The Best Browns Since 1999 – Safeties
February 21, 2012The Best Browns Since 1999 – Cornerbacks
February 21, 2012In August of 2010, Deadspin.com got a hold of a few MLB teams’ internal financial statements. This was kind of big deal, since baseball teams are private companies, and private companies do not typically go around disclosing their financial activity to anyone and everyone with an internet connection. We were finally going to get to see things like total revenue figures not just for home attendance, but for revenue sharing deals, broadcasting rights, and stadium naming contracts. On top of that, we’d get to see various expense items as well as bottom line figures like net profit (or loss). In other words, we’d be privy to a bunch of stuff that MLB and its teams hoped to keep hidden. Yes, this made the voyeur in all of us very happy. It also made MLB very mad; Selig petitioned a New York judge to “help plug its leaks”. Gross? Maybe. Fun? Absolutely.
It turned out that despite my most ardent wishes, the Indians were not among the six teams whose private finances were leaked. Oh, the times we could have had, Internet! The Pittsburgh Pirates weren’t so lucky, and their dirty secrets were particularly dirty: in 2007 and 2008, the Pirates averaged $51 million per year in player salaries (that’s low), yet they had some of the biggest profits of any revealed team—nearly $22 million in 2008 alone.
This was not well-received news in Pittsburgh. After all, the Pirates’ owners had consistently cried poor throughout the 2000’s when fans and media questioned the club’s exceptionally low payrolls. How was it that this team, sporting the longest-tenured streak of losing seasons in professional sports history, was making money? How was it possible especially when teams like the Rangers and Angels, who were spending money and making it to the playoffs, were losing money?
Well, from there, it wasn’t too far of a jump for people to superimpose the Pirates’ finances onto the Indians’ reality. After all, it’s hard to imagine a team more similar to the Indians than the Pirates: low payroll, low revenue, rust belt city, best days behind them, etc. And if the Pirates were making profits hand over fist, well, hey, anything is possible, right? I even wrote a piece wondering about it all.
But really, I didn’t have anything to go on when I wrote that piece. Sure, I knew that the Pirates were making money, but that didn’t mean all low-payroll teams were making money. The Marlins, after all, had their documents leaked too. And they made a whopping $3,900 in 2009. That’s a used Datsun.
So why bring any of this up now? Well, a few things happened this offseason that intrigued me and got me thinking about team finances all over again. The Angels used their new TV deal—worth $3 billion over 20 years—to sign Albert Pujols and CJ Wilson. The Rangers countered by using their new $1.6 billion TV deal to sign Yu Darvish from Japan. The Padres recently signed a new TV deal for $1 billion that could provide up to $70 million annually once the deal matures.
The natural question, in light of all this, is to wonder how the Indians are stacking up (or how they can possibly stack up) with these sorts of figures. The Indians, as I’m sure you are aware, are broadcast on STO, a network that is wholly owned by the Dolans, the same family that owns the Indians. However, STO and the Cleveland Indians are entirely separate operating entities, so the network actually pays the team a fee for the broadcast rights. I wondered if there wasn’t anything interesting to find by barking up this tree, despite the private nature of both companies.
A few short searches later, I came across a piece from the Plain Dealer written by Bill Lubinger last month. Bill does a nice job of establishing the growing influence of TV contracts on MLB revenue streams and the consequent effect on player salaries, but what interested me most were a couple of quotes regarding the Indians’ current TV situation:
“STO has paid the Indians about $30 million a year for broadcast rights since it was founded”
And later:
“STO had about 3 million subscribers in 2011, with $85 million in operating revenue and $21 million in cash flow.”
Bill cites SNL Kagan—a market research and analytics firm covering, among other things, the media and communications industries—as his source for those figures. Unfortunately, the company’s materials are buried behind a subscription service and I wasn’t able to look at the numbers or models myself. Instead, I emailed with Bill briefly to discuss the figures and, if accurate, what they might mean for the Indians.
What I took away from the article and the subsequent emails was, to be honest, pretty troubling on at least two accounts. First, if STO is actually generating $85 million in revenue and $21 million in positive cash flow, that would make the company itself a fairly profitable enterprise.* Now, far be it from me to begrudge a private company its hard-earned profits, but pocketing $20 million off of an incestuous TV deal while telling the fanbase that “now isn’t the right time to spend”? Well, that certainly doesn’t look very good, and I hope these sorts of questions are posed to the ownership group at some point. Furthermore, despite MLB’s assurances that these sorts of deals are assessed at fair market value, if SNL Kagan’s numbers are accurate then it would seem that Indians are giving STO something of a sweetheart deal here.
