd be a fool to sign them under the current rules when he can sign them later much cheaper. It's called prudent business.

If he did end up selling the team, would the new owner be bound to the same agreement, or could he sell to anyone he wanted?
Any owner would be bound. That agreement is with the Houston Astros, not just Drayton McLane.

[ESource]

Originally posted by EddieWasSnubbed
Drayton should sell the team...Did you hear what he pulled with our picks this year...."I dont have enough money to sign our first, third, fifth, eighth or ninth round picks this year." They were mocking us on Baseball Tonight saying how pathetic Drayton is.I Agree.
He said what?! Good god, I hadn't heard that one! What a big time "loser" move that was!:mad: :mad: :mad:

[kidrock8]

Originally posted by Refman
kidrock--

Why should Drayton (or anybody else) be expected to lose money in a venture? Sounds like sour grapes because he has been successful and made a lot of money earlier in life. Drayton is by far the best owner this team has ever had. Anybody who has followed the team since the 1980s knows that.



Refman-I'd venture to say that since the late 80s, owning a baseball team hasn't really been all that profitable (if you trust Selig). Or, it could be really profitable (if you trust Forbes). Either way, it really is hard for me to feel sorry for penny pinching Drayton. The Astros have not signed a FA worth a s#it since Drabek and Swindell 10 years ago. Leaving the team in a stale state, isn't exactly the best way to get fans to the ballpark. In baseball if you want to make money, you must spend money first.

[kidrock8]

Originally posted by x34
Wasn't there a clause in the stadium deal stipulated that Drayton would agree to keep the team in Houston for 30 years? If he did end up selling the team, would the new owner be bound to the same agreement, or could he sell to anyone he wanted?

I'm 99% sure that the new owner would be subjected to the same agreement. If the lease were able to be thrown out the window with a new owner, then I would be totally against new ownership. Since it's not, sell the team Drayton!

[mateo]

X34....indeed, the Astros can be sold but cannot be moved from Houston until 2030. Thats the pact that was signed in order to built Enron/Astros/Minute Maid Park

[RocksMillenium]

Originally posted by rezdawg


You actually think baseball owners lose money?? C'mon man. Have you seen the revenues they get?? With over 3 million fans that attended Astros games and bought cokes, hot dogs, beer, etc..., you really think McLane lost millions??

Also, my friend's dad does advertising work with Drayton. The guy does not lose money.

Let me see, owners make about 5 to 10 million dollars off of fans tickets, probably about 20 million dollars in merchandise, etc., meanwhile they shell out 60 to 80 million dollars in payroll, millions of dollars in bills and repairs, employee hundreds of other employees, as well as travel expensives and you think that evens out?

[rezdawg]

Originally posted by RocksMillenium
Let me see, owners make about 5 to 10 million dollars off of fans tickets, probably about 20 million dollars in merchandise, etc., meanwhile they shell out 60 to 80 million dollars in payroll, millions of dollars in bills and repairs, employee hundreds of other employees, as well as travel expensives and you think that evens out?

With over 3 million fans that attended, how do you figure they made 5-10 million off tickets????
Were tickets $1.50????

The average ticket is at least $10.
Take into consideration everything you can buy at a game. As stated previously, McLane gets a percentage of this.
Take into consideration Astros apparel.
Take into consideration companies paying Drayton to Advertise in the park. Coca Cola alone gives about 10 million just for them to sell Coke at the games. Imagine how many other companies do the same thing.

All of this more than covers the 67 million dollar payroll

[Major]

All of this more than covers the 67 million dollar payroll

Of course it does. Unfortunately, payroll is not nearly the only expense. In the NBA, for example, it is about 55%, I think.

MLB also has entire minor league systems, things like the Venezuelan Academy (for the Astros), stadium leases, all the thousands of stadium & Astros employees, team travel/hotels/etc, etc.

Business expenses add up really fast - many people don't believe it unless they have been on the other end of it.

[rezdawg]

Drayton gets:

At least 30 million from tickets ($10 avg price) or
45 million from tickets ($15 avg price) or
60 million from tickets ($20 avg price)
At least 75 million from advertising
At least 10 million from concession stands
At least 5 million in apparel

Thats at least 120 million - 150 million in revenue.

