Off the Field, It’s a Numbers Game

Commissioner Bud Selig will be in Washington today, using his best rabbinical demeanor to present a somber, club-by-club portrait of baseball’s dark financial situation for the House Judiciary Committee. Selig hopes to show the depth of baseball’s economic and competitive disparity and prove that contraction is needed as a partial remedy, thwarting Congressional interest in eliminating the game’s antitrust exemption.

It is hard to know how the politicians will react to the wealth--I suppose that’s not the right word considering the bleak portrait--of the data Selig is bringing with him. The skeptical view is that there will be so much wizardry it will be like watching “Harry Potter and the Sorcerer’s Stone.”

Selig will testify that 25 of the 30 clubs were in the red last season. He will report that the Dodgers experienced operating losses of $45.3 million and that the Angels lost $9.3 million. The reported Dodger losses were exceeded only by those of the Toronto Blue Jays at $52.9 million.

With due respect to the six auditing firms that apply their wands to baseball’s books, are we really to believe that all these multi-millionaires and billionaires, successes in other fields, lost $511 million last season--and, as Selig has claimed, have accumulated more than $400 million in debt, making it difficult for them to pay the interest on the debt?

All this after Forbes Magazine estimated that 20 of the 30 clubs made money in 2000 and baseball turned a profit of about $130 million. If Forbes is in the ballpark and Selig’s figures are also accurate, the industry would have had to suffer a $600 million or so turnaround in 2001 while revenue continued to increase to about $3.5 billion, doubling in five years.

In addition, one of the ironies of today’s hearing is that by attempting to persuade Congress to keep an exemption that has allowed baseball, in his view, to maintain franchise stability, Selig is at odds with his own economic study committee. The committee recommended relocation as an option for clubs losing money, and contraction as a last resort.

Baseball’s finances remain a mysterious business. There are tax-related issues like amortization and depreciation, and it’s easy to understand how the Montreal Expos--who have been nominated for contraction along with the Minnesota Twins--might be in financial peril along with one or two others. But did 25 lose $511 million?

I am reminded of a comment made by Paul Beeston, baseball’s chief operating officer, who while serving as president of the Blue Jays said that all he needed was a sharp pencil and eraser and he could turn any profit into a loss.

I am reminded that the Boston Red Sox are about to sell 53% controlling interest--and 80% of a cable TV network--for a record $365 million or more, only a few years after the Dodgers sold for a record $311 million.

I am reminded that Montreal owner Jeffrey Loria, an art dealer who knows fakes when he sees them, can’t wait to buy back in as owner of the Florida Marlins, if his Expos are contracted.

I am reminded that Marlin owner John Henry couldn’t wait to join a partnership bidding for the Red Sox and, if unsuccessful in that, can’t wait to buy out Disney’s ownership of the Angels.

I am reminded that Tom Werner, who disgraced the game with his decimation of the San Diego Padres, now can’t wait to buy in as head of a group bidding for the Red Sox and that one of his partners is George Mitchell, the former Maine senator and a member of baseball’s economic study committee, the group that provided the dire foundation for much of Selig’s report today.

I am also reminded that, despite baseball’s allegedly bad economy and the national recession, the San Diego Padres are close to obtaining a $160 million loan to help finish construction of their new ballpark, an indication that even smaller market teams can still obtain financing.

And I am reminded as well--despite revenue-sharing rules designed to protect against manipulation of these figures--there would seem to be no way the Dodger books present a true accounting of what Fox, the owner, is receiving from Fox, the broadcaster, for local cable rights. Nor how much owner/broadcaster Fox takes in from all the other clubs it has contracts with in that little insidious relationship.

The Atlanta Braves have always shown impossibly low book income from cable TV because Ted Turner has been keeping it in his TBS pocket, just like the Chicago Cubs ledger is unlikely to reflect the true value of their cable rights because the Tribune Co. owns both the Cubs and WGN, in addition to the Los Angeles Times.

Am I out of line, or is there justification for the skepticism?

Selig lieutenant Larry Lucchino said there’s probably some historic basis for skepticism, particularly for anyone familiar with Hollywood economics and numbers. “But I don’t believe that even conspiracy theorists would believe that the top six accounting firms (which have yet to audit the 2001 figures Selig will reveal today) are in league with baseball to present a misleading portrait of industry economics,” Lucchino said. “Would we be going through the pain of contraction if the industry was in great shape?”

The Forbes figures imply exactly that.

Lucchino, however, said those estimates are just guess-work devoid of the underlying data, and he dismissed recent comments by union official Gene Orza in The Times or anyone else’s conclusion that just because Werner is hoping to buy back in or Henry and Loria are looking to stay in, that those developments remove the relevancy of the overall figures.

“[Orza] would have a point if the owner of the Red Sox was out there trying to buy the San Diego Padres or some small-market club,” Lucchino said, “but in this case [Orza] should know better because you have a former small-market owner [in Werner] trying to buy into one of the best and most established markets in baseball, a big-market team that has the capacity to be competitive, and that makes sense.”

It certainly makes sense to Lucchino, who has traveled both sides of the street. As former president of the Baltimore Orioles, he led the big-market alliance that tried to fight off increased revenue sharing during an owners meeting in Fort Lauderdale, Fl., several years ago, and for the last several seasons he had been a leading spokesman for the small-market alliance as president of the Padres. Lucchino recently resigned to join Selig’s staff, and is now in line to become president of the Red Sox if the Werner group wins the auction.

