On MLB ownership and a cold winter

Pay less attention to what people say, and more to what they actually do. If, for example, a government says they’re going to ban an app, but never takes any actual action to try and ban the app, we can be reasonably confident that the app will never be banned. The same principle applies to baseball, specifically, baseball’s owners.

As we approach the Winter Meetings, ownership has signaled just how poor they are this winter, coming off the shortened 2020 MLB season. The Philadelphia Phillies apparently lost $145 million, which is interesting given the decisions the team has to make around JT Realmuto, Didi Gregorius, and the worst bullpen in modern baseball history. Of course, the Phillies are a private entity and have no obligation to show us their books proving this kind of loss, so I have no obligation to believe them, or care.

I don’t know how much the Phillies lost in 2020. Revenues were way down, true, but so were costs. We don’t even know what the organization considers a loss — if you made $100, and spent $120, that’s a $20 loss, but if you expected to make $100, only made $80, and didn’t factor in costs at all, is that a loss? A lot of MLB owners probably would say yes. It wouldn’t surprise me if the Phillies incurred a loss, but it also wouldn’t surprise me if John Middleton were exaggerating to lay himself cloud cover — “oh no we can’t bring back the best catcher in baseball, we lost all this money, oh noooo”, kinda thing.

Craig Edwards had a fantastic breakdown of the Atlanta Braves’ financials yesterday, which speaks to this issue of gains and losses. The Braves and Blue Jays are the only two teams for which we can get a reasonable idea of their earnings, since ownership in both cases is a publicly traded company. This paragraph is particularly important:

Before taking a broader look, let’s run through the third quarter, which includes July, August and September, aka the regular season. During this time, the team played 60 games, including 30 at home. Baseball revenue stood at $102 million, half that of what came in during the third quarter in 2019. Due to paying players pro-rated salaries and not having fans at games, expenses (which include the Battery development outside the park) also dropped, from $167 million to $104 million. If we assume that The Battery, with $8 million in third quarter revenue, is a breakeven proposition at the moment, that means that on an operating basis, the Braves’ turned a $6 million profit during the season despite having no fans in the seats. While MLB might claim teams lost money for every game played this season, the Braves are the only club with any amount of transparency regarding their finances, and they didn’t.

Edwards goes on to detail that the major losses a team incurred in 2020 likely were from the “extended” winter, rather than the period teams were actually playing, which lays more blame at the owners’ feet, given they were the ones who pulled MLBPA down from a 100-game to a 60-game season all the way back in June.

You also have to evaluate statements from ownership within the context of a boom in TV revenues over the past few seasons. Teams can carry forward a loss indefinitely after the Tax Cuts and Jobs Act of 2018 to offset future tax burdens, so I think it’s fair for us to also consider gains over the past few years. I don’t have any tax collecting authority, but again, the Braves appear to have made about a hundred million dollars in operating profit, not revenue, over the past three seasons, and that includes the losses incurred this year. Carrying forward that loss will lower the organization’s tax burden in future seasons, and so we have a case where the only team with real financial transparency is going to end up being just fine.

As we said above, focus on what people are doing, not what they’re saying. In what was expected to be a cold winter for free agency, the early deals have been above predictions — Mike Minor got a two-year deal when the popular narrative was he’d only get one, Drew Smyly got more than double what he was projected, and even Robbie Ray got more than we thought he would.

If we do delve into the rumor mill, teams are signaling they’re losing money, while also signaling they are about to launch a massive capital expense project — the Blue Jays are planning to tear down Rogers Centre, re-negotiate either a perpetual lease or outright ownership of the land the stadium sits on, and build a new ballpark as well as greater residential real estate development on the plot. The kicker is, the team’s likely not going to need, or receive, public money for the project.

If all teams take a loss, how can the Jays come up with a billion or so dollars to buy up land, build a new stadium, condos and all the rest? Interest rates are basically negative when adjusting for inflation, so teams can leverage up. Toronto’s not going to get any government money because they’ll be flush with borrowed cash, which goes to show the multiple avenues that teams have in order to stay solvent, and even better off than just merely solvent.

Lastly, and this may be a hot take — I don’t really care if an owner goes broke. If Delta Airlines went bankrupt tomorrow, their planes wouldn’t spontaneously combust. If Hal Steinbrenner filed for bankruptcy protection, Yankee Stadium wouldn’t go up in flames, the YES Network wouldn’t go off the air. These significant capital and brand investments would just move from one insanely rich person to another.