[mrpaige]

Originally posted by rezdawg
Thats at least 120 million - 150 million in revenue.

Forbes estimate for 2001 was $125 million in revenues for the Astros.

Of course, Forbes estimates the Astros had an operating income of $4.1 million before interest, depreciation and taxes. Add in taxes and interest on the team's debt, and I could see potentially getting to a $5 million loss.

[rezdawg]

Originally posted by mrpaige


Forbes estimate for 2001 was $125 million in revenues for the Astros.

Of course, Forbes estimates the Astros had an operating income of $4.1 million before interest, depreciation and taxes. Add in taxes and interest on the team's debt, and I could see potentially getting to a $5 million loss.

So, teams that have a payroll of 90 million+ , do you see them losing 30 million a year?

[mrpaige]

Originally posted by rezdawg
So, teams that have a payroll of 90 million+ , do you see them losing 30 million a year?

If they have singificant debt on the team, then yes. (And if they had the same level of revenues. The Rangers make more money, so obviously their higher payroll would come out of a higher revenue stream)

But that's kind of a phony loss for most of these owners. Drayton has debt on the team because he feels his money can make more for him than the debt costs him in interest. So while he has a significant amount of debt, according to Forbes, and significant interest payments along with that. That money isn't really a loss even though it would be reflected on the books as one.

But I'm just repeating what an independent financial magazine has reported. You may make of it what you will.

[kidrock8]

The Astros have to get more than 10 bucks per ticket sold. Seeing how there are only a limited selection of 5 dollar tickets. After that, it jumps to 12 bucks to like 36 bucks. This isn't even including the luxury suites and the diamond level seating. I would say the average ticket price is around 20 bucks or so. Also, the Astros attendance is closer to 2.5 mill than 3.0 mill.

[kidrock8]

The Astros biggest financial shortcoming comes from the fact that they don't get much $ from the TV/Radio contracts. I read somewhere they earn the 18th most revenue in baseball from that avenue. We are the 4th largest city, and the 11th highest TV/radio market, the Astros should be getting more than 18th.

[rezdawg]

Originally posted by kidrock8
Also, the Astros attendance is closer to 2.5 mill than 3.0 mill.

Last year they had 2,904,277 people attend games. Thats more than Texas, Atlanta, Arizona, NY Mets, or Boston.

[rezdawg]

Refman and Major,

You guys were critical of an earlier judgement I had made.
Check out mrpaige's post:


But that's kind of a phony loss for most of these owners. Drayton has debt on the team because he feels his money can make more for him than the debt costs him in interest. So while he has a significant amount of debt, according to Forbes, and significant interest payments along with that. That money isn't really a loss even though it would be reflected on the books as one

[mrpaige]

Originally posted by rezdawg
Last year they had 2,904,277 people attend games. Thats more than Texas, Atlanta, Arizona, NY Mets, or Boston.

And all four of those teams reportedly had higher revenues than the Astros in 2001 (again, according to Forbes (http://www.forbes.com/forbes/2002/0415/092tab2.html)).

Mets - $169 million
Red Sox - $152 million
Rangers - $134 million
DBacks - $127 million

[Major]

So, teams that have a payroll of 90 million+ , do you see them losing 30 million a year?

Well, that would depend. Compared to other new-stadium teams, Astros ticket prices are relatively cheap. I guess Drayton could raise ticket prices, but we'd bitch about that too. Compared to other markets, the Astros' TV contract is relatively small. The teams like LA/BOS/etc have huge revenues from being in larger markets. The teams like ATL/CHC have huge national cable TV deals.

Few other teams have $90MM payrolls. Those that do -- Texas and Cleveland, primarily -- are having huge financial losses and both owners have come out and said they are willing to trade any and all players. Both have said they are not spending any more. Cleveland has already begun the firesale and Texas is trying without a lot of success, because no one wants those high-priced players. Others, like Arizona, are in massive debt and teetering on bankruptcy. I don't think those models are the ones to follow..