*I should mention that in a prior life I worked in market research, and I know firsthand how impenetrable private companies’ financials can be. Without impugning the integrity of SNL Kagan or its methods, we should at least admit that these numbers are at best approximations and at worst complete fictions.
If, on the other hand, STO is in financial trouble and is up for sale—reported last year by Vince Grzegorek at Cleveland Scene and later by WFNY—then we’re really no better off.* In the first scenario, the ownership is shifting piles of money from one property to another in order to trim the team’s payroll. In the second, there’s no money to shift. Neither bodes particularly well for the team going forward.
* I was not involved in the WFNY report regarding STO and did not speak to the sources discussed therein.
But even more than these particular problems, I was struck by the amplifier effect that TV deals seem to be having on MLB’s growing economic parity problem. It’s one thing to have trouble selling tickets, where the difference between 2 million and 3 million fans in terms of total receipts is, in the big scheme of things, fairly minor. The difference in these TV deals is, on the other hand, massive. The Angels’ new deal will pay the team roughly $150 million per season for the next 20 years. That’s five times what STO is reportedly paying the Indians. There is no competing with that, and no matter who pays to broadcast the Tribe games down the road, the team will never be able to generate that sort of revenue stream. There just aren’t that many TVs in Ohio.
From this perspective, it would hardly matter if the Dolans are using STO to divert some money toward their pockets: it’s all chump change when you compare it to what the larger media markets can expect. If you think about it too much, you just get depressed and reach for the decanter. At least I do.
But perhaps this is all a good thing for the sport. I’m starting to come around to the notion—popular in middle-age, I’m told—that things must get worse before they get better. As the money from local TV contracts continues to explode, the disparities in revenue will become markedly more defined. There will develop more entrenched and permanent distinctions between the “haves” and the “have nots”. Things will become so obviously broken that it will become impossible to ignore: no wallpaper will be able to cover the gap between the rich and the poor, and the fans will start to look away in disgust.
That, of course, is the best case scenario. There’s also the possibility that we’ll all just have another hot dog and root-root-root for the home team.
44 Comments
I’m not a fan of people stealing private information and splashing it all over the place just because they can. Any individual or media outlet who does this should first publish every bit of its own financial information.
Payroll equity will never happen while the players’ union remains so strong. I fear it will take a lockout/strike where many games (and paychecks) are missed before we see the kind of revenue equity that will give the Cleveland’s and Kansas City’s any hope of competing on a consistent basis.
Are you sure STO is wholly and completely owned by the Dolans? I was under the impression that Time Warner handled all advertising dollars and profits from them. So STO would be paid out by Time Warner for the rights to the games, which they had purchased from the Indians. It makes me question those cash flow numbers in terms of how much goes back to the Dolans.
Attention KMart shoppers there is a blue light special on aisle five!!!
21 million in cash flow and 85 million in revenue doesn’t mean they made a profit at all, so really hard to tell what that means. Also agree with Mr. Cleaveland – as private companies, the Deadspin information should never have been publicized.
Things will become so obviously broken that it will become impossible to ignore: no wallpaper will be able to cover the gap between the rich and the poor, and the fans will start to look away in disgust.
Funny you use the future tense. I said almost the same thing 10 years ago and eventually did look away in disgust.
What I really want to know is how Jon is able to tap into an apparently sizeable slush fund that enables him to reach for decanters while the rest of us have to reach for off-the-shelf bottles.
Talk about “haves” and “have nots.”
You know things are out of control when someone lays down $1 Billion for Padres games.
Nobody likes the Padres that much. I’m just struggling to imagine the meeting where someone says, “If they want $1 Billion then that’s what we’ll have to pay! We MUST have those Padres games!”
On a side note, I know it’s sports, and sports are inherently irrational, but the debate over tv revenue in MLB is as ‘first world problems’ as it gets. Sorry…I love sports AND broadcasting more than most…but really? $1 Billion?
Also, just because I’m feeling cranky…I hate Disqus. Does anyone else have trouble writing comments on their phone?
I’d like to note, that in other places covering the same story, they made sure to stress something. The MLB monitors these TV deals, especially when the network and club are owned by the same people. So, while it’d be great if STO could increase their payout to the Indians (they’re not on a long-term contract, they “renew” every season with STO, with perhaps a different payout), there may or may not be rules against STO “overpaying” for the Indians’ broadcasting rights.
The thing that strikes me as odd about that is that the Yankees make… what… $150-200MM from their own network? Granted, the NY market is worth lots more than the Cleveland/Akron market. But the MLB won’t stop the Yankees (or do they?), but they’ll stop the Indians?
