Revenue sharing and the ascension of the Kansas City Royals
Sam Mellinger of the Kansas City Star has an article about the Royals and the evolution of the role of market size and its correlation to winning in Major League Baseball.
The upshot: the Royals have won, certainly because of their talent, but also because of their utilization of market sharing money. And, unlike was the case with a lot of small market teams several years ago, it’s market sharing money that is being plowed into the team, not just pocketed by the owners.
It’s an interesting read which says a lot about where the money comes from these days. The Royals’ attendance is way up, of course. TV is certainly king and, even though the Royals’ TV deal is pretty poor for now, it stands to get better eventually. The shared MLBAM money is a big driver too. Overall, however, more robust revenue sharing and some smart financial choices with that money is what has helped the Royals move from the back of the pack to the front. All of this taken together shows that the financial landscape for small market teams is markedly different now than it was 15 years ago when everyone assumed it was the Yankees and the Red Sox’ world and the rest of the league was all just living in it.Still, there are a couple of assertions in the article which suggest that, in a couple of ways, even if the speaker is unaware of it, the old assumptions about markets and the business of baseball are still holding fast in the discourse. First this from the intro to the story from an unnamed Royals’ executive:
The answer came from the Royals executive with the kind of chuckle that lets you know he is joking, but also the kind of pause that lets you know he’s not completely joking.
The question: how can the Royals, owners of baseball’s third-smallest market and worst local television contract, afford a payroll close to $130 million including two new $70 million contracts?
Their internal projections are that the club will lose money in 2016 without a postseason appearance, will make a profit with another deep playoff run, or will break even with something in between.
Assertions that any team will lose money should always, always be taken with a mountain of salt given how opaque team finances are. For as large as they seem, most baseball teams are still closely-held companies, often run not terribly different from a local, family-owned car dealership, and revenues, debts, executive income, consulting fees and a dozen or two other balance sheet items can be allocated in almost any way you can imagine.
Go look at the Dodgers under Frank McCourt, with their tiers and tiers of loans and ventures. Go look at the Marlins and the gigantic “management fees” Jeff Loria and David Samson pay themselves. Go look at the corporately-owned Braves who are given a budget that has far more to do with the financial concerns of Liberty Media and its many subsidiaries than the realities of competitive baseball. There are so many ways for a profitable baseball team to be shown to have an on-paper operating loss -- and so many reasons why an owner may wish to show it that way or at least not care -- that it renders the concepts of profit and loss practically meaningless. Do I know that the Royals won’t make money absent a deep playoff run this year? I have absolutely no way of knowing. Am I skeptical that a World Series champ riding a surge of popularity, ticket sales, merchandise sales and marketing agreements will be in the red the following year? Yup.
The other assertion that makes me tilt my head like your dog does when he hears a weird noise is this one, from Mellinger himself toward the end:
I don’t think Mellinger is trying to be deceptive here or anything, but I’ll note that for the entire article he refers to market-size, typically defined by local population and the number of potential television viewers in the area. He switches here, however, from “small-market” to “small-money,” which is kind of significant in that it cuts out the St. Louis Cardinals, who have won two World Series titles in that time frame and have been to the playoffs thirteen times while riding some pretty nice revenues. We can talk about all of the reasons for that, but none of it changes the fact that by every metric, the Cardinals play in a small market as well.
This doesn’t take away from Mellinger’s thesis, and again, I do not think he has some sort of agenda here. But always be aware of these kinds of distinctions as they’re used in articles and by commentators. Be especially aware of them leading up to this year’s Collective Bargaining Agreement negotiations. Terms like profits, loss, revenues, markets and the like are insanely malleable, and can often be employed in ways to tip the scale in the direction the speaker wants to tip it, allowing them to tell a story in the way they want to tell it.