The Cleveland Indians made money in 2011. A lot of money, actually — the largest amount of operating income earned among all of Major League Baseball. At least according to Forbes Magazine who published the latest edition of their annual take on the sport.
Credited with a net worth that grew 16 percent year over year, the Indians, per Forbes, hauled in $178 million in revenue, had a debt ratio of 27 percent and operating income figure of $30.1 million, leading the pack among the bat-and-ball franchises. The business-focused publication cites several variables which played into their estimated totals, including but not limited to an extremely low payroll, an alleged $30 million received from their regional sports network SportsTime Ohio, and a check from MLB to the tune of $20 million from revenue sharing — the Indians reportedly received the largest slice of the reallocated pie.
Accounting 101 tells us that the operating income (or “EBIT” for the business folks) is a pre-tax and interest figure that is used to gauge how well a team is taking care of their baseline expenses as compared to their top-line revenue. Common Sense 101 tells us that, given the fact that MLB figures are not public record, all of Forbes’ figures are best-guess estimates based on accessible numbers. Public Relations 101 tells that the Cleveland Indians vehemently detest this annual array of information as it leads to fan discomfort over a perpetual lack of spending coupled with the idea that the man holding the purse strings is reaping all of the benefits for his own good.
“Their information, once again, is inaccurate,” a team representative tells WFNY. “They acknowledge they do not get their information from us or anyone within Major League Baseball. Totally inaccurate.”
Forbes’ executive editor Michael Ozanian, in turn, claims that his company runs all of their estimations by sports-focused bankers as well as consultants. “They’re not pulled out of thin air,” he claimed in an interview on Thursday afternoon. “They’re not spot on, but they’re close.”
Just how close? The “revenues” section of the team’s income statement will traditionally include items like in-game revenue, broadcasting revenue, ballpark signage/naming rights, concessions and — everyone’s favorite — revenue sharing. The “expenses” will filter down to player salaries, coaching/training/scouting staff salaries, broadcasting compensation, ballpark operations and team — marketing, public relations, administrative — costs. Apply an effective allotment for error across all of these items and numbers can sway substantially.
The $30 million estimated to have been earned with the team’s STO deal corroborates reports published earlier in the year, though these figures were also rooted in estimation. While the exact amount of the revenue-sharing total was not made available, Forbes is able to back into specific totals by taking the 34 percent revenue sharing figure and allocate it based on their estimates of team-specific revenues.
But their estimation of in-game revenues? Naturally, a big source of revenue falls in the lap of ticket sales. The Indians, with one of the lowest average ticket prices in the game, claim that their average seat costs an attendant approximately $22. That said, one cannot merely multiply this figure by total attendance for the year. The early-April totals through the turnstiles was bad enough. And while this would be improved after the team compiled a successful win total early on, the bargain-priced bleacher section was a huge hit amongst fans. Discounts for group sales? Complimentary seats? That league-low $22 mark could become even lower when volume-weighted.
Turning the focus to the ancillary game-day income and it becomes even more blurry. What percentage of concession purchases were made via “loaded” – the team-supplied food and drink vouchers — tickets?
The local reaction to these reports have been not kind, but expected. The division rival Detroit Tigers, a region that is said to be economically worse-off than Cleveland, recnently signed Prince Fielder to a lucrative deal. It was only about a year and a half ago when Indians fans were told that it was “not the right time” to spend with the word “deficit” bantered about. And then comes this report and deficits are nowhere to be found. It’s also worth mentioning that operating income (or EBIT) is not what the owners take home — there are several below-the-line transactions that could continue to reduce the overall income stream, be they interest-related or one-time, non-recurring charge-offs.
Ideally, if Major League Baseball made their records public, Forbes would be tearing apart cash flow statements — just where is the money coming from/going — and the disclosures that accompany the income statement. Ratios would be compiled, forecasts could be made. There would be no room for debate, no need to rally the troops in a public relations war, and everyone celebrates transparency. But this is far from an ideal world, one where Forbes gets to play traffic cop and the teams involved have to deal with the outcome, including the hand-wringing from fans who rely on the tellings of a national publication and wonder when, just when, will the spending occur. Certainly, opening up the books for analysis – even a one-time scrub –would put an end to the annual war of words, but the likelihood of this is considerably less than a decade full of championship parades down E. 9th Street.