He was also influential in the development of Baltimore’s Camden Yards and the new San Diego ballpark, but he disputes another union contention and the general perception that, stoked by the renaissance in stadium construction, franchise values continue to soar despite the game’s allegedly bad economy.

Lucchino cited the economic study committee’s findings and said that even when owners sell for more than they paid, “they are generally unable to recoup substantial operating losses or show any rate of return on a multi-million dollar investment.”

The rhetoric is endless.

As soon as Selig finishes today, union officials are expected to respond in a news conference in Irving, Texas, where they have been holding their annual executive board meetings.

Many in baseball continue to believe that the contraction scenario is simply designed to wrest concessions from the union when and if serious negotiations begin on a new labor agreement.

In the meantime, there is no predicting how serious Congress is in removing baseball’s antitrust exemption as it applies to the relocation and elimination of teams or how long it would take if a bill introduced by Minnesota’s two Democratic senators, Paul Wellstone and Mark Dayton, along with Rep. John Conyers (D-Mich.), even gets out of committee.

One wonders what Congress is doing worrying about baseball given the national climate and economy.

One also wonders how Selig, now trusted with a three-year extension, could talk about baseball’s role as a social institution and promptly lead it out of a memorable World Series and directly into a legal and political entanglement over contraction, dumping on five years of improving relationships between management and players. This at a time when the game’s labor issues would be better remedied by a new bargaining agreement and the country has no stomach for another confrontation between millionaire players and billionaire owners.

Claiming that changes to the system can’t wait, there is no doubt now that Selig is allied with his constituency’s militant wing, believing their long losing streak against the union can be overturned.

The tipoff actually came several months ago when Selig pulled the plug on the conciliatory Beeston, who had been moving toward a mid-summer labor agreement in secret talks with the union.

The harder-edged Sandy Alderson has now become Selig’s most visible and verbal aide at a time when the commissioner and his staff have been kept busy calling columnists whose opinions they dispute.

The clock is ticking on contraction, but the owners seem undeterred.

In his testimony today, Selig is also expected to address competitive imbalance, pointing out how teams in the lower half of the payroll standings have won only five of the last 224 playoff games and how contraction would help compensate for the over-expansion and talent dilution of the ‘90s, improving the economics by improving the product.

A skeptic would point out that greed influenced the owners to over-expand in the ‘90s, providing financial compensation for their collusion fine of the ‘80s, and that they are now influenced by greed again--gaining a bigger split of the national TV and licensing money while possibly saving some on revenue sharing with two less teams.

As always this is about the owners needing help to control themselves. Although the prospect of contraction has slowed the market and some big spenders like the Dodgers, Cleveland Indians and New York Mets are trying to reduce their payrolls, Selig will have a hard sell today, trying to convince a Congressional committee of the game’s financial instability at a time when some of his colleagues are sending another message. Baltimore, for example, this week signed fringe outfielder Marty Cordova to a three-year, $9.1 million contract, and the Texas Rangers guaranteed recycled relief pitcher Todd Van Poppel $7.5 million for three years.

“We’re at the mercy of a system in which the clubs are damned if they do and damned if they don’t,” Lucchino said.

“The same people who criticize them for not trying to win if they show restraint in the market are the same people who criticize them when they sometimes overpay.”

The bottom line?

Selig will reveal it today.

Do numbers lie?

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Red Ink

The operating profits or losses of Major League Baseball teams for the 2001 season, as obtained by the Associated Press from a baseball management report, before revenue sharing (figures rounded to the nearest thousandth):

PROFIT

New York Yankees $40,859,000

Seattle $34,266,000

San Francisco $19,000,000

Milwaukee $14,385,000

New York Mets $8,292,000

Chicago Cubs $4,797,000

Boston $2,712,000

Cleveland $1,881,000

St. Louis $1,869,000

Baltimore $1,460,000

Detroit $533,000

*

LOSS

Houston $1,214,000

Pittsburgh $2,984,000

Colorado $3,415,000

Chicago White Sox $5,687,000

Oakland $7,113,000

Anaheim $9,569,000

Cincinnati $11,056,000

Atlanta $14,360,000

Texas $15,689,000

Kansas City $16,134,000

San Diego $16,151,000

Minnesota $18,533,000

Philadelphia $20,865,000

Tampa Bay $22,843,000

Florida $27,741,000

Arizona $32,152,000

Montreal $38,519,000

Los Angeles $45,343,000

Toronto $52,927,000

Notes

* Net loss for 30 teams was $232,241,000,000.

* Revenues ranged from $242,208,000 for the Yankees to $34,171,000 for Montreal.

* Five teams--the Mets, the Cubs, Boston, Cleveland, St. Louis and Baltimore--that showed a profit before revenue sharing showed a net loss after.

* The Angels showed a profit of $25,000 after revenue sharing, but a loss of $4,953,000 after amortization for the 2001 season.

* The Dodgers’ loss increased to $54,450,000 after revenue sharing and $68,887,000 after amortization, largest in the major leagues.

* Only five teams showed a profit after revenue sharing and amortization were factored in, led by Seattle at $14,793,000. The other four were the Yankees, the Cubs, Milwaukee and Kansas City.