There's no doubt in my mind owners are losing money as a whole. Whether Drayton is losing $5MM or making $5MM, I don't know, and I don't really care, honestly. I doubt he is fully honest with the number he presents, but there's no doubt he's not raking in the cash. To think he can just easily add $10 or $15MM in payroll and be more competitive is silly, in my opinion. The fact remains that he and other small/mid-market owners can't compete under the current system. If he adds $20MM in payroll, LA or ATL can counter with another $25MM. However, while McLane is now losing tons of money, ATL/LA are still OK. All he's done by adding payroll is leave the Astros in the same position competitively (compared to the top teams) while dragging up his losses.

This is what Boston keeps trying. They keep upping their salary to compete with NYY, but NYY just responds and can do so infinitely, because they'll always have more revenues. BOS therefore gets no further but spends more and more money. Not good business by any stretch.

[Major]

Drayton gets:

At least 30 million from tickets ($10 avg price) or
45 million from tickets ($15 avg price) or
60 million from tickets ($20 avg price)
At least 75 million from advertising
At least 10 million from concession stands
At least 5 million in apparel

Thats at least 120 million - 150 million in revenue.

Also, as far as Drayton lying about the numbers, he agrees with your revenue numbers... From the original article:

<I>"When we first got here," McLane said, "the top teams were the Yankees and Mets at around $110-$130 million in revenues. I thought, `Man, if I can get $130 million in revenues, we're going to run with the big boys.' We moved into the new stadium, and all of a sudden, we had revenues of $135 million. Unfortunately, our expenses, especially our salaries, also went up.</I>

[rezdawg]

Originally posted by Major
So, teams that have a payroll of 90 million+ , do you see them losing 30 million a year?

Well, that would depend. Compared to other new-stadium teams, Astros ticket prices are relatively cheap. I guess Drayton could raise ticket prices, but we'd bitch about that too.

Our ticket prices are not relatively cheap by any stretch of the imagination. Of all the teams that have a 90 million+ payroll, we have the most expensive ticket prices.

[Major]

Our ticket prices are not relatively cheap by any stretch of the imagination. Of all the teams that have a 90 million+ payroll, we have the most expensive ticket prices.

Or not.

The most expensive seat at Enron Field is $39. Cheapest is $1 or $5.

The Rangers, for comparison, have 6 different sets of tickets above that price, with the highest being $75.

Cleveland tops out at $40, cheapest is $7.

Mets? $43 to $12

Braves? $40 to $1/$5

DBacks? $75 to $1/$6

Yankees? $65 to $8 (not counting the top-tiered seats which are sold out)

Every one of these teams has a stadium at least 5 years older than the Astros, and every one of them has equal or higher prices.

http://houston.astros.mlb.com/NASApp/mlb/hou/ticketing/hou_seating_pricing.jsp?club_context=hou

http://texas.rangers.mlb.com/NASApp/mlb/tex/ticketing/tex_seating_pricing.jsp?club_context=tex

http://cleveland.indians.mlb.com/NASApp/mlb/cle/ticketing/cle_seating_pricing.jsp?club_context=cle


(All the $1 tix have special restrictions which differ by city)

[mrpaige]

And let's talk about average ticket prices for the stadium as a whole.

According to Team Marketing Report, the Average Ticket Prices, 2002:

The teams with $90 million or more payrolls for 2002:
New York Yankees: $24.26
Boston Red Sox: $39.68
Texas Rangers: $18.03
Arizona Diamondbacks: $13.80
Los Angeles Dodgers: $16.38
New York Mets: $22.53
Atlanta Braves: $20.59

And for Houston:
Houston Astros: $18.87

So Houston's average ticket price is higher than that of the Dodgers, DBacks and Rangers, but lower than the others.

The Link to the data: http://www.teammarketing.com/fci.cfm?page=fci_mlb2002.cfm

[Major]

For comparison with newer stadiums like the Astros, Pittsburgh tickets are priced from $9 min to $60 max. San Fran, which opened the same year as Enron (I think?), goes from $9 to $60 as well.

[Major]

And for Houston:
Houston Astros: $18.87

So Houston's average ticket price is higher than that of the Dodgers, DBacks and Rangers, but lower than the others.


Thanks for the data -- that certainly is more useful than the mins/maxs I had. Sidenote is that the Rangers and DBacks are both in massive financial hell. One is trying to avoid bankruptcy and the other is trying to shed payroll.

[NIKEstrad]

Where Drayton makes (will make?) his money is in franchise value.

He bought the team from McMullen for 115 million.