It’s just simple math. There are so many people living in the southern california (padres) TV district. That’s where the money comes from and it all gets passed along to the consumer. Take this as illustrative:
Cleveland Population: 250k
San Diego Population: 3.1MM
So if cable companies charge, say, a buck a household now you’re starting to understand where the discrepancy in dollars comes from (which will only be on a larger scale as we compare the entire area that broadcasts the Padres vs the Indians).
It’s just simple math. There are so many people living in the southern california (padres) TV district. That’s where the money comes from and it all gets passed along to the consumer. Take this as illustrative:
Cleveland Population: 250k
San Diego Population: 3.1MM
So if cable companies charge, say, a buck a household now you’re starting to understand where the discrepancy in dollars comes from (which will only be on a larger scale as we compare the entire area that broadcasts the Padres vs the Indians).
Time Warner in this case may be more of a general contractor for the purposes of running STO and not really part of the ownership. They get a fee for running the show while the Dolans own the ultimate rights to the product and the naming etc. Think of it like college sports channels, where Fox and ESPN don’t actually own any part of B1G, SEC or Texas (etc) athletics. They just run the operations because they know the TV business.
Time Warner in this case may be more of a general contractor for the purposes of running STO and not really part of the ownership. They get a fee for running the show while the Dolans own the ultimate rights to the product and the naming etc. Think of it like college sports channels, where Fox and ESPN don’t actually own any part of B1G, SEC or Texas (etc) athletics. They just run the operations because they know the TV business.
Which doesn’t even take into account the extra money advertisers would be willing to pay to reach so many more people than they could in Cleveland.
The ESPN book that came out this summer “Those Guys Have All the Fun” was really interesting about this type of stuff from a business perspective. Beyond all the salacious behind the scenes ESPN stuff it was pretty educational.
Which doesn’t even take into account the extra money advertisers would be willing to pay to reach so many more people than they could in Cleveland.
The ESPN book that came out this summer “Those Guys Have All the Fun” was really interesting about this type of stuff from a business perspective. Beyond all the salacious behind the scenes ESPN stuff it was pretty educational.
You’ve hit upon a pet peeve of mine. Just know that reading your post made me want to rip my hair out.
That 3M numbers is the SD metro population and you’re comparing it to the City of Cleveland. San Diego’s city population is ~ 1M. But that’s irrelevant because using a central city’s population is nonsensical in this discussion. Also because different metro areas set up their local government differently. We decide to exist as 50 independent communities SD is more contiguous.
The numbers get weird because sometimes it’s Cleveland/Elyria and other times it’s Cleveland/Akron/Canton depending on the data you’re look at. Metro uses the former, Nielsen uses the later.
Metro Population: (wikipedia)
SD Metro: ~3MM
Cleveland Metro 2.25MM
Nielsen Market Size (Nielsen Co.)
Cleveland: 1.5MM
SD : 1.06MM
The only real question is how much of the Padre’s contract benefits from the LA market.
I cannot stand people believing the woe is us here in podunk Cleveland based upon totally apples to oranges population data.
It isn’t that much of a disparity. You used San Diego county’s entire population, and an incorrect number for the population of the city of Cleveland proper. If you used the MSA statistics, you would see that Cleveland is at about 2.1 million people.
I’d submit the following, quoted from my piece:
Furthermore, despite MLB’s assurances that these sorts of deals are assessed at fair market value, if SNL Kagan’s numbers are accurate then it would seem that Indians are giving STO something of a sweetheart deal here.
Mostly agree, I can’t blame SNL Kagan too much here, this is how they make money. But this information is deadly in the wrong hands. On top of how wrong the numbers might actually be, the vast majority of people simply cannot properly interpret financial statement data to begin with. Just because these two numbers are better than nothing doesn’t mean we can start making judgments on finances.
We can use apples to apples population data, but, and I hate to break it to you, it’s not going to be much better. We are already in one of the smallest and poorest markets in MLB, and we’re going the wrong way.
We’re talking about TV ratings, so your “smallest and poorest” comment is completely off topic here. The Indians were 8th overall in market share for Major League Baseball.
“The Cleveland Indians saw a whopping 105 percent increase in their local market rating compared to last year, bringing them to the eighth spot in the overall rankings.”
http://blog.nielsen.com/nielsenwire/media_entertainment/baseball%E2%80%99s-diamonds-which-major-league-teams-dominated-local-tv-ratings/
Cleveland obviously doesn’t have the population of New York, but they should be getting a better cut of television money than they are.
I’m going to go a little off topic here. Why is STO’s production value so low? I guess the Indians games aren’t bad, but everything else is awful. I watch too much ESPN. Give me a reason to watch you instead STO! Make a 30-60 minute nightly Sportscenter/Highlight Express type show.
1. “We MUST have those Padres games!” — this is the first time this phrase has every been used in the history of the spoken/written language and it literally made me laugh out loud. Kudos to you.
