No House Party for Selig

The Dodgers, once regarded as baseball’s answer to the Denver Mint, emerged as reckless spenders in need of financial counseling if financial data released by major league owners this week is accurate.

In figures that stunned the baseball world, humbled Fox ownership and raised enormous skepticism among players and numerous economists, owners reported that the Dodgers lost $69 million last season, the most of any team and more than the entire player payrolls of 14 of the other 29 teams.

“That’s a shocking amount of money,” former Angel president Richard Brown said.

Steve Fehr, the brother of union chief Donald Fehr and a former agent, told a Congressional hearing Thursday the data released was incomplete and subject to interpretation. But, even if specific numbers are in dispute, there appears to be little dispute among economists that the Dodgers could draw three million fans and still lose more money than any other team.

Commissioner Bud Selig relentlessly attacked the union during the hearing, charging the union with failing to support any salary restraints on players and increased revenue sharing among owners.

Selig’s comments, and the release of the financial data, also underscored the commissioner’s challenge in trying to unify owners to reform a system in which the Boston Red Sox lost money and the Kansas City Royals did not, thanks in part to money donated by the Red Sox through revenue sharing.

Under the current revenue-sharing system, owners contribute 20% of local revenue--primarily from local broadcast contracts, and ticket, parking and concessions--to a central pool. That money is then divided among the teams with the smallest amount of local revenue.

Under O’Malley family ownership, the Dodgers were a model of success on and off the field. Since Fox bought the team in 1998, and in an era when Selig constantly points to the correlation between winning teams and well-paid teams, the Dodgers have spent lavishly on payroll without playing a postseason game.

“The teams that make the playoffs are the ones that spend the money. Unfortunately for them, the Dodgers are one of the teams that didn’t spend it very well,” said Jeff Phillips, senior vice president at Houlihan, Lokey, Howard and Zukin, a specialty investment banking firm that works extensively within the sports industry.

Even after subtracting interest on debt payments, the Dodgers reported losses of $45 million in operating expenses and $55 million after contributing to the revenue sharing pool, the latter figure accounting for nearly 25% of a $232-million industry loss.

Of every five dollars the Dodgers took in, they spent four on players. “They definitely have spent beyond their means,” Phillips said.

The Royals did not do that, opting for a roster of younger and cheaper players with little chance of winning. The Royals indeed were awful, losing 97 games and drawing fewer fans than any American League team except the Tampa Bay Devil Rays. But their claimed $16-million loss was wiped out by $16 million from a revenue-sharing pool, allowing them to become one of five teams to report a profit last season.

The Red Sox reportedly made $70 million more in ticket sales than the Royals and spent almost three times as much as the Royals on payroll, but Boston’s contribution to revenue sharing turned a $3-million profit into a $13-million loss.

Disney’s Angels, spooked when their $80-million investment in Mo Vaughn backfired so spectacularly, imitated the Royals. The Angels’ attendance fell for the third consecutive season and their ticket revenue ranked among the bottom 10. So did their payroll, but their $10-million loss was erased by a $10-million donation from revenue sharing.

Selig’s dilemma: He can’t convince teams such as the Royals to spend more money on payroll, instead of profit, unless they’re convinced they can win. He can’t convince teams such as the Red Sox to spend more money on revenue sharing unless they can turn a profit too. And he probably can’t do either unless players agree to some form of salary restraint.

The Dodgers’ financial statements reflected “the culture of the team and some of the limitations of the facility,” said Bob Starkey, a Minnesota-based financial consultant designated to speak for the team.

By not selling naming rights to Dodger Stadium, backing away from a new stadium that could have included more luxury seating and retail areas, and charging an average ticket price less than the major league average, the Dodgers operate at a competitive financial disadvantage, Starkey said.

Still, under Fox, the Dodgers’ revenue has jumped dramatically, doubling in six years to a reported $143 million this year, ranking eighth in the majors. But the Dodger payroll jumped even more dramatically, reported at $116 million. Only the Red Sox and New York Yankees, at $118 million each, spent more. The Dodgers spent 81% of their revenue on payroll, a ratio exceeded only by the two Canadian teams, who are plagued by the weak Canadian dollar.

The Red Sox spent 67% of revenue on payroll; the Yankees 49%.

The Dodgers are haunted not so much by megabuck contracts to stars such as Kevin Brown, Shawn Green and Gary Sheffield, who have performed well, but by significant long-term commitments to such supporting players as Tom Goodwin, Devon White and Carlos Perez, who have not. Each player, acquired in part because of a deficient minor league system and in part because of a corporate desire to win at almost any cost, added to the deficit.

“They’ve been Carlos Perez-ed to death,” said David Carter, who teaches sports business at USC.

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Profits and Losses

Baseball teams’ operating revenues, operating expenses, operating profits (or losses in parentheses), profits or losses after revenue sharing and profits or losses after interest cost for the 2001 season. All numbers in thousands. Teams are ranked by operating profit.