Even assume his "losses" are truly losses, and not just creative accounting-he said he's lost 105 mill, and another 5 mill for this year, so 110 mill in losses.

That's 225 million he's "spent" on the Astros.

According to Forbes' franchise values (http://espn.go.com/sportsbusiness/s/forbes.html) (per ESPN), the Astros are "worth" 337 million.

So if he sold the team at Forbes' franchise value to "cut" his losses, he licks his wounds with a 112 million dollar GAIN over the last 9 years.

I don't think feeling sorry for Drayton is necessary.

[rezdawg]

Originally posted by Major
Or not.

The most expensive seat at Enron Field is $39. Cheapest is $1 or $5.

The Rangers, for comparison, have 6 different sets of tickets above that price, with the highest being $75.

Cleveland tops out at $40, cheapest is $7.

Mets? $43 to $12

Braves? $40 to $1/$5

DBacks? $75 to $1/$6

Yankees? $65 to $8 (not counting the top-tiered seats which are sold out)

Every one of these teams has a stadium at least 5 years older than the Astros, and every one of them has equal or higher prices.

http://houston.astros.mlb.com/NASApp/mlb/hou/ticketing/hou_seating_pricing.jsp?club_context=hou

http://texas.rangers.mlb.com/NASApp/mlb/tex/ticketing/tex_seating_pricing.jsp?club_context=tex

http://cleveland.indians.mlb.com/NASApp/mlb/cle/ticketing/cle_seating_pricing.jsp?club_context=cle


(All the $1 tix have special restrictions which differ by city)

Cleveland's payroll isnt close to 90 million. They are not in the group that I was talking about.

Atlanta's ticket prices are at the same level as Houston's.

New York teams naturally have higher ticket prices because of the absurd standard of living there. Everything from paper to apples is more expensive there.

With Arizona, other than about 2,000 seats, all others range from 1 dollar to 28 dollars.

Also, you failed to mention the Dodgers
Their seats range from $6-$21

[Major]

Cleveland's payroll isnt close to 90 million. They are not in the group that I was talking about.

Up until this year, they were. Of course, they couldn't afford it and are now shedding payroll.

Atlanta's ticket prices are at the same level as Houston's.

Of course, they have a massive national TV deal.

New York teams naturally have higher ticket prices because of the absurd standard of living there. Everything from paper to apples is more expensive there.

How is that relevant? Higher ticket prices = more revenues. It doesn't matter if they have to be higher. The fact is they still get more money to spend.

With Arizona, other than about 2,000 seats, all others range from 1 dollar to 28 dollars.

Very true -- mrpaige's stats showed this better than mine did. Of course, they had to get massive loans from MLB last year to meet payroll, and are teetering on the brink of bunkruptcy.

Also, you failed to mention the Dodgers
Their seats range from $6-$21

Yeah, they seem to be the exception. Of course, they have the 2nd largest TV market, so they get an nice infusion of TV revenues.

[rezdawg]

Regardless of all the facts, Drayton has not lost money 9 straight years. No baseball owner has.

[mrpaige]

Originally posted by rezdawg
Regardless of all the facts, Drayton has not lost money 9 straight years. No baseball owner has.

That's a funny way to put it, though. :)

[rezdawg]

Originally posted by Major

New York teams naturally have higher ticket prices because of the absurd standard of living there. Everything from paper to apples is more expensive there.

How is that relevant? Higher ticket prices = more revenues. It doesn't matter if they have to be higher. The fact is they still get more money to spend.


You got me on that. I guess I was having a brain cramp while typing that one out.

[Major]

Regardless of all the facts, Drayton has not lost money 9 straight years. No baseball owner has.

I agree with that. MLB's finances were not in such a mess 9 years ago -- salaries have just gone up way too fast. And he'll get more than his investment back when he decides to sell. I just don't think Drayton is being particularly cheap by not adding payroll. Compared to other similar-revenue teams, I think we're spending reasonable amounts.

[Refman]

I think it's funny that people keep saying that the owners can afford to take operating losses because they make it up when they sell the franchise. Isn't it a bit presumtuous to assume that ALL owners will sell their team? My guess is that Bud Selig will be long gone when that family sells the team. Some people buy an MLB team because (gasp) they want to own an MLB team. What a concept!!!!