2. Yes, I have found that if you want to delete something you have just typed on your phone you need to tap off the comment box, then tap back into the comment box in order to make the correction. That or just post it incorrectly, then go back and edit.
baseball is a poorly organized professional sport.
In this rare instance, Deadspin did exactly what a journalistic media outlet is supposed to do; report things of consequence.
As Jon’s piece says, the Pirates had been crying poor for years, when in fact, it was completely untrue. They were blatantly lying to fans and others.
it’s amazing that we still all cannot come to a consensus on how to figure out population data. I think the metro-area is probably the best indicator (as C/A can get STO, right?), but it’s tough to know why SD gets 2X the deal that the Indians get then.
Unless it’s just a factor of “when” the contracts were signed. the STO deal was awhile ago, so it may self-correct soon (if we go by 2mil : 3mil, then it should be “$47mil/year” : $70mil/year)
Edit: also thinking, since both are cable networks, the figures likely have alot more into them than just pure ratings and/or population data. likely they also have figures of how many people actually have cable in the regions and which direction that is going (how fast are more people getting/dropping cable), etc.
STO seems to have zero interest in having any programing outside of Indian games.
People, the Padres deal is twenty years long. Supposedly (cause as Jon said, it’s usually impossible to get official numbers), they’ll get $30M in 2012 and up to $75M in the final years (aka 2032).
From what I read, it could be worth $1.5B+, but that’s a.) a best case scenario and b.) over twenty years. It’s also a HUGE risk being locked into a deal for that long of a time. Imagine if a team signed a 20-year TV contract in 1992?
But for the Padres, who have terrible ratings, this probably signifies a sizeable increase in revenue moving forward.
That’s misleading though since the ratings are a % of homes in that market so a 4.3 in NY still means a massive amount more people than a a 6 in CLE.
Agreed.
But what people are missing in this particular line of discussion (re:Padres), is that San Diego is one of the smallest and poorest MLB markets too.
As I pointed out upthread, this billion dollar deal isn’t all that great when you take a deeper look at it.
Does it make you feel better if I tell you my decanter is full of Korski vodka? Well, not “full”, but you know, it has some in it…
It helps.
Obviously cashflow profit, but a company with >$20 million in cashflow is doing pretty well–perhaps better than one with $20 million in profits. And I don’t think it’s a stretch to suggest that such a company is likely profitable. Though I’m not a finance guy, so my understanding is rote at best.
As for deadspin and those leaked financial statements, I’m glad they published what they did. MLB is far more similar to a cartel than a group of independent private businesses, and I don’t have a lot of respect for their desire for privacy, given how often their enterprises are publicly funded and tax abated. I say more transparency, not less. But that’s just me.
Way back in the day (and on a different subject entirely) I tried to incorporate some of the MSA figures (Metropolitan Statistical Area), and I remember being called out for not including the larger DMA instead. It’s interesting debate–one I remember LeBron having a stake in.
Anyway, here’s the piece I wrote that used some of that data: https://waitingfornextyear.com/2011/04/some-thoughts-on-the-indians%E2%80%99-record-setting-attendance/
vodka in a decanter? continuing to be a radical to the norm.
I was (mostly) kidding about the Korski. But my college friends and I send each other bottles of Korski for birthday presents from time to time, so I’m sure I have some around here somewhere.
My decanter is for scotch, as I’m sure all my rabid readers will recall. Though I assure you it’s blended. WE ARE THE 99% WHO HAVE FIRST WORLD PROBLEMS LIKE NO SINGLE MALT!!
Please allow me to contribute to the debate on the more esoteric aspects of population estimates and locoregional demographics:
Zzzzzzzzzzzzzzzzzzz.
I basically said that in my comment.
I guess you did.
But I still don’t understand why the Indians should get a better cut of television money.
Total # of people reached and income bracket of those people is what matters.
San Diego =/= poor, and it is going in the right direction.
What should they show though? Maybe they put up a decent Browns or Cavs show, but they have (as they should) zero interest in you watching either of those teams play.
a) That doesn’t take away that they themselves acted dishonestly.
b) Agreed re: the Pirates lying, but that’s why municipalities should insist on transparency before supporting stadiums and the like.
I love transparency, but the ends do not justify the means. At the end of the day, however we may view them, they are private businesses. Do bar patrons have the right to see what the bar owner’s finances look like?
While I am a finance guy, it’s hard to tell how cashflow relates to profitability. Plenty of companies that are losing billions still have great cashflow. Positive cash flow could just mean they’re borrowing lots of money or have a lot of depreciable assets – it has nothing to do with profits, though obviously profits create positive cash flow. (And negative cash flow could be a company paying off debts.)