Of course the owners (Drayton included) are going into a lot of debt to keep the teams afloat. In case you haven't noticed, you can't just sell an MLB team overnight like a CD or something. These things take time. So in the meantime they take on massive debt to avoid bankruptcy. A bankrupt team isn't worth much. How much is Enron worth these days?

The franchise value argument is disingenuous and circular in logic. You wouldn't lose $500k operating a video store in hopes that Blockbuster will buy it from you for $1M. Why do you expect MLB owners to do what you wouldn't?

[rezdawg]

One more thing:
In regards to ticket prices, Houston had more attendance than Boston, NY Mets, Atlanta, Arizona, and Texas. So, all though their ticket prices are similar or slightly more expensive than the Astros, they also averaged about 200,000 less fans than Houston.

[Refman]

Well...all of those teams except for Arizona has a MUCH more lucrative TV and radio deal than the Astros. Arizona bridges the gap with a LOT of debt.

[TRADECUTTINO]

Originally posted by Refman
I
The franchise value argument is disingenuous and circular in logic. You wouldn't lose $500k operating a video store in hopes that Blockbuster will buy it from you for $1M. Why do you expect MLB owners to do what you wouldn't?

Look at the demand for professional franchise teams. How many have not appreciated in value? Extremely different than a mom and pop video store. Anyone can open up a video store with 500K, becuase there is no barrier to entering that market. If you want to own a baseball team, there are only what... 28 teams?? (not sure of how many) But you must find a seller, than compete with others for that limted resource.

If franchises appreciate 10% each year, and you are able to operate with only $5 million in losses, a franchise valued at $200 million rises to $220 million, subtracting $5 million in losses = a net gain of $15 million. 7.5 % return on principal, not to shabby. If the franchise value is greater, then its all the better for the owner, THUS a higher rate of return.

Now if owners are borrowing against the value in their teams to meet payroll, then they have problems...

[DaDakota]

I agree that Drayton is a whiner...he helped run the Oilers out of town....remember the ole...."What, the Astrodome is a great place to watch a game Bud" then 2 years later...."The Astrodome sucks to watch a game we need a new stadium"

I would be more sympathetic to the owners if they would open their books. If they are really losing that much money, let the union see.....but of course they won't because the revenue for the stadium events that they get ARE NOT part of their income for their respective teams and thus they can hide it as non related income etc.


Both the owners and players are crooks.....Congress should revoke their anti trust status as they are a business anyway.

DaDakota

[ESource]

Originally posted by DaDakota

Both the owners and players are crooks.....Congress should revoke their anti trust status as they are a business anyway.

What's the real story behind their exemption from the anti-trust laws? All the other sports are subject to the laws so why does baseball get "special" treatment?:confused:

[kidrock8]

Originally posted by DaDakota
I agree that Drayton is a whiner...he helped run the Oilers out of town....remember the ole...."What, the Astrodome is a great place to watch a game Bud" then 2 years later...."The Astrodome sucks to watch a game we need a new stadium"

I would be more sympathetic to the owners if they would open their books. If they are really losing that much money, let the union see.....but of course they won't because the revenue for the stadium events that they get ARE NOT part of their income for their respective teams and thus they can hide it as non related income etc.


Both the owners and players are crooks.....Congress should revoke their anti trust status as they are a business anyway.

DaDakota

Did you call into Kevin Wheeler's show on Sporting News Radio? Because last night, a caller from Houston, said the exact same thing. I agree totally with you.

[Buck Turgidson]

Originally posted by ESource

What's the real story behind their exemption from the anti-trust laws? All the other sports are subject to the laws so why does baseball get "special" treatment?:confused:
A friend of mine did some research, gimme a few minutes to find it.

edit:

Here ya go...enjoy

http://bbs.clutchcity.net/showthread.php?s=&postid=497099#post497099

[Refman]

I have seen a few people here compare Drayton's revenues to his player payroll. The problem is that there are many other expenses that are not thought of in this analysis. When we have a player go in for surgery, the Astros pay for it. Drayton has to pay the front office staff. Drayton has to put money into the MLB player's pension fund. The Astros also have one of the most expensive leases in all of baseball. All I ask is that you consider all of the costs of running a business in the analysis.

[Rocket Fan]

I think what nikestrad said is important to note.. even if he spent the 225 mil on the team he says he has.. if he is able to sale the team at market value.. then he has GAINED 112 million...

so he would be making 112 million dollars out of a 225 million investment...


I see it as he has been investing in a product that will eventually net him a big gain.. cant' feel sorry for that...

[rezdawg]

Originally posted by Refman
I have seen a few people here compare Drayton's revenues to his player payroll. The problem is that there are many other expenses that are not thought of in this analysis. When we have a player go in for surgery, the Astros pay for it. Drayton has to pay the front office staff. Drayton has to put money into the MLB player's pension fund. The Astros also have one of the most expensive leases in all of baseball. All I ask is that you consider all of the costs of running a business in the analysis.

Every team has these "extra expenses". Poor Drayton isnt the only owner that has these costs.

[Refman]

Every team has these "extra expenses". Poor Drayton isnt the only owner that has these costs.
Thank you for making my point that many big league clubs have financial concerns that transcend payroll. BTW, Drayton IS the only MLB owner with the most expensive stadium lease in the majors.

if he is able to sale the team at market value.. then he has GAINED 112 million...
A big IF. Not too unlike "I'll sail off the edge IF the earth is flat." There is no way that an MLB team will sell for appraised value anymore than you would pay sticker price for a 2002 Nissan Maxima. In the current economy with the current labor problems etc. people are not going to pay anywhere close to $350M for a mid market MLB franchise.

[rezdawg]

Originally posted by Refman
Thank you for making my point that many big league clubs have financial concerns that transcend payroll.

Thats your point??

Well, it proves my point that despite these costs, other teams spend more than the Astros.

[Refman]

Most of the clubs that outspend the Astros are larger market clubs. The mid market clubs that outspend the Astros are heavily debt leveraged (Arizona) or are dumping payroll as fast as they can (Cleveland, Florida). This is not a problem unique to the Astros, even though some people here think it is. If MLB teams weren't losing money why would they risk a lengthy players strike which would result in HUGE losses (no revenue but still have to pay front office/managerial salaries and stadium lease payments)? A little bit of business sense is needed here.

[Major]

Well, it proves my point that despite these costs, other teams spend more than the Astros.

What teams that have similar revenues/expenses to the Astros are spending substantially more? And what kind of financial situation are those teams in?

I would assume you don't expect McLane to take bigger losses than all the other owners, so I'm ignoring the teams with substantially higher revenue streams (NYY, NYM, LA, BOS, ATL, CHC).

[rezdawg]

Originally posted by Major
What teams that have similar revenues/expenses to the Astros are spending substantially more? And what kind of financial situation are those teams in?

I would assume you don't expect McLane to take bigger losses than all the other owners, so I'm ignoring the teams with substantially higher revenue streams (NYY, NYM, LA, BOS, ATL, CHC).

Giants, Blue Jays, and Cardinals all spend at least 11 million more.

[mrpaige]

So are the Giants' owners cheapskates that need to sell their team and get out of the game if they spend $15 million more but take in $17 million more in revenues than the Astros?

As for Toronto, even Forbes estimates their operating losses before taxes, interest and depreciation at over $20 million for 2001. And I'm not sure they're the model that should be followed any more than the example of the Rangers. They're spending money to get worse results than the Astros. They appear to be closer to the DBacks example, though because their ownership is a large corporation, they don't have the capitalization problems the DBacks have had.

St. Louis is the only real comparison. They have similar revenues to the Astros, and their expenses seem to be, overall, what the Astros have before taxes, depreciation and interest.

Of course, the Cards are currently gunning for a new stadium and may well be following the example of one Drayton McLane (and Wayne Huizenga and John Moores and others) who increased his payroll during his attempts to get a new stadium.

But hey, maybe Bill DeWitt is the gold standard of midrange owners. Must be why he's earned so many more NL Central Championships and World Series appearances and titles during his ownership when compared to Drayton McLane's ownership over the same time period ('96 to present).

I guess the best owner would be the one who spends the highest percentage of revenues as payroll. I wonder who that would be (I don't know. I'm actually asking. I guess I could figure it out, though).

[mrpaige]

Well, it's not entirely accurate because it's matching revenue numbers from 2001 with payrolls from opening day 2002 (I also listed the current owners even if they weren't the owners last year), but here it is anyway. The ranking from best to worst of the baseball owners as based on the amount spent on payroll as a percentage of overall revenues.

Starting with the best:
1. Rogers Communications - Toronto Blue Jays - 84.47%
2. Jerry Colangelo - Arizona Diamondbacks - 80.96%
3. Tom Hicks - Texas Rangers - 78.58%
4. John Henry - Boston Red Sox - 71.29%
5. NewsCorp - Los Angeles Dodgers - 66.33%
6. Giles/Montgomery - Philadelphia Phillies - 61.65%
7. Major League Baseball - Montreal Expos - 61.38%
8. Bill DeWitt - St. Louis Cardinals - 60.24%
9. Walt Disney Corp - Anaheim Angels - 59.92%
10. George Steinbrenner - New York Yankees - 58.57%
11. AOL Time Warner - Atlanta Braves - 58.42%
12. Tribune Co - Chicago Cubs - 57.78%
13. Jerry Reinsdorf - Chicago White Sox - 56.49%
14. Doubleday/Wilpon - New York Mets - 56.00%
15. David Glass - Kansas City Royals - 55.60%
16. Magowan/Burns - San Francisco Giants - 55.14%
17. Carl Pohlad - Minnesota Twins - 53.63%
18. Larry Dolan - Cleveland Indians - 52.61%
19. Jeffrey Loria - Florida Marlin - 51.83%
20. Carl Lindner - Cincinnati Reds - 51.78%
21. Drayton McLane - Houston Astros - 50.76%
22. H. Yamauchi - Seattle Mariners - 48.36%
23. Mike Ilitch - Detroit Tigers - 48.29%
24. Wendy Selig-Prieb - Milwaukee Brewers - 46.56%
25. Peter Angelos - Baltimore Orioles - 45.48%
26. John Moores - San Diego Padres - 45.03%
27. Schott/Hoffman - Oakland A's - 44.09%
28. Jerry McMorris - Colorado Rockies - 44.07%
29. Kevin McClatchy - Pittsburgh Pirates - 39.19%
30. Vince Naimoli - Tampa Bay Devil Rays - 37.37%

Well, doing a list this way makes Drayton look much worse - 21st out of 30.

Of course, there are all sorts of things wrong with doing an analysis this way, but I put it out there and everyone can make of it what they will.

For the record, revenue numbers come from Forbes and payroll numbers come from ESPN.com.

[Refman]

There is still the issue of the Astros having the most expensive faccilities expense of any team in the majors. How much as a % of revenue I do not know. But it could explain some of the difference.

[mrpaige]

Yeah, though looking at Forbes numbers, the Cards and Astros really do have about the same revenues and costs.

Forbes has the Cards revenue at $123 million last year vs. the Astros $125 million. Forbes has the Cards with a loss around $5 million and the Astros with a operating profit at about $5 million. If there was a disparity in payrolls between the two clubs of about $10 million that would put the team's revenues and operating expenses at about the same level (and facilities costs are included in the operating expenses).

So if DeWitt can and does spend $10 million more on payroll, then presumably so could McLane (factoring out such issues as debt/interest payments that Drayton makes that DeWitt does not. DeWitt has far less debt in his team. But those aren't operating expenses, and are phantom losses if you ask me).

But then again, how much of that is simply bucking for a new ballyard in St. Louis? Drayton raised player payroll both to help get the new ballpark deal done and afterwards to reflect the coming new revenue structure once the ballpark was underway. Is DeWitt putting a higher payroll team on the field to help sway the ballpark debate? Is he raising payroll in anticipation of higher revenue streams a new stadium will bring once it opens? I can't answer those questions.

[Refman]

If McLane has a $5M profit and the Cards a $5M loss, McLane upping the payroll $10M would put him at a $5M loss. Interest expense is not a phantom loss. It is a real economic loss recognized by the Financial Accounting Standards Board (FASB). In fact the interest must be paid in real dollars. If you owned a company with a net loss after depreciation, interest, etc. you wouldn't go out and up your payroll...why should Drayton?

[mrpaige]

It's a phantom loss in that it's unneeded debt. Drayton likely carries such high debt because he makes a higher rate of return on his money than it costs him in interest. Sure, it's a legal loss and paid with real cash, but it's an expense he chooses to make because he believed he'd come out ahead on the spread.

And I might operate a business at a $5 million loss, especially if that only represented .4% of my net worth or about 1.5% of the company's value.

But the subject of the Cardinals being a mid-revenue team and spending more on payroll was brought-up earlier. I was simply making the point that the Cards may well be a good comparison to the Astros because of their apparently similar revenue and cost structure. But I did point out that we don't know why DeWitt is spending more or whether that even makes him a better owner (certainly his team has not done any better than the Astros in winning division titles or World Series titles).

DeWitt may well be spending for the ballpark knowing that the increased revenues from that new ballpark will make up for his losses now. In a new ballpark, he may not increase payroll at all, or at least not by as large an amount as to make a 1:1 increase vs. the increase in revenues.

I think Drayton is a good owner. The fact that he wants to spend within the means of the team is not something that should be frowned upon, in my opinion. I was just stating some information to help give a clearer picture of all the numbers and situations we're dealing with both in response to you (your assertion that facilities costs weren't part of the table, which is true. Non-player payroll expenses were not included) and to others (the challenge that some mid-revenue teams spent more on payroll than the Astros). But I wasn't making a judgment call saying he should spend more. I was just making the comparison.

[Refman]

I understand your point and was trying to add to the analysis. I did not mean to come off as argumentative.

What I think is interesting here is that the MLBPA is ready to make concessions after realizing that the financial problems that teams are facing is REAL. Yet there are some here who refuse to acknowledge that fact.

[Rocket Fan]

refman.. yes that is what i was wondering... i have no idea if there is any chance of getting what they say it's worth.... but i'd think if he does sale the team he'd at least come out with a profit .. not a loss...

[Major]

What I think is interesting here is that the MLBPA is ready to make concessions after realizing that the financial problems that teams are facing is REAL.

What have you heard on this? The most recent quotes I've heard from the MLBPA is that they won't accept a cap or luxury tax, and they are willing to up revenue sharing from 20% to 22.5% (owners want 50%). As far as I know, those are the three most effective ways to acheive competitive balance and the MLBPA won't budge on any of the three.

Revenue sharing, oddly enough, doesn't even directly impact the players. All it is is a shift of money from one owner to another. The players argue that if NYY had to give more money away, they wouldn't spend as much. They seem to ignore that the team that is getting the money can then spend it and create more potential bidders for any given player.

I say do tons of revenue sharing combined with a salary floor.

[mrpaige]

Originally posted by Rocket Fan
refman.. yes that is what i was wondering... i have no idea if there is any chance of getting what they say it's worth.... but i'd think if he does sale the team he'd at least come out with a profit .. not a loss...

Different kind of profit and loss, though (capital gain vs. operating profit/loss).

I mean, I could go out and buy a Porsche tomorrow (increase my spending) and tell myself that when I sell my house down the road, I'll come out ahead. But I don't think that's a responsible way of approaching my personal finances.

[Major]

By the way, for anyone interested, here is a good summary of the MLB vs. MLBPA labor dispute, the issues, and where the parties stand:

http://sportsillustrated.cnn.com/baseball/2002/special/owners_players/

[ROXRAN]

Owners want leverage? Open the books...Just don't use Arthur. or other slick means...

[Refman]

Owners want leverage? Open the books...Just don't use Arthur. or other slick means...
They have. Pursuant to the collective bargaining agreement, the owners have turned over their financial information to the players union.

I was watching SportsCenter over the weekend and interestingly enough they were interviewing various player reps. A few of them actually said that the players understand the problems and that they are prepared to make concessions.

[Major]

I was watching SportsCenter over the weekend and interestingly enough they were interviewing various player reps. A few of them actually said that the players understand the problems and that they are prepared to make concessions.


I hope you're right. The players -- especially the older ones like Glavine and Shilling -- and the player reps seem to have more common sense then the union itself. I hope the common-sense people prevail.

[Refman]

The players you mentioned like Glavine and Schilling are powerful union members. Many of the rank and file look up to these guys due to their intelligence and their length of distinguished service. I believe that what these guys think influences others.